How To Build a CX Program And Transform Your Business

Customer Experience (CX) is a catchy business term that has been used for decades, and until recently, measuring and managing it was not possible. Now, with the evolution of technology, a company can build and operationalize a true CX program.

For years, companies championed NPS surveys, CSAT scores, web feedback, and other sources of data as the drivers of “Customer Experience” – however, these singular sources of data don’t give a true, comprehensive view of how customers feel, think, and act. Unfortunately, most companies aren’t capitalizing on the benefits of a CX program. Less than 10% of companies have a CX executive and of those companies, only 14% believe Customer Experience, as a program, is the aggregation and analysis of all customer interactions with the objective of uncovering and disseminating insights across the company in order to improve the experience. In a time where the customer experience separates the winners from the losers, CX must be more of a priority for ALL businesses.

This not only includes the analysis of typical channels in which customers directly interact with your company (calls, chats, emails, feedback, surveys, etc.) but all the channels in which customers may not be interacting directly with you – social, reviews, blogs, comment boards, media, etc.

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In order to understand the purpose of a CX team and how it operates, you first need to understand how most businesses organize, manage, and carry out their customer experiences today.

Essentially, a company’s customer experience is owned and managed by a handful of teams. This includes, but is not limited to:

  • digital,
  • brand,
  • strategy,
  • UX,
  • retail,
  • design,
  • pricing,
  • membership,
  • logistics,
  • marketing,
  • and customer service.

All of these teams have a hand in customer experience.

In order to affirm that they are working towards a common goal, they must

  1. communicate in a timely manner,
  2. meet and discuss upcoming initiatives and projects,
  3. and discuss results along with future objectives.

In a perfect world, every team has the time and passion to accomplish these tasks to ensure the customer experience is in sync with their work. In reality, teams end up scrambling for information and understanding of how each business function is impacting the customer experience – sometimes after the CX program has already launched.

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This process is extremely inefficient and can lead to serious problems across the customer experience. These problems can lead to irreparable financial losses. If business functions are not on the same page when launching an experience, it creates a broken one for customers. Siloed teams create siloed experiences.

There are plenty of companies that operate in a semi-siloed manner and feel it is successful. What these companies don’t understand is that customer experience issues often occur between the ownership of these silos, in what some refer to as the “customer experience abyss,” where no business function claims ownership. Customers react to these broken experiences by communicating their frustration through different communication channels (chats, surveys, reviews, calls, tweets, posts etc.).

For example, if a company launches a new subscription service and customers are confused about the pricing model, is it the job of customer service to explain it to customers?  What about those customers that don’t contact the business at all? Does marketing need to modify their campaigns? Maybe digital needs to edit the nomenclature online… It could be all of these things. The key is determining which will solve the poor customer experience.

The objective of a CX program is to focus deeply on what customers are saying and shift business teams to become advocates for what they say. Once advocacy is achieved, the customer experience can be improved at scale with speed and precision. A premium customer experience is the key to company growth and customer retention. How important is the customer experience?

You may be saying to yourself, “We already have teams examining our customer data, no
need to establish a new team to look at it.” While this may be true, the teams are likely taking a siloed approach to analyzing customer data by only investigating the portion of the data they own.

For example, the social team looks at social data, the digital team analyzes web feedback and analytics, the marketing team reviews surveys and performs studies, etc. Seldom do these teams come together and combine their data to get a holistic view of the customer. Furthermore, when it comes to prioritizing CX improvements, they do so based on an incomplete view of the customer.

Consolidating all customer data gives a unified view of your customers while lessening the workload and increasing the rate at which insights are generated. The experience customers have with marketing, digital, and customer service, all lead to different interactions. Breaking these interactions into different, separate components is the reason companies struggle with understanding the true customer experience and miss the big picture on how to improve it.

The CX team, once established, will be responsible for creating a unified view of the customer which will provide the company with an unbiased understanding of how customers feel about their experiences as well as their expectations of the industry. These insights will provide awareness, knowledge, and curiosity that will empower business functions to improve the end-to-end customer experience.

CX programs are disruptive. A successful CX program will uncover insights that align with current business objectives and some insights that don’t at all. So, what do you do when you run into that stone wall? How do you move forward when a business function refuses to adopt the voice of the customer? Call in back-up from an executive who understands the value of the voice of the customer and why it needs to be top-of mind for every function.

When creating a disruptive program like CX, an executive owner is needed to overcome business hurdles along the way. Ideally, this executive owner will support the program and promote it to the broader business functions. In order to scale and become more widely adopted, it is also helpful to have executive support when the program begins.

The best candidates for initial ownership are typically marketing, analytics or operations executives. Along with understanding the value a CX program can offer, they should also understand the business’ current data landscape and help provide access to these data sets. Once the CX team has access to all the available customer data, it will be able to aggregate all necessary interactions.

Executive sponsors will help dramatically in regard to CX program adoption and eventual scaling. Executive sponsors

  • can provide the funding to secure the initial success,
  • promote the program to ensure other business functions work closer to the program,
  • and remove roadblocks that may otherwise take weeks to get over.

