Bryan Falchuk offers his views on the opportunities that the insurance industry has to reinvent itself, sharing his experiences and insights and a series of case studies in his new book, titled “The Future of Insurance: From Disruption to Evolution.”
Bryan, who is the founder and managing partner of Insurance Evolution Partners, has viewed the changes taking place in the industry from the perspective of an advisor, an incumbent and insurtech and believes successful innovation is within reach of all companies. Learn more and obtain a copy of the book at http://future-of-insurance.com/
Listen to podcast interview with IE Advisory’s Paul Winston below or access it here.
As companies emerge from government mandated COVID-19 shutdowns and begin the process of re-opening, they will have to balance a desire to resume operations with the risk of a liability exposure from customers or employees who get sick and claim the business was to blame. In tomorrow’s fragile economic recovery, such litigation could mean the end of a business.
Small businesses and retail in particular will need to take reasonable steps to open safely, following recommended measures to minimize the risk of transmission and infection among people before re-opening their doors to a willing public.
Even if a business adopts all prudent measures, there is so much we don’t yet know about the transmission of the COVID-19 virus or its prevalence that there remains a chance of people being exposed and getting ill. And where there’s a chance of exposure, there’s also a chance of businesses facing liability lawsuits alleging their preventive efforts were negligent and to blame for someone’s illness or death.
If businesses choose to open, and not avoid the risk by remaining closed until safety is more assured, they will have few options to transfer this liability risk. One option eventually will be new pandemic liability policies and endorsements, which are sure to be developed by the insurance industry soon. These likely will be quite costly and perhaps unaffordable to small business until the risk is better quantified. Small business associations might eventually develop group captives or risk sharing mechanisms as an alternative, but those also will take time to set up and price the risk.
A more fundamental option for non-essential businesses to transfer the risk from opening their doors might be to implement some sort of hold harmless agreement. Such an instrument would require people to waive liability for their voluntary patronage of a non-essential business, such as a retail store, restaurant, hairdresser, sporting event and so on. This seems especially applicable when we know so little about the transmission of the COVID-19 virus, and going out into this unknown environment seems risky.
Hold harmless agreements are widely used and often overlooked by most people. Have you ever read the fine print on a parking ticket, or read the waiver you sign when you participate in an athletic event or activity like a zip line ride? With modern technology, there likely are more efficient digital ways to present a waiver of liability before one enters a business, requiring a person to give their consent and record that agreement.
But when a business does all the right things, it shouldn’t bear all the liability arising from a pandemic virus. While a customer may have a reasonable expectation of safety entering premises open for business, with coronavirus unknowns they are assuming some risk. Asserting one’s freedom to engage in non-essential activities like shopping for garden supplies, getting a haircut, going to a concert or eating at a restaurant four-top also requires the customer to assume some responsibility for the risk of infection.
When someone engages in a high-risk activity like skydiving, they typically are asked to sign a liability waiver, acknowledging there are risks and they willingly assume them. This doesn’t eliminate the risk—it shifts it to the consumer. Obviously, if one doesn’t wish to bear the risk of horrible injury, one shouldn’t jump out of a plane and find the parachute doesn’t work as well as the laws of physics.
We know the insurance industry is looking to develop insurance solutions for the business liability risk, but if individuals are assuming a greater personal risk, might there be an opportunity for an insurance solution?
Maybe this unprecedented situation calls for some form of personal accident insurance, or an endorsement to another policy like health insurance, that would cover medical expenses, loss of income or even death benefits if someone is exposed to a pandemic virus after shutdown orders are lifted. It would not only provide financial relief for a loss, but also peace of mind amid the unknown exposure risks of a pandemic.
Airlines, event organizers and so on could even embed such voluntary coverage in the price of a ticket, perhaps for a limited period of time at risk, such as a two-week period of incubation after an event.
Maybe there’s also a market for a transmission liability risk, protecting an individual from being sued by another party for causing an infection. This could be structured as an endorsement to liability protection in homeowners or umbrella coverages.
Who knows—for the first time the industry could come up with a product that people want to buy, not one they have to buy.
All of the above presumes that businesses and customers act responsibly and take preventive measures to minimize exposing themselves and others, and do not negligently embrace the contagion. What about situations—which sadly are emerging more frequently as shutdowns ease and people balk at stay-at-home restrictions—in which neither party shows a regard for public safety and exposes themselves and others to a risk of infection?
