Why Are We Bungling Process Innovation

First, look to customer satisfaction rather than competitors' costs Develop new processes as you do products, by testing market response The reengineering trap For generations, managers have been taught that process innovation, especially where information technology is concerned, supports and is wholly subservient to an agreed strategy. After six months or so of strategy definition, top managers toss process design responsibility over to their technical people, who embark on an exhaustive design-and-build cycle. During as much as a year of systems analysis - the methodology on which most software and process redesign is still based - the technical department is meant to come up with ideas for improved, computerized processes. There follow two to three years of implementation, by which time the creative ideas that have struggled forth from such a lengthy procedure are likely to be outdated. The new science of business process reengineering too often follows a similar pattern. Crossfunctional teams may come up with new ideas, but as these often lack state-of-the-art technical input they tend to be incremental, and can still take years to reach implementation. Product-led corporations would not dream of researching innovation in this way. A pharmaceutical company needing a stream of new drugs, for example, would be crazy to expect a technology department or part-time team of line managers, guided by complex and monolithic methodologies, suddenly to come up with the goods. Instead, the search for innovation is led by high-caliber, specialist research scientists, working in the most sophisticated RD "Beta tests," in which the product is subjected to extensive acceptance-testing by a set of preferred customers; and, finally, "release-based upgrade," in which field experience is built into a regular program of product upgrading. Process commercialization, by contrast, suffers from the expectation that a new system will be right first time, and all too often systems are rolled out rapidly without adequate field trials. Addition of missing functions is often constrained by resource over-runs on the original project. The different treatment accorded product and process innovation by many companies stems from a belief that the two have fundamentally different strategic values. Process innovation is clearly the poor relation. But in some industries, entrepreneurial managers are learning that product and process innovation are of equal strategic importance, requiring the same approach to research, development, and continuous improvement. In the US credit card industry, for example, new, database-driven approaches to acquiring and retaining customers turned a start-up company, Capital One, into a leading industry force. Similarly, exploitation of process innovation gave Direct Line, the first direct automobile insurer in the UK, a "first-mover" lead that traditional players have failed to claw back, despite their me-too responses. Its founder ascribes his strategic advantage to continual prototyping and experimentation with processes -just as in the product world. There was no "big bang" breakthrough. …