The CIO’s Guide to Aligning IT Strategy with the Business

Publié le par hanswillertbleuazurconsultingeu

SITUATION OVERVIEW

Aligning IT strategies with business strategies has been a mantra for CIOs for quite a few years. Yet, despite the apparent straightforward nature of the endeavor, many CIOs struggle to achieve that alignment. The rapid rise of digital technologies and transformation has significantly raised the bar — now, CIOs must find synergies and multiplier effects, not just business alignment, and that has a big impact on the creation of IT strategies.

IT strategy logically flows from the enterprise business vision, mission, goals, and strategies — especially digital business strategies. Collectively, they should anchor and guide IT strategy development. Yet IT strategy should also inform business strategy by presenting new and unexpected opportunities and capabilities. CIOs and strategy development stakeholders must cycle back and forth between business and IT strategies to maximize synergies.

CIOs need to find new process-driven approaches to formulating strategy in the new world where technology is found in every aspect of the business. An effective strategy development process is inclusive of all stakeholders,

reliably identifies the most critical business needs and opportunities,

objectively assesses the current state of IT and the enterprise,

surfaces and vets all salient IT strategic initiatives and opportunities,

explains how business and IT success will be measured,

and engages and motivates all those who must embrace, support, and execute the strategy.


This study lays out a process for creating IT strategy. It explains how CIOs can envision and develop new IT strategies, identifies key activities and actions for each step, and provides advice on ensuring effectiveness and adoption of an IT strategy.

Stage 1: Lay Groundwork for New IT Strategy Development
Under the duress of executive pressure to transform IT, CIOs may be tempted to jump into formulating new IT strategies without laying the proper groundwork. Like IT itself, however, IT strategy development must extend beyond the boundaries of the IT organization as digital business concerns pervade all aspects of the business, its partners, and its customers. That means that a diverse set of organizations and stakeholders will necessarily be involved in creating new IT strategies. Taking the time to prepare and get all necessary stakeholders onboard, will, however, reduce friction and lead to a faster effort with better results. The groundwork stage is intended to set the stage for all subsequent strategy work.

Key Activities

  • Identify, contact, and recruit all salient stakeholders. F. Edward Freeman’s work on the Stakeholder Theory lists employees, environmentalists, suppliers, governments, community organizations, owners, media, customers, and competitors. Additional stakeholders would include LOB executives, CIO direct reports, and key partner representatives. Team members must be willing and able to devote the necessary time for the duration of their involvement.
  • Build trusting relationships among all stakeholders, and gain support for the strategy effort.
  • Educate nontechnical stakeholders on essentials of digital technologies and digital business and operating models.
  • Conduct workshops to learn about and select key tools and practices, such as agile, design thinking, value streams, and lean start-up, that can help create a structured framework.
  • Agree on a strategy development process and governance and oversight for the process.
  • Define the purpose and desired outcomes for the IT strategy development process.
  • Review existing IT and enterprise vision, mission, strategy, and goals.
  • Review IT spend across the entire enterprise.
  • Create/adopt an agile approach to formulating the IT strategy.

One of the biggest mistakes CIOs can make in formulating an IT strategy is to use ad hoc, nonsystematic approaches that attempt to match technology solutions with highly visible problems.

Modern IT strategies are complex, have multitudes of interdependencies and diverse and powerful stakeholders, and have a material impact on the success or failure of the business. Strategy development is one of the most critical responsibilities — one that requires rigor and a structured approach and processes.

Above all, the IT strategy formulation process needs to be agile, as business environments are continually shifting. A strategy that only adjusts on an annual basis runs the risk at any point in time of being mistargeted. The process needs to continually sense changes in the business ecosystem and prompt decisions about possible changes to the strategy.

Stage 2: Determine Key Business Drivers and Forces
IT strategies are intended to move businesses forward by

  • creating new products and services,
  • attracting and retaining customers,
  • entering new markets,
  • and solving business problems.

In that context, key issues and business drivers are those that constrain the business from moving forward or present opportunities to grow and succeed.

Business and IT strategies exist in a messy world of shifting business, social, technological, economic, and geopolitical forces. Those forces and dynamics make up the business context in which the IT strategy must function and succeed and form the basis for identifying key drivers that will shape and help decide what key initiatives need to be prioritized.

Key drivers are quite individualized to a given business. But they can include

  • technology emergence and evolution;
  • global competition and challenges;
  • competition in the form of new business and/or operating models;
  • shifting customer and market dynamics — personal, social, and cultural;
  • geopolitical and regulatory shifts and uncertainties;
  • environmental and climate impacts;
  • and threats to privacy and security.


Key Activities

  • Compile and review trends, disruptions, and forecasts in business, technology, environmental, geopolitical, social, regulatory, and other salient arenas.
  • Identify the most important forces and drivers that will impact the enterprise and IT.
  • Describe how the selected drivers will help define the desired future state of the enterprise.
  • Prioritize and map drivers to time frames in which drivers are expected to be active.
  • Describe responses that will be needed from the enterprise and IT.
  • Time phase responses based on projected time frames.

While there may be a multitude of key issues, CIOs need to work with business leaders to select only those that truly move the needle for the business. It’s been said that, when everything is a priority, nothing is a priority and that is true when it comes to IT strategy. IT and LOB executives will have to subordinate the agendas of their own organizations to focus on the drivers that offer the most potential for business benefit to the enterprise. Selecting the most important drivers is critical, as the selected set will define the focus of successive stages of strategy development and the strategy itself.

