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Using Catastrophes to Rethink Claims (Part 2)

Digital technologies have the power to re-design insurance. A host of benefits lie within the front-end customer experience, but insurers stand to gain just as much from the digitalization of the back-end operations, including the claims process.

  • According to the Insurance Information Institute, 64% of insurance premiums (nearly 2/3 of every dollar) are used to pay claims and adjustment expenses.
  • Digital answers to loss reduction and loss prevention stand to yield the greatest profit for insurers.

This is critically important in an era where catastrophic claims seem to be more important and subsequently have the potential to do significant damage to an insurer’s bottom line.

In our last blog, we looked at the impact of digital technologies on the claims value chain. The hurricanes, hail storms, tornadoes and fires of 2017 have given all insurers a wake-up call to claims preparedness. We listed out many of the ways that technology has the potential to improve catastrophe management and claims experience.

In this blog, we’ll look more closely at operations. How can operations look at catastrophic events differently? How can it prepare for both internal and external impact? Can our redesigned claims experience create real value?

A holistic approach to catastrophic claims

From Aug. 12-23, Hurricane Harvey was tracked and classified between a tropical storm and a tropical wave. It suddenly started gaining strength as a tropical storm on Aug. 24. Overnight, it rapidly became a Category 4 hurricane, making landfall at Rockport, TX, on the 25th.

In the days prior, NASA and many U.S. insurers shared a concern. What would happen to the city of Houston? Hurricane Harvey was not only going to do catastrophic damage, displace thousands of people and potentially disrupt many businesses, it was going to hit the Johnson Space Center, home to the operations for the International Space Station (ISS). The ISS receives as many as 50,000 different commands from Houston in any one month, making corrective maneuvers and steering the station away from harmful debris. Systems could not go down without safety concerns for the ISS.

See also: Using Catastrophes to Rethink Claims  

NASA is adept at preparing for anything. When they aren’t launching rockets, monitoring rovers and steering the space station, they are running through scenarios to improve their ability to handle any situation. In this case, they did have a plan. They remained vigilant, and they rode out the storm.

Insurers now have NASA-like capabilities to use data and digital technologies to their advantage. They, too, can look at the entire sphere of a catastrophic event and find ways to protect themselves and their insureds while optimizing every asset.

Pre-Crisis Efforts

Insurers are known for standing by their clients in the aftermath, but what about standing by their clients before crisis hits?

Last month, in one of the biggest evacuations ever ordered in the U.S., roughly 6.3 million people in Florida — more than one-quarter of the state’s population — were told to clear out from areas threatened by Hurricane Irma. Another 540,000 were directed to move away from the Georgia coast.

Insurers can wait for the government to issue general warnings, but they can take control of communications with their customers by adding digital capabilities. Insurers are armed with ever-improving risk models. They have unprecedented access to customer-specific, property-specific and economic-related data as well as other types of valuable data, including climate and location data, traffic data and telematics data. Insurers are increasingly pulling this big data together for real-time analysis, cognitive learning, insight and decision-making … including to minimize or eliminate claims.

Insurers are also in a better position to help properly categorize storms and crises, leveraging digital technologies such as analytics and artificial intelligence. Using this data, insurers can personalize communications through digital channels that can reach the people that are in the risk zones with highly specific loss and risk prevention measures. Texts, e-mails, automated phone calls with clear directives can greatly help customers who are often panicking, lack detailed information or can be indecisive. This is the trending wave of insurance transformation at its best. Preventive communications can be targeted individually, giving insureds all of the vital information they need to protect themselves and their property, an area of increasing interest and expectation by customers we identified in The Rise of the New Insurance Customer and The Rise of the New Small Medium Business Customer research.

In Majesco’s recent white paper, Changing Insurance for the Digital Age, we discuss how the future is not only becoming more foreseeable, but it is also becoming more volatile. The result is that insurers will be shifting from risk coverage to risk prevention. The most sought-after portion of the claims value chain may be the network of data and technologies that prevent or reduce claims. These prevention services will soon be new sources of revenue.

 During the Catastrophe

During the 2016 Ft. McMurray wildfires in Alberta, Canada, an estimated 88,000 people were displaced from their homes. Most had no idea where to go, and many refugees found themselves without adequate short-term housing. The digitally enabled insurer can help direct insureds to likely locations of refuge and even offer housing discounts or pre-paid lodging to those who are displaced. This kind of communication and service will build strong loyalty among insureds, while providing marketing with a host of compelling stories with happy endings.

What happens, however, when the insurance organization itself is in the same line of storms, fires or earthquakes?

NASA, during Hurricane Harvey, had contingency plans in place. Should ground teams need to be evacuated, they would be moved temporarily to Round Rock, TX, then for a longer term to the space center in Huntsville, Alabama.

