About the author
Lucy Alphonse, Consultant
Lucy Alphonse is a Senior Consultant at Oxbow Partners.Contact Lucy
August 8, 2019 Lucy Alphonse
This blog post has been written in collaboration with Semita Sourcing, the sourcing advisory business and partner of Oxbow Partners.
When Oxbow Partners was founded, one of our points of differentiation was the use of Agile principles in project execution. We called our approach Agile Strategy™ and described it in a blog post. Agile has become something of a buzzword since then and in our 2019 Impact 25 we noted that our clients use the word to mean anything from its intended definition to ‘hot desking’ and ‘flexi-time’.
We regularly point out that Agile cannot be imported directly into an insurance change environment – at least not without making a fundamental change to the structure and governance of an organisation (which some companies like ING have done). In their current form, insurance companies are too complex for true Agile to work, and there is also regulatory and reputational risk to manage. One of the things we have done over the last four years is to identify principles from Agile that can be applied to applied to traditional insurance strategy and change projects.
Either way, the trading environment is forcing insurers to become more responsive – or agile with a small ‘a’. In this blog post we consider three external drivers; provide a maturity framework for a business’s use of Agile principles; and finally share thoughts on how incumbents can move forward in their journey to Agility.
Agility is often discussed in terms of project execution – but what is forcing organisations to become more agile? We believe three external drivers explain much of this impact: politics, technology and climate change. These forces are raising costs, changing demand and realigning the regulatory environment at a breathless pace and with unprecedented severity. Businesses need to become better at weathering big challenges or risk becoming defunct.
In recent years we have witnessed political trends such as the polarisation of the left and right, increasingly unstable national politics and the rise of protectionism. This has led to economic disruption, costs and operational complexity. For example, the French Gilets Jaunes roadblocks disrupted critical supply routes and retail outlets and overall the protests slowed the country’s economic growth. The US-China trade war has encouraged business to move into neighbouring countries with more favourable tariffs – most notably Vietnam – and Iranian sanctions have required marine insurers to pay particular attention to tracking the origin of their cargoes. Successful businesses will need to be able quickly to respond to unpredictable and fast-moving events like these in the future.
Advances in automation and artificial intelligence are also challenging business models. Operations, pricing and distribution are changing; for example, technology is augmenting and expediting human advice in the long-term savings industry and non-life underwriting. Businesses need quickly to integrate technology partners. As these tech ecosystems grow there will be new legal, moral, ethical and privacy policies to follow.
Most disruptive, perhaps surprisingly, is climate change. Moderate sea level rise is estimated to impact global GDP between 20 and 30 percent within less than half a dozen years and our response – for example moving towards zero emissions – will both create new industries and destroy existing ones, along with a host of other economic, social and political issues. A 2018 study – which forecast a global economic benefit of $26 trillion by 2030 through rapid de-carbonisation – gives a good indication of the scale at which climate change might affect new industries. Businesses will again need to respond quickly to the impact of adverse weather events, altered trade routes, changing demand patterns and new regulation.
To become more agile and so mitigate the disruption posed by these external factors, companies must reassess their operating models along four dimensions:
Adapting a business operating model is not an overnight task. Incumbents wishing to start on their journey to Agility can do five things:
Declaring the need for an agile operating model is an important first step. Leaders should clearly explain why a holistic transition is so important and urgent for their business – and why introducing Agile piecemeal is not enough. It will be important to show that Agile is no longer just the preserve of change or IT teams, but a critical tool for a company to achieve its revenue and profit ambitions – and implement effective risk management.
Communication is effective when the messages are specific. Leaders should introduce pilots early, set clear KPIs (using both lag and lead indicators) and measure progress closely. When pilots hit their KPIs, communicate stories of success to persuade staff that Agile is more than a buzzword.
Partners can offer incumbents quick access to best of breed capabilities. Service providers can cherry-pick the latest and best practices across industries and use pre-existing frameworks – for example for processes like contracting – to both expedite and ensure the success of projects. This means incumbents can turn on and off capabilities quickly, with confidence of success, and without long-term investment in order to respond to the external environment.
Most incumbents have legacy systems that are too costly to simply rip and replace with newer, more agile technology. Incumbents can, however, combine the two; for example, a next generation claims front-end can be put on top of the legacy claims system, with functionality migrated to the new system over time.
Agile operating models require specialist expertise and multi-disciplinary teams – in some cases at very short notice. This is often a leader’s greatest challenge – not least because of the industry’s overall challenge recruiting the top talent. Insurers must invest now to create the right environment for these specialists to work, and build their recruitment brand and pipeline into new areas.
Oxbow Partners is a management consultancy that works across strategy, operations / claims and technology / digital. We have extensive experience in operating model design and agility – being firm believers in practising agile methodologies ourselves. Get in touch if you are considering redesigning your operating model to become more agile.
Semita Sourcing is a sourcing advisor with vast experience of advising on complex and multi-geography BPO and ITO deals. We have extensive experience in implementing best practices and operating agility through sourcing arrangements.
In a recent blog post we observed that multinational insurance groups are