Article Synopsis :
Insurers striving to increase revenues, lower costs, and delight customers are finding it necessary to not just tweak, but reinvent their operating models.
“The next-generation operating model for the digital world” from McKinsey Digital outlines a new approach for combining digital and operational capabilities in an integrated, well-sequenced way to achieve step-change improvements in revenue, customer experience, and cost.
A simple way to visualize this approach is to think of it as having two parts, each requiring companies to adopt major changes in the way they work:
Part I: A shift from running uncoordinated efforts within siloes to launching an integrated operational-improvement program organized around customer journeys (the set of interactions a customer has with a company when making a purchase or receiving services) as well as the internal journeys (end-to-end processes inside the company).
Examples of customer journeys include a homeowner filing an insurance claim, a cableTV subscriber signing up for a premium channel, or a shopper looking to buy a gift online. Examples of internal-process journeys include Order-to-Cash or Record-to-Report.
Why? Many organizations have multiple independent initiatives underway to improve performance, usually housed within separate organizational groups (e.g. front and back office). This makes it easier to deliver incremental gains within individual units, but the overall impact is lost. Individual functions report operational improvements, but customer satisfaction and overall costs remain unchanged.
How? Focus on customer journeys and the internal processes that support them. These naturally cut across organizational siloes and are therefore the preferred organizing principle.
Part II: A shift from using individual technologies, operations capabilities, and approaches in a piecemeal manner inside siloes to applying them to journeys in combination and in the right sequence to achieve compound impact.
Why? Pretty obvious.
How? Organizations typically use five key capabilities or ‘levers’ to improve operations underlying journeys:
- Digitization: The process of using tools and technology to improve journeys. Digital tools have the capacity to transform customer-facing journeys in powerful ways, often by creating the potential for self-service. Digital can also reshape time-consuming transactional and manual tasks that are part of internal journeys, especially when multiple systems are involved.
- Advanced analytics: The autonomous processing of data using sophisticated tools to discover insights and make recommendations. It provides intelligence to improve decision making and can especially enhance journeys where nonlinear thinking is required. For example, insurers with the right data and capabilities in place are massively accelerating processes in areas such as smart claims triage, fraud management, and pricing.
- Intelligent process automation (IPA): An emerging set of new technologies combining fundamental process redesign with robotic process automation and machine learning. IPA can replace human effort in processes that involve aggregating data from multiple systems or taking a piece of information from a written document and entering it as a standardized data input. There are also automation approaches that can take on higher-level tasks, including smart workflows, machine learning, and cognitive agents.
- Business process outsourcing (BPO): Tapping resources outside of the core business to complete specific tasks or functions, often using labor arbitrage to improve cost efficiency. BPO works best for manual processes that are 1) not customer facing, and 2) do not influence or reflect key strategic choices or value propositions. Think: back-office processing of documents and correspondence.
- Lean process redesign: Streamlining processes, eliminating waste, and fostering a culture of continuous improvement. This versatile methodology works with short- and long-cycle, transactional and judgment-based, client-facing as well as internal processes.
Guidelines for implementing these levers:
High-level it’s important to think holistically, keeping the journey in mind. Don’t settle for departmental one-offs. Three design guidelines are crucial:
- Ensure that each lever is used to maximum effect: Many companies believe they’re applying the capabilities to the fullest, but they’re actually not getting as much out of them as they could. Some companies, for example, apply a few predictive models and think they’re really pushing the envelope with analytics—but in fact, they’re only capturing a small fraction of the potential value.
- Implement each lever in the right sequence: There is no universal recipe for sequencing the levers because so many variables are involved (e.g., legacy technologies, and existing interconnections between customer-facing and internal processes). The best results come when the levers build on each other. Figure out which lever depends on the successful implementation of another.
- The levers should interact with each other to provide a multiplier effect: ‘Heat maps’ are a valuable tool to engage leadership in strategic discussions about approaches and capabilities and how to prioritize them. Here’s a sample heat map for insurance:
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Digital Insurer's CommentsManagers—we agree with this report—cannot drive transformation. It’s up to C-level leaders. More specifically, it’s up to C-level leaders working together toward a common outcome. Parochial thinking may have worked in the past, but in increasingly digitized markets companies are only as strong as their weakest link.
Improvement of existing silos is just that, improvement. Never a bad thing on its own, but it’s not transformation. Transformation is fundamental improvement scaled across the enterprise. Easier said than done, of course. This paper provides an excellent high-level framework for leaders trying to think holistically, aspiring to new potentials beyond the sum of parts.
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