Tag Archives: peter drucker

Wisdom From Some Very Smart People

I’d bet that most of you would be excited to learn that the factory of the future was being built in your hometown. Probably your enthusiasm would be driven by your knowledge of factories of the past. Unfortunately, the difference between the factory of the past and the factory of the future is change – TRANSFORMATIONAL CHANGE.

Warren Bennis (a very smart man) offered the following observation in “New Work Habits for a Radically Changing World” in 1994: “The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”

From an insurance standpoint, my first questions on the new risks associated with the factory of the future would be:

  1. What is the workers’ comp rate on a dog feeder and a watchdog?
  2. Can you afford to insure this type of new risk?
  3. Is Bennis right about the factory of the future?
  4. What are you doing to prepare to be a profitable agent insuring risks of the future?

Before you call me crazy, remember the travel agents, bookstores and video stores that are no more because they kept admiring their past success in the mirror of yesterday and did not consider the horizon of TRANSFORMATIONAL CHANGE THAT IS TECHNOLOGY.

The bad news is that TRANSFORMATIONAL CHANGE is coming (and in some cases is already here). The good news is the buyers and sellers in our industry who leverage this TRANSFORMATION can be big winners if they TRANSFORM with it or allow themselves to be TRANSFORMED by it.

Recently, I received an e-mail from a very creative industry leader, Ryan Collier, chief digital officer of Risk Placement Services, celebrating innovation/TRANSFORMATION:

“Trying to live the ‘eThink Insurance’ mantra every day. A fun side note for you – the platform that we have developed started offering a ‘friction free’ cyber buying experience officially in 2015. It literally takes a company about one minute (four questions) to buy cyber insurance. Since we have launched it we have taken our proprietary/partner insurance carrier (BCS Insurance) from ZERO premium up to the sixth-largest cyber insurance carrier by premium and third by policy count in the U. S. – all by completely redesigning the process. For me, it is all about the process – and tailoring that process toward the buyer and not the carrier. This is a nascent product that needs to be bought – not sold. We now have 12 products that can be quoted/bound/issued in a moment, which has been a boatload of fun and an extreme amount of work as this old industry doesn’t like to change.”

I call this intimacy being “client-defined and client-driven.” Ryan is a very innovative industry leader, a rare resource in a “me, too” world. We’re more copycats and fat cats than lean and mean innovators. Casual Friday is not innovation.

Our industry will be TRANSFORMED from without – not from within.

See also: 3 Ways to an Easier Digital Transformation  

To reinforce this opinion, I offer the following from an insurance industry leader, Paul Carroll, who from his Innovator’s Edge platform asked: “Will Apple enter insurance? Google? Microsoft? Amazon?” He said, “Apple’s market value crested $1 trillion last week, and its big tech brethren Google, Microsoft and Amazon aren’t far behind; all are valued north of $800 billion.”

I wasn’t shocked until he said, “All have extensive data about customers. And all have the size to tackle mind-bending problems that insurance faces – by contrast, you’d have to combine AIG, Prudential and Allstate just to surpass $100 billion in market value.”

Now that I have your attention: Consider the comments that follow from Peter Drucker and Theodore Levitt, who were TRANSFORMATIONAL leaders in a world that did not voluntarily embrace change.

Levitt – “We habitually celebrate him [Henry Ford] for the wrong reason, his production genius. His real genius was marketing. We think that he was able to cut price and therefore sell millions of $500 cars because his invention of the assembly line had reduced the costs. Actually, he invented the assembly line because he had concluded that at $500 he could sell millions of cars. Mass production was the result, not the cause, of his low prices.”

Peter Drucker, in a Wall Street Journal article titled “The Five Deadly Business Sins” (Oct. 21, 1993), explains the need for a new paradigm in all of our operations:

“The third deadly sin is cost-driven pricing. The only thing that works is price-driven costing. Most Americans and practically all European companies arrive at their prices by adding up all costs and then putting a profit on top. And then, as soon as they have introduced the product, they have to start cutting the price, have to redesign the product at enormous expense, have to take losses – and often have to drop a perfectly good product because it is priced incorrectly. Their argument – ‘we have to recover our costs and make a profit.’ This is true but irrelevant: CUSTOMERS DO NOT SEE IT AS THEIR JOB TO ENSURE MANUFACTURERS A PROFIT.”

