The long view forward is worse than Dorothy’s when she looked down the yellow brick road and imagined lions, tigers, and bears (“Oh, my!”).
Lacking a pair of magical ruby slippers, we see companies pursuing two distinctively different approaches to this long-term challenge of aligning operating expenses with the new normal of lower expenses and higher claims. Some are pursuing transformational strategies to achieve a significant shift in cost structures. Others are taking the traditional approach of increasingly tighter annual expense control.
Both approaches have risks. The risks are primarily related to time. The transformational strategy faces the risk that the organization will not be able to pull off the change in the timeframe needed to significantly impact expenses. The current economic environment may continue so long that the traditional, incremental approach ends up in a dead end where service starts taking a serious hit—further hurting both revenues and claims.
Our thinking is that the transformational strategy will produce more long-term winners than the incremental approach. Why? Two reasons:
* The risks are internal and can be managed. You can build or buy the capabilities needed to implement the changes. By contrast, the economic environment is external and can’t be managed, at least not by one company or industry.
* When the economic environment improves, the organizations pursuing a transformational strategy will be in a strong position to compete against companies that have had to cut their way to near death.
The challenge that many organizations face in considering the transformational strategy path is leadership. Leaders are needed that can see an opportunity that is beyond reach and create the organizational energy and focus around it which makes it seem possible. Some examples we are seeing:
* Moving to one common administrative platform and sunsetting all the costly legacy systems currently supported.
* Creating a real and meaningful self-service environment.
* Bringing predictive analytics into a process that yields faster, better, and cheaper delivery.
* Developing electronic communication capabilities that kill print costs and drive greater success in the acquisition process.
* Dealing creatively with closed blocks of business to kill the resource drain and risks.
* These are all hard initiatives to think about in challenging times like these. The two key questions are:
* Where do you want to be when this environment turns?
* Do you have the leadership on your team to drive transformational change?
We hope this article creates some interesting conversations in your planning sessions this year.
Ed Fenwick is a SVP for
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