By Andrew Patterson
Most entrepeneurs starting out are usually focused on creating something new and then trying to grow the business by progressively increasing sales of their product.
But a road less travelled is the idea of solving a business process for someone else and then leveraging those relationships to grow the business into others areas.
And these days, with companies facing sluggish growth prospects, there is no shortage of large corporates willing to spend big money on process improvement in order to boost their bottom lines.
That’s been the experience of Auckland based technology start up KonnectNet.
Back in 2008 when the business was formed, the company’s three founding directors discovered it was taking underwriters up to 25 days to process a single application for health insurance.
Deciding there had to be a more efficient way to reduce that timeframe by utilizing technology more effectively, they set about completely revolutionizing the entire approval process.
Just four years later, processing time for applications has been reduced by 75% to an average of just six days resulting in improved customer satisfaction, significant cost savings and the ability for the insurance companies to more effectively cross sell other products; thereby also boosting their revenues.
So how have they done it?
Director and co-founder Hamish McLachlan says a combination of factors have driven their success.
“When we started out, we’d seen plenty of examples of inefficient processing within the insurance sector which made it very difficult for them to deploy new products into the marketplace.
“We thought there had to be a better way of doing things to improve the efficiency of the process and it seemed to us that it would be easier to achieve that objective from the outside in rather than the other way round.
“Between the three of us we had experience in insurance, IT and in my own case banking. When we looked into the problem we found an awful lot of paper based processing so that was the first clue to us the system was ripe for improvement.
So Konnect started engaging with some prospective customers and began discussing and sharing their ideas about how they could improve some of those processes along with ideas about how they could also improve the market distribution of insurance products.
“What came out of those conversations was one burning issue that affected all the parties involved in the transaction. Everything was being done in a highly inefficient non-standardised way which was costing everyone dearly."
“They all felt that if we could go about solving that problem first, then that would be a really good starting point.”
“So that’s exactly what we did.”
“The first phase of our process overhaul involved building systems with a series of platforms for each of the user groups so that they could communicate and share information between each other in a much more efficient and standardised way."
“So perhaps the best way to describe us is a process management provider.”
Of course, it sounds a lot easier that it looks, but when you consider the nature of insurance underwriting and its detailed, paper-based information requirements, you quickly realise that businesses like Konnect are fast putting an end to the term ‘paper shuffling.’
“If you think about it purely in a transaction sense, an underwriter gets an application from a client for health insurance. They look at that form and have to assess the risk factors involved and in many cases they will have to get additional medical information to support that underwriting decision."
“So if you’re sitting at your desk with access to the Konnect system, via your computer, you can request all that information in a very simple, easy way."
“As soon as you submit your application form then it’s going directly to the doctor that you are seeking that information from. So it’s a point-to-point transfer of that request. Similarly, at the doctor’s end, it’s filling in or pre-populating the info that you’ve requested allowing the doctor to easily review it before sending it back to the underwriter.”
All of this does raise an obvious question. Why is it necessary for an outside party to innovate a solution to improve the process when the sector itself could have collaborated to create a new system for themselves?
“While a lot of process improvement is done from the inside out they’re often only very incremental improvements because it’s actually very difficult to make that leap to arrive at a completely new way of doing something."
“So Konnect was in that fortunate position of being independent and coming at it from an external perspective enabling us to get both doctors and underwriters together to focus on these issues. Often in these situations the various parties don’t understand what each other’s problems really involve."
“Getting a really good handle on the nature of the problem to be solved was obviously a very important first step."
“Then we managed to completely re-engineer the way the whole thing would work and to get both sides to think about things in a slightly different way which created a win-win for all parties.”
Winning the confidence and trust of all the parties can often be the most difficult step in designing process improvement but Konnect had the advantage of a deep knowledge of the sector allowing it to build credibility from the outset.
“It’s fair to say there’s always a degree of scepticism with these types of projects, but what we were doing was effectively brokering collaboration between the groups to end up with the best possible outcome."
However, it’s only when you consider the before and after story you realise the significance of the company’s achievement.
“That first service we put in place, which is the health interface for the insurance sector, has resulted in performance improvement on the back of that system which has just been huge. We’ve managed to dramatically reduce average transaction times from 25 days to six and we now have every insurer in the country using the service. Plus, we now engage with nearly every health provider in an electronic or paper sense depending on their interface."
“So you’ve seen not only an increase in speed but the costs of processing have gone down significantly and off the back of that you end up driving better conversion rates because a quicker turnaround time means that people are more likely to end up buying the policy.”
What makes Konnect somewhat unique is that it’s not a software provider so its business model is based on providers paying on a transactional basis.
“Our business model was probably key to our success because it’s very much about a pay-as-you-go type model. So our customers pay per transaction rather than pay for a whole lot of set up fees and then additional customisation they might need.”
“What we’ve done is invest in setting up the infrastructure, manage the processing, make sure it all works properly as well as managing the transaction side of the business, while also constantly improving the process.
The success of Konnect is based around its full end-to-end model that brings benefits to all parties across the entire process while also allowing customers to opt for just a part of the process depending on their requirements; recognizing there’s no one size fits all in this business.
“From the outset we realised there was no one silver bullet that was going to solve everyone’s problems so our task was to drive consistent improvement by doing things better and better.”
The model clearly lends itself to other aspects of the insurance sector, an opportunity that hasn’t been lost on the company.
“We’ve already started focusing on the life and risk product space. Often when you’re selling various insurance products the information requirements are generally very similar. What our processes also do is help our customers to cross sell their products more effectively.”
While Konnect is still in a growth phase, managing that growth comes with its own set of challenges.
It’s rapidly outgrowing its cramped Parnell headquarters with virtually every inch of floor space now filled with desks and computer terminals.
Hamish McLachlan says the next phase of the company’s growth will be based on expanding into other markets.
“There are actually different ways of entering new markets by leveraging off your existing relationships. In our case a lot of insurers in NZ have relationships in the Australian market so entering these markets through those customers is one option, or targeting customers off the back of one of our services is another strategy for the Australian market or beyond."
As Konnect gets set to enter its next phase of growth its three founders are well satisfied with their efforts in just five years.
“We’ve always been focused on our vision and believed that we would achieve what we set out to do. So it’s always nice to realise to realise that vision but I don’t think we’re surprised we are we are because there was a void to be filled and we were able to implement our vision effectively."
“We’re immensely proud of our people and the business and what it’s been able to achieve. It’s just fantastic to be a part of changing the way a whole lot of organisations work to make them more efficient and we want to continue to be a part of that on-going process improvement approach in the future.”
It’s definitely one area where there is no shortage of business opportunities.