Fall 2016

Editor's Note

The Evolution of Innovation

Since the inception of the Business Performance Innovation (BPI) Network, we have focused on accelerating the power of innovation by creating a community for forward-thinking executives who act as catalysts for their companies’ growth. We want to take a moment to welcome new visitors and thank our members for being multifaceted, diverse, and positive contributors to our rapidly growing network. I invite you to take a look through our feature articles, reports, and initiatives highlighted in this edition of Brainwaves—there is certainly something for everyone this year!

With the help of our growing community, in 2016, the BPI Network focused on a wide array of topics such as The Industrial Internet of Things (IIoT), disruptive insurance models, financial regulations acting as strategic opportunities, and ways to combat document deluge. We delved deeply into these topics through a variety of initiatives and studies in order to best equip our members with the most accurate and thorough research of new disruptive models, best practices, and decisions agile enterprises need to focus on to be successful in today’s evolving marketplace.

The BPI Network has always believed that disruption provides opportunities for agile businesses, and this year we are looking at how companies of all sizes are approaching new regulations, standards, and technologies to create increased opportunities. In a study on new financial regulations, we discovered that increased complexity is in fact presenting a unique opportunity for progressive CFOs. Launched in the beginning of July 2016, the study, “Progressive CFOS: Inspired by What’s Required,” investigates how new regulations are driving CFOs to improve their capacity to deliver rich insights that drive more strategic decisions than they were previously capable of delivering.

Through qualitative interviews with CFOs from companies such as Generali, John Hancock Investments, UniCredit, and Xerox, we have discovered that for these progressive CFOs, these new regulations are actually opening the door for increased opportunities. Head of Group Integrated Reporting and CFO of Assicurazioni Generali, Massimo Romano, elegantly states: “We are in a very disruptive period, which means it is actually a fantastic opportunity to evolve from our role of simple bookkeeping to something much more valuable.” The report, sponsored by Tagetik, a leader in global performance management software solutions, is available for download here.

And while new regulatory environments are certainly impacting industries across the world, we see that in today's digital age, document deluge is significantly impacting worker productivity on the ground. Any hard-working employee understands the struggle of document overload. The frustrations you might feel are shared, as market research shows that document-related distractions account for over 21 percent of worker productivity loss. In May 2016, the BPI Network addressed this issue in a new study about the difficulty workers face called, “Dealing with Document Deluge and Danger.” In a survey of over 500 workers, the report digs into the biggest frustrations around document versioning, sharing, and updating. Sponsored by Foxit, whose Connected PDF addresses the myriad of document-related issues facing companies today, the report can be downloaded here.

In another thought-provoking report, the BPI Network dug into a disruptive insurance model storming the mid-size company ecosystem. Captives, or captive insurance models, are especially relevant for mid-sized companies in industries such as construction, manufacturing, and healthcare. This insurance model allows companies to put money into a "captive," and in the good years they can reinvest their money, and in times of need they can take from the captive. While the model appears simple, it is a game-changer for companies that do not have exorbitant funds for insurance they may or may not use. The report is sponsored by CapSure Risk LLC, a leading wealth-creation advisory firm. For more detailed information, please check out our Contributed Article (should hyperlink) section further down the newsletter. You can also download a report on the captive insurance model here.

In Q4, you will see a brand new report on the very exciting topic of the Industrial Internet of Things. In 2016, the BPI Network partnered with Penton’s IoT Institute to create a research initiative to dig into the impact of IoT across industries, “The Impact of Connectedness on Competitiveness” initiative engages with manufacturers, plant operators, infrastructure managers, and others to understand how different businesses adopt IIoT, and the true effect of this powerful technology. We seek to identify best practices using IIoT applications and benchmark the degree to which smart operational management is enabling new business models. To learn more about the IoT Initiative, please see the Feature Article (hyperlink) below. There are still sponsorship opportunities available for this incredible initiative. If you are interested in getting involved with the research, and presenting those findings through panel discussions and an executive roundtable at Penton's IoT Emerge this November in Chicago, please email Sally Quigley at squigley@bpinetwork.org.

If you have not already, participate in the survey here.

Again, we want to thank you for your engaging participation and strong contributions to the BPI Network. Because of your powerful insights, we are able to explore innovation in all of its forms. We're excited to share what we've been up to this year, and give you a sneak peak of what's coming!