People may have a right to put themselves in harm’s way, but do they have a right to expose others to harm? Throughout all of our communities are those who choose individual freedom and ignore potential adverse consequences to themselves and their community. This raises a significant challenge to both risk managers and legislators, and raises a basic question: Who is responsible for managing the risk of coronavirus transmission?
While there’s a lot of uncertainty and misinformation about COVID-19, there’s almost universal agreement that once infected, people can spread the virus to others. Borrowing from science fiction vernacular, COVID-19 acts like a microscopic alien life form, with humans as non-voluntary and unwitting hosts. This alien life form enters the body, adapts to the host’s DNA, thus converting every host into a potential killer. Even when a host is unaffected by symptoms, and may forever be unaware of their role as a host, COVID-19 makes all infected people the contemporary version of a Trojan horse.
For policymakers, carriers, regulators and consumers thinking about ways to provide an incentive people to better manage this risk, consider the following “what if” scenario about introducing potential consequences of not following current mandated guidelines meant to manage the spread of COVID-19.
Let’s assume that in a rebound of the virus later this year, the capacity of medical resources to care for the infected and ill ranges from scarce to completely overwhelmed. What if our individual access to the full measure of available medical services were to become largely decided by our own choices and risk management attitude?
Person A goes into a hospital to be tested. As part of testing, the attending physician captures their contact history over the prior week. On the list is a sports bar and grill, which brings follow-up questions regarding that establishment following social distancing and personal protective equipment guidelines. The patient replies, “The place was jammed, they had a band, and you couldn’t find a mask anywhere. It was great—just like old times!” The physician thanks the patient and tells him/her they will be notified of the results via phone call and they can go home. Patient A later receives a call at home. “We got your test back, and are sorry to inform you of a positive result. We have already called in a script for a Z-Pak. However, I must also inform you we cannot treat you in the hospital if your condition worsens given that you chose to ignore current safety guidelines. We have limited capacity and every serious case puts our staff at risk. We hope you feel better soon.”
Patient B also tests positive. This patient’s contact history reflects adherence to established guidelines regarding social distancing and protective gear. This patient gets a phone call that goes something like this: “We got your test back, and are sorry to inform you of a positive result. We have gone ahead and called in a script for antivirals. I can assure you that should your condition deteriorate, we will treat you here in the hospital.”
We believe insurance can offer solutions to help responsible businesses and individuals transfer some of the financial risk arising from a pandemic, but we also caution against a mindset that whenever a loss occurs “insurance can pay for it” without also introducing incentives for businesses and individuals to be smarter about risk management.
There is little doubt the world has changed, forever, as a result of COVID-19. In the aftermath of any upheaval that affects society so broadly as this, there will be a shift in behavior as people begin to react and behave based on their perceived reality. What compounds the effect of this particular event is a fear of the unknown made more concerning by a general lack of confidence that anyone actually knows what they don’t know.
The problem is we do not know what the future will hold. After COVID-19 runs its course, will we return to what was? Will people’s behavior have undergone a permanent change? They say habits are formed over a period of about 28 days of consistent behavior. If that is true then lots of new habits are being formed over this period of physical distancing, isolation, scarcity (at least of toilet paper and adequate bandwidth for zoom meetings and conference calls), and fear.
This uncertainty over the future has brought entire industries and markets to its knees. Markets hate uncertainty (see the stock market). Business is driven by the ability to make decisions, ideally based on information not just intuition. Yet when data is no longer relevant to the reality of the moment, it’s hard to make reliable business decisions. The result is usually either paralysis or adherence to what you “know” to be true.
However, this moment affords a better course; it is an opportunity to renew your business. When forecasting the future, much is unknown, and while it’s possible we return to what we recognize as normal, the absolute least likely version of the future is “no change.” Those companies that emerge from these uncertain times stronger will be those that use these times to successfully prepare their business to meet a “new normal,” whatever that may be and create as much clarity from uncertainty as possible. We do not know what the future holds, none of us do. But we do have an approach to be better prepared. And there are three steps to begin the process of preparing your business for what’s next.
