Ron led a discussion on organizational transformation in pursuit of innovation as part of the CNEXT Generate Program for Senior…
Throughout my career, I have been interested in the transformative nature of information technology, and how, when strategically applied to business, it can be a significant source of competitive advantage. This notion of “IT as Strategy” has played out across many sectors in the last twenty years, with clear winners and losers. Often the difference comes down to senior leadership’s view of IT resources. Are they an administrative expense to be managed, or a strategic asset to be invested in and leveraged? At Aetna, we faced this choice during our financial turnaround, and again during the national debate on health care reform and subsequent passage of the Patient Protection and Affordable Care Act.
Addressing Changing Marketplace Dynamics through Technology
As a result of prior actions in the late 90s, Aetna transitioned to a new business strategy that sought to grow
its presence in the Managed Care sector. The company quickly acquired several companies and failed to effectively integrate them. When I came to Aetna in 2001, the company was losing approximately $1 million a day. Its reputation among providers and customers was damaged, and shareholders were unhappy. Internally, I found
deeply entrenched ways of operating, a fractured culture and loss of pride among employees. We were in need of new leadership and cultural transformation.
As we worked to unravel the issues, we learned that although we had reams of data in multiple company systems, we did not have rapidly available meaningful information on which to make decisions. Nor did we have a coherent business strategy that articulated the role of IT in executing that strategy.
With the passage of PPACA, a new challenge emerged. The law set out to increase access to quality, affordable health care and would drive significant change in the health care marketplace. The roles between Hospitals and health plans would need to be redefined. And Health Information Technology would emerge as a key enabler of change. We soon realized that we would need new data systems and capabilities if we were to remain competitive in this new era.
Rethinking the Role of IT
During our transformation, we also looked externally to better understand our competitive challenges. The appeal of Health Maintenance Organizations and narrow networks with limited outside referrals was fading fast among consumers. Health care costs began to rise and employers wanted new ways to improve the health and productivity of their workforce, while reducing health care costs. We also learned that very little was being done to exploit technology as a competitive advantage in our industry. Rather, the focus was mostly on how to process claims more efficiently.
Another challenge we faced was the lack of exclusivity in terms of Aetna’s products and services. In a services business, there are no patents such as chemical formulas or unique machinery that allow for protective periods of exclusivity from which you can achieve competitive advantage.
We determined that it was our ability to innovate that would set us apart. In fact, we hypothesized that repetitive and consistent innovation could be a key source of competitive advantage. We also believed that successful innovation hinged on an IT strategy and enterprise architecture that centered on customers, and helped us break new ground in terms of integrated information, products and services.
Getting Leaders on Board
The notion of “IT as strategy” represented a paradigm shift for Aetna. No longer would we view IT as a cost of doing business, but rather as a competitive strategy to propel the business forward. Business leaders would now be expected to take a more active role in determining how to use IT as a strategic asset.
Leaders would need to become much more literate about technology and understanding customer data. We started this transformation by first developing a new business strategy and operating model that centered on customer segments. In that context, we developed leadership training on how to leverage technology to support their businesses. As we recruited new leaders, we made IT knowledge and application required competencies.
We also set up a new IT governance structure to guide decisions on where to invest in technology. We established a steering committee chaired by me, to evaluate the technology needs of the enterprise and individual business units. The committee included Aetna’s Chief Information Officer, business unit heads and other functional leaders. Our worked focused on answering four simple questions:
Will this technology help to:
- Improve customer satisfaction?
- Improve productivity?
- Enhance competitiveness?
- Ensure regulatory compliance?
Between 2001 and 2011, we invested approximately $1.8 billion in technology that not only supported our successful business turnaround, but also prepared the company to better compete in a rapidly changing industry.
Our investments led to new innovation, such as consumer-directed health plans and an industry-leading member portal. We also developed a set of online consumer tools that enabled greater transparency of the cost of health care services, as well as new health and wellness programs.
Consumer Expectations Grow
Today, as consumers have grown accustomed to using their mobile devices for a wide range of activities from banking and shopping to gaming with friends, companies face a new challenge. Consumers’ have come to expect that they can interact easily with all companies via their smart phones, handhelds and tablets.
Delivering on these expectations exposes a company’s inner workings in terms of its client-service, order and billing systems to the end user. Because administering multiple systems is extremely expensive, companies often rely on kludges to achieve a customer interface. These workarounds can result in a poor customer experience since the lack of internal standardization and efficient work processes becomes visible to the end user.
This rapid uptake of mobile devices by consumers is a great example of changing market dynamics and the need to stay vigilant and tech savvy. Companies that recognized this trend quickly understood the potential for innovation in the way they connect with consumers, and adapted their IT strategy and architecture to deliver a differentiated user experience. However, companies that lagged behind missed an important window of opportunity to differentiate themselves with consumers in a highly competitive environment.
Several factors contributed to our success in changing the paradigm of IT from mostly an administrative function to a strategic partner:
- It starts with the CEO. The degree to which the organization views IT as a strategic asset depends on the CEO’s attitude toward technology. The involvement of the CEO in developing IT strategy sends a clear signal about the importance of IT to ongoing innovation, improved productivity and competitiveness.
- Business people need to be tech savvy; IT people need to be business savvy. In today’s highly competitive environment, success is especially dependent on the business leader’s understanding of how to leverage technology to meet customer needs. Conversely, IT strategy and execution must be informed by business strategy. Leaders can no longer afford to operate in functional silos.
- Collaborative problem solving must be part of the company’s culture. New systems and applications are a great opportunity to reengineer business processes for maximum efficiency and effectiveness. Yet, often leaders take the path of least resistance and ‘pave over cow paths’ rather than invest the time and attention to redesign workflows. By working together, business users and IT experts can better realize the benefits of technology to meet customer needs.
- Monitoring technology and user trends is essential. Because some senior executives don’t adopt technology as rapidly as younger consumers, they may be slow to recognize their business is not keeping pace with consumer preferences. Successful organizations regularly monitor trends, such as customer adoption rates of new technology, in order to keep their IT strategy and architecture relevant.
In today’s complex business environment, the ability to continuously innovate is an even greater source of competitive advantage. A well-executed IT strategy that is aligned with your business strategy is an essential ingredient to achieving that innovation.