Feature Article

The New Industrial Revolution

By Sarah Karlen

As a relatively new concept that has potential to transform companies, The Industrial Internet of Things (IIoT) connects people, data, and intelligent machines to enable productivity and efficiency for a new era of economic growth. Stripped down to the purest meaning, the Industrial Internet of Things means innovative technology creating more value and growth for companies around the world. Not only will this significant trend boost user-machine interaction, but it will also revolutionize M2M (machine-to-machine) engagement, creating new opportunities to improve customer experiences, operational insight and productivity, predictive maintenance, safety, and more.

IIoT may seem ambiguous to many because it is a new, uncharted territory. But the potential for big returns on IIoT investment is there.  By some estimates, the industrial internet could add some $14 trillion in to the global economy by 2030. For this reason, BPI Network is teaming with Penton Media’s new IoT Institute to flesh out the strategy and details of how organizations can measure value and growth within this domain. The BPI Network is pioneering groundbreaking research that seeks to understand the actual business worth created from operational insight of the Industrial Internet of Things. BPI’s new initiative “The Impact of Connectedness on Competitiveness” engages with manufacturers, plant operators, infrastructure managers, and transportation providers to understand where these businesses are in adopting IIoT.

While the results of a global survey of business executives will not be released until later in October, preliminary findings show that a sizable 70 percent of executives expect major economic impact from IIoT over the next three years. Nevertheless, less than 8 percent of organizations say they have a clear vision for IIoT with implementation of applications underway. Over 60 percent of respondents see IIoT as a high or growing strategic area of interest, and because IIoT is still in early exploration, there are ample opportunities to create business value from creating applications and strategies tailored to each industry. The new study will properly equip businesses with guidance on using IIoT applications and benchmark the degree to which smart operational management is enabling new business models.

 If you have not already, participate in the survey here.

The Business Performance Innovation (BPI) Network’s partner for this initiative, Penton’s IoT Institute was launched just this year in recognition of the huge opportunity presented by IoT.  The Institute is dedicated to providing real-world case studies, insights, research and E-Learning on this new phenomenon that is reshaping businesses and cities today. Penton is focused on getting beyond the ‘hype’ and provides advice on how to evaluate the importance of technology for each unique business and best execute project deployments. Penton’s mission is to aid cross-industry learning and partnership to catapult IoT market value. 

A common misconception workers have of IIoT is that their value could decrease as an employee if there are smart machines ‘replacing’ them. That being said, in Spring 2016 the IoT Institute conducted a survey measuring the primary advantages IIoT is bringing to different industries. In the Manufacturing field, research shows that only 2 percent of businesses consider a primary advantage of leveraging IoT to be reducing headcount. Rather, these businesses are looking to utilize IoT for improved data analytics and services (53 percent) and improved workflow and processes (49 percent).

Chief Marketing Officer at IDG (International Data Group), Josh London, agrees: “We are not a room full of servers run by an algorithm that creates the best solutions for people. It is still very much about the individuals, and their ability to meld art and science together that really makes the difference here.” IIoT plays a powerful role in transforming the future, but that still cannot be done without the hard work of committed employees.

Indeed, executives from leading companies indicate that education is critical to the IIoT revolution, and BPI Network’s research initiative will thoroughly explore what will reduce risk and maximize uptime, safety, comfort, output, as well as further efficiencies and cost reductions. Peter Trebilcock, Director of BIM at Balfour Beatty, emphasizes the importance of education in this new, technological world: “In the marketplace, there is still a fundamental lack of understanding and appreciation in changing from the status quo when it comes to digital and technological transformation. There are certainly specific concerns around skills and standardization, specifically around aligning your digital approach with suppliers and field teams.”

Even machines still need proper education, and Trebilcock believes that the real gold lies in terms of machine learning and analytics to use data that has been generated to learn about the small negative outcomes. Positive feedback is always helpful, but the negative outcomes are where companies will truly know where and how to grow. “It’s not just about connecting pieces of a building together through digital construction though; it is also about being able to optimize construction and minimize waste, energy usage and risk, and make it the leanest and safest project possible,” states Trebilcock.

Once companies grasp the evolving concept of IIoT, the transition is smooth and the outcomes are successful. “Thanks to IoT, we are shifting from a product-centric to a service centric industry,” says Kalman Tiboldi, Chief Business Innovation Officer at TVH. “Now, we can connect with and measure the usage of our assets and devices. We get value from IoT in many different ways; from having sensors in the right place and leveraging value from the data, it creates incremental improvements to both efficiency and safety.”

Chief Marketing Officer at SAP, Maggie Chan Jones, believes that now more than ever, companies should utilize their advanced technology: “We could potentially even get live data to show whether you are going to have a big hit on your hands, or whether you have to make some adjustments along the way. We have the chance to be a lot more agile because we can launch something and continue to iterate on it.”

