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Inventing Your Future: A 3 X 3 Approach

When you add it all up, the insurance industry has many characteristics that make it an attractive target for aggressive investments in innovation. First, it is enormous; it is estimated to be a global market of premiums written of more than $4.7 trillion. Second, it faces multiple challenges that offer opportunities for exploitation by nimble, efficient and innovative competitors, including:

  • Low-interest-rate environment: Together, forcing a focus on the core business of insurance, creating enhanced customer experiences and value and rethinking operations to manage expenses are driving the innovation of business models underpinned by an efficient, flexible and variable-cost-based infrastructure.
  • New customer attitudes and behaviors: From a move toward owning to renting, looking for niche solutions such as short-term, on-demand insurance or seeking solutions that help to manage risk, there is a growing need for new products and services that may be offered through new business models.
  • Changing customer expectations: Fueled by digital technology, data and experiences from other digital companies (Amazon, Google, Facebook, etc.), expectations are radically shifting and driving increased dissatisfaction levels with how insurers engage and interact with customers.
  • Traditional insurance is stale and complex: Insurance is seen as an intangible, low-engagement product that customers do not enjoy buying. They are seeking alternatives that make the process simple, quick and painless, with engagement that meets their needs.

Yet insurance is still needed by individuals and businesses to protect them and help them manage an increasingly changing risk environment. As a result, there is a gap between what traditional insurers are providing and what is needed in today’s rapidly changing marketplace.

Enter the greenfields, start-ups and incubators that are aiming to innovate insurance. They are seeking to define new business models and processes that create a better way to “do insurance,” capture new market opportunities, create products and services and be at the forefront of the changing market. The nature of this new pressure is characterized by technology, data and very active investment activity as reflected in the new term, InsurTech. The research firm CB Insights is tracking more than 130 start-ups and private companies in the InsurTech space that have raised more than $3.5 billion in aggregate funding.

Many insurance companies recognize the importance of not standing idly by while others are reinventing insurance and creating new models, products, services and value propositions. Indeed, a survey conducted by Celent among its insurance panel found that 86% felt that innovating over the next three to five years was critically important (InsureTech Has Arrived: A Primer, May 2016). And, as highlighted in Majesco’s recent thought leadership report, Greenfields, Start-ups and Incubators … Innovation in Insurance Products, Channels, Services and Business Models, a small but growing number of companies are becoming active in this space by establishing venture capital units/divisions; creating start-ups and greenfields; and incubating new products, services or channels.

See also: How to Plant in the Greenfields

Still, most insurance companies have been hampered by the prospect of needing to do multiple monumental tasks simultaneously: First, continuing to run the current business with existing (and in many cases) outdated legacy systems; second, modernizing those systems to bring the current business into the modern era; and third, innovating/re-inventing the business in the race with InsurTech competitors to respond to the rapidly changing needs, expectations and risk profiles of the customer.

Three Boxes

This dilemma is not new.  The tension between the current state and the vision of the future state is always there; it is just more pronounced today, given the pace and complexity of change. The companies that are exemplars at innovation are the ones that embrace these tensions and manage them strategically.

Consultant and Dartmouth professor Vijay Govindarajan adapted an ancient Hindu philosophy to characterize the required components of this capability in his new book, A Three-Box Solution to Managing Innovation (Harvard Business Review Press, April 26, 2016).

  • Box 1 (with Hindu god Vishnu, the preserver, as the metaphor) is about managing the present and keeping the current success of the company going.
  • Box 2 (based on Shiva, the destroyer) is about selectively forgetting about and letting go of the past. This includes some of the things that led to the company’s current success, which may not be relevant in the future; they are today’s strengths but may very well be tomorrow’s weaknesses.
  • Box 3 (based on Brahma, the creator) is about inventing the future — the game-changing innovations that are going to transform the business for tomorrow.

Govindarajan explains that many companies stay stuck in Box 1 and are afraid of Box 2. In an interview with the Huffington Posthe noted, “Once companies become large and successful, the tendency is to preserve success. The tendency is to focus on Box 1. Box 1 is about managing the present, Box 2 is about selectively forgetting the past and Box 3 is about creating the future. For large companies, success becomes a trap because they tend to focus on Box 1/present.”

Successful companies balance activity and focus across all three boxes. For example, a healthy Box 1 is critical to fund the activities in Boxes 2 and 3, which will determine the future of the company. As he said, “Just as the three Hindu gods work in concert to keep the universe humming, a company manager must keep the present business strong and at the same time get rid of outdated enterprises and develop new lines.”

Three Steps

A Three-Box framework is helpful for structuring strategy for innovation and reinvention, but putting it into action isn’t necessarily easy. In our experience working with numerous carriers on their transformation journeys, we have found the following three tools to be helpful in moving from thinking to action.

First, develop a target operating model that defines how to efficiently and effectively operationalize your company’s vision and business strategy for both the existing business and the future business model. The right combination of business processes (process strategy), organizational structure and staffing (people strategy) and technology and data assets (technology strategy) will likely be different for the existing and future models, so ask these key questions: What is your minimum viable product? New operational model? New business model? What areas of the existing business are most critical to keep it funded today and the future? A target operating model can help you define your existing and future business so that you rapidly get results and value.

See also: How to Turn ‘Inno-va-SHUN’ Into Innovation

Second, create and execute a well-documented, detailed business transformation plan that makes it explicitly clear how the transition from current to future state will occur. The plan should include details on your current state to help drive new efficiencies — including all of the connections, data flows and work flows — and the inevitable bottlenecks and inefficiencies that are costing you money and reducing quality. It should also include details that define your new business model and what you need for the future business, which is likely very different from your current model. To create confidence in how and when you will arrive at the future state defined by your target operating model, the plan must identify and document an appropriate number of transition states that define what the process, people and technology components will look like — and for how long.

Third, leverage cloud platforms and partner ecosystems across all boxes to eliminate the need for new infrastructure and reduce the uncertainty around the veracity of future state business model ideas through “fail fast” experimentation and rapid scalability.

These three steps combined with the Three-Box framework create the 3 X 3 approach for ensuring your company’s current and future success.

3 X 3 Approach to Reinvent Your Business

Reinvention and Transformation: The New Normal

The wave of change to a digitally and data-empowered world driven by ever-increasing customer demands is inevitable. And it is a given that there will be constant pressure from both start-ups and established companies to outdo each other in the race to better meet those needs and capture more share of the enormous value presented by the insurance market.

For insurance companies, the need to reinvent and transform the business is no longer a matter of if, but when. Together, the Three-Box framework and three-step approach provide a formula to use to develop your reinvention and transformation strategy. But the bigger challenge insurance leaders face is the pace of transformation — because the pace of change is not slowing down.

Insurance leaders should ask themselves: Do we have a strategy that considers both transforming the legacy business and creating a new business for the future? Who are our future customers and what will they demand? Who are our emerging new competitors?  Where are we focusing our resources… on the business or on the infrastructure? What can we do to demonstrate to all employees that we must be — and that we are — committed to working in balance across all three boxes?

Why Can’t U.S. Health Care Costs Be Cut in Half?

Technological improvements in health care have given us the quality of life we enjoy today. But chronic conditions, end-of-life care, and an aging society will bankrupt the United States if it doesn’t make dramatic changes to its health care system. America — and many other countries — need an audacious goal to get off the unsustainable path.

What if the United States set itself the goal of cutting healthcare costs in half — without sacrificing quality, and in about a decade?

Sound undoable? In “Delivering World-Class Health Care, Affordably,” we argued that some Indian hospitals are delivering high-quality care at 5% to 10% of U.S. prices. Of course, the United States is not India, so its costs will always be higher. But even with all the constraints, cutting U.S. healthcare costs in half is not preposterous. After all, it’s been done in other industries, sometimes in less time (think computers or consumer electronics).

Or take the example of autos. When Karl Benz introduced the Mercedes Benz in 1876, each car was handmade from start to finish. Every customer was assumed to be unique and so was every car. Making autos was a craft, and very few people were skilled enough to put one together. Buyers visited the Benz factory and stayed for a week to test drive the car and fix any bugs before taking delivery. The net result: The craft approach produced only a few automobiles at extremely high cost for the very rich.

Enter Henry Ford, who revolutionized the industry with his manufacturing innovations, lowering the price of cars from $2,000 in 1908 to just $260 by 1925 — an 87% reduction! He didn’t do it by making cars shoddier or offshoring production to low-wage countries. His secret was mass production in a “focused factory,” using interchangeable parts, specialization, and the assembly line. (See this HBR article on attempts to apply the focused factory concept to health care.) By making only one type of car (Model T) in volume, he cut unit costs dramatically. Ford shifted the auto industry from craft to mass production, and the Japanese later took it a step further to lean production. At each step, costs fell sharply yet quality improved.

If we go back a hundred years, medicine had to be practiced in a craft mode since each patient was unique and our ability to diagnose diseases and treat them was rather limited. Knowledge and technology have advanced at a such a rapid pace that today that quite a number of medical conditions can be treated using a “process” approach. Yet, too much of U.S. health care is stuck in the craft mode. It is producing a Rolls Royce for each patient! Why can’t U.S. health care go vastly farther in streamlining operations, standardizing protocols, and rationalizing facilities to create focused hospitals for heart surgery, hernia repairs, cataract surgery, hip and knee replacements, organ transplants, or even cancer treatment — anything that’s not an emergency procedure and can be scheduled in advance?

Many U.S. health care providers are going down this road (see “Fixing Health Care on the Frontlines”). But the most innovative Indian hospitals are doing much more. Narayana Health in Bangalore, India, uses the focused-factory approach to perform open-heart surgeries for $3,000, versus $75,000 to $150,000 in the United States. The total number of open-heart surgeries performed in the United States is about 550,000 — six times India’s — but this volume is spread across too many hospitals. The same can be said of other procedures that might lend themselves to mass or lean production.

Aravind Eye Care in Madurai, India, performs cataract surgery in assembly-line fashion. Doctors focus their time on diagnosis and the most intricate aspects of surgery, while less-skilled paramedics take care of everything else. Care Hospitals in Hyderabad performs angioplasties with remarkable efficiency and efficacy. Lifespring focuses on uncomplicated maternity care for the urban poor. HCG Oncology performs advanced diagnoses and procedures in its Bangalore “center of excellence,” while its spoke facilities provide radiation and chemotherapy treatments. Onco-pathologists and medical physicists, who are scarce in India, sit in Bangalore and provide services remotely, using telecommunication links to patients at spoke hospitals. (See this HBR article on how to redesign knowledge work, including health care.)

Changing U.S. health care to achieve a 50% cost reduction will require patients, providers, insurers, and others to make major adjustments. But such changes happen routinely in other industries. With costs spiraling out of control, the day has come when the same must happen in health care.

Authors

Vijay Govindarajan collaborated with Ravi Ramamurti in writing this article which first appeared in the Harvard Business Review. Ravi Ramamurti is the D’Amore-McKim Distinguished Professor of International Business and Strategy, and the Director of the Center for Emerging Markets at Northeastern University.