As explored in two prior posts, there are a number of classes of myths surrounding insurance innovation. In Part I
, we looked at how a lack of urgency caused by multiple factors leads to strategic complacency. Part II
discussed how that lack of urgency combined with concerns about the financial impacts of innovation efforts make it easy to postpone those initiatives until a "better time."
In this final installment, we will touch on a a number of the myths that inhibit a company from starting an innovation project or, worse, stall a project that is in flight.
The post on financial myths explored the conflict between current IT and new efforts. The waters are further muddied by the uncertainty surrounding what constitutes innovation.
- Does innovation only represents those game-changing efforts that revolutionize an industry?
- Conversely, are all those projects that are on the IT road map innovation?
Often when innovation is discussed, the focus turns to the biggest, most successful projects, which had multibillion-dollar impacts. Most folks will have heard of the successes and have opinions one way or another.
Too frequently, the belief that innovation is only these big successes turns executive teams off to the possibility of leading their organization to innovate. The concept of the lighting-strike idea is ingrained in modern lore. Although this big bang process does happen, it is the exception rather than the rule.
More often, disruptive innovation is the process of hard work and iteration rather than a single "Aha!" moment. In fact, the initial form of products that disrupt markets is generally less capable than current solutions and addresses the least desirable segments of the customer base. Over time, those products are refined and move up into more desirable customer segments.
Innovation concepts are also seen as unicorns: only discovered by unique individuals.
Organized innovation efforts should cast a wide net for ideas. Creative solutions to existing problems exist today in your organization. The challenge is to align the organization appropriately, focus efforts and develop a culture that embraces the challenge.
We will explore the organization-based myths in a bit, but first a look at another form of innovation will add color to the picture.
At the other end of the innovation continuum, away from the lightning strike, is the concept that any development or product improvement efforts are innovation.
Unfortunately, not all projects are innovation. Organizations that believe that any improvement efforts are innovative are likely on a dead end road.
Maintenance is not innovation, no matter how urgent. A project to upgrade versions of AIX on your policy admin system is decidedly not innovation. A similarly sized effort to investigate and deploy a new claims-focused chatbot probably is. While not unique or novel, it could be classified as incremental or sustaining innovation.
Sustaining innovations are those that are undertaken to improve products to existing markets, rather than to address new markets or value chains. Harvard Professor Clayton Christensen describes it this way:
“A sustaining innovation targets demanding, high-end customers with better performance than was previously available. Some sustaining innovations are incremental, year-by-year improvements that all good companies grind out. Other sustaining innovations are breakthrough , leap-beyond-the-competition products.”
Most organizations have a significant portion of their efforts and budgets targeted at sustaining innovations. The CB Insights State of Innovation survey results determined that 78% of innovation portfolios are focused on this type of innovation effort.
Therein lies the challenge. You’re doing it; so, too, are your competitors. Any improvements provide competitive advantage only for a short period until others catch up, and the cycle repeats.
See also: How ‘Not Invented Here’ Limits Innovation
An organization should commit to a range of innovation efforts, both sustaining, breakthrough and game-changing, sometimes called "ambidextrous innovation." A good rule of thumb is that the corresponding ratio of investment would be 70%, 30% and 10%. This breakout allows for continuous efforts at sustaining innovation while encouraging investigating "moon shots."
If innovation runs the gamut from incremental to industry-changing, how does an organization create a culture that embraces and pursues it on a regular basis?
While large, well-funded innovation labs get a lot of press, most innovation starts with small teams. But even getting the culture right for those small teams is critical to their success.
Most organizations recognize that effective and successful innovation efforts must be led from the C-suite. Often, after a decision to initiate an innovation effort, the CEO announces that she will personally will take charge. The implementation may need more finesse.
Although the buck generally stops on the CEO’s desk, having her lead the day-to-day may actually impede progress. One of the reasons is that open communication can be inhibited if there are too many organization layers between the participants. A second reason is more nuanced.
As a project moves through the various stages of the innovation process, close coordination with legal and finance may be required. Having the project report into a senior executive in one of those disciplines often helps. Regular updates into one or both of these areas, along with those business units having a vested interest in success, can fast track a project.
Another myth is that once a team is set on task, the hard organizational work is done.
“Innovation will drive the culture” is an oft-heard mantra. Unfortunately, in many instances the reverse is more accurate: Culture drives the innovation.
Some cultural issues need to be addressed up front. Insurance is inherently a conservative business, and saying “No” is rightly part of the culture. Individuals build careers around never making a mistake. Thus, no can be an ingrained habit.
Innovation on the other hand is all about saying “YES.” That shift can be difficult for some conservative organizations. Encourage participants to first find the value in every concept. Positivity is contagious and will lead to increased participation.
One major myth is that there are too few good ideas. On the contrary, there are lots of good ideas. A key to success is rigorously soliciting, collecting, evaluating and filtering them.
In the early stages of the innovation process, many ideas should be explored. So, solicit participation from your entire organization. Often, innovation and creativity are seen as someone else's responsibility. But by extending participation to the entire organization, you may find that insights may come from unlikely departments and individuals.
With many valuable ideas and opportunities, prompt evaluation and selection must be a core principle. This is where constraints come into play. Both time- and expense-based constraints focus mind and project.
The last myth that should be addressed is the notion that the goal of innovation efforts is to launch. In some instances, the launch is immediately successful, but, in most cases, further modifications are required to perfect the new product and processes.
Pilots are worthwhile and often necessary. However, the final goal is widespread adoption across multiple relevant business units. Frequently, pilots reveal how the process can be improved. To encourage widespread adoption, implementation must be streamlined, benefits clearly articulated and internal support built.
The ultimate measure of success should be returns on investment of 5X to 10X in two to three years. This level of success will obviate financial concerns of cannibalization and build support for follow-on projects.
See also: Digital Innovation in Life Insurance
Long Story Short
Consumer behavior has changed dramatically in the past 10 years. While traditional insurance practices sufficed to allow continued success, both incumbents and new entrants are working hard to change to meet new expectations. Even though the industry has weathered many storms, and successfully repelled outsiders in the past, this time is different.
Twenty-years ago, the auto line was revolutionized with the introduction of credit-based underwriting. Today, there are pioneering efforts in a dozen areas with the potential to have effects of the same magnitude.
Couple those industry changes to the changing expectations of insurance buyers, and the potential for one or more industry revolutionizing innovations grows every quarter. This is not the time for complacency.
Financial performance rightly concerns senior executives and must be part of any decision-making process. The problem to avoid is allowing financial considerations to be a primary gating factor.
Financial analysis can be a valuable addition to the project definitions by providing guidelines as to the magnitude of the returns given the potential impacts of the innovation project.
Success depends on an organizational commitment to change. This requires culture shift, buy in and support from middle management, and widespread participation.
Although there are any number of moving parts to an integrated innovation strategy, implementation is fairly straightforward, and well within the capabilities of any well-managed insurance organization.