Partnering with Penton’s IoT Institute, the BPI Network will launch its research study, “The Impact of Connectedness on Competitiveness” in early October. Those findings will be further fleshed out at feature panel discussions and an executive roundtable at Penton’s IoT Emerge Conference in November. The Chicago based conference will include working sessions, keynotes, workshops, live demonstrations, hands-on training, and peer-to-peer networking.

IoT Emerge displays IoT innovators that are reorienting their thinking and successfully addressing organizational readiness, data analytics, security best practices, and sensor-based networks. The new Industrial Revolution has arrived. Are you ready?


Otto Schell, Member of the Board of Directors at DSAG

Otto Schell is helping to redefine the true meaning of agility and speed for executives, based on his observation that “the world is no longer a globe; it is flat – with IoT you can see everyone, everywhere. Information is everywhere – agility is our new challenge.” Arguing that there will often be too little time even for data analysis and innovation measurement, the German thought leader advocates for “real-time, all the time” business agility – and that, increasingly, companies need to attack markets.

Schell is a Member of the Board of Directors of the German speaking SAP user group (DSAG), specializing in business processes and digital transformation. Beside this, he also runs the bi-yearly Globalization Symposium for international user communities. The leading advocacy group for optimized SAP solutions globally, DSAG represents more than 3,000 large and mid-size companies, and 55,000 individuals. Schell is also chair of international relations for the UN-accredited Diplomatic Council, where he helps define the meaning of technological and market changes from a cultural perspective, between states and nations.

In a major recent presentation on “The skillset of tomorrow,” he plots the business value path on X and Y-axes defined by Agility and Relevance. Schell states that merely 'in time' will need to become 'real-time', and that business agility will require 'on demand' models. Centrally, he challenges fears of change – and points out that any early fears of reliability behind services like Amazon and Uber were quickly extinguished. He states that “Digital transformation and IoT acceleration require speed while retaining trust.”

Schell describes the benefits of “Automation through sensoric networks – and digitalization of business models,” but warns that it is a “one-time opportunity for all of us; if you try to measure, you are too late!” Pointing out that the current generation of business readers represent the "roll-out model” of the new digital economy, this keynote thinker is helping companies understand the fundamentally different expectations held by Generation Y, and of Millennials – where even a desire to own products cannot be assumed.

His team is unearthing the ongoing value of whole species of underused physical assets, by revealing how smart and integrated sensors can be harnessed to optimize their use, maintenance and performance. Above all, Schell argues for the leveraging of new technologies to adopt new business models – typically, away from the sale of products and toward real-time services, noting that “Different players or a disruptive play is the task I’m giving (executives) to think about.”

In an interview with BPI, he cited the TotalCare business model innovation at power systems company Rolls Royce as a prime example of the needed change – where that company no longer sells engines and, later, spare parts, but rather provides customers with power by the hour, enabled by sensoric maintenance.

“Does Rolls Royce sell their turbines or do they sell the service of the turbines? They sell the service. They no longer go to an aircraft maker and say, here’s a turbine. They say – we will monitor our turbines 24/7, and intervene before something happens. It’s a complete different business model, which would not have been possible without the new technology.

“There is a general pattern toward service which companies need to think about. There is an Italian railway company which repairs its equipment on the fly – no longer does the train need to go to the station every 2 months and sit for three weeks. The idea is optimal asset life cycle usage – and that has urgent implications for business models.”

Contributed Article

CapSure Brings Disruptive Self-Insurance Model to Mid-Market Companies

By Rowan Philp

CapSure, a leader in alternative wealth creation and risk mitigation strategies, is a disruptive force for change in the tradition-bound and highly profitable property and casualty insurance industry for mid-market companies.  CapSure is helping companies create their own purpose-built, self-insurance subsidiaries, called “captive insurance” companies, in order to achieve major savings on insurance premiums, improve coverage of risks, build underwriting profits and grow capital. 

It’s a disruptive model that has already helped some 100 CapSure clients increase stakeholder wealth once captured by commercial insurance companies and build competitive advantage through the reinvestment of preserved capital.

The Ohio-based risk management advisory firm, a subsidiary of NMS Accounting, has designed a regulatory-compliant, independently audited captive insurance model that allows ordinary mid-size companies to take advantage of a proven approach previously used only by much larger businesses. With CapSure’s expertise and tools, these companies are creating their own licensed, regulated insurance entities and profiting from their own safer practices.

