Some considerations around innovation

Some considerations around innovation
Innovation! What does it really mean to be innovative for an insurer? Does innovation deal mainly with insurance products or does it concern also processes? Are there external elements or factors that contribute to facilitate innovation? According to me, innovation relates to both products and processes: Product innovation: In European life insurance for instance, as the market for asset protection and retirement planning grows, insurers are increasingly adopting an aggressive strategy of product innovation. They plan to maintain control over customer acquisition and distribution by managing the distribution lifecycle. While variable annuities may not be the shining star in the next few years, insurers remain under pressure from consumers and professional intermediaries to continue to innovate. Process innovation: One of the business frustrations has been that IT constrains business agility. Adding new products, new channels, making process changes or responding to new regulation must happen on a critical path determined by the technology assets and infrastructure. In this context process innovation can be an important source of competitive advantage for an insurer. In both cases, product or process innovation, IT is not necessarily a “must have”. IT is only an enabler that can help companies give birth to an innovation. But are there other factors to be considered that help innovations succeed or contribute to change the insurance competitive landscape? Past examples in other industries tend to prove that at least two parameters have a direct impact on innovations’ success or failure: Timing: to be visionary is very important but to implement a new idea or a concept too early can lead to bad results. Successful innovations are the ones that have an impact on a large mass of people and not only a handful of passionate thinkers. Insurers should carefully consider timing and analyse carefully the readiness of the market when thinking to initiate innovations. Dynamic view: some innovations are self-imposed through changes of market conditions. For instance as Web 2.0 technologies push people behaviour to change, insurance players have to understand that even in their own industry the Schumpeter “creative destruction” theory can apply. Blogs, chats, social networking are currently changing the way insurers interact with their customers and diminishing the importance of face-to-face meetings with agents especially in the general insurance sector. Celent’s mission is to keep an eye on how the insurance industry apprehends innovations, analyses and evaluates them as well as how insurers decide to implement them. Our goal is to help insurers identify initiatives that will help them gain competitive advantages in the long run and to do so it is important they understand what the term “innovation” really means and what factors can play a crucial role in making an innovation succeed or fail.

So what are you doing in this recession?

So what are you doing in this recession?

So what are you doing in this recession?

In August, much to the surprise of their own governments, economic data suggested that France, Germany and Japan had exited the recession. Similar good news has yet to be heard in the other major economies, but Celent’s recent research about perceptions and attitudes of insurers in this recession does show that there is increased optimism in the world of insurance.

Over the course of the first half of the year, insurers have made more progress in implementing tactical responses to the current recession. Around 80% have already or are in process of freezing discretionary spend and travel. Two-thirds have are in the process or have already cut staff salaries. But these tactical responses dont inspire.

In our new upcoming report on the impact of the recession, we added a new question trying to get at the strategic response of insurers. In quarter one, the outlier was a change in strategy, with only a quarter of respondents having done this — a clear reflection of the severity of this measure both on long-term capacity and the difficulty to execute. By mid-year, almost half had undertaken this difficult task. The other area with the most noticeable change was that of budgets. By the end of the second quarter, almost two-thirds of insurers had undertaken or were in the process of revising budgets.

Streamlining of processes is the top area of focus and is already underway or completed in 77% of respondents. The second area with a high level of activity is divestment of assets. A return to the focus on core business is a response to be expected in difficult times, and 70% of respondents had undertaken this option.

Outsourcing is also on the agenda. Responses indicate a higher frequency of business process outsourcing to IT process outsourcing. This is probably attributed to the already high level of IT process outsourcing in the industry. Almost half of respondents have already outsourced business processes and another fifth are taking this under consideration.

There are a large number of insurers considering or undertaking the launch of a new product or a new channel. Over 50% of respondents are in discussions or already doing so. Launching into a new geography and acquiring new company assets are strategies that appear fairly low on the list of priorities.

So the question to your business is what are you doing in this recession? Many insurers clearly see some opportunities in these difficult times and such innovative and progressive strategies are clearly going to put them ahead of the pack when time improves.

