Tag Archives: change

Change at the ‘Speed of Life!’

In my career, I’ve written hundreds of thousands of words on change. I was preparing another article for your consideration, when three articles, one invoice and one memory made my ramblings about speed unnecessary. Consider the following, then decide – is the market being transformed?

  1. The memory – In 1978, I represented the Famex Insurance Program through Fireman’s Fund. This was a property and casualty offering to GM’s dealers throughout the country. In those days, the No. 1 concern of GM and her dealers was that GM would reach 65% market share, and then Uncle Sam would break up “Mother GM” into Cadillac, GMC, Olds, Pontiac and Chevrolet. That fear was, of course, never realized. Back in the ’70s, the fantasy of GM was that she was invincible. Today, the bankruptcy of GM is reality…. Too big to fail is BS.
  2. The first article: Fast Company (November 2015) – “Hot Sauce U.S.A.,” by Elizabeth Segran. “Where once was Tabasco, there is now sriracha, gochujang and more. What the condiment aisle says about American consumers….While Tabasco accounts for 18% of the hot sauce market, there are now hundreds of varieties available in the U.S. – from Tapatio to Texas Pete – and more than a few of them with foreign roots.” Once, a “local” company controlled the hot sauce market worldwide — today, the global market is served by a much more diverse group of pepper pickers and processors. (In the name of full disclosure, I live within 10 miles of Avery Island, LA, the home of Tabasco. I love Tabasco and was able to enjoy this delicacy in every town I visited in Europe during my year [1972] of service with the Army in Germany.)
  3. The second article: The Week (Oct. 30, 2015) – “Issue of the Week: Walmart’s Wobbly Empire. “What would Sam Walton think if he were alive to see Walmart today?” Brian Sozzi asked. The founder of the behemoth would probably be shocked to see that his pioneering profit formula – low operating costs and extra-discounted prices – is now virtually impossible to maintain. “Walmart understands the challenges it faces, but its decline may be practically inevitable,” David Graham said in theAtlantic.com.
  4. The third article: The Week (Nov. 13, 2015) – Editor’s Letter. “I recently had one of those ‘welcome to the future’ moments that you think only happen in sci-fi movies and dystopian novels. I’d agree over email to get coffee with a friend of a friend, and he cc’ed his personal assistant, Amy, to set up a mutually convenient date. Amy and I emailed back and forth to find an available time slot. She was efficient and gracious, considerate of my schedule constraints and so polite in her responses that, with the meeting arranged, I began typing a brief thank you. Then I glanced at her e-mail signature. There, written in small type, it read ‘powered by artificial intelligence.’ That’s when it hit me: Amy wasn’t actually human. She was an algorithm. I’d been corresponding with a machine all along and hadn’t even realized it.”
  5. The invoice – Wired magazine. I received my 4th reminder to renew my subscription. The cover price for one year was $143.76. “Your special low renewal rate” was $20, plus a “second subscription to your friend for free.” I’m guessing the mailing costs alone for one year exceed the $20 price to me. Wired is a good magazine. I’ve enjoyed it. But in today’s easy access world I’m oversubscribed and under read.

Should we be Wired, too? Because competition and technology will allow innovators to deliver what we sell at a price below our costs? Is it now time to reinvent our organizations to compete in the world as it will be?

In closing, I acknowledge Bob Dylan, one of the first modern-day philosophers, who saw and spoke to the world of change. Our parents thought Dylan was a “flake” or a “fad.” In retrospect, he was right, and they were wrong. Ours is a world being transformed. Suggestions of incremental change are BS!

“The Times They Are A-Changin'” – Bob Dylan (1964)

Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who
That it’s namin’
For the loser now
Will be later to win
For the times they are a-changin’.

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s a battle outside
And it is ragin’
It’ll soon shake your windows
And rattle your walls
For the times they are a-changin’.

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin’
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’
And the first one now
Will later be last
For the times they are a-changin’.

Are ‘Best Practices’ Really Best?

Best practices can help companies gain a competitive advantage. However, the opposite is often true. There are various reasons for this, but, in our experience, we have observed three major problems with implementing what a company perceives to be best practices.

  • First, the benefits are elusive. They are often difficult to measure, with no baseline or true comparison, and the costs to implement them are often excessive and misunderstood. This often means there are significant implementation costs and effort with few tangible results.
  • Second, best practices exist in the rearview mirror. By the time you have adopted them, business conditions and the right ways for implementing them will have changed.
  • Third, once adopted, these practices can be very difficult to change. The organization has invested emotion, credibility, time and money, and it’s very difficult to abandon a practice even if it doesn’t work or needs to be adapted.

What’s often missing is clarity on the best practices that are most relevant to the business.

