Introduction
Aetna is a managed healthcare company based in the United States. The firm sells traditional consumer-directed healthcare insurance and other related services. Examples include pharmaceutical, dental, medical, long-term care, disability plans, and behavioral health through insurance and benefit programs and Medicare. The history of Aetna can be traced back to 1853 when it was founded as Aetna Life Insurance Company in Connecticut (Aetna, Inc., n.d.). Aetna life insurance was originally an affiliate company t the Aetna Insurance Company, whose specialization was fire insurance. Aetna life insurance benefited greatly from its association with the bigger company, which already had a good reputation for speed and reliability in processing and paying claims. Etna Life could not continue being part of the broader company due to a new state law that was passed in 1849 preventing companies from offering both fire and life insurance. Since its establishment, the company has gone through tough times resulting from such events as new legislation, changing ownership forms, and even the 1861 civil war. It is the civil war that saw the company change its form of ownership as it became investor-owned.
The insurance industry has undergone multiple critical changes that have affected how Aetna conducts its business. In the late 19th century, a national wide depression of 1873 struck, which was further complicated by major changes in the method of payment of premiums. At the time, insurance companies started accepting interest-bearing notes, but bad press forced Aetna to go back to requiring all premiums paid in full and in cash. Aetna also became a family-owned business during the same period as Morgan G. Bulkeley’s son, Eliphalet Bulkeley, took over the leadership of the business, a position he retained for 43 years (Aetna, Inc., n.d.). In the 20th century, the company decided to advance through innovation and diversification, which arguably laid the foundation of the modern operations of the company.
For instance, Aetna started offering new forms of insurance, including accident and health insurance. Aetna was also among the first insurance company to offer a comprehensive insurance policy for automotive. Other policies covered marine, accident, and liability and casualty and surety for bonds. During the 1960s, after undergoing multiple changes throughout the world wars, Aetna started expanding globally in the 1960s. it purchased the Excelsior Life Insurance Company of Toronto in 1960 and later entered into an international agreement with Assicurazioni Generali S.p.A., an Italian company (Aetna, Inc., n.d.). Its international expansion has majorly been achieved through acquiring foreign firms.
Digital Business Model Framework
Digital businesses, either those that start that way or those that actively transform from analog to digital, must operate within a model framework. According to Weill and Woerner (2018), businesses that undertake digital transformation tend to find ways to create a persuasive new value proposition, majorly through a breakthrough in customer experience for a long time, changes in customer needs and behavior have been driven by technological advancements. Today, more customers are keen on solving life events as opposed to purchasing a single item. Applying this principle to the case of Aetna and the broader insurance industry, it can be argued that the clients will be interested in more than simply an insurance premium. The digital business model framework has been described by Weill and Woerner (2018) as a tool for building a digital enterprise. in this case, the firm needs to have greater knowledge of the customers to fully meet their needs.
The business model framework comprises four quadrants, each with specific characteristics determined by how the firm related to both the customers and the entire value chain. The omnichannel is the upper left quadrant where firms that fall under it are deemed to have a deep knowledge of their consumers due to the direct relationship they enjoy. Additionally, these businesses offer access to products in multiple digital and physical channels, which ensure a seamless experience sought and expected by the clients. The suppliers are in the lower left quadrant, characterized by little knowledge of the customers and their preferences. The lack of a direct relationship emanated from the fact that suppliers could sell products and services through distributors. Ecosystem drivers are in the upper right quadrant and comprise businesses that offer both deep end-customer knowledge and a wide supply base. They sell both their products and those of their providers. Lastly, modular producers are in the lower right quadrant and comprise firms that offer distinct capabilities of an ecosystem driver but with little knowledge of their customer base.
Aetna is majorly an insurance provider that sells products directly to customers. This means that the company hardly fits within the supplier quadrant, which comprises firms that sell through distributors and have little knowledge of customer preferences. If Aetna sold its premiums through agents, then it could easily fall under this quadrant. However, the fact that the firm is fully aware of its customers and seeks to create a seamless experience across the value chain means that Aetna falls under the omnichannel quadrant. The key feature of this quadrant is that it creates an integrated value chain comprising multiple products and a multichannel customer experience to address consumers’ life experiences. Through offering life and other forms of insurance, Aetna started in the omnichannel quadrant of the digital business model framework.
However, Aetna has continued to grow and expand through acquisitions. In many cases, the policies sold by the acquired firms were not the same as those sold by Aetna. It can be argued that the acquired businesses are treated as providers of insurance products that can be sold by Aetna. In this case, it becomes apparent that Aetna may have started in the omnichannel quadrant but has slowly and gradually entered the modular producers. Weill and Woerner (2018) argue that the modular quadrant tends to offer the best of both requirements of a digital business. In other words, multiple channels and deep knowledge of the customer and customer’s needs through direct relationships make the modular quadrant the most efficient. Through the digitization and acquisition of both local and international insurance companies, Aetna has become a provider of a wide range of products offered through both digital and physical channels. The digital platform for Aetna may be predominant, but the company started as a traditional insurance firm with physical channels.
Competition from Digital Companies
Aetna was not the only early adopter of technology in insurance. In a market report prepared by Lineweaver (2019), three other insurers are also early adopters and they all have rated the new technologies as must-haves. The competitors are BCBS companies, United Healthcare, and Cigna, all of whom are large providers and direct rivals to Aetna. The level of competition can be labeled as a medium, at least at the digital framework, since different firms have followed varied paths towards digitization. However, the fact that there is relatively fewer large business means that each of the four insurers can survive the level of competition from the rivals. An important point to note is that there are relatively high barriers to entry, which means that the number of rival firms does not rise to significantly offer greater competition. The barriers are often in the form of development costs and state regulatory requirements. Such firms as Aetna have survived most of the historical legal changes, which have made them resilient and capable of escaping new laws.