First, transformation is achieved through a renewed mindset. No one ever does anything they cannot first imagine. Your executive team must adopt a new mentality, a new understanding, a new commitment to thinking differently. More than about how COVID-19 has changed the world and your place in it, a renewed mindset projects a much greater opportunity. Are your executives willing to face the possibility that the business model you operated under six months ago and the business model you may have six months from now do not align? Are they willing to do what it takes not to avoid compounding the current crisis, with another crisis? This requires companies to examine their purpose, their strategy, and their customer in light of these ongoing changes. Guesswork and speculation are easy and entertaining. Converting that to clarity requires shift in mindset. This renewed mindset is an irreplaceable cornerstone of planning for the future. Every company today should approach these times like a STARTUP, or at least a RESTARTUP.
Second, identify every assumption and thesis that underpins your existing business model. From the resources and relationships you require to operate, to the customers you serve and their behavior and how you engage your customers, many of those assumptions may no longer be valid (if in fact they ever were). Is your supply chain still valid and sustainable? Has your target customer changed? Have they changed the way the feel about your products or services? Do people view your value prop differently? This may be an uncomfortable experience, but a necessary self-examination. Identifying assumptions and thesis requires executives actively participate and be open to suspend long-held beliefs. We are not saying these beliefs and assumptions must be surrendered, but they must be examined. The assumptions and thesis that kill businesses are those that are so imbedded they go unrecognized. The ability to facilitate this self-examination process by a protagonist, who is not bound by the unrecognizable constraints inherent in the business and is willing to approach the exercise with no preconceived answers or bias, is a critical. If you fake your way through this, you will fail.
Third, test every assumption. Discernment only comes with examination, testing. Testing assumptions and thesis requires executives be completely open to a future that is highly undesirable, but still plausible. Identify what data points you will need to ascertain whether each assumption or hypothesis is true. Assembling the right data on which to test assumptions and thesis may hinge on accessing new technologies to gather data and new ways of analyzing the data. An effective facilitator in this process guides executives to identify which assumptions are actually relevant, those that have the most uncertainty, those that have the most potential impact. The ability to ask the not so obvious question is important, as is the discipline to examine motivation, why people behave or react the way they do. It will require executive teams able to ask “why do we do that?” “what if?” and “what’s possible?” at every turn. You have to face the unthinkable. No assumption goes unexamined and nothing about the past is sacred.
Those companies that successfully prepare their business to meet a “new normal” will be those that undertake this Renewal Process, and gain a new understanding of their supply chain, the resources they need to execute, and their customers’ problems, attitudes and needs. Every executive will face shifts in the market they could not anticipate—no one could have anticipated them. Our Renewal Process is an approach to emerge stronger. Our Renewal Process will cause executives to examine every aspect of their value chain, including resources, supply, engagement, and the ultimate transaction. The strong will renew their business, then based on the strategies and constraints developed from this Renewal Process, they will undertake an intentional scenario planning process and proactively innovate in the context of what the “new normal” might be.
This call for renewal is applicable to all businesses. But, because of our historic emphasis on insurance and risk, I want to be clear. I’m not talking renewing insurance policies, nor renewing any aspect of what was; rather, it requires a renewal of the mind. It results in a re-imagining of what should be. We all thought insurtech was going to produce a seismic shift in the insurance industry, and to an extent it has. By contrast, the global reaction to this virus will create a tectonic shift. People and businesses will reconsider what they truly need and don’t need and why they feel they need it, from whom they want it and how they want it delivered. This will create a broader world of opportunity.
So, I am officially planting the flag of the future on the hill of RENEWAL. Renewal will lead to transformation fueled by strategically constrained innovation, resulting in accelerated growth. In addition to our best practices in scenario planning and producing accelerated growth through innovation, we have developed a unique Renewal Process to accelerate your restart. You want to be on the right side of the starting line.
Amid the ongoing coronavirus pandemic, there is huge concern about the economic impact from not only the spread of the virus but also how the US and other countries are working to limit its spread. Event cancellations, business interruption and economic losses are widespread and in many cases will not be covered by insurance.
Wayne Allen, a principal of IE Advisory, speaks with Zachary Finn, Clinical Professor & Director of the Davey Risk Management & Insurance Program at Butler University, about his ideas for creating a federal program for pandemic risks, similar to the Terrorism Risk Insurance Act, that would enable the insurance industry to provide coverage. Hear why the lessons learned from the 9/11 terrorism attacks provide a template for coronavirus losses and would provide businesses with greater certainty and protection for economic losses resulting from COVID-19.
