The Challenges and Benefits of Building the Right IT Ecosystem

P&C insurers will spend a projected $56 billion on IT this year, but only a small fraction is spent ensuring that they maximize those investments and many question the value they derive from IT, according to “The price isn’t right: How to better understand your IT investment and get more out of it,” from PwC.

Among the challenges for IT decision makers is that they perceive a lack of accountability for investment outcomes, or they are not sure how accountability is managed, PwC said. Responsibility for managing IT value is fragmented, PwC said, and frequently lies within competing organizations, plus they report history rather than measuring value deeply enough to inform decision making.

“Today’s increasingly dynamic and competitive marketplace, where product speed to market and corporate agility are increasingly important, requires IT to be nimble,” PwC said. “Making changes to large legacy systems, and the systems built on top of them, is too complex and takes too long. In a world where companies expect to get what they want quickly and inexpensively, the IT response to requests is perceived as being of lower value.”

Maximizing IT’s value requires an investment of time and money to understand the cost drivers of IT, align accountability and decision making in planning processes, segment and collect IT instrumentation data “at a deeper level,” and build systems that enable better day-to-day decisions, PwC said.

To achieve full IT value, insurers should look at their culture, decision-making processes and “business of IT ecosystem,” PwC said, which it defines as the people, processes and tools affecting investment decisions, and how it measures and acts to improve the value of those investments.

Building the right IT value ecosystem requires:

• Business culture. That includes outlook and expectations around time horizon and impact of change.

• Segmentation and transparency. Understanding the total cost of ownership of all decisions; spend needs to be segmented and aligned to business functions and supporting platforms.

• Decision making. Decision rights need to be clear and aligned with those accountable for delivering bottom line results.

• Instrumentation. Decision makers need high-quality granular data, processes and systems to measure, plan, forecast and charge back effectively. To drive decision making, decision makers need high quality, benchmarked data and timely feedback.

Benefits to investing in the IT value ecosystem include:

• The expectation that IT investment will be actively managed under an agreed-to set of guiding principles.

• The ability to measure and benchmark IT spend in segments and categories that are aligned with the business goals.

• Joint construction of the annual budget with an understanding of the service and risk trade-offs facing the business.

• An understanding of the total cost of ownership of discretionary projects.

"Leading companies are treating their IT value ecosystem problem holistically by simultaneously improving their governance models and the instrumentation provided by their underlying support systems, and then providing transparency into their spending habits to support planning and decision making,” PwC said.