Another element that keeps the competition relatively low is the fact that these large insurers have adopted an expansion strategy that involves acquiring other insurance businesses. as mentioned earlier, Aetna’s international expansion focused almost exclusively on merging with foreign firms. The local expansion also follows the same trend, especially when developing their digital frameworks and platforms. The acquisition of rival firms tends to create a new type of market structure that gives the large companies monopolistic power. However, considering that there are more than one firm means that the digital insurance business in the United States is dominated by oligopolies whose market power emanates from buying rivals. It can be argued that digital health insurance comprises firms that have transformed from traditional insurers and those that have developed technologies to make the delivery of services better. This might increase the sources of competitive pressure for the insurers. A similar approach has been used by the businesses to reduce competition – Aetna and other large insurers acquire and enter other forms of strategic partnerships with tech businesses that offer digital services. The case of the CVS-Aetna deal embodies the core of this approach to competition.
Rating on Organizational Capabilities
The digital business model framework presents eight organizational capabilities needed by a next-generation firm. Considering the digital evolution of Aetna, it can be argued that the firm has made the necessary efforts to rate highly across all of the eight capabilities. The first capability involves gathering data regarding consumers, including their goals and needs (Weill & Woerner, 2018). In this regard, Aetna’s success is founded on its ability to offer a seamless user experience facilitated by a great knowledge of its consumers. The second capability involves amplifying the customer’s voice or making the client central to all corporate activities. At Aetna, the historical changes have been forced by the need to improve customer service. In other words, Aetna rates highly due to modeling its products and services around the consumer. The third capability is the culture of evidence-based decision-making, where Aetna also rates highly. The rationale is that most decisions have been influenced by market research and emerging trends in the insurance sector.
The fourth capability involves offering an integrated, multichannel, and multiproduct customer experience. As discussed earlier, Aetna started in the omnichannel quadrant where the key feature is several products offered through many channels, both physical and digital. Further expansion has seen this practice extend towards the modular providers where Aetna gains more channels and products for its customers. The fifth capability is about being distinctive and occupying the best place perceived by the consumers (Weill & Woerner, 2018). Aetna is a unique business although competitors have followed an almost similar path. However, Aetna has succumbed to customer pressure and designed its products in line with the customer demands, which allows it to rate relatively higher in this capability. The sixth capability revolves around acquisitions and partnership. In this case, Aetna could rate the highest in the industry due to the multiple local and internal acquisitions and strategic partnerships.
The seventh capability is service-enabling the core business capabilities and making them available through an application programming interface (API). The current technological developments at Aetna are evidence of how actively the company pursues the digitization of core services. The APIs are largely in the form of new software developed to give users new service portals from where the digital services can be accessed. Depending on the services offered, Aetna has developed a wide range of software applications with appealing user interfaces. The last capability is concerned with developing compliance, efficiency, and security in the form of corporate competencies (Weill & Woerner, 2018). All digital businesses actively pursue this capability out of necessity considering the regulations and threats involved in the digital markets. In this regard, Aetna makes sure to comply with all guidelines, including cybersecurity issues.
Competing Digitally
After developing digital competencies and capabilities, Aetna can now effectively compete with other companies digitally through content, digital platform, and customer experience. According to Brohan (2017), Aetna has continuously built out digital healthcare, often to deliver health insurance and related information. As of 2017, over 15 million of Aetna’s 19.5 million healthcare plan enrollees had access to digital healthcare portals, from which they can access their benefits and data. Additionally, Brohan (2017) finds that even though only 2% of the overall US population bought insurance in 2016, consumers are increasingly using the web to purchase insurance, which is the primary motivation for Aetna to continue building its digital platform. This initiative can be considered to be a competitive strategy where the company acknowledged trends and designs services and products to suit emerging needs. Any firm that can offer seamless online services where consumers can access everything they need using the digital platform tends to create a user experience desired by the consumers. Continuous improvement is conceptualized as a means of gaining a competitive edge in the market.
Another mechanism that Aetna uses to compete digitally is the continuous improvement of the customer experience through content design and generation. In this case, the content revolves around the core data sought by consumers regarding their health and insurance coverage. Mobile applications are at the forefront of content creation and consumption. According to Small (2015), the rise of consumerism in the healthcare industry necessitates firms to keep their customers informed about such issues as plan choices and access. The content created in this regard is simply a means of keeping users engaged and educated, which in turn helps them make informed decisions. In marketing, content creation is often intended for use as a marketing tool where customers are provided with as much information as possible. As opposed to advertising and promotions, content creation targets the overall user behaviors and intention to purchase. Phone and table-based apps are preferred by insurers, including Aetna since these devices are used daily.
References
Aetna, Inc. (n.d.). Aetna Inc. – Company profile, information, business description, history, background information on Aetna Inc. Web.
Brohan, M. (2017). Why Aetna keeps building out digital healthcare. Digital Commerce. Web.
Lineweaver, N. (2019). The digital health competitive report: How the big 4 US insurers rank on digital feature awareness — and what it means for customer satisfaction. Business Insider. Web.
Small, L. (2015). Health insurance and mobile engagement: What’s working, what’s new and what’s next [Special Report]. Fierce Healthcare. Web.
Weill, P., & Woerner, S. (2018). What’s your digital business model? Six questions to help build your next-generation enterprise. Harvard Business Review Press.