Many organizations that are pursuing innovation can overlook what we call the human side of innovation when adopting new processes and goals to grow their company. In a new Innovator’s Edge podcast the principals of IE Advisory—Guy Fraker, Wayne Allen and Paul Winston—discuss what some of these human issues are for insurance incumbents.
The conversation covers such issues as: Who are the right kinds of people to lead or be part of an innovation team? What characteristics lend themselves to an innovation mindset within an incumbent? How can we understand the customer challenges we want to address? Listen below or access the podcast here.
Do you have a defined innovation strategy? A surprising number of insurance companies, even those that regard themselves as innovative, do not. In a new Innovator’s Edge podcast the principals of IE Advisory—Guy Fraker, Wayne Allen and Paul Winston—discuss why it is essential to have a defined innovation strategy for communicating and guiding an effective innovation program. The conversation covers such question as: What are the needed elements and structure of an innovation strategy document? How does it differ from a broader corporate strategy? Why does this help innovation efforts? Listen below or access the podcast here.
The saying in journalism is that there are no new stories, just new reporters. It seems the same is true of mistakes in innovation programs: There are no new errors, just new companies making them.
I say that having spent years watching innovation programs at established companies fail for almost the same reasons, time after time. I thought I’d share the 10 most common mistakes, on the theory that it’s a lot better to learn from others’ costly errors than to make these yourself.
Here are the 10 most dangerous things I’ve seen companies believe about innovation:
Investment is innovation. It’s not. If you’re assigning importance to a technology or insurtech based on how much money it has raised, you’re making a huge mistake. You are ceding your future to a crowd of financial analysts and technology treasure hunters. Money always looks backward. You need to look forward. The genius behind RiskGenius didn’t suddenly appear once the company raised a bunch of money. The genius was always there, and RiskGenius, whose natural language tools improve the quality and accuracy of policies, should have a game-changing effect. (We told you about RiskGenius almost three years ago because we know there’s more to anticipating the success of an early-stage company than the capital raised.)
We’re focused on customer engagement. Just stop. Your customers do not want to be engaged by their insurance company any more than I want to engage with the guy who did my colonoscopy. Your customers want to be served. Stop talking about customer-centricity, which is an excuse for spending a ton of time and money trying to figure out how to sell folks more of the products you developed based on what you thought they needed. Try customer empathy instead. Stand in the shoes of your customers (internalizing all their concerns, fears, hopes, dreams, etc.) and look around for solutions. The answer may not be any of your products. It might not be a product at all. But if you genuinely pay attention, your customers will tell you what they will pay for.
Victory will go to the slow and steady. No, victory will go to the deliberate and focused. That may not sound like a huge distinction, but it is. We have found through our work at our IE Advisory unit that the key is to define strategic areas of opportunity, then to adopt an innovation process based on clear boundaries. Don’t think outside the box; think inside the box, once you’ve sharply defined the right box. John Wooden used to tell his basketball teams to be quick, but don’t hurry. There’s a difference.
It’s not us, it’s them. When an insurtech fails to deliver the expected impact, the tendency is to blame the startup for malfunctioning technology, a lack of industry knowledge or entrepreneurial hubris. But the industry has, in many respects, been its own worst enemy. The sloooowness of incumbent “innovation” processes can grind early-stage companies into non-existence—they can’t wait for your next quarterly innovation review; they’re trying to make payroll on Friday. Some incumbents major on pilots or proofs of concept, with no real objective—we call this death by POC. Others just use the try-out process to learn as much they can about an entrepreneur’s ideas, about tech features and functionality and about possible applications, with no real intent to engage with the early-stage company. The problem is very likely you, not them.
We’ll see the ROI—one of these days. If your innovation team has been at work for a year or two and you have not generated measurable revenue, I mean of a magnitude that nears the cost of your innovation effort, you need to make a change. If your innovation consultants have not generated measurable revenue from the innovation process they helped you implement within a year of their engagement, you need a new adviser. I’m not saying there’s a technological magic bullet, but there is an innovation process that can deliver measurable growth, and rather quickly.