Stage 3: Assess Current State of the Enterprise, IT, and Business Ecosystem
This stage requires an objective assessment of the IT organization, the enterprise, and its ecosystem for attributes and characteristics that could positively or negatively impact the formulation and execution of IT strategies. IT and LOB executives need to have frank discussions about « the good, the bad, and the ugly » aspects of IT and the enterprise. Business leaders can ill afford to launch into implementing strategies that their organizations, markets, and customers are not ready for. The following table provides key facets of IT, enterprises, and ecosystems that should be assessed.

Note that some of the attributes are more germane and important to the IT strategy and others are less so — the goal is not an exhaustive assessment but one that captures the current states that are most important to strategy development. The current state assessment is critical as it is the basis for identifying work that’s needed to reach the desired future state. A flawed or incomplete assessment will result in missed opportunities, failed initiatives, and potential derailment of IT transformation.

Key Activities

  • Assemble necessary data, market and customer intelligence, and ecosystem intelligence to underpin analysis and decision making.
  • Identify the most salient and important attributes for assessment.
  • Create an assessment framework and scoring system.
  • Describe the current states of the business and IT, using SWOT or other frameworks to assess relative competitiveness and readiness to execute business and IT strategies.
  • Assess the viability and currency of the existing business strategy.

The current state assessment requires at least a basic framework that identifies the most salient attributes to keep stakeholders from getting too far down in the weeds. The intent is not to put every aspect of IT and the business under a microscope but instead to select attributes of both organizations that need to be addressed by the IT strategy. In support of that aim, the assessment should include a simple scoring system to measure importance (high, medium, low) of each selected attribute and the relative current state (strength, weakness, neutral). And the current state assessment should reflect the viewpoints of employees, managers, customers, partners, and the business’ ecosystem.

Step 4: Define the Future State and Key Initiatives
This stage focuses on defining what IT and the enterprise need to look like in the future over one-, two and three-year time frames and the strategic initiatives that will help IT assist the business in achieving that state. In describing the future state and initiatives, it’s critical to find the balance between pragmatic business problem-solving and innovative, aspirational efforts that will engage and motivate stakeholders.

As we noted previously, an agile approach that emphasizes learning and refinement in an iterative staged approach will create more adaptive strategies. Design thinking is another discipline that helps the strategy team frame (or reframe) problems and their solutions from the customers’ perspective to make sure that a prospective initiative and its outcome are important for the target audience. Finally, value streams can be used to help in understanding how a given strategy or initiative creates value and what components are necessary to construct the streams.

Collectively, the tools and practices should be employed in a series of workshops that distill the drivers, issues, and needs identified in the earlier stages of work into prioritized strategic initiatives comprising the IT strategy. Each workshop should focus on one initiative and involve only the stakeholders that are germane to that initiative.

In defining strategic initiatives, the strategy teams should start with a desired business outcome and initiative and then work through the value streams that produce that outcome. Supporting the value streams are IT capabilities:

  • data,
  • technology,
  • talent,
  • processes,
  • and governance

necessary to deliver a given outcome. For example, a desired outcome or initiative focused on generating new revenue from appliance service data would require new IT capabilities (sub-initiatives) in data/analytics, product development, digital platforms, and new business model development.

Key Activities

  • Distill drivers and issues into focused business problems, challenges, and opportunities.
  • Create and run workshops to brainstorm initiatives and solutions that can address identified business drivers, problems, and needs. Start with divergent thinking to create a wide assortment of potential solutions, moving to convergent thinking to winnow down the solution set.
  • Evaluate solutions based on constraints including budgets, financial viability, legacy culture and processes, talent availability, and other factors that may obviate some solutions.
  • « Test » the top solution initiatives with those who will implement or be affected by the initiatives.
  • Refine based on feedback or reexamine the original drivers and issues to ensure that they are relevant and important.

As powerful digital technologies have become core to business success, IT strategy development has become a « chicken and egg question »: technology or business — which comes first? The answer is « both. » Business needs, strategies, and models obviously drive technology strategies and adoption and will always be the dominant force in setting IT strategy at large enterprises. Yet, without cloud, data/analytics, and machine learning technologies, new business and operating models such as those employed by Uber, Lyft, Google, and others simply could not exist. Business strategies need to be the starting point and anchor for IT strategies, but at times, they will be shaped, if not driven, by new and emerging technologies.

Stage 5: Determine Metrics and KPI Success Measures
In the spirit of the old saying that « you can’t manage what you don’t measure, » this stage focuses on identifying key metrics and KPIs to measure the success (or lack thereof) of the IT strategy and specific strategic initiatives. Embedding top-level KPIs and metrics in the strategy is a means to ensure they become integral to the execution of the strategy — not an afterthought. It also helps ensure that the same stakeholders that define the strategy and initiatives identify the most meaningful metrics. And the metrics themselves are important to help fine-tune initiatives and target those that aren’t succeeding.

Key Activities

  • Discuss how metrics and KPIs will be used and who will manage them.
  • Discuss what strategy success looks like and whether there are thresholds of attainment.
  • Start with desired business outcomes for each initiative, and identify key dimensions that measure performance.
  • Identify metrics and KPIs that measure the outcomes in terms that will be useful to the CIO and LOB executives to fix problems or sunset initiatives that aren’t effective.

It’s important to favor outcome or impact measures (e.g., sales growth, process cost reduction) over activity measures (e.g., website visits, projects completed) as the former measure the health and the viability of IT and the business while the latter often turn into vanity metrics. Also important is creating metrics that help assess the success of IT strategy implementation and the business outcomes that result from execution.