Attacking Business Complexity

Attacking Business Complexity
This week, Celent is pleased to feature an article from guest contributor, John Boochever, who leads Oliver Wyman’s Global practice focused on strategic IT and operational issues across financial sectors. For senior executives facing the turbulence of today’s financial crisis, reducing the cost base of their business operations now sits squarely at the top of the agenda. After decades of product and service variation, channel diversification, geographic and operational expansion, all supported by layers upon layers of technology, many institutions are finally compelled to deal with a fundamental reality: their businesses are overly complex for the value they generate. Not only is this excess not valued by customers, it actually impedes value delivery by limiting the sales force’s ability to respond, increasing service and fulfillment costs, compounding operational risk, and making the organization more unwieldy to manage. The siren call for a simpler “core business” approach, incorporating elements of modular design and industrial engineering is being heard across the industry. But when senior executives take the first steps toward “dialing down” complexity, they rapidly come up against three immutable features that overshadow their ability to make change in their environment: Complexity is structural, deeply embedded in the business and operating models of their institutions. Poorly understood network effects across functions and businesses create linkages and interdependencies that compound complexity. There is a general lack of transparency of the features of complexity required to generate value versus those that do not. Eliminating complexity requires a “front-to-back” approach that identifies and addresses the root causes of complexity and all of its network effects. As an example, “eliminating 20% of non-profitable products” has limited impact if it is not followed through with a systemic simplification of the supporting operations and IT infrastructure. By the same token, introducing new middleware to make the IT architecture more “service oriented” is a waste of investment if the institution’s operating model is not built around modular services at all. Financial institutions have to not just cut but eradicate complexity to regain their focus and flexibility, and sustain efficiency. The long-term rewards of eliminating complexity include a radically simplified operating model, an improved client experience and a dramatically reduced cost structure. John Boochever leads Oliver Wyman’s Global practice focused on strategic IT and operational issues across financial sectors, and can be reached at john.boochever@oliverwyman.com.

Overcoming Fear as a Barrier to Change

Overcoming Fear as a Barrier to Change
At Celent, we often find ourselves helping insurance carriers implement a process of change, whether it’s selecting a new policy administration system, process reengineering, or restructuring the IT organization. Change means more than just a new technology or a new process; it also requires a shift in corporate culture. Even when the IT-side of a change goes well, the people-side of a change can fail. No matter how good a new system is, the project isn’t a success if employees can’t or won’t use it. There are many reasons employees resist change. Annoyance (“learning a new system is difficult and distracts me from my real job”) and skepticism (“the last new system failed so why trust this one”) are two problems. But the biggest barrier–and the most difficult to overcome–is fear. New technology and new efficient processes mean employees fear that their jobs will become redundant and eliminated. And when employees are afraid they will fight change as hard as possible. I recently spoke with the leadership at an insurance carrier who boasted they had not laid anyone off in the history of the company. My initial impulse was to assume this meant they were putting loyalty above creating an efficient business. In the US, it’s sometimes taken for granted that thriving as a corporation means some routine layoffs as operational efficiencies change. But this company instead invested a great deal of time and effort to retrain employees rather than letting them go. Far from being a barrier to change, this corporate attitude succeeded in taking fear out of the equation. Even in a difficult economic time, employees at this company understand that new systems and new processes don’t mean layoffs. While annoyance and skepticism might still be around (and, in fact, might be increased by entrenched training and memories of previous unsuccessful projects), there is less fear. Employees can look at change as an opportunity to gain new skills; end-users can provide feedback and participate in training without worrying that they are making themselves obsolete. And support and participation from end-users is the often overlooked critical change factor that determines a project’s success. I was happy to see this challenge to common wisdom providing such positive results. While not every company will be willing to dedicate itself to this extreme employee loyalty, there is an excellent lesson for everyone. It is often assumed that to remain nimble and efficient, new technologies and processes much go hand in hand with staff reductions or replacements. But, at least for one carrier, a long-standing culture of stability has allowed them to overcome fear and embrace change.

Wisdom From South Park

Wisdom From South Park

Fans of the TV cartoon South Park were treated to a comical scene this week that resonated with me. The episode raises an intriguing question: Can there be rational thought behind some of the decisions being made about the economy and financial institutions?

