ROI is Dead
Bid Adieu to “ROI”
Episode — 1: A Precursor of things to come
Yes, you are reading it correct. Why invest in the first place ?
Are you an Insurance company that is looking to,
– Overhaul your existing operations with Digital ?
– Improve your bottom line ?
– Get budget approved for your Digital journey ?
You are in the correct place. Hold your attention, Traditional mindset entails one to think about ROI. Unlearning this mindset is the key for disruptions. In this week’s episode, we will help you unlearn about why the concept of “Return on Investment” will become irrelevant. It will be more apt to state that the This is the “Beginning of the End for ROI”.
Puzzled ? Looks disruptive ? Let’s look at past disruptions to appreciate how traditional approaches failed the test of time.
Ford Motor Company dominated the US market with their productions firmly rooted in Economic Batch Quantities as opposed to Market demand. Idea was to produce a car variant at the lowest possible cost before they could switch over to another variant. Re-configuring the Assembly line for a different variant was time-consuming. So, they wouldn’t switch until they produce batches that are economical.
The flip side of Economic batch quantities is inability to produce different variants quickly. This also increased the inventory holding cost for the produced variants due to lower market demand. But Ford dictated the terms as there was limited competition until a disruption came in the form of Toyota.
Toyota focused on addressing the root cause of this problem — to align production with demand. Intent is to produce different variants. Why should they even focus on EBQ in the first place ? They innovated to reduce the change over time in assembly line what popularly became “Single Minute Exchange of Dies (SMED)” or “One Touch Exchange of Dies”. This in combination with their lean principles completely shattered the approach of “Economic Batch Quantity” by demonstrating ability to produce different variants to meet market demand.
Wondering how does this relate to your Digital journey ?
Traditionally, Digital transformation requires huge CAPEX investments in the form of On — Prem servers, software licenses, redundant resources for high availability and maintenance costs. This will entail an ROI calculation for decisions related to such investments.
These CAPEX investments have significantly come down and some got eliminated since the inception of Cloud. Pay as you go model has been instrumental in cutting off the huge upfront investment and translate this to an OPEX model. This means you have achieved significant reduction and you only incur operating costs. Let us understand how cloud has been disruptive in a simple table.
The traditional On-Prem model is slowly getting phased out. Cloud (OPEX) model is already the big thing.
Why are insurance companies still Digitally lagging behind other industries ? Yes, this is a fact.
In our view, OPEX is still a cost and it is still a monthly investment for Insurance companies to go Digital, and insurance companies operate out of Razor thin margins.
This again needs a disruption compelling enough to make Digital happen for Insurance. The current models are not sustainable.
The disruption has already started to happen and its high time you take notice of it and move forward. But, are you wondering what the disruption is ?
Haven’t noticed yet ?
Remember — Your biggest worry for Digital transformation is the cost / investment (be it CAPEX or OPEX) and what is your ROI ?
What if there is no investment or no cost for Digital Transformation? That’s an ideal state to be in.
Yes, that is the disruption No cost for your Digital Transformation. No Investment. Only share your profits with the Technology services provider in the form of a small recurring commission. Cost of Digital Transformation is Zero / Negative.
Technology providers are starting to put their skin in the game to make Digital happen for Insurance industry. This is the new normal. Sooner you notice and engage, sooner you stay ahead of competition.
Yes, Not thinking of ROI anymore ? You have successfully unlearned and drifted away from the traditional mindset.
ROI is no more in our Digital future. No more Digital Investments.
Thought still sinking in ? Let’s be practical.
We know you are already curious to look for facts.
Want to see a few examples in Insurance where there is Zero Digital Investment & transformation is mature ?
Stay tuned for next week’s episode. We will present you with the Case Studies of first movers. (Your industry peers)
The next episode will be out in two weeks. Stay tuned!
