Case Discussion: Liberty Mutual

Case Discussion: Liberty Mutual

Liberty Mutual’s Electronic Invoice System: Combining Low Cost and Differentiation Advantages

Boston-based Liberty Mutual Group is a leading global insurer and the sixth largest property and casualty
insurer in the United States. Its largest line of business is personal automobile insurance. Liberty Mutual has
$112.2 billion in assets and $33 billion in annual revenues-rank- ing the firm 71st on the Fortune 500 list of the largest corporations. In 2000, Liberty Mutual became one of the first companies to experiment with electronic invoices. It set up a pilot program with a few law firms to submit its bills through a secured website. These firms, for the most part handle claims litigation for Liberty, defending its policyholders in lawsuits. Its success with this program convinced liberty that it could achieve significant cost savings and also pass along differentiating features to its customers and strategic partners. Liberty now processes nearly 400,000 electronic legal-services invoices a year 70 percent of the total invoices that the firm receives.

As expected, the initial transition was quite expensive. The company investednearly$1millioninthefirst four years. However, Liberty estimates that the electronic invoice program saves the company $750,000 a year in direct costs by streamlining the distribution, payment, storage, and retrieval of invoices. E-invoices enable Liberty to move from intake to payment with half the staff that it had taken to process paper invoices. The firm has also created new efficiencies by cutting costs resulting from data entry errors, late payments, and overpayments. As a relatively minor issue, Liberty saves more than $20,000 per year on postage, photocopying, archiving, and retrieval costs.

The legal invoices are organized by litigation phase or task-for example, taking a deposition, or reporting a
witness statement Work ls diced into tiny increments of (Excerpt). Discussion Question:

Read the attached case and answer the following question, use at least 200 words.

How did Liberty Mutual create a competitive advantage through its (combination) business strategy?

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