Stan (a normal kid from Colorado, for those of you who don’t watch) sneaks into the U.S. Treasury offices. He’s wondering how Treasury officials make decisions about saving troubled institutions, and here is what he sees: One official chops the head off a chicken and throws the bird onto a giant horizontal wheel sectioned off in bright colors, with each section labeled as a potential option. Another official spins the wheel. A third takes out a kazoo and performs circus music while the bird lurches around crazily, spewing blood. When the headless bird finally expires, the space on which it falls lights up with a game show flourish of beeps and the decision is made: “BAILOUT!”

I’m quite certain that Treasury officials have other tools at their disposal. (Ping pong ball lottery machines instead of chickens?) But the broader point is that there are so many unknowns right now that we might as well be using the chicken method. We simply don’t know where this is all going.

At Celent, we’ve been blogging and writing and speaking about related issues for several months. But for me, there are at least as many questions now as when the crisis began in the fall. So what’s an insurer to do? First of all, don’t focus on the unknowns, as they will drive you crazy. Second, keep doing the things that seemed like good ideas before this all began. Invest in technology, improve your infrastructure, and keep asking questions about how you can make things better for customers and agents. Finally, don’t get too caught up in the prognostication. As anyone who grew up in the country can attest, chickens are surprisingly resilient, even minus their heads.

Two Fruits: “Miracle Apples” and “Business Renovation Project”

Two Fruits: “Miracle Apples” and “Business Renovation Project”
This week, Celent is pleased to feature an article from guest contributor, Hiroshi Yokotsuka, Managing Director, Member of the Board and CIO of the Tokio Marine & Nichido Fire Insurance Co., Ltd.

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Hiroshi Yokotsuka

Hiroshi Yokotsuka

Today, I’d like to share with you a story that happened in Japan called “Miracle Apples” and Tokio Marine & Nichido Fire’s project called “Business Renovation Project.” Adam and Eve, the discovery of gravity, William Tell, and the iPod. have brought various challenges, discoveries, emotions, and pleasures to human beings. Another miracle was created by apple trees and an old man at the north end of Japan. Today’s apples are different from the one Newton saw. With generations of breeding improvement and sophisticated anti-pest methods, apple trees can bear big, sweet fruits. High-end apples in Japan are twice as big as the ones you see in the hotel lobby. But apples became very vulnerable. They can’t live a year without a substantial amount of agrichemicals, fertilizers, and careful weeding. There was a strong belief that it was impossible to grow apple trees without agrichemicals and other artificial materials until Mr. Kimura challenged it. Mr, Kimura, age 60, began his attempt of pesticide-free apple production 20 years ago. Kimura-san knew it wouldn’t be easy. But the hardship was far beyond his imagination. Eliminating thousands of worms by hand and disinfecting with vinegar or Wasabi water did not work, and apple leaves were devoured by insects. Kimura-san tried everything he could think of, but despite six years of effort, apple trees were weakened and dying even without flowering, and needless to say bearing not a single apple. Out of ideas and exhausted physically, mentally, and economically, he finally decided to conclude his unsuccessful life by killing himself. He walked deep into the mountains to find his final place. What he saw there were vital forests full of life. Trees spread their leaves and roots vividly, without any help from humans. Apples are made by apple trees, not by human beings. Kimura-san spent six years realizing that obvious truth. A human being cannot live alone; neither can an apple tree. Trees in a forest live with harmful insects and beneficial insects (and these are the human definitions of them), weed and fungus, worms, frogs, snakes, and animals in harmony. Completely forgetting what he had come to the place for, he rushed back and began to reconstruct his field to make apple trees comfortable. In that field, various plants sprouted and various insects, reptiles, and animals lived with the trees. The field became a very comfortable place for both apple trees and humans. The apples grown there are incredibly flavorful and nutritious. It became very hard to get the apples. A restaurant that serves apple soup using those apples is booked for a year in advance. Tokio Marine & Nichido Fire sells insurance 100% through its agencies. But it was just recently that TMNF realized the obvious fact that it is agencies who face customers and sell insurance products. Before that, agencies were compelled to sell the complicated insurance products designed for company’s sake, following the cumbersome processes designed by the company, not agency-friendly computer systems. The “Business Renovation Project,” started in 2004, focuses on how to make agencies feel comfortable through the business process. We cut insurance products and special clauses by half, refined and simplified the business process thoroughly, and rebuilt the computer systems, from the agencies’ point of view, from scratch. Now, a harmony of renewed insurance products, business processes, computer systems, support from TMNF’s employees, and above all agencies’ autonomous efforts create a very comfortable business environment. That, no doubt, results in comfortable experiences for their customers. In this way, TMNF’s “Business Renovation Project” bears fruit as delicious as Kimura-san’s Apples. About the author, Hiroshi Yokotsuka: [Read more…]

