Most of the world’s top-valued private companies are software companies. That’s not surprising — innovations in AI, social media, and e-commerce thrill users and attract huge investments. But while technological innovation gets most of the glory, operational innovation is the next giant leap for companies striving to gain a competitive edge.
In today’s economy, with interest rates unmoved since July, good ideas will inevitably fall victim to bad execution. One of the most recent examples is WeWork, which went from a $47 billion valuation to bankruptcy in less than four years.
I spent a decade in various leadership roles at Dell, whose supply chain, manufacturing, and distribution innovations shot it to the top of the hardware market and now serve as business-school case studies in excellence. While managing multi-billion-dollar business units in Europe and the United States, we adopted new technologies, ranging from software to storage solutions, which improved our team’s ability to sell complete solutions. Our operational innovations drove the transformation from a hardware-only business to a verticalized solutions business. They established a new indirect sales channel, all with dramatic results on the bottom line.
Hard tech companies, those B2B businesses that build highly complex, engineered hardware systems and products, should pay particular attention to the power of operational and technological innovation. With specialties that range from robotics to semiconductors to batteries and components, the hard tech sector is associated with longer development cycles, high R&D costs, and advanced manufacturing. Regarding enterprise-level hardware and engineering solutions, new technologies dazzle, but outdated operations hamstring. The future belongs to companies that master both.
It’s worth noting that operational innovation isn’t the same as operational improvement or operational excellence, which have their value. Operational improvement and excellence are focused on the current state of the business, reducing errors and costs while keeping the process unchanged. Operational innovation means exploring new ways of doing business.
Move slow, don’t break things
Operational improvement and excellence are focused on the current state of the business, reducing errors and costs while keeping the process unchanged.
While the phrase Facebook made famous — “move fast and break things” — works well for companies that emphasize speed and experimentation, the exact opposite is true for companies pursuing operational innovation. The first-mover advantage so relentlessly pursued by many startups doesn’t always apply. In the data center market, for example, operators are risk-averse. Just because a technology or new way of doing business is novel doesn’t mean it’s appropriate for the buyer or the market.
Operational innovation results from a cautious approach built with iterative steps rather than transformational ones. During my time at Dell (a pioneer in operational innovation), I saw the value in growing a business with parallel efforts rather than growing it sequentially. Building in sequence often increases financial and technical debt, making climbing out of it ever more challenging. This is one of the main reasons hard tech businesses fail: It’s such a capital-intensive space, it’s easy to get too far ahead of yourself and run out of runway.