Dreamforce16 - Farmers Insurance CIO advises on how to innovate around legacy

Profile picture for user ddpreez By Derek du Preez October 6, 2016
Ron Guerrier is a CIO who understands that it’s not enough to say ‘let’s be innovative’. It requires understanding the market, your organisation and politics.

Ron Guerrier, CIO Farmers Insurance
Ron Guerrier, CIO Farmers Insurance

Farmers Insurance CIO Ron Guerrier was speaking this week at Dreamforce in San Francisco, passing on some pieces of advice to his peers about how to navigate the perilous world of legacy systems.

Guerrier said that CIOs need to stop making excuses about the challenges that legacy presents, or otherwise they will become the next victim of changing customer expectations.

Without giving too much insight into the work that Farmers Insurance is doing, Guerrier did pass on some information that other CIOs or technology leaders may find useful when thinking about ‘digital transformation’ - i.e. taking advantage of modern tools, such as cloud, mobile, social and analytics.

Guerrier said:

CIOs have to think differently about technology. Yes, we are mired in legacy. We get that. Legacy debt is with everyone. Everyone has that same problem. So you have to take that excuse out of your vernacular.

What are we going to do about it? To ride the wave of what’s going on now in insurance is remarkable. There is tremendous amount of legacy debt, but one of the reasons we are sitting here today is that our CEO, our CFO and our C-suite has decided that enough is enough and we are going to transform.

Uptime is always important, optimisation is always important, but we as IT professionals need to do a lot more and we need to challenge what is next.

Not being the next corpse

Guerrier gave the classic example of how Blockbuster got the opportunity some years ago to acquire Netflix, as it was an emerging company, but turned it down as it didn’t believe that consumers would want to watch video content in that way.

Once Netflix surpassed Blockbuster in popularity, it then had the opportunity to acquire Blockbuster, which it in turn turned down. Guerrier said:

One of the things that keeps me going, is not being that model. Where you don’t realise that the customer is changing and you’re not changing with it. Being an ostrich, sticking your head in the stand, is not going to help you. You’re going to die, if you don’t keep on developing and learning.

There is a change in customer needs. At one point all they wanted was a rate, it was a commodity. Now the customer wants that experience. Yes, we are an insurance carrier, but our comparable is Zappos, is Amazon, those other experiential places.

We have to make sure that we match that. If we drop off of that, we will drop off what they are thinking about. It’s much more than just the contract or the rate that we provide them.

Guerrier gave delegates a number of first hand examples of how he has managed to navigate this legacy conundrum, whilst attempting to keep up with this changing customer expectation. Which isn’t always easy to do in organisations that have typically served traditional businesses and are truly set in their ways.

Keep the CFO on side - Guerrier said that if you have a good relationship with your CFO, this gives you as the CIO the opportunity to negotiate. For example, he said that if you can convince the CFO to give your technology function 25% of every dollar saved to reinvest in innovation, you’ve got a really good vehicle for future funding.

Guerrier also warned that if you are going to be investing in cloud - which is inevitable in a digital organisation - then it’s wise to sit your CFO down and warn them about the long-term shift in financials. They might get the subscription model in the early days, but later change their mind. He said:

The one thing I caution, have an upfront conversation with your CFO or head of finance. This is very important. In the legacy world you capitalise it and then it comes off the books after 10 years, whatever your depreciation schedule is.

But the minute you go to the cloud, they have to set aside money every year because you’re subscribing to something. A lot of companies forget about that part. They put it in the first year, they put it in the second year, but by the third year there is a debate about whether they can continue this.

Then there are questions about going back to legacy. Make sure you have a very upfront conversation. I’m only saying that because I’ve been through that and it’s painful.