Many insurers had their claims adjuster crews prepared, and drone capabilities in place, but were less prepared if their systems and operations were affected, primarily due to their large on-premise operations.  While many insurers have disaster recovery plans, they must ask themselves if their operations can scale rapidly to handle the onslaught of calls, claims and needs. How will operations be managed remotely if staff are unable to get access? Which customer service centers may need to be relocated, and how will they handle the potential of consecutive catastrophic events … like what we saw in Houston and then Florida?

See also: Catastrophes and ‘Do Little’ Syndrome  

Cloud business platforms are perfect for handling claims operational requirements. They are always on, most often are located off-site, are easily scalable and often are managed by someone outside the organization … providing access to critical resources. While systems are attempting to handle hundreds of adjusters at once, customer service may also be handling thousands of customer inquiries. Insurers need the capacity and stability that a cloud platform can supply. Cloud platforms are the perfect foundation for constructing a catastrophe-proof claims value chain.

Post-Crisis Restoration

In addition, the right cloud platforms can handle the plug-and-play technologies that are increasingly used by claims departments for post-claim services. They can handle images and video from drones, photos from mobile phones and tablets, simulation data, cognitive computing decisions (with speed) and a high volume of communications — automated, human and chatbot.

These same technologies will aid in adjuster mobilization, prioritization and routing. In the next blog in this series, we will look specifically at how digital technologies will help claims to build relationships with customers. Where are the effective touchpoints in the claims process? How can an insurer “take control” in the relationship and gently guide policyholders into best practices and safer circumstances? What can insurers do to stand by their policyholders during the restoration or rebuilding process? At the same time, we will look at how insurers in the future will use data and AI to spot fraud and cut costs.

For a deeper look into the data strategies and predictive analytics that are having an impact on the complete insurance value chain, be sure to read Majesco’s report, Winning in a New Age of Insurance: Insurance Moneyball.

Space, Aviation Risks and Higher Education

What do you do when a group of precocious students decide to build a satellite and launch it into space? Or, when they decide to build an unmanned aviation vehicle (UAV)—more commonly known as a drone—and fly it over a busy urban market? Or, when they design and launch a few rockets October Sky-style from a training field on campus before heading to a NASA competition for a chance at $50,000 in prize money?

As a risk manager, considering the answer to these questions may cause a heart palpitation or two as you think about the potential effects of these educational opportunities on the educational institution. Not only does the institution face increased liability and property damage risks, but there is also the potential for increased risk to reputation and even regulatory compliance considerations.

Insurance was likely the last thing the students at St. Thomas More Catholic School in Arlington, VA, were thinking about when they began construction on a shoebox-sized satellite called Cubesat. According to a Washington Post article, the purpose of Cubesat, which was released from the International Space Station on Feb. 15, 2016, is to beam photos from 200 miles above the Earth back to computers in their school library. You can view pictures from the satellite here.

See Also: Should We Take This Risk?

Insurance was also, probably, the last thing students from the University of Wisconsin-Whitewater were thinking about in October 2015 when they launched their drone to capture aerial images of the new Whitewater City Market. According to the University of Wisconsin News, the purpose of the project was to respond to the market organizer’s request to geographically depict the organic growth of the Whitewater City Market. A video of the aerial images has been posted to YouTube and can be viewed here.

To the 54 college teams selected by NASA for 2015-2016 NASA Launch Challenge, insurance was likely pretty low on the list of considerations as the teams worked to design, construct, test, launch and successfully recover a high-powered reusable rocket and its payloads. The purpose of the challenge is to encourage participation in STEM fields and to examine innovative solutions to potential issues that may arise during space travel. There is also $50,000 in prize money for the top three teams that complete the challenge. For 2015-16, the competing rockets will be launched on April 16, 2016.

So, what are the risks associated with these types of activities, and how can insurance assist the college in transferring some of these risks?

According to a white paper recently published by Allianz, a large commercial insurer, these types of aviation/space risks can be bifurcated into two areas: (1) ground or pre-launch risks and (2) in-orbit or post launch risks.

Ground risks include:

  • Hazard or catastrophic risk to facilities because of fire. This type of risk can be significantly increased if someone is using flammable chemicals, such as nitrogen or any of the components present in rocket fuel. Keeping these materials on campus can create additional risk for the institution, which may not be contemplated in current insurance programs.
  • Transportation risk increases the risk of property and liability losses. Moving rocket components, including flammable materials, increases the potential for losses to (1) the components themselves and (2) a third party that may be injured as a result of an incident on the road.
  • Liability loss because of launch failure may result in damage to property near the launch site or even injury to a third party, faculty member or student. Failure to take adequate safety precautions during design/construction—working with chemicals, power tools and other materials—may result in increased potential for injury to students and faculty participating in the project.

