© Richard Welke 2002
MBA 8220:Innovating Business Processes
Mike Gallivan Lars Mathiassen
Richard WelkeDuane Truex
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 2
AgendaInnovationProcess innovationCase discussionProject
© CEPRIN (2007) MBA 8220 #2 Innovating Processes
The Information Systems Strategy Triangle
Manager in the
coordinating role
Business Strategy
OrganizationalDesign Information
Strategy
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 4
Topic one
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 5
What is innovation?Dictionary-style …
The act or process of inventing or introducing something newSomething newly invented or a new way of doing thingsThe process of adopting a new thing, idea, or behavior patterninto a cultureThe act of starting something for the first time; introducingsomething new
Authors on innovation …Leifer, et.al. (Radical Innovation, HBP, 2000)
Producing an outcome with:An entirely new set of performance featuresImprovements in known performance of 5x or greaterA significant (30 reduction) in cycle-time and/or cost
James MarchExploration vs. Exploitation
Yours? …
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 6
Who is innovating?
“Midlevel managers play a crucial role in everycompany’s innovation process, as theyshepherd partially formed ideas into fullyfledged business plans in an effort to winfunding from senior management.
It is the midlevel managers that decide whichideas … they support and carry to seniormanagement”
From C. Christensen: The Innovator’s Solution, HBP, 2004
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 7
What types of innovation?
Sustaining innovation (exploitation):Successful companies are good at responding to
evolutionary changes in their marketsMakes a product or service perform better in waysthat mainstream customers already valueTypically developed and introduced by industryleaders
Disruptive innovation (exploration):Where they run into trouble is in handling
revolutionary changes in their marketsCreates entirely new market by introducing a newproduct or service that mainstream customers initiallysees as worseNo company has a routine for handling themMore difficult for large, mature companies, easier forsmaller, immature companies
Creating changeCreating changecapabilitycapability
Creating newCreating newcapabilities capabilities internallyinternallyCreating capabilitiesCreating capabilitiesvia a via a spinoutspinoutorganizationorganizationCreating capabilitiesCreating capabilitiesby by acquisitionacquisition
Adapted from Christensen & Overdorf (2000)
© CEPRIN (2007) MBA 8220 #2 Innovating Processes
Types of Sustaining Innovation
Application InnovationTake existing products / services to new markets
E.g., On-star to autos; tandem fault-tolerant computers to banking as ATMsProduct Innovation
Established products to the next level; price reduction; usability improvementsProcess Innovation
E.g., streamline supply chain; move to on-line tradingExperiential Innovation
Improve the customer’s experience“Delighters” - “You’ve got mail!”“Satisfiers”- rapid line management through airport security“Reassurers” - FedEx package tracking
Marketing InnovationImprove customer touch, on line notification, c.f., e-bay, Amazon…
Business Model InnovationReframing an established value proposition
Razor blades to shaving systems; from computing (Apple) to consumer lifestyleproducts
© CEPRIN (2007) MBA 8220 #2 Innovating Processes
Capitalize on Disruptive Innovation
Structural InnovationTo restructure industry relationships
Bank deregulation allowed Fidelity and CitiCorp tooffer consolidated services (brokerage, consumerbanking, insurance, etc.) under one umbrella
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 10
Which capability to change?
Which formsWhich formsof change areof change are
youryourorganizationorganizationcapable ofcapable ofhandling?handling?
