Topic 3 Driving Operational Innovation

© 2010 IBM Corporation

Zaheer Travadi – Sr. Strategy & Transformation Consultant | Program Manager – WW STG Run Rate Marketing

Module 6 - Services innovationDriving Operational Innovation

© 2010 IBM Corporation2 IBM-SPJIMR – ACPS 2010

A global economy demands operational innovation…

Consumers are less willing to pay for product advances Market saturation reduces effects of new offerings, resulting in oversupply and commoditization Product lifecycles and time to market are getting shorter

Convergence of products from different industries e.g. mobile phones providing television, reduces competitive value of incremental improvements on existing products Success in emerging growth markets such as China will require mass market, low-cost products*

In today’s global economy “the best option

will be to innovate the way business is done”**

*IBM study, Winning in China's mass markets: New business models, new operations for profitable growth


Successful innovators of service operations work through a four of stage maturity model

Stage 0: Establish Baseline

Stage 1: Integrate

the Service Chain

Stage 2: Achieve

Service Chain Proficiency

Stage 3: Optimize the

Operating Model

Innovation Stages forService Operations

Source: IBM Strategy Consulting 2006

• Adopt Service Chain framework as scope

• Establish Cost of Quality metric

• Establish primary data on Customer Service Satisfaction

• Identify key process integration points

• Identify key systems integration points

• Integrate the service chain

• Adopt horizontal service metrics

• Align service levels with customer experience plan for service

• Apply performance management to service processes

• Identify enterprise integration requirements

• Identify metrics conflicts non-service between functions

• Optimize service model at the enterprise level

• Achieve permanent and repeatable cross-enterprise service process optimization


Why Lean Six Sigma for operational innovation?

Context

To follow up on the CEO Study, we took a closer look at operational innovation*

Lean Six Sigma is a methodology for continual improvement of operations in terms of both quality and efficiency

New approaches to operational innovation, we found, can create new organizational capabilities, including continual innovation

Lean Six Sigma supports collaborative innovation: entirely new ways of operating are identified and launched across the enterprise and with external collaborators

Important dimensions of business model innovation include innovation across the enterprise and innovation with external collaborators – and Lean Six Sigma innovation enables both.

*Results published in white paper: Driving Operational Innovation with Lean Six Sigma


Lean Six Sigma adds customer focus to optimization

The Lean Six Sigma approach is based on relentless focus on customer needs, creating an inside track that…

…yields continual improvement and innovation in products, services, markets, as well as business models.

Operational Indicators are captured and monitored to drive customer-centric change that…

…drives differentiation and engenders customer trust about opportunities and ideas for the future.


Lean Six Sigma succeeds in all processes…

A set of operational approaches that enables continual improvement and innovation toward growth, not just cost-cutting, throughout an extended enterprise

A system that balances efficiency and effectiveness, costs and customer satisfaction

A data driven, fact-based method that combines the best of Six Sigma, Lean, TQM, and BPR into a rigorous approach to problem solving.

A method that analyzes and focuses on root causes that yield significant, tangible bottom-line results in a relatively short period.

Typical results include: Gains in innovation in operations, products,

services and even underlying business models

Improvements in customer satisfaction

Increased efficiency and consistency

Increased value to the customer

Growth in revenue

Reduction in costs (inventory, waste, defects, etc.)

Improvements in productivity

Organizational focus on customers, value and processes (not silos)

Lean Six Sigma


…it balances efficiency with customer needs and growth

Traditional

By focusing on inefficiencies in the system, improvements can be made in speed, cost of delivery, and other elements.

However, this internal focus may just facilitate faster and cheaper delivery of something that doesn’t meet customer needs.

Lean Six Sigma

By focusing on customer needs, the efficiency and effectiveness of the system can be assessed and continually improved or redesigned.

Specific operational improvement and innovation initiatives can then be launched to deliver the most “bang for the buck.”

versus

Vs.

Lean Six Sigma


Caterpillar: everyone talking the same language

From plant floor to executive offices everyone began talking “6 Sigma”

27 organizational units came together around common goals

R&D interaction with clients, engineer to engineer, led to development of specialized mining truck to extract oil from sand

Manufacturing lead times cut by 50%

“..rigor and discipline

have enabled

the record profits

of the past few years

and are helping the company

achieve its 2010

strategic goals”


POSCO responds to global competitive threat

With Lean Six Sigma, engineers were empowered to make recommendations based on their meetings with customers

Engineering input identified high-potential markets in shipping, automotive and construction

For selected markets the steelmaker pursued value-add instead of low-cost strategy… leading to new products such as rust-resistant steel for ships

“You can’t make these kinds of changes overnight…we are using Six Sigma … to do this gradually and continuously.” --Ku-taek Lee, Chairman and CEO

--

© 2010 IBM Corporation10

IBM-SPJIMR – ACPS 2010

Scottish Power expands customer base 59% in 4 years

.. the methodology is robust and transferable – it enhances the customer experience, develops my staff and improves the bottom line.” –

William MacDiarmid, Director of Energy Retail, ScottishPower

• Recurring customer complaints were leading to declining market share in de-regulated marketplace

• Lean Six Sigma reality check about customer attrition identified leakage point: when customers moved from current home

• Appropriate process and tools were developed to make service reps effective as well as efficient . Able to grow business as well as meet customer need.



IBM Global Financing applies Lean Six Sigma in UK

IBM sellers and clients have more time solving business problems together, less time with administrative hassles

Small ticket financing in UK burdensome

Lean Six Sigma eliminated 60% of process steps

Improve customer experience for billing and end-of-lease processes problems



…but operational innovation alone is not enough

IBM Global CEO study 2006 showed that operational innovation must be linked to other types of innovation to foster growth

Underperformers were more likely to focus solely on operational innovation.

A concentrated focus on operational innovation alone can lead to stagnant or declining growth

“While the main focus is revenue generation.…we first need to create an operational foundation for that growth so that product and customer strategies are sown on fertile ground”

CEOs say:

Innovation Type Selections for Out and Under Performers(Operating Profit Growth)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Underperformers OutperformersPer

cent

of

Res

pond

ents

Sel

ecti

ng E

ach

Inno

vati

on

Type

Business Model Operations Products/Services/Markets

28%18%

Context



CEO Study found that optimization is just the beginning

Those that outperformed their peers:

Focused on integrating their business processes and functions

Aimed at responding to customer needs

Applied new science and technology

Were more likely to integrate business and technology

All companies that innovate their operations

consolidated their product portfolios and operational facilities



Six Sigma Thinking

1. Eliminate variability (reductive)

2. Eliminate waste

3. Minimize cost

4. Map processes

5. Test hypotheses

6. Rely on large numbers to create certainty

7. Use process capability as final arbiter for decision making

Customer-Experience Led Innovation

1. Introduce variability when it creates preference

2. Allow the customer to judge what is waste

3. Tolerate additional cost when it creates preference that outweighs it

4. Map customer journeys

5. Explore important questions to make new hypotheses

6. Rely on small numbers to uncover new possibilities

7. Use demonstrated customer behavior as the final arbiter

Where does Six Sigma Falls Short in Service Innovation

Topic 3 Driving Operational Innovation

Business

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