What Is IT’s Role in Providing Competitive Advantage?

Among the many challenges today's insurance IT professionals face, a particularly thorny issue has to do with the very validity of what they do. Increasingly, CIOs and other technology executives are being forced to confront the question "Does IT Matter?" - which also is the title of a new book by Nicholas G. Carr, a former Harvard Business Review editor who shook up the technology world last year with the provocative HBR article that declared "IT doesn't matter."

Carr had the opportunity to defend his thesis this week during a panel discussion sponsored by SAS that took place at the ACORD LOMA Insurance Systems Forum in Orlando.

The question is this, according to Carr: "Is IT a strategic resource -- a way for companies to set themselves apart" and to do so for a long enough period to have a positive impact on their financial performance? Furthermore, "Where will innovation pay off in terms of competitive advantage and where not?"

Carr differentiated between proprietary technologies -- which can distinguish a firm but which also tend to be expensive and risky -- and infrastructure technologies, which provide their "greatest advantage by being shared." He contended that information technology falls into that category -- "it needs to be shared and standardized. It is desirable for the technology to become standardized." And, Carr continued, when innovation "occurs in the infrastructure itself, the benefits of the innovation become shared. The only way a resource provides competitive advantage is by creating a barrier to competition."

According to Carr, today's IT environment is characterized by "a bias to spend less, a retreat from the cutting edge, resistance to the upgrade cycle, a search for lower risk, and a focus on vulnerabilities more than opportunities."

He emphasized that even though he does not believe IT in and of itself provides an organization with competitive advantage, he is not arguing that it is unnecessary. In fact, he said, "We're moving into a time where the role of the IT organization will become more salient." However, "Today there's massive inefficiency in IT across industries -- for example, redundant installation of software [or] redundant labor forces. The next stage of IT will be to remedy those inefficiencies. IT should focus on consolidation and standardization, and go to more of a utility model."

Although there was mixed response among the panelists and audience, ranging from philosophical agreement to vehement opposition, there was consensus that most insurers still have a long way to go before they are maximizing IT's potential. According to Gary Kirkham, vice president and director of planning and support, American National Insurance Co. (Galveston, Texas) -- who expressed agreement with Carr's thesis -- "We need to manage IT like a business. We need to be as disciplined as other areas of the company."

"The biggest challenge we hear about in the industry is to continue to reduce cost. The next frontier is the back office," Kirkham continued. "There are manual processes that have existed since the 1940s."

Bruce Barnes, president and CEO of consultancy Bold Vision (Dublin, Ohio), and a former top IT executive at Nationwide, commented, "The back office is a vital source of recaptured money, but you can't cost cut your way to the top of the stack. It's not about spending less, but spending smart."

Ultimately, argued American National's Kirkham, "The only place you can show competitive advantage is service. I'd like to see a shift to a more customer-centric industry."

Another area of opportunity has to do with the new business process, according to David West, global insurance strategist at SAS. "The cost of acquisition is significant, so anything companies can do to reduce that goes to the bottom line," he said.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio