The significance of process innovation and technology to the exponential growth of your business comes down to two neat laws of business – Little’s Law and Moore’s Law. Esin Saribatir explains why and how you can prepare your business for exponential growth.
The innovation revolution
There is no doubt that the innovation revolution has well and truly lodged itself into the mainstream business world. With startup after startup popping up hoping to develop the next big technology or app, and every major company establishing its own innovation department or corporate venturing program, product innovation has undoubtedly made its mark on the world.
However, while chasing unicorns, decacorns and hectocorns, our understanding of innovation seems to have narrowed down to the belief that ‘innovation’ equals product innovation. And that product innovation mixed with technology is the only path to exponential growth.
Beyond product innovation
The reality is, while everyone searching for exponential growth today must play within the field of technology, it is not just technology in product innovation that should be considered. It is not the goods or services that you offer that will bring exponential growth, but rather, how you offer these goods or services that will determine whether you will be capable of scaling operations and supporting exponential growth.
It is innovation in this realm – how you produce, deliver and support your offerings – that is the essence of process innovation and scaling. And the reason for the significance of process innovation and technology to the exponential growth of your business comes down to two neat laws of business – Little’s Law and Moore’s Law.
“It is innovation in this realm – how you produce, deliver and support your offerings – that is the essence of process innovation and scaling.”
Little’s Law falls under the discipline of queuing theory – the mathematical study of queues or waiting lines.
Let’s keep things simple: according to Little’s Law, under steady-state conditions, the average number of items in a queuing system (for example, customers waiting to be served – also referred to as ‘inventory’) is equal to the average rate at which those items arrive (eg the rate at which customers arrive at your store – known as ‘throughput rate’) multiplied by the average time that item spends in the process (eg the amount of time customers spend in your store – referred to as ‘throughput time’). So, I = R*T. That is, inventory (items waiting to be processed) is equal the rate at which items arrive multiplied by the time it takes to process them. Let’s look at a basic example.
Let’s say we produce hamburgers. Let’s assume we get 20 customers per hour, giving us a throughput rate of 20. Let’s assume it takes us 6 minutes to process, make and deliver each order (to keep things simple, let’s say our customers only ever order a single, stock-standard burger). This gives us a throughput time of 0.1 hours. We can use these variables and Little’s Law to calculate our inventory – or our average number of customers waiting to place an order: I = R*T = 0.1 * 20 = 2. In other words, under these conditions and with these capabilities, we will on average have two customers waiting to place an order.
The beauty of this equation – and its value to CEOs, CFOs and operations managers – is in its simplicity and universality. As long as we are looking at a stable system without major changes and the units of measurement are the same, this law holds. This universality means that by influencing one variable, we can influence, observe and understand the impact on the other two variables. What does this mean for our burger business?
This equation captures the simple but important principle that as demand increases, inventory or queues – or customers waiting to be served – will increase and create a bottleneck, limiting our ability to meet demand and serve our customers (and hence limit our growth) unless we are able to decrease the time it takes to produce one unit.
In order to decrease the time it takes to produce one unit, we will either need to increase our capacity or increase our efficiency. Businesses are often limited in terms of how much capital they can invest into increasing capacity. Gains in efficiency, on the other hand, often require less investment to produce the same increases in output either by reducing waste or improving productivity.
One form of improving productivity is through process innovation. There is, however, only so much businesses can gain from improved productivity from human capital. Therefore, after a certain point, every business seeking exponential growth (ie to scale operations) must become a technology-based business that leverages accelerating technologies to support how it produces, delivers and supports its offering. This brings us to Moore’s Law.
“After a certain point, every business seeking exponential growth must become a technology-based business.”
Moore’s Law simply captures the observation that the processing power of computers has doubled roughly every two years, and it predicts that they will continue to do so for the foreseeable future.
While this prediction has been somewhat amended over the years, the overall trend is unlikely to change dramatically – the processing power and capabilities of technologies will continue to develop and improve at a fast pace.
Why Moore’s Law matters
Coming back to Little’s Law, the implications of Moore’s Law for businesses are obvious. Let’s go back to flipping burgers. One way we can improve productivity is by adopting technology. Say that to produce these burgers, we invest into a digital and fully-automated ordering and manufacturing process. Even though we are only producing burgers – hardly a technology-based product or service – with improvements in processing power come improvements in the technology that our production processes are based on, at little to no additional cost to us.
In other words, simply through the investment into and adoption of technology in our production, delivery and support of our product or service, we are able to increase both our efficiency and capacity through little to no effort on our part.
These gains allow us to keep pushing the limit of that bottleneck, so that we can continue to meet demand without running into crippling levels of inventory or customer backlogs, simply for having invested into process innovation that incorporates technology.
“This investment has the potential to impact not just how you do business internally, but how you do business across your entire supply and value chain.”
Staying ahead of the competition
While this is a simplified example with little variability in demand and supply, the basic principles demonstrate why an investment into technology – especially into technological processes such as going digital, automating and digitising how you do business – is such a valuable investment. This investment has the potential to impact not just how you do business internally, but how you do business across your entire supply and value chain – with customers, suppliers and key partners.
These principles also highlight why companies that fall behind now will only continue to fall further and further behind the competition. And it is these principles upon which Pagero is built: by helping customers automate and digitise their internal and external operations across the buying and selling process – in terms of how they engage and work with customers, suppliers and partners – we help them improve their efficiency and productivity so that they can better serve the needs of their customers and support their exponential growth. More importantly, as our capabilities improve – with developments and innovation in technology, capabilities and performance – so, too, do theirs.
But there’s more to supporting exponential growth
However, increasing efficiency is just one part of the equation when it comes to supporting exponential growth. Variability in service and customer requirements can wreak havoc on unprepared businesses when demand is high. But the impact of this uncertainty on business performance requires a blog of its own.
Until then, to help prepare your organisation for exponential growth, ask yourself what processes within your organisation lend themselves to digitisation and automation, so that you can free up your people from routine and repetitive tasks to do what they do best – creating the path for the future growth of your business.