May 2013

10 barriers to successful innovation in life insurance

Walt Zultowski

By Walt Zultowski

Judging by the topics at industry conferences and in the trade press today, it is clear that innovation is all the rage. Another sign of this is the increasing number of individuals in companies with titles such as “Chief Innovation Officer” or “Head of Innovation,” on their business cards. Despite all the interest in this topic, however, innovation remains an elusive goal in many companies today.

Some will argue that innovation is not possible in our business due to its regulatory processes, or that innovation can’t be “institutionalized” within an organization. However, having worked with several companies in developing and implementing their Innovation Management functions, I can attest to the fact that innovation is possible in the life insurance business. But it is hard work, and there is no “one-size-fits-all” formula for successful innovation. Yet, at the same time, there are a number of barriers to innovation common to most companies that must be overcome if they hope to ever have a chance at becoming innovative organizations.

  1. Failure to Recognize Innovation Management as a Bona Fide Company Function
    Traditionally, it has often been thought that innovation can be achieved by hiring a “great thinker,” by setting aside a group of “bright young people” to generate new ideas (remember the old “skunk works” concept), or by simply creating a “culture for innovation” that encourages employees to “make enough mistakes.” While none of these can hurt, in and of themselves they are insufficient. The most successful companies at innovation are those that recognize Innovation Management as a permanent company function, complete with processes and systems for the generation and evaluation of new ideas.

  2. Failure to Distinguish Innovation Management from Product Development
    Being a product-driven industry, it is not surprising that we tend to think about new products when we think about innovation in life insurance. And, while product is certainly a ripe area for innovation in our business, innovative thinking needs to extend beyond product to other areas of the company such as marketing, distribution, underwriting, and service. It is because of this product bias that we often find companies’ innovation management functions buried within product development departments. This is much too limiting, and as will be discussed later, tends to lead to updates and modifications of existing ideas as opposed to true “breakthrough” ideas.

  3. Failure to Distinguish Innovation Management from Continuous Improvement
    Continuous improvement processes embodied in such programs as Lean Manufacturing or Six Sigma have also been very popular in the industry within recent years. Such programs can certainly be valuable, but it is a mistake to expect such programs to lead to innovation on a regular basis. This is because these programs have as their main goal the improvement of the efficiency of company processes. This is not to say that they may on occasion lead to an innovative new idea, but their main focus tends to be on improving existing ways of conducting business.

  4. Failure to Define and Communicate Expectations for Innovation
    Many companies also get hung up on what constitutes innovation, or how an innovation differs from just a new idea. I take a broad view of innovation as comprising any new idea that moves a company forward in the achievement of its goals and objectives. But clearly, not all innovations are created equally. So instead of arguing what is or isn’t innovation, it is more productive to think of innovation as a continuum of various types or levels of innovation. A typology that I find useful in understanding various types of “innovations” is the following:

    Level I: Modifications, additions, or updates to existing products or ways of doing business.

    Level II: Ideas new to a specific company, but not to other companies operating in the same market.

    Level III: Ideas new in their application to a new market, but not new in other markets.

    Level IV: New to industry ideas.

    Traditionally, most innovation within the life insurance industry has been at Levels I and II. And, in fact, we often hear companies saying that their strategy is based on innovation at one of these levels. Perhaps the most common one is expressed as … “we want to be a ‘fast-follower’”—clearly a strategy based on innovation at Level II. There is nothing wrong with this, and each company needs to decide on the level of innovation that is right for itself. What’s problematic, however, is when there are inconsistent definitions and expectations regarding innovation across the organization. For example, company executive management may be looking for breakthrough thinking (i.e., Level IV innovation) while their organization (for a variety of reasons) can at best produce Level I and II ideas. Yet these lower level ideas are promoted as “innovations” in an attempt to placate upper management. This is a formula for frustration seen in many companies today. Also, as mentioned above, housing an Innovation Management function in a Product Development Department tends to lead to Level I and Level II innovations.

  5. Failure to Recognize the Bias that Sales Organizations Bring to the Process
    It is often thought that one’s sales organization should have a major say in the generation and assessment of new ideas because a company’s sales representatives are “in the market” and are “closest to the customer.” In theory this is correct, but, in practice, compensation often gets in the way. Think about it. If an organization only has the capacity to produce one new thing in any given year, will the sales organization vote for an untested new idea that could be huge in the future, or for modifications of a successful idea that they already know sells? Because their compensation depends on it, the sales organization, given limited developmental resources in the company, will opt for improvements on some already proven idea, or for some change that responds to a recent introduction of a competitor. This is not to say that Sales shouldn’t have a seat at the Innovation Management table, but that overreliance on their opinions will lead to primarily Level I and Level II innovations.

