W.L. Gore & Associates is about as far removed from the financial services industry as any company can get. Newark, N.J.-based Gore, best known as the creator of the durable GORE-TEX fabric so popular in outdoor wear, is a manufacturer of consumer products, textiles, electronics, medical and healthcare products, sealants, and filtration. What can a company in the financial services sector learn from Gore?Plenty, and that's why Wachovia Corp., Charlotte, N.C., hired the head of Gore's research and development team to bring analytical thinking to its own operations.
"W.L. Gore & Associates was very innovation-driven; and physically product focused," relates Dan Thorpe, senior vice president and statistics and modeling director of Wachovia's Customer Analysis Research and Targeting Group. "I worked with engineers and scientists around statistics and modeling. We modeled product lifetimes, we modeled employee engagements, we modeled experiments and we modeled performance."
Thorpe brought his familiarity with SAS analysis and reporting software over to Wachovia, to help the bank more rigorously measure customer loyalty and lifecycles. "Wachovia was looking for someone who was from outside the industry, to come in with a fresh set of eyes, and look at the way Wachovia handles customer data," he says. "They wanted someone who was doing things differently."
Thorpe's expertise and knowledge of software for product lifecycle analysis has helped Wachovia better understand its own customer lifecycles and preferences, and better target its marketing dollars to various segments.
COMMON GROUND IN MESSY DATA
While they are separate industries with different goals, manufacturing and financial services still face many of the same challenges when it comes to data management, Thorpe says. At Gore, Thorpe's mission was "to gain insights from messy data in manufacturing," he notes. "In financial services, you have a lot more data, but it's just as messy as in manufacturing or in R&D."
Thorpe's new engagement at Wachovia is not an isolated phenomenon—companies increasingly find there's value to be gained from solutions outside their own industries, says Kathleen Khirallah, research director for retail banking with TowerGroup, a Needham, Mass., research firm. "In the past five to ten years, solutions have become far more porous. Institutions are looking at solutions that have worked really well in other industries and adapting them to their industry."
The best practices of one industry—usually captured in software packages of one kind or another—can open up new avenues within another industry. Plus, many of the challenges that face the insurance industry-global competition, new demands from consumers, product commodization, industry consolidation and regulations—are the same as those reshaping other industries.
Software is becoming increasingly standardized through common interfaces and building blocks, such as Web services and XML, and therefore more interchangeable with solutions from across all industries.
This provides common ground for the sharing of solutions and approaches across industries. Regulation is one such area.
Craig Rhinehart, vice president of compliance products and markets at FileNet, a Costa Mesa, Calif., IBM Company, says challenges such as the requirements around electronic discovery cut across all industries, and "a solution developed for any given industry can be applied to insurance." In the case of eDiscovery, which makes all company documentation (including e-mail) subject to civil procedures, therefore requiring "a robust infrastructure that maps to these requirements."
Another example of an application that addresses challenges cutting across all industries is enterprise incentive management, Khirallah says. "Over time, the financial services industry broadly had said we need that capability in our institutions as well, because we can't keep trying to figure this out using spreadsheets. So there was this movement toward horizontal software developed for broader industry use, and bringing it into the financial services sector. Insurance was one of the early adopters of that, and has been very aggressive in adopting enterprise incentive management."
Insurance companies are also taking an interest in the discipline of product lifecycle management, which was previously known only in manufacturing operations.
"There's a shift in insurance companies wanting to become product companies," says Philippe Lafreniere, director of product management for Camilion Solutions Inc., based in Markham, Ontario. "How do we differentiate our products? How do we become a product company? This impacts everything from process technology to organization, and even introducing titles of people like chief product officer."
Many of the major application providers have also responded to such requirements, offering ERP packages that cater to the insurance sector. A number of ERP solutions, such as the Oracle E-business Suite (which includes Oracle Financials) from Redwood Shores, Calif.-based Oracle, or Waldorf, Germany-based SAP, support integrated reporting and a number have been adopted by insurance companies.
Camilion has captured many of the best practices seen in manufacturing, particularly around product lifecycle management, and offers similar technology to the insurance sector.
"Manufacturing organizations have a long history of excellence in product development and process management and building new products," says Lafreneire. "In manufacturing, everyone understands when we talk about product lifecycle management, a category that stands on it own. Knowing that, you can't necessarily bring terms like that over to insurance, and expect everybody to understand what you mean. A lot of the components, a bill of materials, a process, and approvals and automation—all of that applies."
OUTSIDE THE BOUNDARIES
Khirallah also observes that banks have been borrowing heavily from the solutions and experiences of the telecommunications sector.
"Mobile phone operators have been dealing with the issue of customer churn and retention for quite some time now," she says, "and the banks see that there's something they can learn from that. There's a lot more interest in moving outside of the boundaries of just financial services."