Step 6: Package and Communicate the IT Strategy
Having formulated their IT strategy, it’s easy for CIOs and key stakeholders to think that the heavy lifting is done — all that’s left is to tell the rest of the company what the strategy is and then let the execution begin. Unfortunately, that is a surefire recipe for creating an IT strategy that is ignored, discounted, or unmoored. There are many possible reasons for nonsupport, including

  • lack of understanding of the strategy and why it’s important,
  • competing or conflicting interests and objectives on the part of executives,
  • and failure to embrace and take ownership of execution.

Another simple reason is that the strategy lacks « stickiness » — it isn’t memorable and hence is quickly forgotten. Strategies can be made stickier by using themes to describe initiatives. Instead of « digitally transforming CX, » think « creating memorable customer moments, » or instead of « improving business intelligence capabilities, » think « uncovering insights that score business success. » Finally, IT strategy must be presented in the context of the enterprise business strategy and should clearly flow from and support that strategy.

Key Activities

  • Identify all target audiences for the strategy and their top-level interests.
  • Create a communication strategy and plan.
  • Craft stories for each theme and initiative that tie IT initiatives to enterprise vision, mission, goals, and strategies.
  • Clearly identify the roles each target audience will play — enactor, supporter, contributor, or beneficiary.

CIOs and strategy team members should create different versions of documents and presentations for each significant target audience. Viewers should feel like their unique interests and needs were considered and addressed in the formulation of strategies. Also important is to create stories that explain the strategy using « day in the life » or similar narratives instead of dry descriptive material.

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Incumbents and InsurTechs must embrace each other’s unique strengths and work together

Publié le par hanswillertbleuazurconsultingeu

Executive summary

New challenges, changing business dynamics have set off a tectonic shift in the insurance industry

  • Customer expectations are evolving, offers are becoming more innovative, and new players are making their presence known.
  • Fundamental and significant challenges will require insurers’ immediate and considered attention.
  • As a result of these changing dynamics, incumbents and InsurTechs agree that collaboration with other industry players is necessary to create an integrated portfolio of offerings.

Insurers must support a platform that serves a broad spectrum of customer needs

  • The future marketplace will showcase a bouquet of offerings that caters to customers’ financial and non-financial needs.
  • Insurers need a structured approach to marketplace development that includes proper identification of customer preferences and relevant offerings, evaluation of best-fit partners, and an effective GTM strategy.
  • Today’s operating model will undergo a fundamental transformation as part of the inevitable path forward.

Experience-led digital offerings and seamless collaboration with ecosystem players will drive marketplace success

  • Insurers will need to tear down internal silos, seamlessly connect with ecosystem players, and be more inventive.
  • Our Inventive Insurer profile includes key characteristics:
    • intelligent insurer,
    • open insurer,
    • deep customer,
    • and product agility.

Incumbent-InsurTech collaboration can shore up competencies in preparation for the future

  • InsurTechs’ unique capabilities and agility make them ideal partners for incumbents aiming to carve out a substantive role in the new marketplace.
  • A successful holistic collaboration will focus on long-term benefits.

New ecosystem roles will evolve as the industry transitions toward the marketplace model

  • Industry players must decide how to successfully and profitably contribute to the new ecosystem based on their most compelling competencies, as well as market needs and the external environment.

There’s no looking back for today’s digitally-empowered consumers

Throughout the past decade, as smart technology tools became mainstream, consumer interaction with the world changed dramatically. Changing lifestyles, behavior, and preferences have created a digital-age paradigm. As smartphones and the internet unlock information and decision power, interconnectivity, personalization, and seamless omnichannel access have become must-haves.

So, what does this mean for insurers?

Policyholders seek new offerings: Traditional insurance policies may not fully meet customers’ changing needs and desire for add-on services, personalization, and flexible offerings. In fact, for nearly half of policyholders, the decision to continue with their insurer is influenced by the availability of these features and benefits, according to the World Insurance Report (WIR) 2019.1

The demand for digital transaction channels is up: The popularity of digital channels is gradually growing. More than half of insurance customers (nearly 52%) interviewed as part of the WIR 2018 placed high importance on the mobile and internet or a website channel for conducting insurance transactions.

Simplicity is the rationale behind genuinely digital products

Digital channels work best when insurers streamline and standardize products and processes so customers easily understand features and benefits and can make direct purchases online with ease. In short, insurers must simplify offerings to create genuinely
digital products.

  • Easy to understand: Policy details should be redesigned and reformatted for straightforward interpretation so customers can quickly make a buy/ no-buy decision. For example, Berkshire Hathaway’s Insurance Group (BiBerk) launched a comprehensive insurance product for small businesses that combines multiple coverages. Dubbed THREE, the new product is three-pages long and links coverage for workers compensation, liability (including general liability, errors and omissions, and cyber), property, and auto.
  • Automated processes: Straight-through processing and other ease-of-use tools can simplify underwriting, claims processing, and more across the value chain. Cake Insure, a subsidiary of Colorado-based Pinnacol Assurance, launched in late 2017 with an algorithm that produces a bindable quote in less than a minute and a bound policy in fewer than five minutes for small businesses seeking workers’ compensation insurance. New York-based property and casualty InsurTech Lemonade uses artificial intelligence to automate claims processing. Lemonade showcases a 2016 case in which it crossreferenced a claim against a user’s policy, ran 18 anti-fraud algorithms, approved the claim, and sent wiring instructions to the bank in three seconds to demonstrate ease of use.
  • Straightforward policy wording: Descriptions of policy coverage and expenses (which ones are payable and which do not qualify) must be explained clearly in everyday language. Similarly, insurance industry players should work together to standardize definitions, exclusions, and processes.
  • Interactive customer education: Gamification, interactive videos, and social channels are ways to educate customers about risks, their need for coverage, and policy details. Interaction can also improve customer engagement and experience.

