Is your innovation hothouse cultivating a toxic culture?
The ‘digital garage’ approach to insurance modernisation must be handled with care says DevOpsGroup co-founder Steve Thair.
From innovation labs to digital garages, many insurers are creating new spaces for experimentation and modernisation. Any efforts to adapt to the shifting insurance needs of individuals and businesses in the digital economy are to be applauded. But is ringfencing innovation and holding it at arm’s length the best way forward? Once a spinout has proved its feasibility, success or failure depends on what happens next.
Creating an environment for change
The lab-style approach to innovation is reminiscent of what Harvard Professor Clayton Christensen prescribes as the Innovator’s Solution. A separate ‘heavyweight team’ operates in a spinout organisation with a different bundle of resources, processes and values (RPV) to the parent company.
The idea is that this creates an environment that’s more conducive to innovation and disruption. It’s about fostering a different organisational culture which:
- embraces change (rather than resisting it),
- focuses on empowering aligned but autonomous agile teams (rather than centralised command and control),
- seeks to get fast feedback from the customer and uses data to inform product roadmaps (rather than relying on HiPPOs – the most Highly Placed Person’s Opinion – for decision making).
This is all very positive and progressive. But what about the parent organisation? How do people there feel about the shiny new unit where colleagues enjoy greater autonomy and perks like beer fridges and pool tables? It’s easy for resentment to kick in, and when the time comes to integrate new ideas from the lab, they’re likely to be met with resistance.
When things go wrong
The concept of technical debt is well understood amongst insurance transformation leaders and is slowly making its way to the Boardroom agenda. Its bedfellow, cultural debt, is just as challenging, but less widely recognised. This is a problem, because transformation programmes put extreme pressure on people and culture. Unless they’re managed carefully, initiatives to hothouse innovation can be divisive, harming communication and bringing leadership into question.
Much of the time, mistakes are rooted in unspoken assumptions. For instance, the received wisdom is that a successful spinout will ‘graduate’ from the garage and be embraced by the enterprise mothership. This is 100% the wrong direction.
Bringing a spin-out inhouse, in some vague attempt to leverage the economies of scale of the parent, is a recipe for disaster. The resources, processes and values that work for the existing (declining) traditional insurer can be fatal when applied to the disruptive innovator.
How to get it right
There’s a reason why venture capital firms follow a predictable path from seed funding to Series A/B/C funding rounds. At each stage they challenge the start-up (and then scale-up) to move beyond the initial product/market fit to market disruption and ultimately, hopefully, market leadership.
This model can be adapted for insurance transformation. If shoehorning innovation silos into the confines of the old business won’t work, things need to move in the opposite direction. In other words, the spinout needs to be positioned as a pioneer, building the foundations of organisation v2.0.
In this vein, transformation becomes less about changing the existing organisation and more about staking a new territory, to which organisation v1.0 can migrate. The laggard parent company is intentionally disrupted and cannibalised by the fast-growth innovator. So, the focus turns to the transfer of resources (money, people, data, customers) to the spinout. Which raises the question of how and when to integrate with the new culture and shake off the baggage of the old.
Invest in organisational capital
Clearly, this is not a quick process. The development of and shift towards organisation v2.0 takes time and effort. When the time comes, some people will be reluctant to leave the familiar environment of organisation v1.0. However, just as the organisation needs to adapt to survive new market challenges, so too do employees.
Kotter’s 8-step change model provides a useful framework to ensure cultural factors are handled effectively during transformation. It focuses on establishing a shared vision and a sense of urgency at the outset. Communication is a central theme, with appropriate messages conveyed to the right people at the right time throughout the process.
All of this is important, but it’s the second step of the model ‘form a powerful coalition’ which offers an effective antidote to cultural toxicity. Kotter’s recommendation is to identify and engage influential people from all levels of the business. This extends beyond formal leaders and managers to include all culturally significant people.
These are the people who shape opinion and exert influence on those around them. When they’re directly involved in the transformation process, positive messages about the rationale for change are more likely to infiltrate the organisation. What’s more, misconceptions can be addressed quickly, and issues that leaders may not have anticipated can be voiced and dealt with. This gives the wider team confidence to make the transition, inspiring and energising them for the journey.
Insurers that stake a claim in the digital economy, and persuade employees to move there, have an opportunity to combine the rigour of the old world with the vigour of the new. And they’ll be well placed to adapt and thrive in this evolving landscape.
Steve has previously written about the concept of technical debt for Insurance Edge here.