Although an executive sponsor is not necessary, it can make your life exponentially easier while you build, launch, and execute your CX program. Your customers don’t always tell you what you want to hear, and that can be difficult for some business functions to handle. When this is the case, some business functions will try to discredit insights altogether if they don’t align with their goals.

Data grows exponentially every year, faster than any company can manage. In 2016, 90% of the world’s data had been created in the previous two years. 80% of that data was unstructured language. The hype of “Big Data” has passed and the focus is now on “Big Insights” – how to manage all the data and make it useful. A company should not be allocating resources to collecting more data through expensive surveys or market research – instead, they should be focused on doing a better job of listening and reacting to what customers are already saying, by unifying the voice of the customer with data that is already readily available.

It’s critical to identify all the available customer interactions and determine value and richness. Be sure to think about all forms of direct and indirect interactions customers have. This includes:

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These channels are just a handful of the most popular avenues customers use to engage with brands. Your company may have more, less, or none of these. Regardless, the focus should be on aggregating as many as possible to create a holistic view of the customer. This does not mean only aggregating your phone calls and chats; this includes every channel where your customers talk with, at, or about your company. You can’t be selective when it comes to analyzing your customers by channel. All customers are important, and they may have different ways of communicating with you.

Imagine if someone only listened to their significant other in the two rooms where they spend the most time, say the family room and kitchen. They would probably have a good understanding of the overall conversations (similar to a company only reviewing calls, chats, and social). However, ignoring them in the dining room, bedroom, kids’ rooms, and backyard, would inevitably lead to serious communication problems.

It’s true that phone, chat, and social data is extremely rich, accessible, and popular, but that doesn’t mean you should ignore other customers. Every channel is important. Each is used by a different customer, in a different manner, and serves a different purpose, some providing more context than others.

You may find your most important customers aren’t always the loudest and may be interacting with you through an obscure channel you never thought about. You need every customer channel to fully understand their experience.

Click here to access Topbox’s detailed study

The exponential digital social world

The exponential digital social world

Tech-savvy start-ups with natively digital business models regard this point in time as the best time in the history of the world to invent something. The world is buzzing with technology-driven opportunities leveraging the solid platform provided over the past 30 years, birthed from

  • the Internet,
  • then mobility,
  • social
  • and now the massive scale of cloud computing and the Internet of Things (IoT).

For the start-up community, this is a

  • platform for invention,
  • coupled with lowered / disrupted barriers,
  • access to venture capital,
  • better risk / benefit ratios
  • and higher returns through organisational agility.

Kevin Kelly, co-founder of Wired magazine believes we are poised to create truly great things and that what’s coming is exponentially different, beyond what we envisage today – ‘Today truly is a wide open frontier. We are all becoming. It is the best time ever in human history to begin’ (June 2016). Throughout history, there have been major economic and societal shifts and the revolutionary nature of these is only apparent retrospectively – at the time the changes were experienced as linear and evolutionary. But now is different. Information access is globalised and is seen as a democratic right for first world citizens and a human right for the less advantaged.

The genesis was the Internet and the scale is now exponential because cloud-based platforms embed connections between data, people and things into the very fabric of business and daily life. Economies are information and services-based and knowledge is a valued currency. This plays out at a global, regional, community and household level. Pro-active leaders of governments, businesses and communities addressing these trends stress the need for innovation and transformative change (vs incremental) to shape future economies and societies across the next few years. In a far reaching example of transformative vision and action, Japan is undertaking ‘Society 5.0’, a full national transformation strategy including policy, national digitisation projects and deep cultural changes. Society 5.0 sits atop a model of five waves of societal evolution to a ‘super smart society’. The ultimate state (5.0) is achieved through applying technological advancements to enrich the opportunities, knowledge and quality of life for people of all ages and abilities.

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The Society 5.0 collaboration goes further than the digitisation of individual businesses and the economy, it includes all levels of the Japanese society, and the transformation of society itself. Society 5.0 is a framework to tackle several macro challenges that are amplified in Japan, such as an ageing population – today, 26.3% of the Japanese population is over 65, for the rest of the world, 20% of people will be over 60 by 2020. Japan is responding through the digitisation of healthcare systems and solutions. The increased mobility and flexibility of work to keep people engaged in meaningful employment, and the digitisation of social infrastructure across communities and into homes. This journey is paved with important technology-enabled advances, such as

  • IoT,
  • robotics,
  • artificial intelligence,
  • virtual and augmented reality,
  • big data analytics
  • and the integration of cyber and physical systems.

Japan’s transformation approach is about more than embracing digital, it navigates the perfect storm of technology change and profound changes in culture, society and business models. Globally, we are all facing four convergent forces that are shaping the fabric of 21st century life.

