Process-versus-Platform and when should innovation supersede process optimization

Michael Schrage is a fellow at the MIT Sloan School for Digital Business, and I read his article over the Holidays, tantalizingly entitled, “Instead of Optimizing Processes, Reimagine Them as Platforms”. I bit and read it, interested to see where this would go, especially after having adopted the concept of viewing a business through a process lens.

The main meat of the article centered around a UX tweak for a client, which proposed the provision of inventory data to the prospective customer upfront. The idea was that by showing inventory as in stock and available, this would lead to a better user experience because they would not be completing the shopping cart only to be advised at the end, “Not in stock”.

russian customers

“Shockingly” all the use cases and modeling demonstrated a reduction in process performance, leading to frustration at the apparent inability to optimize a visible process. Being told we don’t have your item instantly sends shoppers elsewhere to source it, and that would have just been the start of this triggering adverse behavior (ask any eCommerce optimization practitioner).

The issue was that being notified upfront of stock non-availability led to adverse user behaviors, such as going elsewhere to buy the item. I think we can say that from a customer perspective, this UX tweak did not result in a degradation of performance, but from the business’ commercial view it delivered reduced sales and opportunity.

solving the wrong problem

The insight was that the team was trying to solve the wrong problem – it was not the fulfillment process that needed to be optimized, but the fulfillment platform itself. The team had become blinded by their optimization outlook to the need for innovation.

At what point should we be considering a new way of delivering customer value, rather than trying to improve how the existing process performs? As Schrage puts it in this scenario, for the customer fulfillment, “needed to look, feel, and deliver more like Amazon than SAP” and further, “To make customers measurably happier, optimization mattered less than innovation.”

Schrage moves on with a discussion of product-v-process competitive advantage, which is interesting, but I could not help feeling this was missing the point.

For me, as I went through Schrage’s article I could not rid myself of the nagging thought that what was really missing from his UX/fulfillment team was someone with empathy for what the customer actually valued. It matters not if you are innovative or have world-class optimization chops, but answering whether the customer is getting what they want, and how do you know you are delivering real value? I felt Schrage was flirting around the edges of this to focus on platformization, without seriously considering the delivery of customer value as an innovation driver.

Delivering customer value is how companies create value for themselves, the importance of listening and understanding the customer’s needs is repeatedly hammered into salespeople precisely for this reason. Do not assume anything, but instead ask questions, listen to the ‘real’ answers you are given, and probe into the consumer mindset so you have a real grasp of what they consider to be valuable, not what you think it may be, or indeed, what you want it to be.

So why was the customer not being listened to in this fulfillment case? Why was there such a reliance on analytics, modeling/simulation, and the process which led this OPEX team to the epiphany that a platform overhaul was required, instead of more process optimization?

The answer is, they were not listening to the customer to begin with, and I doubt they are still.

john carroll

You may disagree with me and claim they were – they had data which was being subjected to rigorous analysis. My response is yes they did, but what they did not have was the empathetic understanding of what lay behind this data, and the insights it held regarding the real people who are making buying decisions.

Schrage posits that by moving to platforms as opposed to process, the customer will be able to determine value for themselves, but will they? Schrage is ignoring consumer psychology, and the ability of product, marketing, and sales teams to influence consumer behavior. Understanding customer behaviors is valued so highly by the likes of Google and Netflix, that they obsessively A/B test precisely because this is what triggers the innovation-v-optimization decision in their B2C world. But what allows them to A/B test to the extent they do is because they can – the technology they have in place allows them this ability, irrespective of process or platform.

Traditional process optimization rarely sees such iterative testing in the realm of operational research because the tools employed are unable to deliver results timely enough to be actionable. But this is changing with the development of Lean BPM toolkits which allow real-world modelling, i.e. directly placing a BPM over an existing business operation and allowing the underlying processes and interactions to emerge.

Simple-Workflow-Admin

Lean BPM solutions, such as JobTraQ, are exceptionally fast– much faster than traditional or Low Code BPM solutions. This speed stems from their ease of use, such that Business Analysts and operations staff can be trained in the use of the BPM toolkit they deliver. There is no need for coding or development skills, and this shifts the focus of optimization back onto the processes themselves and how they can be optimized, as opposed to delivering the BPM solution itself.

The speed of a Lean BPM solution delivers the ability to effectively test in the real-world, and generate actionable intelligence and recommendations. Lean BPM frees optimization from being tied to managing inventory effectively (in this scenario) to delivering customer value. Bringing a customer down through the buying funnel allows for the exceptions to be catered for as quickly as they can be identified and a proposed solution developed. There is no lag time for development work or delivering requirements through a lengthy, typically IT-driven process.

So, to my mind the process-v-platform debate is itself a red herring, and this is diametrically opposite to Schrage’s position.

The true issue is what triggers innovation as opposed to more optimization, and that is driven by what customers themselves want and perceive as valuable combined with company economics. Being able to identify that innovation tipping point requires more than identifying when process optimization is delivering diminishing returns, because if you are to replace a process with something else (another process or platform) then the question is going to be, “What will we replace this process with exactly?”

Innovation does not simply happen as a function of luck, rather the harder you work the ‘luckier’ you get.

Innovation requires a lot of testing, trying, and failing.

Ask anyone who works at Capital One where “Fail Fast” is part of their corporate lexicon. Indeed, any of the examples quoted by Schrage, have this culture of innovation where failing is part of how they move forward, and how they ultimately deliver more customer value than their competitors which generates competitive advantage.

[As an aside, TED Talk alumni, Larry Smith holds an opposing view to fail fast which is outlined in this interview below]

Does operating via a platform actually encourage more innovation than working as a set of processes?

I don’t think this matters as innovation is not a function of process or platform to begin with, rather in this context it is a function of seeking to satisfy customer demand. Identifying what the customer values, and then delivering it has far greater implications for businesses than how value gets delivered.

Does operating via a platform foster innovation better than viewing business through process optimization? Schrage does not answer this question, instead simply claiming that it will, but again I am skeptical precisely because of what drives innovation – your customers.

 

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