Stamford, Conn. – By employing an evaluation methodology, healthcare insurers can align and manage competing IT spending priorities, a new report from Stamford, Conn.-based Gartner Inc. says.

Authored by Robert Booz, Joanne Galimi and Annemarie Earley, the report recommends a “run, grow or transform” model for health insurers. It also counsels insurers to manage the investment yield from a risk/return vantage point, and to position the CIO as a fund manager, and IT as portfolio and product manager.

“As health insurers struggle to find ways to meet the often-conflicting goals of cost-efficiency and greater service levels, CIOs are at the forefront of efforts to enhance applications and simplify architecture,” the report states. “Given scarce IT resources, CIOs must analyze how competing tasks need to be evaluated to provide the greatest value to the organization and then must carry this message to the executive level.”

The study finds that most organizations spend a preponderance of their resources in the run segment, which includes operations such as version upgrades, bug fixes, patches, automation of work-arounds and regulatory compliance. While these types of operations may help the business operate efficiently and lower expenses, they provide limited overall value to the organization, the authors contend. “CIOs most often concentrate their resources on business operation pain points, because that is where most business owners expect technical resolution. Although there is a sense of accomplishment in the enterprise from fixing problems, stakeholders have a difficult time evaluating what has changed, except that something works now; however, the change doesn't provide any new competitive advantages.”

To achieve such advantages, the report recommends insurers instead focus on IT efforts to grow the business. This entails using technology to enhance, extend or differentiate existing capabilities underlying products, services or markets. “Grow initiatives do not change the business model as much as they improve the business model's efficiency,” the authors state. “This contrasts with the run category, which improves the efficiency of a process or subprocess.”

Beyond growth, the authors believe IT has the power to transform the business. The report contends that the true test of an IT projects' strategic value is whether it transforms the business of health insurance. This is especially important, they contend, because over the years, IT has driven so much productivity improvement that returns are diminishing on these processes, leaving transformational efforts with the greatest upside potential.

The authors also find justifying resource allocations for transformation efforts is harder than for run or grow initiatives. They cite recent research by Gartner, indicating that the financial analysis done most by clients evaluates IT only in terms of return on assets. Ominously for CIOs, the return from IT investments may not stack up well compared to other areas of the business.

“As IT departments come under increasing financial scrutiny, their ability to advocate for transformation becomes even more difficult,” they state. “CIOs, in conjunction with their business counterparts, should create a business plan to illustrate the long-term revenue growth rates or long-term expense reductions associated with transformational projects.”

Source: Gartner Inc.

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