The Agile Business - How to improve operational resilience without sacrificing profitability

Welcome to this live webinar on the agile business hosted by the Financial Times. Thanks go to EXL for sponsoring it. I'm Jonathan Guthrie, head of the Lex Column. I'm pleased to welcome a distinguished panel: Rohit Kapoor, co-founder and CEO of EXL; Vikram Pandit, chairman and CEO of Orogen Group; and Penny James, CEO of Direct Line. We have around 40 minutes for a panel discussion around our four talking points and 10 minutes for the Q&A afterwards. Please ask questions whenever you like using the Q&A box at the bottom right of your screen. I'll also be asking you a couple of polling questions as we go along. Please respond using the on-screen instructions. Remember you can tweet about the event using the handle @ftdigital. You can change your viewing format using the settings at the top right of your screen. And so to the business of the day: agility. Used to be one of those characteristics a lot of businesses claim to have without needing to prove it. Coronavirus has changed that. Please can we have our first slide, Rachel. I guess that's going to appear on your screens, and this will show how long it took a group of insurers to get back to around 90% of normal operations after lockdowns were announced. As you see, a majority took more than 48 hours. That suggests some of them were left floundering in the wake of events. The pandemic has also imposed a heavy financial toll. Next slide please, Rachel. This shows a forecast weakening in the resilience of large US and UK listed companies and consists of analysts' forecasts that were put together by the Lex Column. Many of those businesses have been able to raise substantial finance, but outside of tech the earnings outlook has weakened badly. And that brings us to our first discussion point: how do we optimize flexibility and resilience without losing efficiency and profitability? Well, perhaps I should start with Vikram, who as an investor must think about that a lot when he's talking to investee companies.

Well, Penny, what's your view on this? You've obviously just gone through, as everybody has, quite a testing time as in charge of your organization. Has it made you think differently yourself about how you balance resilience and profitability?

Yeah, thanks Jonathan. We've got about 10,000 people here in the UK, and like most companies and certainly financial services companies, getting up and running and keeping stable for your customers is critical. What we found is certainly technology resilience has been important in getting people home working, and financial resilience as a financial services organization with stress testing all the time, and that I think has left us in good stead. But the two things that have really struck me through this crisis is both how important it's been to be able to be flexible for customer needs — so we've been inventing new products or new customer journeys at a rate that we've never seen before, which has pulled down on our digital resource in a completely different way — but also the importance of being what I would call culturally resilient. So it's been as much about the behaviors of your people and their flexibility. We have four particular behaviors which we introduced that are about adapting quickly, getting things done fast rather than worrying about perfection, being one team, and facing into problems with honesty. Actually, if I pick up those threads, they've made a huge difference through this period. And I think the final bit I'd say is cultural flexibility. The cultural resilience has also been about other stakeholders. Traditionally, crises have been about how do we protect shareholder value, but this has been much more about how do you do your bit in society, how do you look after your customers. And I think that's something that we'll be taking forward from here as well.

Great. Well, Rohit, you run a very large organization, many thousands of people. Tell us a little bit about your journey over the last few months and how you've had to reconfigure and balance those opposing or hopefully complementary forces of resilience and financial performance.

