February 12, 2013

Bruce Brodie
Bruce Brodie, PwC
The quest for IT value plagues CEOs and CFOs and pressures CIOs. After a decade of investment in portfolio management, increased governance, and improved reporting, the issue still remains an executive priority. In addition to investing in simplification, rationalization, and productivity, investing in the IT value "ecosystem" is necessary for realizing corporate goals.

[Related What Matters in IT, Part 2: Solving Legacy with ACM.]]

Increasing value from IT remains at the top of the C-level agenda

CFOs report that realizing value from IT remains a top concern, and in a recent conversation with the authors, the CFO and CIO of a large multi-line insurer agreed that "getting more value for the IT dollars spent" was once again among their most important strategic initiatives for the coming year. They are not alone. IT value will continue to be a priority for many executives for the following reasons:

Paul Frank
Paul Frank, PwC
Competition is increasing pressure to reduce expenses. Economic pressure, changing customer behavior, and the need for “true scale economies” are causing insurers to look at their delivery models and cost of doing business, instead of trying to compete solely on price.

Customers and distribution are demanding new capabilities. Investments in the customer and agent experience that enable self-service, cross-selling, and multi-channel distribution capabilities rely heavily on technology investment.

Decision-making is increasingly data driven. More sophisticated and frequent use of data (particularly third-party data) requires technology investment to enable decision-making.

Efforts to realize additional IT value have hit limits

Insurers have harvested the “low-hanging fruit” resulting from labor arbitrage, Moore's Law, and infrastructure consolidation, but increased consumption (storage, network capacity, databases, computing power) has offset much of the savings. The following also have limited realization of IT value:

"Waxy-buildup" of legacy systems — Complicated product and service portfolios have driven years of marginal enhancements. This has resulted in “super-complexity,” increasing costs, execution risks, and delays in benefit realization.

It takes two to tango: The need for partnership between IT and the rest of the business – It is exponentially harder for IT to have a conversation with the rest of the business about the need to streamline products and rationalize platforms than it is to talk about consolidating servers. A deep understanding between IT and the rest of the business – in other words, a trusted relationship – makes these strategic conversations much easier.

Limited advancements in running the business of IT

Many organizations have invested in collecting detailed information about IT, including usage and consumption information, employee time, uptime and downtime. However:

There is too much data but too little information. Elaborate reports that are supposed to result in clearer IT metrics are often unintelligible. As a result, they do not produce useful information, which means there often is a shortage of transparency and trust.

Inability to conduct effective benchmarking remains a problem. While there have been improvements in the availability and the depth of benchmarking data, clear linkage to implied actions remains poor.

Allocation methodologies do not enable decision-making. After years of investing in collecting more granular data, it often is allocated to people or groups who, for various reasons, cannot use it to make decisions.

Realizing IT value requires new tools and a new mindset - in other words, a new "ecosystem"

Although the question of how to realize IT value is often influenced by differing perceptions and expectations (which will always exist), there is urgency to find ways to increase IT value now. Addressing the IT “ecosystem” is key. An advanced one requires the following:

Deeper understanding of IT cost drivers – While organizations can track costs, most do not have controls in place to understand the drivers of IT spend. Understanding these drivers is critical to understanding the implications of decisions on current and future costs.

Greater alignment between accountability and decisions – Once the drivers are identified, it is important to identify who will need to make decisions based on them; these typically are those responsible for bottom-line results. The decision-makers need to be educated on and aware of the service-level and risk-level assumptions and options that drive costs.

Increased accountability in the planning process – It is critical that decision-makers accountable to P/L owners be active participants in the annual and strategic IT planning processes to ensure that the C-suite as a whole agrees to decisions and understands their cost implications over time.

Improved systems that can enable decision-making – Decision-makers need high quality, internally and externally benchmarked data, as well as near real-time feedback that goes beyond typical IT metrics and includes financial and operational data, as well as information on customer satisfaction.

Insurers typically spend three to five percent of their revenue on IT, but they spend only a very small fraction of that on determining if they are maximizing their investment. Companies need to look at their culture, decision-making apparatus, and their business of IT “ecosystem" in order to achieve full IT value. While improving an organization's ability to plan, capture and retain IT value may require some potentially major institutional adjustments, we are unaware of any better way to improve IT value.