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 Regarding enterprise-level hardware and engineering solutions, new technologies dazzle, but outdated operations hamstring.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.
Building a better supply chain: The best opportunity for operational innovation
Until three years ago, the supply chain was the realm of industry insiders and transportation experts. But after being a massive part of the daily news throughout the pandemic, it’s now a common household term. While everyday people weighed in on the complexities of the global supply chain, executives in the field learned some expensive lessons in resiliency, shifting the calculus of how they do their jobs. The pandemic highlighted the need for innovation in the supply chain sector to make it more resilient.
Making supply and procurement a central pillar of your business is the most straightforward path to operational innovation. Relying on interdependent global markets leaves companies susceptible to geopolitical turmoil, which is challenging to forecast. Establishing a robust North American supply chain and U.S.-based manufacturing model addresses many of those concerns, creating a reliable, predictable method of getting products to customers.
Companies are considering the supply chain’s more comprehensive “real costs” — the ripple effects on transportation, inventory, quality control, delivery timelines, and customer satisfaction. Adopting a more thorough cost analysis diminishes the savings of far-flung international supply chains. Rethinking expenses will reshape supply chain planning and bring more manufacturing closer to home markets.
A domestic supply chain starts by reducing the supplier-to-factory lead times and accelerating the factory-to-customer timeline. Where a local vendor can offer same-day delivery, a purchase from Asia can be 10 days by air or 29 days by ocean freight, not to mention various customs, broker, and logistics delays often doubling and even tripling these lead times.
There’s also the matter of security and avoiding geopolitical issues, such as war, new tariffs imposed, and port strikes. These factors are challenging to forecast and even more complex to quickly mitigate once encountered. In addition, unwanted access to vital data center IT equipment is eliminated with a domestic approach.
Choosing the right partners
When building products with intense engineering and manufacturing demands, it pays to have great partners. Potential customers and channel partners can offer valuable feedback on product performance, fine-tuning the technology as it prepares for general availability.
The partnership is mutually beneficial: Manufacturers deploy their solutions and offer continuous training and support, while systems integrators, OEMs, and product specialists provide real-world evaluations. By placing their manufacturing operations in-house, hard tech companies can exert greater control over the quality of components and give customers confidence in the quality of materials, design, and production.
Don’t undervalue operations
Operations will never be as exciting as new products or significant deals. But it shouldn’t be overlooked. Giants like Dell and Walmart have leveraged operational innovations to rise to the top of their industry, and the same approach can be applied to businesses of all sizes.
Companies need to move slowly while remaining open to feedback, zero in on every part of the supply chain, and choose the right partners as a foundation for success. For hard tech leaders, perfecting operational innovation provides the same competitive edge as product innovation. Companies combining the two will own the future. Operational innovation must join technological ingenuity to fulfill our next giant leap.