The marketplace of the future can holistically focus on customer needs

HomeFlix is a virtual assistant offering renters and homeowners insurance underwritten by Zurich Connect, the digital arm of Zurich Italy, and powered by on-demand digital broker Yolo, a Milan-based InsurTech. In addition to insurance coverage, the policy, introduced in July 2019, offers laundry service – washed and ironed after a few days and paid directly on delivery. Access to concierge maintenance services such as plumbing and electric also is available. Next, HomeFlix plans home delivery, babysitting, and cleaning services.

New York-based Generali Global Assistance (a division of Italy’s Generali Group, which provides travel insurance-related services) strategically partnered with San Francisco-based rideshare company Lyft in late 2017 to improve customer service and contain costs for clientele of its insurance companies and multinational corporations. Later, Lyft
collaborated with CareLinx, a US professional caregiver marketplace that helps find, hire, manage and pay caregivers online, to create CareRides, a door-to-door transportation service for special-needs individuals in 50 US metro areas. Generali Global Assistance also partnered with CareLinx to provide value-added services for existing policyholders in times of need.

The marketplace of the future can offer emerging-risk coverage

Working with Cisco, Apple, and Aon, Allianz launched a comprehensive cyber insurance product for businesses in early 2018. The product includes a solution comprised of cyber-resilience evaluation services from Aon, secure technologies from Cisco and Apple, and options for enhanced cyber insurance coverage from Allianz. The product aims to help a broader range of organizations manage and protect themselves better from cyber risks associated with ransomware and malware-related threats.

The marketplace of the future can deliver simple to understand, easy-access offerings

Berlin-based startup FRIDAY offers innovative, digital automotive insurance with features like kilometeraccurate billing, the option to terminate at month’s end, and paperless administration. The InsurTech’s technologies and partnerships include:

  • Telematics support from the BMW CarData platform and from TankTaler, which tracks vehicle location as well as data such as battery voltage, mileage, and other statistics
  • Automotive services through the mobility hub of ATU, a German chain of vehicle repair franchises
  • Drivy, a peer-to-peer car rental marketplace that enables consumers to lease vehicles from private individuals
  • Friendsurance, a peer-to-peer InsurTech that pays out a percentage to customers who do not use (or use very little) annual insurance also sells FRIDAY policies

Prudential Singapore and StarHub partnered to create FastTrackTrade (FTT), Singapore’s first digital trade platform for small and midsized business (SMBs) that uses blockchain technology. FTT helps SMBs find business partners and distributors, buy and sell goods, track shipments, receive and make payments, access financing, and buy insurance via a single platform. FinTech startup Cités Gestion developed the pioneering platform with funding from Prudential.

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Structure supports success

Insurer success in the future marketplace will rely on a structured approach (see Figure 3).

  • Understanding customer preferences and conceptualizing product portfolios: Insurers can tap new data sources such as social media channels and use behavioral analytics for better understanding and more accurate estimation of their customer’s preferences and risk profile. With a deeper understanding of customers, they can conceptualize personalized product portfolios for each customer segment.
  • Recruiting the right partners: Once the product portfolio is finalized, insurers should look for partners that align with their business objectives and strategic vision. Cultural fit, ease of integration of systems, and seamless channels of communication are key success factors.
  • Structuring the offerings portfolio: Insurers should closely collaborate with partners while assembling their portfolio. A winning product/service mix offers a hyper-personalized one-stop solution for all the needs of the customer.
  • A compelling go-to-market strategy: Insurers should be able to communicate the value of the marketplace by touting human-centric offerings that customers find simple to understand and easy to access.
  • Capturing feedback: Through advanced analysis of sales data, direct customer input, social media, etc., insurers can capture feedback about their offerings. The process should be continuous rather than on an ad-hoc basis. More importantly, the input should be immediately acted upon to enhance current products or to conceptualize a new product.

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To realize the full potential of the structured approach, four fundamental shifts in the current operating model are critical

For an insurer to realize the full potential of the structured approach and ensuring the successful creation of the marketplace of the future, four fundamental shifts in the current operating model are critical (see Figure 4). The importance of these areas is borne out by the research. For example:

  1. Experience: More than 70% of insurers and InsurTechs said a focus on holistic risk solutions for customers was critical to establishing a future-state insurance marketplace.
  2. Data: More than 70% said advanced data management capabilities are critical.
  3. Partnerships: 90% of InsurTechs said partnerships were critical while 70% of incumbents said the same. Both insurers and InsurTechs have a hearty appetite for collaboration with other sectors, such as healthcare providers and players from the travel, transportation, and hospitality space (see Figure 5).
  4. Shared access: However, an emerging area in which views are evolving is the transition to a shared economy. Here, less than 40% of established insurers and InsurTechs say they consider shared ownership of assets to be critical.

Industry players should understand that the four shifts – focus on experience, data, partnership, and shared access – are interrelated and critical for partnering with other entities to develop bundled offerings. Concentrating on one at the expense of others may stymie the overall efficiency of the marketplace.

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Digital maturity does not match aspiration

While insurers realize the importance of these fundamental shifts, there is a significant gap between their expectations and their current digital maturity. Lack of digital maturity is the biggest concern for incumbents. While 68% of insurers said they believe partnerships are critical, only 32% are currently collaborating with ecosystem partners (see Figure 6).

Less than 40% of insurers have a holistic digital transformation strategy and are collaborating with ecosystem players to provide value-added services. Only 11% of insurers say they leverage open architecture, which is critical for working with other industry players.

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Experience-led digital offerings and seamless collaboration with ecosystem players will drive marketplace success

We call firms prepared to excel in the future marketplace Inventive Insurers because they have strategically updated their product portfolios, operating models, and distribution methods. They have outlined their distinctive capabilities as well as their competency gaps and are ready to deliver end-to-end solutions in the manner customers prefer.