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To view the English version of this article, click here.
Hiroshi Yokotsuka

Hiroshi Yokotsuka

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2つの果実:「奇跡のリンゴ」と「抜本改革」

2つの果実:「奇跡のリンゴ」と「抜本改革」

今回は、東京海上日動火災保険株式会社の常務取締役でCIOの横塚裕志氏より、セレントのブログに寄稿いただきました。
 
To view the English version of this article, click here. 
 
Hiroshi Yokotsuka

Hiroshi Yokotsuka

 
 本日は、日本で「奇跡のリンゴ」と呼ばれる物語と、東京海上日動の「抜本改革」の話をしたい。
 
 
 
 
 

 アダムとイブ、万有引力、ウイリアム・テル、iPodなど、これまでリンゴは人類にさまざまな試練、発見、感動、楽しみをもたらしてきた。今また一つ、日本の北のはずれのほうで、リンゴの木と一人の老人が新たな奇跡を起こした。

 今日のリンゴは、ニュートンが見たそれとは全く別物である。数世代にわたる品種改良と優れた病害、害虫対策により、立派で、甘く、大きな実をつけるようになった。特に日本で作られている高級なリンゴは、皆さんが欧米のホテルのロビーで見かけるものの倍近い大きさがある。

 その代償として、現在のリンゴは大量の農薬、肥料、丁寧な除草なしでは、1年も経たないうちに枯れてしまうほど脆弱なものになってしまった。リンゴを無農薬で育てるのは不可能であるというのが農家の常識であった。少なくとも木村氏が挑戦するまでは。

 木村氏は現在60歳。20年前にリンゴの無農薬栽培という、当時の常識からは無謀とも言える試みを開始した。

 その困難は、木村氏の想像を遙かに超えていた。手作業で害虫を取り除き、消毒薬の代わりに酢やワサビの溶液を撒いたが、葉は害虫に食い荒らされた。

 6年間、考えられることを全て試してきたが、リンゴの木は実を結ぶどころか花を咲かせることもなく、衰弱し、枯れていった。

 万策尽き、精神的にも経済的にも消耗しつくし、ついに自殺を決意して山中深く分け入った木村氏が見たものは、農薬も肥料も与えないのに力強く育っている木々の姿だった。

 リンゴを作っているのは人間ではなくリンゴの木である。人間の都合ではなく、リンゴの木が本当に気持ちよく実を作れる環境が必要だ。この当たり前のことに気づくのに6年かかった。人間が一人では生きていけないように、植物もそれだけでは生きていけない。森の木々は、害虫も益虫も(これは人間の定義である)、雑草も雑菌も(これも人間の定義である)、ヘビも蛙もミミズも一緒になって、絶妙のバランスを保って生きている。

 木村氏は自分が何をしにここに来たかもすっかり忘れて畑に走って帰り、それからはどうしたらリンゴが気持ちよく果実を作ってくれるか、それだけを考えて畑を作り替えた。その畑は様々な草が生え、多くの虫やヘビやカエルや動物が棲む、雑然とした、しかしリンゴの木にとっても人間にとっても大変心地よい環境になった。そこで創られるリンゴは言葉では言い表せないほど滋味に溢れ、現在では入手が非常に困難である。そのリンゴを使った料理を出すレストランは、1年先まで予約が埋まっている。

 

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東京海上日動は、その保険のほぼ100%を代理店が売っている。しかし、お客様と接し、保険を売っているのは代理店であるというごく当たり前のことに気がついたのは、つい最近のことである。それまでは代理店は、会社の都合で作られた複雑な保険商品を、会社が考えた煩雑なプロセスで、社員の目線で作られた使いにくいシステムを操作しながらお客様に販売していた。

 

2004年にスタートした「抜本改革」は、代理店がいかに気持ちよく仕事ができるかを徹底的に追求したプロジェクトである。会社の都合で複雑化した保険商品・特約を半分にそぎ落とし、プロセスを根本から見直し、代理店の目線でシステムを全面的に作り直した。

