Customer-Led Growth Strategies For Insurers

In this episode of our Reinventing Insurance podcast, Oliver Wyman Partner and Global Head of Insurance, Asset Management, Actuarial, Mick Moloney and Oliver Wyman Partner and Leader of CustomerFirst, Americas, Rick Chavez, continue their conversation on taking a customer-led approach to industry reinvention and the path forward for insurers.

Rick shares insights from his collaborations with Geoffrey Moore on the four-zone organizational playbook and from his experience working at Microsoft, where he advised senior executives on growth initiatives at the intersection of cloud computing, analytics, and business model innovation.

Mick and Rick share growth opportunities for insurers, covering the macro-economic outlook, industry success stories, strategies for deepening customer relationships, and the path forward to accelerate growth.

With more than 25 years of experience in digital transformation, Rick has led digital revolution and growth initiatives for companies such as Adobe, Microsoft, American Express, D&B, Fox Home Entertainment, Kinko’s (now part of FedEx), University of Michigan, Yahoo!, and Walmart. His Customer, Innovation and Growth team brings together world-class business strategists, advisors, technologists, designers, data specialists, and software wizards to make digital transformation sustainable throughout the organization.

In this episode, Mick and Rick explore:

• Mega trends, customer-led strategies, and business reinvention for growth
• Microsoft’s transformation into a multi-trillion-dollar leader in the tech sector
• Applying the four-zone methodology to ‘fund the future ,’ transform, and scale new growth
• Building supply chain resilience and integrating risk management, using examples from Marsh McLennan’s Sentrisk offering
• Driving innovation through customer-led transformation and elevating the next generation of capabilities
• Preparing the workforce for generative AI readiness and developing future talent
• Key themes and insurance opportunities from our publication “Growth, Relevance, Resilience For Insurers”

This episode is part of our Reinventing Insurance series, a series that explores best practices for taking a CustomerFirst approach to innovation within Insurance. Throughout this series, host Paul Ricard discusses lessons, challenges, and new ways of working with guests who will share their first-hand experiences.

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Paul Ricard: Hello, everyone and welcome to Reinventing Insurance. For this episode, I welcome Oliver Wyman's Global Head of Insurance, Asset Management and Actuarial, Mick Moloney, and special guest, Rick Chavez, partner and leader of our Oliver Wyman CustomerFirst platform.

This is a continuation of Mick and Rick's discussion on building modern businesses that thrive. Prior to Oliver Wyman, Rick spent a lot of his career across many parts of the big tech world, including Microsoft. In this episode, Rick takes us through Microsoft's transformation journey that unfolded over the last couple of decades. Enjoy the conversation.

Mick Moloney: Welcome back to our Reinventing Insurance podcast series. I'm Mick Moloney and I'm delighted to be joined here again today by my friend and colleague, Rick Chavez. Rick and I will be continuing our prior discussion on taking a CustomerFirst approach to industry reinvention, and our conversation about how we see that as a path forward for much of the insurance and asset management industry. Rick, welcome back.

Rick Chavez: Great to be here with you again, Mick.

Mick: Okay, so let's transition to the portfolio-level questions. And maybe let me draw parallels here. And this parallel is a little bit of a stretch, but we'll kind of run with it.

So, as I said, we have, and I'm going to pick on the Life insurance sub-sector just for the purposes of argument, but we have the Life insurance sub-sector, where on average, I'd say, US public life insurers are trading at, if they're lucky, an eight times forward the price multiple. The S&P index is trading north at 20 and you have tech companies in there trading significantly north of that. And one of the tech companies that you mentioned in your introduction obviously is Microsoft.

And Microsoft is fascinating, I know, to many, and as you and I know, many in the Life insurance sector, in that they look at it and go, “Gosh, if I was trying to re-rate myself as a life insurer none are stretching as far as north of 30, but wouldn't it be fantastic if I could get myself re-rated to being 20 times? And then, obviously, I need to find a growth story sitting behind that. And if I want that growth story to be around unmet needs and so forth."

Rick: Sure.

Mick: But as you and I have talked about, if you take it up to the macro-level and look at Microsoft as an example.

Rick: Yeah, that's a great example.

Mick: How behavior was happening internally, and you touched on in passing there, thinking about managing various existing businesses in different ways going forward, some of which involves tough decision-making about things that are no longer going to be strategic and are going to fund other things. I mean, could you hit those points?

Rick: Right, and it's a really important point. One of the most amazing things in watching wellbeing inside the machinery of Microsoft was when Satya Nadella became CEO, the Microsoft that was there in, say, 2011-2012 was a Microsoft that had been driven by this vision of a computer in every home and office. And it was very siloed, divisionally.

Those silos were very powerful and strong, so they'd gotten resilient inside the silo, but Satya saw a different future. And so, he declared to an investor conference, "We're a Microsoft that's about helping people and companies do more to be more. Cloud, mobile, and AI."

And it’s an incredibly bold and brave statement, but also, it was heavily informed by observing mega trends. One of the executives that I work closely with in the division used to say, "When you see the trends, when you see the mega trends, go with them."

And so, declaring the cloud, mobile and AI was in fact motivated by deep understanding of the trends at work and the world, but it was still very brave. And because it was so different from Microsoft, and frankly, Microsoft at that time had not done too well in things like mobile and was very small in cloud.

So, taking the story back to the point you raised and saying, "I'm moving out of the old category of desktop and server, and I'm moving into this new category.” And what's really interesting about what he did there is Microsoft's very competitive. And many of us have very competitive cultures, but he was able to ignite the competitive spirit of the place to win. And he was able to get in the minds of people who were feeling this lack of relevance.

And when people talked about the four leaders of the tech sector, Microsoft was originally not one of those four. It was Apple, Amazon, Google, and Facebook, or now Meta. And so being in the consideration set, being relevant was incredibly inspirational.

And so, I think connecting the outside story to the inside case for change, and then, as you said, making very tough decisions about what would be part of the future or not. So, desktop Microsoft Office, not a lot of signals of intent from users, but it's a very profitable thing.

So, it was a reinvention, it was also an acceleration of things. It was picking out of the portfolio things like Microsoft Azure, and really pushing them, and pushing them intensively, not pushing 20 things, but pushing one or two things in a very intentional and significant way.

Mick: And I have a couple of questions coming out of that, the kind of brave declaration of a new future to the market, but I think that's also followed up by proof points that aren't dependent on getting to nirvana. It's like, "look, we're showing you that we're moving in the right direction."

Rick: Right. Well, you know this, we recently plotted the earnings trajectory of Microsoft over a period of time, from like 2011, 2010 to now, and what you see is, for a period of time, some of the decisions made — the changing of the leadership team, the announcement of changes, some proof points started to show up, like the launching of the modern Microsoft Office on iPad.

While that may not have seemed that big now, it was huge at the time, because it was launched by Satya, on stage, on an iPad, not on a Windows machine. So those kinds of things were proof that the company was in fact moving in a new direction.

Very visible signs of living into that narrative. I would say also exiting things. So, buying Nokia, and then, in a fairly short period of time, I don't know how many months it was after Satya was CEO, but then shutting that down was painful, and it was a painful and significant write-off. So, if you look at the earnings trajectory, it actually took all of these to generate new growth.

This is why I said grit and determination. It took a bunch of these moves in a sequence, and it was no one in particular. It was the changing of the culture, changing of the product focus, and the changing of the business structure. This took off around 2017 or 2018, when a lot of those factors came together, and you could just see the company starting to basically outstrip the competition and become, I don't want to say a category of one, but it's pretty remarkable. The multi-trillion-dollar valuation that the company now has.

Mick: I think these things always look obvious in hindsight, don't they? You know what I mean? But I worry a little bit. The reason I'm saying this is I worry a little bit that the Life sector doesn't have enough ambition for transforming itself, given the scale of the opportunity that's out there. You know what I mean?

Rick: Right.

Mick: And Microsoft I think is fascinating to people, because there was a point where it could have gone the other direction and become obsolete. But this was a path to an uncertain future that involved big bets, that involved managing things differently internally, that was led from the top- down.

Rick: It was led from the top-down, that's right. It was led from the top-down, but I would say also the leadership team was dramatically changed. And so, he fashioned a leadership team that was very tightly connected, and if you hear some of the presentations he's given and the book he's written, he will talk about the importance of understanding people and their stories. And beginning to build a really tightly knit executive team. And then that cascaded down through the company.

But yes, it had to be top-down. It had to be. And then, there were incentives and structures put in place to stimulate people to move in that direction, like being rated and reviewed on the basis of, "Did I provide something as a service to help some other part of the company go further faster? And did I borrow something in my own business to do the same?”

That's a dramatic shift, right, because what does that do? It doesn't say, "Oh, it's optional to work across silos. "It says, "Oh, no, you must do it."

For innovation, it takes a visionary leader willing to commit to a future that is a little murky. It’s informed by trends that are observable. I think of the old adage, ‘The future's already here, it's just not evenly distributed.’ So, leaders need to be brave, put in the mechanisms to test their way to right, and build the flywheel momentum systematically.”

Don't expect it's going to happen overnight. Cut yourself a break, but also challenge yourself at the same time that it's going to be a journey where people, and humans, and processes, and all these things together have to evolve, right?

Mick: Yeah, the other thing I wanted to discuss is the four zone management framework you developed with management consultant Geoffrey Moore, who is the author of ‘Crossing the Chasm’.

