Tag Archives: open innovation

3 Steps to Succeed at Open Innovation

2018 was the year that insurance embraced open innovation. From medium-sized insurers to Fortune 50 incumbents, everyone seemed to be launching a challenge, accelerator or incubator — to the point where we now have too much of a good thing. This has led to a certain ennui in the startup and VC ecosystem. Every insurtech startup, the good, the bad and the ugly, seems to have been part of one or more programs. It is hardly surprising that new programs are greeted with a collective shrug. In such a context, how can you create a compelling and differentiated program?

Simply put, a compelling program creates immediate business value for both the program sponsor and the program participant. The keyword is “immediate” — which means the program focus should be on core business processes and customer experience. In other words, ROI should mean return on investment, not reservoir of ideas!

Programs to scout for new business models (like accelerators and incubators) have their place in an innovation portfolio but do not add immediate value — certainly not to the sponsor (and rarely to the participant). In general, it is better to have a narrower focus on digitization and differentiation, before trying to tackle disruption.

See also: Era of Insurance Innovation Is Upon Us  

For the program to be more than PR spin, it should fulfill the following conditions:

  1. The program should tackle well-defined, real business problems. As a rule of thumb, the problem should be costing the incumbent north of $1 million per year. This size of problem ensures that there is scope for a long-term relationship and a significant opportunity for the startup partner. The problem should also be well-defined — the improvement metric should be clear. The Netflix prize, which required a 10% improvement to Netflix’s own recommendation engine, is a good example.
  2. The pilot should be with real data and real customers. The end stage of the program has to be more than a demo day, with abstract promises of next steps. A differentiated program will guarantee a pilot that interfaces with the business and is implemented in a live environment. By definition, this will require certain maturity on the startup partner side, which is a good thing.
  3. The pilot should have a real budget. No more “toy prizes” of $20,000 to $50,000. A pilot should have a budget of at least $100,000 to create meaningingful skin in the game, so that both sides are serious about making the pilot a success.

Finally, we need a new brand for programs that meet these conditions. I suggest “implementation challenges” to make clear that the program is about creating value in the here and now.

See also: With Innovation, Keep It Simple, Stupid  

A well-run implementation challenge can add significant value to both the sponsor and the participant:

For the participant:

  1. A “lighthouse” customer — an actual implementation at a Fortune 500 company makes it easier for the startup to attract both investments and other customers.
  2. Revenue leverage — depending on the type of product, investors attach a multiple of 8X to 10X. Hence, a $100,000 contract can create a $1 million increase in valuation

For the sponsor:

  1. Access to world-class talent and technology
  2. Kickstarting the digital transformation process

I hope to see more implementation challenges in 2019.

The Power of Crowdsourcing

From Ben Franklin (inventor of the lightning rod and bifocals) to Thomas Edison (the phonograph and popular form of the incandescent light bulb) to Tim Berners-Lee (the World Wide Web)/Internet, inventions have spawned new generations of ideas and disrupted, transformed and created businesses. That process continues. . . but at a much faster pace, with smart phones, social media, the Internet of Things and much more.

Today, there is the shared economy movement, built around crowdsourcing and open innovation. There is no turning back … only moving forward.

Now, we instantly interact with businesses and individuals on different mobile devices. Collaboration via the Internet has quickly become mainstream in our daily lives, both personally and professionally. Mass collaboration is rising to new heights via crowdsourcing and open innovation, creating transformative outcomes.

Crowdsourcing enables companies to tap into the power of the masses and communities, while open innovation helps identify, develop and market new ideas, products, services and more within these communities. Together, the combination obliterates the traditional internal, hierarchical or linear thinking and development approaches and creates an entirely new playing field that accelerates the execution of innovation within organizations.

Just a few years ago, crowdsourcing was viewed as a method for ideation – a method to have people collaborate online, in an open forum, to develop the best ideas. But today crowdsourcing has moved well past this to new, more sophisticated and disruptive levels.

Crowdsourcing is eliminating the traditional boundaries between companies, creating a porous environment to engage the rest of the world, whether customers, partners or others. It is fueling open innovation and the development of new businesses at an unprecedented pace that, in turn, fuels change in traditional businesses. It is reshaping business and the economy, creating a major new outside industry trend – the shared economy.

According to a Forbes article, “Airbnb And The Unstoppable Rise Of The Share Economy,” in January 2013, for 2013 the revenue flowing through the shared economy directly into peoples’ wallets surpassed $3.5 billion, with growth exceeding 25%. It was noted that this rate of peer-to-peer sharing was moving beyond being an income boost to becoming a disruptive economic force. Fueling this trend are the Millennials, a large and influential economic group. Strapped with high college loan debt that limits their ability to purchase homes, cars or other high-value items, they are trending toward subscribing instead of buying music, movies or TV shows (thanks to the likes of Pandora, Netflix and others). They prefer to access news from Twitter, Facebook or Flipboard, or to buy used goods from eBay or Craigslist. Millennials have grown up with the technology that enables sharing, accessing or subscribing as an acceptable alternative to owning.

The shared economy empowers people to become co-creators, funders and customers of new businesses that are disrupting traditional industries. Just consider Airbnb and Uber, two companies viewed as leaders in the shared economy that are reportedly worth billions, rivaling in value their traditional counterparts, taxis and hotels.

In this new shared economy, traditional companies – like insurers – must quickly adapt to be relevant. Insurers need to begin to ask themselves these questions: What new products and services can we provide to these new business models? How will the new models reshape discounts or the bundling of insurance products? How could we partner with some of these new businesses? How will we need to rethink the customer relationship?

The shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere, anytime. New business models are challenging decades of business assumptions that were based on ownership rather than short-term access or subscription. As a result, the fundamentals of insurance are being redefined, from risk models to pricing, products and services.

While many insurers may see crowdsourcing and open innovation as risky, other industries are experiencing the transformative power. They are fueling the intensity and raising customer expectations that will affect insurance.

Collaboration must happen both within and outside the insurance industry because the challenges and opportunities have become much bigger and broader. Insurers must reorient their business practices from product development to services aimed at creating more value and a deeper customer experience.

There is an unparalleled opportunity for any company, in any industry, to ignite a new future that is powered by the human imagination through crowdsourcing and open innovation.

The overriding and most critical question for insurers is not if, but how will they embrace the shared economy, crowdsourcing and open innovation – first to get in the game, then to influence change, and ultimately to win.