  • It’s the digital social world – engaging meaningfully with people matters, not merely transacting
  • Generational tipping point – millennials now have the numbers as consumers and workers, their value systems and ways of doing and being are profoundly different
  • Business models – your value chain is no longer linear, you are becoming either an ecosystem platform or a player / supplier into that ecosystem
  • Digital is ubiquitous – like particles in the atmosphere, digital is all around us, connecting people, data and things – it’s the essence of 21st century endeavours

How do leaders of our iconic, successful industrial era businesses view this landscape? Leaders across organisations, governments and communities are alert to the opportunities and threats from an always on economy. Not all leaders are confident they have a cohesive strategy and the right resources to execute a transformative plan for success in this new economy of knowledge, digital systems and the associated intangible assets – the digital social era. RocketSpace, a global ecosystem providing a network of campuses for start-up acceleration, estimate that 10 years from now, in 2027, 75% of today’s S&P 500 will be replaced by digital start-ups (RocketSpace Disruption Brief, March 2017). Even accounting for some potential skew in this estimate, we are in the midst of unprecedented change.

What is change about?

What are the strategic assets and capabilities that an organisation needs to have when bridging from the analogue to the digital world? Key to succeeding in this is taking the culture and business models behind successful start-ups and imbuing them into the mature enterprise. Organisations need to employ outside-in, stakeholder-centric design-thinking and adopt leveraged business models that create

  • scaled resources,
  • agility,
  • diversity of ideas

and headspace to

  • explore,
  • experiment,
  • fail and try again.

The need to protect existing assets and sources of value creation remains important. However, what drives value is changing, so a revaluation of portfolios is needed against a new balance sheet, the digital social balance sheet.

The Dimension Data Digital Social Balance Sheet evolved from analysing transformational activities with our global clients from the S&P500, the government sector, education and public health sectors and not-for-profits. We also learnt from collaborations with tech start-ups and our parent company, Nippon Telegraph and Telephone Group’s (NTT) R&D investment activities, where they create collaborative ecosystems referred to as B2B2X. The balance sheet represents the seven top level strategic capabilities driving business value creation in the digital social era. This holds across all industries, though it may be expressed differently and have different relative emphasis for various sectors – for example, stakeholders may include employees, partners, e-lance collaborators, customers, patients, shareholders or a congregation.

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Across each capability we have defined five levels of maturity and this extends the balance sheet into the Dimension Data Digital Enterprise Capability Maturity Model. This is an holistic, globally standardised framework. From this innovative tool, organisations can

  • assess themselves today,
  • specify their target state,
  • conduct competitive benchmarking,
  • and map out a clear pathway of transitions for their business and stakeholders.

The framework can also be applied to construct your digital balance sheet reporting – values and measures can be monitored against organisational objectives.

Where does your organisation sit? Thinking about your best and worst experiences with a business or government organisation this year, what is revealed about their capabilities? Across each of the pillars of this model, technology is a foundation and an enabler of progressive maturity. For example, effective data architecture and data management platforming underpins the information value capability of responsiveness. A meaningful capability will be enabled by the virtual integration of hybrid data sources (internal systems, external systems, machines, sensors, social) for enhanced perception, discovery, insight and action by both knowledge workers and AI agents. Uber is a leading innovator in this, and is also applying deep learning, to predict demand and direct supply, not just in time, but just before time. In this, they are exploring beyond today’s proven and mainstream capabilities to generate unique business value.

Below is a high level assessment of three leading digitals at this point in their business evolution – Uber, Alibaba and the Estonian government. We infer their capabilities from our research of their organisational journeys and milestones, using published material such as articles and case studies, as well as our personal experiences engaging with their platforms. Note that each of these businesses’ capabilities are roughly in alignment across the seven pillars – this is key to sustainable value creation. For example, an updated online presence aimed at improving user experience delivers limited value if not integrated in real time across all channels, with information leveraged to learn and deepen engagement and processes designed around user context, able to adapt to fulfil the point in time need.

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Innovation horizons

In the model below, key technology trends are shown. We have set out a view of their progression to exponential breakthrough (x axis) and the points at which these technologies will reach the peak of the adoption curve, flipping from early to late adopters (y axis). Relating this to the Digital Enterprise Capability Maturity Model, level 1 and 2 capabilities derive from what are now mature foundations (past). Level 3 aligns with what is different and has already achieved the exponential breakthrough point. Progressing to level 4 requires a preparedness to innovate and experiment with what is different and beyond. Level 5 entails an appetite to be a first mover, experimenting with technologies that will not be commercial for five to ten years, but potentially provide significant first mover advantage. This is where innovators such as Elon Musk’s horizons are set with Tesla and SpaceX.

An example of all of this coming together at level 3 of digital capability maturity and the different horizon – involving cloud, mobility, big data, analytics, IoT and cybersecurity – to enable a business to transform, is Amoury Sport Organisation (A.S.O.) and their running of the Tour de France. The Tour was conceived in 1903 as an event to promote and sell A.S.O.’s publications and is today the most watched annual sporting event in the world. Spectators, athletes and coaches are hungry for details and insights into the race and the athletes. Starting from the 2015 Tour, A.S.O. has leapt forward as a digital business. Data collected from sensors connected to the cyclist’s bike is aggregated on a secure, cloud-based, big data platform, analysed in real time and turned into entertaining insights and valuable performance statistics for followers and stakeholders of the Tour. This has opened up new avenues of monetisation for A.S.O. Dimension Data is the technology services partner enabling this IoT-based business platform.

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If your organisation is not yet on the technology transformation path, consider starting now. For business to prosper from the digital economy, you must be platformed to enable success – ready and capable to seamlessly connect humans, machines and data and to assure secure ecosystem flows. The settings of our homes, cars, schools and learning institutions, health and fitness establishments, offices, cities, retail outlets, factories, defence forces, emergency services, logistics providers and other services are all becoming forever different in this digital atmosphere.

Where is your innovation horizon set? The majority of our co-innovation agendas with our clients are focused on the beyond horizons. In relation to this, we see four pairs of interlinked technologies being most impactful

  • artificial intelligence and robotics;
  • virtual/ augmented reality and the human machine interface;
  • nano-technology and 3D/4D printing,
  • and cybersecurity and the blockchain.

Artificial intelligence and robotics

Artificial intelligence (AI) is both a science and set of technologies inspired by the way humans sense, perceive, learn, reason, and act.

We are rapidly consuming AI and embedding it into our daily living, taking it for granted. Think about how we rely upon GPS and location services, use Google for knowledge, expect Facebook to identify and tag faces, ask Amazon to recommend a good read and Spotify to generate a personalised music list, not so long ago, these technologies were awe-inspiring.

Now, and into the next 15 years, there is an AI revolution underway, a constellation of different technologies coming together to propel AI forward as a central force in society. Our relationships with machines will become more nuanced and personalised. There’s a lot to contemplate here. We really are at a juncture where discussion is needed at all levels about the ways that we will and won’t deploy AI to promote democracy and prosperity and equitably share the wealth created from it.

The areas in which this will have the fastest impact are transportation, traditional employment and workplaces, the home, healthcare, education, public safety and security and entertainment. Let’s look at examples from some of these settings:

Transportation – Autonomous vehicles encapsulate IoT, all forms of machine learning, computer vision and also robotics. This will soon break through the exponential point, once the physical hardware systems are robust enough.

Healthcare – there is significant potential for use of AI in pure and applied research and healthcare service delivery, as well as aged and disability related services. The collection of data from clinical equipment e.g. MRI scanners and surgical robots, clinical electronic health records, facility-based room sensors, personal monitoring devices, and mobile apps is allowing for more complete digital health records to be compiled. Analysis of these records will evolve clinical understandings. For example, NTT Data provides a Unified Clinical Archive Service for radiologists, providing machine learning interpretation of MRI brain imagery. The service provides digital translations of MRI brain scans and contains complete data sets of normal brain functions (gathered from John Hopkins University in the US). Radiologists are able to quantitatively evaluate their patient results with the normal population to improve diagnostics. Each new dataset adds to the ecosystem of knowledge.

Education – AI promises to enhance education at all levels, particularly in providing personalisation at scale for all learners. Interactive machine tutors are now being matched to students. Learning analytics can detect how a student is feeling, how they will perform and what the best likely interventions to improve learning outcomes are. Online learning has also enabled great teachers to boost their class numbers to worldwide audiences, while at the same time, student’s individual learning needs can be augmented through analysis of their response to the global mentor. Postgraduate and professional learning is set to become more modular and flexible, with AI used to assess current skills and work related projects and match learning modules of most immediate career value – an assemble your own degree approach. Virtual reality along with AI, is also changing learning content and pathways to mastery, and so will be highly impactful. AI will never replace good teaching, and so the meaningful integration of AI with face-to-face teaching will be key.

Public safety and securityCybersecurity is a key area for applied AI. Machine learning from AI against the datasets from ubiquitously placed cameras and drones for surveillance is a key area. In areas of tax, financial services, insurance and international policing, algorithms are improving the conduct of fraud investigations. A significant driver for advances in deep learning, particularly in video and audio processing has come off the back of anti-terrorist analytics. All of these things are now coming together in emergency response planning and orchestration and in the emerging field of predictive policing.

Virtual reality/augmented reality and the human machine interface

The lines between the physical and digital worlds are merging, along the ‘virtuality’ continuum of augmented and virtual reality. Augmented reality (AR) technologies overlay digital information on the ‘real world’, the digital information is delivered via a mechanism, such as a heads-up display, smart glass wall or wrist display. Virtual reality (VR) immerses a person in an artificial environment where they interact with data, their visual senses (and others) controlled by the VR system. Augmented virtuality blends AR and VR. As virtuality becomes part of our daily lives, the way we will interact with each other, learn, work, and transact are being re-shaped.

At the 2017 NTT R&D Fair in Tokyo, the use of VR in sports coaching and the spectator experience was showcased, with participants able to experience playing against elite tennis and baseball players and riding in the Tour de France. A VR spectator experience also enabled the direct experience the rider’s view and the sensation of the rider’s heart rate and fatigue levels. These applications of VR and AI are being rapidly incorporated into sports analytics and coaching.

Other enterprise VR use cases include

  • teaching peacekeeping skills to troops in conflict zones,
  • the creation of travel adventures,
  • immersion in snowy climate terrain to reduce pain for burn victims,
  • teaching autistic teenagers to drive,
  • and 3D visualisations of organs prior to conducting surgery.