Post-launch risks:

  • Loss of the object because of malfunction, damage or equipment failure, items that represent a significant investment of time, resources, and materials. Such a loss may result in the inability to participate in a competition, a loss of grant money or additional time spent rebuilding or reworking the project.
  • Liability loss due to in-air collision, falling objects or interference with another aerial object (such as a satellite signal or an airplane’s operating equipment)—these types of incidents may result in significant bodily injury or property damage of a third-party property.

Typical insurance policies maintained by most institutions may not provide adequate coverage for space/aviation risks:

Property policy—Provides coverage for loss or damage to property, equipment and materials of the university. Coverage is generally broad but may exclude: (1) hazardous materials, (2) property in transit or off premise, (3) property not owned by the university and (4) pollution because of the release of a hazardous substance or chemical.

General liability policy—Provides coverage for the injury or property damage of a third party because of the negligence of the institution or those operating on behalf of the institution. Coverage responds to a wide range of standard risks, but there may be exclusions for: (1) aviation risks, (2) loss caused by the acts of a third party, such as a student or contractor, (3) third-party liability related to a discharge of pollutants/chemicals, (4) loss of institutional reputation or cost of a crisis management team, (5) coverage for regulatory fines and penalties for failure to obtain proper permits, etc. and (6) the liability to a third party because of the failure of a vessel to perform as expected or because of a design flaw.

Automobile liability policy—Provides coverage for liability and property damage associated with the operation of a motor vehicle. Coverage responds to a wide range of standard risks, but there may be exclusions for: (1) pollution because of the discharge of a chemical substance transported on or in the vehicle, (2) liability for use of third-party transportation, such as a rental vehicle or bus charter or the use of a personal vehicle by a faculty member or student and (3) property damage to institutional property being transported on or in the vehicle.

There are additional types of coverage that may be needed, including:

Pollution coverage—Including premises pollution (to provide coverage for the institution’s own facilities) and pollution liability coverage (to provide coverage for third-party exposure to pollutants)

Aviation/space coverage—Specialized policies can provide coverage for losses to an aerial vessel or its equipment and, also, for the most common types of liability loss (collision, crash or interference). Note: Special endorsements may be required for drones.

Inland marine rider/policy—Provides coverage for scheduled equipment and property that may not otherwise be covered by the institution’s standard property coverage. This can include coverage for property that is being transported in a vehicle

Crisis management coverage—Provides coverage for loss or damage to the institution’s reputation; this may include coverage for the costs to engage a crisis mitigation team and public relations experts or the cost to take other steps to preserve and restore the reputation of the institution.

See Also: What Is the Future for Drones?

Professional liability—Provides coverage to professionals because of the failure of the design/construction or for the failure of the devise to perform as intended. This coverage may include coverage for damages not related to injury or to property damage— including the financial loss and the costs for rework and redesign.

Not all insurance policies are created equal—individual coverage and policies may respond differently. Please consult with an expert if you if you have questions about coverage for these types of institutional activities.

5 Apps That May Transform Healthcare

Talk about being in a room with a lot of smart people! Wow!

HITLAB, a healthcare innovation technology and teaching lab based in New York, just sponsored its second annual World Cup event at Columbia University for aspiring healthcare technology entrepreneurs and start-ups. The HITLAB staff, who blew me away with their creative energy, brought together the best and the brightest in academia, the business world, the insurance industry and the healthcare technology sector for this two-day event.

Out of 192 applicants, five finalists were selected to present potentially revolutionary technology and ideas on a wide range of global public health problems that have been around since the time Moses wore short pants and that someday soon may have the kind of impact Louis Pasteur and Steve Jobs did.

The beauty of these five finalists is that their solutions are so simple that even someone from Jersey City like me can easily understand. The health insurance industry and the malpractice insurance industry should stand up and take notice.

Noninvasix — Keeping Babies Safe

For starters, what if we could reduce brain injuries in newborns by 90%? That is what the CEO of Noninvasix (www.noninvasix.com ), Graham Randall, PhD, MBA, based in Houston, is working on.  The technology is designed to monitor the levels of oxygen molecules in the brains of infants; lack of oxygen causes many permanent brain injuries. This technology was originally funded by the Department of Defense and the NIH, among others, to address traumatic brain injuries in wounded veterans and other adults. Randall’s colleagues discovered a way to use this technology, known as an optoacoustic oxygenation monitor, to detect brain oxygenation levels in babies during active labor.

