The candidates may change, but there's one constant every election year: You can count on outsourcing becoming a sensitive topic within American business circles, especially in the insurance industry. The reality is the majority of insurers outsource a portion of their IT – it's done by everyone, discussed by few. This climate was brought up by a former GE executive and current Harvard Business School professor in the Harvard Business Review last month. In his piece, he stated his defense of responsible outsourcing, citing that American companies need to efficiently integrate offshore workers into their businesses in order to stay internationally competitive. He also explained that companies can practice "responsible" outsourcing by judging engagements through business purpose, revenue and quality.
But driving responsible outsourcing is not solely the responsibility of the insurance companies – the outsourcers should be key participants as well. In particular, three key areas exist in a vendor-outsourcer relationship that establishes responsibility and accountability on both sides.
Evaluate on Value, Not Cost
In the insurance industry, outsourcing has traditionally been viewed as a way to reduce the cost of manual or low-level IT processes. But the game is changing. As the cost containment of traditional projects has largely been realized, the next step is to look at the value an outsourcer can offer.
In a value-driven engagement, vendors are evaluated based on the business value they create, not the time and materials they consume. For example, an outsourcer should be viewed as a consultant to suggest more modern and intelligent claims processing, not a way to process claims more cost-effectively, or with less overhead.
Measure Success by Business Gains
In order for an outside vendor to deliver business value, the vendor needs to have a clear idea of the business's overall problems, goals and strategy. Outsourcers are more deeply ingrained in the IT department, using their technology expertise to suggest ways the business could be run more productively. This "business consulting" type of approach can often uncover opportunities a client did not know existed. It provides an additional level of sophistication, evaluated by the needs of the end insurance customer. Things like "how quickly and accurately has my claim been processed?" or "am I getting reimbursed efficiently and accurately?" These customer-level business drivers should be the challenge posed to the outsourcer.
Focus on Management and Accountability
IT's most important role in a vendor relationship is creating organized and strict management practices. These aren't traditional benchmarks; they're best practices that align directly to a business outcome. If a vendor is held to a particularly high standard in a business context, that vendor will utilize its full array of expertise and resources to ensure client success.
To return to the claims processing example, the appropriate metric for an outsourcer should be simple: The number of claims they processed, compared to the traditional approaching of charging by time and materials. As the outsourcer processes more claims, they are paid in accordance with the business function they are performing.
Both the insurance and outsourcing industries can create occasional sensitivities among the national public dialogue. In the case of outsourcing, the industry should accept the reality that the technology is here to stay. But business should be won, evaluated and implemented through a lens of value, not cost. Once an outsourcer is allowed to use their expertise to help an insurance company's business, then all sides of the equation can help the department realize its full potential.
About the Author: David Smith is Vice President, Insurance Solutions, at iGATE Corp., a Fremont, Calif.-based integrated technology and operations (iTOPS) company providing full-spectrum consulting, technology, business process outsourcing, and product & engineering solutions on a Business Outcomes-based model.