It isn’t hard to imagine the impact on educational and therapeutic services, government service delivery, a shopping experience, on social and cultural immersion for remote communities and on future business process design and product engineering.

Your transformation journey

Every business is becoming a digital business. Some businesses are being caught off guard by the pace and nature of change. They are finding themselves reactive, pulled into the digital social world by the forces of disruption and the new rules of engagement set by clients, consumers, partners, workers and competitors. Getting on the front foot is important in order to control your destiny and assure future success. The disruptive forces upon us present opportunities to create a new future and value for your organisation and stakeholders. There are also risks, but the risk management approach of doing nothing is not viable in these times.

Perhaps your boardroom and executive discussions need to step back from thinking about the evolution of the current business and think in an unconstrained ‘the art of possible’ manner as to the impact of the global digital disruption and sources of value creation into the future. What are the opportunities, threats and risks that these provide? What is in the best interests of the shareholders? How will you retain and improve your sector competitiveness and use digital to diversify?

Is a new industry play now possible? Is your transformed digital business creating the ecosystem (acting as a platform business) or operating within another? How will it drive the business outcomes and value you expect and some that you haven’t envisaged at this point?

The digital balance sheet and seven pillars of digital enterprise capability could be used as the paving blocks for your pathway from analogue to digital. The framework can also guide and measure your progressive journey.

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Our experiences with our clients globally show us that the transformation journey is most effective when executed across three horizons of change. Effective three step horizon planning follows a pattern for course charting, with a general flow of:

  1. Establish – laying out the digital fabric to create the core building blocks for the business and executing the must do/no regret changes that will uplift and even out capability maturity to a minimum of level 2.
  2. Extend – creating an agile, cross-functional and collaborative capability across the business and executing a range of innovation experiments that create options, in parallel with the key transformative moves.
  3. Enhance – embedding the digital social balance sheet into ‘business as usual’, and particularly imbuing innovation to continuously monitor, renew and grow the organisation’s assets.

In this, there are complexities and nuances of the change, including:

  • Re-balancing of the risk vs opportunity appetite from the board
  • Acceptable ROI models
  • The ability of the organisation to absorb change
  • Dependencies across and within the balance sheet pillars
  • Maintaining transitional balance across the pillars
  • Managing finite resources – achieving operational cost savings to enable the innovation investment required to achieve the target state

The horizon plans also need to have flex – so that pace and fidelity can be dialled up or down to respond to ongoing disruption and the dynamic operational context of your organisation.

Don’t turn away from analogue wisdom, this is an advantage. Born-digital enterprises don’t have established physical channels and presence, have not experienced economic cycles and lack longitudinal wisdom. By valuing analogue experience and also embracing the essence of outside-in thinking and the new digital social business models, the executive can confidently execute.

A key learning is that the journey is also the destination – by

  • mobilising cross functional teams,
  • drawing on diverse skills and perspectives,

empowered to act using quality information that is meaningful to them – this uplifts your organisational capabilities and in itself will become one of your most valuable assets.

Click here to access Dimension Data’s detailed study

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

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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Click here to access Cap Gemini’s entire report

 

From Risk to Strategy : Embracing the Technology Shift

The role of the risk manager has always been to understand and manage threats to a given business. In theory, this involves a very broad mandate to capture all possible risks, both current and future. In practice, however, some risk managers are assigned to narrower, siloed roles, with tasks that can seem somewhat disconnected from key business objectives.

Amidst a changing risk landscape and increasing availability of technological tools that enable risk managers to do more, there is both a need and an opportunity to move toward that broader risk manager role. This need for change – not only in the risk manager’s role, but also in the broader approach to organizational risk management and technological change – is driven by five factors.

Marsh Ex 1

The rapid pace of change has many C-suite members questioning what will happen to their business models. Research shows that 73 percent of executives predict significant industry disruption in the next three years (up from 26 percent in 2018). In this challenging environment, risk managers have a great opportunity to demonstrate their relevance.

USING NEW TOOLS TO MANAGE RISKS

Emerging technologies present compelling opportunities for the field of risk management. As discussed in our 2017 report, the three levers of data, analytics, and processes allow risk professionals a framework to consider technology initiatives and their potential gains. Emerging tools can support risk managers in delivering a more dynamic, in-depth view of risks in addition to potential cost-savings.

However, this year’s survey shows that across Asia-Pacific, risk managers still feel they are severely lacking knowledge of emerging technologies across the business. Confidence scores were low in all but one category, risk management information systems (RMIS). These scores were only marginally higher for respondents in highly regulated industries (financial services and energy utilities), underscoring the need for further training across all industries.

Marsh Ex 3

When it comes to technology, risk managers should aim for “digital fluency, a level of familiarity that allows them to

  • first determine how technologies can help address different risk areas,
  • and then understand the implications of doing so.

They need not understand the inner workings of various technologies, as their niche should remain aligned with their core expertise: applying risk technical skills, principles, and practices.

