How Procurement Can Help Insurance Carriers Improve Their Expense Ratio And Reduce Risk

Table of Contents

Introduction

In recent years, digital transformation has gained immense popularity in most industries. Digital technologies have revolutionized all areas of business, be it Sales, Marketing, Finance or Operations. Moreover, technology is evolving so fast that many companies must always stay on top of the latest developments in the market as they simply cannot afford to lose out on the digital race. As the role of IT in business is evolving from supporting business processes to becoming a way of doing business, so is the role of the CIO. The CIOs role isn’t just about enabling business operations through technology implementation and maintenance anymore. The CIO is now a strategic leader spearheading innovation to gain a competitive advantage and drive top-line growth for the business.

The CIO’s Mandate

What It Is Traditionally

Manage IT Operations

Focus on efficiency, reliability and costs of IT system to deliver operational excellence.

Align IT with Business Strategy

Provide technology aligned to overall business strategy. Grow legacy systems and assess novel technologies to keep up with business IT requirements

What It Should Be

IT Change Agent

Lead digital business transformation efforts focusing on the use of emerging technologies to support business goals

Drive Business through Technology

Drive the overall business strategy and enable changes in the organization to effectively use digital technologies to drive top-line growth

As technology becomes more pervasive, the lines between IT and business operations are blurring. IT is becoming more integrated to each and every area of the business more than ever before. In the past, the IT function, headed by the CIO was responsible to buy and implement central software systems like ERP, CRM and user hardware such as laptops to support the business. This is changing fast, the CIO today is taking strategic technology decisions for the company, driving innovation and challenging conventional business models to fuel business growth. The CIO plays an important role in how the company buys, how the company sells and how it functions smoothly as an organization. In the past, business units decided their own technology trajectory in silos, which over the years has introduced operational and cost inefficiencies. As per a recent report by SAP, it was found that more than 50% of technology projects consume business funds with no participation from IT. Another interesting insight was that 75% of the companies do not incentivize business units to adopt common, standard solutions. These numbers highlight significant inefficiencies which need to be addressed by the strategic CIO. Collaboration between Business, Procurement and IT is key in establishing a truly digital organization.

What The CIO Should Do To Maximize Business Impact Through Technology

Cross functional collaboration to design a centrally led Digital Strategy

As digital technologies become a way of doing business, business units (BUs) tend to hurriedly adopt one or more of these technologies, often in silos, in pursuit of immediate benefits. Compounded over several BUs, this can lead to a complex IT environment with multiple products from different vendors under separate agreements. This could lead to several cost and operational issues for the business.

Key Issues of a Siloed IT Philosophy
Redundant IT systems

(Systems with similar capabilities, can be from the same supplier or different suppliers) used by different business units

Higher maintenance cost

For IT systems because of a fragmented spend profile leading to decreased leverage in negotiations

Limited compatibility

Provide technology aligned to overall business strategy. Grow legacy systems and assess novel technologies to keep up with business IT requirements

Drive Business through Technology

Drive the overall business strategy and enable changes in the organization to effectively use digital technologies to drive top-line growth

Inconsistent IT user experience

For both internal stakeholders (employees) and external stakeholders (customers, suppliers)

The CIO needs to collaborate with BUs and other teams like Finance, Procurement and Legal to orchestrate a digital strategy for the business. The CIO and his team should be part of multiple cross functional teams/meetings to oversee digital transformation efforts, ensure cost effectiveness and overall program management.

What The CIO Should Do To Maximize Business Impact Through Technology

Leverage Procurement best practices

Procurement best practices can be instrumental for the CIO to maximize the business impact of his or her responsibilities. While procurement at many companies is still considered a transactional function responsible only for creating POs and rubberstamping contracts, industry leaders have acknowledged its strategic benefits and are already reaping the rewards. The CIO should partner with procurement and leverage their skills in all third-party interactions and decisions. We have worked closely with CIOs and their teams to support the company’s overall digital strategy. Our best-in-class procurement practices have helped companies realize incremental value as they set out on their digital journey. In our experience, some of the key benefits that the CIO can derive from strategic procurement are:

Cost Optimization
Streamlined Supplier Selection Process
Contract Management
Reduce Third Party Risks
Change Management
  1. Having the contract on your own paper rather than using supplier paper.
  2. Milestone based payment structure to ensure success and avoid disproportionate payouts.
  3. Termination for convenience without any minimum commitment to avoid paying huge penalties in case things go south.
  4. Strong indemnity and insurance clauses to partially or fully delegate liability in case of a security breach.

Conclusion

Modern CIOs are strategic leaders perpetually looking out for opportunities to gain a competitive advantage through technology, offer seamless customer experiences, and keeping the organization ahead of the competition. On the other hand, managing technology budgets, driving digital adoption and spearheading digital business transformation, all while controlling costs, are some other key responsibilities of the CIO. The enormous set of duties come with their own set of challenges and complexities which mandate efficient use of all available resources for the CIO. The key to success in maximizing the impact of digital is collaboration – across BUs and all other corporate functions including Finance, Procurement & Legal.

Author

Consulting Manager, Manufacturing and S&OP (IN)

Rohit is a Senior Consultant based in Valorant’s India office in Bangalore. He is experienced in driving operational efficiencies with a focus on Supply Chain, S&OP and Manufacturing Effectiveness.

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