•• Formal and informalFormal and informal•• Processes are not meant to changeProcesses are not meant to change•• Disabilities to change in less visibleDisabilities to change in less visible
processesprocesses
Processes
Values
•• Basis for judgment at all levelsBasis for judgment at all levels•• Clear/consistent values facilitate changeClear/consistent values facilitate change•• Two key values influence changeTwo key values influence change
capability capability …… How: How:1.1.Acceptable gross margins judgedAcceptable gross margins judged2.2.Interesting opportunities judgedInteresting opportunities judged
Resources
•• Tangible and intangibleTangible and intangible•• High quality resources facilitates changeHigh quality resources facilitates change
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 11
Capabilities evolve over timeThe factors defining an organization’s
change capabilities evolve over time:Begin with resources (primarily people)
Departure/addition of just a few people can have dramaticeffectsSome fail to ever develop processes
Consistency, quality, and productivity suffersMove to visible, articulated processes and values
Founders impact initial processes and valuesSuccess becomes independent of individualsRepeatability
Migrate to shared and invisible cultureEnables people to act autonomously and consistentlyCan both enable or inhibit change
Change easier
Change more difficult
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 12
Fitting tactics to needs
Poor
Good
Use Use heavyweight teamheavyweight team::within existing organizationwithin existing organization
Use heavyweight team:in a separate spinout
organization
Use lightweight or functionalteam:within existing organization
Use heavyweight team for in-house development;
but commercialization requiresa spinout
Good Poor(sustaining) (disruptive)
InnovationInnovationfitfit
with with valuesvaluesWhatWhat’’s a s a ““heavyweightheavyweight”” team? team?
Innovation fitInnovation fitwith with processesprocesses
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 13
When & how to innovate? (1)
From: From: ““Darwin and the DemonDarwin and the Demon”” (HBR, Geoffrey Moore, Jul-Aug 2004) (HBR, Geoffrey Moore, Jul-Aug 2004)
© CEPRIN (2007) MBA 8220 #2 Innovating Processes
Riding the life Cycle• Early Market
• Early adopters, visionaries, the Press
• The Chasm• Lost novelty, not yet caught on, pragmatists wait; current customers have to help it
catch on
• The Bowling alley• Gains acceptance amongst pragmatists in niche markets, building loyalty
• Tornado• Passed the test of usefulness; growing at double and triple-digit rates;
competition fierce; imitators try to join in
• Main Street• (Early) hyper growth subsided; 1st wave consolidation; market-share pecking order
established; incremental improvements• (Mature) growth has flattened, commoditization increased; 2nd wave consolidation thins
out the bottom; growth through merger and acquisition; no new observable technologieson the horizon
• (Declining) product ossification; market dominators unresponsive to customer needs;customers look for relief and alternatives; market rife for disruption
• Fault line and End of Life• Technology obsolescence strikes;apparent fault line between customer and products company
sells; new product ‘tornado’ wreaks havoc; only alternative is how much customers will spend onlegacy technology
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 15
When & how to innovate (2)
Main Street - new efficiencies
Existing technologyto new markets
Established offers inexisting markets tonext level
Surface modificationsto improve customerexperience. Improve customer-
touching processes
Reframe establishedvalue proposition
Restructure industryrelations
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 16
Topic two
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 17
Process & innovation
• Why are processes created?• How are processes managed?
• What are the defining elements?• How are the elements related?
Process Innovation• Why is innovation needed?
• How is innovation managed?• What are the defining activities?• How are the activities related?
How does business process configurationinfluence and shape innovation?
How is innovation organized to facilitateenhanced process performance?
Business Context
MarketMarket Techno-Techno-logylogy
BusinessBusinesspartnerspartners
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 18
Degrees of change
Improvement Innovation
Level of change IncrementalIncremental RadicalRadical
Starting point Process problemsProcess problems EnvironmentalEnvironmentalchangechange
Frequency ofchange ContinuousContinuous DiscreteDiscrete
Participation Bottom-upBottom-up Top-downTop-down
Risk ModerateModerate HighHigh
Primary enabler Statistical controlStatistical control InformationInformationTechnologyTechnology
Adapted from Thomas H. Davenport: Process Innovation: Reengineering WorkThrough Information Technology, Harvard Business School Press, 1992.