Companies naturally want to be competitive, and many seek inspiration outside their own industry in their search for the best-of-the-best. Companies tend to reach broadly, embracing a great number of potential best practices. Conversely, some companies narrowly benchmark themselves against only their peers. Following either extreme often results in missed opportunity for real improvement. In addition, if implementation occurs in silos, then best practices tend to compete with one another and increase complexity and overhead.

Although the benefits from deftly applied best practices can be real and demonstrable, they often are more elusive than anticipated and can result in frictional costs, impasses, noise in the system and ultimately few concrete benefits to the bottom line. Moreover, implementation costs can be high but may not be visible until the cost of adoption or compliance becomes evident throughout the organization. Finally, benefits may elude adoption, specification, measurement and capture.

Our observations

Best practices tend to be selected and defined in isolation. Once they have a mandate, individual business and functional areas, centers of excellence and shared services often tend to implement new practices without giving sufficient consideration to downstream implications, such as costs. New best practices come with costs, and when they are supposed to result in higher service levels, they may come with higher-than-average costs.

Accordingly, the application of new practices requires balance and compromise. They may reduce expenses in part of the organization but may increase frictional costs and place an extra burden on people, process and technology elsewhere.

A common problem is that many companies attempt to implement too many new practices in too many places. Most organizations’ ability to adapt to change is limited, and change tends to be undermanaged, especially when new best practices are required by new control mandates.

Many companies also tend to overestimate the opportunities that standardization offers. We have seen some companies try to standardize everything and inevitably encounter challenges they had not anticipated. New best practices need to be capable of changing and evolving over time, as well as being able to adaptable to local differences and requirements.

Lastly, many companies fail to conduct a cost/benefit analysis when instituting new best practice mandates. If a best practice is central to the business strategy’s success, then frictional costs are an acceptable risk. However, excessive application of best practice improvements can waste resources (e.g., a need for excess staff to perform the work, complex policies and procedures, standardization for its own sake and demands for “unnatural acts of cooperation” that hinder the business’ ability to respond to changes in the marketplace).

What should companies do differently?

Many companies have the habit of relying on practices that are not appropriate for them and therefore fail to effectively execute desired strategy. To help prevent these problems, we suggest using a success framework that prioritizes and enhances company focus on improvement efforts. This framework should have the following six characteristics:

Success Framework A Mechanism…
1.  Prioritization To identify what’s most important and to align implementation effort with strategy.
2.  Proportion To confirm that the implementation effort is proportionate to the practice’s perceived value.
3.  Readiness To assess organizational appetite and readiness.
4.  Implementation To assign authority, accountability, responsibility, and appropriate resources.
5.  Impact To track impact, including both intended and potentially unintended consequences.
6.  Change To drive continuous improvement and to authorize a full stop if warranted.

 

It is critical to first identify which best practices are worth the effort, through prioritization.

Implementing leading practices can cost money, but there may or may not be tangible benefits or related savings. The question to ask is: How good is good enough? Moreover, when the implementations of best practices compete with each other for time and focus, there are frictional costs that further minimize expected benefits. Being cognizant of frictional costs and avoiding them is critical to optimizing investment and benefit realization.

What we’ve concluded

Best practices are about performing better and therefore adding strategic and operational value.

Accordingly, because of the highly subjective nature of “best,” we suggest the term “value added practice” (VAP) instead. By putting value at the center of practice improvement efforts, a company can better plan and implement new practices. Frameworks for investment and continuous improvement are key, especially at larger organizations where budgets, controls and approvals tend to be complex.

Before embarking on a new best practices initiative, a company should perform a quick self-diagnosis. Are you trying to implement a best practice for its own sake, or are you clearly focusing on the value you hope to realize?

If you plan to invest in new capabilities without tying them to specific business objectives, then you should step back and determine just how implementing new best practices will benefit the company.

‘Age of the Customer’ Demands Change

The music industry is in chaos. It’s a dinosaur stuck in the tar of old vinyl. Musicians are no longer knocking on record labels’ doors, asking to get their album out there. Consumers are no longer buying their music from record stores. And, with Taylor Swift withdrawing her entire catalog from Spotify, things get even crazier.

The Age of the Customer continues. And if you don’t acknowledge this — whether in music or in just about every other industry, including insurance — you could end up loved as much as a set of tangled headphones.

You Really Got a Hold on Me
In a time not so long ago, musicians had no choice but to go through record labels to even think about reaching their audience. The industry had a three-step process:

  1. Song creation
  2. Marketing
  3. Distribution

This meant artists created their album with the record label’s supervision; the record label then marketed it via in-house or through a third party; the radio stations then played it; and then, finally, customers could buy it at their local record stores. Thus was created a multi-layered model that greatly benefited the record labels.

So what happened to this model?