Sure, Jonathan, and happy to share that. And first of all, Penny, thank you so much for joining this webinar, and Vikram, to you too. So the one thing that we went through with this pandemic is we've seen a heightened amount of volatility in the environment, and all of us have had to scramble to be able to deal with it and to react to it. Going forward, I think the volatility we know is going to continue, and therefore we have to be a lot more agile, we have to be a lot more resilient in order to not scramble but actually deal with it in a systemic format. But like the topic suggests, there is a natural conflict between increasing your agility, increasing resiliency, and the cost and efficiency associated with some of the changes that need to be made in order to be able to respond effectively to it. I think if you talk to any CEO, many of the companies that we work with, the number one agenda item for them has become resiliency. And resiliency is all right provided it's not at all costs; it's got to be resiliency and sustainability. And therefore we talk about how do you have sustained resiliency which does not really eat away the profitability or the efficiency of your business model. We've had three fundamental learnings from this experience that we've gone through. Number one: you cannot deploy a traditional means of ensuring resiliency. A traditional model would have meant more resources — more human talent, more technology, more redundancy being built in — because when you apply that, you're naturally increasing the cost of the operation or the business very significantly. The new agile playbook is actually about how do you switch into different business models of operating, how do you actually create an elastic supply chain that can expand and compress as the volatility takes place, how do you use technology, how do you use data, how do you use analytics so that you can respond a lot quicker and be able to deal with the situation and the volatility a lot more quickly. So that's number one: you need a new playbook, which is a much more agile playbook that doesn't really conflict with the cost going up at the same time. The second is I think the need for anticipation, prediction, and application becomes extremely critical in a highly volatile environment. And what that really means is being able to access data, apply predictive models, and anticipate the kind of volatility that's going to take place so that you can optimize the resources, you can optimize the business model, you can optimize the elasticity of your supply chain. So this becomes an extremely important element in terms of managing resiliency. And the last piece is, and we saw this play out very explicitly as we went through this pandemic, the trust, transparency, and partnership between a client and a service provider has got to be very, very tight. The more you can share information, the more you can partner, the more the trust and credibility that exists between the multiple organizations that are there, the better it is and the easier it is to be able to have high resiliency and lower cost. So I would say it's the agile playbook, the emphasis on anticipation and prediction that becomes extremely important, and the partnership and collaboration and transparency between the various players.

Very good. Well, that takes us to our first polling question. Rachel, if you could put that up on screen for us please. Now I'll read you the question: being as honest as you can, how would you rate your organization's agility on a scale of one to ten, with one being the lowest and ten the highest? I have to stress, by the way, this is an anonymous poll, so you will not get in trouble for saying what you really think. It really just helps to frame the discussion that we're having. So if you could click the link and answer that while we go on with our conversation, we will come back to that in a little while. So what I'm going to do now is take us on to the next talking point, which really is around the stress testing which we've seen. I think Penny pointed out that her organization is stress tested in a notional way on a regular basis as an insurer, but everybody has been through quite a severe real stress test and quite a severe financial stress test in recent years. And I'm being stress tested because the lights are going out in the room where I'm sitting because I'm not moving around enough. There we go, that's slightly better. So do excuse me if I occasionally wave to you on screen so I'm not plunged into complete darkness. So in terms of that question, what I'm interested in, I suppose, the three main headings which we've touched on already: operational resiliency, cost management, and corporate culture. And maybe if I could split that between our three brilliant panelists and ask them one of those each. Maybe the culture question was something Penny could talk about, having mentioned it previously. Rohit, maybe you could tell us a little bit about the operational resiliency side because you've obviously been through a very complicated reconfiguration at your own business. And maybe if we then go to Vikram to tell us a bit about the cost side, as somebody with a banking history who has to keep an eye on the expenses that are being run up by industry companies. Should we start with Penny?

Sorry, I'm just meeting because in true homework fashion there's machinery outside going. But I think in terms of culture, it's been one of the most extraordinary experiences for me coming through this. We've asked of our people and our partners extraordinary flexibility because we stress test hard in terms of financials, we've stressed hard in terms of what our operational choices are, but it's only in the moment that you can ask people to respond and move around and change the game if you like. And so what we've seen of our partners is everything from no support or limited support to — only EXL have been fantastic — and the way we've maneuvered around in some of our regions together and made the calls together. And we've had partners that we've had to support because it was important to us that they made it through. But culturally for us, the key thing is that we have a very open culture. We've been communicating regularly, people could feel that they could express strain, that they could explain their problems, that they could take opportunities. We've encouraged people to actually take delegated responsibility for making changes that are required because if I've got to make every decision in the organization, the only certainty is we will not be agile. And we have had people who have been really focused on customer and what are the outcomes they need for their customers. And I think those themes have carried through. And because of that and their pride in getting it right for the customer and getting it right for society, people have given huge flexibility to the organization. And we've had hundreds of people doing jobs that aren't theirs, and they've done so willingly because they can see what it's all about, what the purpose is, and how it gets to the right outcome.

