If you have read any of my past articles, you have seen me make a case for changing the model of today's benefits producer/department/agency. I have talked regularly about how our role with clients needs to change. I've even described in some detail what that role should encompass and how innovation is no longer a luxury but a necessity for our very survival.
We all know that change is usually difficult and that the gravity of "how we've always done it" is a strong force indeed. Rarely do we push through the challenges of change until we realize it is more difficult to live in our current reality than it is to do the hard work of moving ahead.
As benefits producers, we are challenged to change by a number of new and emerging realities:
New client needs—With employee engagement and morale at an all-time low, your clients are looking for help in new ways.
Competitive advantage—Those most adept at change will always have an edge.
Control—You must have control over what you sell and how you get paid.
Commission cuts—Enough said.
Disintermediation—Exchanges and direct writers are looking to eliminate you as the middleman.
Economic uncertainty—Experts predict that companies that are able to innovate within their industry (whatever the industry) will be the first to enjoy economic recovery.
Health care reform—Again, enough said.
Desperate competition—No one is in more danger than someone forced to fight for his very existence.
Okay, these challenges may make it obvious why benefits producers need to be innovating right now, but it's essential that we do so on a regular basis, not just this one time. Let's stop for a quick economics reminder of why continuous innovation is so critical.
Four-stage life cycle
Every product and service goes through a four-stage life cycle.
- The first stage is the entry point: Innovation. In this stage you are offering something not seen before by the market (think Apple and the iPad, iPhone, etc.). In this stage, profit margin is very high. Of course, the competition is always watching, and soon they show up and want some of that healthy margin.
- This moves you to the second phase, Sales and Marketing. The focus here is on acquiring market share. And, while not as high as in the Innovation phase, profits are still quite healthy.
- Once the market perceives that what you are offering is available from additional sources or at a lower price, you cross the line of commoditization into the third phase, Operations. In the Operations phase, the focus is on lowering costs to protect a diminishing profit margin.
- Eventually no more expenses can be cut, and the only way margin can be maintained is through the economies of scale that come with Consolidation, the fourth and final phase.
Obviously, it is desirable to have your product or service positioned in the first two phases. That's where the profits are. Unfortunately, too many of us in the benefits business are using models that place us in the third or even fourth phase.
Hopefully you agree that it is obvious that we need to innovate. And, let's be honest, coming up with new ideas is relatively easy. The hard part is making that new model a reality. At our recent networking conference, we spent a lot of time discussing exactly what innovation is, as well as what is needed to actually execute.
In his book The Other Side of Innovation, Vijay Govindarajan addresses these key aspects of innovation:
- Does Innovation = Ideas? As I've said, ideas are the easy part, but they're only the beginning.
- Innovation = Ideas + Motivation. While some think just putting out a rallying cry around the new ideas will get them implemented, this approach rarely produces sustainable results.
- Innovation = Ideas + Leader. Others will put a leader in charge of implementing the ideas, but one person alone cannot bring change to an entire organization.
The innovation equation is simple to understand but challenging to apply:
Innovation = Ideas + Execution. As you might expect, the only thing that really matters is execution. Without execution, not only are new ideas of no value, they are actually detrimental to an organization that has to come to grips with its inability to do anything with them.
Now you get to decide.
How comfortable are you that your current model will allow you to successfully address the industry and economic challenges you face?
If your answer makes you uneasy, that's okay; you still have time to find the innovation and create the plan that will give you the confidence you need. I'll walk you through the steps you need to take.
Creating a plan
We need to deal with innovation the same way we deal with our current operations, which means planning for what needs to happen. With operations, we do a pretty good job of setting goals, identifying action items, and then following through. Unfortunately, with innovation, we tend to take the approach of: "That's a great idea; let's do it!" and never think through the details of what it will take to make it happen.
If you don't create a plan to help you reach your destination, you will end up on the path of least resistance. That's a crowded path that tends to lead to commoditization rather than innovation.
A plan has three critical elements:
- A detailed vision of where you want to go
- An honest assessment of where you are currently
- Clearly defined steps to move from vision to desired change
At a minimum, you need to have clarity about these critical aspects of your business:
- What do you sell?
- To whom do you sell it?
- How do you earn new clients?
- How do you get paid?
- How do you retain clients?
- How do you ensure profitability?
First, I encourage you to discuss and describe in detail the way you would like to be able to answer these questions for your future agency. Identify the value proposition and sales approach you would like to take to your prospects and clients. Include solutions and resources that go well beyond the traditional product/service focus so common in the industry, and be sure to look at your clients' HR needs.
Second, answer each of the above questions based on your current business model. You need to be brutally honest about your current model and where you are vulnerable to the challenges/threats I described earlier.
Sometimes it's hard to get started with this exercise, so I offer the following examples. Of course, you will need to go into much greater detail.
What do you sell? (Now—Insurance; Future—Client solutions)
To whom do you sell it? (Now—anyone; Future—Our "ideal client")
How do you earn new clients? (Now—Spreadsheet; Future—Listening to their needs)
How do you get paid? (Now—Commissions; Future—Fees)
How do you retain clients? (Now—Great service/re-quoting; Future—Improving clients' bottom line)
How do you ensure profitability? (Now—Huh? Future—Get paid based on the value we deliver)
Finally, in each area, lay out a detailed plan of what you need to do to move from where you are now to that future vision. As in any good plan, be sure you include details about who is leading each item, what resources are needed to accomplish each goal, and when each item will be implemented.
It may seem easier now to keep doing things the way you've always done them, but taking on the hard work now will make your future work much easier.
Originally published in Rough Notes Magazine, September 2011.
Photo by yachtfan.