Next Generation Insurance: Leading from the front.

There has been a raging debate (on this blog as well as all major media outlets) on the right level of IT spending for carriers. While, generally speaking, the participants in this debate seem to be converging on the central theme of shifting to a ROI based prioritization and governance of IT spend, ruthless management of Total Cost will continue to be an imperative that impacts the ROI.

Most organizations have leveraged sourcing in some way or the other to optimize total costs. While sourcing is a strong lever, it is also important to assess the right sourcing strategy  in optimizing the total cost. Managed services models provide an excellent opportunity to manage cost structures while shifting to a variable cost model. Using managed sourcing in conjunction with other strategies (like Grid computing) can be very effective in managing total cost to address the variable demand.

We all know TC = FC + VC*Q. For the IT landscape Q (Production) is the same as demand for IT in an enterprise (both discretionary and non-discretionary). Functional areas that have potential significant variability in demand (or seasonality – for example processing claims in the hurricane season or a new product launch) can benefit from leveraging models that lower fixed cost (and allow to not plan infrastructure and systems for the peaks) and use variable but predictable (tied to business outcomes) costs.

Let’s take a look at a model for optimizing Total Cost

 

 

 

As is evident, sourcing strategy ends up being an integral component of IT strategy to manage total cost. However, the application of sourcing strategy and the use of other mechanisms to carefully plan out fixed investments is key for the outcome that we are all looking for.

What’s your take?

Posted by Sanjay Mohan at 5:38 AM | Permalink | Comments (0) | TrackBacks (0)

I have written a couple of blogs on discretionary spend earlier.  Word discretionary spend is quite loosely used. You can rarely get the same response to a question on the % discretionary spend – when you ask 3 senior IT executives of the same organization. Some consider discretionary spend as anything outside of operations and support. Some include enhancements as discretionary. Some consider only new development / re-engineering spends as discretionary.  Some include new development / enhancements tied to regulatory compliance as discretionary.

Ideally discretionary spending should include only the money that you are spending on projects where you have a choice to make. These choices need to be tied to the business objectives.  If you found that to be competitive, you would like to improve your customer experience and so, you invest in Web 2.0 that is discretionary. If you realized that you want to improve the product introduction timelines and either automating some processes or re-engineering the underlying systems to achieve this objective, that should be considered discretionary.

While organizations can take pride in improving the % of discretionary spend, it would help to revisit what is being classified as discretionary vs. non-discretionary. That’s when benchmarking with other companies would give a meaningful picture.

Posted by Siva Nandiwada at 11:48 AM | Permalink | Comments (3) | TrackBacks (0)

Over the past few months I’ve had an increasing number of discussions with insurance industry clients and prospective clients, alliance partners and analysts regarding “managing complexity . . . increasing complexity”.  These discussions frequently turn to a newer dimension of this “complexity challenge”; one that has been enabled via the availability of insurance-specific software products (n.b., whether full applications or components) that do provide a significant degree of “flexibility and adaptability”.   A variety of such products have been architected and developed with a view to enabling a significant degree of “flexibility and adaptability”.

An increasingly frequent “complexity challenge” organizations face with this degree of adaptability and flexibility is the proliferation of implementations, instances, etc. that have been created without the benefit of important governance and management disciplines.  Carriers are finding that this growing dimension of complexity is being enabled via these flexible, adaptable products.  In some ways, it is analogous to “end-user computing” with increasingly powerful spreadsheet and database tools that enabled creation of what sometimes become “core business applications” subsequently.  Yes, “solution implementations and maintenance” with these new products can be relatively quicker and easier to accomplish than “traditional package implementations”.  However, the downstream complexity and cost of enhancing, maintaining and integrating these “flexible, adaptable solutions” can be very significant (and often unforeseen) if little (or no?) governance and management disciplines were applied at during their conceptualization, design and development.  These flexible, adaptable insurance-specific products can provide a real leap forward relative to legacy environments and platforms that are closed, rigid and prohibitively expensive (and slow) to evolve as a business’ needs evolve.  However, without due attention to governance and management disciplines at the outset, these products can lead to the proliferation of a “next generation” of complex, inconsistent and costly “solutions” for a carrier to manage, maintain, integrate and evolve.  As the old adage goes: “be careful what you wish for . . . you may just get it”.

Posted by Brian Kearns at 4:07 AM | Permalink | Comments (0) | TrackBacks (0)