Directing the Digital Journey
As they lead insurers along the path to digital evolution, chief digital officers must transform not only business processes but also thought processes.
When A.T. Kearney noticed an unfamiliar acronym--CDO--popping up in the C-suite in 2010, it decided to do a bit of digging into the prevalence of these new chief digital officers. The global management consulting firm didn't find much. The CDO was something of an anomaly just seven years ago.
That certainly has changed. Across industries and sectors, chief digital officers are on the rise and have become one of the fastest growing executive positions.
"Back in 2010, we did some research and found less than 10 chief digital officers in high profile companies," said Abhinav Agrawal, a principal at A.T. Kearney. "Last year, at last count, there were close to 2,500 CDO positions ranging across all industries."
There's good reason for that surge. Mobile devices now outnumber people (8 billion to 7.5 billion), and mobile data consumption grew 18-fold over the past five years, according to Cisco. This dramatic increase in connectivity has shifted the way people consume products and services, creating a digital revolution that is disrupting entire sectors and forcing companies to rethink their business models and how they connect with customers.
"Virtually every P&C, and now life and annuity, company is undergoing some form of digital transformation," said Dave Hollander, global insurance advisory leader and principal for EY. "That's universal. There's nobody that is standing pat with their existing set of systems and capabilities believing they're fine.
"There really are opportunities for better serving new and existing customers, for positioning the company for innovation that's coming from outside the industry, and also for becoming far more efficient from an operational perspective."
The chief digital officer's role is to shepherd corporations along that digital transformation journey.
According to a 2015 survey by PwC, 6% of corporations across business sectors reported having a chief digital officer. Insurers were ahead of that curve, with 8% saying they have a CDO in place. That number keeps growing. In the past year alone, Hartford Financial, Lincoln Financial, Chubb and USAA, among others, all have created chief digital officer positions. CDOs have a big task ahead of them. Digital transformation isn't merely an exercise in updating technology; it also requires a shift of the corporate mindset. These digital executives, therefore, must change both technology processes and thought processes as they embed digital into the corporate DNA.
"It's a very difficult skill set to find because you need the combination of technology savvy and business savvy at the same time," said Tanguy Catlin, a senior partner in McKinsey & Company's insurance practice. "Being able to walk across the different parts of the organization is one of the most difficult dimensions. I would say also, interestingly, if you ask executives what is most difficult about digital, they typically come back to the soft stuff. It's the cultural change, becoming much more agile, adopting a test-and-learn methodology, recruiting talent they typically don't have, delegating decisions. You want a senior executive who will be able to drive that kind of significant change management."
That's a tall order for one position, but having the right digital point person could have big benefits.
"Digital applies to technology," Catlin said. "Digital applies to consumer journeys. Digital applies to all of your operations and back-end processes. Therefore it requires some orchestration.
"There is tremendous value in having someone who can come and say, 'I will look across the organization. I will align us on our aspirations. I will align us on the big sources of value we want to capture. I will align us on the capabilities to invest in across IT, marketing and analytics. I will create a transparency on P&L impact for the investment and measure ROI. And I will be the Geneva that allows us to go through this unemotionally.'"
Chief digital officers wear many hats, sit in various parts of an organization and are tasked with a wide variety of responsibilities. The first step in determining the CDO's mandate is to determine what problems this leader needs to solve.
"I think the most important part to start with, for the company, is to understand what they want the chief digital officer to do," said Limore Zilberman, a consultant with executive search firm Russell Reynolds Associates. "So part of the conversation we engage in, even before defining that role and its mission, is to understand from the client what problems they're trying to solve for and make sure that it's mapped back to the customer's behaviors and needs. What we have found, in doing that, is that the digital leader can take on many different types of digital roles."
The CDO's purview may span technology, marketing, product development, operations and human resources.
In some organizations the CDO is very technology focused, ensuring the technology is supportive of and in alignment with the overall strategy of the broader business. Other organizations view this position as more of a marketing role, where the goal is to accelerate new client acquisitions and build platforms to harness in-depth insight into the customer. CDOs may also need to be strategic leaders who can leverage this actionable customer insight and use it to design digital solutions across the enterprise. Or their primary focus may be to drive operational improvements through digital solutions.
Often, their role is an amalgamation of all those things.
