Tag Archives: larry downes

What Is the Killer App for Insurance?

Remember the must-read book Unleashing the Killer App: Digital Strategies for Market Dominance, by Larry Downes and Chunka Mui? I was lucky to get a signed copy at a Diamond Technology Partners event and hear them speak about the killer app. It was in 1998, the start of the e-business revolution, with the emergence of the Internet as a platform for a new business model. Every company was holding executive management strategy sessions discussing the book and brainstorming. In the insurance industry, many were putting up their first websites and beginning to think about e-business opportunities that could become their killer apps.

Many insurance companies failed in this effort. Their vision wasn’t big enough. Their desire to upend existing models wasn’t strong enough. Rather, they thought incrementally and cautiously. This resulted in strange hybrid solutions, such as websites with no integration to back-end systems. Requests were printed off and manually put into the systems. Many companies wasted time on vaporware — ideas that never got off the ground because of organizational angst or a lack of leadership.

The late 1990s were an exciting and painful time as we recalibrated our thinking toward an entirely new era of business. In spite of our efforts, we fell a lap or more behind in our race toward innovation.

But some companies succeeded. Think about Esurance and Homesite, startups that understood the opportunities and launched their businesses around this time. These companies exploited the dramatic changes introduced by the Internet and challenged one of the long-held business assumptions, that agents were required to sell and service insurance with direct-to-consumer models. As a result, they emerged as formidable, innovative companies.

Do established insurers have another chance to stay in the race?

Recently, I read the follow-up to the first book, this one titled, The New Killer Apps: How Large Companies Can Out-Innovate Start-ups, and another titled, Billion Dollar Lessons, both by Chunka Mui and Paul B. Carroll. Interestingly, the follow-up takes the view that decades- or century-long established companies can out-innovate today’s start-ups, many of whom are considered unicorns (pre-IPO tech start-ups with at least a $1 billion market value). These unicorns and other start-ups have emerged in the last few years with not only massive valuations but with real business models, real revenue and real customers — unlike in the first Internet boom. Think of Uber, Airbnb, Snapchat, SpaceX and Pinterest.

Even more compelling for insurance is the rapidly growing intensity of change being influenced by these companies. Consider Uber and the impact on auto insurance, Airbnb and homeowners insurance or Snapchat’s new payment options.

The authors are quick to point out what we should all recognize, that being big AND agile is essential in today’s rapidly changing world of converging technology innovations, including mobile, social media, sensors, cameras, cloud and emergent knowledge. They estimate that more than $36 trillion of stock-market value is up for “re-imagination” in the near future — meaning that either existing companies reimagine their business and claim the markets of the future or the alternative may happen and they may be reimagined out of existence!

When the authors compared successes and failures of established companies, they found that successful companies thought big, started small and learned fast. Failures commonly missed on one or all of these points. Is the insurance industry thinking big enough yet? Are companies innovating by starting small? And are they learning fast by experimenting, testing and learning from failures?

The only way insurers stand to catch up in a race where the trophy is not just success but also survival, is to out-innovate the competition, including the new competition from outside the industry looking to disrupt insurance. It’s possible, but it is going to require both wise technology investment and a whole new insurance business model mindset.

Digital Disruption: Coming to P&C Soon?

My wife is a project manager who is responsible for business operations at our local high school. She hired some people this summer to process and distribute new textbooks within the school, but they hadn’t finished the job and school was about to open, so she needed someone to come in at the last minute and help get the work done. More specifically, someone who would follow her instructions and would not expect to get paid. . .  so I spent a long Saturday with her at the school, schlepping pallets and boxes of new textbooks to the classrooms, getting everything in place in time for the start of the new school year.

I wasn’t happy with the work (the school was hot, the textbooks heavy) and more than once I thought wistfully about Steve Jobs, who according to biographer Walter Isaacson had targeted the school textbook business as an “$8 billion a year industry ripe for digital destruction.” Targeting textbooks seemed like a good idea to me, because not only are they big and heavy and expensive — they don’t update easily, either.