CULTIVATING A “DIGITAL-FIRST” MIND-SET

Successful technology adoption does not only present a technical skills challenge. If risk function digitalization is to be effective, risk managers must champion a cultural shift to a “digital-first” mindset across the organization, where all stakeholders develop a habit of thinking about how technology can be used for organizational benefit.

For example, the risk manager of the future will be looking to glean greater insights using increasingly advanced analytics capabilities. To do this, they will need to actively encourage their organization

  • to collect more data,
  • to use their data more effectively,
  • and to conduct more accurate and comprehensive analyses.

Underlying the risk manager’s digitalfirst mind-set will be three supporting mentalities:

1. The first of these is the perception of technology as an opportunity rather than a threat. Some understandable anxiety exists on this topic, since technology vendors often portray technology as a means of eliminating human input and labor. This framing neglects the gains in effectiveness and efficiency that allow risk managers to improve their judgment and decision making, and spend their time on more value-adding activities. In addition, the success of digital risk transformations will depend on the risk professionals who understand the tasks being digitalized; these professionals will need to be brought into the design and implementation process right from the start. After all, as the Japanese saying goes, “it is workers who give wisdom to the machines.” Fortunately, 87 percent of PARIMA surveyed members indicated that automating parts of the risk manager’s job to allow greater efficiency represents an opportunity for the risk function. Furthermore, 63 percent of respondents indicated that this was not merely a small opportunity, but a significant one (Exhibit 6). This positive outlook makes an even stronger statement than findings from an earlier global study in which 72 percent of employees said they see technology as a benefit to their work

2. The second supporting mentality will be a habit of looking for ways in which technology can be used for benefit across the organization, not just within the risk function but also in business processes and client solutions. Concretely, the risk manager can embody this culture by adopting a data-driven approach, whereby they consider:

  • How existing organizational data sources can be better leveraged for risk management
  • How new data sources – both internal and external – can be explored
  • How data accuracy and completeness can be improved

“Risk managers can also benefit from considering outside-the-box use cases, as well as keeping up with the technologies used by competitors,” adds Keith Xia, Chief Risk Officer of OneHealth Healthcare in China.

This is an illustrative rather than comprehensive list, as a data-driven approach – and more broadly, a digital mind-set – is fundamentally about a new way of thinking. If risk managers can grow accustomed to reflecting on technologies’ potential applications, they will be able to pre-emptively spot opportunities, as well as identify and resolve issues such as data gaps.

3. All of this will be complemented by a third mentality: the willingness to accept change, experiment, and learn, such as in testing new data collection and analysis methods. Propelled by cultural transformation and shifting mind-sets, risk managers will need to learn to feel comfortable with – and ultimately be in the driver’s seat for – the trial, error, and adjustment that accompanies digitalization.

MANAGING THE NEW RISKS FROM EMERGING TECHNOLOGIES

The same technological developments and tools that are enabling organizations to transform and advance are also introducing their own set of potential threats.

Our survey shows the PARIMA community is aware of this dynamic, with 96 percent of surveyed members expecting that emerging technologies will introduce some – if not substantial – new risks in the next five years.

The following exhibit gives a further breakdown of views from this 96 percent of respondents, and the perceived sufficiency of their existing frameworks. These risks are evolving in an environment where there are already questions about the relevance and sufficiency of risk identification frameworks. Risk management has become more challenging due to the added complexity from rapid shifts in technology, and individual teams are using risk taxonomies with inconsistent methodologies, which further highlight the challenges that risk managers face in managing their responses to new risk types.

Marsh Ex 9

To assess how new technology in any part of the organization might introduce new risks, consider the following checklist :

HIGH-LEVEL RISK CHECKLIST FOR EMERGING TECHNOLOGY

  1. Does the use of this technology cut across existing risk types (for example, AI risk presents a composite of technology risk, cyber risk, information security risk, and so on depending on the use case and application)? If so, has my organization designated this risk as a new, distinct category of risk with a clear definition and risk appetite?
  2. Is use of this technology aligned to my company’s strategic ambitions and risk appetite ? Are the cost and ease of implementation feasible given my company’s circumstances?
  3. Can this technology’s implications be sufficiently explained and understood within my company (e.g. what systems would rely on it)? Would our use of this technology make sense to a customer?
  4. Is there a clear view of how this technology will be supported and maintained internally, for example, with a digitally fluent workforce and designated second line owner for risks introduced by this technology (e.g. additional cyber risk)?
  5. Has my company considered the business continuity risks associated with this technology malfunctioning?
  6. Am I confident that there are minimal data quality or management risks? Do I have the high quality, large-scale data necessary for advanced analytics? Would customers perceive use of their data as reasonable, and will this data remain private, complete, and safe from cyberattacks?
  7. Am I aware of any potential knock-on effects or reputational risks – for example, through exposure to third (and fourth) parties that may not act in adherence to my values, or through invasive uses of private customer information?
  8. Does my organization understand all implications for accounting, tax, and any other financial reporting obligations?
  9. Are there any additional compliance or regulatory implications of using this technology? Do I need to engage with regulators or seek expert advice?
  10. For financial services companies: Could I explain any algorithms in use to a customer, and would they perceive them to be fair? Am I confident that this technology will not violate sanctions or support crime (for example, fraud, money laundering, terrorism finance)?

