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Last Word: Cutting edge=Competitive edge

Last Word: Cutting edge=Competitive edge

'We need this technology—it will save us lots of money, reduce costs and give us a leg up on our competitors!" Executives hear this cry from any number of people in their organization.

It's hard not to be swayed by such a demand, given the hype in the business press, high-powered software company marketing and a very competitive insurance market. And we fear receiving a forwarded e-mail from our boss or board member with a news release announcing a competitor is going to use a new type of software to dramatically improve its business.

Remember customer relationship management? It was all the rage. The software industry persuaded businesspeople that their company absolutely had to have CRM. Big cost savings were promised along with higher sales. Yet they never materialized because businesspeople didn't define the parameters of success—the software company did.

Except in small and specialized markets, insurance by its nature is a commoditized product. Companies that come out with new pricing or new underwriting programs typically find that their advantage lasts just a short while. It's also a transaction-intensive business. Much information has to be collected and processed at the time of the sale and when a claim is filed. Finally, it's a cyclical business that goes through periods of extreme pressures on pricing.

All of these factors mean that technology can be the key to competitive advantage.

Most companies today have improved the way they conduct their business with software and hardware. All the low-hanging fruit has been picked. There's still "fruit" left, but it's trickier to collect.

As companies look for new areas to improve, how do you go about finding the right software? Start by asking what you need the technology to do. Any technology purchase has to do two things: lower your cost of doing business and increase your productivity.

In today's business environment, a leading company needs to be at the front of the curve in operating at lower costs and obtaining higher employee productivity. The two combine for a recognized competitive advantage in the marketplace.

You have to become proactive to find technologies that let your business move to the forefront. Too many executives wait for their chief information officer to show them something or simply react to a technology they stumble across that looks intriguing. You need to identify where your business needs to improve to gain an advantage. If you weren't constrained by the existing infrastructure, internal rules and processes, how would you reorganize how you operate your business?

Once you've figured out areas of your business you want to improve, quantify the desired cost reduction and productivity improvement. Set your metrics first. This is another way of saying that you need to set the agenda, allowing you to evaluate the software on your terms—not someone else's.

Once you've defined your agenda, you can go out and find software companies that can help you reach your business goal. Let your CIO work with you to refine your vision, but don't turn over the project to him or her. You need to keep control.

And you have to make sure the software does what you want it to do. Most software for insurance companies involves custom components. Software companies might start with a core product or functionality, but the unique nature of each company's legacy systems and configurations typically require that the software be tailored to the specific company.

An upfront, detailed listing of specific requirements is critical. Don't let the urge to start the project or external pressures shorten this process.

The only insurance companies that will prosper in the future are those that have the lowest operating costs and highest levels of employee productivity. The nature of the insurance industry mandates that the cycle of efficiency continue to accelerate, and holding onto old practices will put you and your organization at a competitive disadvantage.

Brian S. Cohen is president of Clear Technology Inc. in Westminster, Colo.