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Re-invention for digital leadership

How to be a serial self re-inventor


By Scott Gibson, Group Executive – Digital Practice, Dimension Data

A tale of repeated re-invention

Adrian Gore founded Discovery in 1992 with the aim of making people healthier and protecting their lives. He pioneered a new approach to an old problem – how to pay for healthcare. By first separating savings from insurance, then linking health plans to lifestyle management, he’s built an international business with 6 million customers and 8,000 employees, which makes over USD 3.5 billion a year.

The story of Discovery

Adrian thought the existing ‘medical aid’ system in South Africa where he lived was short-sighted and inefficient. Medical aid schemes at that time were operated by employers and worked on a ‘use-it-or-lose-it’ basis.

You paid into an insurance policy that entitled you to a finite amount of basic day-to-day care which you could claim each year. Not surprisingly, everyone always claimed as much as they were entitled to. This put cost pressure on healthcare providers which resulted in inflated premiums. It was an inherently wasteful system, and Adrian thought of a better one.

Innovation

Adrian’s approach was to separate savings from insurance. He created a new model, the medical savings account, which was part insurance policy, part bank account. It operated on the rather more attractive basis of ‘if you don’t use it, you keep it’.

The bank account portion acted as a simple savings account. You used funds in this to pay for ordinary every-day care. If you didn’t need anything, the money stayed in your account. The other part of the plan was a conventional insurance policy, which paid out if you needed major healthcare services. Since then, other medical finance companies have copied the model, but Discovery’s is still the biggest in their home market of South Africa. And then Adrian innovated again.

Serial innovation

In 1997 he invented Vitality, a healthcare plan cum lifestyle programme which incentivised healthy lifestyles with perks, improving members’ health, and reducing claims.

Vitality incentivised healthy lifestyles with perks, improving members’ health, and reducing claims.

The Health and Racquet Club (now Virgin Active) approached Discovery asking if they could provide medical savings accounts to their members. Like a true innovator, Adrian, turned the idea on its head. ‘We had a brainwave: why don’t we sell gym membership to our members? Then we could reward them for regular exercise, which in the long run would lead to better health and fewer claims.’i

Vitality members get points for doing healthy things: taking exercise, not smoking, having cholesterol tests. They can redeem these points for ‘rewards’ like cash back in retail stores, shopping vouchers, free flights, and discounted TV movies.

You can even earn a free Apple Watch. You order the watch from Discovery. It tracks your activity, and reports back to Vitality, via the app. Vitality gives you rewards for achieving your weekly fitness goals. When you’ve earned the required number of reward points, you get to keep the watch.

It’s a win-win shared value model. By incentivising members to lead healthier lifestyles, Vitality enjoys reduced claims and a lower membership lapse rate. This boosts the scheme’s profits, but instead of pocketing it, they pass it back to members in the form of rewards and lower premiums. Since then many health insurers and healthcare providers have seen the merit in incentivising members to follow healthier lifestyles. But Adrian didn’t stop there.

And re-invention

Adrian’s gone on to extend the idea of incentivising desirable behaviour into other areas, starting with motor insurance. Discovery Insure rewards good driving habits. A tracking device installed in the vehicle monitors braking, acceleration, cornering, speeding, late-night driving, and cell phone use.

Adrian’s gone on to extend the idea of incentivising desirable behaviour into other areas.

If you drive well, and take steps to improve your driving knowledge, or make sure your car is safe to drive, you earn points which you can redeem for refunds on petrol and train fares. ‘If anything, this kind of incentivisation works even better with driving behaviour than it does with health,’ says Adrian.ii ‘It turns out that people who are careful about their health, are careful about their driving, are careful about other risks. These things tend to be one directional and I think that’s the power of the model.’iii 

The wider issue

Big data analysis in insurance

Big data analysis is bringing big changes to the insurance industry. The ability to collect and analyse more granular data from a wider set of sources is giving insurers a more detailed understanding of client risk. By combining the data in the traditional application form with new kinds of data about the applicant’s demographic cohort, geographical location, and actual (rather than merely claimed) behaviour, they are able to customise policy cover and premiums to precise groups or individuals.

This not only reduces their risk, it enables them to offer more competitive premiums and, in some cases, cover lines of business that were previously uneconomical to insure. Big data is also helping to reduce fraudulent insurance claims. Going beyond the normal claims history information, insurers are now able to analyse unstructured data about the location of the claimant’s mobile phone, and their social media activity, to spot potentially fraudulent claims.

Further ahead, it promises to make real time individualised products possible. Imagine having the sort of information on a driver’s behaviour which Discovery Insure gathers, and combining that with information gathered from a connected vehicle about its location, its maintenance status, the weather conditions, the amount of surrounding traffic on the roads, and so on. It would be possible to calculate the risk minute by minute, offering drivers individualised, real-time cover.

Data-driven innovation

Innovation has always been important in every industry. Now continuous innovation and re-invention has become essential for businesses to stay relevant. These days it’s fuelled by new insight from analysing the data produced by the Internet of Things (IoT). This intelligence is illuminating new connections and new business opportunities that simply weren’t visible before.