Pragmatic assessment (and subsequent enhancement) of a firm’s digital maturity is critical to connecting with ecosystem players seamlessly. Figure 7 shows the steps companies need to take to establish the marketplace of the future.

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1. Prioritize digital agility

The critical first step in the future marketplace journey is boosting digital agility. The more quickly initiatives are implemented, the more quickly firms will enhance their digital maturity and actively participate within a connected ecosystem. Insurers must holistically adopt these critical capabilities to optimize their digital agility and seamlessly connect with partners to develop digitallyintegrated ecosystems (see Figure 8).

  • Real-time data gathering
  • Advanced analytics
  • Re-engineering complex processes and automating them

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2. Build an integrated ecosystem

Seamless collaboration between insurers and their strategic partners is the backbone of a digitally integrated ecosystem. As new players enter the insurance value chain (aggregators, original equipment manufacturers (OEMs), one-stop policy management apps, and third parties such as repair stores), incumbents must strengthen their position through strategic partnerships.

Our proposed digitally-integrated ecosystem seamlessly interconnects insurers with customers and partners to enable the efficient flow of information and services (see Figure 9).

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In the digitally-integrated ecosystem, customers can access insurers over various channels through extended multi-device, multi-platform, and mobility offerings. Digital integration with partners will play a crucial role as insurers seek to increase their reach and provide customers with convenient and seamless services.

Integration with aggregators and intermediaries offers insurers a choice of distribution channels. As insurers connect with individual customers through devices, real-time data can be captured and used to provide personalized offerings and value-added services.

Insurers will move beyond traditional touchpoints to become their customers’ constant risk control advisory and partner. For that to happen, however, insurers will need to join forces with third-party vendors for efficient claims management and payout, and with OEMs for real-time customer data.

APIs, cloud-based storage, and blockchain can foster insurance ecosystem integration by enabling the seamless and secure transfer of data between diverse systems. A digitally-integrated ecosystem – both within and outside the organization – will support the real-time, personalized services that customers already demand. Digital mastery can benefit top- and bottom lines and propel insurers forward.

Grasping the art of teamwork with close ecosystem players – and relevant offerings based on core capabilities – will lay the groundwork for insurers to partner profitably.

3. Create tomorrow’s marketplace

Firms must develop Inventive Insurer competencies to contribute to the successful development of tomorrow’s marketplace. These competencies include intelligent processes, open platforms, customer centricity, and an innovative mindset among team members ( see Figure 10).

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Intelligent insurer. Automation, analytics, and artificial intelligence can prioritize customer experience within all operations.

  • Process efficiencies can support top-notch service with quick turnaround times.
  • Analytical competencies help insurers understand customer needs and act swiftly.
  • Robust digital governance provides monitoring and ensures compliance within today’s dynamic regulatory environment.

Open insurers leverage open platforms to build an ecosystem of partners through seamless collaboration with third parties and enable firms to participate in the value chain of third parties. Insurers with open platforms can access and integrate new data streams to cater to customers’ evolving needs, reaching them in the way they prefer via new distribution channels. Modern platform with open architecture for providing bouquet of offerings also allow firms to take a fail-fast approach to product development and innovate at a faster pace.

Deep customer competencies allow insurers to leverage data and channels for enhancing the customer experience across all touchpoints. Deep customer insights generated using advanced analytics and AI enable insurers to keep the customer at the center of all decisions.

Product agility is crucial for insurers to create new products at a faster pace and gain a competitive edge from an increased speed-to-market. Creative culture and ability to innovate at scale are critical components for achieving product agility. A creative culture
encourages novel thinking from employees and spurs openness to change.

Innovation labs and design thinking can encourage a fresh approach, especially within cultures that are hard-wired with conventional processes and culture.

Leadership support and vision are also critical. While Inventive Insurer status may be an aspirational future state, each firm’s journey is unique. An open platform used as a sandbox is an excellent place to begin developing new competencies and learning how to innovate at scale. Inventive Insurers create digital, experience-led offerings by collaborating seamlessly with other ecosystem players.

Incumbents and InsurTechs will benefit from strategic collaboration

For the most part, the industry sees InsurTech collaboration only as a means to drive growth and transform the customer experience. For example, 84% of insurers and 80% of InsurTechs say they are focusing on “developing new offerings.”

However, when it comes to the critical building blocks for the new insurance marketplace – such as developing holistic technology infrastructure and advanced data management capabilities – there are significant gaps in the expectations of insurers and InsurTechs. For example, fewer than 40% of incumbent insurers want to build holistic technology infrastructure by collaborating with InsurTech firms, while more than 60% of InsurTechs wish to work with insurers to create such a foundation.

What’s more, while data security remains a crucial concern when establishing partnerships with other industries, only around 10% of incumbents and 25% of InsurTechs say they want to focus collaborative efforts on data security.

Industry players should focus on a holistic approach while venturing into an insurer-InsurTech collaboration to prepare for the future and consider tactical plans for quick wins that may offer short-term benefits.

External partners can facilitate incumbent-InsurTech collaboration

After clearly outlining collaboration objectives, insurers must select a partner. The World InsurTech Report 2018 took a deep dive into the InsurTech landscape and offered ways in which incumbents can assess the success potential of short-to-medium term partnerships with InsurTech firms as well as longterm relationship feasibility. Finding a partner that can address technology capability gaps may require specialized third-party support.

Incumbents and InsurTechs can optimize their structured collaborative efforts by keeping four guiding pillars in mind: People, Finance, Business, and Technology (Figure 13).