Rick: Yes. right.

Mick: Do you want to double-click on that? Because it's something we see used very powerfully, but only in some situations.

Rick: Yeah, I think it will actually have more and more traction, I'm hoping, because I think it is actually quite helpful. The four-zone model basically says that getting to a future is not two-handed but a four-handed initiative. You have to, of course, honor the commitments to your investors and to your customers, because you're an existing business with customers, and investors, and shareholders.

And so, to do that exceptionally well and try to innovate or improve what we call a business-as-usual (BAU) plus. Obviously, lean into things and have a continuous improvement mindset. Manage that as your existing business — we call that the Performance zone.

Mick: Which is really about optimizing the top-line of performance.

Rick: Yes, optimizing the top-line of performance. Well, top and bottom, in a way, but yes of the existing business. That's embracing who we are, in a way. And there's a bunch of marketing, and sales, and things you can start to do to move in a solution-oriented direction.

Then, there's the next quadrant below, the Productivity zone. And this is extremely tough, because it means ‘I'm going to let go, I'm going to manage it.’ In tech, we'd say graceful obsolescence or to deprecate a system.

I'm going to manage that into a graceful, if you will, exit. And I'm going to extract resources as I go, because I don't have the luxury of going to private investors like a startup might, and getting growth capital, and only worrying about growth. I've got to worry about funding my future.

Mick: This is how I can ‘fund my future.’

Rick: Yes, this is how I can ‘fund my future,’ and that quadrant and the people who lead that and manage that are exceptionally important people. They tend to march to a different drum, they tend to march to a different drum beat. They tend to be thinking about efficiency and effectiveness in ways that many of us aren't. And they need to be honored for what it is they do on behalf of the enterprise, so there's a bunch of really important assertions about how to make that happen.

And it's doing that well. And then, going into the Incubation zone, which is distinct from the Transformation zone, because growth isn't just about shots on goal or innovation activities.
And often, what you'll see with a lot of incumbents is that there'll be initiative that end too soon.

And making those initiatives accountable, applying the venture capital type of model, creating something we like to call an ‘incubation’ business unit, which creates the governance structure, that is attached to the mothership, but allows for decoupling. This allows companies to move a little faster, to move interdisciplinary, and in sprints.

That motion, and the way of work, and the dependencies that you have to take on. For example, if you've been in a product silo or a functional business unit, just things like being dependent is not a natural act.

The leaders who manage it, and the metrics about rapid cycle time of learning, which are very different from revenue and profit. And then, there's this race to materiality, which is what we call the Transformation zone, which is for example, six to eight quarters, 10% of revenue, etc.

You and I have been in these sessions, where executives say, "Well, that makes no sense." And then, others will say, "Well, why does it make no sense?" And the point is not that it is exactly right. It's that it sparks that conversation, and it very naturally does two things. It says, "Only put something into that zone and make it accountable if it's ready. Because if it's not ready, that's going to be a real problem. But if it's ready, then also don't try to do too much, do one and then do two."

In that zone, don't have initiatives that compete. And that's another problem, right, is you have these mid-sized businesses that are going to compete for resources, and then they kind of cancel each other out. So, the business moves forward, "Okay, let's take turns division by division until we are an executive team, confident and committed that we've cleared the way and we've made it possible for that race to succeed."

So those four quadrants take some pressure off, because it says, "All these things can exist in a business. They help each other out." You just have to manage the portfolio and make those things accountable for where they live in the cycle time of growth, right?

Mick: Yeah, I find it a very helpful framework. And the one that comes to my mind as you're talking about it is the piece that I see in a lot of places, currently. Life insurers are looking at their private credit capabilities and saying, “Can I scale them into a large external asset management business?" And in some cases, "Can I turn it into something that is 10%, 15%, 20% of my earnings?" But it's never over six quarters, at least that I've come across.

And very often, I'm doing four other things in a more business-as-usual (BAU) business. And the application of the framework gives a lot of clarity to where each business is headed.

Rick: That's right. I mean, we're doing more of this work as you know, and it's connecting that point you made earlier about your investor narrative or the equity story, and then being able to systematically live into it, and understanding that you're going to have to ‘fund your future.’ Yeah, but if you manage according to these zones, then you're able to say, "Okay, I'm going to allocate capital and resourcing. And I'm going to make that accountable with these new metrics. And then, I'm going to be able to connect it to external accountability, because the outside is going to be looking for this, too."

And so, that is often missing and what we don't see. And it's not just applicable to insurers, but we don't see companies thinking enough about, "Wait a minute, the shareholder is going to be looking at what I'm doing, to ensure we are moving the company into this new narrative."

Mick: Yeah, I agree. Well, there's one more piece I want to hit on, Rick. As the two of us can go on about this stuff for days together.

Rick: Yeah, no, exactly.

Mick: I want to explore this incubation business unit, the Incubation zone. Because in a way, it's both the most critical part, and also the hardest part to do in some cases. And my strong view is that if you can do it and do it right — the fact that it's so hard to do is actually an advantage that you achieve.

Rick: It's differentiating.

Mick: Do you want to talk about it, but also use the case of where we've set up an incubation business unit as we call that zone, and just double-click on your view of what it takes to succeed and where most people fall?

Rick: Well, and there's a couple of cases where we've worked on this with clients, as you know, and set it up to be about de-risking the third horizon, making the growth bets. And we found some really important applications of the same thinking to reinventing the company for growth.

Mick: Which is not only a business, then, but can be a capability.

Rick: It can be a capability, right. And we're seeing this in the context of back to your point about the Microsoft excitement and enthusiasm, it's like, "Well, can we get that big tech kind of magic, and do it here in this analog business, or non-digital business?" And lots of stories around this. Goldman Sachs has been doing this, other players have been doing this, and it's really about this sort of transition to a client-based business kind of architecture platform. And in both cases, that is an unnatural act, in terms of governance, for the organization,

And so, setting up the organization to say it's going to be accountable to the Board, the Board is going to be chosen from executives inside the organization. Some will actually have more decision rights than others, depending on what's in the Incubation zone. So, you have to have this model of governance that is bespoke for the company but is needed. And then, this notion of, "We're going to install the venture capital model or the tech model in interdisciplinary pods every 90 days, call to play."

And so, in the venture capital world, I knew in every 90 days I was going to have a Board meeting, and every six weeks I was going to have a Board call, and those were always scheduled, and they were never missed. And so that creates this sense of resource constraints, time is your enemy, and it changes the cadence, the way of thinking inside of that organization, which is what you want.

You want it to be accountable to cycle time of learning, to upping the cycle time of learning, and then evolving that learning in a staged way — from small bets to big — and earning the right to be the next 90 days, and then the next 90 days. So that problem, we talked about ending things too soon or holding on to them too long, that problem goes away in the setup of the incubation business unit, because you just can't do that.

Mick: How many things do you have in there?

Rick: Well, I think that is all dependent on the enterprise. So, the way I think about it is, let's just say you make 10 bets, just for simplicity, I think most of our insurers and our incoming clients should probably be making six or seven of those probably about reinvention.

Mick: What would constitute a bet?

Rick: Well, a bet could be “I want to figure out how to automate call center with technology and chatbot, because everybody seems to like that, and Telcos are doing it, so maybe I could do this.” Take enormous cost out of the system and create a lot of customer affection for this.

I’m just giving an illustrative example. There were a set of assumptions I made that need to be tested. But if that's true, that could be a massive profit impact. That's a reinvention example. You're still going to do customer care. It's just going to look very, very different, right? Another one could be our Marsh McLennan Sentrisk example, which is I'm going to do something entirely new. It's about supply chain resilience.

Mick: Yeah, there is an energy for progress.

Rick: There's energy for progress there. The first thing is to go frame it, make it clear, then come back. And so, then systematically earn your right to grow that. That's an example of a growth, more of a growth bet, I guess I would call that.

That's a bet on accelerating the growth of an existing business, in the case of Marsh. And the reason I say that is I think reinvention often doesn't get enough attention, especially now in a world that's all excited about AI, and I am, too.

But first, we need to unpack and investigate that very carefully, because I think there's a lot of things that are machine learning and algorithm applications to big data sets that aren't generative AI.
But let's understand those, like really do some serious testing and learning our way around these things. Because if we're right, that could dramatically shift the capital allocation from heavy process and people — to technology and robots and then amplify the ability of people to go do other things and allow them to kind of move into other kinds of interesting work.

So, there's a big equation of the business test that I think needs to happen, and I think it should consume a fair amount. And I think probably, more the majority, maybe, even if they're 10, it's probably 6 or 7 of the bets, right?

Mick: Yeah, but your point then is that I have 6, 8, 10 of these things. They're a balance between new revenue and reinvention, and they're governed by a mechanism that looks like that venture capital play.

Rick: Exactly, exactly.

Mick: And that then also determines if and when one of them is ready to move into the Transformation zone.

Rick: That's right, right.

Mick: And in terms of surrounding that incubation business unit or Innovation zone, I also need to think about the human capital piece of that, in terms of who's going to go in, how are they going to transition from their job.

Rick: That's right.

Mick: What's the incentive structure?

Rick: Yeah, the incentive structure has to shift, I think. And I mean, it's more of thinking about a fund, not a budget, and that fund gets re-upped, depending on how successful that unit has become. Incentives are aligned to the re-upping. People have to actually be in there, not just as a fly-by. So, the commitment needs to be at least two years, if not longer.

