Innovation, Disruption and Strategy

Our strategy practice has been working in some industries that are facing very complex (and disruptive) challenges in their distribution channels. One example might be the P&C (property and casualty) insurance industry.  Many of these insurers sell through brokers, and insurance brokers are being challenged. Innovation (on a lot of fronts) is threatening them with significant disruption. One view has insurance brokers at the early stages of the same tumult that travel agents went through. As buying travel got simpler, and the internet made it easier, two of the key value propositions of travel agents went away: they alone could access the "inventory" and they alone had the special skills to make purchases in complex systems. Of course there are still travel agents, but there are fewer of them, less of the total travel spend goes through travel agents, and the industry leaders of 20 years ago are not the industry leaders today. The business of selling travel has been changed forever, and there is a lot more self-service involved. Some insurance products may be on a similar trajectory.  

This poses one of two critical strategic questions, depending on your point of view:

  • If you are an insurance company, and dependent to some degree on the broker channel, what do you do to ensure that you exit this period of tumult in excellent shape? Or, at the very least, if the worst case occurs, that your firm is not collateral damage; and,  
  • If you are a broker, what must you do to exit this tumult in excellent shape? The winners in restructuring industries can do very nicely, thank you, often for a long time. (There are still lots of travel agencies, and some are doing very well.)

Strategy is particularly important when things are changing. Ask Kodak and Blackberry, or many others who have endured tumult, including the Insurance industry which is seeing profound changes in both products, channels and customer expectations. Strategy can also be important when things aren't changing, because these days things are usually changing and you just don't know, And strategy is easily crowded out by being busy. We have to do this. Can't do that.  

Disruption is all around us - many industries will emerge the next decade profoundly changed. Disruption (as defined by Clay Christensen of the Harvard Business School) suggests that while the core product or service may survive, the players (and the technology underlying the products or services) may be very different in a disrupted industry.  (Think photography where Kodak and Fuji were not able to transfer their film dominance to the digital era. Or think Blackberry which invented smartphones and mobile email and is now trying to protect market shares that are comparably tiny.)  

Is your industry facing disruptive challenges?