Drucker further states, “Cost-driven pricing is the reason there is no American consumer electronics industry any more.”

When I started in the agency business (1975), we were paid 25% commission on homeowners insurance. Agents boldly stated, “I won’t sell homeowners for less than that.” They were wrong. I believe, in my lifetime (and I’m old), insurance will be quoted net of commission or with full disclosure of commission. That will ensure TRANSFORMATIONAL CHANGE.

See also: Core Transformation Is Not Negotiable  

Want to be here tomorrow? Heed Drucker’s advice: “There are only two functions in business, marketing and innovation.” Our world is transforming because the people and the global marketplace are changing. They now enjoy unlimited options.

Consider the following simple outline of the marketing process:

  1. Who is your customer (prospect) base? As a niche of one, customers can shop anywhere.
  2. What are their wants and needs? Do not limit your research based on just what you sell.
  3. What products/services and client intimacy must you offer to meet these wants and needs?
  4. How will these be priced to sell?
  5. How will you anticipate these needs and deliver a solution to customers at a profit?

Plan to innovate everything: people, process, products, pricing, performance (expectations), places, etc. Try “everything,” and, if something doesn’t work, go back to what did. Your marketplace will be the judge and arbiter of what is good and what is not so good!

If this article starts making you sing “Crazy” – I like the Patsy Cline version best – consider how much online banking you do now and know that Capital Bank is now opening “branch cafes” in lieu of branch banks!

Existential Threat to Agents

It was 1975. While completing an application for malpractice insurance, a dentist told me his address was 12345 Main St. I commented on how simple it was. He shot back, “So simple even insurance agents can understand it.”

In 1994, while speaking about managed care to a conference for librarians, I mentioned the rising cost of healthcare. There were about 250 in attendance. The audience was engaged. Suddenly, someone in the back of the room screamed, “Read the Golden Stethoscope and see what those bastards are doing to us!” I was shocked by this apparent “nut” in the crowd. Looking around, I realized the majority of attendees were nodding in agreement with the “nut.”

A few months later, working as the executive director of the Louisiana Managed Healthcare Association, I was at my office. Don, one of my board members, called to say I needed to come to his office right away because two federal agents wanted to talk to us.

I did what any of you would have done. I threw up in my garbage can, then went to Don’s office. We met with these two agents for about four hours. They were investigating physicians in two parishes who were allegedly colluding with a hospital to drive patients to their institutions. What they were doing was illegal.

Later that week, I spoke to the medical society in one of these parishes. One hundred doctors were in attendance. The doctors had just concluded a meeting that celebrated their leadership in funding a physician-owned HMO. This was a priority because no one was going to tell them what they could or couldn’t do in the practice of medicine.

See also: How to Earn Consumers’ Trust  

Once introduced as the executive director of the Louisiana Managed Healthcare Association, I began my presentation on Managed Care 101. Ninety-eight of the doctors were polite hosts and a respectful audience. The two other doctors operated in full attack mode.

Toward the end of the program, one screamed at me from the back of the room, “I don’t think insurance companies and HMOs should make money in healthcare.” I explained that many people felt doctors were making plenty of money in healthcare and that premiums were too high.

I will never forget one doctor’s response. He said, “We’re just getting by.”

Ninety-eight of his colleagues bowed their heads in embarrassment. Later, I was told he was grossing $2 million a year. (I wanted to yell, “The Feds are going to get you,” but I didn’t.)

A November 2012 Gallup survey ranked 23 professions based on the public’s perception of their ethics. Agents rank seventh FROM THE BOTTOM – between legislators and attorneys.

Not everyone loves us as much as we love ourselves. The dentist, the librarians, the physicians and the participants in the ethics survey all have their opinions. I’m assuming most see themselves in a positive light but are often suspect of others. This brings me to the point of the story.

On TV in 1954, Robert Young played Jim Anderson, an insurance agent, in Father Knows Best. Those were simpler times, and insurance was not the expense that it is today. We now see ourselves as the Main Street agent (adviser), a trusted choice, “like a good neighbor” and other “feel good” personifications.