The model allows companies to avoid a huge proportion of insurance costs associated with broker commissions (approximately 20 percent) and administrative costs (20-40 percent).  These are areas of massive waste for an industry that exceeds $1.1 trillion in premiums, including $500 million in property and casualty insurance, in the United States alone.

Many observers believe the insurance industry is ripe for disruptive innovation and change. There are 46 insurance companies in the Fortune 500 with an average age of about 95 years. Meanwhile, insurance tech start-ups with disruptive new models raised over $830 million during the first five months of 2015 alone.  And while the captive insurance model is not new to large corporations, its application in the mid-market is a disruptive new trend with huge potential benefits to businesses.

Virtually all of the firm’s diverse clients have benefited significantly. On average, they’ve achieved a 15-20% savings on premiums and, in addition, often significant, tax-exempt profits on reinsurance. 

Warren Vickers, partner in CapSure, says the extra savings and investment has boosted the employment and business agility options for clients, while also improving their operational safety, and allowing them to take the business risks necessary to innovate.  

Vickers says many mid-sized company CFOs have, for the first time, been able to insure against the unique risks of the new digital economy, including cyber threats, data breaches, and brand reputation risks.

So companies are finding that they can use the new pool of insurance profits to invest in job-creating innovation, and also take the necessary risks of pursuing those innovations because they are covered for new, unique digital threats by the same model.

He says the company assists business owners who are frustrated with fluctuating and excessive premiums to effectively bypass traditional insurance by empowering them to underwrite and manage their risk coverage, while still acquiring commercial coverage against more catastrophic risks. CapSure helps companies to retain underwriting profits and investment income; money that is otherwise captured by traditional carriers. Meanwhile, premiums to the captive entity are tax-deferred, and available to be invested to grow the insured’s business.  

CapSure, which is in the midst of new branding campaign to reflect its growing national footprint, is reaching out to companies that are best positioned to benefit from the model, including but not limited to those in trucking and logistics, real estate, franchise companies and warranty providers.

Within a fully government compliant structure that includes independent actuaries and deep experience in risk transfer and data, CapSure offers companies:

  • Significant savings on insurance premiums;
  • Retained underwriting profits and investment income;
  • Personalized, customized coverage for specific needs;
  • Tailored premium outlays;
  • Benefits for ethical and compliant tax savings.

“It’s a growing area, and we’ve seen positive legislative changes from Congress,” he says. “Our sweet spot is those companies with revenues between about $10 million-to-$250 million. We’re looking at businesses paying premiums in excess of $500,000 annually with a low claims history, with a strong focus on New York and California businesses. Another big one is workers’ compensation, and we’re also looking to assist those who offer warranties with a more formalized vehicle to realize benefits.”

Although the captive market has suffered negative publicity due to the abuses of a few small “micro captives”, many experts believe that the extra employment and safety generated by properly structured programs will lead to ever-increasing public support, a friendlier legislative environment, and a much-needed cash boost for mid-sized companies. Indeed, legislation passed in December 2015 will boost the limit on premium revenue that captives can receive from $1.2 million to $2.2 million early next year.

Meanwhile, awareness is growing among private company executives that the majority of Fortune 500 firms have their own captive entities, from Verizon to Sears, and that it is simply smart business.

While the model offers significant tax advantages, recent research shows that the fundamental value motivation lies elsewhere, with surveyed companies listing key coverage gaps, the recapture of premiums, unique coverage for cyber risks; and access to reinsurance markets as the top four value-adds they have enjoyed.

Vickers told the BPI Network: “With captives, you can customize coverage to fit the needs of your business,” says Vickers. “And on the good years, it offers the business a whole bunch of opportunities, whereby as the captive matures over time and accumulates underwriting profit and investment income from safe practices, the captive can loan money back to the business and use it to buy equipment; or they could distribute it to shareholders. It provides the business an additional pool of capital.”

Like the technology-enabled fields of telematics and robo-advice within financial services, compliant captive insurance has graduated from the “too-good-to-be-true” phase and into one of the new win-win-win business models of the new economy (where the “third win” is improved safety).

The success is based on a simple formula: in the “bad years,” companies effectively pay themselves claims for the small, high-frequency losses up to a cap, while additional reinsurance covers catastrophic claims. But in the “good years” of few claims, those companies can reinvest the tax exempt dollars from underwriting profits and investment income—dollars that are ordinarily lost to their commercial carriers.

Vickers says the traditional insurance model offers a “negative incentive”, in which greater value flows from higher claims, while the captive model offers the positive incentive to be safer.

“Owning their own insurance company forces businesses to take a more active role in their risk management practices, as they directly benefit financially from improved policies and procedures,” he says.

