OUTSOURCING NECESSARY FOR SURVIVAL

The cost savings associated with outsourcing are no longer simply enablers of competitive advantage, but necessary for the survival of an insurer's IT organization. Such was the consensus at "Outsourcing Opportunities: Is Now the Time?"—a presentation that took place this week at Insurance & Technology's Executive Summit 2002 in Phoenix. The panel was composed of Mark Reynolds, chief administrative officer, Lincoln Retirement (part of Lincoln National Insurance) and Russell Bostick, executive vice president and CIO, Zurich Life.

"The ability to outsource is a matter of survival, as long as you do it right," said Reynolds, who stressed that the time for outsourcing is now—"there hasn't been a more compelling time to outsource." As he pointed out, citing the hurdles Lincoln Retirement has faced in pursuing its own outsourcing strategy, although they are becoming more commonplace such initiatives are not foolproof.

In order to have a successful outsourcing deal, said Reynolds, IT executives must be able to understand their own costs, as well as the competition's costs. Also, when embarking on an outsourcing deal, it's important to map out exactly what the organization is trying to accomplish. If management can't define what it is hoping to accomplish by outsourcing, "don't outsource," Reynolds advised. Additionally, he noted, the success of outsourcing deals hinges to a great extent upon the control of quality and the management of outsourcing relationships.

Although outsourcing isn't a solution to all of an insurance technologist's problems, "if we didn't outsource, surviving would be a lot less comfortable," said Bostick, who noted that for a mid-sized company such as Zurich Life (an aggressive outsourcer to India), "we have to figure out our core competencies - it's even more critical than for larger companies. And we have to access the global marketplace for IT skills." Another objective is to be able to respond to rapidly changing business conditions.

Although political and economic risks go along with the low costs of global sourcing, according to Bostick, there is a strong business case to be made for sending IT to that region. These include the largest pool of computer literate English-speaking foreign nationals in the world, as well increased quality and low unit costs. For instance, he said, in-house programming costs can range from $85 to $100 per hour. Comparatively, through the use of global resources, programming costs can range from $20 to $60 per hour. Ultimately, Bostick said, shifting to a global outsourcing strategy "clearly will have the greatest impact on our competitiveness."