But more and more consumers I talk with are “mad as hell and won’t take it any more” with the cost of insurance. Premium costs, rate increases, larger deductibles and co-pays are breaking our clients. The worst is yet to come. When the National Flood Insurance Program must finally demand actuarially sound rates, and the adverse selection of the ACA finally takes its toll, voters will rebel, and government will gladly welcome the chance to further expand its failed involvement in our industry.

See also: Why More Don’t Go Direct-to-Consumer  

We can explain all we want. Consumers don’t care. All they want is relief. In my opinion, if we don’t aggressively work to solve the cost problems because we believe nothing can be done, we will lose our industry and agency system as we know it.

Peter Drucker stated this clearly in 1993, when he said, “Customers do not see it as their job to ensure manufacturers a profit.”

Peter Drucker was a very wise man. Video stores, book stores, travel agents, solo practitioner doctors, full service gas stations, etc. were dumb, fat and happy, and now most are gone. The consumers no longer saw their value.

How might consumers spell relief? A – M – A – Z – O – N, or W – A – T – S – O – N or A – I or some other innovation that we can’t even imagine.

America’s agents need to wake up before it’s too late!

To Predict the Future, Try Creating It

Backed with new capital, powered by digital technology and using decentralized administration, a new model for transparent, simple and customer-focused life insurance couldn’t be easier to visualize. And competition from newcomers means existing providers must innovate. But what can traditional insurers do specifically to — to paraphrase management theorist Peter Drucker — predict the future by creating it?

Today’s insurance market is a customer-centric, buyer’s arena that reflects a palpable shift in power from the producer to the consumer. Insurers’ service offerings need enhancement. If it is felt little value is added to consumers’ daily lives, customers often fail to see the relevance of the importance of cover. Technology can help insurers to innovate and address this gap and deliver enhanced services.

By striving for simplicity, insurers can also increase transparency. That said, no matter how simple the front end is made for the customer, acquiring cover remains an intricate process. Advice, compliance and regulation can clog the process but offer important protection to consumers. There is a delicate balance to achieve.

See also: 7 Steps for Inventing the Future  

Letting people engage in the ways they want is crucial. Trust and advice seem somehow less important to people than before. Today, people make emotional decisions with far fewer facts, and for many a community-based recommendation will do. This combination suggests that social brokering will only grow in importance and that demand for automation with robo-advice will increase.

Consider the disintermediation — the reduction in intermediaries – that transformed High Street banking. An appointment with the manager is no longer needed to set straight one’s personal financial affairs. We fend for ourselves by banking online and using mobile-first apps to view statements, to set up transactions and to move money about. Customers now have similar expectations of life insurance.

To provide more flexibility, insurers can offer products that work in a completely modular way — products that can be built up or down and switched on and off to reflect much better how life’s risks ebb and flow. It’s likely the silo-based approach to the design and sale of line-of-business products is not sustainable. Product fragmentation with more diverse offerings will offer tailored products that fit with the way people live their lives.

Personalization gives insurers the opportunity to transform the services they offer and take a real stake in the future health of their policyholders. One way is to shift from risk identification to risk prevention that is based on knowledge of behavioral change. While using data from wearables is a start, more support can be provided — not just to the fittest customers — by developing apps and technology that engage their unique health needs.

Data from health apps, for example, is just one source that will give insurers access to a real-time view from which to assess risk, instead of relying on past data. However, continual engagement requires transformational change in the industry. To achieve this, insurers can — and are — engaging with experts and companies outside the sector. As the boundaries between insurance and adjacent businesses fade, roles and skill sets within insurance will also change, resulting in a need for more diverse recruitment.

See also: How to Build ‘Cities of the Future’  

Much is being said about big data, in particular how better use of the insights can make insurers’ operations leaner. But analysis of large datasets gives established corporates and newcomers to the industry identical insight. While agility of execution may favor startups, it’s industry knowledge that puts insurers in a strong position to turn data into actionable insights.

For more perspective on how technology is changing life insurance, click here.

Change Management Is Not About Change!

