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State Farm: 15 Keys To Successful Digital Transformation (Learned The Hard Way)

John Koetsier

State Farm is almost the opposite of a tech startup.

It's a 100-year-old company with 58,000 employees, 19,000 independent agents, and 84 million customer accounts. State Farm is #36 on the Fortune 500 and has been the #1 insurer in the United States for the last 70 years.

But three years ago, State Farm executives knew they needed a digital transformation of basically Biblical proportions to continue to be relevant in the digital age.

They had "dabbled" in online but failed, by their own admission, to put all the innovations together successfully. They had hired a consultant, automated existing business processes, but had not moved the needle on customer experience, revenue, or profits. As a result, the brand was getting less relevant in an app and digital-centric era, and market share started to suffer.

So the company radically changed direction, hired a chief digital officer, and went all-in on digital transformation.

So far, that effort has led to a 75% increase in app installs over the past year, a 400% increase in bills being paid online, record traffic of almost five million unique visitors to the State Farm website, huge upgrades in customer experience scores that has the company ranking near the top in the industry, and massive increases in speed and efficiency.

Recently at a Salesforce Connections event in Chicago, I interviewed State Farm chief digital officer Fawad Ahmad and chief technology officer Duane Farrington. Over the course of about an hour, they unveiled 15 keys to their successful digital transformation.

Here's how they did it.

1: Understand that the first step in recovery is admitting you have a problem

Just like an alcoholic, a business can't transform if it doesn't recognize that it has a problem. And executives can't fix the issue if they don't acknowledge that the ability to execute the transformation may not exist within the company.

And the reality was that State Farm's online and digital endeavors had not resulted in the kind of business impact they had hoped for.

"We recognized that we didn’t know how to execute on the plan," CTO Duane Farrington told me.

That's when the State Farm initiated an executive search and found future chief digital officer Fawad Ahmad, who would end up leading the transformation.

2: Recognize that the way you were organized in the past will not work in the future

It's a truism that you are perfectly aligned to get the results that you are currently achieving. It's also something that's difficult for institutions to learn.

But Farrington and Ahmad began shuffling the deck, re-organizing the company to achieve different outcomes.

"We started pulling departments together, even though they resisted it," Farrington told me. "We pulled departments apart, pulled parts of marketing into IT, and started measuring outcomes."

3: Be customer centric

No business succeeds from studying itself. Every business that is focused on the customer has a shot at success.

"We had to define who is the customer today, and who will it be in the future," chief digital officer Fawad Ahmad told me. "Do we not have the right offering? Do they not want it how we deliver it?"

That's looking at product from the perspective of the customer: what do they want? How do they want to buy it? How do they want to access the services that come along with it?

How did they learn what customers wanted? Well, they had thousands of customers calling them every week ... a fairly rich source of customer insight.

"We text-mined the incoming calls," Ahmad told me.

4: Learn from the past

Just because you are transforming your business for new realities does not mean that you forget who you are and where you came from.

That text-mining gave good insight into challenges that customers were having with the old processes and existing products.

5: Envision an ideal future state

You can't transform without a goal. And you can't do everything.

So State Farm looked at their customers, existing competitive advantage, and staked a claim on their future selves:

"We chose what kind of company we want to be," Ahmad says. "We’re not going to be cheapest cost, and we’re not going to be inventing new products constantly. We chose customer experience."

6: Change doesn't mean you abandon who you are

State Farm is built on a hundred-year legacy of personal relationships, Farrington told me. Undergoing digital transformation isn't something that should change that.

"Our strategy is to take this digital transformation and blend it with the relationship and make it more," Farrington says.

Simply put: State Farm is Google but friendly. Neighborly. Accessible. Right next door, sold and serviced by someone in your home town.

7: The people are the solution

Too often in digital transformation, companies latch on to the first word but ignore the full implications of the second. In other words, digital is all they transform, and they forget the people.

That is directly opposed to the Japanese kaizen or lean manufacturing methodology, where cross-functional teams of people most intimately involved in the work actually transform it together.

"We started driving pride and motivation," Farrington said.

8: Break down all silos

Before hiring Ahmad, State Farm's early attempts at digital transformation were frustrated by existing structure and bureaucracy.

"We would create digital capabilities but not put them all together," Farrington told me. "We got frustrated ... we didn’t understand the whole omnichannel experience, and we were very siloed in how we did everything, automating existing business processes in place."

Shockingly, you can't rebuild it if you don't first tear it down.

9: Break down ivory towers

In the old State Farm, IT never talked to customers. Perhaps something like Office Space, specifications were created, tossed over the wall, and implemented.

That all changed in the digital transformation:

"We started working with our customers," Farrington says. "We never were allowed before."

Bringing development close to implementation and use can't help but make both product and interface closer to what customers actually want and need.

Changing development methodology and focus also helped.

"We went from waterfall to agile," Ahmad says. "We built small product teams to focus on specific tasks."

10: Focus on the big wins

Every person who has ever built a process or coded an application knows: the exceptions will kill you. Common everyday tasks — maybe 30 percent of your functionality — are what people actually use 90 to 95 percent of the time.

But a massive portion of development time is generally spent on edge cases. So in the interests of speed, State Farm adopted a simple development philosophy:

"Don’t let the edge cases stall you," Farrington says.

You'll probably have to come back later and add additional functionality, but you can move a lot quicker by focusing on key requirements.

11: Apply technology where needed

Artificial intelligence is a hot new technology, but we've seen dozens of those in business over the past few decades. The key is to apply technology where it's needed, not build for the sake of building.

State Farm's digital transformation team found that the company wasted significant time and money on switching costs. There are significant differences in process, location, and costs between a car that is totaled versus one that is repairable. And flipping between those two states — in other words, getting it wrong the first time — costs even more.

Even when the car was repairable, there were inefficiencies: one call to report an accident, another call to tell State Farm where the car was going for repair.

Now, when they receive the initial call, State Farm automatically provides a list of automotive repair shops. People can still choose where they're taking the car, but they don't have to call back.

And, State Farm uses AI to speed up the process:

"We use AI to predict just from your story just how much fixing your car will cost and where to take it," Ahmad says.

12: Commit: success or death

Success is hard enough to achieve with resolve. Without a firm commitment, it's easy to toss in the towel when the going gets tough, or be satisfied with minimal improvements.

"We will not fail ... those were Duane’s words," Ahmad told me, referring to CTO Duane Farrington. "And our CEO was on board."

13: Protect the newborns

Even with firm resolve, new projects and new endeavors are delicate and easily crushed. And every organization has a homeostasis that resists the new: managers whose power will shift, people whose jobs will change.

State Farm knew this and prepared for it.

"Duane told me: 'We will protect you from the antibodies that we know will come,'" Ahmad says.

That provided critical time to allow innovation to get a foothold.

14: It's not about opinions. It's about data.

Part of State Farm's digital transformation is a new decision-making methodology, based on data. Everything is A/B tested, Farrington says.

And customers are ultimately in charge.

It’s not my or her opinion … our customers tell us what works.

Duane Farrington

15: Digital transformation is not about building technology. It's about transforming a business

The technology is a means to an end, Farrington says. It's about the business, which means it's all about the customer.

"It’s not just building technology … it’s delivering outcomes that you can measure," Farrington told me.

That might just be the most important key to digital transformation: it's business transformation. And getting closer to the customer — measurably — is probably the most critical task that a digital transformation team can achieve.

And that's, perhaps, what can make a hundred-year-old company look more like a tech startup than an old-world industrial enterprise.