Gary Hankins, MD, who is the vice chair of the American College of Obstetrics and Gynecology Task Force on Neonatal Encephalopathy and Cerebral Palsy, said, “This technology has the potential to eliminate up to 90% of cases of hypoxic ischemic encephalopathy and subsequent permanent injuries such as cerebral palsy.” The problem with simply using current technology such as a fetal heart monitor-which dates back 40 years-is that it does not accurately measure the levels of oxygen in the brain. In fact, 80% of results are indeterminate or unknown. The new technology can help prevent brain hypoxia (or lack of sufficient oxygen) at birth, which is responsible for 23% of neonatal mortality in the world.

This technology may also help revolutionize obstetrics. OB-GYN physicians have the highest rate of malpractice insurance, with reported annual premiums as high as $200,000 in some states. More than 75% of OB/GYN physicians have been sued for malpractice, with an average of 2.7 lawsuits per physician. Most lawsuits relate to neurologically impaired infants, whose issues get blamed on the doctor during delivery. It has been reported that as many as 50% of OB-GYN physicians have cut back on their practice because of the fear of malpractice claims. Many have moved their practices to states that have less expensive premiums because of legislative caps on liability.

Hospitals, healthcare systems and health insurers should also take notice because the rate of unnecessary surgery has been widely believed to be too high since I walked the hallowed halls of Columbia University 34 years ago. C-section rates have, in fact, nearly doubled over the past 10 years from 17% to 34% of all births in the U.S. The World Health Organization (WHO) recommends C-section rates in the range of 10-15%. The Joint Commission on the Accreditation of Hospitals now requires hospitals to report C-section rates, and many health insurers now pay a bundled rate for deliveries and not a separate, higher rate for C-sections. Many health researchers believe the high rate of unnecessary C-sections is because of the fear of malpractice lawsuits, and Graham Randall believes that false positives from fetal heart monitors also play a huge role. C-sections are the most common surgery in the U.S., with 1.2 million performed each year, and they carry risks such as blood clots and surgical infections to both mother and baby.

Ceeable — Preventing Blindness

Chris Adams, the CEO of Ceeable, based in Somerville, Mass. (www.ceeable.com), won this year’s World Cup competition. “I am here to prevent blindness,” he said. Ceeable was formed in 2014 to commercialize a mobile digital eye exam platform that was co-invented with Dr. Wolfgang Fink at Caltech with assistance from scientists at NASA, the University of Arizona, the Doheny Eye Institute at UCLA and the Jet Propulsion Laboratory in Pasadena.

This mobile field test is a perfect example of the potential for telemedicine. Current technology, used by ophthalmologists, optometrists and eye care clinics in strip malls across America and around the world are expensive, and not very mobile. Today’s eye exams are tedious. (Bats have much better eyesight than I do, so I have experience with tests.) The equipment typically costs $35,000 and weighs roughly 100 pounds.  By contrast, Ceeable only needs a tablet with a touch screen and the Internet to perform a 3-D early detection for glaucoma, muscular degeneration disease, other causes of vision problems and the actual onset of blindness.

The test is user-friendly and can be performed anywhere in the world. The test can even be performed at home, which is brilliant. Although health insurers pay for eye exams at no cost under the ACA, patients are typically limited to two visits per year. With this inexpensive mobile device, people at risk can perform tests as often as they like.

More than 285 million people worldwide suffer from diseases that cause blindness, such as diabetic retinopathy, glaucoma and age-related macular degeneration. The Ceeable technology is now deployed in vision clinics in the U.S., Mexico and Russia and will soon be available in developing countries.

Rubitection — Managing Bedsores

Sanna Gaspard, the CEO and founder of Rubitection, based in Pittsburgh, received her PhD from Carnegie Mellon University, and her start-up has developed a handheld diagnostic device and software system to modernize the detection and management of bedsores. Rubitection has been part of Project Olympus at the Carnegie Mellon incubator program.

When I met her, I interrupted her within 60 seconds and said, “I get it.” My mother ended up in a nursing home when she was overcome with organic dementia. She became so fragile from old age that the nurses could hardly touch her skin without it turning black and blue. They also had to check her frequently for bedsores. 

Turns out I didn’t get it about bedsores at all. What I didn’t know, until Gaspard told me, is that bedsores can be life-threatening. Complications from bedsores, such as infections, kill 60,000 people every year in the U.S. The average cost to treat bedsores in acute cases is $43,000 each and may reach $70,000; there are more than 2.3 million bedsore cases a year in the U.S., costing $11 billion in total.

Medical expenses resulting from bedsores are not reimbursable under Medicare if they developed after someone was admitted to a facility. The facility has to eat the costs.

Current technology that monitors for bedsores is very expensive and difficult to use. The current standard of care is typically a manual skin palpitation and visual inspection. The Rubitech Assessment System (RAS) provides a reliable early detection handheld device for patients at risk with bedsores, helping to address a global public health problem that I didn’t even know existed beyond discomfort and pain for the patient. Rubitection www.rubitection.com came in a well-deserved second place.

