What do GE, JetBlue Airways, Progressive Insurance, Amazon and the Virgin Group have in common? By making deep structural changes–made possible by business process innovation–these companies have transformed the very ways they operate their businesses, changing the game in their industries. Indeed, there’s a new breed of fierce competitors on the block ready to engage your company in extreme competition. Are you ready?
Why is it that, given two companies with approximately the same capital assets and same number of skilled employees, one struggles and the other grows profits? From where do those profits come? The answer is that they come from how work gets done; how companies do what they do; how they operate. Sound boring? It’s not. Operational transformation–the leveraging of universal Internet connectivity with business process management techniques–is the next frontier of business advantage. Lacking growth markets and facing global competition in uncertain times, companies must change the way they conduct business, or competitors that reinvent their operations will run circles around them.
Operational transformation can take two major forms: an incumbent, such as GE, that transforms its existing business operations, or a newcomer, such as JetBlue or Amazon, that disrupts a market by introducing operational innovations that change the game for others in an industry, shifting the industry from current best practices to innovative next practices. Management guru Peter Drucker has observed that such newcomers innovate to an extent that they reduce costs across their value delivery systems in the range of 30 percent.
While companies may have plenty of innovative ideas for change, until now they have lacked the capability to execute on innovation. Companies that transform their operations by deploying enterprise business process management methods and capabilities will dominate in the decades ahead. A new category of software, business process management systems, shifts the focus of business automation from the processing of data, to a focus centered squarely on business processes–the dynamic set of collaborative and transactional business activities that deliver ultimate value to customers. While IT professionals and BPM insiders are fully aware of this structural shift in automation, executives in the corner offices must understand its significance, and prepare their companies for a new form of technology-enabled, extreme competition.
While other large companies were slashing IT budgets after the dot-bomb, Jack Welch launched GE’s Digitization Initiative, automating the company’s outward-facing business processes. The results so far include record-breaking profits in 2003 and shifting the ratio of front-office to back-office resources from 60/40 to 90/10, thereby increasing the resources that go directly into money-making activities.
When airline industry veteran David Neeleman of JetBlue decided to bring humanity back to air travel, he had to transform how an airline could operate so that it could do the seemingly impossible: offer extremely low fares while delivering a high-quality product that would delight travelers. One example of how he slashed costs was through transforming the reservation process. He cut out commissions to travel agents, and, instead of paying high rent and corralling reservationists into cubicles, he let them stay home and let the network become their JetBlue offices. This operational innovation was accomplished by redesigning the reservation processes and call-handling software to distribute the work virtually anywhere in real time. It resulted in no expensive real estate, no expensive, time-wasting, harried commutes, and lots of happy reservationists–just call and ask them.
When the charismatic Briton Richard Branson moved into the mobile phone business in the U.S., he decided to transform how a mobile phone company would operate by having absolutely no phone infrastructure, not even one tower. By breaking into the top 10 in 18 months, Virgin Mobile has shown that it’s an effective way to compete against rivals that spent billions of dollars to build mobile networks. Virgin forged a “coopetition” relationship with Sprint PCS to host its connections and deployed process integration software to connect its business processes to Sprint’s operational infrastructure. Virgin Mobile tied together its Siebel CRM and J.D. Edwards ERP systems, and connected them to operational support-system software from Telcordia to broker real-time transactions between Virgin and Sprint.
These pioneering companies show that operational transformation, driven by business process innovation, is fundamental for successfully competing in the flat wired world of the 21st century.
Time-based Competition
If we look closely at how business process innovation and management can provide competitive advantage, an interesting variable surfaces–time. GE and the other pioneers mentioned above represent the arrival of a new breed of time-based competitor. In today’s uncertain global business world, these fierce new competitors are dominating industries by leveraging the universal connectivity of the Internet to squeeze out time across their end-to-end business processes that deliver value to customers.
Indeed, there is much talk among executives these days about the notion of the real-time enterprise (RTE)–and for good reason. The real-time enterprise represents a management strategy, not a new killer-ap technology. The real-time enterprise is a management notion that places time center stage as a critical business variable. In the RTE, time is measured and managed just as costs are measured and managed in traditional firms. The competitive value of time can be measured along two major dimensions: response time and restructuring time. Response time deals primarily with satisfying customer demand; for example, by reducing cycle time in product development, or removing lag time in delivering customer service. For example, in 2004, Chevrolet was advertising on television that it was turning out ten new models every 20 months; “The new Chevrolets keep coming.” Chevrolet understands its customers’ demands for variety, and intends to meet those demands with dramatically reduced cycle time for new car introduction. Chevrolet has become a time-based competitor, refreshing its core business processes to meet this strategic goal.
In the past, tremendous effort and resources have been needed to adopt a time-based approach for managing the work of companies. In the story of Toyota’s move to flexible manufacturing in the late 1980s, for example, a radical and painful transformation was made by restructuring the manufacturing and sales entities into one organization. Restructuring organizations, co-locating research and production facilities, and other forms of radical change, have always consumed tremendous amounts of resources, energy and effort–that is, until now. With the advent of the Internet and the new breed of business process management systems, both strategic restructuring and tactical operational response time can be achieved, in large part, virtually. For example, here is what GE’s Jeff Immelt said about strategic restructuring: When describing his company’s Digitization Initiative at MIT’s 2003 Emerging Technologies Symposium, Immelt emphasized the strategic restructuring issue, “Infor-mation technology allows us to run the company differently. It allows us to make massive resource allocation decisions so that we can now apply more resources to things that we think are going to grow the company for the long term.” In fact, some observers describe BPM as a new form of mergers and acquisitions, for it allows companies to restructure inter-company operations without all the legal, financial and hassle factors, while sharing risks and rewards. The notion of a virtual merger is illustrated with the story of the Virgin Group and Sprint above.
