April 5, 2016
Pursue Innovation or Transformation?
Should insurers innovate, or should we transform? Should we do both? What’s the difference?
People often use “innovation” and “transformation” synonymously. Both words evoke thoughts of change and modernization. Both words are important outcomes of the change management life cycle. We know innovation is occurring all around us, as people find ways to improve things. Alternately, transformation is the result of moving from one state to another.
So, should we innovate, or should we transform? Should we do both? What’s the difference?
See Also: Does Your Culture Embrace Innovation?
I think the best way to answer is to explore the differences between innovation and transformation in insurance and break each down into definitions and examples. Then, you can determine where your company is in the change management life cycle and decide what will work best for your organization.
What SMA has found, as we work with insurers, is that innovation and transformation are not only distinct, but are decidedly different, and their impact on organizations is different, too.
Innovation is defined by SMA as rethinking, reimagining and reinventing the business of insurance. We have seen the results of innovation in business models, customer relationships, new products and new services and in how investments in technology are made. A perfect example of innovation is the focused improvements of customer experience.
Once, customers had to push paper and make phones calls back and forth with agents, but innovation has made these types of interactions a distant memory. Today, chat, apps, portals, mobile, etc. have started to create an innovated customer experience. It is different and (arguably) better. Similarly, in the data analytics arena, innovation in the ways we use and apply data has changed the way insurers operate, price policies, handle claims and compete in the market. Innovation makes something that once seemed impossible possible. It is rethinking the way of doing things, questioning the possibilities and turning them into action.
Transformation is the evolution or journey from a current level to a different and better state. SMA describes it as modernizing and optimizing. Like innovation, transformations produce an improved state, but we can also measure the journey as an outcome of the process. The journey of transformation is the tangible process, structure or building block for future success, even if a project fails or takes a different shape. Transformation can be seen in core system replacements, during which existing and necessary underwriting, billing and claims capabilities are shifted and moved into a better state through improved technology and processes. Transformations are evolutionary and occur over time.
Our recent research reveals that approximately 13% of insurers self-identify as innovating, while 45% identify as transforming. That’s a pretty sizable difference. The data suggests that transforming existing systems and processes is a necessary effort in today’s world. SMA predicts the percentages of both innovating and transforming insurers will continue to grow.
Most insurers need both!