An effective investment strategy for digital – FDE Q4 breakfast briefing with FD Mark Hesketh

15 December 2015

Success in digital transformation means different things to different companies but many have been disappointed by the lack of return on their investments. At the FDE Q4 breakfast briefing, produced in collaboration with Genpact, there were many questions for guest FD speaker Mark Hesketh about the experience of Standard Life and the lessons learned from its successes in the digital space.

The headline figure that grabbed everyone's attention was the estimate from the Genpact Research Institute that current digital investments worldwide cost around $593 billion annually, but a staggering $394 billion of that fails to deliver adequate returns. With that in mind, it is no surprise that attendees were eager to hear from keynote speaker Mark Hesketh, finance director UK and Europe at Standard Life, who continues to steer his company through a digital transformation process that is reaping great rewards.

For instance, the company has received many accolades for its response to Solvency II - a topic hotly discussed by attendees - which has seen it dramatically increase the speed at which its data is communicated to the regulators. It has also transformed its online presence and its website has become one of its most potent points of contact for new business as well as existing customers.

Though Hesketh admits he is not personally an early adopter of technology - he confessed to having made his first purchase using a contactless card earlier that morning - he is at the sharp end of deciding where to invest his company's digital dollars, and he explained that his rationale for making the right decisions involves keeping the vision of what technology can achieve rooted in an understanding of the needs of the business.

At the start of his address, he cited the CARES acronym - customers and colleagues, advisers, regulators, employees and shareholders - as a guide to how to assess the potential benefits of any new technology.

"Everything we do must match one of these things. Otherwise, why do it? Our goal is to increase assets, increase revenues, lower unit costs and increase cash profit. We want to optimise our balance sheet without too much risk. Recently, there has been more regulatory change and we have changed the way our business is run. We need to be a retailer and not a manufacturer, to be customer and client-centric and not product-centric," he remarked.

The lean approach to digital transformation

It is this rationale that has defined how Standard Life invests in digital initiatives, which he believes connect all parts of the business with each other and, crucially, with customers. Whereas once the development of a new product or service would involve a manufacturing approach in which the IT department would work up an idea over a long period before delivering it complete to the customer, the development cycle is now much more open, flexible and responsive, and the customer is now very involved in that chain of development.

"In the finance function, the fiefdoms are gone so we can see clearly across the entire organisation. We can get departments to justify their spend in terms of benefit to the business. It is about investing cleverly in digital," Hesketh explained.

He described the development of Standard Life's consumer website in preparation for the new pension freedoms, noting that 75,000 customers engaged with the online "play" journey between April and September 2015, using the online modelling tools to explore their options, with almost 90% saying they would recommend it to a friend.

In the age of auto-enrolment, when everyone needs a pension, customer experience is a key determinant and Standard Life made it possible for an employer to set up a pension scheme for an employee in as little as six minutes, at a time when some competitors were still taking three months for the same process.

"We used gamification on the website, which basically means using simple tools, to help people plan their lives. The tools are very easy to use - in fact 'can Hesketh use it?' is one of our tests - and now we have 500,000 people using our online retirement planner. Four years ago, that figure was only 35,000," Hesketh noted.

To clarify Standard Life's approach to digital innovation, he laid out the minimal viable proposition (MVP) principle. This enables quicker development of a new product through cooperation between IT, marketing and finance teams. It involves getting an idea ready for customers to experience it, respond to it and provide the feedback that will determine how it is refined to meet their needs.

"It is about not trying to be perfect straight away. The aim is to increase the proportion of rightness as we go along. For our website, for instance, it is not about increasing traffic, it is about increasing conversion, so we work with our IT partners to make changes and look at the immediate impact they have on conversion rates. It is a journey and we are not there yet. But we invest in what [benefits] the business. You cannot invest in vague outcomes," he explained.

In his opening remarks, Genpact's UK and Ireland insurance practice lead Phil Tyson presaged the theme of needing a clear focus on what the return on a digital investment will be for the business.

"Our recent research found that many executives have yet to achieve payback from digital investments. We have identified some of the reasons why initiatives are not biting and delivering the benefits one expects. The first is a lack of alignment to business outcomes and between business units, and then the failure to agree a realistic business case. Organisations often don't carry digital innovation through to the back office - they collect a lot of data from customers, but is it carried through to operations? Lastly, how do legacy systems meet up with the new digital data engine on the front end?" he asked.

Genpact's 'Lean Digital' approach reimagines clients' middle and back offices to achieve technology's full potential and generate growth, cost-efficiency and business agility. By combining design-thinking methods with digital technologies and 'Lean' principles, organisations can create intelligent operations that sense, act and learn at scale.

Customer-led change

All attendees at the Breakfast Briefing were grappling with the issue of how to get more out of digital in the year ahead, which the speakers believe will be a time of continued change in the insurance and banking space.

"In banking, the disrupters in the market will have an even bigger impact in 2016. Google, Apple, Microsoft and Facebook all have banking licences in various European countries, so it is only a matter of time before they have an impact. One big prediction is that blockchain technology will emerge from the shadows and will be seen as truly revolutionary," remarked Tyson.

Blockchain is widely seen as the major technological innovation of digital cryptocurrency Bitcoin, and acts as proof of all transactions on a network. A block represents the current part of a blockchain and records some or all recent transactions. Once completed it enters the blockchain as a permanent database. In the insurance market, there has been much discussion about using blockchain technology to improve data access and reduce the cost associated with administrative paperwork.

For Hesketh, however, blockchain is not yet on the radar. If it comes up for consideration, he will no doubt approach it using the process he outlined in his address, which involves not being led by the promise of what the technology can do, but by what benefits it can bring to advisers, regulators, employees, shareholders and, above all, customers. He believes that customers will define the path of a company's digital journey.