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I’m Spending a Fortune on Digital…So Where Are the Profits?

I doubt any readers of this post work with a CFO who is measuring Return on Empathy. Empathy? How can something as soft, as emotional, as seemingly non-quantifiable as identifying with people’s feelings, thoughts and emotions translate not only into hard-core financial benefit but also value to customers, patients, agents, employees or other participants in your digital experience?

The fact is, the more you demonstrate empathy for your digital-experience participants, and connect that experience to your key performance indicators (KPIs), the more value you will uncover.

I’ll share an example of how the credit card industry established a transformational industry practice by showing empathy via an innovative digital experience. It started with the simple insight that, by relieving customer stress, debt repayment rates could be improved.

Here’s the story:

We all have an image of how credit card companies collect past due balances. Late payers get a “friendly” phone call from the Collections Department, followed eventually by more persistent calling from collections agents to whom severely past due accounts are outsourced. These guys make pennies on the dollar extracting and following through on what the industry calls “promises to pay.”

From the customer’s perspective, this is a confrontational and embarrassing situation. It’s full of stress that is probably only adding to what got the customer into a financial pickle to begin with.

The reality is that most people don’t plan to find themselves at the other end of a phone call from a debt collector. But life happens. Medical emergencies, job loss, other surprises simply overwhelm cash flow and savings. In an industry where the interests of the institution and the customer may not necessarily be particularly well-aligned, the standard was historically an adversarial approach.

Using digital technology, innovators within the industry were able to prevail against the belief that collections could only happen through outbound calling. Innovators advanced the notion that collections rates could be improved by providing late payers with the means to set repayment terms online. Good for the customer. Good for the company.

Avoiding the confrontation of the phone call, and providing a private way to work through the issue, actually gave the customer a new opportunity to strike a deal. This led to meaningful increases in recovery of past due balances. So meaningful that the capability to set repayment terms online went from being an outlier, crazy idea to an industry standard that is spreading globally.

Online collections didn’t arise from spreadsheet analysis or financial engineering. It started from the simple insight that relieving stress – showing empathy by giving the customer a private way to settle up – would tap into people’s real needs. This simple insight, based totally on emotion and flying in the face of industry practices and beliefs, opened a big opportunity that leveraged digital technology to improve the customer experience and by so doing created a whole new source of value for credit card issuers.

Where is the learning transferable within the insurance and wealth management sectors?

The way I see it, we are operating in categories where emotion plays a big role. And where there is emotion, there is potential for Return on Empathy.

There are numerous opportunities to translate empathy into experience design using digital capabilities that will translate into results. Here are three starting points:

  1. Look for broken “moments of truth.” Across the opportunities for improved revenue cycle management, examine the “moments of truth.” Which ones are working and not working for your constituents? What are your constituents worrying about in the larger context of their lives, not just within the insurance transaction? Tiny adjustments can have a large impact. Testing and learning is required to tease out the benefits. Consider that application submission and processing, billing, payments, account management, servicing, inbound inquiries and outbound communications are all areas to explore. Within the healthcare category, these same principles may apply more specifically to population health management efforts.
  2. Focus on the bottom three dissatisfiers with your experience. Some very successful brands build their value story around addressing areas of dissatisfaction. Capital One is one example. What are the three worst areas of dissatisfaction with your experience based on your customer satisfaction tracking studies? What is the emotional basis for the dissatisfaction? How can you fix the experience by leveraging digital, mobile and social capabilities to close gaps? Can your team develop some quick mockups and share them in a usability lab?
  3. It isn’t always about pricing. I know some readers are thinking, “well, my customers just care about price; none of this emotional stuff really matters.” My rule of thumb is that one-third of the market for insurance and financial products may be truly, truly price-driven. But for most people there is a “value for the money” calculation that will readily trade off price for perceived additional value. That value is often in intangible, emotional connection to the brand and offering. Just ask all the people who willingly pay more for Apple products: “Better feature functionality at lower price” will not come up as an answer. And even where price is a heavier factor (say, in P&C, where pricing is more transparent and where the industry emphasize low-cost offers) emotion rules more heavily inside the experience than may appear at first look. That means the potential for Return on Empathy is high.

I’m Spending a Fortune on Digital…So Where Are the Profits?

The “consumer-ization” of healthcare and threats to the long-established business model of the life insurance industry are just two examples of how traditional players are facing intensifying pressure to be more purposeful about their digital strategies.