SECURING A MORE TECHNOLOGY-CONVERSANT RISK WORKFORCE

As risk managers focus on digitalizing their function, it is important that organizations support this with an equally deliberate approach to their people strategy. This is for two reasons, as Kate Bravery, Global Solutions Leader, Career at Mercer, explains: “First, each technological leap requires an equivalent revolution in talent; and second, talent typically becomes more important following disruption.”

While upskilling the current workforce is a positive step, as addressed before, organizations must also consider a more holistic talent management approach. Risk managers understand this imperative, with survey respondents indicating a strong desire to increase technology expertise in their function within the next five years.

Yet, little progress has been made in adding these skills to the risk function, with a significant gap persisting between aspirations and the reality on the ground. In both 2017 and 2019 surveys, the number of risk managers hoping to recruit technology experts has been at least 4.5 times the number of teams currently possessing those skills.

Marsh Ex 15

EMBEDDING RISK CULTURE THROUGHOUT THE ORGANIZATION

Our survey found that a lack of risk management thinking in other parts of the organization is the biggest barrier the risk function faces in working with other business units. This is a crucial and somewhat alarming finding – but new technologies may be able to help.

Marsh Ex 19

As technology allows for increasingly accurate, relevant, and holistic risk measures, organizations should find it easier to develop risk-based KPIs and incentives that can help employees throughout the business incorporate a risk-aware approach into their daily activities.

From an organizational perspective, a first step would be to describe risk limits and risk tolerance in a language that all stakeholders can relate to, such as potential losses. Organizations can then cascade these firm-wide risk concepts down to operational business units, translating risk language into tangible and relevant incentives that encourages behavior that is consistent with firm values. Research shows that employees in Asia want this linkage, citing a desire to better align their individual goals with business goals.

The question thus becomes how risk processes can be made an easy, intuitive part of employee routines. It is also important to consider KPIs for the risk team itself as a way of encouraging desirable behavior and further embedding a risk-aware culture. Already a majority of surveyed PARIMA members use some form of KPIs in their teams (81 percent), and the fact that reporting performance is the most popular service level measure supports the expectation that PARIMA members actively keep their organization informed.

Marsh Ex 21

At the same time, these survey responses also raise a number of questions. Forty percent of organizations indicate that they measure reporting performance, but far fewer are measuring accuracy (15 percent) or timeliness (16 percent) of risk analytics – which are necessary to achieve improved reporting performance. Moreover, the most-utilized KPIs in this year’s survey tended to be tangible measures around cost, from which it can be difficult to distinguish a mature risk function from a lucky one.

SUPPORTING TRANSFORMATIONAL CHANGE PROGRAMS

Even with a desire from individual risk managers to digitalize and complement organizational intentions, barriers still exist that can leave risk managers using basic tools. In 2017, cost and budgeting concerns were the single, standout barrier to risk function digitalization, chosen by 67 percent of respondents, well clear of second placed human capital concerns at 18 percent. This year’s survey responses were much closer, with a host of ongoing barriers, six of which were cited by more than 40 percent of respondents.

Marsh Ex 22

Implementing the nuts and bolts of digitalization will require a holistic transformation program to address all these barriers. That is not to say that initiatives must necessarily be massive in scale. In fact, well-designed initiatives targeting specific business problems can be a great way to demonstrate success that can then be replicated elsewhere to boost innovation.

Transformational change is inherently difficult, in particular where it spans both technological as well as people dimensions. Many large organizations have generally relied solely on IT teams for their “digital transformation” initiatives. This approach has had limited success, as such teams are usually designed to deliver very specific business functionalities, as opposed to leading change initiatives. If risk managers are to realize the benefits of such transformation, it is incumbent on them to take a more active role in influencing and leading transformation programs.

Click here to access Marsh’s and Parima’s detailed report

Four elements that top performers include in their digital-strategy operating model

For many companies, the process of building and executing strategy in the digital age seems to generate more questions than answers. Despite digital’s dramatic effects on global business—the disruptions that have upended industries and the radically increasing speed at which business is done—the latest McKinsey Global Survey on the topic suggests that companies are making little progress in their efforts to digitalize the business model. Respondents who participated in this year’s and last year’s surveys report a roughly equal degree of digitalization as they did one year ago, suggesting that companies are getting stuck in their efforts to digitally transform their business.

The need for an agile digital strategy is clear, yet it eludes many—and there are plenty of pitfalls that we know result in failure. McKinsey has looked at how some companies are reinventing themselves in response to digital, not only to avoid failure but also to thrive.

In this survey, McKinsey explored which specific practices organizations must have in place to shape a winning strategy for digital—in essence, what the operating model looks like for a successful digital strategy of reinvention. Based on the responses, there are four areas of marked difference in how companies with the best economic performance approach digital strategy, compared with all others :

  • The best performers have increased the agility of their digital-strategy practices, which enables firstmover opportunities.