They Say You Want a Revolution
The Internet happened. By the late ‘90s, when the Internet started to catch fire, people began realizing its potential power, such as the ability to digitalize entire music catalogs. This ultimately led to the birth of music piracy, which drastically cut into record labels’ pockets, creating a rippling effect felt throughout music – within the industry and among music lovers.

But when the iPod was introduced in 2001 it shattered the traditional model of the music industry. Musicians could now bypass all the old steps and start putting out their own music through digital sites like iTunes, opposing music piracy and giving royalties back to artists. Then, fans starting getting into the act.

As record labels worked to stay relevant, they had to offer artists new partnerships, such as 360° deals. A 360° deal assured artists a share from their music, concerts, merchandising, publishing and licensing income – ultimately creating a five-step model:

  1. Recorded music
  2. Merchandising
  3. Fan sites and ticketing
  4. Broadcast and digital rights management
  5. Sponsorship and management

Any Way You Want It
Enter the Age of the Customer. To combat piracy, stream-based cloud services began to emerge (see news on Spotify and Beats Music). Consumers now have the option to listen to any of their favorite songs, on multiple platforms, any time they want – for free even, if you’re willing to put up with commercials.

So now consumers can choose to pay to download a song, buy CDs or records, stream their favorite radio stations or stream their favorite music without breaking the law. This, once again, is shattering the music industry’s business model.

And, boy, the times they are a-changin’. Consumers now connect globally to their favorite bands through the Internet and bypass exclusive record label channels. The majority of consumers don’t buy albums, they download songs.

There’s been a greater attendance at concerts (Live Nation’s ticket sales are up 17%) . Fans seem to be more loyal. Consumers have it made right now, and things seem to be getting even better.

Spotify, the online streaming service, started contacting record labels for a possible negotiation. The labels offered a share in their company for a band’s catalog. The big boys started jumping on board, giving listeners gold record bands, such as Led Zeppelin and Pink Floyd – for free.

And the record labels are happy, because it’s the first time someone has offered them equity for their band’s music. Which means that, if Spotify goes public, well, it’s more money for them. Everybody wins.

However, not everyone is happy with the online streaming service, especially Taylor Swift. After “trying” her music out on Spotify, she decided it wasn’t the best medium for her music, so she pulled her catalog from the streaming service. She also believed her music wasn’t valued as much, because Spotify has no regulations on who gets what – and lack of earned royalties.

It’s an interesting situation right now. With artists pulling music from Spotify (even Jason Aldean recently joined the Swift bandwagon), the music industry must ask itself – is online music streaming the future of music mediums?

Ch-Ch-Ch-Changes
In today’s market, technology has placed the ball back in the consumer’s court. The music industry is reeling and desperately trying to get back in the game, but the game keeps changing. Technology is transforming everything, we all know, but how is your company preparing for the inevitable? Are you creating a customer-centric culture that embraces the new? Or are you waiting to see how your competitors fare?

Healthy Disrespect for the Impossible

When people are extraordinarily successful, examining their characteristics, values and attitudes can be instructive. The rest of us can learn from them and possibly adopt some of them to advance our own goals. Larry Page, co-founder of Google is an example of one who has achieved exceptional heights. Peering into his thought process can be enlightening.

Page says, “Have a healthy disrespect for the impossible.”

To conceive and develop the Google concept and then the massive company, its young founders had to have a very healthy disrespect for the impossible. Others besmirched the idea of collecting all the information in the world and then making it available to everyone in the world. Not only was it a bold idea, it was thought by most to be ridiculous and impossible. But Larry Page and Sergey Brin had a very healthy disrespect for the impossible. They made it happen.

The concept of disrespecting the impossible could be entertained by those of us in the workers’ compensation industry. True, few of us are likely to reach the pinnacle level of Larry and Sergey, but we can borrow some of their bold thinking to get past the assumptions and barriers that keep us from achieving more.

Everyone agrees workers’ compensation as an industry needs a healthy nudge to try new things. The industry is known for its resistance to change. Maybe the way to change the industry, to be an industry disruptor, is to begin with an attitude of disrespecting the impossible.

Many people, including those in the workers’ compensation industry, focus on why something cannot be done. Reasons for this notion are many, but probably cultural tradition plays a role. Inventiveness is not expected or appreciated. Too often, the best way to keep a job in corporations is to keep your head down and avoid being noticed. Spearheading a new ideas is risky.

Stonewalling new ideas or doing things differently or adopting new technology in an organization thwarts creative thought and certainly diverts progress. I was once told that to incorporate a very good product would mean doing things differently in the organization. So the answer was automatically no!

We all know the old saying about the word “ass-u-me.” It actually packs some truth. To avoid the trap, check assumptions for veracity. Incorrect assumptions can be highly self-limiting.

