Complex Operating Models Stifle Competitive Advantage
Insurance Experts' Forum, February 20, 2013
Many in the financial services industry find themselves facing increased complexity in their business and operating model. Acquired businesses, new products or channels, higher expectations from customers for better service and accessibility; all of these add complexity to the operation and present opportunities to balance the cost versus the value of complexity. You eventually reach a point in your business where leaders can no longer delay these decisions surrounding operating model complexity for the next guy to deal with. Eventually there are only two options: Reinvent your operating model and dramatically reduce costs, or risk extinction.
Why is complexity in the operating model bad? Those who can’t grow the top or bottom line show the most acute symptoms, such as:
• Delays in getting new products and services to market compared to competitors;
• Excessive time spent keeping up with regulatory changes rather than new product and service introductions;
• Inability to provide fast, convenient service;
• Limited process improvement and innovation;
• Inability to extract sufficient synergies from a merger or acquisition;
• Higher cost due to lack of scale; and
• Over-dependence and focus on existing products, channels, and segments, which will eventually put the business at risk.
The solutions are never simple. Complexity didn’t just sneak up on your business overnight. It’s been years of doing the right things but often with inadequate focus on combating complexity while you grow.
So what can be done about it? Start with understanding the value of customization compared to the cost of complexity. Every product and service added to the business has some mix of value and cost. Reviewing the portfolio in aggregate and at the specific product/service/segment levels can help determine where we are creating value and where we are wasting time, effort and money.
Once the review is complete, establish a plan for simplifying the business model going forward, focusing on the highest impact and most leverageable areas. Taking this fresh view of the enterprise helps achieve the competitive advantage offered by agility, flexibility and, most important of all, profitability.
Steve Discher is an EVP at the Robert E. Nolan Co. a management consulting firm specializing in the insurance industry. You can reach Steve at firstname.lastname@example.org.
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