Stirring The Creative Disruption Pot

One of the great things about being an analyst is that you’re expected to challenge the status quo on behalf of the companies you work with. The analyst-as-gadfly model was on display at Celent’s Creative Disruption workshop in Boston last week. Someone later told me, “You looked like you were having fun!” I surely was.

Celent’s message of “healthy discomfort” as a driver of positive change seemed to resonate with attendees, both carriers and their vendors. It came into virtually every conversation in some way. Here are a few nuggets I noted throughout the day.

  • Disruption is generally respected but only lightly pursued. Like “change” and “agility,” disruption is a term with positive connotations for most people. But when you ask companies what they are doing to make it a reality, you mostly hear the sound of crickets.
  • Agile methodologies are enabling change. And they’re not all about technology. They seem to serve as a signpost that corporate cultures are changing, giving staff a reason to rethink their traditional behaviors.
  • Vendors have an important role to play in driving change. This is well understood, by players on both sides of the vendor/carrier relationship. But it’s easy to revert to old models, where vendor and insurer interests are in opposition rather than being aligned.
  • Leadership will determine where disruption can thrive. Front line staff are thirsty for productive change. Being part of something bigger and more exciting is on most people’s wish lists, even if they don’t know it yet.  But absent some passionate vision from the top, “big D” disruption projects are doomed.

You can expect more coverage from Celent on this topic in the coming months, as we think it is vitally important. Your ability to keep operational concerns and creative, disruptive thinking in a healthy balance will be essential for you to get to the top of a competitive heap.

Creative Disruption Videos

Celent’s Creative Disruption event last week was very well received. For those of you who couldn’t make it, I thought you might like to see the 3-minute videos that set the tone for several segments. (To view these over a slow Web connection, click on the HD button to toggle high definition off.) Special thanks to National Western Life’s CIO, Mike Hydanus, and Oregon Mutual’s CIO, Bryan Fowler, who shared their views on creative disruption on camera. Also thanks to Jim Kuhn, SVP from USAA, who talked about the Business Case. The Case for Creative Disruption Technology trends and consumer behaviors suggest we need to rethink our sales and servicing approaches. [vimeo clip_id=”31409934″] Speed & Agility Overused cliches? Maybe. But success stories are emerging. [vimeo clip_id=”31409842″] The Business Case Mixing art and science is the best way to get your business case right. [vimeo clip_id=”31399458″]

An IT decision framework for cross-border expansion strategy

Insurers desiring to expand their activities in a new geography are always faced with the dilemma to choose between different alternatives in terms of policy administration system deployment, which in general are the following: – implementing a new system (here the build vs. buy debate enters into play), or – deploying an existing system already running in one of their entities. Of course both of these alternatives trigger specific choices for instance the buy choice will force insurers to choose between going for a best-of-breed or the package approach. But in general insurers have a good view on these alternatives and tend to identify clearly which decisions imply specific considerations around PAS vendors or IT services vendors selection. On the other hand, I think a majority of insurers forget to consider the big picture prior to making a decision between the two generic alternatives mentioned above. According to me, they just forget the primary value of IT, which consists in enabling insurers gain competitive advantages. Indeed, in many of my conversations with insurers I have noticed that the main elements taken into considerations in such a situation are internal technology issues and seldom related to the competitiveness of their business model. To me there is an important high-level analysis that needs to be performed by insurers prior to making any specific decisions around the implementation of a system when expanding abroad. This framework mixes an analysis of the target market’s competitive landscape using the Michael Porter’s five forces model and the insurance value chain as shown in the following figure: Source: Celent adapted from Michael Porter’s five forces model This model helps insurers identify key elements that will influence their decision to implement a new solution or deploy an existing solution through critical questions: Can our information system reduce the power of our business partners?: if we take the example of a UK online insurer targeting a continental European market (whose online insurance market is at an early development stage) for instance, considerations around the importance of aggregators play a crucial role. Is it strategically sound to already use a system facilitating communication with aggregators in a market where there are almost none or where aggregators are not that powerful? Can our system help us better compete versus target market rivals?: this question implies specific discussions around the benefits derived from a modern policy administration system for instance. A key related question would be whether time-to-market is as important in the target market as in the insurer’s domestic market. Getting back to the example of a UK online insurer desiring to enter the online market in a continental European country, time-to-market might not be as important as it is in the UK. Can our system contribute to reduce customer bargaining power?: are there features we can offer to our target segment of customers in the new market that would prevent them to switch to another insurer or help us acquire more easily new clients? Even though some markets are not as mature as the UK market in terms of online insurance, there are some continental European countries where consumers just like using portals and have all their communications with their insurer streamlined on a single e-platform for instance. Can our system contribute to reduce barriers to entry or increase them for potential new comers on the target market in the future?: often insurers expanding in a new geography try to replicate what has been successful in their domestic market without investigating how this success could become just more than a success but also a clear barrier for other competitors in the target market. IT has its role to play here since it is often an innovation enabler. Can our system help us compete against potential substitute products? bancassurance is an interesting example here. Banks try to sell insurance products that are marketed as investment products and insurers sell investment or saving-types of products that are marketed as insurance products. Even though product types are often the same, the perceived value from customers tend to differ. In this case, a flexible product configuration tool will be important in order to allow an insurer to create innovative products mixing different types of riders for instance in order to counter the bank offering. The interesting thing with this model is it applies to different contexts and situations and I recommend insurers to use it in the frame of brainstorming sessions and high-level strategy discussions when planning an IT alignment programme related to an expansion in a new geography.

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