A key value-add that CapSure bring to the model is its deep experience in big data and data analytics; a field which is set to transform virtually all of insurance.

Vickers says: “For my part: I had worked in analytics in the medical area and with manufacturers, and my financial services background gave me insights into how money should be moved to maximize competitive advantage. When I was working in data analytics, we drilled down for manufacturers, to see where they were losing money and how they could recapture that money. Its almost the same with the captive business: We are drilling down to see where clients are losing out on value on their commercial coverage, and showing them how they can retain that money for themselves.”

“We looked at different areas where we could leverage value for clients in the insurance area, and the research led us to a lot of Fortune 500 and 1000 companies that have their own captives. We studied the insurance law and the tax law, and we developed a model, whereby you can do self-insurance in a more formalized way that is simple for the client, where business owners own their own insurance companies and manage their own risk. We use actuaries who are entirely independent to assess the risk and determine the capitalization amounts, coverage type and premium levels.”

After deep research, and given the regulatory scrutiny focused on offshore jurisdictions, Vickers and NMS Inc.’s highly experienced managing partners, Shawn Neece and Brian Seifert, chose the state of Delaware as the optimal jurisdiction for new captives.

“Delaware is business-friendly and approachable, and has been very accommodating to us, in terms of enabling legislation and service,” he says. “We were also aware that offshore jurisdictions get a lot of scrutiny. You also need experience, and we were fortunate enough to do a lot of accounting work for various captive managers over a period of years.

CapSure records show that, in a typical case—assuming a 4 percent pretax rate on RoI, and an average claims loss of 5 percent of premium—a company that would otherwise pay $778,000 in premiums to a commercial insurer generated $263,000 in additional Retained Earnings utilizing a captive, with the same premium. And this grows to $292,000 by year five of the captive, at which point Retained Earnings (with no dividends) rise to a total of $1,434,000.

Vickers says his primary challenge is neither regulatory nor competitive, but rather one of perception and education.

“Some people still don’t realize that captives are fully licensed and regulated insurance companies,” he says. “And the problem with captives is that it is a bit of a broad term, so that the negatives of those abuses on the fringe can impact the image of a very sound model.

“Popular captive types include Pure or Single Parent captives used by many Fotune 1000 companies. Then there is more a hybrid program, which shares more enterprise type risks, commonly referred to as 831b captives, where business owners look to keep their current insurance and use the captive to insure supplemental risk and gaps in coverage where they are under-insured or currently informally self-insuring without the benefits of the captive model.”

“We like to focus more on the pure captives, and also touch on 831b models.”

He says CapSure uses multiple independent vendors for actuarial and audit reporting.

“There is no bias; they are entirely independent to us. We make sure we do a thorough risk assessment on each prospective captive client. Our independent actuaries review insurance policies, loss history, financials among other important business data to perform an in depth feasibility study to determine if a business will benefit from a captive program.”

Vickers says new, fully compliant captives can be up and running in as little as 90 days.

CapSure Partners:

Shawn Neece

Shawn Neece, CPA, CGMA is a Director and Board Member of CapSure LLC.  In addition, he is the founding member of NMS Inc. (formerly Neece & Malec) in January of 1996, where he is currently the managing director and works in development of the firms national practices, including alternative risk management structures, international taxation, and tax issues related to real estate industries (including preservation tax credits).  Prior to starting NMS, he was a treasurer of a middle market company and a banker.  Shawn has a Bachelor of Business administration from Cleveland State University and a Master of Science in Accountancy from Kent State University. 

Brian Seifert

Brian Seifert, CPA, is a Director and Board Member of CapSure LLC and is also currently an Executive Director at NMS, Inc. In 1995 Brian formed his own accounting firm and merged his practice to form NMS, Inc. in 2010. He is actively involved in marketing and business development efforts for NMS accounting, wealth management and insurance businesses. Brian specializes in risk management, international taxation and long and short term tax planning. He has advised over 20 mergers and acquisitions for both public and private companies. Brian has a Bachelor of Business Administration from John Carroll University.

Warren Vickers

Warren Vickers is Managing Director of CapSure LLC. He has over a decade of experience in the financial services and risk management industries helping private companies maximize profit and improve their operational efficiency using data-driven analytics. Warren leads the executive team in planning the long-term strategy and business development efforts to drive revenue growth. He oversees the financial operations of the company and is responsible for monitoring and implementing the performance measures that support the company’s strategic direction. Warren has a Bachelor’s degree in Economics from Cleveland State University.

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