[Blog] Innovation Funding and Frameworks

One thing is clear, innovation in the insurance space has been on the rise in recent years and undoubtedly it has to do with the subsequent rise in customer expectations. Customers desire a more personalized experience as technology continues to advance. Digital transformation in the finance and insurance space has the potential to streamline key processes, reduce operational costs and enhance the overall customer experience. In addition, AI and machine learning can automate many processes like underwriting, claims processing and risk assessment.

Customers now expect personalized solutions. Insurers are leveraging data and AI to offer tailored policies that better suit individual lifestyles and risk profiles. This can lead to more competitive pricing and improved customer retention. And this type of new technology also leads to disruption in the industry.

We know this: Regardless of what technology advances come, customer experience (Cx) will still be at the top of the list to focus on, improve upon and fund. In fact, there was a recent survey conducted by SAP that notes that “80% of CEOs believe that they deliver a superior experience to customers, but only 8% of their customers agree.”

This is known as the experience gap, and if we are going to close this gap we are going to have to think about how the integration of tools like AI, ChatGPT and more can combine with the need to continue to provide world class superior customer service with humans as the face of that experience. If we want our customers to experience superior service this means we also have to create several seamless experiences to underpin and support it all. In order to get there, here are a few core areas every organization should be monitoring and improving regularly:

Cx (Customer Experience) - Your ability to create superior interaction with your customer through every phase of the buying journey. Creating experiences that they will not forget and are willing to pay a premium for.

Ex (Employee Experience) - Your ability to engage your employee’s heart and hands to help win the company’s mission.  We do this through supporting their growth and development, investing in them with the right tools and training, and helping them to be intentional about their future within the organization.

Ox (Operational Excellence) - Operations is about extracting value from the physical or intangible assets owned by an organization. Operational Excellence is anchored in a culture of continuous improvement. Be a little bit better today than you were yesterday.

Fx (Financial Excellence) - Ensuring that what you are doing today is fiscally responsible so you can scale what you want to build tomorrow. 

Rx (Risk Excellence) - With an increase in technology advances comes an increase of risk, cyber security challenges, otherwise known as hackers, attackers and bad actors. Ensuring that you have clear protocols in these areas so that your company will be around for future opportunities.

Dx (Digital Excellence) - Today most people are buried in spreadsheets and have disparate systems that don’t speak to one another. This is not providing excellence for our employees or security for our customers. Most organizations are ripe to go through a digital transformation to ensure disparate systems connect and talk to one another.

Ix (Innovation as an Accelerant) - Innovation is simply the ability to surface and monetize patterns within your business.

While all these areas are absolutely critical to your success today, I want to focus on Ix or Innovation as an Accelerant and Fx or Financial Excellence as we think about how to invest in the mission critical areas of our business for future growth, scale and investment in innovation.

But when it comes to innovation, if we are going to be positioned to win, we need to fund what matters and fund it well. But how do we know if we are on the right track?

I can recall a time when I was working for a large multinational firm. I realized that there were several projects limping along, and a high-profile project was failing. One day, I was reading a Harvard Business Review article titled “Funding Innovation: Is Your Firm Doing it Wrong?” I had an “Aha!” moment. In this article, Carmen Nobel told a cautionary tale about innovation. What I saw in the message that began to ring true is that not only must ideas, features and products have stage-gates to ensure their success but also to ensure the bright idea doesn’t later lead to our downfall.

Nokia and Apple took center stage in this storyline, and it paralleled with a large program my organization was working on at the time. This project was sucking millions of dollars out of the organization. It was so big and unwieldy it didn’t seem like any leader could wrestle it to the ground. In fact, the leaders working on this project became a revolving door. When I began to read this article, I realized that we were also doing it wrong.

Organizations can’t afford to operate without guard rails when it comes to innovation. In fact, it’s part of the reason why innovation is not always a nice word in some organizations. It feels like there are no boundaries, high spending and little return. If we are going to innovate properly, we must change this. We must set it on fire. The old way of doing things is not working. We need to thrust teams out of their chairs and into the world of their customer.

Innovation Principle: We must set it on fire. The old way of doing things is not working.

As we build any innovation program, we must continue to ask, “Does this satisfy the needs of my customer NOW?” Now is an important word because the target is constantly changing. Some people create a persona once and then set it and forget it. Your persona should be updated often (at the least, review every 18 months) because wants, needs and desires are directly tied to your return on investment.

Innovation Is Freedom Within a Framework

Oftentimes, boundaries—not endless pools of money—are what help us innovate. Giving people a framework or boundaries allows them to focus their research, time and intentions on a finite number of directions, not infinite. Don’t just sit down and try to think about ideas. Think about a problem and how you can solve it. People cannot solve problems they don’t know about. For most people, innovation starts with a problem statement. So, start with the problem you are trying to solve, look at the resources you have to solve it and start there. That’s innovation.

Create a framework for teams within your organization to use. Where there’s a lack of framework or clarity, people make it up. The leader’s job is to give their team stable frameworks to build on. Your stable framework is like building a house, and the foundational layer is your vision, mission, values and goals. These things inform your culture and drive your behaviors.

How can we think about funding innovation programs that don’t break the bank? Here are some guiding principles of how we should think about funding innovation.

Funding: New Products and Services

A good test for whether or not innovation is happening is to ask yourself if your company has released a new product or service in the last three years that equates to at least 15% of the overall revenue. If you are not releasing new products and services, you’re not planning for future growth. If you are not planning for future growth, you are not planning to be around. At the core, we should be listening, testing and prototyping new ideas constantly. Don’t just invest in today. Invest in the future.

Does your company have a line-item designation for innovation? I believe innovation should be owned by everyone in the organization. Research and development or innovation should be planned and budgeted for.

Innovation Must be Tied to ROI

When you are first innovating, ROI may begin with customer interest. It can quickly turn into customer urgency if they start to want your product. Eventually, though, it has to turn into their willingness to use or buy the product.

Before you ever build anything, those indications can be there on a smaller scale.

 Let’s validate the value proposition—Why does this matter?

  Let’s validate the product—What does it do to make your life better, easier or more meaningful?

Look Back, Look Out, Look Up

The project our company was working on needed to do three things. Participants needed to look back at why it wasn’t working. They just kept trying to move forward, but sometimes we need to pause to really understand why something isn’t working. We needed to look out, invite our customers to the table to be a part of the conversation and look up to understand where the market was going, not where it already was. We needed to create the environment we wanted to win.

We didn’t think about how to disrupt the current landscape. You can be guaranteed our competitors were thinking about it. They were bringing solutions to the table that we couldn’t dream of because we were solving the wrong problems. We were asking, “How do we get off of our old technology stack and onto a newer platform that is more stable?”

The real questions to ask would have been, “How do we create the right outcomes and conditions in the market to drive the most customer value? What ideas, technology stacks and solutions drive toward that value? Now, how do we, in the process, set up the right conditions to drive the market toward the future we want to create? What problems can we begin to solve today by becoming a futurist, placing a bet on tomorrow?”

Adapted from Set It On Fire: The Art of Innovation.