So, you're not just rotating people in and out very quickly. There's also some other radiating benefits, like in terms of you can't cycle people in from the organization and cycle them back out. There can be that kind of learning.

There can also be attraction of new talent into the organization. It's a way of focusing on the rescaling challenges that companies face. And it can be a really great way of onboarding venture capital, startup type, innovative stuff that's happening in the world. Because what happens in these startups, because I've been on both sides of it, is you get into a large company and you just get squashed, because you just don't have what it takes to be successful inside of a large company.

So this kind of thing can actually be a great way of saying, "I'm going to place this bet with X, Y, Z for an AI startup company out here, and they're going to be embedded with my people, my people embedded with them, and we're going to really tune it into our business, so that it can actually be successful."

And it's a great thing for them too, because what they get to do is go back to their investors and say, "Hey, look, this large Life insurer has just adopted this, and is scaling it to many thousands of people, right?"

That's an amazing story to tell investors, they will love that. So, there's a real positive benefit, both for the startup and for the adoption that might otherwise not see the light of day.

Mick: Well, look, I might zoom out again, Rick, in terms of closing us out on this discussion. We started with, we're serving an industry, particularly in insurance and asset management, where the good news is there are lots of examples of spaces that the industry could do more in, in terms of consumers.

Whether it's an individual consumer or corporate consumer, whether it's on the financial wellness space in the Life insurance sector or the kind of emerging risk space in Property and Casualty (P&C), there are massive opportunities in terms of application of data and analytics. And yet, there seems to be somewhat of a struggle for how to unlock that.

And what we described is an approach to potentially craft an investor narrative, but one that is stretching you in a way where you're comfortable with for uncovering where the energy for progress was, a methodology then if you apply it for making sure that management attention units are being spent in the right way internally.

And a way of then managing a set of innovations around capabilities, and new areas that, done right, can align the organization and drive progress, so that you're not left with having committed one thing to the external market and then find yourself unable to deliver.

And the final comment I'll make is we see executives doing this, and the insurance industry, in a way, needs to reach outside the industry for best practices, because the question we often get is, "Which of my peers is doing this very well?" And the reality is it's a little bit hard to find, right?

It's much easier to look at the Microsoft case study or others and say, "Look, you need to look over there rather than within the confines of the insurance industry."

Rick: Well, and I think that customers have been taught by some of those companies, whether it's Microsoft or Apple, to expect certain kinds of convenience, and friction-free engagement, and fun. There are two things that I will add to what you said, Mick, two messages I like to give on this.

One, if you flip the script a bit, and think about this as a demand-side problem, I'll go to mobility, because it's a bit outside of it, and you think there's a mobility marketplace that’s taking shape very, very rapidly, and using driverless cars, electric vehicles, scooters, and bikes, and then it's also the charging stations for all of that.

And if you looked at mobility broadly, you would see a huge growth opportunity. But still, that way of framing it makes a massive market opportunity much more apparent. If you stick in the auto category, though, that might not look so good. You might be under assault, so I think this point you made about flipping the…

Mick: The definition of the space.

Rick: Definition of the space really matters. And if you frame it that way, it could be outsized growth potential.

And then, I think the other piece that’s important is about management discipline. It can be learned, it can be practiced, it is knowable, right? And so, it's really important, because the point you made of, "Well, we're also people doing this, and a lot of it is tech.” The point of this is a new way of managing in a very complex world. And it can be learned, it can be adopted.

Mick: It can be the path forward.

Rick: It can be the path forward, yeah.

Mick: Yeah, well, Rick, a pleasure as always. Thank you, thank you very much.

Rick: Yeah, a lot of fun.

Mick: Look forward to continuing the conversation.

Rick: Me too, Mick. Thank you.

This transcript has been edited for clarity.

Featured in this episode

Oliver Wyman Partner and Global Head of Insurance, Asset Management, Actuarial, Mick Moloney, leads our team of more than 700 colleagues globally. The team is dedicated to providing advice to life, property and casualty (P&C), and health insurers, asset managers, and private capital sponsors across strategy, operations, technology, finance, risk, and actuarial disciplines.

Mick spends his time working with leading insurers, asset managers, and advisory firms on a range of strategic and execution topics with a particular focus on growth, innovation, and efficiency in retail and institutional markets. He’s passionate about growth and reinvention in the industries he serves, with a strongly held belief that while each is facing disruption and dislocation, there are massive unmet needs which provide the prospect of a bright and vibrant future. Subscribe to Mick's Reinventing Insurance newsletter on LinkedIn. Mick shares reflections, market views, and insurance and private equity insights for industry reinvention. 

Oliver Wyman Partner and Leader of CustomerFirst Americas, Rick Chavez, is an innovator with two decades’ experience at the forefront of the digital revolution. His experience spans a wide range of organizations, from pure start-up ventures through to $80 billion global corporations, as senior executive, advisor and Board member.

Over the last 25 years he has guided growth and innovation strategies and programs at companies including Adobe, American Express, D&B, Fox Home Entertainment, Kinko’s (now part of FedEx), Microsoft, University of Michigan, WalMart, and Yahoo!

Rick’s most recent operating role was with Microsoft, where he served as Chief Solutions Officer for Microsoft Advertising and Consumer Monetization, General Manager of Marketing Solutions, and founder of Microsoft’s Solution Studio415. He built and led an inter-disciplinary team of designers, analysts, consumer researchers, and software wizards to co-innovate marketing solutions with global corporations, drawing from Microsoft’s portfolio of consumer, internet, and enterprise assets. He worked with senior leadership and the CEO on growth initiatives at the intersection of cloud computing, sophisticated analytics, and business model innovation. Learn more about Rick here and connect with him on LinkedIn.

Our Host

Oliver Wyman Partner and Head of Asia Pacific Insurance and Asset Management, Paul Ricard is based in Singapore. Paul works closely with businesses to reinvent their strategies, products, and services — and to fuel top-line growth opportunities.

He works with clients across Asia Pacific, as well as the Americas and Europe. He regularly partners with firms to reinvent their business strategy, rethink their priorities, and to modernize their technology while accounting for rapidly changing customer needs. He understands his clients’ realities, and thrives on helping them innovate and strengthen relationships with their customers while factoring existing challenges.

In this episode of our Reinventing Insurance podcast, Oliver Wyman Partner and Global Head of Insurance, Asset Management, Actuarial, Mick Moloney and Oliver Wyman Partner and Leader of CustomerFirst, Americas, Rick Chavez, continue their conversation on taking a customer-led approach to industry reinvention and the path forward for insurers.

Rick shares insights from his collaborations with Geoffrey Moore on the four-zone organizational playbook and from his experience working at Microsoft, where he advised senior executives on growth initiatives at the intersection of cloud computing, analytics, and business model innovation.

Mick and Rick share growth opportunities for insurers, covering the macro-economic outlook, industry success stories, strategies for deepening customer relationships, and the path forward to accelerate growth.

With more than 25 years of experience in digital transformation, Rick has led digital revolution and growth initiatives for companies such as Adobe, Microsoft, American Express, D&B, Fox Home Entertainment, Kinko’s (now part of FedEx), University of Michigan, Yahoo!, and Walmart. His Customer, Innovation and Growth team brings together world-class business strategists, advisors, technologists, designers, data specialists, and software wizards to make digital transformation sustainable throughout the organization.

In this episode, Mick and Rick explore:

• Mega trends, customer-led strategies, and business reinvention for growth
• Microsoft’s transformation into a multi-trillion-dollar leader in the tech sector
• Applying the four-zone methodology to ‘fund the future ,’ transform, and scale new growth
• Building supply chain resilience and integrating risk management, using examples from Marsh McLennan’s Sentrisk offering
• Driving innovation through customer-led transformation and elevating the next generation of capabilities
• Preparing the workforce for generative AI readiness and developing future talent
• Key themes and insurance opportunities from our publication “Growth, Relevance, Resilience For Insurers”

This episode is part of our Reinventing Insurance series, a series that explores best practices for taking a CustomerFirst approach to innovation within Insurance. Throughout this series, host Paul Ricard discusses lessons, challenges, and new ways of working with guests who will share their first-hand experiences.

Subscribe for more on: Apple Podcasts | Spotify

Paul Ricard: Hello, everyone and welcome to Reinventing Insurance. For this episode, I welcome Oliver Wyman's Global Head of Insurance, Asset Management and Actuarial, Mick Moloney, and special guest, Rick Chavez, partner and leader of our Oliver Wyman CustomerFirst platform.

This is a continuation of Mick and Rick's discussion on building modern businesses that thrive. Prior to Oliver Wyman, Rick spent a lot of his career across many parts of the big tech world, including Microsoft. In this episode, Rick takes us through Microsoft's transformation journey that unfolded over the last couple of decades. Enjoy the conversation.

Mick Moloney: Welcome back to our Reinventing Insurance podcast series. I'm Mick Moloney and I'm delighted to be joined here again today by my friend and colleague, Rick Chavez. Rick and I will be continuing our prior discussion on taking a CustomerFirst approach to industry reinvention, and our conversation about how we see that as a path forward for much of the insurance and asset management industry. Rick, welcome back.

Rick Chavez: Great to be here with you again, Mick.

Mick: Okay, so let's transition to the portfolio-level questions. And maybe let me draw parallels here. And this parallel is a little bit of a stretch, but we'll kind of run with it.

