IT Operating Models That Meet Today's Challenges

By Larry Danielson, Deloitte

Today's business climate has made one thing very clear: either you are able and willing to invest for real change or be prepared to significantly fall behind. This somewhat binary choice, is what many insurers are now facing as the economy has exposed numerous fundamental flaws in how they utilize and deploy information technology. As insurers reduced their costs to align with new production levels, investments came under a new level of scrutiny. This reflection has revealed some very basic shortcomings that many realize require a new operating model to make change.Leaders are now taking on topics such as: improving the way business and IT work together; providing employees a rewarding career path for the long-term; creating real partnerships with third parties; building technologies that offer end-to-end business solutions; and helping the business determine how to afford making change without taking inappropriate short cuts.

New constructs are needed to address how IT organizations operate under the current market conditions such as: cost reduction, culture, professional development, overcoming legacy environments, transparency and accountability. Solutions to these sometimes conflicting considerations are offered by new operating models for IT. Suggested below are the key elements of new operating models that we see being selectively implemented. It should be noted that we believe it takes a combination of these techniques to make effective change.

Information (Data) aligned structures As many insurers begin to understand how to leverage their vast stores of data, they are now organizing functions around core information subject areas. They are forming groups that focus on the processing, structuring, cleansing and reporting in areas such as claims, customer, product or policy. These groups' responsibilities are subject area-specific and cross traditional business and application functions. Some organizations have created specialist roles such as a "Claims Data Leader." These business/technology professionals have deep functional and data related technology competencies (e.g., claims, product, data warehousing, database administration). They also focus on solving legacy system issues by creating new and improved data constructs that provide the business with greater scalability, transparency and functionality.

A professional services (PS) model This type of organization is designed to address what insurers need, and what IT professionals desire from a career perspective. The PS model brings functional and service area groups together as they execute projects. The functional team has members with underwriting, claims, and customer service skills, and the service area team includes architects, change managers, training specialists, programmers, and network specialists. Projects typically require a broad set of skills that are drawn from pools of talent where professionals are focused on building specific expertise and practicing their craft.

This model is unique because project costs can be specifically aligned with where business value is added. When a project is done, professionals are either adding value on a project or unassigned. New metrics can also be established for this structure to help address the proverbial "allocation" question.

IT professionals overwhelmingly prefer this model since their development objectives are addressed because they specialize in both functional and service area skills. As practice areas mature, tools, techniques and intellectual property (i.e. best practices business process models, reusable programming objects, alternative architectures) are developed and enhanced with each new project. Professional service models can also foster a proud culture for delivery and recognition of the value they add.

Innovation and R&D Centers Insurers continue to require deep, specialized expertise, and many are working to develop. A growing number of organizations are creating innovation centers, similar to traditional research and development centers, but notably with a very practical focus. Insurers committing to these centers of expertise justify them by setting ROI targets that add business value. Some innovation centers are focused on specific business problems; the development of model processing centers is a popular example. Customer service automation is used to focus on helping customer in new ways, sometimes through strict automation and others through human interaction only. Insurers are also tackling legacy modernization through practical new applications developed and scaled to de-commission antiquated systems. In select cases, third party arrangements have been set up since the risk and reward is shared by consultants and software companies.

These new IT operating model capabilities are enabling insurers to take on "sacred cow" topics that have plagued the industry. As insurers adopt these capabilities, IT professionals are enjoying greater influence and are making a greater business impact. IT does matter and these operating models are making a difference.

About the Author: Larry Danielson, a principal in Deloitte's insurance practice, has over 25 years experience in leading large scale transformation at major insurers. His areas of expertise include end-to-end insurance processes for property and casualty, commercial, life and reinsurance carriers on issues ranging from business process design, organizational design, information technology strategic planning, mergers and acquisitions, strategic cost reduction, large-scale program management, productivity improvement, and outsourcing advisory. He can be reached at [email protected].New IT operating model capabilities are enabling insurers to take on "sacred cow" topics that have plagued the industry. As insurers adopt these capabilities, IT professionals are enjoying greater influence and are making a greater business impact. IT does matter and these operating models are making a difference.