What is process innovation and why it can transform your business

January 28, 2018
4 mins

Closing the gap through process innovation

What do lean production, predictive analytics, and standardization have in common? What does the introduction of the assembly line concept by Henry Ford and the first ATM service by Citibank have in common?

Right. They are all typical example of process innovation, which is perhaps the most classic form of innovation. These reduce cost, processing time, complexity, and risk while improving value, efficiency, and margins.

Process innovation — an introduction

There are three major types of innovation: product innovation, process innovation, and business model innovation. Process innovation is crucial for product innovation, and it facilitates business model innovation, especially with the changes that rapid digitization is bringing with it.

Whether it is capturing a new opportunity or solving a problem that drives process innovation in your business, it can catalyze surprising transformation.

For example, in 2017, 61% of companies in the UK introduced process innovation in the past three years, up from around 20% in 2010 according to the seventh edition of EEF’s Innovation Monitor. (EEF is the voice of UK manufacturing and engineering.)

  • 63% introduced new management techniques
  • 55% introduced new machinery
  • 45% used ICT/Data to improve production processes

The respondents saw benefits such as

  • Improved labor productivity
  • Greater flexibility in production processes
  • Reduction in production costs and lead times
  • Better customer relationships

What process innovation is

Implementing a new or a considerably improved production or delivery approach amounts to process innovation. Significantly changing the techniques, software, and/or equipment in these processes is also considered process innovation. It is a sustainable and often an easier way of doing things to increase the level of production while reducing production costs.

Of the three types of innovation, process innovation carries the least risk. While it might not be directly visible to a business’s customers, it is always seen, appreciated, and valued internally.

*Process is an amalgamation of skill, technologies, and facilities required to produce, deliver, and support a service or product.

What process innovation is not

Process innovation should not be confused with process excellence or process improvement, both of which refer to using the existing processes to achieve high performance. Here, continuous or incremental innovations do not count as process innovation involves almost always a total change.

  • Customization
  • Minor improvements or changes in existing processes
  • A rise in service or production capabilities by adding logistical or manufacturing systems that are similar to the ones in use
  • Simple capital extension or replacement
  • Changes that result only from the changes in factor prices, regular seasonal changes, or other recurring changes
  • Trading of new or considerably enhanced products
  • Terminating the use of an existing process

Stages of process innovation

What you see below is a methodology for process innovation/ improvement efforts. These are the basic steps for any kind of process innovation across sectors and geographies. The steps include deciding the focus area of innovations and the use of tech tools, creating a multifunctional team, doing a pilot run, addressing feedback, and rolling out the innovation for commercial use.

There are different stages of process innovation. While identifying and understanding opportunities, exchanging and selecting ideas, and developing innovation are the usual steps, these are often restrictive when it comes to process innovation. The most effective approaches to implement process innovation in your business are using disruptive methodologies and design thinking.

process innovation - Design Thinking

Source: Oceanit

Design thinking for process innovation

There are four stages of design thinking for making process innovation:

There are four stages of design thinking for making process innovation:

  1. Inventing the future

This involves analyzing the situation in your industry and finding a solution based on what people really need but don’t have yet. The focus of the process innovation for your organization can be either on your internal customers or external customers.

  1. Developing a prototype

Create a sample of the product or service idea you’ve come up with to test the waters.

  1. Testing

Put your prototype to use and collect feedback from your end users to adapt your product or service to their actual needs.

  1. Implementing

Once you’ve defined the attributes of the new process, replicate it in your organization to bring about real change.

Disruptive methodologies for innovating processes

It is hard to differentiate between these two methodologies as they have quite a lot in common. How you can create disruptive innovation in your organization’s processes is by asking what tasks your customers need you, or anyone for that matter, to do for them—something that currently no one’s doing. The approach to finding the answer to this question is similar to the steps in design thinking.

A few examples of process innovation

Simplify, automate, and eliminate was the mantra before the digital revolution. But now, organizations world over “rethink the way work gets done,” says Chris Brahm, who leads Bain’s global Advanced Analytics practice. Think new digital technologies and what companies such as Uber or Amazon Web Services offer.

For example, KLM Catering Services Schiphol employs the LEAN manufacturing approach. The Dutch company even identifies the drink requirements to reduce waste and weight, which in turn results in savings and sustainable production. At Genpact, a global professional services firm that drives digital-led innovation and digitally-enabled intelligent operations for clients, process innovation initiatives are of three kinds: generation of innovative insights, driving disruptive process improvements, and creation of new analytical solutions. The company follows a structure idea management life cycle and nurtures an ecosystem of partners, collaboration networks, innovation labs, and industry associations as enablers of innovation. For instance, in one of its process innovation projects, Genpact’s innovation lab used advanced analytics and domain expertise to help one of its client minimize loss from credit card collection by USD175 million annually on a portfolio of 25 billion dollars. LEGO, a company that continues to be one of the most innovative in the world, improved its core production processes with four pilot projects—the LEGO Ideas project (remember Mindstorms?) would be considered a successful outcome by anyone!

Conclusion

Along with product and business model innovation, process innovation is the foundation for superior performance in any industry. Digitization throws new challenges at many organizations today. The only way to react to those challenges and solve them effectively and efficiently is by implementing new changes and quickly reinventing processes across verticals and geographies. New customer needs and new technologies ensure that innovation is an everyday activity.

Relevant reads:

https://www.e-education.psu.edu/ba850/node/719

http://innovationintegrity.blogspot.com/2012/06/process-vs-product-innovations-1-low.html

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About the Author

Vivek Siva
Learned what not to do as an entrepreneur. An optimist with a love for business, the outdoors, and movies. Superpower: Ability to smile even when all hell breaks loose. Affiliation: World of witchcraft & wizardry

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