Very good. And Rohit, what's your view thinking about the resiliency side of things?

Jonathan, on the operational resilience, we've got 33,000 employees globally situated, and when this pandemic hit we had to respond and react to that pretty much overnight across the globe. That was a real exercise, and I think just the character, strength, and innovation of each one of our employees allowed us to be able to deal with this situation in a format that was acceptable to our clients and that met the hurdles. But going forward, I think with the anticipation that there is going to be an expectation of volatility on an ongoing basis, we just cannot have a knee-jerk reaction towards any of these external shocks that are applied to the system, but rather we need to be much more well prepared for that. So what does that mean from our perspective? Number one is we need to have diversification, and that diversification has got to be geographic, that diversification has got to be by talent, that diversification has got to be by having different ways in which we can perform the work for our clients and use different channels to be able to continue to provide sustained levels of service while we are experiencing a shock. So that's one fundamental aspect that we're going to focus on: how do we diversify ourselves? And the ultimate diversification for us was today we've got almost 97% of our employees working from home, and you really have the dependency of one individual from their home operating, and that's distributed across 33,000 employees. We also have to create a number of tools and use a number of technologies that will make it easier for our employees to work from home, for them to be productive from home, and for them to be efficient when they're doing this work from home. And that's not just in terms of providing the service delivery, but rather we need to have collaboration tools because we've got to use the minds of our employees to continuously think of ways in which we can transform our clients' business and the operations and the processes so that we can adjust to the new environment as quickly as possible and continue to help them move forward. So I think the operational resiliency is something which needs to be built in by a diversification, a distribution of the workload, by the use of technology, and then by the final thing: at the end of the day, you can't really plan for every single eventuality, and that's where I think human ingenuity is going to come in and it's always going to play a very critical role. And like Penny spoke about the cultural adaptation and some of the changes, I think that human ingenuity and being able to tap into the mindset of our people, that's going to be really critical.

Very good. And it seems to me the point you're making here is that when you talk about volatility, the reality is we shouldn't make too many assumptions about the public health profile of the problem that we're dealing with. It's a very fluid situation, it's very easy to land at another new normal when something's going to come along and spoil that. And just moving on to Vikram, we've seen as we saw from one of those charts a very large amount of cash has been raised. Do you worry about the financial efficiency of businesses that you invest in? Obviously they're anxious and they want to have very big cash cushions, but there's very little return on cash at the moment.

Well, hold that thought because that's what we come to next. And meanwhile, just in terms of the polling on agility, I don't know if Rachel can show that on screen, but I took a little peek at the results just while our panelists were talking. It looked actually as if organizations got a fairly good review from the audience. You're saying I think that about 21% of you gave an eight rating for agility, which is quite high. Most of you are somewhere in the middle, and really poor agility there's only a small smattering of those. It does feel in most organizations that I've been in contact with since the start of the pandemic as if there's been quite a lot of pulling together, quite a lot of coordination. I was going to ask now to have a look at our second polling question. Rachel, if you could put that up now, I will just read it out to you. It is as follows: how permanent do you think changes to business and working life from the pandemic will be, with one being the least and ten the most permanent? And if you'd like to give your answers, tell us how much you think we're going to shift in the future and from now on. I'm also going to ask Rachel to just show us a couple of other slides next in the deck which I think start the second part of our discussion, which Vikram alluded to there, which is really around the role of technology. So the first slide that we're going to see I think is one showing cloud spending over the last four or five years, and as you will be able to see when we've got that on screen, there's been really quite a big acceleration in that. There we go, so you can see quite a sharp jump up, really more or less a doubling over five years. Cloud is obviously a very big feature of interest amongst investors now and an enormous business for a whole range of companies including Amazon. And then the second slide which I think we can show you is this one, which is polling by EXL which shows the level of AI that is being gone for in terms of future deployment. So you can see a lot of AI going into dealing with customer interaction, CRM type stuff I guess. Interestingly, quite low down in terms of the supply chain management side of things. Perhaps Rohit, who I hope is going to speak to us next, could tell us whether that poll was before or after the pandemic, because I suspect maybe the supply chain side of things might be seeing a bit more expenditure now.

