Other parts of this series:
Traditional approaches to business planning are too often rigid and stuck in the past. A zero-based mindset encourages insurers to be agile and quick to seize new opportunities.
We all know that the past is a poor guide to what might happen in the future. Yet some insurers are beginning the new year as though it’s going to be a repeat of the previous 12 months. Their resources, systems and strategies have hardly changed. They’re still locked in the past.
A backward-looking approach to the future is dangerous. It makes organizations vulnerable to sudden changes in their markets, reduces their ability to capitalize on new opportunities and preserves unnecessary overheads. The rapid rate of change sweeping the insurance market, and most other industries, is amplifying these risks. Just look at a how quickly the lifespan of major corporations is shrinking. About half the companies currently listed on the S&P 500 index, for example, are likely to be replaced within the next 10 years, according to researcher Innosight.
How can insurers plan for an unknown, potentially volatile, future? A “zero-based” approach to business planning helps insurers thrive by focusing them on preparing for the future rather than reflecting on the past. It encourages agility rather than austerity. Most of us are familiar with zero-based budgeting; where all expenses must be justified for each new accounting period. By extending this rigorous approach to business planning, insurers can shift underperforming resources to parts of the organization where they can quickly create additional value and increase competitiveness.
A zero-based mindset requires companies to start their business planning with a clean sheet and identify the resources they’re going to need to achieve their objectives. Those resources that don’t support the organization’s goals can then be redeployed. They could include fixed assets, employees or funding. Potential benefits go beyond cost-cutting. Savings achieved by zero-based planning, for example, could be steered into transforming the business so that it creates new sources of growth.
To successfully apply a zero-based mindset, and become zero-based organizations, insurers need to review five key aspects of their businesses.
Work: Identify the work that generates the most business value. Locate the key processes and most important projects associated with this work. Curb unnecessary work by reducing complexity and removing inefficiency and redundancy.
Workforce: Assess the time, effort and frequency required to perform work that is essential. Aggregate the workforce around critical processes and projects. Employ digital technologies and flexible skills-sourcing strategies where possible.
Structure: Design an organizational structure that balances spans of control and focuses on the organization’s core competencies. Clarify roles and responsibilities. Shift from rigid hierarchies to fluid, project-based structures.
People: Determine the skills, levels, tenures, salaries and locations of all people in the organization. Align skills to the key roles in the new operating model and establish “stretch roles” for promising talent.
Measures: Set organizational objectives and link them to key business functions. Promote business agility by using employee objectives to encourage decision-making, personal accountability and transparency.
In my next blog post, I’ll discuss how zero-based planning can help insurers improve the returns on their digital technology investments. Until then, have a look at these links. I think you’ll find them useful.