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People (The right individuals in the best-fit positions): Employees are a firm’s most essential assets when it comes to driving innovation, growth, expansion, and fruitful collaboration. Both partnering entities must be flexible and strive for a balance between the hierarchical nature of many traditional insurers and the flat organizational structure favored by InsurTechs.

Finance (Allocate optimal capital, realistically forecast returns): Without a defined investment and revenue model, it may be difficult to articulate a compelling value proposition. Participants need adequate capital to invest in the partnership and a proven revenue generating model to maintain positive cash flow in the not-too-distant future.

Business (Early traction, measurable success): Business traction, a proven business model, customer adoption, and value creation are must-meet goals for any potential collaboration. A new business model should solve the needs and challenges that were difficult to tackle independently. A collaborative partnership should produce a value proposition with quantifiable results.

Technology (Collaboration tools and technologies): Technology tools should be secure and enable frictionless collaboration, as well as scalability. Partner systems should securely integrate with the help of technology. Accessed information must be accurate, timely, and be regulatorily compliant. It should be scalable without affecting current systems.

New ecosystem roles will evolve as the industry transitions toward the marketplace model

As the insurance industry advances, new specialist roles are developing. In addition to the traditional integrated business role, new functions include that of Supplier, Aggregator, and Orchestrator. Close collaboration will enable incumbents and InsurTechs to maximize opportunities in each.

These roles are not business-model exclusive but business-case specific. Each ecosystem entity may mix and match positions depending on the business model in play (see Figure 15).

Established insurers and InsurTechs can also play multiple roles within an ecosystem. For example, a firm can act as both supplier and orchestrator. Similarly, one firm may be a supplier in an ecosystem, but be an orchestrator in another ecosystem.

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Optimize for both Social and Business Value – Building Resilient Businesses, Industries, and Societies

Publié le par hanswillertbleuazurconsultingeu

Why Is Corporate Capitalism at a Tipping Point?

Stakeholders are beginning to pressure companies and investors to go beyond financial returns and take a more holistic view of their impact on society. This should not surprise us. After all, we have lived through two decades of hyper-transformation, during which rapidly evolving digital technologies, globalization, and massive investment flows have stressed and reshaped every aspect of business and society.

As in previous transformations, the winners created new dimensions of competition and built innovative business models that increased returns for shareholders. Many others found their businesses at risk of being disrupted, with familiar formulas no longer working. To meet the unwavering demands of Wall Street, many companies relentlessly optimized operating models, streamlined and concentrated supply chains, and specialized their assets and teams — leaving them less resilient and less adaptable to shifting markets and trade flows. The resulting waves of corporate restructuring, consolidation, and repositioning have fractured companies’ cultures and undermined their social contracts.

Furthermore, this hyper-transformation cascaded beyond individual companies and created socio-economic dynamics that left many people and communities economically disadvantaged and politically polarized. Combined with the increasing shared anxiety that the earth’s climate is changing faster than the planet can adapt, a global zeitgeist of risk and insecurity has emerged. We will enter the 2020s with more citizens, investors, and leaders convinced that the way business, capital, and government work must change — and change quickly.

We now must rethink the sustainability of the whole system in the face of extreme externalities — or risk losing social and political permission for further progress. The 2030 UN Sustainable Development Goals (SDGs) identify the moral and existential threats that we must meet head-on. While some question the SDGs’ breadth and timeline, most agree that, if achieved, they would create a more just, inclusive, and sustainable world.

Goal 17 calls for new engagement by companies and capital in partnership for collective action across the public, social, and private sectors. Five years into the SDG agenda, there is ample evidence that governments, investors, and companies are beginning to exercise their capacity to create much-needed change.

Change Is Underway but Is Hardly Sufficient

Many institutional investors are racing to integrate ESG (environmental, social, and governance) assessments into their decision making, and they are expecting companies to report on how they deliver on those metrics. New efforts promote radical disclosure, like the Bloomberg/Carney TCFD (Task Force on Climate-Related Financial Disclosures), which encourages signatories to report on the climate risks of their financial holdings.

New standards initiatives are creating a foundation for nonfinancial performance accounting, and the prospect of widespread “integrated reporting” seems realistic. Companies are investing in “purpose” and defining their contributions to society against material ESG factors and SDG goals. Corporate sustainability and CSR (Corporate Social Responsibility) functions, historically on the sidelines, are now being integrated into line business activity, with progressive companies expanding the scope of competition to include differentiation on environmental and societal dimensions. And through industry consortia, many companies are taking collective action on issues that both threaten their right to operate and open up new opportunities for their industries.

Such examples are important early signals that the context for business is changing. However, for all the progress on commitments, agreements, metrics, and policies, there has been little aggregate progress against top-level goals, like

  • reducing CO2 emissions,
  • cutting plastics waste,
  • or narrowing social and economic inequality within nations.

Without demonstrable impact and collective progress, social and political pressure will only build, further threatening the legitimacy of corporate capitalism.

A New Societal Context for Business

Companies will face escalating social activism by investors, stakeholders, social mission organizations, and policymakers on issues of

  • climate risk,
  • economic inequality,
  • and societal well-being.

Governments and local communities will set a higher bar for a company’s right to operate, and in a connected world a company’s local performance will quickly affect its global reputation and trigger social and regulatory consequences. Stakeholders will expect radical transparency on ESG performance.

This will shift investors’ perceptions of a company’s risk and opportunity, skewing capital toward those that deliver both financial returns and positive societal impact. To satisfy a growing demographic of socially minded consumers and businesses, companies will need to demonstrate “good products doing good” and anchor their brands and identity around a credible purpose.