You're absolutely right, Jonathan. This poll was done well before the pandemic, and you can see the prioritization at that point of time. Absolutely, I think if you do that poll today, you're going to see the investment on the use of AI, the use of predictive modeling on the supply chain is probably going to jump right into the top quartile.

The talking point which I was very remiss in not reading out is: how can businesses leverage data and analytics to become more agile in decision making and to manage volatility? So I think you already started on that explanation. I'll let you get on with it.

Yeah, sure. So one of the things which the pandemic did for all of us, for us at EXL included, is it suddenly put us into a totally different business model. And many pieces of data that were visible to us in the physical world in a completely digital format, many of those pieces of data became dark and they were unavailable to us, and we were basically responding by gut feel. So let me give you a couple of examples on that. Number one: because of the heightened volatility, I think businesses and companies needed to do reforecasting of their budgets pretty much on a weekly basis, and we just did not have the capability of being able to do that kind of a simulation on that kind of periodicity. A typical budgeting cycle is a once-a-year kind of a cycle, and you look at the data, you look at what you've done in the past year, and then you plan for the next 12 months. And we suddenly had to change the velocity of that planning cycle very significantly. A number of things pertaining to our employees: when the employees were coming to work in our facilities and into our delivery centers, and suddenly everybody is now operating from home, we need to be able to make sure that they've got the right connectivity, they've got the right equipment, they are logged in, and a number of details pertaining to that suddenly were not very visible to us. So it became management by — we were sort of flying blind at that point. So I think that's the realization that all of us have had: we need to make sure that whichever business model we might be operating in, whatever is the velocity of decision making that is taking place, we need to have access to data, information, and the ability to be able to apply that so that we can take much better decisions associated with that. And that's where I think you're going to see a real inflection point come in for the shift to the cloud, because by moving things onto the cloud you variabilize your cost structure, you increase your resiliency, and you don't necessarily increase your cost, and you make that data available no matter where you are in the world. And you can use that data and you can have a digital cockpit that allows you to take much better decisions. So I think we're going to see a big shift in terms of the way in which we manage and store our data, the way in which we use that data, and how we apply that data in terms of predicting and anticipating what kinds of trends and what kinds of needs might exist.

Great. Well, Penny, I wondered, you're in the claims business and we've read a lot recently about AI in claims, kind of technology more.

Yeah, I mean, our bread and butter is to use data to predict our cost of sales. We don't know until after we've sold the product in insurance, so our bread and butter is using data to predict what that will be, and to grab increasingly whatever tools and skills there are and whatever mathematical techniques there are to try and do that. And so we have been using in some areas of our business AI to better understand those patterns over time and to better predict pricing in certain parts of our market, absolutely. And as you start to do that well, what we've found over the years is that we've never invested traditionally strongly enough in data, because until you can understand the questions that you want to answer, you don't actually start to make the step change on the investment because each individual business case never in itself would fund it. So you have to make a step change of belief that actually I need to set up my data right, I believe that there will be opportunities here, I'm going to move cloud because of all the reasons that Rohit has discussed around flexibility and capacity and resilience. And then as you start to do that, look for the opportunities and start exploring them as to what you can do with data. But I think what's happened for us as we've gone through a lockdown process is all of a sudden our traditional data sources that predict consumer behavior kind of don't work so well now because consumers are not behaving in the way that they used to. And that goes for the number of miles they drive, what kind of claims they make on their household, what kind of products they want. And so starting to be able to use other sorts of data sources to understand what's going on is what potentially gives you an advantage in the market and lets you make your judgment calls. So we are on a data journey as many other firms are. I wouldn't say we are leading edge even though it's our heartland, but it's one of the most important things that we can do. And the other thing that we think is really critical: we've just reorganized all of our teams so they're multi-disciplinary, so that we put our data people next to our pricing people next to our claims expertise next to our customer people, so that actually they can start to have the conversation directly together about what creates most value and where the best experiments are. And I'll tell you in a year's time how effective it was.

