Cost Transparency Helps Insurer Strengthen Tech Expense Management Capability

When increasing cost pressures threatened InsuranceCo’s* bottom line, the diversified financial services company decided to take a closer look at its $3 billion technology spend. Past attempts at cost programs had done little to create sustained savings, and halting investments in new capabilities wasn’t an option. We were asked to establish full cost transparency to help the company fundamentally transform how it planned and managed IT spending.

True cost visibility is the lynchpin of any well-informed, data-driven IT decision. But a quick fix to address InsuranceCo’s immediate challenges wouldn’t help the company achieve consistent long-term results. Instead, our goal was to build a self-sustaining, high-performing capability, then equip team members with the skills to optimize and maintain it.

Good data in, good data out

To get a clear picture of total cost of ownership (TCO), including direct and indirect costs, we needed a product taxonomy endorsed by the organization and mapped to the company’s drivers of consumption. We collaborated with InsuranceCo’s technology leaders to define and align approximately 300 products and services with business value streams delivered and supported by IT. Critically, we ensured that the taxonomy was based on how work was actually done vs. on existing operating models and organizational structure. We then collected, cleaned, and mapped costs to the taxonomy, continually refining to achieve a trusted TCO view.

This became the foundation for a single source of truth: a unit cost model that displayed a full list of consumed products and services based on traceable consumption data; a detailed breakdown of spend at the product/service level; unit cost and consumption trends over time; and insights into the drivers of labor demand.

Where insights meet accountability

Equipped with holistic, granular data linking consumption and cost of products/services, we pursued the key question: Could InsuranceCo spend less and achieve more? We worked with the company’s tech leaders to identify strategic actions, from understanding the “quality” of demand across product/services to identifying where current spend was out-of-step with business goals. InsuranceCo found ways to lower costs, make trade-offs to better align investments with strategic priorities, and ultimately link product/service spend with accountable owners.

Embedding the new capability in day-to-day management routines creates new mindsets and behaviors.  Product owners are aligned as “CEOs” of their products and services with specific product-level cost targets and efficiency initiatives that generate savings. Automated workflows and unit cost reporting dashboards reduce manual overhead and deliver updated information, and teams are empowered to use the dashboards to track spending relative to forecasts, estimate future demand for products, and prioritize spending on the most strategic and differentiating product areas.

These new high-value metrics and insights, including a detailed TCO view and cost trends over time, helped InsuranceCo identify approximately $300 million in run-rate savings from its $3 billion direct spend. Just as important, the company now had a way to sustain the win: improved visibility paired with the tools to better absorb—and act on—areas of over- or under-spending relative to value delivered.