McK1

  • They have taken advantage of digital platforms to access broader ecosystems and to innovate new digital products and business models.

McK2

McK3

  • They have used M&A to build new digital capabilities and digital businesses.

McK4

  • They have invested ahead of their peers in digital talent.

McK5

Click here to access McKinsey’s survey results

Successful risk management today may start with governance, risk and compliance (GRC)—but it shouldn’t end there

As more and more organizations embrace digital transformation, business risk grows in scope and complexity, and the need to manage it in a more agile, responsive manner becomes increasingly pressing.

GRC in its initial incarnation—a set of tools for managing compliance risk— remains valuable for that specific challenge, but it aligns less precisely with today’s evolving definitions of risk and risk management. The answer is not to abandon GRC, though; rather, it’s to allow it to evolve into an approach that is better suited to today’s multifaceted challenges: integrated risk management. This paper maps out the path from a pre-digital, compliance-driven riskmanagement strategy to an adaptable, integrated approach that can keep pace with the fast-changing digital world.

STARTING POINT: RECOGNIZING NEW RISKS

GRC emerged early in this century as a way of improving corporate governance and internal controls to address regulatory compliance requirements. Today, however, the need has evolved from better managing compliance risk to better managing overall risk. And the definition and scope of risk itself has evolved as well, with areas such as digital third-party risk coming into play and moving to the forefront. Strategies that drive business success today, such as technology adoption or market expansion, are creating new opportunities—but at the same time, they are introducing more risk. Consider these examples:

DIGITAL TRANSFORMATION

Digital transformation is clearly a strategic priority today; IDC recently forecast spending in this area to reach $1.3 trillion in 2018. Digital transformation creates new opportunities to thrive and compete—but it also creates digital risk. Digital business typically involves fast-moving projects supported by processes that require a multitude of different applications, expanding the points of risk and the stakes for the organization. The key to seizing the opportunities is managing the risk in critical areas:

  • VENDOR AND OTHER THIRD-PARTY RELATIONSHIPS: Looking to move more quickly and nimbly to exploit business opportunities, organizations are increasingly relying on external parties, such as service providers (especially cloud service providers), vendors, contractors and consultants. This increases risk, since organizations don’t have direct control over the risk a third party creates—but they are nevertheless responsible for managing the risk in third-party relationships.
  • COMPLIANCE AND OVERSIGHT: That brings us to the area that originally led to the emergence of GRC: compliance risk. That risk has not gone away; it’s only been joined by other risks, such as those described above. Given the increasing complexity of business and IT today, compliance has grown more complex, increasing the risk associated with it.

The examples described above represent major categories of risk for organizations today, but they are by no means the only risks organizations face. Every organization is a complex ecosystem of people, processes and technology, and risk can be hidden away in many areas.

NEXT LOGICAL STEP: AN INTEGRATED VIEW OF RISK

A HORIZONTALLY INTEGRATED VIEW
As areas of risk within organizations continue to grow beyond just compliance risk, the need to view them as an integrated whole becomes increasingly clear. There are two primary reasons for this.

  • One is that it’s simply unrealistic and operationally unsustainable to manage them separately, using different risk management platforms.
  • The other reason—far more critical than the first—is that most areas of organizational risk today don’t really exist independent of other risks; rather, they cross over into other areas.

For example, if engaging with a cloud service provider presents a security risk, that’s both a digital risk and a third-party risk. And if that risk isn’t addressed, it may result in issues across multiple areas, from business disruption to compliance. Therefore, organizations need to be able to leverage business processes to build an integrated picture of risk that crosses operational functions and fosters a multidisciplinary approach to risk management. Think of this as a horizontally integrated view of risks that needs to be managed.

AND A VERTICALLY INTEGRATED VIEW
A horizontally integrated view is important—but incomplete. The other part of the picture is a vertically integrated view that connects strategic and operational risk. In the early days of GRC, independent functions were focused more on operational risks with less emphasis on connecting to the strategic business impact. Business and IT were essentially separate functional parts of an organization and there was little connection between these two worlds. That changed as enterprise GRC became a requirement of risk management.

Today, however, when business and technology are intimately connected (or at the very least, mutually influential), risk management must link operational risks to business strategies and vice versa. Security events are a great example. At RSA, we talk about Business-Driven Security™, which puts security-related IT incidents in a business context and makes it possible to calculate the business impact of a security event—and vice versa. This kind of interrelationship allows organizations to bridge the gap between security teams and their business counterparts, creating an environment in which they can reduce the risk that security incidents will negatively affect the business or that business decisions will negatively affect IT. The interrelationships between strategic business goals and operational events are becoming increasingly impactful.

  • A decision made at the strategic level will cascade down and affect the organization’s ability to manage a risk in operations;
  • a seemingly minor operational event can spiral out of control and impact strategic direction.

Thus, connecting the top-to-bottom, strategic-to- operational view of risk—as illustrated in the accompanying graphic—is essential to truly understanding, and addressing, the obstacles to achieving business objectives.

GRC

Click here to access RSA’s White Paper