Right. Well, Vikram, what's your view on this? The particular ways in which you think data and analytics should be used by big corporations?

Very good. So we keep the beer theme going, I like that. And I just had a quick look at the polling for the last question, which as you may recall was asking how permanent the audience think that changes to business and working life will be. I don't know if Rachel you can show that on screen now, but it looks as if it's perhaps predictably quite heavily stacked towards a majority probably around sort of 70% thinking that there will be really quite permanent change. And I think we should now in our final segment of panel discussion drill down a little bit more on the technology point and on productivity. We've already talked a little bit about the use of cloud and AI, but I wondered if I could just go around our panelists and ask them what investments are being made in technology to strengthen underlying architecture to support the agile business. And I'm interested really in your views across the piece, all the way from supply chain management through to financial analysis of balance sheet strength. Who would like to start us off on that? Maybe Vikram, since you answered last, you should answer first this time around.

Very good. Well, Rohit, you're very much a data expert. I mean, how good is the data that you have to hand if you're a manager? We all look at data a lot in our working lives now, and it's a variable quality, isn't it?

I think, oh absolutely, Jonathan, it is. And it varies across the enterprise, varies across our clients. But look, I think getting the data piece right is one part of the equation. The other part of the equation is the talent. One of the things which has happened with this change is we need to make sure that our employee base is trained, knowledgeable about how to use data, how to apply data, and how to store data, and how to understand the implications of that in the context of our clients' business environment, because that is really at the heart of it. So there's a lot of training, there's a lot of reskilling, there's a lot of change that we need to make. Now on this webinar, we've got Penny out there who's our client, and we've got Vikram out there who's our board member. I need to make sure that I keep both of them very happy. And the only way in which I can make sure that both of them are very happy is if we are aligned completely in terms of making sure that we do everything that we can to make Penny and her organization successful and therefore ensure our success. And if we do the right things, Vikram as a board member is going to be very happy in terms of the way in which the organization goes. And so some of the softer aspects of alignment of talent, of cultural adaptability, because our business models are changing — Direct Line Group's business model is changing as their customers are changing their behavior, and we've got to be able to change alongside with that. So ensuring that there is a cultural adaptability in this business model where everybody is operating from home becomes a huge thing that we all need to act upon. And I think making sure that that alignment is there becomes a critical factor for long-term success.

Very good. And I wondered actually, Penny, you talked a little bit about the data side of underwriting which is highly technical. I wonder just at the human level, how you found it keeping a workforce together remotely. Are the technological fixes that you found have worked well for you and others which have been less successful? Maybe you could share some of your lessons with the audience.

So it's been an amazing honor to lead our 10,000 people through the last six months. I can't tell you how proud I am of them. And it's been a technology challenge from start to finish, but it's some of it's very basic: have people got laptops at home? So how fast can you get 10,000 laptops out to people in the middle of a crisis? It's very basic in the moment but not high tech. It's been amazing how fast people have adopted Teams or Zoom or the various different collaboration technologies, and how that has shifted their hierarchies actually, how people have found a voice in a different way to what they had before. And that has been immensely powerful. We've completely changed — we have spent, we've focused actually from the word go on spending on making sure people's home environments were right in preference to spending to make sure the office environments were right, because from the word go, perhaps I was always skeptical that we would — however much we thought 12 weeks was technically going to be the answer, I think my natural skepticism suggested otherwise. But also all the way through this, homeworking has been received really well by people. And when we survey our people, something like 75% of them don't want to come back into an office full-time even after a vaccine. And so investing in the future of homeworking felt much more fundamental and strong than investing in perspective screens and offices. We have some of those so we can open certain areas of offices, but we've not hurried back into that because we're now doing a full-scale rethink on how we use physical space and what form. So it's been an extraordinary process. Communication lines have been completely different. There would have been spells when I've been speaking to thousands and thousands of people directly on a weekly basis. And so people have felt able to ask me and challenge me on what they're doing. So culturally you've seen the whole organization shift. And now what we have to do is keep on investing in our technology base, actually demand that certainly in the UK the infrastructure from Wi-Fi and broadband are strong enough across the UK to enable that at another level, but keep making those investments to make people's home working solutions brilliant, and then keep investing in our offices to make them collaborative zones that people can get what they need socially from.