No doubt about it, digital investments will continue to grow. To turn these investments into marketplace advantages, insurance brands can  embrace what has worked in other sectors. As one of my favorite CEOs used to say, “steal shamelessly.”

I am constantly struck by how well the tried and true techniques of seemingly old-fashioned direct marketing can be applied to uncover how to make digital investments work harder. The discipline of direct marketing is all about having a continuous learning process that allows you to identify the leverage points for any brand engaging with its constituents. This applies to both B2B and B2C relationships. Such continuous learning leads to better focus on putting resources where the business payoff can be achieved. It also creates a fact basis for important, often high-stakes decisions.

These same processes can be applied with strong impact to digital investments, including mobile and social. The processes are relevant across sectors. Skilled direct marketers have been adapting a proven toolset for digital decisions for at least the past decade, so there are well-validated ways to do this with discipline and control. Of course, digital experience is like direct marketing on steroids – there is lots more data and lots more complexity, and, of course, everything happens a lot faster. By integrating on to your team capabilities in (1) how to develop hypotheses, (2) how to set up effective test-and-control experiments, (3) how to conduct those experiments and (4) how to integrate learning for continuous improvement, you will be amazed at the progress that can be made, even over a few quarters, to understand where your digital leverage really lies.

To make the point, I’d like to share a story of how a major credit card company, over the course of just a couple of years, set up a structured process to do exactly what I am advocating. As a result, the company enabled the complete transformation of its sales and service model from being almost entirely mail- and phone-based, to having a true omni-channel model with robust digital capabilities. In the course of doing this, the company effectively maintained its relevance as customers embraced developing digital channels. It also recalculated the economics of the business for all of the key consumer behavior drivers of financial performance.

Here’s the story:

Most executives in this business knew that digital was going to bring changes to the customer relationship but also questioned whether there would be positive financial impact. Was this just a financial sinkhole? Would it be justified as a growth story, or was it just about playing defense? How would existing distribution channels for sales, servicing and relationship management be affected?

The digital team was full of believers. They saw digital as a big opportunity to improve all aspects of the customer experience. They saw opportunity to differentiate through the customer experience, to improve business economics and to redefine how new accounts were attracted and booked. But they lacked the evidence to justify scaling digital programs or to accelerate the pace of change.

The team decided to borrow from their accumulated expertise as direct marketers. Leverage the past, but not be bound by it. Present familiar approaches to colleagues in the organization, as a means of building internal engagement and buy in.

Here are the key steps the team took to get moving:

  1. The head of digital created a senior role leading “profit enhancement” within the team. This signaled to the organization that, indeed, a connection existed between digital and financial performance. There was focus and accountability to enhance profits with digital technology, and to measure what was happening.
  2. The team created a process that engaged cross-functional teams of thought leaders in brainstorming sessions to formulate hypotheses of how digital technology, tools and experiences might affect customer behaviors that were P&L drivers.
  3. Hypotheses were prioritized and tested in-market, or through off-line simulations, depending upon the complexity of the tech support required for live testing. Regulatory considerations also affected the live testing priorities.
  4. Results were continuously monitored, communicated throughout the organization and used to refine and advance further tests and decisions.
  5. Focus was placed on two specific areas of inquiry: first, identifying the unit profit model behind a particular hypothesis and, second, finding the path to scaling positive results.

Over the course of the next three years, but beginning with results generated within the first several months of establishing the profit enhancement team and process, the team was able to discover, test and validate the impact of digital applications on all of the core customer behaviors that drove the income statement and balance sheet of this significant business, including attracting and booking new accounts, statement delivery, self-service, payments, relationship management and even collections of past due balances.

What drove the success of this approach:

