Q&A with Kris Østergaard, Author of Transforming Legacy Organizations

Digital Transformation - December 11 2019

Kris Østergaard is the bestselling author of  Transforming Legacy Organizations: Turn Your Established Business Into An Innovation Champion To Win The Future and Co-founder of SingularityU Nordic. For more than 20 years, Østergaard has been helping established organizations around the world transform and innovate. We caught up with Kris to ask a few questions about the impact of new technologies and innovation on the global insurance industry and how legacy insurance organizations can embrace meaningful change.

Kris, you’ve argued that innovation is a complex and difficult process that too often gets boiled down to a few bullet points that are hopelessly abstract and reductive. What do established organizations tend to get wrong about innovation?  

First of all, they tend to be too imprecise and unambitious about what they want to do, need to do and how to do it. Innovation is not one thing. In fact, when you are a larger, established organization your system is much more complex than if you are a startup. This means that you need to design differently for innovation. You need to innovate both to optimize the existing, augment the core and potentially even mutate the core for the long term. And then you need to ensure that you have an innovation strategy. There is a lot of innovation theater out there, which means that organizations do undirected events rather than activities which are aligned with a bigger strategy. This creates a lot of wasted resources and unfulfilled ambitions.

You’ve said that legacy organizations have distinct advantages over startups when it comes to innovation: “Legacy organizations have money, they have customers, they have data, they have infrastructure, they have suppliers. Startups have almost none of this.”  If it isn’t a matter of resources, what’s holding them back?

It has much more to do with mindset and design than it has to do with money. Arthur C. Clarke, the famous sci-fi writer who wrote 2001 also wrote a book called The Fountains of Paradise. In it he describes a near future where human beings build space elevators that go 36,000 kilometers out into space transporting materials and human beings. He got the Hugo Award for this book, which is the most prestigious award you can get for writing sci-fi novels and when he got the award the journalists in the room asked him: “So, Arthur, when do you think we will actually have space elevators in real life?” And he said: “Probably about 50 years after they all stop laughing.” What he points to is exactly the mindset that is holding so many organizations back. They are limited in their thinking, beliefs and knowledge about what is actually possible. In fact, there are many current projects working on making space elevators a real thing. One of them is the Japanese Shizouka University that has already tested space elevators on a very small scale. In space. Will it happen tomorrow? No. But it will likely happen. But only if we believe it is possible and start experimenting.

It doesn’t get much more “established” than the insurance industry. Of the top 10 P&C insurance carriers in the US, the newest market entrant was founded in 1937. In your book Transforming Legacy Organizations, you offer “hacks” for creating innovative cultures. So, can a risk-averse 300-year-old industry like insurance be “culture hacked”?

Yes. Any type of organization can be culture hacked and transform its culture if it gets ambitious enough about it. But it doesn’t happen by itself and it is probably also the most difficult endeavour that organizations can set out on – much more difficult than getting to know and apply technology. Culture is the “hard problem” of corporate innovation. It demands that companies transform their entire systems away from misaligned KPIs, legacy IT and business models, ineffective work methods, too high risk averseness built into strategies and business plans, and short term thinking. It has far more to do with this than it has to do with people’s lack of willingness to change.

Of course, there is human resistance to change. It is a real thing. But human beings are actually remarkably adaptable to change – if they have the right conditions to change under.

So therefore, insurance companies need to take a hard look at their legacy methodologies and ask themselves if they are, in fact, geared towards the change they want to see. In most cases the answer to this is “no”. But if they set their minds to it, they can certainly do it.

With the insurtech movement, established insurance companies are partnering with small, nimble tech startups. Buy or build are no longer the only paths to innovation. Startups tend to have very different cultures than the incumbents. What advice would you give insurance companies and startups on how to make these partnerships work?

The insurance companies must understand that they can get a ton of value out of collaborating with startups if they don’t try to force the startups to act exactly like they do. By that I mean that the insurance companies need to adapt their legalese so that it doesn’t take 9 months and hundreds of thousands of dollars for startups to even get to the point where the two parties can work together. This is the first killer. Startups don’t have the runway to do this. So therefore, insurance companies must create simpler and cheaper legal processes for their experiments with startups. They must also remember that the reason they start working with startups is precisely because they are different, more nimble, open to risk and radical in their approaches to problem solving.

Inviting startups into the core of the legacy system and forcing them into a waterfall project with endless planning and meetings most likely will suck all the energy and motivation out of the entrepreneurs.

The insurance companies must create a different playing field where they can harvest the value the startups can provide by allowing them to work how they are used to, with the added resources that the insurance companies can provide in terms of money, data and customers. That is what creates the potential killer algorithm of collaboration.

There’s a lot of discussion today about the Amazon effect on customers’ expectations when they go to buy insurance. Some in the industry have pushed back, arguing that insurance is complex and a unique category of product that can’t – and shouldn’t – be sold online in the same way as, say, a new pair of jeans. Do you have any thoughts on this?

“Famous last words”, is what first comes to mind. Anything that can be digitized will be digitized. Not all services can be digitized entirely. Yet. But machine learning, deep learning and these other subsets of AI are all exponential technologies, and this means that it is only a matter of time before even the most complex of services can be digitized. If insurance companies don’t get on the train now and start digitizing their simplest products to learn and start catering to the wants and needs of customers – who all expect “easier, cheaper and more convenient” regardless of which industry you are in – they will get left behind.

The insurance industry is facing a talent crisis. With the workforce expected to be 50% Millennial and Gen Z in 2020 and more than 95% by 2030, what can insurance companies do to attract younger talent to the industry, and does innovation have a role in enticing top talent?

Having a reputation for being an innovative company is a massive talent attractor. The most powerful and popular brands in the world are the most innovative companies and talents want to work for them. The other part of that equation is that Millennials and Gen Z want to work for companies that are purpose driven and have a bigger purpose than “just” making returns to shareholders. Being an ethical, purpose driven company is fast becoming a differentiator and will soon be a hygiene factor. This means that soon companies will not be rewarded for their ethical purpose driven DNA, but they will be severely punished if it is not in their DNA by both customers and employees. If insurance companies can build their brands around innovation and purpose, then they stand in a unique position to win the best talents. But they have to remember that they are competing against Amazon, Google, and Apple for the best talent. They are the ones to beat. Not the other insurance companies.


Kris Ostergaard

Kris Østergaard is the co-founder and Chief Learning & Innovation Officer of SingularityU Nordic, a country partner of Singularity University, as well as a faculty member of Singularity University. Kris is the author of Transforming Legacy Organizations: Turn Your Established Business into an Innovation Champion to Win the Future and the co-author of  The Fundamental 4s: How to Design Extraordinary Customer Experiences in an Exponential World. He is also a Certified Experience Economy Expert and the first recipient of the prestigious Experience Management Achievement Award outside of the US. Kris is a sought-after speaker and facilitator around innovation in legacy organizations. He is also a board member, angel investor and advisor to both startups and Fortune 500s.

 

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