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Tech-Savvy CEOs Navigate the Road to Success

Tech-savvy CEOs proactively harness technology in the pursuit of profitability.

With every passing year, a look at the insurance industry's CEOs has revealed an increasing understanding of the power of technology to drive business. But the events of the past 12 months have accelerated that natural evolution, throwing the truly tech-savvy CEOs into greater relief.

The economic downturn, the dot-com bust and the horrific events of 9/11 have made it ever more important for those in the driver's seat to understand what's under the hood. Today's successful insurance CEO is not only able to marshall sufficient detail to weigh technology's possible benefits, but is also wiser about its limitations and less likely to be seduced by initiatives that fail to serve the bottom line.

The sheer scale of many technology initiatives makes CEO involvement—along with understanding of the possible consequences—increasingly necessary in the insurance industry, according to Paul McDonnell, managing director and insurance segment leader, KPMG Consulting (McLean, VA). "The focus on ROI is also driving greater involvement, and of course the events of 9/11 created an environment where CEOs feel they need to have a greater understanding of the exposures and risks faced by their organization," he says. As the insurance industry continues to advance in Web-enablement, and companies meet demand by ramping up greater capabilities, companies face correspondingly greater exposure to risk, according to McDonnell.

Technology Rationalism

The ideal CEO, to McDonnell's mind, has spent some portion of his or her career in a technology-related area. But in the absence of the insights such a path affords, CEOs need to have a rational appreciation of technology. "They need to know technology is not some mystical thing. They need to understand things like the capability maturity model, and that there are ways you can measure the effectiveness of an IT organization," McDonnell says.

Substantial clarity can be gained simply by recognizing technology's greater likeness to manufacturing—where replicable processes can be defined—than to business operations, he adds. For the well-informed CEO, it's a matter of "not doing things on a wish or a prayer; you have to make sure there's discipline in the process and that the people performing initiatives are accountable—both IT and the business."

That accountability goes right to the top as technology becomes central to a company's destiny. Effective CEOs embrace the responsibility of sponsorship for key projects, McDonnell insists, and "know enough to engage in the strategy and planning processes, as well as where the risks are and where the bets are going to be placed."

Having a surer grip on technology, at an appropriate level of engagement, means those bets are going to be less of a gamble. Unfortunately, in a climate of heightened attention to ROI, many CEOs simply opt out of the game. Based on internal research, IBM (Armonk, NY) concludes that only 15 percent of insurers across the world are leveraging technology for real shareholder creation, while 85 percent are not, according to Bill Pieroni, the firm's global insurance industry leader. Too few CEOs are equipped to confidently invest in technology because their organizations simply lack rigorous internal processes explicitly linking spending to value. Consequently, Pieroni says, "they're always pulling the 'stupid expense' lever."

CEOs with the competence to evaluate technology's potential understand that the question "How low can IT spending go?" should give way to "How much can I spend on IT until the marginal benefit is less than the marginal cost?" according to Pieroni. "We found that CEOs who are able to strike a healthy balance between expense cutting and revenue growth are able to create sustainable advantage through technology," he says.

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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