Operating Digitally

By Dr. Anu Karna

The beauty of a famous idea is that everyone has heard about it. The downside is that everyone interprets the idea in a manner unique to his or her own situation, often leading to misinformation, rumors, even myths. As we study the last few years of technology adoption, it's evident the world is going digital. Digital has become "famous." Digital technology is significantly and single-handedly transforming a broad range of industries. And so, as with all famous things, the myths begin: What is digital? What does it mean to go digital? Who should be going digital? And so on.

Let's start with the foundation of our conversation today: What is digital transformation? In methodological speak, it's the restructuring of an organization's operating model using web, mobile, social media, and big data technology to trigger a seismic shift in corporate performance. In simple terms, it's going from "inside out" to "outside in." With the exception of a handful of super-enterprises, companies are focused on "What can I offer to the customer?" and "What can I deliver to the customer?" We refer to this as thinking inside out. On the other hand, companies with an outside-in orientation ask questions such as:

  • "What do customers consciously — and subconsciously — want?"
  • "How can I create new ideas and products that affirm, and possibly expand, my control over the value chain?"
  • "How do I redefine my business processes with an operating model that contributes positively to the aforementioned questions?"

Customer Experience and Then Some…

The outside-in perspective on the design of a company's operating model is all the more critical today because technological advances have created the digital customer — one who is empowered by technology, distracted by technology, and social through technology (as shown in Figure 1).

Figure 1
The Digital Customer

Despite the evolution of the digital customer, it's important for organizations not to view digital purely from a customer experience perspective. After all, digital capability has broader implications for the organization than simply from an external capability perspective. A more holistic view of digital encompasses both external expansion that is customer-centric and internal optimization that drives improved efficiency within the organization. Linking the two is important for a seamless, efficient operating model. (Figure 2 details these two parallel elements.)

Figure 2
The Four Quadrants of Digital

As described here, the bidirectional capability of a digitally enhanced operating model enables ongoing collaboration between a corporation and its customers — effectively building a trusted advisor relationship that aligns expectations with output for efficient value accretion. The result of such an arrangement is the ability to collaborate and cocreate products that are valuable for the customer and viable for the corporation.

Often, digital transformation is confused with the development of mobile applications, expansion of e-commerce and self-service capabilities, or the establishment of online dashboards. In reality, a digital transformation is not any of these individually or even collectively. As the illustration shows, digital can be far more widespread (subject to the needs and requirements of the business, of course). In fact, a closer look at the evolution reveals we're entering a period of "hyper-digitization" (see Figure 3), fueled in large part by advances in computing power, data storage, and analytics.

Executing Digital

A common view about digital transformation is that it should be and is best driven by IT. That perception is fueled by the heavy technological presence needed to establish a digital platform and its further extension into the four quadrants mentioned in Figure 2. The introduction of digital should be treated as a corporate priority with a top-down mandate broad enough to span the various parts of the business, particularly the marketing and IT functions. The minimum-pairing requirement between marketing and IT will help ensure that a comprehensive view of the organization's needs is delivered within the appropriate constraints of the technology environment. Oversight and direction from the broader organization will effectively enforce the balance between supply and demand.

The speed of digital adoption varies across industries. Companies in the insurance industry in particular, with the exception of a select few, have been moving forward in the mobile space but for the most part have stood on the sidelines as the digital phenomenon permeates the retail sector, banking, and many others. (See Figure 4.) For traditional companies that have $1 billion or more in revenues, organizational legacies can hold back technological innovation. That is unlikely to persist, however, since the insurance industry stands to gain significantly from the advances in big data as systemic capabilities emerge that enable the collection and mining of large, disparate, and often unstructured data elements. The insights gained from those various data elements can inform risk models, pricing, underwriting, and the like — all core elements of the insurance value chain.

Figure 3
Evolution of Digital

The digital phenomenon has grown increasingly pervasive in recent years. An important consideration to note is the distinction between hype and value. While a holistic view of digital is important, the customization of its design and the sequencing of its impact across the organization are key to avoid investing in technology without first properly determining its value — both internally and for customers. It's even more important to coordinate efforts across the different functions of the organization. Doing so ensures proper investment of capital and facilitates interweaving the various investments in digital across the enterprise in a manner that enables effective evolution of the operating model.

*Digital transformation of business models affects both public and private sector organizations.
Source: IBM Institute for Business Value

Figure 4
Digital Maturity by Industry

The diagram illustrates the average digital maturity for all industries with 20 or more companies represented in the survey.

Source: © 2011 MIT Center for Digital Business and Capgemini Consulting

In terms of implementation, digital requires thoughtful introduction to the customer base. Inertial elements can naturally slow adoption with business-as-usual perspectives that hinder the rapid expansion of digital within the customer base and internally as well. To manage those constraints, companies should adopt and institute a gradual but focused program, concentrating initially on the interactions most intuitively handled through a digital interface. Such early interactions are best exploited in a service model, such as e-service, which typically requires customers to engage and provide a large set of interaction types to help identify those easiest to migrate to digital. Payment of bills is one the most common interaction types for this purpose.


In a digitally transformed company, communication with the customer is continual and bidirectional, capturing customers' sentiments and driven with self-service and cocreation at the core. Supported by an efficient operating model, digitally enhanced technology effectively drives value creation for the business. This is the future of the corporate operating model, and organizations that embrace, implement, and refine such thinking will be the likely standouts of the capital markets in the years ahead. The early leaders are evident — Google, Apple, Amazon. But it will be interesting to observe who in the insurance industry will join their enviable ranks.

Anu Karna, Ph.D., is vice president of strategy at Verisk Insurance Solutions – Underwriting.