I woke up this weekend to the interesting Forbes article by Rick Ungar, that claims that “Obamacare” demands that health insurers spend 80% (85% in some cases) or premiums collected on claims. The article asserts that the end of private insurance will follow, as no insurer can limit overheads to 20% or premiums (to break even), let alone to 15% (to make profit).They cannot, Rick Ungar claims, because so far they don’t.
I am an IT consultant working from Australia, I have no political opinion on the US healthcare debate. I also have no expertise in long-term viability of health insurance due to aging population and emergence of new expensive treatments, or in US healthcare in general to verify the numbers.
However as an expert in enterprise IT, I can state that administrative costs can be reduced significantly in any large enterprise. Within the space of two decades, Information Technology reduced the cost of sending a person message to zero, the cost of making an international phone call to virtually zero, and sent travel agents and second-hand shops owners to look for other business opportunities.
So far the level of cost reduction in the enterprises lags behind. The enterprise culture is not tuned for implementing dramatic changes. A project is usually instructed to talk to the users and learn what they want, while a real transformation will make majority of these users redundant. We map business processes that were created when files were made of cardboard.
That’s not malicious sabotage, nor does that happen out of intellectual deficiency. In fact, many of the CEOs and CIOs I know are highly intelligent people not shy of gutsy decisions. Yet this pattern of behaviour is common even for enterprises run by forward-thinking leaders with explicit innovation-supporting policies.
An Information Technology department has no mandate to disrupt the profitable enterprise. That results in highly conservative projects that cost too much, yet thread very carefully. The combination of massive budgets and demand for conformance with all entrenched interests produced vendors who deliver just that – massively expensive projects that include a lot of boring work and even more boring ineffective meetings. One common pattern of innovation is introducing new technology in form of hugely expensive products that are bolted on top of existing solutions after excruciating customisation effort, with promises of some benefits in distant future.
However, two factors combined can force some enterprises to transform their IT departments into engines of disruptive innovation.
On one hand, regulatory actions driven by public frustration, change of customer behaviour or emergence of new type of competition enabled by technology can create an existential threat to existing enterprises within a particular industry segment. However, as soon as several large enterprises in a particular industry are forced to drive their innovation without handbrake on, the ripple effect will reach other industries and other countries shortly after.
On another hand, several recently developed methods significantly reduced the risks associated with innovative internal IT projects:
- Fundamental research by Clayton M. Christensen, Jeff Dyer, Hal Gregersen and others made innovation more predictable and facilitateable, thus ensuring that enterprises can generate significant pools of ideas to choose from;
- Abstraction Visual Modelling and high-level simulation tools made possible to assist creative process and early experimentation, thus not only reducing the cost of creative experimentation but also enabling a formal innovation framework that will drive innovation.
- The methods defined by the startup community to reduce the frequency and most significantly costs of startup failures reached the level of maturity suitable for enterprise IT. Business Abstraction customised some of these methods for internal enterprise use.
- The initiatives like Web-Oriented Architecture, Cloud Deployment and Enterprise-as-a-Platform make complex project easier.
We reached the paradoxical stage when running an innovative and highly transformative project under conditions of extreme uncertainty will take less time, require less funding and pose less risks than undertaking a highly conservative “me too” project from a global vendor.
Some early examples will include Palantir Technologies that sends unsleek yet competent “forward-deployed engineers” to do sales, then executes a $5-$100 million project delivering critical fraud-detection capabilities, that in turn rely on massive data integration, in 8 weeks, with software working full power immediately after that. Their competitors will take multiple of that time and money just get initial Requirements document approved.
These signs should not be ignored. It is possible that we will see rebirth of aggressive, proactive, innovative enterprise IT – and demise of the enterprises that fail that.