In 1993, my business cards included the tagline: Risk, Insurance and Change Management. When asked for a definition of change management, I would explain that change was the transition from today through tomorrows (the “s” on “tomorrow” suggested it is a process not an event). Management was about solving problems and capitalizing on opportunities as you worked through the process. More and more people now claim to manage change. I no longer do.

See also: 3 Main Mistakes in Change Management  

As the term became over- and misused, I moved to “change architect.” The tagline chosen was a quote from Peter Drucker, “The best way to predict the future is to create it.” I even copyrighted and added the term “carpe mañana.” (Seize tomorrow.)

Early in the process, I heard a speaker state correctly, “Change isn’t progress. Change is the price we pay for progress.” How true it is.

Today as I was struggling to address an issue of resistance to change, I had an “aha moment.” I realized that, in most organizations and most cultures, change management is not about the change; it’s all about the management (control of change). It is not about making the future better. It is about protecting and preserving the status quo – the individual and collective comfort zones.

If you are serious about the future, don’t stand in today and look back to the good old days. Instead, turn your back on yesterday and look boldly to the horizon and design and build your own tomorrow – your future.

See also: Is It Time for Un-Change Management?  

Remember, “The greatest risk is not taking one.” (AIG Annual Report).

5 Steps to Profitable Risk Taking

The really bad thing about risks is that they almost never lead to a loss. Why would that be bad? Because risk aversion is responsible for so much lost opportunity. Risk aversion allows us to shoot down ideas faster than we build them up. It is easier to cite a risk that a project or change effort will fail than to undertake it.

But getting ahead means change, and change means risk. Those who prosper in business, take risks. The list of leaders who wouldn’t take risks is a very short one.

The biggest risk is not taking any risk… In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks. – Mark Zuckerberg

In other blogs, we’ve written about the price you pay by not adapting. It’s not a question of whether you should take risks, but how to do it well. Nearly all great advances come through leaders’ appreciating an opportunity and understanding how to manage its risks. So often in our discussions with companies, we encounter leaders who acknowledge the opportunity we present, but who are stymied by perceived obstacles to acting on it. The focus turns too heavily to what lies in the way rather than the path. These obstacles become risks – “unknowns” – that inhibit desired transformation.

See also: 4 Steps to Integrate Risk Management  

Risks are an integral, essential part of improvement. They force us to think, to adapt, to learn. Companies that advance don’t do so by avoiding risk. They don’t do so in spite of risk. They do so in conjunction with risk. The question is not how to avoid risk, but how to embrace it. Leaders love risk as a thing to be conquered, not feared. Here’s how they do this.

Define your goals in detail before you define your risks.

It’s easy to get sidetracked by anxiety. The mention of a potential goal is more often met by caveats about it than by building out the path to the goal. Leaders focus first on the goal and the value of achieving it.

Act on risks constructively.

Draw up a list of risks that could materialize on your way to your goal. Define each risk (what it is), what impact the risk can have, the probability that it will occur and what should be done to manage it. Most often, the risk is much smaller than you imagine. For example, if we more aggressively negotiate medical cost reductions, we might generate more litigation. That might cost us $2,500 per case. This might happen on 10% of the cases.

Don’t stop there….compare your risks to your upside – Our plan will result in reductions of more than $1,800 on 80% of all cases…..The upside is positive. Keep moving forward.

Enlist people in problem solving…not problem identification.

When engaging with others on a project or change effort, dwelling on risks leads to managing against a fear of failure. Get people involved in answering this question: “How can we achieve [name the goal]?” – rather than “what do you think of [name the goal]?” For example, how might we successfully achieve medical-cost reductions without generating litigation?”

Plan for success and manage your way there.

Managing risk doesn’t mean playing defense against potential disaster. On the contrary, it means keeping a clear eye on what you want. When we implement with a client, we have a detailed list of action items to be accomplished by our customers and us. Tedious? Not really. Critical to success? Absolutely. We know the critical success factors and we plan for and execute on them.

Use risk to learn.

We all know that stuff happens. Recognize it. Learn from it. Move on. Peter Drucker, the famous management guru, said it best…..

“People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.”

See also: Are Portfolios Taking Too Much Risk?  

If you’re feeling hemmed in by risks, take a different approach. Embrace it. It’s the only way to master it.