Cloud - Guerrier also said that he has worked in organisations where the issue of cloud trustworthiness has been a sticking point. However, he believes that if you can change the conversation, and talk to the business as a consumer, then that helps shape future purchases. He said:

If you struggle within your organisation with this whole ‘cloud is not trusted, it’s not safe’ - ask the person you’re talking to if they’re on Facebook. Ask them if they’re on Gmail. Have they gone to Amazon?

If any of those answers are yes, why is it okay for you to put all of your information out there and you still see cloud as a risk? Start having that conversation. And once you win your head of legal over, you can start having a different conversation.

Disrupt yourself - Guerrier said that whilst this might sound obvious, it is something that he has found to be absolutely true - even in an industry like insurance, which typically has a very high barrier to entry. He said that whilst some industries assume that they’re unreachable from being fully disrupted, this doesn’t mean that start-ups can’t nip away at your value. Guerrier said:

Disrupt yourself. You hear that all the time, but you really, really have to think that way. Insurance as an example, there are opportunities abound to disrupt part of the value chain. It’s very hard to get into the insurance industry, it’s heavily regulated. But it’s very easy to take out a bite of the experience.

Think TrueCar, it has done that. It came in and said one of two things happen in the dealer - they ignore you or they swarm you. What TrueCar did was find a way to make that experience easier for people. In insurance, how do you disrupt yourself? How can you disrupt it before someone else does?

Ideate, create and validate - Guerrier said that one of the great things about working with Salesforce has been its ability to challenge Farmers Insurance perceptions of the industry within which it operates. He said that most companies become very blinkered and only look to their immediate peers for ideas and/or see them as competitors. However, he has come to realise that Farmers Insurance has lots in common with plenty of other industries. He said:

You have to make sure that you bring the business and IT together to start thinking about what’s next. Salesforce came in and they challenge you to think differently about your systems. Which is great. But the most important thing that we got out of Salesforce, is thinking outside of our industry.

We have 11,000 Starbucks in the US. There are more farmer agency points in the US than Starbucks. There are that many farmers. We are an insurance company, but we have a distribution system that we have to support, much like retail.

One of the things that Salesforce did was make us think outside of our industry. We are actually looking at what’s going on in healthcare - they’re heavily regulated too, but if someone can provide surgery from India to here, why can’t we figure something out from state to state?

Challenging and protecting - During his time at Farmers Insurance, Guerrier said that he has done what he can to both challenge the status quo at the company, whilst equally protecting the innovative projects that his team has managed to bring to the fore. He warned that CIOs need to be careful about doing both of these, as they can be difficult in the context of a large corporation. He said:

Challenge all orthodoxies, those things that are conditioned. One of the things that I’ve learned, you’ve got to ask the question: But, why? The answer is that someone else did it twelve years ago that way. There are ghosts in the system. Challenge the organisation, but do it in a respectful way. When you ask for help, people are more accommodating. If you demand to know why, people tend to shut down.

At Farmers we have a lot of huge projects. But the problem is when you’re trying to innovate, the minute there is a funding dry up, or a need to defer money, the first thing to usually go (apart from travel) is the small projects. The pet projects. Try and find a way to insulate those projects as best you can. It’s going to be hard in a tough market, but it’s something you have to be think about because those opportunities could turn into gold.

Fail smart, fail fast - Finally, Guerrier said that CIOs need to introduce a culture of failing smart into organisations, which isn’t something that was widely acceptable prior to agile development. Failing used to mean losing tens of millions of dollars on a failed big bang project. That no longer needs to be the case. He said:

It’s very hard in organisations nowadays to fail. Why do you think Silicon Valley is a hotbed of innovation? Is it the water? No. It’s because it’s okay to fail here. It’s okay to do that. Most bankruptcies are in this area.

If you are in a start-up and you haven’t failed, you haven’t really done a start-up. You are allowed to fail and learn. You don’t want to do it unintelligently, but you want to be able to prove value from it and learn from it.

Image credit - Changes signpost © pablographix - Fotolia.com.

Disclosure - Salesforce is a diginomica premier partner at time of writing.

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