One of the realities of IT in any industry is that “truth” related to technology is a fleeting thing. The best system or technology to deploy can evolve with surprising speed, making it important for CIO’s and their organizations to determine with some precision what a roadmap toward a future state should look like. Increasingly, CIO’s and their team should carefully consider just how long they think they will be in that future state too. This has implications for both the technologies to be deployed and the financial mechanics used to pay for them. Missing either of these key points can create the IT equivalent of “The Hangover”. Unfortunately, aspirin alone won’t cure this one!
There are parallels in other parts of our personal and professional lives. As a frugal minded sort, my typical approach to cars was to buy them and drive them long after the warranty and that new-car smell were gone. While the shapes and sizes until recently changed like fashion statements, the essential technology remained pretty stable. Parts evolving slowly over time and had surprisingly long useful lives. As a result, parts and skills remained in a pretty consistent supply. A few years ago I finished restoring a 30 year old BMW (ok, so being frugal has its limits) and the only limiting factors were time and money. Parts and skills could be bought, because essentially the same vehicle had been in production for nearly 15 years.
Try that trick with a new car. They are better in every way. Faster, quicker, safer, better fuel economy, less maintenance. The list is long. But the challenge is that the technology used is fleeting. A two or three year old vehicle may have technology embedded that looks nothing like what is in production now. When the parts run out, there may be no clear path forward. As a friend of mine said, “I don’t think I could afford the risk of owning a new one when the warranty runs out!”. Relatively small parts failures could lead to catastrophic financial events. Leasing starts to sound like a pretty decent idea; about the time problems begin to set in, give the keys back and start over again. It is an appliance, not an investment.
That’s hardly unique to cars. Is anyone paying real money to fix an iPhone 4? Of course not. They were the height of cool a few years ago and helped to change the world we live in. Now they are disposable.
Large flat screen TV’s are the same way. When a circa 2008 model expired recently, it was cheaper to get a new one (that was far better) than it was to fix the old one. Turn them and burn them when they’re done.
There’s a good chance my next car will be disposable too. I will lease it, use it for a specific period of time, then replace it on or around a known date. I won’t depreciate it, won’t fix it, won’t treasure it like a friend. I will consume it and move on.
The same should be true of future core systems at insurance carriers. The systems and their vendors will evolve quickly using the “best” available technology at a moment in time. Then they will move on. Rinse and repeat will be their model.
And while carriers have built, bought, modified and embraced systems from the 1960′s to the 2000′s (a surprising number of 40-50 year old systems run major workloads every night), that’s a model that has a foreseeable end. Anyone pining for that “state of the art 2009 platform” now? Of course not; we would have had a challenging time describing some of the things that would be key drivers for business success five years later. That will be even more true as we think about 2019 or 2024.
Rather than acquiring and depreciation systems for a protracted lifespan, implementing with an eye toward “replacing the replacement” appears to be a more viable and effective model. This impacts skill sets, depreciation schedules and even the future state IT discussions. It may no longer be a “buy versus build” dialogue. For the future it may be “buy versus rent”.
A variety of factors have now come together to make this a viable option. If email for large / complex / highly regulated companies can live in the cloud, a host of other things like policy administration, claims, distribution management and financials can too. Pun intended.
I never thought I’d lease a car either, but we’ve crossed a risk / return tipping point that makes that a pretty attractive option. Of course I will keep my ’84 Bimmer for fun and pleasure. Sure wish the A/C worked better, however …