Now I get it.

Homeward — Getting the Medication Right

Joe Gough, president and CEO of Homeward Healthcare in Toledo, Ohio www.homewardhc.com, told how his six-year-old son was misdiagnosed at a hospital emergency room and was sent home with the wrong medication. All his vital signs crashed. Luckily, his life was saved upon readmission, and today he is a healthy young man. Many others are not so fortunate.

Again, I immediately could relate to misdiagnosis and incorrect medications. My dad was diagnosed with congestive heart failure, and his cardiologist told me he had two months to two years to live. Several months later, I got a call: “You have to come home because your father is in the hospital, and we need to amputate both his legs because he is not getting enough blood circulation down there. We need you to tell him.”

I hopped on the next flight. When I told my dad the situation, he had the perfect answer: “Throw me out the window now.”

Turns out he was on all the wrong medications, and the poor circulation in his legs was actually more because of blockage in his carotid artery. The plan to amputate his legs would have done nothing to save his life. I got him admitted to a new hospital with a new cardiologist. My dad got to live a couple more years before he finally took his first day off from work, at his funeral. We buried him with both his legs.

So, I get misdiagnosis, wrong medications and poor discharge planning.

Gough and the researchers at Homeward Healthcare have created interactive software for hospitals, patients and payers that the patient can control on a touchscreen tablet from her bedside. Multimedia, real-time discharge planning that includes a patient dashboard will produce better outcomes, free staff time and resources and vastly improve communications.

Gough had begun his presentation by telling us that most people toss their discharge instructions as they walk out the hospital door — but no more. His technology has great potential to reduce hospital readmissions. A key component is a psychosocial assessment to determine who is at risk of not following the discharge plan.

There are also reminders about the correct use of proper medications, and I get the need for that, too. Patients must own their care plan. My oldest brother, upon release from a hospital a few years ago, was told he needed to lose weight and stop smoking. The first thing he did when he got home was have a large bowl of ice cream and a cigarette. I threw his discharge plan in the waste basket.

It is estimated that $26 billion is spent annually from readmissions. The reduction of readmission rates is now a major initiative under both Obamacare and the Joint Commission on Accreditation of Hospitals. The Homeward Healthcare technology is now being used in 23 hospitals, and I am told nurses doing discharge planning just love it.

Ristcall — a Mobile, Smart Watch Nursing Station

Srinath Vaddepally, the CEO and founder of Ristcall, with offices in both Philadelphia and Pittsburgh, has designed a wireless, wearable smart device for both hospital patients and nurses. I like to think of it as a mobile smart watch nursing station.

The idea for this technology, designed with researchers from Carnegie Mellon, came about when, as a hospital patient, Vaddepally fell in his hospital room and could not reach the call button on the bed. Turns out 70% of all patient falls in a hospital occur in the patient’s room, with 40% occurring while walking to the bathroom. The average cost to a hospital for a patient fall is $20,000 per case, and the annual reduction in Medicare reimbursements can reach $200,000.

Ristcall (www.ristcall.com) has a great point. How do you call a nursing station if you are lying on a floor and can’t reach the call button? In addition, how can you reach a nurse who is busy caring for multiple patients and is not at the nursing station?  Even when you ring the traditional call button, the nurse has no idea why you are calling; he has to walk to your room to find out.

As I told Dr. Michelle Odlum, a postdoctoral research scientist at the Columbia School of Nursing, nurses rock! They are the heart and soul of our healthcare system, but they are often overworked, and they don’t have eyes in the back of their heads.

Now, with the help of Project Olympus-which provided incubator space at Carnegie Mellon-nurses can soon have a real-time alert for all traditional patient requests. Nurses will be able to rock even more.

If you are a healthcare technology entrepreneur, I highly recommend applying for this award or sponsoring next year’s HITLAB World Cup Summit. It will be held once again at Lehner Hall at Columbia University in New York, from Nov. 28 to Dec. 2, 2016.

For more information, visit www.hitlab.org.

It was a real pleasure to meet these outstanding World Cup finalists and the HITLAB staff. I learned a great deal and made friends I feel I will now have for a lifetime.

The Dangers of Standing Still

One of the most telling episodes of Kodak’s slide into bankruptcy was how it incorporated digital capabilities into its Advantix camera system.

Kodak spent more than $500 million to develop and launch the Advantix in 1996. The system capitalized on emerging digital capabilities— especially the digital sensors that Kodak engineers had invented two decades earlier—to capture date, time, shutter speed and lighting conditions to produce better pictures. The strategy culminated in the Advantix Preview camera, which allowed photographers to preview shots and mark how many prints they wanted. Kodak gave users no ability to save the digital images, however. The Advantix required traditional silver halide film and prints.