Talent will gravitate toward companies that give employees a line-of-sight to making the world better while also providing a fulfilling career. To win, companies will need to define competition more broadly, adding new dimensions of value through

  • environmental sustainability,
  • holistic well-being,
  • economic inclusion,
  • and ethical content.

This will require radical business model innovation

  • to enable circular economies for precious resources;
  • to provide assets that are shared rather than owned;
  • to broaden access and inclusion;
  • and to multiply positive societal impact.

At this critical moment for corporate capitalism, business is more trusted than government, according to the Edelman Trust Barometer. Farsighted corporate leaders will see the opportunity for their industries to

  • mitigate environmental and societal threats,
  • catalyze collective action to discover new solutions,
  • shape wider ecosystems,
  • and expand trust with stakeholders.

Such actions will be indispensable to strengthen social permission for corporate capitalism before it is further undermined.

CEOs Need an Agenda for Value and the Common Good

We frame the journey to new corporate value and the common good around six imperatives.

It begins with reimagining corporate strategy, then

  • involves transforming the business model,
  • reframing performance and scorekeeping,
  • leading a purpose-filled organization,
  • practicing corporate statesmanship,
  • and elevating governance.

BCG 1

While challenging to execute, we argue that this agenda will be essential to create a great company, a great stock, a great impact, and a great legacy.

Reimagine Corporate Strategy

We believe few companies have strategies for this new era of business. The following exhibit illustrates the ambition of such a strategy, which establishes competitive advantage at the intersection of

  • shareholder value,
  • corporate longevity,
  • and societal impact.

The “quality” of the strategy is thus judged by how it delivers both total shareholder returns and total societal impact.

BCG 2

Consequently, it widens the scope of competition to encompass creating rich differentiation and relative advantage in multiple areas of societal value. It embeds “social value” into new business constructs, shared value chains, and reconstructed ecosystems.

It also opens, broadens, and deepens markets to enable access and inclusion. And it expands the scope of business by calling for coalitions for collective action that address existential risks to environmental and societal ecosystems.

This new type of strategy flips leadership’s perspective from “company-out” to “societal needs-in,” by asking how a specific SDG target could be met by extending the company’s capabilities, assets, products, services, and ecosystem—and those of its industry. The following exhibit lists ten questions that strategists should incorporate into their strategy processes to ensure that they embrace the opportunity to create both shareholder returns and societal impact.

BCG 3

However, these new strategies cannot simply be grafted onto existing business models. Business models themselves will need to be transformed. Sustainable business model innovation (S-BMI) takes a much wider perspective than traditional business model innovation by considering

  • a broader set of stakeholders;
  • the system dynamics of the socio-environmental context;
  • longer time horizons for sustaining adaptable advantage;
  • the limits of business model scale, viability, and resilience;
  • the cradle-to-grave production and consumption cycle;
  • and the points of leverage for profitable and sustainable transformation.

Transform Business Models

We can already observe seven topologies for sustainable business model innovation, sometimes in combination, all with the potential to increase both financial returns and societal benefits.

  • Own the origins. Compete on capturing and differentiating the “social value” of inputs to production processes, products, or services. For example,
    • pursue cleaner energy,
    • sustainable practices,
    • preserved biodiversity,
    • recycled content,
    • inclusive and empowering work practices,
    • minimized waste,
    • digitized traceability,
    • fair trade, and so on.

Performance here will require differentially advancing the societal performance of the supplier base and its stewardship of resources, communities, and trade flows. Achieving this may require backward integration to ensure fast and complete upstream transformation and then holding and using these new capabilities for competitive advantage and differentiation.

  • Own the whole cycle. Compete by creating societal impact through the whole product usage cycle, from creation through end of life. This competitive typology puts a wide aperture on the business and requires systems analysis to uncover business models that offer the richest competitive and financial options. For example,
    • designing for circularity, recyclability, and waste to value;
    • creating offerings that enable sharing rather than owning to ensure high utilization of resources and end-of-life value;
    • constructing infrastructure to facilitate circularity and repurposing;
    • integrating into other value chains to capture societal value;
    • educating and enabling consumers to choose whole-cycle propositions on the basis of value to people and planet.

To achieve these ends, expect to reposition operations, reinvent supply chains and distribution networks, pursue new backward or forward integration, acquire business adjacencies, or undertake unconventional strategic partnering.

  • Expand “social value.” Compete by expanding the value of products or services on six dimensions:
    • economic gains,
    • environmental sustainability,
    • customer well-being,
    • ethical content,
    • societal enablement,
    • and access and inclusion.

Then advocate new standards, increase transparency and traceability, tune marketing and segmentation, engage customers on the product’s wider value and their involvement in bigger change, and seek premium pricing. In business-to-business offerings, help customers integrate the full social value of your products, services, and business model into their own differentiation and ESG ambitions.

