Forward to Basics

Operational innovation isn’t glamorous. It doesn’t come up at cocktail parties. But it’s the only way to win in the post-new economy reality.

Face it: The dream is dead. The 1990s are not just over — they are so over, they never happened. And it’s not just the stock market that crashed; so did every ludicrous tenet of last decade’s business theology.


The Internet is not the most important invention since fire. It’s just another technology that has as much cosmic significance as the electric toothbrush and less economic impact than the air conditioner.

The economy does not center on technology, media, and telecommunications companies — the darlings of the business press. It centers on prosaic industries offering prosaic products that real people and real companies actually want and need.

Business is not about hot new concepts or about being cool. It’s about organizing work to meet real human needs, and it’s both highly technical and highly demanding.

So what now? If the 1990s are over, what comes next? Is it back to the 1950s? If business is no longer cool, then is it dull? Is this the moment when the Organization Man dutifully steps out of the closet? Has Dilbert’s boss finally won?

Not a chance.
The dreamers of the late 1990s were wrong in every particular, but they were right in general: The world has changed. The dreamers just had it all backward, that’s all. They thought that business had suddenly become easy, that innocent amateurs, fired with enough raw enthusiasm and pure moxie, could create overnight success. In fact, business today isn’t easier than it has been in the past — it is much, much harder.

Which is why there’s no going back to the 1950s. Ways of doing business that were sufficient back then are laughably inadequate today. Business today is under a relentless assault, and what’s surprising is the cause: increased productivity. Mae West once observed that too much of a good thing can be wonderful. Maybe — in some categories. But too much productivity is a mixed blessing. Increasing productivity does enable a company to lower its costs while increasing its output, and that ought to be good for any business. But what is good for any business, it turns out, isn’t good for every business. What happens when every company improves its productivity? The answer is overcapacity.


We are swimming — or maybe drowning — in stuff and in the ability to produce stuff. We have more telecommunications fiber, more steel, more movie theaters, more airline seats, more food — more of just about everything that anyone is ready to pay for.

When there is too much stuff around, customers decide what and when they want to buy. In a world of overcapacity, every company is desperate to sell what it can, if only to help offset its fixed costs. Global competition only makes a painful situation unbearable, opening the door to more competitors and forcing everyone in business to engage in a fight to the death.

How do you win in our post – new economy reality? Through operational innovation: It’s not back to basics — it’s forward to basics.

Look at the companies that are doing well in these much- reduced times: Wal-Mart and Dell, Progressive Casualty Insurance Co. and Southwest Airlines, Toyota and Harley-Davidson. Those are not sexy businesses. (Well, maybe Harley is, but insurance?) They’re all successful companies with routine products. They are masters of operational innovation.

From Wal-Mart and cross-docking to Toyota and just-in-time, these companies know that winning does not depend on a clever plan or a hot concept. It depends on how regular, mundane, basic work is carried out. If you can consistently do your work faster, cheaper, and better than the other guy, then you get to wipe the floor with him — without any accounting tricks. Relentless operational innovation is the only way to establish a lasting advantage. And new ideas are popping up all over.

At Toyota, manufacturing is asking previously unthinkable questions: What if we reduced the number of models that we made this year? Progressive Casualty Insurance wrote the book on resegmenting the market with precision pricing. Now consumer-goods companies are calculating the real cost of serving a customer — and they’re learning that large customers may not be profitable customers if they demand extraordinary degrees of service.


Operational innovation isn’t glamorous. It doesn’t make for amusing cocktail-party conversation, and it’s unlikely to turn up in the world of glam-business journalism. It’s detailed and nerdy. This is old business, this is new business, this is real business. Get used to it.

Michael Hammer’s most recent book is The Agenda: What Every Business Must Do to Dominate the Decade (Crown Business 2001).