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Putting Your Investments Where Your Transformation Is: Part 2: Optimizing Your IT Investments Portfolio

Sam Medina
Insurance Experts' Forum, July 2, 2014

Last week, we discussed the reality that most IT organizations are making well-intentioned investments, but that their investment portfolio may be out of balance. To read last week’s blog,click here.

Today we want to get very practical by discussing the investment shift and defining how this can be accomplished. We start by revisiting the traditional IT investment allocation in Chart A below.




In the past five years, Insurance CIOs have been pursuing ways to reduce the amount of money required to “Run the Business” and shift more funds toward investments required to fund the remaining four categories.  This quest is often referred to as IT Optimization. A typical optimized portfolio has shifted the balance to look somewhat like Chart B, below.


The New Quest:  How to Implement a Transformational Investments Portfolio

Whether or not an insurer has already succeeded in optimizing its IT Investments Portfolio, the insurance industry is transforming and requires the leveraging of disruptive technologies to meet new consumer, economic, environmental and geopolitical risk demands. Leveraging the five disruptive forces (Big Data and Analytics, Social Media, Mobile and Internet of Things, Cloud, and Artificial Intelligence/Robotics) will require a great deal of investment funding. These funds will have to come from operational savings (aka expense reductions) and new investments.

Chart C, below, shows a benchmark that can be utilized to balance a portfolio toward transformational programs. It is important to note the need to reduce and sometimes completely stop near-term enhancements in order to shift focus and resources on enterprise-wide transformational programs. Note also that if transformational programs are planned well, they will include new regulatory requirements, which enables the Regulatory Requirements category to be kept at a constant percentage. This has the added benefit of preventing each business unit and functional support unit from independently pursuing regulatory compliance projects.

Finally, the Operate and Maintain category can be kept at 40% because there is 15% allotted toward Critical Enhancements, and anything in excess of that should be treated as a transformational need, and hence funded out of the New Programs & Initiatives at a Transformational level.


Funding Transformation Programs by Redirecting Funds

Table A, below, is an example of how the investment funds for the New Programs & Initiatives, and for the Enhancements are being “utilized” toward Transformational Initiatives.  Referring back to Chart C, the New Programs & Initiatives (35%) and Enhancements (15%) are viewed together (i.e. 50% in total) as funds to be redirected toward transformation programs.

In the example below, the specific Transformation Programs are a) Enhance Customer Experience, b) Reduce Speed to Market for New Products and Services, c) Support changes to the Marketing and Distribution processes, d) make the necessary Foundational Changes such as Data and Analytics enhancements, and e) make the necessary changes to improve Operational Efficiency.
In this example, a company-wide Transformations Investments Fund Steering Committee (aka Transformation Steering Committee) is in place and has governance over the “combined” New Programs & Initiatives fund and the Enhancements fund.  In effect, the 50% total funds are being fully leveraged to ‘Transform the Business.’


Sample Worksheet for Deciding Investment Percentages on New Technologies

The table below is a Sample Worksheet that can be utilized by a Transformation Steering Committee to decide on how the 50% investments total (i.e. sum of the New Programs & Initiatives, and Enhancements percentages) will be leveraged by Business Initiative (columns) and by new technology (rows).


Creating a Transformation-Focused Balanced Portfolio

A concerted effort is required to accomplish all of this, with everyone in the organization heading in the same direction. The seven requirements for creating a Transformation-Focused Balanced Portfolio are:

1.  Current IT spending data needs to be organized into the categories in Traditional IT Investments (see Chart A).

2.  An assessment needs to be made of the current IT Investments Portfolio against Chart B and Chart C to determine if the current portfolio falls into the a) Traditional, or b) Optimized, or c) Transformation-Focused, category.

3.  An enterprise-wide Investments Steering Committee needs to be created that has governance over business and support function spending. We will discuss this in detail in next week’s blog.

4.  C-level agreement needs to occur on the investment categories similar to those in Table A and how the transformations are to be funded, split out by the percentage of funds from the New Programs & Initiatives, and Enhancements, categories.

5. C-level executives should be briefed on the new technologies and how they will be leveraged to meet business transformation objectives.

6.  An iterative process should take place for deciding the amount of funding percentages to allocate to each investment category utilizing a worksheet similar to Worksheet A.

7.  Last, the actual amounts of funding (not just percentages) should be finalized. These will be the investment portfolio targets that will help the organization achieve a Transformation-Focused Balanced Portfolio.

Next week, we’ll discuss the crucial step of forming the Transformation Steering Committee.

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About the Author
Sam Medina is a global business transformation executive at TCS, who specializes in advising insurance and healthcare executives on transformational thinking and leadership.

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