The world around us is changing, and thanks to technology, it’s doing so at an exponential rate. Customer service is increasingly handled via artificial intelligence. Autonomous vehicles are being test-driven on city streets. There are 10 internet-connected devices for every human on the planet. The future is here.
But these changes, and the explosion of data they make available, fundamentally alter business models, says Mike Mahaffey, Chief Strategy and Risk Officer and Senior Vice President at Nationwide.
“Technology is accelerating the pace of change and therefore the pace of risk,” Mahaffey says. “But we don’t view this as a linear change; it’s exponential. These technologies build on one another. They intersect in ways that are hard to anticipate, enabling process disruption and, at times, entirely new business models.”
Smart Business spoke with Mahaffey about how technology and data are changing the way businesses operate.
What does increased change mean for businesses today?
Faster change isn’t necessarily bad. Incumbent business leaders tend to think of change as a risk to their business model, but startups see it as an opportunity. The reality is, both are true. The pace of change will continue to accelerate, and you can view it as either risk or opportunity, depending on how you’re positioned.
What is the best way to respond?
Many companies will need to embrace a cultural mind shift. In addition to protecting and defending core lines of business, companies that will stay successful over the long term — 20-30 years or more — must also embrace the new opportunities that always accompany change.
Historically, size and scale have been valuable competitive advantages. While that is still true, today companies of all sizes need to be flexible and agile. How to get that done can be the hard part, and there’s no panacea. Some companies have put into place formal innovation teams, disruptive venture investment teams or subsidiaries that represent Version 2.0 of the parent company. No single solution is the right answer for every company; each company needs to stay true to its strategy and culture.
How can companies determine when to move fast and when to move slowly?
There is a time to play defense and a time to play offense. Your strategy and company culture depends on whether or not you have an advantageous, defensible position. You can’t discard a competitive advantage just for the sake of adopting something new and unproven. At the same time, it is difficult to see transformational change coming. New York City taxi drivers thought they were well defended — until Uber turned the industry on its head with a faster, more affordable, more convenient product.
Diversification is arguably the best defense. A well-diversified business model, like the one employed by Warren Buffett, is not one that can be rendered obsolete by a single innovation. If, on the other hand, all you did was operate a taxi fleet, ride-sharing companies like Uber changed your world. A world of autonomous vehicles, leading to fewer cars and fewer accidents, has the potential to greatly benefit society. But if your only product is auto insurance, the handwriting is on the wall.
If you’re not yet diversified, the time to act is now. With technological disruptions, changing dynamics of the workforce, data availability and the accelerating pace of change, companies need to look beyond and focus on their customers’ future needs. They can’t expend all their energy and capital solving today’s unmet needs; some resources must be dedicated to solving the unknown problems of tomorrow. Consumers weren’t complaining about a lack of cell phone functionality until the iPhone came along and combined so many nice-to-haves into one elegant solution, completely and forever resetting expectations.
Insurers are very experienced in data analytics. How should businesses be investing in this?
Not only is the volume of data increasing, it’s coming from new and sometimes external sources, and it’s potentially more predictive. Altogether, it’s driving accelerated investments in newly enabled core capabilities like underwriting, pricing, and claims. Additionally, progress in data science over the past several decades has led to drastic improvements in data mining and machine learning.
Traditional insurance models are now supplemented with new data and data analytics, leading to a much more granular view of the customer. Predictive analytics can be used to better anticipate future needs, which in turn will have a direct impact on sales and marketing strategies.
Successful integration of data analytics is the key to opening new dimensions in how insurance can and should look, dimensions that have parallel applications in other industries as well. To be able to anticipate and address their customers’ needs, companies need to invest in data collection, aggregation, standardization and governance. Perhaps most importantly, they’ll need to invest in data scientists and analysts to be able to effectively harness this rapidly expanding resource.
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