We are the best at that already. Not likely. A famous Bain study from about 15 years ago found that 80% of executives thought their company had the best product in the market—and that 8% of customers agreed. Stop kidding yourself. Whatever it is, you are not the best at it—Silicon Valley, not known for its modesty, nonetheless subscribes to a saying from software pioneer Bill Joy: “No matter who you are, most of the smart people work for somebody else.” You should adopt that attitude, too. If you don’t, you create a barrier that prevents you from seeing opportunities. Look at Amali Solutions, which developed technology that draws amazing efficiencies out of the subrogation process. The payback on purchasing the technology is less than a year. Beat that. But carriers can’t see past their existing subrogation processes. They don’t realize that all they have to do is bend over, because there are dollar bills on the ground all around them. There are lots of insurtechs out there that, like Amali, are built to pull hidden value out of an obsolete supply chain, so, if anyone in your organization tells you to ignore a technology or idea because you’re already the best, you might start looking for the person’s replacement.
We are sticking with what we do. You will at your peril. If you are in claims administration or the management or settlement business, we have a news flash for you: Technology is going to cannibalize your core business—not completely of course, but a lot. You had better figure out how to generate additional sources of revenue.
We are the oldest and biggest. You will be the oldest only as long as you are in business. You might be the biggest today, but by what measure and for how long? Oh, and Sears and Kodak say, “Hi.”
We have time. Maybe, maybe not. When A.M. Best announced earlier this year that it would include an innovation assessment in its financial rating methodology but said it would phase in the weighting of the assessment, a lot of carriers adopted a we’ll-cross-that-bridge-when-we-come-to-it attitude. The phase-in sounds to me a lot like those parents who count to three and then wonder why their kids wait ’til “three” to actually move. We have been huge supporters (and in some ways participants) in A.M. Best’s effort because we believe, as they do, that failure of incumbents to innovate is a threat to their long-term financial resiliency. But we don’t see any reason for A.M. Best or for any incumbent to count to three. Let’s get moving.
The supply chain is what it is. Every supply chain is always vulnerable—ask HP how it did when Dell’s hyper-efficient supply chain hit the PC world two decades ago. Don’t ever assume that the way things are done today is they way they will always be done. The job to be done in insurance is to provide insurance policies for businesses and consumers, right? Wrong. The job is to provide financial security, to mitigate risks, to help clients head off losses, etc. If you believe we’re just in the business of manufacturing policies, then you’re dead; you just haven’t made it official.
Innovation is a never-ending journey, with defined ports of call along the way. Let’s not keep running aground on the same shoals. We’ll still make mistakes, but let’s make new ones.
As innovation becomes increasingly important to the long-term success and financial strength of insurers, AM Best has released a new Innovation Criteria Procedure detailing how it plans to evaluate a company’s level of innovation, through the assignment of an innovation score. This podcast features a discussion between Matthew Mosher, Executive VP and Chief Operating Officer of A.M. Best and head of ratings operations globally, and IE Advisory Chief Innovation Officer Guy Fraker.
We have been telling everyone who would listen for a long time that the future of the insurance industry will be dictated, not by the insurers, but by the clients. We have also been telling you that this reorientation will manifest itself first on the commercial side of things, if for no other reason than the greater bargaining power of the customer. Sure enough, Willis Towers Watson announced last week an innovative risk advisory service that very much looks at the world through corporate clients’ eyes.
Of course, Willis is not the only organization moving in this strategic direction. We know of at least one large broker that is actually ahead in its thinking. But it’s still worth looking at the implications of the Willis program, which helps risk decision-makers (usually risk managers or CFOs) manage risk more effectively, balancing retained and transferred risks to reduce companies’ total cost of risk.
I have heard from a lot of risk managers that they would like their role within their organizations to be elevated. They would like to be part of strategic decision-making, forging the organization’s risk profile. Well, as the Willis program shows, here’s your chance.
The key to the future of risk management is that risk has always been viewed as an expense or a liability but, because of technology, will start to feed into opportunities on the top line of a company’s financial statement. Basically: Yes, there will be a risk if we attempt X, but we can be smart and mitigate risk by doing Y. The numbers for X now look a lot better, so let’s go ahead with it—and watch sales climb.
Risk management can become strategic if managers find ways to enable projects that can drive revenue. We have seen more than a few examples of this. The benefits are not fractional; they are measured in multiples, as in P/E multiples that make the stock market amplify the gains.
From the standpoint of brokers like Willis, the needs are pretty straightforward: They need to become better at identifying technology advances that are important for clients, to stay ahead of their broker competitors, and will need to consult more with clients while selling products less. There will, of course, be some transition required in the business models, because consultants don’t get paid a commission on premium. New pay arrangements will need to be figured out.
