Buzzwords, bandwagons and business models
The insurance industry is pretty notorious for its resistance to change and its unwillingness to embrace technology, innovate and amend its working practices.
Let's start by highlighting some obvious points and then discuss why we need to look at this differently:
- There is no shortage of information and articles about digital transformation, from the theoretical to case studies across a host of industries (including insurance), its impact on ‘ways of working’, business models, doing business differently and interacting with customers etc.
- Unfortunately, there are also numerous cases where transformation programmes (not just ‘digital’, although I’ll come back to that later) have gone awry; in the insurance sector one of the more recent examples is the Co-Op’s £155m legal dispute with IBM. Understandably stories like this don’t tend to be enthusiastically publicised with companies just quietly living with the consequences of a huge spend for very little benefit.
- Insurtechs are looking at ways to disrupt the insurance sector using current and emerging technology to ‘do insurance differently’ – better, faster, cheaper.
- The insurance sector has tried numerous times over the years to drag itself into the, then 20th, and now 21st century, with varying degrees of ‘success’ but, on the whole, not very successfully.
- Where ‘digital transformation’ initiatives have been successful they have tended to be for limited purposes; nothing industry-wide.
- Every project these days seems to be described as a ‘transformation’ project.
- There are (and always have been) a lot of buzzwords and bandwagons out there that organisations are sometimes a bit too keen to jump on e.g. digital, agile, DevOps, blockchain, ‘the Cloud’, IoT, AI, Big Data, RPA, machine learning…
- ‘Customer’ could also be deemed as a bandwagon (albeit one that should be jumped on) as the insurance industry over recent years does appear to have woken up to the fact that the end-customer matters; how they experience the services provided, their needs, demands and expectations really do need to be factored into what an organisation does and how it behaves.
In short, the insurance industry has not been good at transformational change of any sort, digital or otherwise.
The case for transformation
Before going further, let's interpret “transformation” and “digital transformation”. This is critically important to understanding.
There are numerous definitions of transformation, but the statement below conveys the understanding we think most relevant:
“Transformation completely alters your current operating structure. These changes will have massive change to processes, people, and typically technology. Once you take these leaps, you can't change your mind and go back to the old ways”
Lao Tzu's saying is also pertinent:
“If I don’t change my direction, I will likely end up where I’m headed.”
Transformational change is structural, fundamental change. It is not tinkering around the edges or changing something so that it works in the same way but better (that’s optimisation), and it’s not automating a previously manual task (that’s automation). Transformational change puts you on a new path, a new direction that enables strategic objectives to be realised.
Closely associated with ‘transformation’ is the concept of ‘innovation’ which is defined by the Oxford English Dictionary as:
“the introduction of new things, ideas or ways of doing something”
Innovation is about doing new things, or doing existing things in new ways. However, ‘innovation’ has its own definition issues as, although the definition of innovation doesn’t mention technology at all, it is usually (and incorrectly) associated with emerging technology and hence perceived as being expensive and complex.
As for digital transformation, Wikipedia defines this as:
“the use of new, fast and frequently changing digital technology to solve problems. It is about transforming processes that were non digital or manual to digital processes”
Headline statements like the quote above
- focus exclusively on the use of new technology (so purely one-dimensional)
- presume that it’s to solve ‘problems’ (no mention of doing new things)
- is confusing ‘process automation’ with digital transformation (and that’s not transformational).
The Wikipedia definition is just one of many you can easily find, and herein lays a problem. You'd need to read futher into their definition to realise that digital transformation is not about technology (although obviously that is important), but is about the organisational and cultural changes needed to make the company entirely customer-centric.
Information is digitised (changed from analogue to digital form), procedures and roles that make up the operations of a business are digitalised (automated, and used at scale and distance via digital tooling), but we digitally transform the business and its strategy. Digitisation and digitalisation are essentially about technology, but digital transformation is about the customer, and the value they receive. 'Digital' refers to the company moving with speed and agility rather than a reference to technology.
With so much information available there is a fundamental issue getting people talking the same language so there is a common and shared understanding of what is actually being discussed.
