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Last Word: The big picture: Tech transformation

Last Word: The big picture: Tech transformation

Over the past decade, the United States has been experiencing a significant surge in productivity growth, nearly doubling its pace since the 1970s. A stock market bubble, terrorist attack and recession notwithstanding, the U.S. economy has enjoyed an accelerating tailwind of businesses producing more per worker per year.

There are numerous examples in various industries:

  • Manufacturing: A leading truck manufacturer took 102 man-hours to produce a vehicle in 2001; today it takes 48 hours.
  • Retail stock brokerage: Online trading allows brokerages to process 10 times as many trades per broker per day.
  • Retail: A large retailer pioneered the use of bar codes, electronic data interchange and then wireless scanning guns to build a 50% productivity advantage over its competitors—and is now leading the implementation of radio frequency identification chips for inventory systems.
  • Banking: Industrywide, staffing for customer service was reduced by 50% for inquiries handled in call centers and 80% for inquiries online.

In these sectors, new technology—robotics, bar-code readers, sophisticated design software and, of course, the Internet—has played a prominent role in increasing productivity. Some have drawn a causal connection, attributing the last decade's productivity surge to increased investment in—and incorporation of—computing technology.

Yet the property/casualty insurance industry has experienced only modest productivity gains, disappointing for an industry trading in the virtual assets of information and risk, which should benefit the most from technology advances.

The P/C industry has not failed to invest in IT. But on the insurance "shop floor," underwriters or adjusters are more likely to complain about existing systems impeding their efforts than pointing to them as enhancing productivity.

A series of root causes undermine technology's productivity impact in most P/C organizations, including poor user interfaces that "tax" productivity, system inflexibility that distorts processes, difficult system integration and obsolete platforms generating high maintenance costs.

The following are clear principals for future insurance IT projects: 1) Include flexibility and extensibility as key requirements. 2) Engage users and user interface experts early in designing or evaluating systems. 3) Select technical architectures designed for integration. 4) Choose nonproprietary infrastructure components that have mainstream adoption.

But these directives are not a roadmap to continuous productivity growth. World-class productivity leaders go beyond these principles through innovative choice and skillful execution of technology initiatives. For them, technology is a tool that enables business innovation.

Studying productivity leaders, a number of patterns emerge:

  • Good data is at the heart of any effective business process. Productivity leaders first build robust, flexible "systems of record," then leverage that information across the entire enterprise.

    One P/C analogy would be implementing a claims system with a complete and accurate data model before tackling automated fraud detection, system-supported bodily injury evaluation or comparative liability assessments, all of which rely on quality claims data.

  • Lasting structural benefits require core investments extending well beyond the typical three-year planning horizon. A shortsighted, quick-hit orientation may achieve incremental benefits, but will never bring about the major process changes that boost productivity and create competitive advantage.
  • Technology innovation should not only accelerate existing processes, it should transform them.

In the P/C industry, many technologies have been implemented with little vision of how they could improve core processes. Instead, technology should be implemented to enable core process innovation.

Across the P/C industry, obsolete systems constrain productivity. That doesn't mean every massive IT project is a good one, but it does imply that tactical enhancement alone is a recipe for mediocrity. Insurers must take a strategic approach that goes beyond just updating technologies that support existing business processes if they want to achieve long-term productivity and profitability.

Marcus Ryu is vp of strategy and new products at San Mateo, Calif.-based Guidewire Software Inc., a software company that serves the P/C insurance industry.