Insurance has long been a collaborative industry—itssophisticated supply chain requires that insurers and reinsurers,brokers and agents, outsourced service providers, and other playersall work together. In recent years, however, insurance companies asdifferent as Nationwide, USAA, and Direct General have takenbusiness-to-business collaboration to a new stage by forgingstrategic alliances, long-term outsourcing relationships, affinitypartnerships, and other sorts of formalized collaborativearrangements.

“Partnership gives you flexibility to scale or downsize, to useyour resources more effectively, and to focus on that which you dobest,” said Jan Twombly, who serves on the board of the Associationof Strategic Alliance Professionals and is president of The Rhythmof Business, a consulting firm specializing in strategic alliancesand collaboration. “It also gives you great flexibility inenhancing your offering to customers—expanding the services you canprovide, doing something a competitor can't do such as fasterturnaround time, or exploiting new technologies and channels suchas social media.” Benefits can include faster time-to-market withreduced investment, because “with a partner, you don't have toinvest in developing that technical capability yourself.”

Partnering among insurance companies can help a carrier offer abroader range of services and increase its “share-of-wallet” fromexisting customers—an opportune way to grow profits and revenuefrom your book of business, in a soft or hard market. “USAA is amaster of this,” Twombly said. “They have relationships with otherinsurance companies to provide, say, motorcycle or RV insurance andother specialized services, when it doesn't make sense for acompany as large as USAA to have specialization in those areas.” Inother cases, companies such as Direct General have integratedpartnering with affinity marketing and social mediastrategies—working with supermarkets, title stores, and other firmsto market complementary insurance services.

The Challenge: Operationalizing Alliances

However, as companies inevitably learn, building and maintainingsuccessful partnerships requires sophisticated managementcapabilities and skill sets that most companies have in shortsupply.

“Alliances are conceptually easy, but operationally verychallenging,” Twombly said. “Any alliance has to function as theintersection of two or more companies, where you are looking tobridge boundaries of different cultures, different strategies,different ways of working and processes, and you really have tocreate a different culture, a 'third way' of working. For manybusiness leaders who are new to strategic partnering, it's a worldthey don't know, so they don't appreciate that making an alliancerequires concentrated effort and processes outside of their normalbusiness operations.”

There are many facets to consider when developing a strategicalliance. Is it just one company that faces the customer? Howclosely will your back-office systems integrate with yourpartner's? Who handles billing, and how is revenue shared? Is therecompetitive overlap (“coopetition” is increasingly commonplace) ordo your companies have clearly distinct, noncompeting roles andmarket positions? And just as important, how is the relationshipgoverned—especially when conflicts arise among the participatingpartners? To manage these and numerous other challenges of workingbetween and among companies, Chubb, USAA, Nationwide, and otherinsurers in recent years have developed sophisticated andformalized alliance management organizations dedicated to managingthe intricacies of intercompany partnerships.

The Strategic Approach Is Key

To succeed despite their intricacies, alliances and other formsof partnership must be approached strategically. The alliancestrategy must align with your business strategy, and each alliancemust be managed and measured to ensure that you achieve yourbusiness goals. This is true even if your primary goal inpartnering is to reduce costs. For example, outsourcing a non–corecompetency such as IT operations. Many companies make the mistakeof taking a purely transactional approach to such partnerships,when in fact their success or failure can have criticalimplications for the overall business.

“If you approach partnerships from an outsourcing mindset, whereit's all about lowering your costs, you'll have problems,” Twomblysaid, emphasizing the importance of establishing a formalgovernance structure and maintaining appropriate lines ofcommunications. “Yes, you will have a service-level agreement inplace, but that's the baseline,” she added. “It can't be athrow-it-over-the-wall mentality, because you won't know that thesilly little things you're doing are in fact preventing yourpartner from operating and serving you efficiently. Incompleteinformation, for instance, means they have to come back multipletimes to get what they need.”

In their 2007 Harvard Business School book InnovationThrough Global Collaboration: A New Source of CompetitiveAdvantage, Alan MacCormack and his coauthors examined morethan 40 collaborative projects. They discovered that companies makethree critical errors when they apply traditional practices tocollaborative endeavors:

• They don't consider the strategic role of collaboration, butsee it only as a tactic for reducing costs. As a result theirefforts are misaligned with their business strategy.
• They don't organize effectively for collaboration. Instead theytreat partners like suppliers of parts or raw materials, and managethem using a procurement function.
• They don't make long-term investments to develop collaborativecapabilities. Instead they assume their existing staff andprocesses can handle the challenge.

In the new collaborative world, established business models andpractices are no longer sacrosanct. Alliances and other forms ofbusiness collaboration require insurance company leaders toreexamine—and often discard—many traditional business practices, infavor of new approaches that break down business silos and fosterteamwork and collaboration across boundaries both within and amongorganizations.