"There isn't necessarily one overarching fabric that you'll see in a mission for a chief digital officer," Zilberman said. "Every company is attempting to do this very differently. They're personalizing the journey for their customers, agents, brokers and other stakeholders.
"One thing we see is that organizations in insurance have matured from being digitally aware to being digitally adopted. They've got some visibility into all channels, but it's disjointed. We're pushing our clients to be digitally integrated and to ensure that digital integration is woven into the overall company strategy. You have to have a single view of the customer across all of your channels. You have to have an agile learning-oriented environment. And it needs to be a competency of all the C-suite executives and down. You have to have a digitally savvy CEO and board. It's not good enough to have a chief digital officer. It needs to emanate from the top down and from the bottom up," she said.
Having visible support from the CEO also helps to minimize internal conflicts and to encourage management buy-in.
"Setting the tone from the top is very important," Hollander said. "Setting the case for change is important. Employees need to know that we as an industry don't have a choice--our customers are changing in what they're needing and asking for, the nature of the insurance products are changing. And the chief digital officer is someone who will enable that change by working with each of the functional areas or the lines of business to figure out what are the hot spots where we could apply new business models and new technology to get a better result. So I think it's really important to set that framework and get the management team on board."
Buy-in is particularly important in this position. Because the chief digital officer parachutes into different departments and lines of business, politics can be tricky.
"There are sometimes turf wars on who owns the digital journey," Zilberman said. "You have to be careful of where this resource is situated. In some organizations it reports directly to the CEO and becomes an enterprise function. In some organizations it sits in marketing. In some organizations it's specific to the products and distribution. If you can elevate it to the enterprise level, where product leaders and distribution leaders can tap into it, it becomes less territorial."
While reporting structures vary by company, experts say the position can be most effective and transformative when it reports directly to the CEO.
"It really should report to the CEO," Hollander said. "Digital needs to be infused into everything. It starts with definition of: Who are the customers we're serving? Why are we pursuing them? What products and services will we be providing them that meet their needs? Those are very business questions. People think digital and they think technology, and certainly there's a huge component of technology enablement for a company, but it's really a business issue first."
Agrawal said the CDO role has a broader scope when it sits beneath the CEO.
"When the CDO is reporting to the CEO, typically the mission is to create more disruptive business models," Agrawal said. "I'm of the opinion that, going forward, the CDO's biggest impact lies in creating new business models that generate new lines of business."
Given the position is new and the digital transformation journey is long, experts say it's uncertain whether chief digital officers are effective or even necessary.
"The jury is still out as to whether you systematically need chief digital officers," Catlin said. "Sometimes you need the CEO to be in charge, because the level of change that true digital transformation entails requires significant investments or significant cultural change. When you look back at those companies that have really been able to transform themselves across industries, you often find that it was driven by the presence of a CEO who was committed to the journey rather than a CDO."
For insurers, the transformational journey stands to be particularly lengthy, due to the depth of change required.
"I think it's going to take insurers a longer time to be truly digitally enabled," Zilberman said. "There is added cultural transformation that this industry needs to go through. It's so firmly rooted in tradition and traditional distribution. We came a long way going from direct mail to having mobile capabilities and customers expecting to be able to seamlessly pay their bills online, manage their claims online and manage their policies. So that was evolutionary. But once organizations, specifically insurance companies, really embrace and embed digital culture in their organizations, you're not just going to have one digital leader, rather an entire company and culture of digital enablement.
"I want to highlight the importance of having digital embedded throughout your organization," Zilberman continued. "Having a digital officer doesn't make you a digitally sophisticated company. You have to embed it in the functions, you have to embed it in your products, you have to embed it in your distribution. It's usually embedded much more easily in marketing, but you also have to think about embedding it in your board and in the governance structure. Until that happens--and we're at the beginning of a long journey--it's one person overseeing it. And that person may not have a role anymore once the whole company starts embracing it."
Catlin doesn't foresee this as a permanent position in the C-suite.
"I'll remind you, there used to be a chief electricity officer in big corporations in the U.S. There used to be a chief telephony officer in big corporations in the U.S.," Catlin said. "Years from now, we'll be laughing about the fact that you had chief digital officer. I expect it's going to be more of a transient role. Eventually, if you had to find a place where it would reside, it would most likely be more of a chief operating officer role."
In the short term, experts expect the trend of CDOs to continue.
