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Innovation vs the Business Unit: What is the Future of Innovation Initiatives?

By Liam Gray, Head of Research & Partner Management, Startupbootcamp

Liam Gray, Head of Research & Partner Management, Startupbootcamp

Without providing any additional explanation, the statement ‘Innovation vs the Business Unit’ will resonate with many people, but likely in very different ways. In this statement, I am specifically referring to the Innovation and Business Units within corporations that are involved in deciding future innovation initiatives. I’m sure that within some organizations these two areas of the business operate in perfect harmony, but more often than not, the relationship is more complicated. This is an issue that multiple industries are faced with, but I’m going to focus on insurance in particular as we explore this interesting dynamic.

Before digging into this topic any further, let’s lay out the roles and perceptions of these two entities.

Roles:

“The Innovation Team”

Role: They focus on enterprise and product innovation, normally working with established and emerging technologies to develop capabilities or transform business models. Within insurers these teams will often have the greatest understanding of the InsurTech landscape and are the main point of contact for startups as well as established vendors hoping to work with the firm.

"When it comes to innovating, having knowledge of common problems and strengths across business units is key in developing enterprise-wide solutions"

Positive perception: The forward-thinking individuals that will help a company maintain and increase its competitive advantage by driving innovation within the firm. They are continuously learning and acquiring tools and techniques to facilitate internal change.

Negative perception: ‘The chosen ones’ who focus on innovation at a conceptual level and have a limited understanding of the problems faced when doing business on the ground.

“The Business Unit”

Role: This unit focuses on a specific line of business or business operation within an organization, with the optimization of that area of the business being their main priority. In an insurance setting this would be an underwriting department (e.g. Marine, Motor or Cyber) or a business function (e.g. claims).

Positive perception: Today’s customer, revenue, cost or timing centric. The teams that drive a firm’s current success and are the reason existing customers value the company and brand.

Negative perception: Have a myopic view of the industry and place too much focus on ‘business as usual’, putting the firm at risk of being left behind.

Now that we clearly understand the differences between the two functions and how they are viewed, let’s dig into their respective importance (and limitations) when it comes to allowing corporations to innovate. In assessing these areas, I will use three lenses:

1. Resources
2. Understanding & Perspective
3. Influence

Up front, it is safe to say that both units are equally important in realizing a company’s innovation agenda, but the area we are going to focus on is why.

Resources

In drawing a comparison between the teams here, it is best to focus on two resources, in particular: money and time. In the process of innovating within an organization these factors are paramount.

Starting with time, this is a resource that is very scarce for most business units when it comes to innovating because ‘business as usual’ takes priority (and rightfully so). Some organizations, like Google, have put specific processes in place to make sure that employees spend 20 percent of their time on innovation to remedy this. However, even for Google this has been difficult, with ex-Googler Marissa Mayer claiming that in reality “It’s really 120 percent time”. Therefore, it’s fair to say that it’s very difficult for ‘regular employees’ to find time to dedicate to innovation. In contrast, an innovation unit is mandated to innovate and can focus their attention on doing exactly that. This trend is evident in the number of insurers that have developed innovation units.

However, when we look at the units from a monetary perspective the tables turn. Although innovation budgets have increased in recent years, they are often modest in comparison to those of the business unit. In many situations there is no capital allocation for innovation at all, which is highlighted by a KPMG study of insurers that found only 39 percent of respondents had a budget for innovation.

When it comes to resources, the benefit of time lies with the Innovation team, yet the budget normally sits with the business units. Therefore, from a resource perspective, often both areas of the business need to work together to meet the resource requirements for innovation.

Understanding & Perspective

Having an understanding of the business and the business’ problems are prerequisites to innovating. When we look at our two parties, the question we ask is, who has a better view of this?

For companies with a central innovation team, it could be argued that they have a more holistic view of the organization and therefore have a better understanding of the firm as a whole. When it comes to innovating, having knowledge of common problems and strengths across business units is key in developing enterprise-wide solutions. According to BCG, of the companies that were surveyed, more than 70 percent of the ‘strong’ innovators had a central innovation function, suggesting that having a central unit is beneficial.

However, it is important to note that innovation teams often get information regarding certain business problems second hand. By this, I mean that they have not gained their knowledge and expertise from working directly within a business unit. For this reason, they often need to ask the business units what their salient problems are, rather than having experience of the problem themselves. Although this is often sufficient, in some circumstances this can present issues. Firstly, problems can be lost in translation which can often be easily remedied. However, the more important issue is that the innovation units are only aware of the problems that the business units mention. Take a situation where business problems are shared with the innovation team via email or brief interviews, it is likely that a fair bit could be missed or misinterpreted.

For example, unless someone from an innovation unit has spent years underwriting it is unlikely that they will have a true understanding of the issues faced. If an underwriter were to say ‘it would be great to have more data to underwrite business’, on the face of it, it could be seen as a very useful insight. However, when you think about it you realize that we have no idea what type of data would be useful, which product or service offering it will impact, how it should be formatted or the best way of having it delivered to the underwriter.

The point here isn’t that it is sometimes difficult to articulate issues, but that you will never understand an issue better than when you experience it first-hand. This is however not to say that every business should work independently to innovate rather than via a central unit. Aggregation is in fact extremely important, but the process implemented to aggregate is pivotal. Finding the best ways to elicit the right information from business units throughout the organization is key to developing the best solutions.

Influence

Having the ability to influence colleagues to embrace new solutions and make them feel like they are actually a driver of innovation is extremely difficult. It will not come as a surprise to many of you that being forced to do something by the highest powers in an organization doesn’t always lead to optimal outcomes.

Bringing this back to our two parties in question, the influence that each of them have can vary considerably. It isn’t as black and white as saying that the business unit has all of the influence and the innovation team has none, but it is safe to say that nothing will happen without the business unit wanting it to. It’s not uncommon for an InsurTech startup to gain great momentum with the innovation personnel, for them to reach an underwriter that will stop them in their tracks. There are some exceptions however, for example when innovation teams are able to partner with vendors without having to engage someone from within the business (e.g. an underwriter). Due to this imbalance of influence, the state of the relationship between the two teams is important. In some cases, the innovation teams will have a strong relationship with the business units and things will happen seamlessly, but there are many situations where this is not the case.

A weak relationship can be a problem from two perspectives. Firstly, it can reduce external innovation i.e. innovation that comes from partnering with external companies. This will be because the innovation unit will act solely as gatekeepers. They will be the main point of contact to the outside world but will be unable to drive change internally when they do connect to interesting companies. Secondly, it can impede internal innovation because colleagues will be poorly connected to the primary conduit for innovation – the innovation unit.

In order to minimize the chances of this relationship failing, and the problems that stem from it, it’s important to avoid having a conveyor belt mentality to innovation - meaning a process where the innovation team thinks of new ideas which are then passed onto the business unit that implements them. This is very good at creating an ‘us’ and ‘them’ mentality, but less effective in fostering results. The innovation process needs to be a joint effort for it to lead to meaningful change within the organisation.

As initially said, both the innovation department and the business unit are important, and for different reasons. Innovation teams have time to focus on innovation, a holistic view of the company and potentially the ability to influence an entire organization. On the other hand, the business unit normally has a large budget, an in-depth understanding of specific business areas and are in a position to influence change directly. In an attempt to avoid all clichés about collaboration being the answer, I’ll just say that both teams are necessary, and we need to figure out how they can best work together.

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