In reading recent articles on innovation, there is a definite focus on differentiation. Various elements to innovation are often mentioned: agility, culture, transformation, customer-focus, data-centered, etc. These are often directed at how a company can develop new innovative products or provide new innovative services or new innovative delivery channels. Carriers are encouraged to use big data to learn more about their customers (policyholders and/or producers), to use the cloud and mobile to provide ease of doing business or to modernize their systems to provide customers with faster better service through internal process efficiency. The focus of these efforts is to be different, faster, better than other providers.
Now, differentiation can be a very good strategy. Apple has become the number one brand and the company of the highest net value (or near it) by following a corporate-wide culture of “Think Different”. Within the insurance world, companies like MetLife, Geico and Progressive have use innovative marketing, branding and technology to their advantage through differentiation. However, there’s a problem with focusing your strategy on differentiation. To be successful at differentiation, a company has to have a corporate culture that supports it – a culture of listening for ideas, design thinking, and tolerance for failures. It has to support its innovation efforts with talented staff, properly funded technology investments and simplified agile processes.
Developing this kind of culture and environment for innovation is relatively easy for start-up companies, but more difficult for the established players in a market, especially if they are risk averse, have a culture of failure being fatal and established technology that is difficult to maintain, upgrade and replace. Creating the proper environment for innovation takes either radical change, or time to evolve the culture and environment. Leaders in established companies often are not willing to make the radical changes necessary, and evolving the culture takes time while other companies get further ahead in the race for innovation and differentiation.
The real problem with differentiation is that unless you are prepared to differentiate now, the innovations will become accepted and you will need to follow a course of imitation. In a recent HBR article, Freek Vermeulen. Associate Professor of Strategy and Entrepreneurship at the London Business School, talks about how customers view differentiation. In some industries, the products and services are fundamentally not that different. He suggests that customers make buying decisions based less on what is different and more on social context – they buy a particular product or service because their social network and relationships suggest it is known and an acceptable choice.
The implication for insurance carriers is that differentiation is a good strategy, but eventually the innovation produced is imitated and becomes a standard offering. A strategy of imitation will eventually be required, and when products look the same to the customer, they will choose based on their social networks and relationships. An alternate focus for innovation by differentiation, then, might be to follow a strategy of imitation and socialization. For example:
- Instead of using big data to understand customer behavior, shape the behavior through social interaction. While streamlining customer interaction through the cloud and mobile strategies, find ways to build relationships where customers will interact with you and others to build trust and preferences.
- While modernizing systems to provide internal process efficiencies, put internal social networking into place to build a culture and skills that can be used to leverage external social interactions.
- Win customers not by being the coolest or latest, but by being the most connected and trusted.
The best part is that a strategy of imitation and socialization can be done while updating technology to do what others are doing, and it builds the kind of culture that can transform into one that is innovative and possibly differentiated in the end. It doesn’t take a radical change or large technology investments that work against the clock of the wave of technical change.