Innovation ecosystem, open innovation a powerful combination for the insurance industry

Innovation ecosystem. Open innovation. The combination of these two empowers the collaboration and the sharing of knowledge, information, and ideas that are accelerating innovation today, helping to reimagine industries and companies.

Why is an ecosystem so powerful and so critical?

Due to day-to-day operational demands, insurers often lack the time, expertise, and resources for tracking, assessing, and putting the implications of the influencers of change for insurance into context. An ecosystem can enable the generation and integration of new ideas and thinking. With the help and input of an ecosystem – particularly one with outside resources – a much needed, outside-in perspective is provided that helps to break down legacy assumptions. In today’s hyper-connected world, companies are transitioning from managing value chains to managing ecosystems for powering the business.

What is open innovation?

Henry Chesbrough, author and academic, originated the term “open innovation” as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Chesbrough also notes that open innovation “is a more distributed, more participatory, more decentralized approach to innovation, based on the observed fact that useful knowledge today is widely distributed, and no company, no matter how capable or how big, could innovate effectively on its own.”Or how powerful as a market leader, for that matter, because no singular person or entity possesses all of the knowledge, insights, ideas, or creativity. This is why crowdsourcing, a means of open innovation, is crucial for all companies to embrace.

Since the 20^th century, with the dawn and the potential of technology starting in the industrial age and continuing into the information age, companies seeking market leader status through technology innovation developed internal, large, and impressive R&D departments. Iconic examples include Bell labs, Xerox, IBM, HP, Ford, BMW, BP, AT&T, and GM. The advent of the internet and new technologies enabled collaboration with people and resources around the world, dramatically changing how companies did R&D, internally and externally. By embracing open innovation and ecosystems, leading technology and start-up companies formed co-creation environments that embraced technology. Examples of these include Linux, Google, Apple, and Cisco. Today, companies across all spectrums, even those with historically iconic R&D departments, see the power of open innovation and ecosystems and are embracing the concepts, including Ford, Heineken, Procter and Gamble, BMW, Dell, and Starbucks. And there are start-ups that are using crowdsourcing to crowdfund investment resources to bring new, innovative products to market.

The powerful combination of these two concepts, innovation ecosystem and open innovation, can be formidable for companies in positioning, retaining, or more importantly, leap-frogging market leadership status. And it creates a powerful chain reaction of innovation and success. Just consider Linux and Apple. Linux was created in 1991 by Linus Torvalds as a new operating system to use the capabilities of his new PC. Once he had his first version, he posted it online to a group of developers for feedback. The rest is history. Today Linux is managed by a community, thousands of programmers around the world that use Linux are sending their suggested improvements to the maintainers, and new companies have emerged that benefit from Linux. Likewise, Apple’s development of the iPod, iPhone, and iPad has changed industries and created new companies, changing market dynamics in the process. Now, through open innovation and collaboration, whole communities of developers are creating new apps that engage and change the customer experience daily.

And then some companies that are not considered predominantly high-tech, like Proctor and Gamble, Starbucks, BMW, Heineken, and Ford have embraced ecosystems to fuel innovation and keep them relevant in a fast changing marketplace. Proctor and Gamble’s Connect+Develop^SMopen innovation, with an ecosystem of over 2 million relationships, is a powerful force of collaboration, innovation, and change. It has been stated that P&G’s launch time for new products has been halved and the innovation rate has increased by 75% through this powerful combination. Imagine the potential for insurance!

The potential and value of an environment of open innovation with access to a robust ecosystem is broad and transformative. It provides a “safe sandbox” innovation environment where you can discuss, debate, and incubate ideas to then cultivate and mature uniquely inside your organization. This type of co-creation allows companies to expand their business ideas and use of technology quickly and cost-effectively. While keeping competitive information confidential, companies can discuss ideas, challenges, and opportunities to leverage the breadth and depth of expertise and collaboration of the community. In essence, the community becomes an extension of your company’s innovation, strategy, and R&D efforts that can inspire and activate change within your organization.

Even more exciting is the possibility of open innovation leveraging a broad ecosystem of inside- and outside-the-insurance-industry participants to set in motion a chain of transformation and success, for an individual company and the industry as a whole, letting us as an industry define our own future, rather than letting it be defined for us. For those insurers that are wary of this level of open innovation and collaboration, just look at the market leaders in other industries to see the powerful impact. These companies embraced open innovation and built ecosystems of inside and outside relationships – with customers, suppliers, partners, industry leaders, academia, technologists, and others – to help them transform and gain or retain market leadership.

Ignoring this powerful approach and trend can seriously impact the future relevance and success of the insurance business as we know it. At the recent MIT CIO symposium on innovation and the digital revolution, panel discussions of leaders across different industries emphasized this well:

• The ubiquitous connectivity of people via the Internet and emerging technologies such as social media, the Internet of Things, crowdsourcing, mobile, and cloud are disrupting traditional, historical business assumptions from how to engage customers, to the products and services offered, and ultimately, to revenue models.
• There is a disruptive, foundational change taking place in the way all businesses are approaching value creation.
• Operational excellence is table stakes. The barrier to entry for all industries has either already fallen or is falling now.
• Modern technology and digitalization must change how companies see themselves – no longer as value chains, but rather as enterprise ecosystems that must be connected.
• The collective intelligence of ecosystems promotes an entrepreneurial spirit, provides a greater understanding of new technologies, and stimulates creativity and life-long learning that together are key characteristics for future success.
• The price of solving problems is innovation.

Insurance industry disruption has begun and will tear down the business assumptions and paradigms of the last 20-30 years, or more. Don’t protect and cling to those assumptions. Re-envision, reinvent, and change the business. And most importantly, embrace open innovation and an ecosystem of outside-in thinking and collective intelligence to inspire and accelerate your transformation. Be a disruptor and an innovator.

Contact me at dgarth@strategymeetsaction.com if you’d like to learn how SMA can help you on the innovation journey and discover new opportunities for the insurance industry. Click here to learn more about SMA’s research.