Likewise, for insurance systems managers, new market and regulatory forces are increasing the appeal of solutions from outside the insurance industry. In many cases, insurance carriers are moving toward scrapping long-held notions about systems and processes in favor of fresh perspectives brought in from the outside.
"Too many of our processes are subject to error and duplication, have to be reworked and re-keyed into different systems, deliver inadequate management information, and contribute to an unsatisfactory control environment," according to Bruce Carnegie-Brown, president and CEO of Marsh Europe/Middle East, a division of Marsh & McLennan headquartered in New York. "This inefficiency both increases the cost for our clients and reduces the clients' perception of our value because of our poor execution of administrative tasks."
Carnegie-Brown uses the Marsh & McLennan Web site to challenge the industry to do a better job of automating and standardizing all parts of the insurance process that offer individual insurer and broker participants no competitive advantage and create no value or differentiation for clients.
"Too often, we fail to differentiate between those activities which we perform which add value and those which are purely administrative," he says.
Some believe insurance companies need to look beyond their own domains or verticals for innovative approaches to business problems. Henry Chesbrough, a professor at the University of California-Berkeley's Haas School of Business and author of "OPEN Innovation: The New Imperative for Creating and Profiting from Technology," observes that "companies can no longer afford to rely entirely on their own ideas to advance their business, nor can they restrict their efforts to a single path to market. The traditional model for innovation-which has been largely internally focused, closed off from outside ideas and technologies-is becoming obsolete."
Wachovia is well aware of the need to look to outside sources for innovation, prompting a "huge push for organic growth, and the way you can grow organically is through innovation," Thorpe comments. "We have to understand how we can innovate new products and new processes, and even enhance our customer's experience through just organic means, as opposed to acquisition. Manufacturing companies such as Gore, 3M, and Sony are all introducing new products, and they're driven by values or needs of the customers."
At Wachovia, the focus is on trying to marry this philosophy with their own corporate objectives.
"We're trying to understand what that means for banking," says Thorpe, "and trying to introduce that to our customers. We're working on a model for Wachovia that basically collects ideas, funnels them correctly, resources them well and stage-gates them to the appropriate level so we know whether to proceed or not, to the point of successful innovation."
In addition to software, insurance companies also need to be open to bringing in expertise from outside their industry.
"Don't be afraid to hire people outside your discipline to shake things up," Thorpe says. "Because you just don't know what's going to happen, but you're going to learn new things. That's what Wachovia did with me, and it's going to happen more and more. It wasn't too long ago that you didn't hire someone without 20 years of industry experience to do the job. That's no longer the case."
TowerGroup's Khirallah agrees that opening up to people and solutions will enhance the "cross-fertilization" process that is essential to succeed in today's markets. "That kind of activity usually requires that someone from the target industry be brought into the institution," she says. "As banks move into insurance, they need to hire people who are familiar with insurance. And that brings a lot of that cross-fertilization as well. People with a history of expertise in a particular industry, know which solutions are going to work, and so they can recommend which ones the new institution has to adopt in order to be successful."
Overall, Khirallah considers the trend toward cross-industry fertilization of technology to be "extremely healthy." She observes that "it makes sense for an institution, whether it's insurance, banking, or brokerage, to acknowledge there are things they can learn from outside their industries. It's a matter of stepping outside their own walls, to do a better job for customers and shareholders. And if they do it before everybody else, they're going to have a competitive advantage."
Knowledge Transfer: Knowledge Gap?
The trend toward cross-fertilization of solutions across industries has managers in many markets starting to bring in fresh thinking and new approaches to problems.
However, transferring a solution from one industry to another is more than installing new software; the effort should include appropriate expertise to go along with it.
Boston-based TowerGroup research director Kathleen Khirallah cautions against taking an application from another industry, such as an incentive compensation system, and "slapping it into your environment and expecting it to work." For one thing, she notes, "the data model needs to be expanded before it can be used. There's all sort of things that have to happen before it can be used."
Every industry has its own nuances and ways of doing things. The banking sector, for example, "has a lot of salespeople, branch staff and call center staff. But the banking industry has some real specific challenges around what needs to be measured for incentives specifically-everything from numbers of accounts to growth of deposits or growth of outstanding loans. Banking-specific pieces of information have to be acknowledged by the incentive compensation system."
Solutions may be horizontal across industries but still need to be "verticalized" to capture or reflect specific domain knowledge. A vendor can tweak a solution. But at the same time, a successful implementation depends on how deeply verticalized the solution is. Plus, in terms of implementation, do the vendor's people have the professional services that have a domain of knowledge of the industry? Do they have that expertise?
Khirallah recounts how many times a banking solution may have been verticalized, but an inordinate amount of time is spent educating the implementation team. "The implementation folks may all have years and years of financial services experience, but it's in the brokerage industry and they really don't understand banking."
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