Advantix flopped. Why buy a digital camera and still pay for film and prints? Kodak wrote off almost the entire cost of development.

Kodak’s strategic blunder was not because of a lack of technological prowess; it was because of an inability to embrace business model innovation. Kodak was the market-leading photo film, chemical and paper business. It bet its future on “the hope that demand for digital images would sell more film.” As a result, Kodak protected its traditional business to the bitter end—until others leveraged digital to make film irrelevant.

Judging from recent comments by Carlos Ghosn, Nissan’s chief executive, we might one day read about how Nissan repeated the pattern of Kodak’s decades-long blunder and demonstrated the dangers of standing still during a period of industry innovation (like what’s happening in insurance).

Ghosn has championed his company’s efforts to develop autonomous driving technologies to allow cars to operate without human intervention. And, unlike some other large automakers (such as Toyota), Ghosn does not dispute the technical feasibility of driverless cars.

But Ghosn views the choice of semi-autonomous vs. driverless as a strategic decision—and he is clear that his choice is to use autonomous technologies as incremental enhancements to cars with drivers. As reported by the Associated Press via the New York Times: Ghosn said Nissan sees autonomous vehicles as adding to driving pleasure, and a totally driverless car is not at the center of the automaker’s plans. The autonomous driving Nissan foresees will assist or enhance driving. Nissan may end up with a driverless car, but that was not the automaker’s goal, he said. “That is the car of the future. But the consumer is more conservative. That makes us cautious.”

In other words, Ghosn’s strategy is to hope that the demand for autonomous technologies will sell more cars. Like Kodak, he is aiming to reinforce Nissan’s current business model rather than embrace business model innovation.

By being cautious, however, Ghosn risks emulating Kodak’s failure by waiting for others to leverage driverless technologies to make traditional cars irrelevant. He also risks ceding emerging business innovations to Google, Uber and others willing to make driverless cars their explicit primary goal.

The unanswered question is whether Ghosn, behind the scenes, is parlaying his technological forward-mindedness into strategic preparedness.

Carlos Ghosn need not shed his caution. But, as I previously argued, trillions hang in the balance. Given those stakes, has Ghosn hedged Nissan’s strategic bets in case the driverless “car of the future” comes more quickly than he expects?

Some argue that, of course, Nissan won’t be caught flat-footed even if driverless cars come sooner than expected. Look, for example, at its research partnership with NASA. But research is not enough.

A trap that market-leading companies fall into is believing that they can catch up if their initially cautious strategies turn out to be wrong. One lesson that Paul Carroll and I found in our study of thousands of large company failures is that it is very hard to excise denial from multiple layers of the organization—even after objective evidence argues for doing so. Another lesson is that, while it is possible to catch up on raw technical expertise, it is hard to catch up after yielding multiple product-oriented learning cycles to competitors.

Take electric hybrid cars. A former senior technologist of one of the big automakers told me his company considered but rejected hybrid electric cars before Toyota launched the Prius. The automaker was at first dismissive of the Prius and then surprised by its market success. It did jump into the market with its own offering. But, the technologist bemoaned, it has not been able to catch up. With each model, Toyota gets further ahead. The company ceded too many learning cycles to Toyota.

The same could be happening with driverless cars.

Nissan espouses caution about driverless cars. Whatever research is going on in its labs is mostly hidden from the public (perhaps to not confuse the market or provide succor to competing strategies).

Google, on the other hand, will soon release 25 prototype driverless cars onto the streets of Mountain View, with plans to launch 75 more. Google’s self-driving cars have logged a collective 1.7 million miles and are adding about 10,000 miles per week, mostly on city streets. Google has not cracked all the issues involved with driverless cars. It has, however, created the ability to learn faster.

Kodak, as evidenced by its own tongue-in-cheek marketing video, ended up play “grab ass” for years with digital photography. Late attempts to “get serious” were too late. Even now, 40 years after Kodak engineer Steven Sasson invented the digital still camera, Kodak still struggles to realize the potential of its IP portfolio.

Likewise, every market-leading department retailer of the 1950s and ’60s, such as Macy’s, Woolworth’s and Ames, thought it could contend with discount retailers like Wal-Mart if the need arose.

Only Dayton Hudson took the discounting business model seriously. Rather than watch and wait, Dayton Hudson formed a discounting business unit and unleashed that subsidiary to compete as hard as possible against the traditional business. That discount subsidiary was named Target. Of the more than 300 department-store chains in the U.S. in the late 1950s, only Dayton Hudson/Target successfully moved into discount retailing. Most of the others preceded Kodak on the path to bankruptcy.

