Differing from the concepts of “operational improvement” or “operational excellence”—which refer to achieving high performance via existing modes of action—operational innovation refers to developing entirely new ways of filling orders, developing products, providing customer service or doing any other activity that an enterprise performs. It is by nature disruptive to the working environment, but highly effective if well planned and executed. Begin by selecting a daunting target that’s clearly unattainable using extant processes, then seek role models—outside your industry—looking for concepts that you might apply to your own systems.

Another principle is to introduce special case solutions into normal operating procedures. One packaged-goods maker based production scheduling on sales forecasts, rather than actual customer demand. When demand for a new product wildly exceeded forecasts, an ad hoc process rose up that gave the manufacturing division real-time information about customer demand, allowing them to do production planning and product distribution much more efficiently. After the crisis passed, the company adopted the emergency mode of operation as a standard, resulting in a dramatic drop in unsold inventory, improved customer service and a major reduction in the total cost of product deployment.

HBS Working Knowledge 10 May 2004