CEO presents an extract from IT Savvy – What Top Executives Must Know to Go from Pain to Gain. Peter D Weill and Jeanne W Ross's book provides insight into how to use IT to your advantage.
In 2002, when Ron Williams became president of US healthcare services giant Aetna, the company had just reported an annual loss of $280m and was on the brink of failure. In 2007, just five years later, Aetna posted net income of $1.8bn and was named by Fortune magazine as the US's most admired company in healthcare. To what does Williams, now CEO and chairman, attribute the company's turnaround? An intense focus on customers and employees, a companywide embrace of 'back to basics' values, and the development and use of a dynamic information technology (IT) platform.
Executive management information system
Williams joined Aetna in 2000 as head of business operations. Early on, he initiated a project to develop an executive management information system (EMIS). Implemented within five months, Aetna's early EMIS provided point-and-click access and drill-down capability on the income statements of both the enterprise and its divisions. Williams used the available data as the basis for executive decisions. In addition, he and then-CEO John Rowe made clear that they expected business executives to use data to drive better business performance. Firmwide delivery of transparent and consistent performance data gave them an opportunity, as Williams described it, to 'train the company in how to think about problems. It gives you the context for making choices'.
Armed with useful data, Aetna's senior managers started making what one observer called 'surgical decisions' on prices in their proposals to institutional customers. Turning attention to profitability rather than revenues, Aetna deliberately set prices that led to a decrease in memberships for a couple of years. Over time, the EMIS helped management better define and address the company's market segments. Soon, both revenues and profits were growing. In 2007, Aetna reported revenues of $27.6bn, a 35% increase over three years.
The EMIS was just the first step in using IT to make Aetna's people smarter and more productive. Subsequent enhancements have provided systems enabling the firm to refocus business processes on the needs of customers. For example, Aetna started providing customers online access to medical advice and information about their accounts and history. These efforts have transformed Aetna into a highly respected and profitable healthcare company.
Aetna is unusual. Many leaders the company spoke to were frustrated because they don't see significant benefits from IT despite millions of dollars of investment. They struggle to meet basic requirements for doing business in a global economy. Often, they can't:
- respond to new customer opportunities in a timely manner
- present a single face to global customers
- reproduce business successes in a new market
- integrate new acquisitions quickly
- ensure that local decision makers simultaneously do what's best for customers and the firm.
In short, they can't operate how they want to. And frankly, if IT isn't helping you operate how you want, and need, to operate, you are wasting money. There is no chance that your IT investments will lead to strategic benefits.
Aetna is IT savvy. The company consistently uses IT to inform management decisions and enhance products and services. Being IT savvy makes IT a strategic asset. In a global, digital economy, if IT is not a strategic asset, it's a strategic liability. Ask yourself: in the 21st century, can you afford to have a liability like that?
What is IT savvy? (And how do we get some?)
'IT savvy' is a characteristic of firms and their managers reflected in the ability to use IT to consistently elevate firm performance. Like savoir faire, it looks effortless from the outside. But IT-savvy firms distinguish themselves from others by building and using a platform of digitised processes.
A digitised platform is an integrated set of electronic business processes and the technologies, applications and data supporting those processes. Not all business processes are digitised, many require human intervention. And not all digitised processes are part of a platform – the platform integrates a set of related processes and transactions.
IT is not a strategic
asset, it's a strategic liability."
At some firms, the digitised platform is anchored in a major piece of purchased software such as an enterprise resource planning system or a customer relationship management system. At other firms, the IT unit has built an enterprise data and technology platform for operation decisions. People provide input to a digitised platform and use the output, but people are not part of the platform itself. The purpose of a digitised process platform is to disengage people from processes that are better performed by machines. The platform 'wires' reliable, predictable, low-cost core business transactions into the firm.
At Aetna, the digitised process platform encompasses the daily servicing of customer needs, ranging from opening an account to settling a claim. Aetna has built a solid technology base and layered it with reliable, predictable business processes for daily transactions. The reliability and predictability of daily transactions is only the beginning, however.
Aetna, like all IT-savvy firms, uses the data generated from its core transactions to empower decision makers. IT-savvy firms make a habit of executing disciplined core processes and then applying the resulting data from those processes to both operational and strategic decision-making tasks.
Reprinted by permission of Harvard Business Press. Excerpt from IT Savvy - What Top Executives Must Know to Go from Pain to Gain. Copyright 2009 Peter D Weill and Jeanne W Ross. All rights reserved.