Rather than following in the footsteps of Kodak and all those defunct department stores, Nissan should be more like Dayton Hudson.

Instead of just betting on caution, Nissan should also unleash innovators to create its own driverless offering and charge them with competing as hard as possible against its traditional business.

How ‘Cascades’ Can Build Work Culture

Most of us have heard the phrase: “Culture eats strategy for breakfast.” It could be restated as, “Your actions speak louder than your words.” This means that management can dream up any strategy they want, but their behaviors and actions are what create the culture of an organization.

Culture drives how efficient an organization’s processes are. Culture drives the success or failure of an organization. Culture is the product of leadership decisions or the lack of decisions.

The best-articulated corporate vision and strategy are of no value if they cannot engage the hearts, minds and work habits of employees at all levels and convey a purpose beyond just profit.

A vision states where an organization wants to go; a strategy defines the path to get there; and the work culture describes how business processes are actually executed along the path toward the vision. The health of a work culture can range from a contagiously high-performance work culture to mediocre or all the way down to a disruptive, confrontational culture that can’t get much done on time or done right the first time. A disruptive culture can trump the best vision and strategies every time. On the other hand, if a work culture is nurtured and groomed to align with a carefully crafted vision and strategy, the positive momentum could be unstoppable.

Figure 1 shows possible scenarios of vision, strategy, culture and performance alignment and misalignment. Business process performance (small white arrows) is more correlated with the work culture (small red arrows) than with the vision or strategy (big blue arrow) of an organization. Work culture — not vision or strategy — culture drives business performance. The challenge presented by this dilemma is that the work culture is an invisible force that is hard to measure. It shows its good side when you watch it and only displays its bad sides when you look away. The work culture is the product of complex cascade effects inside an organization and is as much affected by leadership actions as it is by the lack of appropriate actions. If left unattended, it will create its own random world of hidden agendas, which will probably not be aligned with the priorities of the organization.

Untitled
Figure 1
– 3 Possible scenarios of vision, strategy, culture and performance alignment

Corporate visions and strategies are usually rolled out in formal three- to five-year plans. Work culture management and monitoring is too often not in sync with that plan and referred as an “HR thing,” even though it is the gate-keeper of business performance. If you do not understand and actively manage the work culture, it will manage you.

Measuring Cascade Effects Risks

It would be wonderful if we could just plug a measurement device into an organization to check its health and the risks of cascade effects (Figure 2). The work culture defines how employees work with each other through communication, coordination and cooperation. It generates multiple slow-motion and rapid chain reactions, ripple effects and cascade effects that greatly affect the mood and attitude of the organization. It predestines an organization for success or failure.

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Figure 2
– The challenge of measuring work culture health and risks

How can we measure the health of invisible cultural chain reactions that can drive the success, mediocrity or failure of an entire corporation? I suggest a series of management and employee surveys and brainstorming assessments to test for the presence of 56 different elements of risk that can be present at any level in an organization. (See Figure 3 for a partial view of the survey.) The culture assessment tool shown in Figure 3 should be used for at least three different levels of management in an organization. These three levels of perception will offer triangulation data points, which will show how common or diverse the perceptions are that describe the organizational culture.

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Figure 3 – Partial view of a gamified organizational health survey

The Organizational Force-Fields That Drive Success or Failure

Chain reactions, domino effects, ripple effects and snowball effects are similar in that they are defined by the single acts that created them. Once triggered, they will play out their effects depending on the amount of resistance the system presents against them. Cascade effects are different. They are fueled by a hierarchy of multiple interacting triggers at different levels in the system.  Time delays between cause and effect are common, making the direct correlations between cause and effect more difficult to identify. Each element of the cascade effect can create dramatic outputs involving as many as three degrees of separation, rippling through an organization. There are three types of organizational cascade effects:

  • Destructive tsunamis of non-cooperation and negativity
  • Expanding groups of  status quo herd followers
  • Constructive waves of cooperation, empowerment, motivation and positivity

If all of the cascade effects are present in an organization at the same time, the result will be conflict, employee frustration and lack of momentum in the right direction.  A random mix containing equal parts of motivated, frustrated, positive and cynical employees co-located for 40 hours a week is not a formula for success; it is a recipe for mediocrity or even disaster.

Positive Organizational Cascades

These are acts of positivity that multiply and can also spread from person to person. In 2010, researchers from the University of California, San Diego and Harvard published the results from their experiments in an article titled: “Cooperative behavior cascades in human social networks.” They showed that cooperative behavior can be just as contagious as bad behavior. They showed that positivity can spread from person to person to person by displaying random acts of cooperation, generosity and other positive behaviors. This creates a cascade of cooperation that influences dozens of people who were not involved in the initial trigger event.