Excellent. Well, look, we've got just about five minutes or so to take some questions from the floor. I have some of those already, and do send more. We'll try and get in as many as we can. And just to kick on, what I'm going to do in order to try and get as many questions in is I'm going to ask each panelist one question from my list here rather than going to each of you with every question, which would slow things down. And I was going to ask Vikram this first question, which comes from somebody at the University of Toronto. The team there is starting their own firm providing sales and trading data analytics and predictive modeling using AI and machine learning. I'm not quite sure what kind of trading — maybe securities trading I guess. And the question is: we have our first client meeting later this week. How are we going to start pricing in the possibility of unforeseen events like COVID-19 without compromising on quality of work and client relationships? Vikram, you must look at quite a lot of startup propositions. Do you have any thoughts for this hopeful team? First meeting, it might be with you, we don't know.

Very good. Well, I have a specific question also here for Penny, which is in relation to — in fact there are about two or three questions of this kind — which essentially is saying: working from home despite all its benefits in terms of resilience, does it not have a major negative impact on your corporate culture? Staff can't meet up face to face anymore.

Well, I think if you'd asked me six months ago, I'd have said we couldn't maintain the culture without face to face. I have to say that everything I've seen tells me the opposite, and everything my teams are telling me and my staff are telling me tells me the opposite. I think if you never ever get people together physically over time, that will degrade, and there are certain things that are definitely better to have some interaction — bringing your graduates in for the first time, some training activities and so on and so forth. But I have to say, the creativity of people to support one another and engage one another and entertain one another in the most extraordinary circumstances tells me that actually the culture is every bit as strong as ever it was, and that it will be so in whatever we define the future. But it does require people to focus on how they're communicating and think hard about that. Communicate, communicate, communicate. So it's a different kind of operation, but I have much more faith now in the teams and the culture to withstand that and actually thrive in that environment.

Great. Well, Rohit, there's also quite a specific technology question which I hope you have a view on: no-code technology is going to be the most transformational technology, says for insurers but let's generalize it for business generally, because of the power to change on demand which is handed back to the business from IT. And I think no-code technology — you'll be able to explain it far better than me — empowers people who are not brilliantly clever coders to actually change programs as they go along. What do you make of it? Do you think it's going to be a big deal?

Sure, Jonathan. I think in the past, all the changes to technology used to be made by the IT departments of our organization, and you needed to have specific IT skills to be able to make some of those changes. Now I think, as Penny also said, that shift is taking place a lot more to the business side and a lot more closer to the end customer. So I think being able to drive the change as close to the customer and as close to the business is going to be extremely important. So some of these no-code technologies are going to be formats and systems which are going to be available on the cloud, they're going to be very malleable and very easy to be able to play with and make changes and test and try and iterate as to what might work really well in what kind of an environment. And I think that shift has already begun, it's going to continue to do so. But I do think that has to be infused by a lot of data as well, because it's not about just applying technology, it's applying technology with intelligence that becomes really critical. So we're going to see a fascinating change take place as we step forward.

Very good. Well, we are indeed out of time now, and I would just like to thank our brilliant panelists who have worked very hard for us over the last 50 minutes, and also EXL for sponsoring the event. I've come away quite inspired and with a few takeaways. I've heard the words that I've jotted down as we've gone along: volatility — it's a very changeable situation, there's going to be constant challenges and quite a lot of difficulty along the way, I think. But we've seen people already adapt quite strongly to those. Velocity was another word which I think came from Rohit. And underpinning everything together was culture, which Penny mentioned quite a few times. It's been a very difficult and anxious period of months, but I think it has also brought people and businesses and teams together to a great extent. And the overall challenge was very nicely put by Vikram when he referred to that old beer commercial. I think that was a beer or indeed a corporate culture and a technology that is not quite so filling in terms of cost and working capital, but it's still very satisfying. So on that note, I'd like to thank you all, and I'd like to thank you the audience for tuning in. Thank you.