So, as I said, we have, and I'm going to pick on the Life insurance sub-sector just for the purposes of argument, but we have the Life insurance sub-sector, where on average, I'd say, US public life insurers are trading at, if they're lucky, an eight times forward the price multiple. The S&P index is trading north at 20 and you have tech companies in there trading significantly north of that. And one of the tech companies that you mentioned in your introduction obviously is Microsoft.

And Microsoft is fascinating, I know, to many, and as you and I know, many in the Life insurance sector, in that they look at it and go, “Gosh, if I was trying to re-rate myself as a life insurer none are stretching as far as north of 30, but wouldn't it be fantastic if I could get myself re-rated to being 20 times? And then, obviously, I need to find a growth story sitting behind that. And if I want that growth story to be around unmet needs and so forth."

Rick: Sure.

Mick: But as you and I have talked about, if you take it up to the macro-level and look at Microsoft as an example.

Rick: Yeah, that's a great example.

Mick: How behavior was happening internally, and you touched on in passing there, thinking about managing various existing businesses in different ways going forward, some of which involves tough decision-making about things that are no longer going to be strategic and are going to fund other things. I mean, could you hit those points?

Rick: Right, and it's a really important point. One of the most amazing things in watching wellbeing inside the machinery of Microsoft was when Satya Nadella became CEO, the Microsoft that was there in, say, 2011-2012 was a Microsoft that had been driven by this vision of a computer in every home and office. And it was very siloed, divisionally.

Those silos were very powerful and strong, so they'd gotten resilient inside the silo, but Satya saw a different future. And so, he declared to an investor conference, "We're a Microsoft that's about helping people and companies do more to be more. Cloud, mobile, and AI."

And it’s an incredibly bold and brave statement, but also, it was heavily informed by observing mega trends. One of the executives that I work closely with in the division used to say, "When you see the trends, when you see the mega trends, go with them."

And so, declaring the cloud, mobile and AI was in fact motivated by deep understanding of the trends at work and the world, but it was still very brave. And because it was so different from Microsoft, and frankly, Microsoft at that time had not done too well in things like mobile and was very small in cloud.

So, taking the story back to the point you raised and saying, "I'm moving out of the old category of desktop and server, and I'm moving into this new category.” And what's really interesting about what he did there is Microsoft's very competitive. And many of us have very competitive cultures, but he was able to ignite the competitive spirit of the place to win. And he was able to get in the minds of people who were feeling this lack of relevance.

And when people talked about the four leaders of the tech sector, Microsoft was originally not one of those four. It was Apple, Amazon, Google, and Facebook, or now Meta. And so being in the consideration set, being relevant was incredibly inspirational.

And so, I think connecting the outside story to the inside case for change, and then, as you said, making very tough decisions about what would be part of the future or not. So, desktop Microsoft Office, not a lot of signals of intent from users, but it's a very profitable thing.

So, it was a reinvention, it was also an acceleration of things. It was picking out of the portfolio things like Microsoft Azure, and really pushing them, and pushing them intensively, not pushing 20 things, but pushing one or two things in a very intentional and significant way.

Mick: And I have a couple of questions coming out of that, the kind of brave declaration of a new future to the market, but I think that's also followed up by proof points that aren't dependent on getting to nirvana. It's like, "look, we're showing you that we're moving in the right direction."

Rick: Right. Well, you know this, we recently plotted the earnings trajectory of Microsoft over a period of time, from like 2011, 2010 to now, and what you see is, for a period of time, some of the decisions made — the changing of the leadership team, the announcement of changes, some proof points started to show up, like the launching of the modern Microsoft Office on iPad.

While that may not have seemed that big now, it was huge at the time, because it was launched by Satya, on stage, on an iPad, not on a Windows machine. So those kinds of things were proof that the company was in fact moving in a new direction.

Very visible signs of living into that narrative. I would say also exiting things. So, buying Nokia, and then, in a fairly short period of time, I don't know how many months it was after Satya was CEO, but then shutting that down was painful, and it was a painful and significant write-off. So, if you look at the earnings trajectory, it actually took all of these to generate new growth.

This is why I said grit and determination. It took a bunch of these moves in a sequence, and it was no one in particular. It was the changing of the culture, changing of the product focus, and the changing of the business structure. This took off around 2017 or 2018, when a lot of those factors came together, and you could just see the company starting to basically outstrip the competition and become, I don't want to say a category of one, but it's pretty remarkable. The multi-trillion-dollar valuation that the company now has.

Mick: I think these things always look obvious in hindsight, don't they? You know what I mean? But I worry a little bit. The reason I'm saying this is I worry a little bit that the Life sector doesn't have enough ambition for transforming itself, given the scale of the opportunity that's out there. You know what I mean?

Rick: Right.

Mick: And Microsoft I think is fascinating to people, because there was a point where it could have gone the other direction and become obsolete. But this was a path to an uncertain future that involved big bets, that involved managing things differently internally, that was led from the top- down.

Rick: It was led from the top-down, that's right. It was led from the top-down, but I would say also the leadership team was dramatically changed. And so, he fashioned a leadership team that was very tightly connected, and if you hear some of the presentations he's given and the book he's written, he will talk about the importance of understanding people and their stories. And beginning to build a really tightly knit executive team. And then that cascaded down through the company.

But yes, it had to be top-down. It had to be. And then, there were incentives and structures put in place to stimulate people to move in that direction, like being rated and reviewed on the basis of, "Did I provide something as a service to help some other part of the company go further faster? And did I borrow something in my own business to do the same?”

That's a dramatic shift, right, because what does that do? It doesn't say, "Oh, it's optional to work across silos. "It says, "Oh, no, you must do it."

For innovation, it takes a visionary leader willing to commit to a future that is a little murky. It’s informed by trends that are observable. I think of the old adage, ‘The future's already here, it's just not evenly distributed.’ So, leaders need to be brave, put in the mechanisms to test their way to right, and build the flywheel momentum systematically.”

Don't expect it's going to happen overnight. Cut yourself a break, but also challenge yourself at the same time that it's going to be a journey where people, and humans, and processes, and all these things together have to evolve, right?

Mick: Yeah, the other thing I wanted to discuss is the four zone management framework you developed with management consultant Geoffrey Moore, who is the author of ‘Crossing the Chasm’.

Rick: Yes. right.

Mick: Do you want to double-click on that? Because it's something we see used very powerfully, but only in some situations.

Rick: Yeah, I think it will actually have more and more traction, I'm hoping, because I think it is actually quite helpful. The four-zone model basically says that getting to a future is not two-handed but a four-handed initiative. You have to, of course, honor the commitments to your investors and to your customers, because you're an existing business with customers, and investors, and shareholders.

And so, to do that exceptionally well and try to innovate or improve what we call a business-as-usual (BAU) plus. Obviously, lean into things and have a continuous improvement mindset. Manage that as your existing business — we call that the Performance zone.

Mick: Which is really about optimizing the top-line of performance.

Rick: Yes, optimizing the top-line of performance. Well, top and bottom, in a way, but yes of the existing business. That's embracing who we are, in a way. And there's a bunch of marketing, and sales, and things you can start to do to move in a solution-oriented direction.

Then, there's the next quadrant below, the Productivity zone. And this is extremely tough, because it means ‘I'm going to let go, I'm going to manage it.’ In tech, we'd say graceful obsolescence or to deprecate a system.

I'm going to manage that into a graceful, if you will, exit. And I'm going to extract resources as I go, because I don't have the luxury of going to private investors like a startup might, and getting growth capital, and only worrying about growth. I've got to worry about funding my future.

Mick: This is how I can ‘fund my future.’

Rick: Yes, this is how I can ‘fund my future,’ and that quadrant and the people who lead that and manage that are exceptionally important people. They tend to march to a different drum, they tend to march to a different drum beat. They tend to be thinking about efficiency and effectiveness in ways that many of us aren't. And they need to be honored for what it is they do on behalf of the enterprise, so there's a bunch of really important assertions about how to make that happen.

And it's doing that well. And then, going into the Incubation zone, which is distinct from the Transformation zone, because growth isn't just about shots on goal or innovation activities.
And often, what you'll see with a lot of incumbents is that there'll be initiative that end too soon.

And making those initiatives accountable, applying the venture capital type of model, creating something we like to call an ‘incubation’ business unit, which creates the governance structure, that is attached to the mothership, but allows for decoupling. This allows companies to move a little faster, to move interdisciplinary, and in sprints.

That motion, and the way of work, and the dependencies that you have to take on. For example, if you've been in a product silo or a functional business unit, just things like being dependent is not a natural act.

The leaders who manage it, and the metrics about rapid cycle time of learning, which are very different from revenue and profit. And then, there's this race to materiality, which is what we call the Transformation zone, which is for example, six to eight quarters, 10% of revenue, etc.

You and I have been in these sessions, where executives say, "Well, that makes no sense." And then, others will say, "Well, why does it make no sense?" And the point is not that it is exactly right. It's that it sparks that conversation, and it very naturally does two things. It says, "Only put something into that zone and make it accountable if it's ready. Because if it's not ready, that's going to be a real problem. But if it's ready, then also don't try to do too much, do one and then do two."

In that zone, don't have initiatives that compete. And that's another problem, right, is you have these mid-sized businesses that are going to compete for resources, and then they kind of cancel each other out. So, the business moves forward, "Okay, let's take turns division by division until we are an executive team, confident and committed that we've cleared the way and we've made it possible for that race to succeed."

So those four quadrants take some pressure off, because it says, "All these things can exist in a business. They help each other out." You just have to manage the portfolio and make those things accountable for where they live in the cycle time of growth, right?

Mick: Yeah, I find it a very helpful framework. And the one that comes to my mind as you're talking about it is the piece that I see in a lot of places, currently. Life insurers are looking at their private credit capabilities and saying, “Can I scale them into a large external asset management business?" And in some cases, "Can I turn it into something that is 10%, 15%, 20% of my earnings?" But it's never over six quarters, at least that I've come across.

And very often, I'm doing four other things in a more business-as-usual (BAU) business. And the application of the framework gives a lot of clarity to where each business is headed.

Rick: That's right. I mean, we're doing more of this work as you know, and it's connecting that point you made earlier about your investor narrative or the equity story, and then being able to systematically live into it, and understanding that you're going to have to ‘fund your future.’ Yeah, but if you manage according to these zones, then you're able to say, "Okay, I'm going to allocate capital and resourcing. And I'm going to make that accountable with these new metrics. And then, I'm going to be able to connect it to external accountability, because the outside is going to be looking for this, too."

And so, that is often missing and what we don't see. And it's not just applicable to insurers, but we don't see companies thinking enough about, "Wait a minute, the shareholder is going to be looking at what I'm doing, to ensure we are moving the company into this new narrative."

Mick: Yeah, I agree. Well, there's one more piece I want to hit on, Rick. As the two of us can go on about this stuff for days together.

Rick: Yeah, no, exactly.

Mick: I want to explore this incubation business unit, the Incubation zone. Because in a way, it's both the most critical part, and also the hardest part to do in some cases. And my strong view is that if you can do it and do it right — the fact that it's so hard to do is actually an advantage that you achieve.

Rick: It's differentiating.

Mick: Do you want to talk about it, but also use the case of where we've set up an incubation business unit as we call that zone, and just double-click on your view of what it takes to succeed and where most people fall?

Rick: Well, and there's a couple of cases where we've worked on this with clients, as you know, and set it up to be about de-risking the third horizon, making the growth bets. And we found some really important applications of the same thinking to reinventing the company for growth.

Mick: Which is not only a business, then, but can be a capability.

Rick: It can be a capability, right. And we're seeing this in the context of back to your point about the Microsoft excitement and enthusiasm, it's like, "Well, can we get that big tech kind of magic, and do it here in this analog business, or non-digital business?" And lots of stories around this. Goldman Sachs has been doing this, other players have been doing this, and it's really about this sort of transition to a client-based business kind of architecture platform. And in both cases, that is an unnatural act, in terms of governance, for the organization,

And so, setting up the organization to say it's going to be accountable to the Board, the Board is going to be chosen from executives inside the organization. Some will actually have more decision rights than others, depending on what's in the Incubation zone. So, you have to have this model of governance that is bespoke for the company but is needed. And then, this notion of, "We're going to install the venture capital model or the tech model in interdisciplinary pods every 90 days, call to play."

And so, in the venture capital world, I knew in every 90 days I was going to have a Board meeting, and every six weeks I was going to have a Board call, and those were always scheduled, and they were never missed. And so that creates this sense of resource constraints, time is your enemy, and it changes the cadence, the way of thinking inside of that organization, which is what you want.

You want it to be accountable to cycle time of learning, to upping the cycle time of learning, and then evolving that learning in a staged way — from small bets to big — and earning the right to be the next 90 days, and then the next 90 days. So that problem, we talked about ending things too soon or holding on to them too long, that problem goes away in the setup of the incubation business unit, because you just can't do that.

Mick: How many things do you have in there?

Rick: Well, I think that is all dependent on the enterprise. So, the way I think about it is, let's just say you make 10 bets, just for simplicity, I think most of our insurers and our incoming clients should probably be making six or seven of those probably about reinvention.

Mick: What would constitute a bet?

Rick: Well, a bet could be “I want to figure out how to automate call center with technology and chatbot, because everybody seems to like that, and Telcos are doing it, so maybe I could do this.” Take enormous cost out of the system and create a lot of customer affection for this.

I’m just giving an illustrative example. There were a set of assumptions I made that need to be tested. But if that's true, that could be a massive profit impact. That's a reinvention example. You're still going to do customer care. It's just going to look very, very different, right? Another one could be our Marsh McLennan Sentrisk example, which is I'm going to do something entirely new. It's about supply chain resilience.

Mick: Yeah, there is an energy for progress.

Rick: There's energy for progress there. The first thing is to go frame it, make it clear, then come back. And so, then systematically earn your right to grow that. That's an example of a growth, more of a growth bet, I guess I would call that.

That's a bet on accelerating the growth of an existing business, in the case of Marsh. And the reason I say that is I think reinvention often doesn't get enough attention, especially now in a world that's all excited about AI, and I am, too.

But first, we need to unpack and investigate that very carefully, because I think there's a lot of things that are machine learning and algorithm applications to big data sets that aren't generative AI.
But let's understand those, like really do some serious testing and learning our way around these things. Because if we're right, that could dramatically shift the capital allocation from heavy process and people — to technology and robots and then amplify the ability of people to go do other things and allow them to kind of move into other kinds of interesting work.

So, there's a big equation of the business test that I think needs to happen, and I think it should consume a fair amount. And I think probably, more the majority, maybe, even if they're 10, it's probably 6 or 7 of the bets, right?

Mick: Yeah, but your point then is that I have 6, 8, 10 of these things. They're a balance between new revenue and reinvention, and they're governed by a mechanism that looks like that venture capital play.

Rick: Exactly, exactly.

Mick: And that then also determines if and when one of them is ready to move into the Transformation zone.

Rick: That's right, right.

Mick: And in terms of surrounding that incubation business unit or Innovation zone, I also need to think about the human capital piece of that, in terms of who's going to go in, how are they going to transition from their job.

Rick: That's right.

Mick: What's the incentive structure?

Rick: Yeah, the incentive structure has to shift, I think. And I mean, it's more of thinking about a fund, not a budget, and that fund gets re-upped, depending on how successful that unit has become. Incentives are aligned to the re-upping. People have to actually be in there, not just as a fly-by. So, the commitment needs to be at least two years, if not longer.

So, you're not just rotating people in and out very quickly. There's also some other radiating benefits, like in terms of you can't cycle people in from the organization and cycle them back out. There can be that kind of learning.

There can also be attraction of new talent into the organization. It's a way of focusing on the rescaling challenges that companies face. And it can be a really great way of onboarding venture capital, startup type, innovative stuff that's happening in the world. Because what happens in these startups, because I've been on both sides of it, is you get into a large company and you just get squashed, because you just don't have what it takes to be successful inside of a large company.

So this kind of thing can actually be a great way of saying, "I'm going to place this bet with X, Y, Z for an AI startup company out here, and they're going to be embedded with my people, my people embedded with them, and we're going to really tune it into our business, so that it can actually be successful."

And it's a great thing for them too, because what they get to do is go back to their investors and say, "Hey, look, this large Life insurer has just adopted this, and is scaling it to many thousands of people, right?"

That's an amazing story to tell investors, they will love that. So, there's a real positive benefit, both for the startup and for the adoption that might otherwise not see the light of day.

Mick: Well, look, I might zoom out again, Rick, in terms of closing us out on this discussion. We started with, we're serving an industry, particularly in insurance and asset management, where the good news is there are lots of examples of spaces that the industry could do more in, in terms of consumers.

Whether it's an individual consumer or corporate consumer, whether it's on the financial wellness space in the Life insurance sector or the kind of emerging risk space in Property and Casualty (P&C), there are massive opportunities in terms of application of data and analytics. And yet, there seems to be somewhat of a struggle for how to unlock that.

And what we described is an approach to potentially craft an investor narrative, but one that is stretching you in a way where you're comfortable with for uncovering where the energy for progress was, a methodology then if you apply it for making sure that management attention units are being spent in the right way internally.

And a way of then managing a set of innovations around capabilities, and new areas that, done right, can align the organization and drive progress, so that you're not left with having committed one thing to the external market and then find yourself unable to deliver.

And the final comment I'll make is we see executives doing this, and the insurance industry, in a way, needs to reach outside the industry for best practices, because the question we often get is, "Which of my peers is doing this very well?" And the reality is it's a little bit hard to find, right?

It's much easier to look at the Microsoft case study or others and say, "Look, you need to look over there rather than within the confines of the insurance industry."

Rick: Well, and I think that customers have been taught by some of those companies, whether it's Microsoft or Apple, to expect certain kinds of convenience, and friction-free engagement, and fun. There are two things that I will add to what you said, Mick, two messages I like to give on this.

One, if you flip the script a bit, and think about this as a demand-side problem, I'll go to mobility, because it's a bit outside of it, and you think there's a mobility marketplace that’s taking shape very, very rapidly, and using driverless cars, electric vehicles, scooters, and bikes, and then it's also the charging stations for all of that.

And if you looked at mobility broadly, you would see a huge growth opportunity. But still, that way of framing it makes a massive market opportunity much more apparent. If you stick in the auto category, though, that might not look so good. You might be under assault, so I think this point you made about flipping the…

Mick: The definition of the space.

Rick: Definition of the space really matters. And if you frame it that way, it could be outsized growth potential.

And then, I think the other piece that’s important is about management discipline. It can be learned, it can be practiced, it is knowable, right? And so, it's really important, because the point you made of, "Well, we're also people doing this, and a lot of it is tech.” The point of this is a new way of managing in a very complex world. And it can be learned, it can be adopted.

Mick: It can be the path forward.

Rick: It can be the path forward, yeah.

Mick: Yeah, well, Rick, a pleasure as always. Thank you, thank you very much.

Rick: Yeah, a lot of fun.

Mick: Look forward to continuing the conversation.

Rick: Me too, Mick. Thank you.

This transcript has been edited for clarity.

Featured in this episode

Oliver Wyman Partner and Global Head of Insurance, Asset Management, Actuarial, Mick Moloney, leads our team of more than 700 colleagues globally. The team is dedicated to providing advice to life, property and casualty (P&C), and health insurers, asset managers, and private capital sponsors across strategy, operations, technology, finance, risk, and actuarial disciplines.

Mick spends his time working with leading insurers, asset managers, and advisory firms on a range of strategic and execution topics with a particular focus on growth, innovation, and efficiency in retail and institutional markets. He’s passionate about growth and reinvention in the industries he serves, with a strongly held belief that while each is facing disruption and dislocation, there are massive unmet needs which provide the prospect of a bright and vibrant future. Subscribe to Mick's Reinventing Insurance newsletter on LinkedIn. Mick shares reflections, market views, and insurance and private equity insights for industry reinvention. 

Oliver Wyman Partner and Leader of CustomerFirst Americas, Rick Chavez, is an innovator with two decades’ experience at the forefront of the digital revolution. His experience spans a wide range of organizations, from pure start-up ventures through to $80 billion global corporations, as senior executive, advisor and Board member.

Over the last 25 years he has guided growth and innovation strategies and programs at companies including Adobe, American Express, D&B, Fox Home Entertainment, Kinko’s (now part of FedEx), Microsoft, University of Michigan, WalMart, and Yahoo!

Rick’s most recent operating role was with Microsoft, where he served as Chief Solutions Officer for Microsoft Advertising and Consumer Monetization, General Manager of Marketing Solutions, and founder of Microsoft’s Solution Studio415. He built and led an inter-disciplinary team of designers, analysts, consumer researchers, and software wizards to co-innovate marketing solutions with global corporations, drawing from Microsoft’s portfolio of consumer, internet, and enterprise assets. He worked with senior leadership and the CEO on growth initiatives at the intersection of cloud computing, sophisticated analytics, and business model innovation. Learn more about Rick here and connect with him on LinkedIn.

Our Host

Oliver Wyman Partner and Head of Asia Pacific Insurance and Asset Management, Paul Ricard is based in Singapore. Paul works closely with businesses to reinvent their strategies, products, and services — and to fuel top-line growth opportunities.

He works with clients across Asia Pacific, as well as the Americas and Europe. He regularly partners with firms to reinvent their business strategy, rethink their priorities, and to modernize their technology while accounting for rapidly changing customer needs. He understands his clients’ realities, and thrives on helping them innovate and strengthen relationships with their customers while factoring existing challenges.

In this episode of our Reinventing Insurance podcast, Oliver Wyman Partner and Global Head of Insurance, Asset Management, Actuarial, Mick Moloney and Oliver Wyman Partner and Leader of CustomerFirst, Americas, Rick Chavez, continue their conversation on taking a customer-led approach to industry reinvention and the path forward for insurers.

Rick shares insights from his collaborations with Geoffrey Moore on the four-zone organizational playbook and from his experience working at Microsoft, where he advised senior executives on growth initiatives at the intersection of cloud computing, analytics, and business model innovation.

Mick and Rick share growth opportunities for insurers, covering the macro-economic outlook, industry success stories, strategies for deepening customer relationships, and the path forward to accelerate growth.

With more than 25 years of experience in digital transformation, Rick has led digital revolution and growth initiatives for companies such as Adobe, Microsoft, American Express, D&B, Fox Home Entertainment, Kinko’s (now part of FedEx), University of Michigan, Yahoo!, and Walmart. His Customer, Innovation and Growth team brings together world-class business strategists, advisors, technologists, designers, data specialists, and software wizards to make digital transformation sustainable throughout the organization.

In this episode, Mick and Rick explore:

• Mega trends, customer-led strategies, and business reinvention for growth
• Microsoft’s transformation into a multi-trillion-dollar leader in the tech sector
• Applying the four-zone methodology to ‘fund the future ,’ transform, and scale new growth
• Building supply chain resilience and integrating risk management, using examples from Marsh McLennan’s Sentrisk offering
• Driving innovation through customer-led transformation and elevating the next generation of capabilities
• Preparing the workforce for generative AI readiness and developing future talent
• Key themes and insurance opportunities from our publication “Growth, Relevance, Resilience For Insurers”

This episode is part of our Reinventing Insurance series, a series that explores best practices for taking a CustomerFirst approach to innovation within Insurance. Throughout this series, host Paul Ricard discusses lessons, challenges, and new ways of working with guests who will share their first-hand experiences.

Subscribe for more on: Apple Podcasts | Spotify

Paul Ricard: Hello, everyone and welcome to Reinventing Insurance. For this episode, I welcome Oliver Wyman's Global Head of Insurance, Asset Management and Actuarial, Mick Moloney, and special guest, Rick Chavez, partner and leader of our Oliver Wyman CustomerFirst platform.

This is a continuation of Mick and Rick's discussion on building modern businesses that thrive. Prior to Oliver Wyman, Rick spent a lot of his career across many parts of the big tech world, including Microsoft. In this episode, Rick takes us through Microsoft's transformation journey that unfolded over the last couple of decades. Enjoy the conversation.

Mick Moloney: Welcome back to our Reinventing Insurance podcast series. I'm Mick Moloney and I'm delighted to be joined here again today by my friend and colleague, Rick Chavez. Rick and I will be continuing our prior discussion on taking a CustomerFirst approach to industry reinvention, and our conversation about how we see that as a path forward for much of the insurance and asset management industry. Rick, welcome back.

Rick Chavez: Great to be here with you again, Mick.

Mick: Okay, so let's transition to the portfolio-level questions. And maybe let me draw parallels here. And this parallel is a little bit of a stretch, but we'll kind of run with it.

So, as I said, we have, and I'm going to pick on the Life insurance sub-sector just for the purposes of argument, but we have the Life insurance sub-sector, where on average, I'd say, US public life insurers are trading at, if they're lucky, an eight times forward the price multiple. The S&P index is trading north at 20 and you have tech companies in there trading significantly north of that. And one of the tech companies that you mentioned in your introduction obviously is Microsoft.

And Microsoft is fascinating, I know, to many, and as you and I know, many in the Life insurance sector, in that they look at it and go, “Gosh, if I was trying to re-rate myself as a life insurer none are stretching as far as north of 30, but wouldn't it be fantastic if I could get myself re-rated to being 20 times? And then, obviously, I need to find a growth story sitting behind that. And if I want that growth story to be around unmet needs and so forth."

Rick: Sure.

Mick: But as you and I have talked about, if you take it up to the macro-level and look at Microsoft as an example.

Rick: Yeah, that's a great example.

Mick: How behavior was happening internally, and you touched on in passing there, thinking about managing various existing businesses in different ways going forward, some of which involves tough decision-making about things that are no longer going to be strategic and are going to fund other things. I mean, could you hit those points?

Rick: Right, and it's a really important point. One of the most amazing things in watching wellbeing inside the machinery of Microsoft was when Satya Nadella became CEO, the Microsoft that was there in, say, 2011-2012 was a Microsoft that had been driven by this vision of a computer in every home and office. And it was very siloed, divisionally.

Those silos were very powerful and strong, so they'd gotten resilient inside the silo, but Satya saw a different future. And so, he declared to an investor conference, "We're a Microsoft that's about helping people and companies do more to be more. Cloud, mobile, and AI."

And it’s an incredibly bold and brave statement, but also, it was heavily informed by observing mega trends. One of the executives that I work closely with in the division used to say, "When you see the trends, when you see the mega trends, go with them."

And so, declaring the cloud, mobile and AI was in fact motivated by deep understanding of the trends at work and the world, but it was still very brave. And because it was so different from Microsoft, and frankly, Microsoft at that time had not done too well in things like mobile and was very small in cloud.

So, taking the story back to the point you raised and saying, "I'm moving out of the old category of desktop and server, and I'm moving into this new category.” And what's really interesting about what he did there is Microsoft's very competitive. And many of us have very competitive cultures, but he was able to ignite the competitive spirit of the place to win. And he was able to get in the minds of people who were feeling this lack of relevance.

And when people talked about the four leaders of the tech sector, Microsoft was originally not one of those four. It was Apple, Amazon, Google, and Facebook, or now Meta. And so being in the consideration set, being relevant was incredibly inspirational.

And so, I think connecting the outside story to the inside case for change, and then, as you said, making very tough decisions about what would be part of the future or not. So, desktop Microsoft Office, not a lot of signals of intent from users, but it's a very profitable thing.

So, it was a reinvention, it was also an acceleration of things. It was picking out of the portfolio things like Microsoft Azure, and really pushing them, and pushing them intensively, not pushing 20 things, but pushing one or two things in a very intentional and significant way.

