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October 29, 2014 at 11:28 AM
Only the paranoid survive.
That oft-quoted phrase, invoked once more by Louis Gerstner at the closing general session of LIMRA’s annual meeting in New York City on October 28, may be as applicable to life insurers today as it has to been to high-tech companies operating in a cut-throat business environment. During Tuesday’s wide-ranging talk on his tenure as IBM’s former chairman and CEO, Gerstner warned that life insurers will likely face unprecedented opportunities and challenges in the coming years, each driven by tech advances that IT companies like IBM have enabled.
“There are two forces in world that will dominate the business community over next two decades: first, the rising middle class in emerging markets; and second, the emergence of e-marketplaces. The latter should be a particular focus for people in this [general session]” said Gerstner.
“The consumer will be doing almost everything through e-marketplaces in the future — payments, banking, investments — and maybe also life insurance purchases,” he added. “Standing between you and these e-marketplaces is only the regulatory environment.”
And the regulators, added Gerstner, are not a “sufficient shield” for life insurers and financial services professionals looking to protect their businesses from online providers. Among them: tech giants like Amazon, Apple and Google, as well as business upstarts.
Concomitant with the technology-driven upheaval lay opportunities for companies intent on taking market share from competitors. For CEOs across the financial services world, said Gerstner, such instability can be the best of times.
Facing the abyss
For IBM, it was the worst of times when Gerstner arrived at the IBM in 1993, an IT behemoth then on the verge of bankruptcy.
The company’s business units often were run as fiefs, their executives making decisions with a view to enhancing resources or the authority of their unit, rather than the well-being of the company. Reflecting this lack of cohesiveness, individuals received salary increases and bonuses based on their individual performance, not that of the company.
The problems extended to rigid businesses and procedures that slowed product innovation, discouraged communication among divisions that should have been collaborating more closely, and prevented the company from responding nimbly to an evolving market for PCs and other IT equipment and services.
IBM was also notorious for being customer-unfriendly, a problem then (as now) endemic to many IT companies. Witness the many hardware and software products that don’t integrate —or don’t connect at all —with third-party solutions.
For IBM, the source of the company’s troubles was its “success syndrome” — the belief that business processes and strategies that worked well previously will continue to fuel to a company’s growth. In a static market, that may hold true, but not in dynamic one like IT where the players, riding technology gains and shifts in marketing positioning, constantly threaten to surpass their competitors.
“Organizations tend to fall in love with their existing products and processes,” said Gerstner. “People get caught up in the status quo. When someone says, we may have to change, there is a real resistance.
“This is destructive,” he added. “Even when there is a recognition of a need to change, companies often fail to execute in aligning their operations with market demands. I see this a lot.”
A shake-up of IBM’s stultified corporate culture, said Gerstner, was needed if the company was to compete and restore itself to financial health.
“The key to changing an organization is recognizing what’s going on in the marketplace and articulating a sense of crisis and urgency,” said Gerstner. “If you don’t do this, corporate inertia will continue the existing pattern of behavior.”