  1. A high level of rigor. The process borrowed from direct marketing practices, but always with an overlay of openness and flexibility to allow for the unexpected, unanticipated, surprising results that can easily be missed when an experienced team gets too caught up in past success. I call this “rigor, but not rigor mortis.”
  2. A collaborative and transparent mindset. This attitude fostered support and reduced resistance. By including people from all over the organization, particularly in the brainstorming and hypothesis-vetting stages, the digital team got new recruits to the “army of the willing.” The team started to make believers out of fence-sitters, and to reduce the impact of nay-sayers. Of huge importance was a tight collaboration built between the digital team and thought leaders in both risk management and decision management. These two teams were the analytic talent who drove modeling, pricing and product structures.
  3. Tapping into the culture of test-and-learn. By following frameworks familiar to a traditional direct marketing organization, people had an easier time relating to the digital efforts. This further contributed to winning people over to the cause.
  4. CEO sponsorship: necessary but insufficient. Winning the popular vote was a matter of the points I’ve made above regarding ways to get people on board. It was about everyday process, relationships, communications … and, ultimately, showing results.
  5. Acknowledging and assembling the right mix of skills. Essential skills, activated with the right leadership wiring, enabled the everyday process to be effective. A team of digital natives with limited business knowledge would have been alienating (and unhappy) in this very traditional business that was proud of its legacy. A team of traditionalists might have found it really difficult to separate from the status quo. Building a team with real diversity of thought, background, approach – with a common denominator of a belief in collaboration – enabled progress and ultimately tremendous success.

Uber Should Be a Friend, Not a Foe

As I read the considerable amount of press Uber is attracting, the level of negativity from the insurance industry is striking. Uber is free-loading. Uber is undermining consumer protections. Uber encourages drivers to engage in what amounts to insurance fraud. And on and on.

Reality is, Uber, Lyft and the many other start-up companies of their ilk are meeting a new set of needs reflected by the burgeoning sharing economy — needs that traditional businesses with traditional business models and traditional approaches to connecting with customers are not satisfying. Functionally, these new entrants supply high-quality goods — whether it’s an immediately available taxi ride in midtown Manhattan or a cozy apartment via Airbnb in Milan. Emotionally, they deliver good value for the money, competent service and a pleasant experience. These offerings also meet higher-order emotional needs that people have, e.g., for control, security, freedom, even independence. This ability to connect not only functionally but also emotionally suggests that the sharing economy sector is here to stay. These companies are firing on all of the cylinders that make for enduring offerings.

That said, the entrepreneurs behind these offerings are riding on the back of the long-established risk-management practices — policies, pricing, product — of the insurance industry while avoiding the burden of full, dedicated insurance coverage.

The reaction of the insurance industry has been to cry foul, call out the regulators and point to the consumer protections provided by traditional insurance.

Is this reaction ultimately productive?

Technology is pulling the rug out from under business models that looked quite durable even a decade ago. Customer habits and desires for discovering, investigating, shopping for, purchasing and servicing insurance bear less and less resemblance to those upon which the industry relied for the first two centuries of its existence.

As an alternative, I propose the insurance industry look at Uber, Lyft and their peers as a force for positive change and as inspiration to evolve the insurance sector toward continuing strength and relevance in the new economy. This approach can be a path to growth, profits and stability.

One way to achieve this vision is for leaders in the industry to foster cocreation platforms. Cocreation, simply put, is bringing together constituents from inside and outside your company to innovate and problem-solve around big opportunities and issues. Cocreation is a way to engage the instigators of the sharing economy in helping the industry figure out how to transform its risk-management practices to work in new sectors of the economy.

What does cocreation look like?

Imagine diverting the industry’s focus from what’s wrong with sharing economy companies, to seeing their emergence as the opportunity to create forms of insurance supporting new business models.

Next, imagine identifying all the constituents who might contribute creatively and with impact to figuring out how to realize the opportunity in a way that is sustainable. These might include experts on current insurance practices, but importantly would include heavy representation of “outsiders”; i.e., people who work for sharing-economy companies, users of their services, regulators, distributors and big data, digital, brand and customer experience experts.  Constituents would include people with no connection to the insurance industry who bring totally different perspectives that can be applied to insurance — for example, airlines (shared transportation), retail (mass market franchises and distribution), “experience” companies (innovators that elevate an offering beyond product features and price). What’s important is to include people for whom there is something to be gained by participating.

Now imagine giving these constituents a private forum — possibly a 24 x 7 Facebook-type site — where they can engage in dialog on topics relevant to the challenge, or on opportunities to come together for a facilitated meeting in a physical space where they might prototype solutions to the challenge.

Finally, imagine that you as the insurance carrier can listen effectively and glean insights about possible new offerings and use these findings to define alternative approaches that can be validated through an iterative process of test and learn.

Cocreation is another way to think about solving the “problem” of the Ubers of the world, harnessing the immense creativity that spawned the sharing economy to be a force for enabling new sources of value from which we can all benefit.