"In the next two to three years, we'll see a lot of acceleration and then maybe a plateau," Agrawal predicted. "But the importance of the role will continue to grow in the next 10 to 15 years. In the foreseeable future, I don't see the CDO's role being diminished. Rather, I think it will be more and more important. It's not a fad that will disappear in the next two or three years, because of the kind of value that a CDO can add. It's like chief operating officer as a new breed that came in. It initially looked like it would be a fad, but then it stayed for a long time. In the same way, the CDO will be around for a while."
Five characteristics of successful digital leaders.
Limore Zilberman, a consultant at executive recruiting firm Russell Reynolds Associates, laid out five qualities that distinguish digital transformation leaders from other senior executives.
"They think outside the box," Zilberman said. "In insurance, they are someone who can respectfully challenge traditional approaches. The nuance for insurance is that this person needs to be someone who appreciates the traditional way products are sold and delivered, but also helps think out of the box and can come up with innovative and inquisitive solutions. They need to think abstractly to help insurance companies think beyond the traditional routes."
"Politely and respectfully, within the cultural norms, that means going against the grain," Zilberman said. "It is someone independent-minded who has a strong entrepreneurial spirit and is willing to take calculated risks. Within insurance, that requires respecting the cultural norms and industry norms of a very deeply rooted industry."
"It's someone who is going to take the initiative and test the limits and test the boundaries," Zilberman said. "It's also going to be someone who identifies what the limitations are. What sometimes companies fall victim to is having unrealistic expectations of digital outlets and channels and products, but not necessarily understanding the limitations and the confines. So it's exceptionally important for this digital leader to outline the limitations. This is someone who will be decisive and lead from the front."
"These digital executives are typically very socially confident and socially adept," Zilberman said. "They really do seek to understand people, and they're also adaptable to different audiences. This is a role that has multiple stakeholders--some of whom are more sophisticated in their understanding of digital and some of whom are less so. So this person needs to be adaptable to their different stakeholders."
"These are people that seek very high levels of activity," Zilberman said. "They're optimistic. They're achievement oriented."
Five areas of focus for forward-looking digital leaders.
Abhinav Agrawal, a principal with consulting firm A.T. Kearney, identified five emerging technologies that should be on the radar of chief digital officers.
"Robo-advisory and chatbots are really intuitive," Agrawal said. "They are becoming very prevalent. For example, MetLife has worked with WeChat in China. They have launched a chatbot to provide customer service."
2. Data Visualization
"This is about: How can you present data in a format that can be understood?" Agrawal said. "For example, if you sell insurance and want to get a glimpse of who you're selling to, you can have a map of the U.S. that shows where your penetration is more than the competition's and whether you're a laggard. You can see if you're number one or two, but then see where you're number five. It shows you where you're doing well and where you're not doing well. Then you can drill down to find out more about demographics or income level. That type of interaction with data is what we'll see in the future."
3. Predictive Analytics
"The insurance companies have long relied on data from multiple sources to predict consumer's future (be it illness or propensity to get into an accident) with limited success," Agrawal said. "However, two developments are making the dream of predicting consumer's future a reality. First, social media and GPS-enabled phones now provide oceans of relevant data that were not available even a decade ago. Second, cloud-based analytical tools that can go through an ocean of data in a short time to find unique insights."
4. Machine Learning
"One of the cool initiatives that one CDO has launched is partnering with car manufacturers and, based on the recall, they'll send out a message to all insureds that there's been a recall," Agrawal said. "It prevents consumers from getting into an accident while minimizing the insurance company's cash outlay to fix cars. So it's a win-win."
5. Artificial Intelligence
"Artificial intelligence is still in its infancy," Agrawal said. "Data visualization and predictive data analytics will set the stage for AI to completely eliminate the role of a human in terms of offering a product. If you look at health insurance, based on their social profile and their public profile, artificial intelligence can build a health-related profile of a person and issue life insurance. They can analyze hundreds of data points, including social profile. If they are posting a lot of drinking photos, maybe their premium will be higher. Right now the legality, morality and privacy of that is still in question. That will be a question mark for AI to succeed. But we'll come to a point in the next five years where AI can completely eliminate the need for a human to make a decision on insurance premium."
by Kate Smith, senior associate editor, Best's Review: firstname.lastname@example.org