Mick: And I have a couple of questions coming out of that, the kind of brave declaration of a new future to the market, but I think that's also followed up by proof points that aren't dependent on getting to nirvana. It's like, "look, we're showing you that we're moving in the right direction."

Rick: Right. Well, you know this, we recently plotted the earnings trajectory of Microsoft over a period of time, from like 2011, 2010 to now, and what you see is, for a period of time, some of the decisions made — the changing of the leadership team, the announcement of changes, some proof points started to show up, like the launching of the modern Microsoft Office on iPad.

While that may not have seemed that big now, it was huge at the time, because it was launched by Satya, on stage, on an iPad, not on a Windows machine. So those kinds of things were proof that the company was in fact moving in a new direction.

Very visible signs of living into that narrative. I would say also exiting things. So, buying Nokia, and then, in a fairly short period of time, I don't know how many months it was after Satya was CEO, but then shutting that down was painful, and it was a painful and significant write-off. So, if you look at the earnings trajectory, it actually took all of these to generate new growth.

This is why I said grit and determination. It took a bunch of these moves in a sequence, and it was no one in particular. It was the changing of the culture, changing of the product focus, and the changing of the business structure. This took off around 2017 or 2018, when a lot of those factors came together, and you could just see the company starting to basically outstrip the competition and become, I don't want to say a category of one, but it's pretty remarkable. The multi-trillion-dollar valuation that the company now has.

Mick: I think these things always look obvious in hindsight, don't they? You know what I mean? But I worry a little bit. The reason I'm saying this is I worry a little bit that the Life sector doesn't have enough ambition for transforming itself, given the scale of the opportunity that's out there. You know what I mean?

Rick: Right.

Mick: And Microsoft I think is fascinating to people, because there was a point where it could have gone the other direction and become obsolete. But this was a path to an uncertain future that involved big bets, that involved managing things differently internally, that was led from the top- down.

Rick: It was led from the top-down, that's right. It was led from the top-down, but I would say also the leadership team was dramatically changed. And so, he fashioned a leadership team that was very tightly connected, and if you hear some of the presentations he's given and the book he's written, he will talk about the importance of understanding people and their stories. And beginning to build a really tightly knit executive team. And then that cascaded down through the company.

But yes, it had to be top-down. It had to be. And then, there were incentives and structures put in place to stimulate people to move in that direction, like being rated and reviewed on the basis of, "Did I provide something as a service to help some other part of the company go further faster? And did I borrow something in my own business to do the same?”

That's a dramatic shift, right, because what does that do? It doesn't say, "Oh, it's optional to work across silos. "It says, "Oh, no, you must do it."

For innovation, it takes a visionary leader willing to commit to a future that is a little murky. It’s informed by trends that are observable. I think of the old adage, ‘The future's already here, it's just not evenly distributed.’ So, leaders need to be brave, put in the mechanisms to test their way to right, and build the flywheel momentum systematically.”

Don't expect it's going to happen overnight. Cut yourself a break, but also challenge yourself at the same time that it's going to be a journey where people, and humans, and processes, and all these things together have to evolve, right?

Mick: Yeah, the other thing I wanted to discuss is the four zone management framework you developed with management consultant Geoffrey Moore, who is the author of ‘Crossing the Chasm’.

Rick: Yes. right.

Mick: Do you want to double-click on that? Because it's something we see used very powerfully, but only in some situations.

Rick: Yeah, I think it will actually have more and more traction, I'm hoping, because I think it is actually quite helpful. The four-zone model basically says that getting to a future is not two-handed but a four-handed initiative. You have to, of course, honor the commitments to your investors and to your customers, because you're an existing business with customers, and investors, and shareholders.

And so, to do that exceptionally well and try to innovate or improve what we call a business-as-usual (BAU) plus. Obviously, lean into things and have a continuous improvement mindset. Manage that as your existing business — we call that the Performance zone.

Mick: Which is really about optimizing the top-line of performance.

Rick: Yes, optimizing the top-line of performance. Well, top and bottom, in a way, but yes of the existing business. That's embracing who we are, in a way. And there's a bunch of marketing, and sales, and things you can start to do to move in a solution-oriented direction.

Then, there's the next quadrant below, the Productivity zone. And this is extremely tough, because it means ‘I'm going to let go, I'm going to manage it.’ In tech, we'd say graceful obsolescence or to deprecate a system.

I'm going to manage that into a graceful, if you will, exit. And I'm going to extract resources as I go, because I don't have the luxury of going to private investors like a startup might, and getting growth capital, and only worrying about growth. I've got to worry about funding my future.

Mick: This is how I can ‘fund my future.’

Rick: Yes, this is how I can ‘fund my future,’ and that quadrant and the people who lead that and manage that are exceptionally important people. They tend to march to a different drum, they tend to march to a different drum beat. They tend to be thinking about efficiency and effectiveness in ways that many of us aren't. And they need to be honored for what it is they do on behalf of the enterprise, so there's a bunch of really important assertions about how to make that happen.

And it's doing that well. And then, going into the Incubation zone, which is distinct from the Transformation zone, because growth isn't just about shots on goal or innovation activities.
And often, what you'll see with a lot of incumbents is that there'll be initiative that end too soon.

And making those initiatives accountable, applying the venture capital type of model, creating something we like to call an ‘incubation’ business unit, which creates the governance structure, that is attached to the mothership, but allows for decoupling. This allows companies to move a little faster, to move interdisciplinary, and in sprints.

That motion, and the way of work, and the dependencies that you have to take on. For example, if you've been in a product silo or a functional business unit, just things like being dependent is not a natural act.

The leaders who manage it, and the metrics about rapid cycle time of learning, which are very different from revenue and profit. And then, there's this race to materiality, which is what we call the Transformation zone, which is for example, six to eight quarters, 10% of revenue, etc.

You and I have been in these sessions, where executives say, "Well, that makes no sense." And then, others will say, "Well, why does it make no sense?" And the point is not that it is exactly right. It's that it sparks that conversation, and it very naturally does two things. It says, "Only put something into that zone and make it accountable if it's ready. Because if it's not ready, that's going to be a real problem. But if it's ready, then also don't try to do too much, do one and then do two."

In that zone, don't have initiatives that compete. And that's another problem, right, is you have these mid-sized businesses that are going to compete for resources, and then they kind of cancel each other out. So, the business moves forward, "Okay, let's take turns division by division until we are an executive team, confident and committed that we've cleared the way and we've made it possible for that race to succeed."

So those four quadrants take some pressure off, because it says, "All these things can exist in a business. They help each other out." You just have to manage the portfolio and make those things accountable for where they live in the cycle time of growth, right?

Mick: Yeah, I find it a very helpful framework. And the one that comes to my mind as you're talking about it is the piece that I see in a lot of places, currently. Life insurers are looking at their private credit capabilities and saying, “Can I scale them into a large external asset management business?" And in some cases, "Can I turn it into something that is 10%, 15%, 20% of my earnings?" But it's never over six quarters, at least that I've come across.

And very often, I'm doing four other things in a more business-as-usual (BAU) business. And the application of the framework gives a lot of clarity to where each business is headed.

Rick: That's right. I mean, we're doing more of this work as you know, and it's connecting that point you made earlier about your investor narrative or the equity story, and then being able to systematically live into it, and understanding that you're going to have to ‘fund your future.’ Yeah, but if you manage according to these zones, then you're able to say, "Okay, I'm going to allocate capital and resourcing. And I'm going to make that accountable with these new metrics. And then, I'm going to be able to connect it to external accountability, because the outside is going to be looking for this, too."

And so, that is often missing and what we don't see. And it's not just applicable to insurers, but we don't see companies thinking enough about, "Wait a minute, the shareholder is going to be looking at what I'm doing, to ensure we are moving the company into this new narrative."

Mick: Yeah, I agree. Well, there's one more piece I want to hit on, Rick. As the two of us can go on about this stuff for days together.

Rick: Yeah, no, exactly.

Mick: I want to explore this incubation business unit, the Incubation zone. Because in a way, it's both the most critical part, and also the hardest part to do in some cases. And my strong view is that if you can do it and do it right — the fact that it's so hard to do is actually an advantage that you achieve.

Rick: It's differentiating.

Mick: Do you want to talk about it, but also use the case of where we've set up an incubation business unit as we call that zone, and just double-click on your view of what it takes to succeed and where most people fall?

Rick: Well, and there's a couple of cases where we've worked on this with clients, as you know, and set it up to be about de-risking the third horizon, making the growth bets. And we found some really important applications of the same thinking to reinventing the company for growth.

Mick: Which is not only a business, then, but can be a capability.

Rick: It can be a capability, right. And we're seeing this in the context of back to your point about the Microsoft excitement and enthusiasm, it's like, "Well, can we get that big tech kind of magic, and do it here in this analog business, or non-digital business?" And lots of stories around this. Goldman Sachs has been doing this, other players have been doing this, and it's really about this sort of transition to a client-based business kind of architecture platform. And in both cases, that is an unnatural act, in terms of governance, for the organization,

And so, setting up the organization to say it's going to be accountable to the Board, the Board is going to be chosen from executives inside the organization. Some will actually have more decision rights than others, depending on what's in the Incubation zone. So, you have to have this model of governance that is bespoke for the company but is needed. And then, this notion of, "We're going to install the venture capital model or the tech model in interdisciplinary pods every 90 days, call to play."

