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Aetna Co-Sources with IBM

Seeks knowledge transfer to build technology as core competency.

Seeking to boost the quality and productivity of its IT practices, Aetna (Hartford, $18 billion in annual revenue) has entered into a five-year IT consulting and services contract with IBM (Armonk, N.Y.). During the term of the contract, valued at more than $200 million, approximately 300 IBM Business Consulting Services professionals will work alongside Aetna's IT staff to improve the customer experience, broaden product offerings and increase speed to market, while simultaneously enhancing Aetna's internal IT delivery capabilities.

Information technology played a starring role in Aetna's recent turnaround, and the carrier is now investing the dividends of that turnaround back into IT, according to Wei-Tih Cheng, Aetna's CIO. "We recognize that this industry sector is fiercely competitive and it's only through innovation, information and tools that we can compete effectively and resume our industry leadership position," he says. "We felt that in order to position Aetna for that leadership, we needed to treat IT as one of our core competencies."

Outsourcing Rejected

The carrier's existing IT resources were not up to the job, Cheng acknowledges, so in order to optimize its investment in technology, the company needed a partner to help it transition to a higher level. "We did not entertain the idea of outsourcing our solution delivery at all," Cheng relates. "This is a very deliberate initiative to bring in someone strong like IBM to help us to not only deliver our solutions, but to help us to become much stronger ourselves in terms of productivity and quality of business solution delivery."

One area where Aetna has already shown leadership, Cheng offers, is in the consumer-directed health insurance trend, as exemplified by its HealthFund offering. In Cheng's view, IT is all the more important for health insurers given how intensely information-driven consumer-directed plans are, not only in terms of providing consumers with the information needed to make their choices and perform transactions, but also in the sale, administration and servicing of such plans. "What we want to do is achieve the capability of bringing products like [HealthFund] to market even faster and more economically," Cheng says.

Aetna already has in place a project management methodology, called Aetna Project Life Cycle, that includes escalation processes and a variety of metrics, and it is working with IBM to apply the methodology to all of its project management. The carrier is also looking to IBM to help it achieve CMM (Capability Maturity Model) Level 3 within a few years. "This speaks volumes about our determination to enhance our internal competence by increasing our capabilities and capacities," Cheng observes. "At the same time, it will help us save money in implementing these solutions with our internal business partners."

While the deal resembles traditional systems design, implementation and support contracts in many respects, its emphasis on knowledge transfer makes it unusual, according to Matthew Josefowicz, a New York-based analyst with Celent Communications. "We've been focusing on the value of outsourcing and haven't seen many deals that are this large and have such an explicit focus on knowledge transfer," Josefowicz says. "Another thing that's unique is the explicit sunset. Aetna seems to be saying: 'We want to work with you for five years, but the goal is to make us self-sufficient.'"

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

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