  • Expand the chains. Compete by extending the company’s value chain, layering onto other industries’ value chains to extend the reach of your products and services and the societal impact for both parties, while changing the economics and risks of doing so. For example,
    • use the reach of a consumer products distribution system to extend payments and financial services to small merchants;
    • layer one company’s health services onto another company’s physical supply chain to benefit its workers and their families while expanding markets for health services;
    • or use the byproducts of one company’s operations as feedstock in other companies’ value chains.
  • Energize the brand. Compete by digitally encoding, promoting, and monetizing the full accumulated social value that is embedded in products and services, along the whole value chain— from origins to customer, from cradle to grave. Use such data to rethink differentiation, the brand experience, customer engagement, pricing for value, ESG reporting, investor engagement, and even potential new businesses. For example,
    • strengthen the brand with promotions that showcase the business’s performance on the open, clean, green, renewable, and inclusive attributes of its operations;
    • and increase customer engagement and loyalty by using data on the product’s environmental and societal footprint to empower customers in choosing how their lifestyle affects the planet and its people.
  • Relocalize and regionalize. Compete by contracting and reconnecting global value chains to bring societal benefits closer to home markets in ways stakeholders value. For example,
    • build local and regional brands that better express local tastes and values;
    • source from smaller local producers to minimize logistics emissions and strengthen local economies;
    • reimagine production networks against total environmental and societal costs;
    • capture local waste streams as feedstocks for other activities;
    • or reconstitute jobs for microwork to use local talent.
  • Build across sectors. Compete by creating models that include the public and social sectors to improve the company’s business and societal proposition, particularly in emerging and rapidly developing economies. For example,
    • work alongside governmental bilateral aid institutions and NGO development organizations to improve the agricultural capacity of small farmers so they become reliable sources of agricultural inputs to the agro-processing value chain;
    • partner with global environmental organizations and governments to promote the reuse of ocean plastics as feedstocks to production systems;
    • partner with governments to strengthen social safety nets and prevent corruption through digitization and electronic payments;
    • or partner across sectors to restructure recycling systems to enable higher penetration of waste-to-value business models.

Extend this into industry coalitions for collective action that reshape broader rights to operate and generate new opportunities.

All seven types of S-BMI create new sources of differentiation, operating advantage, network dynamics, and societal value — enabling more durable and resilient businesses that benefit shareholders and society. But to assess and improve the performance of these business models and communicate their value, we need to expand today’s scorecards.

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Moving from best to better and better – Business practice redesign is an untapped opportunity

Publié le par hanswillertbleuazurconsultingeu

Under mounting performance pressure, many corporate leaders are looking to business process reengineering to improve performance, and in many ways that makes sense after all, processes give shape to an organization and are often useful for coordinating routine flows across large organizations. The routine work of a company should be done as efficiently as possible, which increasingly means incorporating automation.

But organizations may be missing a much greater opportunity to improve performance.

Here’s the thing: Much of the work of many organizations today—at least the work that typically offers the potential for differentiation—is no longer routine or even predictable. When conditions and requirements shift constantly, processes fail. While process optimization can still certainly help

  • reduce costs
  • and streamline operations,

leaders should consider a different kind of organizational rethinking for significant performance improvement. And in an environment of accelerating technological advances and rapid and unpredictable change, constant performance improvement is a must. Competition can come from anywhere—doing well relative to the competitors on your radar isn’t enough. Many barriers to competition are falling, and many boundaries, between industries and between markets, are blurring.

  • Consumers have more access to information and alternatives than ever, along with a coincident increase in expectations.
  • Workers have more access to information and alternatives—and increased expectations.

At the same time, many employees, in all kinds of environments, face increasing pressure to reach higher levels of individual performance. The useful life of many skills is in decline, creating a constant pressure to learn fast and reskill.

Many companies have struggled to effectively respond to these pressures since long before the Internet of Things and cognitive technologies added new layers of complexity. The average return on assets for US companies has declined for the past several decades, and companies find themselves displaced from market leadership positions more often than they used to. While the price-performance improvement in the digital infrastructure has increased exponentially, most companies are still capturing only a small fraction of the value that ought to be available through the technologies built on this infrastructure. Existing approaches to performance improvement appear to be falling short.

It begs the question: In a world of digital transformation and constant change, what does performance improvement mean? Many companies suffer from at least one of three broad problems that can misdirect their focus:

  1. Thinking of performance improvement too modestly. Leaders often think of performance advances as discrete, one-time jumps from A to B, or even a series of jumps to C and D. The initiatives that typically generate these bumps are similarly construed as pre-defined, one-time changes rather than as unbounded efforts that have the potential to generate more and more improvement. As we discuss in more detail, not only do most companies need to continually improve their performance— those that don’t start accelerating may fall further and further behind and become increasingly marginalized. Accelerating improvement, then, should be a goal of operations, not just one-off initiatives.
  2. Thinking of performance improvement too narrowly, focused only on costs. Process dominated much of performance improvement efforts for the past several decades, focusing largely on the denominator of the financial ratio of revenues to costs. But costs can be cut only so far, and technology-based process efficiencies can be quickly competed away, especially at a time when the changing environment and shifting customer expectations are making many standardized processes quickly obsolete. Further reductions can become harder to achieve and have less impact. The relevant performance might be more about an organization’s ability to create significant new value. Workers across an organization regularly encounter new needs, new tools for meeting needs, and opportunities to identify new ways of delivering more value and impact in multiple dimensions, including helping other parts of the organization generate more value. The potential for value creation isn’t confined to certain roles or functions, and is bounded primarily by an organization’s ability to create new knowledge and creatively address new problems. Focusing on new value creation may be the key to getting on a trajectory of accelerating performance improvement. Doing so would require an organization to move beyond efficiency and standardization and begin focusing on cultivating the behaviors—such as experimentation and reflection to make sense of what has been learned—associated with new value creation.
  3. Thinking of performance improvement at the wrong level. Most organizations manage performance where they measure it—which is to say where they have data: broadly, for the department and organization, and narrowly, for the individual. Both levels can miss where work, especially value-creating work, increasingly gets done: in groups. As a result, organizations can miss the opportunity to shape how work actually gets done. Focusing on performance where it matters most to the organization’s work might be a key to having a significant impact on the performance that matters.

The imperative to act seems simple: Today’s environment seems to offer no reprieve, no stabilization that gives us a chance to catch our breath and say, “OK, now we’ve got it figured out.” The methods and processes that led organizations to great success in the past seem to no longer be working. For sustained performance improvement, companies may need to change their focus and look in new directions.

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