Today’s innovation is taking place at a much faster rate, and it’s blurring the edges of traditional industry demarcations, turning healthcare providers into banks, telcos into TV companies – and, some say, every company into an information technology business.

Every industrial company in the coming age is also going to have to be a software and analytics company.

It’s not start-ups who are saying this, but the long-established companies themselves. ‘It’s our belief’, says Jeff Immelt, CEO of General Electric, ‘that every industrial company in the coming age is also going to have to be a software and analytics company.’iv 

Our opinion

How to re-define yourself

There’s no such thing as digital strategy, just business strategy in the digital age.

We do a lot of work helping clients re-define what business they’re in. Inside the boardroom, our clients are asking ‘What business are we really in? Who are our customers? What’s our value proposition? How can we take some of the data we’ve got and use it for different purposes, either generating new revenue or reducing costs? What sectors could we diversify into? Can we get into a completely new area of business that we weren’t in before?’

Re-invention for the digital age

We help our clients answer these questions, and then go on to tackle the practicalities: What activities are core and should be kept in house? What are non-core and can be done by partners? Can the tech start-up community deliver some of their innovation requirements? What technology will they need to deliver on their vision? What capabilities will they require – and what skill sets? Deciding what to do is one thing, but as practitioner consultants Dimension Data is also a company that builds the ability to do it.

It’s a continuous process

Digital re-invention is a continuous process, but it often requires a kick-off project to get the company and the leadership team to embrace the idea of constant change. A client of ours recently made a very interesting comment to me – he said, ‘All things digital need an experiment’. This is so true.

‘All things digital need an experiment.’

A recent informal client survey returned a finding that 40% of companies see business transformation as a process of continuous improvement. We believe this probably understates the real situation. Our wider experience with clients suggests that all companies see digital as a significant opportunity for business process improvement. For example, many are moving their ERP to the cloud to cope better with massive data volumes, and automating business processes for greater efficiency and accuracy. They’re also putting more business processes out into their ecosystem so they can meet the expectations of their consumers.

Re-invention for the digital age isn’t about making small incremental improvements to existing processes, it’s about boldly creating new ones. The new model is all about breaking down silos and embracing ecosystems.

Who’s responsible?

The survey also asked who is responsible for the change: 29% said leadership and senior management, 27% said ‘the entire organisation’, 24% said IT leaders. We believe it needs to be initiated and led by senior management, but then handed over to others.

Most of the leaders in established organisations are of an older generation, and don’t reflect the demographic of new or future customers. They’re also often psychologically heavily invested in the old model (which in many cases they created and ran). People other than these are better at challenging the status quo, experimenting, failing fast, and moving quickly. I’m not suggesting that the older generation be replaced, but I'm suggesting that they should be open to ideas from all areas of the organisation and create platforms for new ideas to be socialised.

Business strategy enabled by technology

We also believe that transformation shouldn’t necessarily be led by the IT department, but by the lines of business, such as Chief Marketing/HR/Digital Officers etc. We believe technology is merely an enabler of transformation. Digital is not a technology driven strategy; it’s a business strategy, enabled by technology.

Digital is not a technology driven strategy; it’s a business strategy, enabled by technology.

Business strategy should never be technology-push, but always customer-pull. The winners in the digital age won't be the people who own the technology, but those who own the customer experience. And here ‘customer’ could be a consumer, but it could also be a client, a supplier, an employee, a member of a community, a patient, or a civic citizen.

We believe Discovery are a global standard for serial re-invention in the digital age. They’ve created several new business portfolios, and then developed further within each of them. But, sensibly, they’ve only ever gone one step at a time away from their core business.

What’s next for Discovery?

In October 2017 Discovery were given approval to establish a retail bank (subject to specific regulatory conditions)v , which they say will be based on the same behavioural model as Vitality and Insure.

Two things appear to be working well for them: using IoT data to extend the new business model from sector to sector; and continually innovating and re-inventing themselves.

I’m looking forward to the launch of Discovery Bank and will watch, with interest, as this bank goes through a continuous process of re-invention in the remainder of the digital age and the new, and as-yet unnamed era, that will follow.

References
iErnst & Young, Exceptional, January–June 2011, Medicine Man: Discovery, http://www.ey.com/uk/en/services/strategic-growth-markets/exceptional--january-june-2011---medicine-man--discovery
iiJuliet Pitman, Adrian Gore - The Disruptor, Entrepreneur Magazine, Jan 30, 2014 http://www.entrepreneurmag.co.za/advice/success-stories/entrepreneur-profiles/adrian-gore-the-disrupter/
iiiHilton Tarrant, Adrian Gore – CEO Discovery, Moneyweb, 21 February 2014, http://www.moneyweb.co.za/archive/adrian-gore-ceo-discovery-3/
ivCharlie Rose, GE's Jeff Immelt: 'Every Company Has to be a Software Company', YouTube, June 15, 2015, https://www.youtube.com/watch?v=OgO4I3_B0Js
vKabelo Khumalo, BREAKING NEWS: Discovery awarded banking licence, IOL, 16 October 2017, https://www.iol.co.za/business-report/companies/breaking-news-discovery-awarded-banking-licence-11588590

Comments/What do you think?

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