By Matthew Josefowicz, Managing Director, Novarica

Tracking business value metrics is correlated with higher levels of business/IT alignment. Which Value Metrics Do Insurers Use?

The Novarica survey asked respondents about 11 different value metrics, broadly classed into three main groups.

  • Financial
    • Business profitability
    • Revenue growth
    • Hard-dollar ROI
    • Productivity

About two-thirds of respondents use at least one financial metric consistently.

  • Business Performance
    • Throughput volume for new business or claims submissions
    • Higher customer retention
    • Higher agent retention
    • Straight-through processing percentages
    • Call center volume (with lower volumes indicating higher take-up of automated channels)
    • Speed-to-market for new products and product changes

About two-thirds of respondents use at least one business performance metric consistently.

  • Subjective
    • User feedback surveys

Just 44 percent of respondents use a subjective metric consistently.

While all insurers track and report on IT costs, and most track IT performance, fewer effectively measure the business value of IT. This can lead to one-sided cost benefit analyses when it comes to evaluating the impact of IT investments and IT spending levels. It can also lead to misalignment of business and IT, which impedes insurers’ ability to operate effectively.

Encouragingly, the use of business value metrics – including financial metrics, business performance metrics, and subjective metrics like user surveys – has increased over the last few years. These metrics attempt to measure how well IT investments translate to business results.

While there may be limited consensus on the best specific metrics to use, more than 90 percent of insurer CIOs report using at least one business value metric consistently.

Novarica’s recent survey of nearly 100 insurer CIOs found:

  • Widespread use of value metrics. Two thirds of insurer CIOs use either financial or business performance value metrics consistently, and slightly less than half use user feedback surveys consistently.
  • Only one third of insurer CIOs consistently use hard dollar ROI as a value metric, possibly due to the difficulty of collecting accepted business performance data for ROI calculations.
  • Insurer CIOs who report high levels of business/ IT alignment use 20 percent more value metrics on average. High-alignment CIOs report using an average of 3.7 value metrics consistently, compared with only 3.0 for low-alignment CIOs.
  • Improving business/IT alignment is a continued area of focus. Insurer CIOs are optimizing organizational structures and processes while increasing communication and stakeholder education efforts in order to improve business/IT alignment.

There was little commonality in which specific value metrics insurer IT groups reported using today. It is notable that among the financial metrics, hard dollar ROI had the lowest reported usage rate, with less than one-third of insurers in the sample reporting consistent use. This is also reflected in many conversations we’ve had with insurer CIOs over the years about the difficulty of collecting accepted business performance data for ROI calculations.

Overall, more than 90 percent of the respondents report that at least one value metric is measured and used consistently. Of the remainder, all claim that multiple metrics are considered even if they are not measured consistently. The average number of metrics used consistently is between three and four.

Business/IT alignment starts with a mutual understanding of strategy within the business side and IT. On average, insurer CIOs are highly confident that their senior staff understands the company’s business strategy, and they are only slightly less confident that senior business leaders understand IT strategy.

In the survey, we found that higher levels of business / IT alignment are correlated with a broader and more consistent use of value metrics. When we divide the sample group into those with an average alignment self-diagnosis score above and below 5 on a 7-point scale (i.e., slightly above neutral) we find that those with a higher self-diagnosis are more likely to use almost every metric. The high-alignment group reports consistently using an average of 3.7 out of 11 metrics, while the low-alignment group reports using an average of only 3 of 11 metrics consistently.

It would be hard to make a solid claim for the direct correlation of the use of any individual metric with a high level of business/IT. However, it is interesting that one-third of the high-alignment group consistently measure staff productivity, triple the rate within the low-alignment group. Also, the high-alignment group is 50 percent more likely to consistently measure the effects of IT on throughput volume.

In addition to consistent use of a range of value metrics, insurers in the sample reported undertaking a wide variety of recent initiatives to improve business/IT alignment. These efforts fall into four main categories:

  • Changing organizational structures
  • Changing processes
  • Educating stakeholders
  • Improving communication

IT professionals are often frustrated that they seem to have a one-sided responsibility for business/IT alignment. But as a member of our Research Council once said, “If business and IT are not aligned, who gets fired – the CIO or the head of the business?”

We believe it’s a positive sign that the consistent usage of value metrics is increasingly widespread. There appears to be some correlation between the consistent use of more metrics and higher levels of business/IT alignment. Most importantly, consistent use of value metrics allows insurance IT groups to quantify the benefits of IT spending rather than letting costs dominate the cost-benefit analysis conversation by default.

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