From the internal risk manager standpoint, the situation will be more complicated. Even though many risk managers say they want to take a more strategic role in their organization, they may be reluctant to stick their necks out. (No jokes needed about being risk-averse.) Just look at all the RMs that have sprung up over the years—ERM (enterprise risk management), SRM (strategic risk management), IRM (integrated risk management) and maybe more—without causing the sort of major shift in role that many have predicted.
There isn’t always an appetite among senior management for more input by risk managers, either. Our friend Chris Mandel, an SVP at Sedgwick who is one of the world’s ranking authorities on risk management, says input is requested on the most destructive exposures, so requests for strategic advice are scattershot. But the needs are there among senior management, and aggressive risk managers can spot and fill those needs. (Chris offers more thoughts on risk management opportunities in a podcast I did with him earlier this year.)
Clients will, of course, continue to work on reducing their traditional, internal risks, and technology will help there, too. For instance, many companies have learned the hard way that they had more cyber exposures than they realized—the sort of thing that technology can track. Reducing the number and severity of claims will, at least eventually, lead to lower premiums. But the days where the risk management game was based on ratings and recovery are numbered, and the days of prediction and prevention are fast coming. The new game will be won by those in the industry that can help clients switch from a focus on reducing losses to enabling growth.
Those companies that embrace the notion of risk as a value driver will see exponential gains in enterprise value, and those of us in the insurance industry need to enable those gains. It’s all about the clients, not the insurance.
One of the core attributes, both motivating and binding, team ITL is the shared and unquestionable belief that every insurer has the opportunity and capability to succeed during disruptive shifts by leveraging innovation best practices. The purpose of this blog is to cover six key areas of decision-making senior executive teams face as they launch, then manage, a systematic approach to innovation. Likewise, for Corporate Leaders unsure of the results coming from existing innovation efforts, the topics covered in this article represent a good starting place for an objective assessment.
One of the reasons so many incumbent companies struggle starting innovation systems is quite simply because they’re not quite sure how to start. Invariably, they discover surprising bends in the road along the way. I cannot tell you how many executives have said to me, “I wish I’d have known ahead of time that X was going to happen” ahead of time. The real problem with some of these issues is the decision that seems intuitively correct is often not the best way to go. However, this does not become evident for quite some time, derailing innovation during the correction process.
Of course many more issues and questions require attention in the life of any systematic approach to inventing products, services, and markets. These six come from over a decade of experiences across numerous organizations. They tend to be nearly universal and will either enable success or prove to be abrupt roadblocks depending upon how they are handled.
Understand that all organizations want to innovate in the marketplace with new products and services. However, stop for a moment and get clear about your definition of success. Innovators who start at $0.00 and grow revenues to $1,000,000 are arguably on a measurable road to success. Will innovators within a company generating $10,000,000 of existing revenues that launch a product requiring 3 years to generate $1M be considered as successful? Corporate innovation must scale new concepts that will move the needle on existing revenue streams. At some point innovation leadership will have to disrupt the existing business model. Corporate leaders must remain confident in knowing innovation is highly iterative, requires venturing into the unknown, will challenge deeply held assumptions, ultimately surfacing tough choices. Innovation is only learned through action.
Reality Check: You can create new products and services, invent new markets, even enable entirely new economic sectors. Where organizations trip up is they don’t plan on the front end of innovation and then they don’t go to market differently on the back end of innovation. You want to lay the groundwork ahead of time.
Be clear about why you’re innovating. A frequently asked question is, “How do we foster a more innovative culture?” My response is, “Innovate for growth and let the requirements for success change the culture.” In order to achieve success, any dedicated innovation team must have permission to move fast and consider concepts ranging from the incremental to those challenging plausibility. Furthermore, corporate innovators must be able to move faster than an organization’s ability to say “no”.
This sounds good in theory, but how does this actually work? I’ll let you in on a little secret: Innovation actually thrives on constraints. The key is not thinking “out of the box”, but actually operating within a box you design and build. What do I mean? Conceptually, a box is an empty space to be filled, contained by firm boundaries. Before you start filling this box with new ideas and concepts, leadership must define those boundaries.
Setting the first boundary comes from a question that all too often prevents innovation efforts from ever being launched. “There is a universe of opportunity and possibilities so how do we know where to begin?” Answering this question represents the actual launch into systematic innovation. Success requires an anchor. Identifying the technology, trend, or the demographic group that will be the primary focus for your innovation efforts is the tactical first step. These areas of focus are known as strategic domains.
