technology effort underestimated, effectiveness varies
By
Eugene Reagan,
Rod Travers and
Ron Zimmer
Business and IT insurance executives disagree about whether IT initiatives
meet expectations for being on time, on budget and delivering promised
results—but they agree about business strategy and improved mutual understanding
of each others’ discipline, a new study finds.
The Robert E. Nolan Company, a consulting firm specializing in the
insurance industry, recently conducted a study regarding IT in the insurance
industry. The study results paint a portrait of insurance executives’
views about technology strategy and implementation. One hundred
forty-eight senior-level business and IT executives from 122 life, health
and property/casualty companies participated in the study. Technology-oriented
participants include CIOs and other senior IT executives. Business-oriented
participants include CEOs, COOs and other business and functional leaders.
Clearly all insurance executives fulfill a business role. For practicality,
the respondents are distinguished as “business” and “IT” in this study.
Strategic Alignment
The study found there was solid agreement that technology is critical
to achieving a competitive advantage. Furthermore, the responses
show strong expectations that future technology deployments will provide
that advantage. Approximately 85% of the study’s respondents believe
that planned technology will give them a competitive edge. Business
executives, in particular, are counting on the future because only 37%
of them are “satisfied with the level of service our systems enable us
to provide to our customers.” In a clear difference of opinion,
62% of IT executives are satisfied with the level of service being provided
to customers. Neither score is nearly high enough. These results
raise questions about the understanding and agreement regarding correct
levels of service.
This difference of opinion regarding service levels is critical and
could have material implications on IT-dependent service initiatives,
perhaps most notably e-commerce. As insurance carriers evolve their
e-commerce strategies, they must provide comprehensive support for their
current delivery channels and also offer top-quality direct service to
customers. Companies that have successful e-commerce operations
are increasing the types of self-service transactions available to policyholders
and expanding their web operations into full-service financial-planning
portals. Agents are being provided with richer information and enhanced
tools in order to add value each time they interact with their customers.
With this much at stake, business and IT leaders will need to have a meeting
of the minds on what it means to deliver good service.
About 80% of both IT and business respondents agree that business strategy
drives technology strategy in their organizations. This represents
a significant positive shift over the last several years. In times
past, many organizations have had problems coordinating their IT strategy
with their overall business strategy. One operations executive commented,
“We have done an increasingly better job over the past few years of having
the business strategy drive the technology strategy.” He adds, “This
has resulted in more cost-effective projects that have proved more satisfactory
to end users.” Even those who haven’t been as successful pointed
out the importance of aligning these major business components.
Process Automation or Improvement
The study results show that the key drivers for new technology expenditures
continue to be service improvement and expense reduction. Of concern,
however, is the lack of business process analysis and measurement. Only
30% of IT respondents and 57% of business respondents say that business
process impacts are formally validated and documented before new IT projects
are begun. In other words, technology dollars are being approved
with the promise of reduced expenses and improved service, yet the decision
to spend is not adequately supported by thorough analysis. In order
to improve results, companies will have to improve pre-project analysis,
incorporate process redesign and measurement, and commit to a discipline
of fact-based decision making.
According to almost half of the IT respondents and over one-third of
the business executives, business process redesign is not part of their
IT development or implementation methodology. This raises the likelihood
that many technology projects only automate or speed up poor business
processes rather than fundamentally improving them. Indeed, integrating
process reengineering with system design and implementation is a critical
missing link for optimizing business results. Often the focus on
the technology causes an organization to lose sight of the overall business
issue. As one insurance IT executive recently noted, “It’s not the
technology, it’s the process.”
The insurance industry has had its share of less-than-successful technology
initiatives such as floundering CRM deployments, e-business false starts,
and imaging/workflow implementations that have not delivered promised
efficiencies. Help may be on the way however. A rapidly emerging
category of management practices and technologies known as Business Process
Management (BPM) is showing promise. BPM enables process experts
to model and redesign actual business processes and incorporate measures
and business rules along the way. Thus the impact of process changes
can be analyzed very precisely. BPM also has integration components
that tie together disparate legacy systems and actually run the business
process. BPM promises to bring a higher level of automation, integration,
flexibility and operations-based control (versus IT-based) to core business
processes.
Unmeasured Results
The negative impact of minimal pre-decision analysis is compounded
by the lack of post-completion measurement of results. Only 39%
of all respondents agreed with the statement, “Actual business results
from technology projects are formally measured and compared to projected
results to determine the degree of success.”
Most IT vendors and project planners place considerable emphasis on
return-on-investment (ROI) as a major driver for technology decisions.
Study responses indicate, however, that companies are doing a lackluster
job of performing this analysis. Only 40% of the respondents indicated
that a good or better level of rigor was applied to this sort of analysis.
While ROI is receiving a lot of press, most companies do not seem to be
using it effectively. Many organizations are unable to accurately
pin down the “I” (investment) and have very little precision in their
measurement of the “R” (return).
In a related vein, one of the more telling outcomes from the study
is that the word “underestimate” is the most frequent comment made by
respondents. Specifically, the following areas are often underestimated:
the business problem itself; the complexity of the technology; the time
and resources required; the overall cost; system co-dependencies; and,
the entire development and implementation schedule.
A Matter of Perspective
Other questions about the effectiveness of technology implementation
highlighted noticeable gaps between the perceptions of IT and business
executives. The IT respondents feel that projects are completed
on time (68% agreement) and within budget (73%). The business respondents
were not as generous. Only 39% agreed with the on time statement;
only 48% for within budget. A summary question highlights this difference
of opinion: 78% of the IT respondents indicated “technology projects almost
always meet customer/user expectations or needs.” However, only
60% of the business executives agreed with that statement. Again,
the difference in satisfaction is significant and neither score is high
enough to adequately meet user expectations.
These differences of opinion are in part driven by varying levels of
understanding of the overall business and the technology. Historically,
there has been a perceived knowledge gap between IT and business workers.
However, this study indicates the gap is closing. IT executives
have improved their understanding of the business, and business leaders
have become more knowledgeable about technology. Approximately two-thirds
of all respondents indicated that business leaders have a good-to-excellent
understanding of technology; a comparable two-thirds believe that CIOs
have a similar level of understanding of the business operations.
Yet, the missing one-third in each category is troublesome. Without
a high degree of confidence in each group’s comprehension of key issues,
decision-making will continue to be problematic.
Looking Forward
From this mix of opinions, what conclusions can be drawn? There are
several clear opportunities for improvement:
