In 2005, Geoffrey Moore wrote a book called Dealing with Darwin in which he discussed how companies can use product innovation to differentiate themselves from their competitors to avoid extinction. Although written ten years ago, the concepts of the book are still relevant, though in a different way. In today’s Darwinian Economy, it’s not only product innovation that matters, but also the innovation and evolution of ideas.
All businesses must have a fundamental strategy or rationale for their existence. Call it ideology, strategy, or vision. Whatever it’s called, ‘it’ is a set of coherent, inter-related ideas that are used to explain the past and the present, and allow companies to navigate the future. Product innovations are based on these ideas, so they are critical in the day-to-day actions of a company. Without a relevant set of ideas that are coherent and consistent with the market, companies will find themselves out of touch and on the path to extinction, without even realizing it.
At Instec, we have four inter-related ideas that form the basis of our market view and our strategy:
1) We are living in the midst of a Darwinian Economy in which capital and technology are in abundance. These twin forces are driving down barriers to entry in the insurance market and creating a market of intense competition.
2) Time-to-value, as it relates to enabling technology, is critical in today’s Darwinian Economy. Time-to-value encompasses speed, a reasonable up-front investment, and reliability.
3) The insurance value chain is the key battleground in this Darwinian world, as insurers increasingly go direct to reduce costs and eliminate competition. Commercial lines will soon mirror personal lines in this respect.
4) Software as a Service (SaaS) will be the way that all software will be accessed, consumed, and paid for in the future.
These core ideas have found relevance with program writers, large carriers looking to refresh uncompetitive products or respond to competitors’ moves, and startups looking to gain a foothold in various market segments. These ideas are interlocking and reinforce each other. They are non-negotiable. They explain the past and present very well, while allowing us to navigate the future effectively. They are not static. We refine them as we go along, making tweaks and adjustments as the environment changes.
So, what happens when your ideas are out of step with the market? What happens when there is a dissonance between what you believe and what the market believes? We are seeing these disconnects play out with many of our competitors who built their business models on a set of ideas very different from ours. That’s not to say they are wrong and we are right, or that the market cannot support multiple sets of ideas which are in conflict, it just means that there are companies who have a different view of the world.
Suite vendors had an inter-related set of ideas that was the antithesis of ours. They believed in building a set of core components (billing, claims, and policy admin) that would totally replace existing systems, resulting in a modern infrastructure that, over time, would reduce cost. Implementations would be led by systems integrators and consultants, in projects that would take several years, and have a price tag in the millions of dollars. The solutions would be built to order, geared towards insurers that had the money to spend. When cost overruns occurred, the response would be to spend more money.
While hugely successful in the short run, this model is not sustainable in today’s market. Many of these systems were built over a decade ago. They assumed static insurance products, and perpetual licenses for on-premises implementations. But the insurance world has changed. Insurers must now deliver new products and product refreshes quickly, efficiently, and at a price point that doesn’t break the bank for any one initiative. In short, the market is moving toward our set of ideas and away from the concepts that power many of today’s solutions.
Many of these vendors are beginning to notice that they are out of step, and are attempting to change. They have done so via acquisitions, new product development, and changing terms and conditions in their licenses. But at their center, the core set of ideas around large projects and fees still remain. They cannot totally jettison the old model because of financial commitments to private and public investors. In effect, they must navigate two conflicting sets of ideas. While it is possible to do this, few companies have succeeded. Most have failed, with disastrous results.
The reality is that when the market evolves past a core set of ideas, innovations and acquisitions are rarely effective unless the core ideas change as well, and a path forward is clearly defined. If they don’t, a company can behave schizophrenically, becoming tomorrow’s legacy. So, as long as we are still dealing with Darwin – and it appears we will be for some time – look for those vendors that are in tune with the environment, adapting as it evolves, and helping you react to a changing market.
Kevin Mason has worked in many aspects of software development since 1981, including roles as product strategist, software development methodologist, project manager, and technology architect for companies such as Cincinnati Bell Information Systems, SHL Systemhouse (now part of EDS), AGENCY.COM, and GENECA. He joined Instec in 2008 and is responsible for development associated with all products. He holds a BA in Political Science, from the University of Iowa and an AS in Computer Science.