IT Outsourcing Feedback

IT Outsourcing Feedback

To The Editor:

If the point of Ara Trembly's outsourcing column in the July 14 edition of NU was that an insurance executive should be careful about what and to whom they outsource IT functionality, then I emphatically agree with him. (See page 33, “Outsourcing Information Technology: Cutting Costs Or Cutting Your Throat?”)

Having said that, I think Mr. Trembly left out the most important part of the decision, and the thing that makes his childcare analogy move beyond the ridiculous.

The whole point of outsourcing is for a company to delegate to another firm the work involved in delivering the functions that are not part of their core competence. Therefore, the first step in considering outsourcing is for a manager to make a determination of what, in fact, are the core competencies of the firm.

I would argue that parenting is very high on the list of what should be the core competency of a family. Even so, we do outsource some aspects of child care–teaching, certainly, and for many of us, daytime care, which allows both parents to work outside the home.

What we do not even consider, however, is the delegation to others of the full-time responsibility for childcare, as you described, because that would involve our walking away from that important aspect of parenting.

Insurance executives need to do the same analysis when considering the possibilities in outsourcing IT functions. Hosting a Web site is a good example of something that is probably not among an insurer's core competencies, is a commodity-like service, and can generally be done by others better and more efficiently than one can do it in house.

That doesn't mean it is not important or that bad performance can't hurt the company. It simply means that it is probably a good management decision to outsource the function to a competent vendor.

The core competencies of an insurance company are usually underwriting, investment management and, sometimes, marketing/sales. They rarely include the IT functions. If some companies would argue that they have unique systems that greatly enhance their value propositions, then those are probably found in some very specific applications, not in their entire systems structure.

The point of all this is to suggest that insurance executives should use outsourcing to allow them to focus their energy and resources on their core competencies. They begin the process by a careful identification of those, and then give consideration to selection of vendors for the others.

Richard Kane

Chairman

StatementOne

Lawrenceville, N.J.

To The Editor:

I very much agree with Mr. Trembly's points on outsourcing IT. The commodity parts of a business process are good targets for outsourcing. However, those elements that are market differentiators (high-touch service processes and ones requiring commitment to company culture, for example) are not good targets for outsourcing. Risk mitigation for these outsourcing arrangements, especially when intellectual capital is involved, is very difficult to manage.

Rod Travers
Senior Vice President, Technology

Robert E. Nolan Company

Simsbury, Conn.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 11, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.