Begin the process of problem-solving with new thinking — disrespect the impossible. What could be done if the perceived barriers did not exist? What could be accomplished if new methods were implemented.

Probably the most important ingredient for achievement in any context is tenacity. It’s easy to quit when the barriers seem daunting. Tenacity combined with a disrespect for the impossible might be unbeatable.

car insurance disruptive

Cars: What’s Driving Disruption and Change

The SMA research report The Next-Gen Insurer: Fueled by Innovation identified the major influencers within and outside the industry that are reshaping the business of insurance. It cautioned that if insurers chose to ignore, or even put off, the inevitable need to change along with the rest of the world, they would be taking a chance and creating risk for the survival of their businesses. Well, as it turns out, ignoring it is no longer an option.

The new SMA research report, The Changing Auto Insurance Landscape: Influencers Driving Disruption and Change, underscores that disruption to the auto insurance industry is inescapable. Multiple influencers have converged, primarily from outside the industry, and are in the early stages of transforming the automobile industry and subsequently the auto insurance business. The new examples like driverless/autonomous vehicles, the connected car, car apps and shared transportation are disrupting traditional business, risk, product, pricing and customer assumptions while setting off the first wave of a broader disruption that will challenge the industry. Together, they reveal a growing wave of disruption in the auto insurance segment. This was emphasized by the announcements made at the Consumer Electronics Show (CES) in Las Vegas in early January 2015.

Insurers reward customers with discounts for multiple auto policies, offer discounts for pay-as-you-drive (PAYD) or pay-how-you-drive (PHYD) programs and offer more discounts for additional coverage such as homeowners, umbrella, or others. The same is true for commercial insurance – business owners will look for a package of insurance that includes bundled discounts.

But consider what Mark Fields, Ford’s CEO, noted to the media at the 2015 CES show. Fields sees Ford as a mobility company rather than an automotive company, delivering a wide array of services and experiences via the auto instead of the mobile phone. This reimagined business model will have rippling effects across other industries, including insurance.

So how will insurance see itself going forward? How will insurance reimagine itself? The impact will drive insurers to think bigger and reimagine their businesses as they ride this wave of change toward becoming a Next-Gen Insurer.

The transformational potential of each influencer individually is great, but when combined they are game-changing. Each is individually beginning to disrupt insurance in varying degrees by redefining or reducing risk; redefining vehicle needs and uses; creating product and service needs; and affecting traditional revenue, pricing and operational models. Even more importantly, influencers are reshaping customer expectations by providing new experiences to create, retain and grow customer relationships and loyalty. Here are some potential implications for insurance:

  • Will insurance models move away from the driver to the vehicle or manufacturer?
  • What new services can be provided based on connected car or smartphone applications to engage with customers differently?
  • Will auto driver usage data come from Google, Apple and auto manufacturers rather than traditional industry data providers? Will this new data redefine risk, pricing and underwriting models?
  • Will insurers need to rethink partnership strategies to deliver new services?
  • How will risk models and ultimately pricing models be affected?
  • How will these affect operational, unit cost, revenue and profitability models?

The last two questions are especially significant based on the changes that are already happening in driverless/autonomous vehicles, the connected car, car apps and shared transportation. Using some of the statistics and projections from these examples featured in the new report, the hypothetical potential financial impact on auto premiums is profound. Collectively, the impact to the top 10 personal auto insurers that represent 70% of the direct written premium (DWP) could put 60% of existing DWP revenue into play. What’s more, this does not include potential lost revenue because of new products and services that may be offered by other companies and industries.

Even if the impact is only half of this, the operational and profitability models based on historical auto insurance assumptions are significantly disrupted. And those assumptions are starting to become irrelevant. Rather than waiting for automotive, technology and other industries to determine where this revenue will go, insurers must begin to plan today.

Another inevitable result will be felt in the traditional customer relationships that will be further challenged by the emergence of new services and providers around the shared economy, connected car and driverless vehicles. Opportunities to strengthen customer relationships will be strained and diminished as these companies redirect customer relationships and revenue away from traditional insurers.

The impact of these influencers; the emergence of new services; and their effects on customer relationships, old business models and revenue and profitability models are causing insurers to seriously consider these underlying, but very strategic questions: How are insurers going to recapture the disrupted revenue stream? Will it be through new products and services that generate new revenue in new ways? Will insurers become product manufacturers/underwriters for these emerging companies? Or will insurers adapt and become broader providers of insurance and service capabilities? How will you retain customer relationships and loyalty within this disruption? Are you preparing scenarios and plans to respond to these changes over the next three to five years?

These changes have uncovered a challenging new business landscape. The inevitable disruption of auto insurance is taking the industry in new and surprising directions. How you respond is strategically important for your companies’ relevance and competitiveness. So, fasten your seat belts! It is going to be a fast and interesting ride!