And here is what Alan Greenspan has said about operational response time. “The same forces that have been boosting growth in structural productivity seem also to have accelerated the process of cyclical adjustment. Extraordinary improvements in business-to-business communication have held unit costs in check, in part by greatly speeding up the flow of information. New technologies for supply-chain management and flexible manufacturing imply that businesses can perceive imbalances in inventories at a very early stage–virtually in real time — and can cut production promptly in response to the developing signs of unintended inventory building.”
How the outcomes described by Immelt and Greenspan are accomplished is all about business process change and operational transformation. The dot-com crash signaled that the tinkering phase of the business Internet had come to an end, and that pioneering businesses could apply the expensive lessons learned to seek new ways of harnessing the Net for competitive advantage. Indeed, we are at the end of the beginning of a brave new world of time-based competition powered by business process innovation and operational transformation.
What smart companies have learned is that the universal connectivity of the Internet can be applied to how a company accomplishes its work processing and strategy execution to achieve operational innovation by squeezing out time. In short, this shift to business process management is the biggest change in the use of business automation since the first commercial computer was delivered, for it shifts the use of computers from record-keeping machines to machines that directly support the actual conduct of outward-facing business activities–machines that power time-based competition. So, while the notion of time-based competition isn’t new, the capability to execute on this management innovation with computer-assisted process support is. Thus, time-based competition is now real-time process-based competition.
Time-based competition doesn’t apply only to manufacturing and distribution of physical goods; it also applies to intangibles. In 1994, the insurance company, Progressive, introduced a fleet of 2600 Immediate Response vehicles fitted with laptop computers, intelligent software, and wireless access to the Internet and the company’s claims department. In its own words, “Progressive’s vision is to reduce the human trauma and economic costs associated with automobile accidents. We do this by providing our customers with services designed to help them get their lives back in order again as quickly as possible. Our unique combination of 24-hour policy service and Immediate Response claims service offers customers a refreshing alternative to traditional nine-to-five insurance companies.” As quickly as possible? Instead of the seven-to-10-day adjuster response time of the traditional insurance companies, the goal for Progressive is now just nine hours.
What did customers of other insurance companies think of Progressive’s response times? The company grew from being a $1.3 billion company in 1991 to $11.9 billion in 2003 by competing on time. Progressive learned that time elasticity provides a means to steal customers away in what is otherwise a matured, domestic commodity market.
Progressive didn’t rest on its time-based laurels. It continued to innovate with time as a means to get closer to its future customers by considering the needs of time-strapped consumers. In 1994, Progressive began offering free rate comparison services, tapping publicly available information, making it the only company to offer apples-to-apples comparison rates from Progressive and up to three other companies. This automated business process saves the consumer tremendous amounts of time in shopping for the best rates. Many times, Progressive does not have the lowest rate and turns business over to a competitor. In such cases, however, Progressive builds the reputation of its brand. In addition, it adds considerable information on the insured to its database, including demographic information, which company had the lowest rate, what the lowest rate was, and contact information for the customer who chooses to purchase insurance elsewhere. With time on its side, Progressive constantly monitors the rates of its competitors in order to provide this service, and it is able to re-establish contact with the insured when its rate becomes more favorable. Progressive’s strategy illustrates that by saving their prospective customers time, the company also builds on and reinforces another key competitive variable–trust, the true foundation for building valuable relationships.
The secret sauce of process-powered self-service is that the relationship between a company and its customers doesn’t end when a good or service is sold; that relationship has just begun, and must continue throughout the consumption of the good or service. Customer care activities are the most significant touch points with customers, for the cost of acquiring new customers is10 times that of selling to an existing, happy, customer. On the other hand, a dissatisfied customer will tell nine others about his or her experience with a company. Indeed, process-powered self-service can provide the double leverage of cutting costs while increasing satisfaction. It represents a new source of competitive advantage, for it’s a sure formula for strengthening customer relationships. As writer Kevin Kelly noted, “The central economic imperative of the network economy is to amplify relationships.”
In addition to the insurance industry, we have witnessed the opening volleys in a war for owning the total customer relationship through business process excellence in logistics. The war is all about time, so much so, that time itself is sold as “the product.” FedEx invented express distribution three decades ago, based on the value proposition that presents itself when the time-value of an item is significant in proportion to the overall value of the item. “Our number one touch point is our couriers; second is our Web site,” said Karen Rogers, a FedEx.com vice president. The site’s emphasis evolved from customer acquisition a few years ago to customer retention and, more recently, to problem resolution, Rogers said. For example, customers can now access invoices online. Not only can they view electronic bills, they can get package-specific details not available on paper invoices. “Billing is not the most exciting area of our business, but it’s one with a lot of labor on both sides, so there’s a lot of opportunity there,” said Kevin Humphries, the senior vice president responsible for most of FedEx’s customer-facing systems. Only one factor is rated more critical than innovation to the IT team’s mission. “We will differentiate on innovation,” FedEx vice president Dottie Berry said. “We will dominate on speed.”
Is your company ready for extreme competition?