  6. Failure to Focus One’s Innovation Efforts
    An old bromide in innovative thinking is that one needs to open the process to the entire organization, and solicit ideas from as wide a group as possible within the company. Such thinking, of course, has led to the dismal failure of company suggestion boxes. Efforts to create online versions of the traditional suggestion box are simply exercises of putting lipstick on a pig. Instead of opening one’s innovation process to include any possible idea, a much more effective and efficient approach to idea generation is to focus on X number of topics a year that executive management has deemed worthy of innovative activity and potential breakthroughs. Examples of such topics might be new ways of reaching young buyers, retirement solutions, new ways to delight existing clients, or the use of social media in sales and service. Once executive management has identified these leverage points for the organization (and this task shouldn’t be delegated), energy can then be focused for a given period of time throughout the year on each of these topics.

  7. Failure to Staff One’s Innovation Efforts with the Right People

    Whatever specific idea generation and evaluation process a company adopts, it will need to involve staff from across the organization. As alluded to earlier, it is a mistake to staff an innovation management effort with individuals simply because they are great thinkers, so called young turks, or other individuals based solely on title or years of experience. Even worse is to staff it with individuals who are representing a department in the effort. Moreover, since no individual is an expert in all areas, it makes sense to create one’s idea generation and evaluation group based on the topic at hand. The ideal person is one who has both some knowledge of the specific subject matter AND a personal hunger for thinking about new ideas and solutions within that subject matter. Herein lies the art of the Innovation Management process.

    Of course, there also needs to be a permanent staff member who is responsible for the ongoing management of the Innovation Management function in the company. It is best that this individual also be a student of the business, that he or she has organizational credibility, and can contribute to the group beyond being the administrative manager of the process. It is also essential that he or she be perceived as the CEO’s or business-line head’s surrogate in the Innovation Management function.

    Finally, there is also a danger in staffing an innovation management function with just individuals from that company, given the myopia that often develops from having worked in one company and with one approach to doing business. It is out of this concern that the currently popular crowd sourcing concept was born. However, the problem with crowd sourcing in its broadest sense is that many sources of ideas don’t know the general industry so as to suggest meaningful or practical new ideas. Another solution is to use an outside consultant familiar with the industry to run the process. The ideal individual is one who can also be a source of new ideas from other companies both within and outside of the insurance industry.

  8. Failure to Properly Position Innovation Management in the Organization
    As already alluded to, the Innovation Management function needs to be positioned as high in the organization as possible. This will prevent it from being viewed as belonging only to one department, and thus absolving other areas of the company from the responsibility to think innovatively and cooperate in the process. In this view of Innovation Management, no department in the company is exempt from innovative thinking and immune to the possibility that they might have to do things differently. As also mentioned, an Innovation Management function is also best positioned as being driven by the highest level possible in the organization. In a smaller company, this might be the CEO. In a larger company, this might be a business-line head. Either way, it speaks to the organization of the importance of the Innovation Management function, and positions the manager of the Innovation Management process as the personal surrogate of the CEO or business-line head in this effort.

  9. Failure to Recognize that Innovation Management is More than Idea Generation
    A common mistake of companies embarking on an Innovation Management process is to equate it only with idea generation. While idea generation is clearly a first, and very important, stage of the entire Innovation Management process, it is also the easiest. Perhaps surprisingly, more than one company’s Innovation Management function has been brought to its knees with too many ideas to vet. The more difficult part is deciding which ideas are not only the better ones, but also which are the best fit for one’s brand, culture, distribution systems, etc. The good news is that there are easy processes available for use in evaluating the relative value of new ideas in the Innovation Management process.

  10. Failure to Evaluate the Effectiveness of an Innovation Management Process

    Finally, a professor of mine used to say, “if something is worth doing, it’s worth evaluating in terms of its effectiveness.” The same applies to Innovation Management. But what constitutes the proper evaluation measures for this function? As suggested above, it is not simply the number of new ideas generated, for that can, in fact, turn out to be counterproductive to the Innovation Management process. It also doesn’t speak to the worthiness of the ideas generated. This has caused others to argue that the appropriate success measure should be the number of ideas “killed” during the process. This, of course, is too easy and negative sounding. My preferred measure of success for an Innovation Management function is that of the ratio of the number of ideas moving out of the innovation process into implementation to the total number of ideas generated. An additional important measure of success in the percentage of ideas generated and implemented at each of the various levels of innovation discussed in #4 above. This, of course, measures whether the process is delivering the level of innovation desired by company management.

    In conclusion, innovation in life insurance is possible, albeit not easy. It requires on-going focus, discipline, and hard work. Moreover, it requires recognition of Innovation Management as a bona fide company function that needs to be customized to one’s specific organization. Yet, there are barriers to innovation that are common to many life insurance companies today. Overcoming these barriers is a necessary first step down the road to becoming an innovative organization.

Walter H. Zultowski, Ph.D., is principal of WZ Research + Consulting, LLC. He can be contacted at