And so, in the venture capital world, I knew in every 90 days I was going to have a Board meeting, and every six weeks I was going to have a Board call, and those were always scheduled, and they were never missed. And so that creates this sense of resource constraints, time is your enemy, and it changes the cadence, the way of thinking inside of that organization, which is what you want.

You want it to be accountable to cycle time of learning, to upping the cycle time of learning, and then evolving that learning in a staged way — from small bets to big — and earning the right to be the next 90 days, and then the next 90 days. So that problem, we talked about ending things too soon or holding on to them too long, that problem goes away in the setup of the incubation business unit, because you just can't do that.

Mick: How many things do you have in there?

Rick: Well, I think that is all dependent on the enterprise. So, the way I think about it is, let's just say you make 10 bets, just for simplicity, I think most of our insurers and our incoming clients should probably be making six or seven of those probably about reinvention.

Mick: What would constitute a bet?

Rick: Well, a bet could be “I want to figure out how to automate call center with technology and chatbot, because everybody seems to like that, and Telcos are doing it, so maybe I could do this.” Take enormous cost out of the system and create a lot of customer affection for this.

I’m just giving an illustrative example. There were a set of assumptions I made that need to be tested. But if that's true, that could be a massive profit impact. That's a reinvention example. You're still going to do customer care. It's just going to look very, very different, right? Another one could be our Marsh McLennan Sentrisk example, which is I'm going to do something entirely new. It's about supply chain resilience.

Mick: Yeah, there is an energy for progress.

Rick: There's energy for progress there. The first thing is to go frame it, make it clear, then come back. And so, then systematically earn your right to grow that. That's an example of a growth, more of a growth bet, I guess I would call that.

That's a bet on accelerating the growth of an existing business, in the case of Marsh. And the reason I say that is I think reinvention often doesn't get enough attention, especially now in a world that's all excited about AI, and I am, too.

But first, we need to unpack and investigate that very carefully, because I think there's a lot of things that are machine learning and algorithm applications to big data sets that aren't generative AI.
But let's understand those, like really do some serious testing and learning our way around these things. Because if we're right, that could dramatically shift the capital allocation from heavy process and people — to technology and robots and then amplify the ability of people to go do other things and allow them to kind of move into other kinds of interesting work.

So, there's a big equation of the business test that I think needs to happen, and I think it should consume a fair amount. And I think probably, more the majority, maybe, even if they're 10, it's probably 6 or 7 of the bets, right?

Mick: Yeah, but your point then is that I have 6, 8, 10 of these things. They're a balance between new revenue and reinvention, and they're governed by a mechanism that looks like that venture capital play.

Rick: Exactly, exactly.

Mick: And that then also determines if and when one of them is ready to move into the Transformation zone.

Rick: That's right, right.

Mick: And in terms of surrounding that incubation business unit or Innovation zone, I also need to think about the human capital piece of that, in terms of who's going to go in, how are they going to transition from their job.

Rick: That's right.

Mick: What's the incentive structure?

Rick: Yeah, the incentive structure has to shift, I think. And I mean, it's more of thinking about a fund, not a budget, and that fund gets re-upped, depending on how successful that unit has become. Incentives are aligned to the re-upping. People have to actually be in there, not just as a fly-by. So, the commitment needs to be at least two years, if not longer.

So, you're not just rotating people in and out very quickly. There's also some other radiating benefits, like in terms of you can't cycle people in from the organization and cycle them back out. There can be that kind of learning.

There can also be attraction of new talent into the organization. It's a way of focusing on the rescaling challenges that companies face. And it can be a really great way of onboarding venture capital, startup type, innovative stuff that's happening in the world. Because what happens in these startups, because I've been on both sides of it, is you get into a large company and you just get squashed, because you just don't have what it takes to be successful inside of a large company.

So this kind of thing can actually be a great way of saying, "I'm going to place this bet with X, Y, Z for an AI startup company out here, and they're going to be embedded with my people, my people embedded with them, and we're going to really tune it into our business, so that it can actually be successful."

And it's a great thing for them too, because what they get to do is go back to their investors and say, "Hey, look, this large Life insurer has just adopted this, and is scaling it to many thousands of people, right?"

That's an amazing story to tell investors, they will love that. So, there's a real positive benefit, both for the startup and for the adoption that might otherwise not see the light of day.

Mick: Well, look, I might zoom out again, Rick, in terms of closing us out on this discussion. We started with, we're serving an industry, particularly in insurance and asset management, where the good news is there are lots of examples of spaces that the industry could do more in, in terms of consumers.

Whether it's an individual consumer or corporate consumer, whether it's on the financial wellness space in the Life insurance sector or the kind of emerging risk space in Property and Casualty (P&C), there are massive opportunities in terms of application of data and analytics. And yet, there seems to be somewhat of a struggle for how to unlock that.

And what we described is an approach to potentially craft an investor narrative, but one that is stretching you in a way where you're comfortable with for uncovering where the energy for progress was, a methodology then if you apply it for making sure that management attention units are being spent in the right way internally.

And a way of then managing a set of innovations around capabilities, and new areas that, done right, can align the organization and drive progress, so that you're not left with having committed one thing to the external market and then find yourself unable to deliver.

And the final comment I'll make is we see executives doing this, and the insurance industry, in a way, needs to reach outside the industry for best practices, because the question we often get is, "Which of my peers is doing this very well?" And the reality is it's a little bit hard to find, right?

It's much easier to look at the Microsoft case study or others and say, "Look, you need to look over there rather than within the confines of the insurance industry."

Rick: Well, and I think that customers have been taught by some of those companies, whether it's Microsoft or Apple, to expect certain kinds of convenience, and friction-free engagement, and fun. There are two things that I will add to what you said, Mick, two messages I like to give on this.

One, if you flip the script a bit, and think about this as a demand-side problem, I'll go to mobility, because it's a bit outside of it, and you think there's a mobility marketplace that’s taking shape very, very rapidly, and using driverless cars, electric vehicles, scooters, and bikes, and then it's also the charging stations for all of that.

And if you looked at mobility broadly, you would see a huge growth opportunity. But still, that way of framing it makes a massive market opportunity much more apparent. If you stick in the auto category, though, that might not look so good. You might be under assault, so I think this point you made about flipping the…

Mick: The definition of the space.

Rick: Definition of the space really matters. And if you frame it that way, it could be outsized growth potential.

And then, I think the other piece that’s important is about management discipline. It can be learned, it can be practiced, it is knowable, right? And so, it's really important, because the point you made of, "Well, we're also people doing this, and a lot of it is tech.” The point of this is a new way of managing in a very complex world. And it can be learned, it can be adopted.

Mick: It can be the path forward.

Rick: It can be the path forward, yeah.

Mick: Yeah, well, Rick, a pleasure as always. Thank you, thank you very much.

Rick: Yeah, a lot of fun.

Mick: Look forward to continuing the conversation.

Rick: Me too, Mick. Thank you.

This transcript has been edited for clarity.

Featured in this episode

Oliver Wyman Partner and Global Head of Insurance, Asset Management, Actuarial, Mick Moloney, leads our team of more than 700 colleagues globally. The team is dedicated to providing advice to life, property and casualty (P&C), and health insurers, asset managers, and private capital sponsors across strategy, operations, technology, finance, risk, and actuarial disciplines.

Mick spends his time working with leading insurers, asset managers, and advisory firms on a range of strategic and execution topics with a particular focus on growth, innovation, and efficiency in retail and institutional markets. He’s passionate about growth and reinvention in the industries he serves, with a strongly held belief that while each is facing disruption and dislocation, there are massive unmet needs which provide the prospect of a bright and vibrant future. Subscribe to Mick's Reinventing Insurance newsletter on LinkedIn. Mick shares reflections, market views, and insurance and private equity insights for industry reinvention. 

Oliver Wyman Partner and Leader of CustomerFirst Americas, Rick Chavez, is an innovator with two decades’ experience at the forefront of the digital revolution. His experience spans a wide range of organizations, from pure start-up ventures through to $80 billion global corporations, as senior executive, advisor and Board member.

Over the last 25 years he has guided growth and innovation strategies and programs at companies including Adobe, American Express, D&B, Fox Home Entertainment, Kinko’s (now part of FedEx), Microsoft, University of Michigan, WalMart, and Yahoo!

Rick’s most recent operating role was with Microsoft, where he served as Chief Solutions Officer for Microsoft Advertising and Consumer Monetization, General Manager of Marketing Solutions, and founder of Microsoft’s Solution Studio415. He built and led an inter-disciplinary team of designers, analysts, consumer researchers, and software wizards to co-innovate marketing solutions with global corporations, drawing from Microsoft’s portfolio of consumer, internet, and enterprise assets. He worked with senior leadership and the CEO on growth initiatives at the intersection of cloud computing, sophisticated analytics, and business model innovation. Learn more about Rick here and connect with him on LinkedIn.

Our Host

Oliver Wyman Partner and Head of Asia Pacific Insurance and Asset Management, Paul Ricard is based in Singapore. Paul works closely with businesses to reinvent their strategies, products, and services — and to fuel top-line growth opportunities.

He works with clients across Asia Pacific, as well as the Americas and Europe. He regularly partners with firms to reinvent their business strategy, rethink their priorities, and to modernize their technology while accounting for rapidly changing customer needs. He understands his clients’ realities, and thrives on helping them innovate and strengthen relationships with their customers while factoring existing challenges.