CIOs and other insurance technology executives who want to stay relevant and valuable within their organizations must rethink the IT organization's role --avoiding complex and expensive "big bang" projects, embracing the cloud as a way to adopt variable-cost models, and helping their companies make money. That was the message from Michael Hugos, an author and principal at the Center for Systems Innovation (c4si), who led the 2012 IASA Educational Conference and Business Show's Technology Super Session, "Business in the Cloud."
It's all about quick turn around and the ability to try many things, building on successes and avoiding the proverbial analysis paralysis that bog down so many organizations, Hugos said. He paraphrased IASA keynote speaker Tom Peters, who declared, "Whoever tries the most stuff wins." Key to this approach is a shift from fixed costs and capital expense to variable cost models that reduce or eliminate capital costs, or operational expense --enabled by adoption of some form of cloud computing, he stated."The cloud helps us manage risk, and move from capex to opex," Hugos said. "If we're going to start trying lots of different things, we can't use capex model -- we'll go broke!"
[Read more about how insurance companies are incorporating cloud computing into their infrastructure strategies.]
Hugos pointed out that an assessment of the costs of moving processes or functions to the cloud should not be compared to buying or operating systems in house. People often forget to add indirect costs that accompany owning and operating in-house systems, he added, such as procurement and disposal costs, data center costs, electricity and supporting infrastructure, staff time for administration, maintenance and repairs, and vendor support contracts and system upgrades. Hugos advised insurers to "consider moving to cloud as IT expansion, replacement or upgrade cycles occur."
This isn't optional, according to Hugos. "Cloud is happening, it is inevitable," he declared, challenging the IASA attendees, "Are we part of making it happen? Be part of enabling the cloud to become part of your business operating procedures."
But cloud is just part of the equation. Having an agile IT architecture also is critical in the new operating reality, Hugos said. "Agile and cloud go together," he noted. "One of greatest advantages of cloud is, it enables you to be agile" because a huge investment is not required. "Agile architecture means cloud and how you can integrate cloud into what you already have."
In fact, he added, "The main impact of cloud is agility" -- creation of an environment that enables insurers to be more flexible and to move on requirements or opportunities more quickly. But adopting this approach will require a huge mindset shift to organization used to doing a tremendous amount of research and needs analysis prior to embarking on a new initiative. Yet these laborious efforts typically are a misguided waste, according to Hugos.
"Agile is doing simple things well, not doing complex things fast," he emphasized. "A little analysis can predict the short term, but a lot of analysis cannot predict the long term. Creative responses to unexpected developments offer the greatest opportunities. Think big, start small, and deliver quickly!"
So, when a company identifies a need or opportunity that requires an IT response, IT should identify relatively small-scale steps that can be delivered quickly and that serve as foundations for the next steps, Hugos recommended. "One of the central issues about agility is finding that 'simple thing'" to do rapidly, he said. "What can get you closer to your goal? Then you continue to build, in 30-day iterations."
Hugos summarized his message with seven "lessons learned" from this culture shift:
- Focus on how we can, not why we can't.
- Robust 80 percent solutions iteratively enhanced --let go of perfection.
- Maximize use and reuse of existing applications (ERP/CRM/BI) with SOA and APIs. Reuse of whatever you’ve got in-house. "Don't buy new until it's falling apart, don't spend company money wantonly."
- Split systems between in-house platforms and cloud/SaaS/consumer IT platforms as security and business needs dictate. "Good enough is where we have to live these days."
- Extend in-house systems, improve performance of applications and reach new users and customers via social technology.
- Continuous incremental change to IT infrastructure as business unfolds.
- NO BIG BANG PROJECTS! "Do not ask for $250 million and two to three years because it will cost $500 million and take four to five years -- by which time most of you will no longer be employed there."
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio