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In 1991, Progressive Insurance, an automobile insurer based in Ohio, USA, had approximately $1.3 billion in sales. By 2002, that figure had grown to $9.5 billion. What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? Was it positioned in a high-growth industry? Hardly. Auto insurance is a mature, 100-year-old industry that grows with GDP. Did it diversify into new businesses? No, Progressive’s business was and is overwhelmingly concentrated in consumer auto insurance. Did it go global? Again, no. Progressive operates only in the United States.
Neither did it grow through acquisitions or clever marketing schemes. Nor did it grow at the expense of its margins, even when it set low prices. By contrast, Progressive’s combined ratio (expenses plus claims payouts, divided by premiums, where the verage of the industry is 102), fluctuates around 96 percent. The company’s growth has not only been dramatic, it has also been profitable.
The secret of Progressive’s success is maddeningly simple: It outoperated its competitors. By offering lower prices and better service than its rivals, it simply took their customers away. And what enabled Progressive to have better prices and service was operational innovation, the invention and deployment of new ways of doing work.
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