Unfortunately, Jobs didn’t live long enough to disrupt the textbook industry, but others are on the same path and, selfishly, I wish them well! Check out The Object Formerly Known as the Textbook for an interesting look at how textbook publishers and software companies and educational institutions are jockeying for position as textbooks evolve into courseware. Also, As More Schools Embrace Tablets, Do Textbooks Have a Fighting Chance? takes a look at how the Los Angeles Unified School District — second largest school district in the country — is equipping students with iPads and delivering textbooks digitally in a partnership with giant book publisher Pearson.

Harvard professor Clayton Christensen, author of The Innovator’s Dilemma, is credited with coming up with the term “disruptive innovation,” which he defined as: “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

These days, we tend to associate disruptive innovation with a new or improved product or service that surprises the market, especially established, industry-leading competitors and increases customer accessibility while lowering costs.The notion is appealing, and it makes for exciting business adventure tales featuring scrappy, innovative underdogs overcoming entrenched, clueless market leaders. Of course, disruptive innovation has been happening for a long time, even if it was called something else, but lately technology has made it easier and cheaper for upstart firms to take on industries they think are “ripe for digital destruction.”

There are some who think we’ve gone too far in adopting the disruption mantra. In her recent article The Disruption Machine, Harvard professor and New Yorker staff writer Jill Lepore squinted hard at disruption theory: “Ever since The Innovator’s Dilemma, everyone is either disrupting or being disrupted. There are disruption consultants, disruption conferences, and disruption seminars. This fall, the University of Southern California is opening a new program: ‘The degree is in disruption,’ the university announced.”

By the way, USC’s Jimmy Iovine and Andre Young Academy for Arts, Technology and the Business of Innovation is, in fact, opening this year and will focus on critical thinking with plans, according to the academy website, to “…empower the next generation of disruptors and professional thought leaders who will ply their skills in a global area.” And, yes, that is Dr. Dre’s name on the academy!

But there are others who believe we have now entered a decidedly more treacherous innovation environment, one that Josh Linkner in The Road to Reinvention says is forcing companies to systematically and continually challenge and reinvent themselves to survive. His fundamental question is this: “Will you disrupt, or be disrupted?” And Paul Nunes and Larry Downes, who wrote an article for the Harvard Business Review Magazine in 2013 titled Big Bang Disruption (they have a book on the same topic, summarized by Accenture here), warn of a new type of innovation that is more than disruptive — it’s devastating: “A Big Bang Disruptor is both better and cheaper from the moment of creation. Using new technologies…Big Bang Disruptors can destabilize mature industries in record time, leaving incumbents and their supply-chain partners dazed and devastated.”

Should CEOs be worried? When Mikhail Gorbachev visited Harvard in 2007 and said, “If you don’t move forward, sooner or later you begin to move backward,” he was talking about politics and multilateral nuclear treaties, not companies, but the warning certainly could have been directed at CEOs. That message, refreshed to incorporate the disruptive innovation threats that have emerged since then, seems a bit unsettling: If you run a company and you aren’t dedicating resources to continually scanning the marketplace for threats and improving and reinventing your business, if you are instead taking a “business as usual” approach, you are at risk of being marginalized or supplanted by competitors who will bring new products, services, experiences, efficiencies, cost structures and insights to your customers.

Maybe not this year, or next year, but sometime soon.  It’s not a question of whether it will happen, but when. Thus Linkner’s question, restated:  Will you disrupt yourself, or be disrupted by someone else?

Of course, some industries, like property casualty insurance, may not be high on anyone’s “ripe for digital destruction” list, so maybe there’s no need for insurance company CEOs to worry. Except perhaps about Google and Amazon. I keep thinking back to Blockbuster CEO Jim Keyes’ comments to The Motley Fool in 2008:  “Neither RedBox nor Netflix are even on the radar screen in terms of competition.” You know the rest of the story, which illustrates the real-life consequences of an incumbent underestimating and then becoming “dazed and devastated” by a competitor.