I recently returned from SAPPHIRE and heard Clayton Christensen’s presentation on Innovative Disruption based on his book, the Innovator’s Dilemma. I have been a fan of Michael Porter on strategy and competition for many years, especially his book Competitive Advantage. Christensen is viewed as one of the leading successors to Porter in strategy.

The key tenet of Innovators Dilemma is that doing the right thing is the wrong thing, meaning that companies actually often handicap themselves using “good decisions” and actions.  Christensen classifies innovation into defensive, or sustaining innovations, which make good products better but don’t create new growth, and offensive, or disruptive innovations, which simplify complex products, and do create new growth.

All too often, we use “all or nothing” thinking.  However, we don’t need to “throw the baby out with the bath water.” We can create an Innovation Think Tank (or Lab) and incubate projects using new approaches, technologies and processes before radically trying to make over an organization which in itself is clearly disruptive. Realistically organizations are not going to replace 20 and 30 year old business processes, cultures or applications easily.  But new products are often great candidates for innovation.

More insurers are revisiting how they develop and market new products. They are looking to leverage more external or third party data to identify key risk and market characteristics. They are revisiting their underwriting systems and their underwriting processes and re-evaluating their business rules based on true risk characteristics instead of traditional rote underwriting questions. They are using analytics to identify the relevant criteria and define business rules as part of new processes and embed them into often new applications.

Mark Breading and Denise Garth of SMA (Strategy Meets Action), recently published a research brief, Data and Analytics in Insurance in which they state that “analytics will be the biggest source of competitive advantage to insurers in the coming years.”  I couldn’t agree more.

Insurers who want to innovate can do so using analytics but they need to encourage and incent employees to experiment; they need to provide the analytic tools, skills development, budget and overall managerial support for selective innovation.  Simply put, they need to create culture of innovation. They can also take advantage of SAP’s Design Thinking approach and workshops to help them leapfrog their competitors in innovating.  

Pat Saporito is a senior director in the Global Center of Excellence for Analytics at SAP. She is SAP’s insurance analytics thought leader. She is the author of the forthcoming book, Applied Insurance Analytics, available July 27 on Amazon.com. http://amzn.to/1mfmYiC

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