Progressive had captured 10% of the market and as the largest writer of auto insurance wrote 80% of its insurance premiums through independent agents. As an insurance company, it displayed strong characteristics of success, incrementally attained. Their methodology seemed to have a close correlation to the design rules for innovation, as expressed by Gary Hamel2. According to Hamel, “no company outperforms its aspirations”. For Progressive their goals were ambitious but they were able to prove that they could outperform the average.
They had the unique ability to finely segment using the appropriate information, data mining and statistical analysis, possessed the necessary proprietary software and the challenging strategy; they seemed to have all the prerequisites necessary to expand their market share. Their business definition was fairly elastic, expansive and changing. As Hamel suggests they defined themselves on the basis of competences and assets. They knew they had great software, namely their “Claims Workbech”, they had good data, but most importantly they had great assets, which were their employees.
Their philosophy was to hire the best and pay the most; an open market for talent. Progressive showed that they had a cause and did not only run a business. The basis for the implementation of their fast service, was that overall it would cost the business less and more importantly provide their clients with immediate service in the most efficient and equitable way. These efforts seem to set the preconditions to success. Their Immediate Response Program (IR) which utilized over 350 local claim offices and over 1400 IR vehicles, seemed to be comparable to the concept of cellular division, each unit being responsible for their own claims.
This model provided the opportunity to nurture the entrepreneurial abilities of the agents. The managers had an on-hands advantage and the results were beneficial to the clients. The claim cheques were processed faster, due to the technological advancements and the transmission of documents by the agents. Their pilot project in Texas was a testament to their caution towards risk. As Hamel suggests that being revolutionary does not mean taking huge risks.
The “Autograph” system conceived by McMillan in 1994, enabled the assessment of premiums on the basis of monthly time driven. Their query however was whether the overcoming of a few hurdles as licensing and the added expenses would make it possible to expand nationwide, making this system available to all their policy holders. Would it be worthwhile? The system certainly had the merits but a project implementation of this magnitude would require managers that saw the upside potential of this opportunity and would not confuse actual risk with perceived risk.
Their pilot project was a form of ‘secure’ disruptive incremental innovation, a system easily implemented that transformed how value was perceived and had tremendous effects on the business. Michael Schrage’s piece discusses how Apple by introducing color to their computers, brought about a change in market expectations about aesthetics. 3 Similarly as Sandra Boynton’s unique distribution method of her CD’s, as discussed in Phyllis Korkki’s4 article, Progressive found a unique method of resolving claims and distributing payments to clients in a quick and efficient manner, as part of their pilot project efforts.
Progressive showed that their main focus was on the creative process, rather than focusing on the earning potential.. Progressive showed that for a compexed type of business like the insurance business they had the ability to incorporate some divergent thinking in coming up with creative ways to streamline their expenses, better serve their customers and encourage tarnsparency with their introduction of comparison quotes.
These dynamic changes both radical and workable were performed within the constricted boundaries of Texas as part of a pilot project. How effective would this system be if it was applied nationwide, is hard to say, and it would be contingent on several key elements. For one, the type of leadership required would be one that believed in a culture of innovation and change. More market research and demographics would have to be considered as well.
One would have to reflect on they key questions posed by Clay Christensen 5 Does the innovation fill a void? Does it become viable and creates new growth markets; creative creation? Once the innovation takes root in new markets, will it invade established markets? Progressive certainly had the characteristics of an integrated company with proprietary software, allowing them to promote efficiency, making the best out of technology and allowing them to rise as a dominant competitors.
1 Innovation at Progressive: Pay as You Go Insurance (A), HBS # 602-175 2 Hamel, Gary (2000), Design Rules for Radical Innovation, (chapter 10) Leading the Revolution, HBS Press pp. 243-275 3 Schrage, Michael, (2004) Disruptive Incrementalism, Technology Review. Vol. 107, no. 2 pp. 20 4 Phyllis Korkki, The Power of Whimsy, Nytimes, February 17, 2008 5 Christensen, Clay (2002) “ The Rules of Innovation: Disruptive Technology and the Entrepreneurial Company, On-line.