Mediocrity and Consensus Cascades

These cascades are the result of contagious personal decisions to blend in with the crowd and not make any waves (also known as “group think”). Many researchers, including those from the computer science department at Carnegie Mellon University, have confirmed this phenomenon. Forces in organizations and society like peer pressure, blending in, the herd mentality and the band-wagon effect can cause an individual to follow the herd, even if that violates personal preferences and value systems of what is right and what is wrong. This is often done to save one’s reputation in a group and gain acceptance. Efforts to achieve team consensus can create the same phenomena, resulting in conclusions that might not always be the best ones. Teams can assign a “devil’s advocate” role to a participant to deliberately challenge “herd decisions” to counter this cascade effect.

In 2013, Forbes wrote an article titled: “Brainstorming is Dead…,” which summarized recent criticism by many about how creative people can get suppressed by other personalities during brainstorming events when the main priority is to get consensus on all brainstorming conclusions. Forcing consensus is as useful as it is dangerous. To avoid ineffective and dangerous group-think cascade effects, group decisions should build on each other’s ideas, when possible, to create innovative hybrid solutions and not pick one idea and totally discount another idea that might have a flicker of genius.

Negative Organizational Cascades

These are acts of negativity that multiply and spread from person to person in an organization. Risky, combative and uncooperative behaviors all have the unfortunate ability to multiply and spread to three degrees of separation from the original act. This can have a negative impact on dozens and even hundreds of downstream people not involved in the initial negative triggering acts. Negative human interactions can break the bonds of humanity and teamwork. These cascades can destroy the work culture, effectiveness and performance of an entire organization.

The Broad Influence of Cascades

Behavioral researchers have demonstrated with team experiments that positive, mediocrity and negative cascades can all have affect three degrees of separation (friends of friends of friends). Other researchers and computer models have determined that only three to four degrees of separation is what separates everyone in the USA, and only six degrees of separation separate everyone in the world. Exceptions to this rule are the secluded tribes in the Amazon jungle and other remote places. Yes, the world is smaller than we think, and actions really do speak much louder than words. Actions and behaviors can reach beyond the horizon and into different time zones.

The Organizational Forces Survey

The Organizational Forces Survey tests the health of the individual organizational forces that drive chain reactions, cascades and other behavior propagation phenomena. This survey asks participants to assess the presence of positive and negative organizational forces shown in Figure 4 by identifying the forces they believe to be present. This survey is given to all levels of employees and management.

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Figure 4
– The Organizational Forces Survey used to assess the health of the work culture.

Figure 5 shows an example of survey responses, using the form in Figure 4, that were attained from the survey for three different levels in an organization: top leadership, middle management and non-management. One sign of healthy communications between management and employees is when organizational risk assessments are similar between different levels in the organization. However, that is not the case here.

In this survey response example, top leadership rated the health of the work culture as overwhelmingly positive (green). They perceived their environment to be a Grand Organization in the making. Unfortunately, non-management employee responses to this survey were at the opposite end of the scale (red). They rated the forces in the organization as overwhelmingly negative, filled with high risk and knocking on the door of a Grand Disaster. Middle management rated the work culture as mediocre (yellow), with some responses slightly positive and others slightly negative. This group of employees was apparently influenced by perceptions of top leadership and non-management.

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Figure 5
– The range of survey responses from various levels in this organization shows major discrepancies in their perception of the health for the organizational work culture.

Conclusion

Grand investigations are often done after a loss of life disaster occurs, such as a NASA space shuttle disaster, a passenger airplane crash or an accidental employee death on the job. However, it is hard to find this level of effort and analysis applied to prevent such disasters. Deep and thorough disaster investigations often find flawed undisciplined leadership practices and organizational cultures at the root of the problems. It is also common to discover a zealous ambition to grow the business without really ensuring that a healthy work culture foundation is put in place to safely support such expansion.

Huge opportunities for organizational productivity improvements still exist today by cultivating a high-performance work culture. Breakthroughs can be made when organizations appreciate the fact that  “culture eats strategy for breakfast,” a phrase coined by Peter Drucker, a famous management consultant, educator and author. True organizational greatness can be achieved when organizations look beyond trying to just manage the bottom line and learn how to manage, analyze and monitor the cultural forces and cascade effects that drive success or failure.

A grand vision and strategy can only revolutionize a company when the work culture is healthy, engaged and aligned with those concepts. Taboos on talk must be broken. Open, frequent and candid communications must exist between all levels in the organization. Employee issues and concerns must be addressed in a timely manner as proof that a functioning communication and countermeasure system are in place. Only then can an organization really have a chance to break its barriers to greatness.