For midmarket insurers, implementing a new definition of ROImight help guarantee achieving the traditional one.

CIOs of mid-size insurance companies frequently struggle tobalance the demand for speed in strategic systems implementationsagainst the need for appropriate analysis, diligence, planning, andrigor. Midmarket companies often fail to apply enough depth anddiscipline to the process of analyzing options and choices.Consequently, many critical business decisions are made without theforesight that could save a lot of pain down the road. That pain isavoidable, if the CIO employs ROI (relevant, objectiveintelligence) to maximize ROI (return on investment).

Making critical decisions is not a question of talent orability. Rather, it is a question of resources. Big companies havethe money and manpower to experiment with new technologies, toengage the best talent, to put pressure on vendors, and to absorbthe occasional project failure. Their CIOs often can separatethemselves from the daily operational issues to do some strategicthinking. Such luxuries are quite rare in midmarket companies.Midmarket CIOs wear so many hats there simply is not enough time towear them all. The ones labeled Analytic, Strategic, and Visionaryoften must remain in the closet.

Lets start with a no-brainer. The key to the CIOsdecision-making process is good information. The higher the qualityof information, the more intelligence there is at the CIOsdisposal. But in the midmarket CIOs world, the sheer amount ofinformation available is absurd; and there are no distinctions madebetween volume and quality.

Good information has three principal qualities. First,information needs to be relevant to the task at hand. That means ittargets precisely the strategic and tactical problems of anorganization. Second, it must be objective. Ideally, objectivityshould come from third parties that have no interest in the sale ofsolutions. Lastly, it must be sufficiently in-depth to permit a CIOto understand the risks, the traps, and the possible side effectsof implementation along with all of the proposed benefits. It isthis last need that most consultants fail to address.

The major difficulty in gathering relevant, objectiveintelligence is gray noise. In contrast to the white variety, graynoise disturbs, distracts, and de-tracts. CIOs often complain aboutthe curse of the in-flight magazine. This is the phenomenon inwhich the CIOs boss is on a plane ride and comes across an articleabout some new technological cure. It also can happen on a golfcourse, when the trusted vendor rep whispers into the bosss ear. Orwhen a trade magazine runs a cover story about a competitorsmiraculous new software application. You can just hear thequestion: Why dont we have this?

Some unique factors make this phenomenon more harmful to the CIOthan to other executives: The first is the hyper-pace and breadthof new technology developments. Youve faced it yourself: Last yearsPC is obsolete. A two-year-old $50 million implementation alreadyis a legacy. A 10-month-old research report already isoutdated.

The second factor is the fundamental gap between the businessand technology worlds. Business deals with products, customers,revenues, and profits. Technology deals with servers, networks,applications, and databases. Solutions to a CIOs problems mustbridge that gap.

Gathering the intelligence to help bridge such a gap can betime-consuming, expensive, and risky. Confoundingly, the CIO doesntseem to lack for re-sources. Quite a few people make their livingby helping technology captains navigate the seas of indecision:vendors, consultants, technology analysts, sponsored-researchfirms, and the media. This is the Advice Industry. Lets take acloser look at its members.

Vendors have no particular res-ponsibility to tell the (whole)truth. Thats not an accusation. Its a marketing reality. Its thejob of vendors to present the winning rhetoric that will allow themto beat competitors to contracts.
Consulting firms traditionally help midmarket companies choosesoftware and hardware solutions. They also pose another dilemma forthe midmarket CIO: In large enterprises, it is entirely justifiableto spend 0.5 to 1 percent of a projects cost on technologyresearch. But with most midmarket project budgets falling in the$10 million to $20 million range, such research expenditures becomeprohibitive. Furthermore, most consulting organizations fail thestrict objectivity test, i.e., they have agendas connected tofollow-up work. After all, a system integration or implementationcontract may bring revenue 10 times the size of consultingfees.
Since most consultants tend to shy away from due diligence onvendors, they typically recommend those that have strong balancesheets, long-term technological strategies, and sizeable talentpools. It is simply in the best interest of consultants to favorvendors that constitute safe, albeit expensive, bets. But safe betsneed not equate to good fitsespecially since midmarket companiestend to select from different vendors than do their largercounterparts.
Having ruled out vendors and consultants as sources of researchdata, the CIO scrapes his budget barrel and turns to the onlyaffordable source: the technology analyst. This is not necessarilya bad choice, as long as it is properly used. The key is tounderstand the limitations of the analysts business model.
Their coverage in this particular context is a mile wide and aninch deep by necessity. Most of them dont have the time, theresources, or the strategic scope to research multiple vendors fora single client. Since their objective, most often, is to guide theclient (Whats going to happen? Where should I be?), analysts arenot as interested in conducting research as in making predictionsbased on trends, empiricism, and the predictions of other analysts.But what if our CIOs want a relevant, objective, in-depthassessment of the best claims-management application for theirP&C insurance business, based entirely on all thecircumstantial needs of their company? If that assessment doesntalready exist, the analyst wont have it.
Sponsored-research firms offer the benefits of neither sponsorshipnor objective research. When sponsors benefit only by underwritingthe cost of a researchers product in exchange for the opportunityto slant the researchers instruments toward desired outcomesandwhen research subjects also are granted the opportunity to editresearch instruments toward their own desired outcomesthats notresearch. Rather, its some combination of constituent-pandering andeditorial prestidigitation. In any case, while the results of thiskind of sponsored research often attract publicity, they do notrepresent the kind of data on which CIOs can base fiscal,operational, or technological decisions.
And what if the CIOs pockets are empty? Well, the trade media willbe standing by. But a reality check is in order for CIOs and themedia:
For CIOs, that check is caveat emptor. Media stories often are notoriginal-research studies. They are not intended to be. They candeliver information about new products and services. They candeliver case studies, technical descriptions, and user profiles.But they cant determine the functional applicability of anyparticular technological product or service to any particular CIOsneeds, circumstances, or budgets.
For the media, that check is, Sell space! This is nothing more thancommercial reality: No advertising dollarsno publication (unless,of course, were talking about a membership publication, or one witha handsome subscription rate). So, the media must present news.Trade media will move neither copies nor advertising space byrunning stories about DOS platforms, code-based applications,dial-up connections, or other ancient history. If its not news, itwont sellon the street or in the editorial department. And neitherCIOs nor the media interpret that news as the sole research onwhich IT decisions should be made.
So, whats the beleaguered midmarket CIO to do?

1. Make sure your problem is explicitly known to your boss andthe organization, since its in everyones best interest to optimizecritical IT decisions.

2. Solicit consensus on the idea that a modest budget forrelevant, impartial intelligence is a necessary investment. Targetone to two percent of project budgets.

3. Whatever intelligence you buy, check it three ways: a) Is itrelevant to your problem? b) Is it objective? c) Is itin-depth?

For midmarket CIOs, the demand for speed in strategic systemsimplementations can be balanced against the need for appropriateanalysis, diligence, planning, and rigor. In every sense of theterm, the bottom line is that CIOs must maximize ROI. In doing so,they must remember that research will provide meaningful ROI onlyif it is relevant to the task, objective in its evaluation, anddeep in its expertise. That way, ROI ensures ROI.

Marek Jakubik, a former CIO of Zurich Financial and PitneyBowes, is a co-founder and managing director of the InsuranceTechnology Group. He can be reached at 416-214-3445 or at[email protected].

www.insurancetg.com

The content of CIO Chronicles is the responsibility ofthe author. The views and opinions are those of the author and donot necessarily represent those of Tech Decisions.