Many organizations already have a domain selected. For those without a clearly defined domain, put a team together and brainstorm a list of the most impacting exponential technologies and demographic trends. Select a couple for additional research, and have the team report back. Don’t underestimate the power of enthusiasm when selecting what is often called your strategic domain. A technological capability that ignites passions, speculation about future developments, sparks the all important “what if…..?” question is a powerful choice.
Including representation from existing business units is important to early planning. A couple of the more important business areas may seem counter-intuitive.
HR: Bringing on entrepreneurs or cultivating an entrepreneurial spirit within an organization is often atypical to long-term KPIs and incremental improvement. Having HR onboard early will provide them with clarity re what is going to be coming their way.
Corporate Law: I’ve had more than a few people say to me: “Corporate law becoming one of the more innovative divisions in our company has to be one of the seven signs of the Apocalypse!” Actually they are a key enabler because the need to move quickly executing non-disclosure agreements, creating new hiring agreements, term sheets, forming alliances and taking different approaches to mitigating risk.
Corporate Communications: Website(s) may need launching, internal transparency must be maintained, and certain essential correspondence should be automated. A communication plan that considers both internal and external solutions will be required.
With the selection of the initial domain and bringing key business areas into the planning, an organization has begun creating the foundation for success. Now what? Remember, one result of building this framework, is early alignment among the entire corporate leadership team from the get-go. Take notice, once you start considering startups, investments, new ideas from within the company, and new ideas from customers, the perception of unleashing chaos comes quickly. However, it’s only a perception, and these steps mitigate real chaos.
The next step results in the next set of needed constraints.
Giving an innovation team permission to move fast and test plausibility requires two sets of boundaries (and these aren’t in-bounds and out of bounds). Truthfully, not only does the innovation team need these boundaries, but more importantly, corporate leaders need them in order to believe the whole effort won’t spin out of control and/or put assets at risk. One set of boundaries applies to the domain and the second set applies to the organizational business model. Establishing these boundaries requires a facilitated session lasting no more than a full day, often less. But going through this exercise one time will set your efforts on a path for a year or two before they have to be revisited. The result is a set of operating rules absolutely needed so your innovation efforts can prioritize possibilities at the needed pace.
The most commonly used innovation structures fall into two models. One is where groups of people within each individual business unit are responsible for driving out innovation in that business unit. This requires an internal small team of innovation experts capable of coaching each unit. This model is integrated but dispersed. The other model is the creation of a separate unit responsible for soliciting, vetting and developing ideas, concepts and vetting startup investment opportunities.
Either one will work starting out. I’ve seen organizations establish a separate business unit and then evolve to having a more distributed model. Getting used to the pace, ruthless culling of most ideas, and the cycles of continuous iteration and continuous improvement is typically much more difficult with a dispersed model early on.
Either way, the team populating the chosen structure must have the support and protection of the C-suite level. Routinely challenging the status quo within any organization is only possible when the C-suite is on board.
The next big bridge to cross is deciding how an innovation efforts will be resourced. Will a dedicated team be established? Will the efforts be assigned to “virtual resources” (which is code for: we’re going to leave people in their day job but they’re going to do this part-time)? And who do they report to?
The creation process is exciting, challenging and it’s hard enough that somebody has to lead. One aspect of selecting the innovation leader is understanding that highly effective executives—even those considered entrepreneurial in the context of most mid-sized to large corporations—operate quite differently from highly effective entrepreneurs who are founders of a company. The day to day leadership must be very credible and effective maneuvering relationships within an organization. However, such a leader must also be an executive who appreciates and respects true entrepreneurs who probably won’t have much respect for existing cultures and corporate norms.
Then we come to the topic of idea/concept management tools, platforms. I always advocate for off-the-shelf innovation platforms. Some organizations choose to build their own which almost always proves to be the long road to town. Some organizations choose to go without, avoiding some upfront expense. I assure you that a good innovation platform, i.e., software product mitigates the need for three to five full-time employees.
Finally, under the heading of getting the basics down, be clear about expectations for internal existing business units. One of the more well-kept secrets is that innovation lives or dies in the middle of the organization. Very few incumbent organizations have any sort of incentives for middle managers to take risks. Part of your communication strategy should be specifically around how leadership will manage the soft spots where participation may be slow in coming.