Misconceptions and preconceptions
Without a clear and shared understanding of what is meant (and importantly not meant) by ‘digital transformation’ a host of inaccurate beliefs will exist that may include:
Digital transformation is risky and expensive with unknown ROI as it involves untried and untested technology such as blockchain, AI, machine learning etc
Rebuttal: it doesn’t just apply to emerging technology or have to involve anything you don’t want it to – you do have control
The Exec feeling pressured to do something with all this new technology because everyone else is…
Rebuttal: that’s never a good reason to do anything
…or, the Exec being unwilling to meaningfully explore possibilities as they don’t want to be seen to be championing something that may fail; why would they want to risk tarnishing successful careers?
Rebuttal: The need for a positive business case still exists – if it doesn’t make sense to do, don’t do it!
Get a big consultancy firm to help with digital transformation
Rebuttal: you open yourself up to firms exploiting your lack of knowledge and understanding, being more interested in generating revenue rather than acting in your best interests.
Initiatives labelled as ‘digital transformation’ sometimes seem to have an air of the mystical about them. However, no special treatment is required; the need for business cases doesn’t suddenly disappear, and proven governance and management methodologies still need to be employed for running large programmes. Digital transformation = Transformation.
Whether it’s 'digital' or not is neither here nor there, as the best solution should be used to solve the problem or enable the thing in question to be realised.
As with any transformation initiative, to be successful there are key elements that need to be clearly defined and understood:
- Strategy and strategic goals
- The Target Operating Model
- Transformation Roadmap
- Appetite for, and willingness to change
- The Current Operating Model, problems and issues
- The impact of change on the organisation, its culture and customers
- Simple, concise communications and messaging.
Along with the above, and just as critical, is having the right corporate mindset to want to change, the right leadership and the right cultural environment within which to foster the required and appropriate behaviours.
Managing all of these elements and their interaction, along with stakeholders, suppliers and vendors is a complex business… but it’s not made easier or more difficult by having a ‘digital’ dimension (whatever you choose to define that as!)
So what to do?
With the lack of clarity around what digital transformation actually means and involves, it’s not surprising that some organisations are reluctant to start any sort of ‘digital’ transformation journey. Does it mean changing the business model, migrating everything to the Cloud, finding problems for emerging technology to address, getting rid of legacy systems? Maybe, but these are not the right questions to ask when trying to determine if you need to do any of these things.
Even with reluctance to start on a ‘digital’ transformation journey, organisations can undertake certain no/low-cost activities to increase understanding and position themselves so that they are ready to move forwards when the time is right. These include:
- Reviewing the current operation to identify (and remove) operational silos
- Ensuring there is clear alignment between corporate strategy and the strategic change roadmap
- Reviewing Exec objectives to ensure that focus and effort is being directed in the right areas
- Tapping into the latent knowledge that exists in the organisation to better understand what is working well, problems and issues e.g. an employee ‘ideas’ scheme
- Getting customer feedback
- Looking at how effective communication is within the organisation, particularly the flow up to, and from the Exec
- Reviewing the organisation's change capability – do projects and programmes tend to run on time and to budget? Company boards have NEDs to provide independent oversight and constructive challenge, should programme boards adopt a similar role…?
And for insurance companies:
- Establish relationships with Insurtechs so that you can increase understanding and keep abreast of developments
- Start to address legacy system issues (without getting too hung up on detail) and consider what products could be candidates if you could easily migrate to a new system.
The key point is to take a step back, and spend time to genuinely understand what you do now (good, bad and ugly), and what you want or need to do in the future; not how you think you may want to do it – that’s for a bit later. Having sufficient understanding is crucial to making the right decisions, and informed decisions can only be made if you have sufficient and appropriate information.
It’s difficult to move forwards when confusion and uncertainty exist so don't worry too much about ‘digital transformation’ and simply focus on ‘being better’.
Maybe this will involve using new technology or doing new things, or doing existing things in new ways, or maybe not.
When you look at the detail Insurance companies are no different from any other company. The point is, as long as you have clarity and understanding of problems, solutions and objectives, and the right environment and culture, you’re already on the road to successfully deliver your transformation initiative.