 

現在では、商品、業務プロセス、システム、社員のサポート、そして代理店自身の自律的努力が絶妙に調和し、代理店にとって心地のよいビジネス環境が生まれつつある。それは、言うまでもなくお客様にとっても心地よいカスタマー・エクスペリエンスを提供する原動力になっている。

 

東京海上日動の「抜本改革」もまた、木村氏のリンゴに優るとも劣らない果実を実らせつつある。

Playing it Safe vs. Creative Thinking

Playing it Safe vs. Creative Thinking
I recently saw an interesting article that seems quite appropriate for the times we live in. This article was based on a report published recently by Robert Half International, a staffing service. Condensed versions and commentary on this report have been available via a number of search engines in recent weeks. These days we are bombarded with stories of gloom and doom. Stock market prices are dropping, wealth is eroding, jobs are becoming scarce, unemployment is rising, and the future seems more complicated than it has ever been. We are inclined in times of uncertainty to turn inwards, start playing safe, protecting what is there in the hope that time will heal all and that things will go back to the good old days. The article (in abbreviated form) advocates exactly the opposite when it comes to business practices. “Playing it safe” is put forward as being one of the top three mistakes managers make in times like this. As the article suggests, “being boring” is not a strategy for survival because losing your competitive edge is a likely result. This does not suggest that risks should not be considered, but rather that innovation and creativity are still ways to gain ground. The second main mistake is to discount or discourage innovative thinking at all levels in an organization. Innovative thinking, the article suggests, is more likely to help an organization survive; many ideas can be put into the pool to not only assist the organization but also encourage a sense of joint survival among all employees. Rewarding such behavioral thinking is an added encouragement. This concept can only thrive in an environment where managers actively encourage this and do not feel threatened. Managers should therefore actively participate in this process. Here in China, we are not unaffected by the issues that have been making page one news all over the world. We have seen many businesses close and unemployment levels rise. We too have recently seen a large injection of government capital into the economy to both boost and revitalize industries. Creative thinking and behavior at management levels to avoid the sometimes obvious mistakes could be another path on the way to revival and survival.

The Long and Short of Your IT Portfolio

The Long and Short of Your IT Portfolio

A lot of interesting ideas emerged during Celent’s CIO Roundtable and Model Carrier Summit last week. (See Mike Fitzgerald’s excellent synopses of both events here.) One of my favorites came from a CIO panelist, who framed his rationale for IT project investments in terms of their intended payback periods.

“You’ve got to have some long projects in your portfolio, or eventually you’re going to find yourself hopelessly out of contention for the affection of your customers and agents and brokers,” he said. “But you need some short ones too—things that have a six or nine month payback period, where you can make some progress that will show up on your bottom line in a hurry.”

In the context of the current financial crisis and the microscope that many insurers live under, this idea has never been more important. If you made the 9-month payback your sole project approval criteria, what would you be left with? Cleaning up commission reports, making subtle tweaks to your portal, and maybe improving minor flow issues on your customer service UI. All good ideas, but hardly enough to get you on the radar of independent agents/brokers, especially. And certainly not an effective long-term lever if your goal is to double back office productivity.

On the other hand, should you be betting the farm on $100 million, 5-year policy administration replacement projects? In the words of an old boss of mine, “We could all be dead in five years!” I think his point was that anything beyond the 12 month mark is suspect because, well, stuff happens. Not “might happen,” but “happens.” It just does.

In the perfect world, you can cycle the gains from your “short” investments back toward your “long” portfolio. Those nine-month projects should be delivering savings just in time for your next budgeting cycle.

But we expect that scenario to get harder this year, for two reasons. First, CFOs are getting wise to the game. When you send them a business case with a payback starting in month six, many now expect to actually capture those benefits from month seven forward. Unlike the good old days, just because you save the company some money, don’t expect that it will become your division’s slush fund.

The second reason is that most companies are committed to an SOA vision, where reusability is key. This means that the field of play for short projects is shrinking, or at least morphing toward longer projects. One-off solutions—no matter how smart they sound or how much money they save—are on the path to rarity, if not extinction. Of course there are still savings to be found as SOA infrastructure is developed. But those savings are probably the cornerstone of your larger projects and shouldn’t be double counted.