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 19
Outcome and Process Focus
Poor
Good
Use Use heavyweight teamheavyweight team::within existing organizationwithin existing organization
INNOVATIONINNOVATION
Use heavyweight team:in spinout organization
INNOVATION
Use lightweight orfunctional team:
within existing organization
IMPROVEMENT
Use heavyweight team in-house; commercializationrequires a spinout
IMPROVEMENT
Good Poor(sustaining) (disruptive)
Innovation fitInnovation fitwithwith
processesprocesses
InnovationInnovationfitfit
with valueswith values
Radical versus IncrementalRadical versus IncrementalRelates to both outcomes and Relates to both outcomes and Process and can be combined Process and can be combined
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 20
Managing the BPI project portfolio
BPI project
BPI project
BPI project
BPI project
Prioritize, coordinate, and monitor portfolio ofBPI projects
Focused BPI projects
BPI management
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 21
Building innovation capabilityTYPESTYPES1. Leadership-drivencapacity:
Individuals see opportunityIndividuals see opportunityand run with itand run with it
2. Structural-driven capacity:Mechanisms are put in placeMechanisms are put in placeto enable changeto enable change
3. Organic capacity:Employees see innovationEmployees see innovationas an integral part of theiras an integral part of theirjobjob
INGREDIENTSINGREDIENTS1. The ability of people within
the organization to innovate2. The desire of people to act in
an innovative manner3. An environment that enables
and empowers innovation
Innovation is like jazz -- not random; requires improvisation
Creativity is just having enough dots to connect
Is Is youryourorganizationorganizationInnovative?Innovative?
Adapted from Shapiro: Innovate your organization.The 24/7 Innovation www.24-7innovation.com.
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 22
Innovation and improvement
•Improvement •Innovation
•• Process definedProcess defined•• Process measures definedProcess measures defined•• Process diagnosisProcess diagnosis•• Improvements identifiedImprovements identified•• Improvements prioritizedImprovements prioritized•• Process design and testProcess design and test•• Implement improvementsImplement improvements
•• Success indicators definedSuccess indicators defined•• Current strength-weakness analysisCurrent strength-weakness analysis•• Future opportunities-threat analysisFuture opportunities-threat analysis•• Innovations identifiedInnovations identified•• Innovations prioritizedInnovations prioritized•• Process design and testProcess design and test•• Implement innovationImplement innovation
Adapted from Beechner & Hamilton: “Infinity: A Model for Organizational Excellence”(www.paragonstar.com)
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 23
IDEAL improvement model
McFeeley, B. (1996). “IDEAL: A User's Guidefor Software Process Improvement”, CMU/SEI-96-HB-001. www.sei.cmu.edu
Stimulus forimprovement
Set context &establishsponsorship Establish
infrastructure
Appraise &characterizecurrent process
Develop recommendations& document results
Set strategy & priorities
Establish processaction teams &action plans
Define processes & measuresPlan & Execute pilot plan
Execute, & Track installation
Document & analyzelessons
Reviseorganizationalapproach
INITIATING
DIAGNOSING
ESTABLISHMENT
ACTINGLEARNING
See also:See also:CMMCMMCMMICMMI
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 24
Critiquing the as-is process
• Rethink• Reconfigure• Resequence• Relocate• Reduce• Reassign• Retool
Adapted from Stephen ShapiroThe 24/7 Innovationwww.24-7innovation.com
Question Apply when…..How canactivityfrequency bereduced orincreased?
An activity is non-value added butnecessaryThere is low variation in the processor productThere is high variability and low setupcosts and times
How wouldmoreinformationenable greatereffectiveness?
Higher accuracy is neededGreater segmentation would yieldgreater marketing effectiveness
How would lessinformation orfewer controlsimproveefficiency?
A high proportion of costs goes todata collection and controlsThe value received from informationor controls is minimalAbsolute accuracy is not necessary
How can criticalresources beused moreeffectively?
Utilization of key resources is lowCritical resources are performing non-value-added or waste work
7R’s of processinnovation
© CEPRIN (2007) MBA 8220 #2 Innovating Processes 25
Reviewing the BPI triangle
InfrastructureInfrastructure
CustomersCustomers
Products & ServicesProducts & Services Strategies
StrategiesEnvir
onmen
t
Envir
onmen
t
Work Practices
InformationParticipants Technology
Steven Alter (2002). Substitute:
- Work system Business process
- Business process Work practices1. Create a snapshot of the business
process
2. Find problems and opportunitiesfor improvement
3. Explore effects of proposedprocess changes