For example, I had one client company with one large and influential division that did not appear on any of the innovation tracking reports for the first four months of operation. Under the quiet direction of the SVP for that division, word had spread that “this innovation thing will come and go so no need to worry about participation or support.” Naturally, the first and most available expendable body near the CEO’s office was the Consultant, and so I was summoned. Obviously, I was not spending the time needed with this SVP…. Right? The following week included the 25th anniversary for this SVP. Without any advanced communication the CEO delivered an anniversary cake and balloons to this SVP. In his congratulatory remarks, made standing on a chair, with the entire division in attendance, he thanked the SVP for his support and participation of the new innovation team. Opting out ended immediately.
We all wish moving an organization into new directions merely required a C-suite executive saying “we shall do this moving forward.” As we all know, that’s not quite how human nature works in the context of well entrenched incentive and power structures.
So far, we’ve covered executive commitment, deciding on some initial strategies, boundary setting, and some basics on structure and resources. All both enable innovation, and are throttle levers that can be adjusted on the fly. Now we’ll briefly hit the topic of tracking progress.
Despite the importance of reporting and tracking, in this post, we simply want to focus on a single concept all activity should roll into: the innovation portfolio. Regardless of structure, tools, and resource selections, every organization needs a single view of innovation activities including ideas, concepts, startups and early-stage investment that are being considered.
The axis vary from company to company, so for illustrative purposes, think in terms of complexity and time horizons. On one scale the portfolio will range from “incremental” to “doesn’t exist today.” On the other axis the scale can range from immediate to three years. The context of such a time horizon should be “time to develop” or “time when market is established.” Ideas and concepts that can be executed immediately and represent incremental change to the company will be the most by volume, but require the fewest resources to deploy. At the extreme other end of the spectrum will be ideas commonly referred to as “moon shots.” These concepts will be fewest in number, but are the most resource intensive.
The primary take-away from describing such an approach is to understand the purpose of the portfolio. Creating a portfolio based dashboard enables an organization to manage the scope and number of ideas/concepts/investments in motion.
Founders of a startup with a new idea will go to market with a single goal scaling and getting traction. Organizations who typically measure growth in single-digit percentages often underestimate what is required to scale a new concept in a marketplace to positively impact the bottom line.
So how do incumbent companies go to market with new ideas and concepts? The time to have this conversation is long before any concept or idea gets to this point. First of all, make sure the idea strongly reconciles three broad constituencies:
A clearly defined consumer segment with a job to be done;
Your solution meets or exceeds fulfilling that job;
The organization has the business acumen to push that solution out into the marketplace, be compliant and be ready to continuously iterate the solution.
When these three constituencies are aligned by the solution being launched, an organization probability has a solution that can go viral. The best new concepts and ideas are also platforms for their own continuous innovation.
New concepts may not be distributed in the marketplace through established distribution methods or channels. In short, very often a new idea or concept should come out of a company like a start-up or as a start-up.
Think in terms of a dedicated small team pounding the streets and using all available resources to market, capture feedback and recommend changes. This may require an alliance, an investment with an existing startup, or require an acquisition. The best path to scale may be hiring what is essentially a team of founders. Be assured, hiring small teams of entrepreneurs for the equivalent of a startup venture is very counterintuitive for most large organizations. This is when laying the groundwork with HR and Corporate Law early really yields returns.
Getting it right means moving the needle for the overall organization with a new product or service within five years. Design methods exist, specific steps can be taken, to get feedback on a product or service that is essentially live without putting company assets at risk. Develop a comfort level around the idea of launching imperfectly and iterating based on feedback. Create a roadmap for ongoing development. Leverage the methodologies of agile development. Ideas should also be kicked out to market with a funding mindset similar to an early stage investment.
The goal of this article is to highlight the key issues requiring action by those launching and leading innovation systems. Considering them early in the life of innovation efforts prevents these issues from becoming institutional landmines. One of the core strengths of the Innovators Edge platform is the organization and delivery of information specifically for the purpose of vastly accelerate results for organizations who choose to grow and lead the next generation of insurance. Leverage the opportunity to diver deeper into IE’s expertise about innovation best practices and align your organizations efforts with this best in class platform.
Please feel free to provide feedback, share experiences, and certainly check-in if you would like additional details.