What Insurers Can Learn from Barnes & Noble's Recent Struggles

It's a familiar story: An established, household-name company, having underestimated competitive challenges from upstart competitors, finds it has no financial alternative but to put itself up for sale. It happens all the time, especially in retailing. Whether it's a small Mom-and-Pop merchant folding under pressure from Wal-Mart or a (once) huge chain such as Sears trying to reinvent itself for the nth time in response to more nimble discounters (another Wal-Mart casualty), it's almost impossible to compete against a combination of scale, tech-savvy and a low-price strategy.

I usually consider these sad stories as metaphors for the dangers of ignoring or resisting change. However, it's not another stodgy small business that's the latest to tell the tale - it's Barnes & Noble, which had deployed its own version of the Wal-Mart competitive strategy to dominate book retailing. Its ubiquitous huge stores and deep discounts were forces that many independent book sellers and small chains simply could not withstand. The retailer also aggressively embraced e-commerce - it reportedly expects web sales to increase 75 percent in the next fiscal year to $1 billion.

But on Aug. 3, the giant bookstore chain announced that its board is considering selling the company (possibly to an investor group led by Leonard Riggio, its chairman and founder), as well as "other strategic alternatives," because its stock was "significantly undervalued," according to a report from The New York Times.

The news was startling, but perhaps not completely surprising - especially in light of Amazon's recent announcement that sales of its Kindle e-book have surpassed sales of hardcover books, as well as a report from the Association of American Publishers that e-book sales (including those accounted for by Barnes & Noble's Nook) grew 207 percent in the first five months of 2010. And this doesn't begin to measure the potentially disruptive impact of Apple's iPad tablet. It appears that, far from throwing in the towel, Barnes & Noble actually is placing a bet on the future and following the growth - and has decided it needs a different financial model to fund that future.

There's a critical short-term lesson for insurance companies here: You must immediately facilitate electronic, real-time interactions, on multiple platforms, for all your constituents (policyholders, distributors, employees, partners). This is the way business will be transacted, sooner rather than later. There's a longer-term lesson, too: You are never too big or dominant to be vulnerable. Scale and efficiency will always provide advantages, but increasingly they are trumped by market insight and the ability to transform.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio