Do You Run A Spaghetti Strategy?

A number of strategies have been employed successfully by a great number of insurers around the world — five strategies, to be precise. One, in particular, has failed miserably on every attempt. RedPort encourages the use of any of the first four. We highly recommend that you don’t even try the fifth; although, it may be the one that comes most naturally.

The four that have been employed successfully are these:

  1. The customer-centric strategy organizes around specific customer segments. It accommodates the wants or needs of a homogeneous group. One need might be ease–of–access, resulting in geographically defined segments that can be served by an office location. Another might be situational: USAA serves the needs of U.S. military members deployed abroad.
  2. The product-centric strategy aspires to be the best at a particular product, and then finds many channels through which to distribute that product to markets. Specialty-line insurers have built sustainable advantage by developing products for specific, often highly technical niches that require deep domain-specific knowledge.
  3. The channel-centric strategy model aspires to be the best at one particular distribution or delivery channel. By adhering to that strategic focus, successful channel-centric insurers create a strong, sustainable advantage by concentrating on understanding every aspect of a particular channel’s workings and optimizing their delivery through it.
  4. The capital-centric strategy is one of the most common in the insurance industry. If executed properly, this strategy enhances the effect of the prior strategies by focus on the business — while reducing the cost of capital. Its primary advantage is centralizing, deploying, and employing surplus capital — leaving captives to employ any of the first three models and keeping their hands off the individual operating companies, letting them do what they do well.

Despite the four previous winners, some insurers still attempt spaghetti strategies.

Organizations try to deliver multiple products through multiple distribution channels to multiple customer segments means. They find themselves with average results … at best. And they end up creating densely bureaucratic organizations that systematically lose competitiveness as more focused companies concentrate on one product, channel, or segment.

Bottom line? Make the right strategic choices — and align your products, channels and customer segments under it. You’ll create more value for all your stakeholders.

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