Tuesday, 20 January 2009

How to buy a service?

Last week I visited Interpolis a large (I would almost say dominant) insurance company together with a group of people interested in SaaS (Software-as-a-Service). After a tour around around their building (reknown in the Netherlands for their free-seating policy) two presentations were given by Interpolis staff.

The first one is relevant for the topic of this blog: how to buy a service as it focussed on a proces-improvement for handling window damage of cars. And given the type of weather we had lately over here the timing was perfect. It turned out that the number of broken windows had risen to 600 a week lately.

But well, let's concentrate on the case. The dominant player in the local market is Carglass, which is a worldwide player too. Carglass had approached Interpolis about options to speed up claim coverage checking, that is the part where the insurance company tell Carglass who should pay the bill: Interpolis or their customer.

After implementation, effectively Carglass is now able to automatically check coverage in the Interpolis system, bringing down costs on both sides and also dramatically reducing the troughput time between claim and payment (from 4 months to less than 2 weeks). 

Here's the catch: because everything is automated, all the costs on the Interpolis side are incurred by the IT department, not by the business. Where formerly the call center did the communication and the administraters of  the business unit did the majority of paperwork a lot of costs were invisible or easily charged (f.e. 60 calls on the call centre). But now that everything has been reduced to bits and data-traffic  running on virtualized infrastructures, the overhead costs in the business units are zero and all costs fall with IT and are exactly visible but impossible to allocate because the internal organization has been split into operations units with separate P&L's and all refuse to pay the (low) bill!

A second phenonenon is that now that costs are visible, it turns out that Carglass is by far the most expensive for Interpolis. This fact caused a lot of discussion in the group as those of us that reacted as clients (customers)  said: well, that is OK, since the service we recieve from Carglass is far superior. Eventually this led to the conclusion by the Interpolis people that they had no way of "buying services", they still purchased "window replacement" as if they were buying "windows". 

As a community we concluded two things:
  1. Although not a SaaS issue, automating information exchange between organizations can reveal internal weaknesses w.r.t. cost allocation. Previously invisible costs disappear in multiple places while new costs can be allocated precisely but also results in non-sendable bills.
  2. The servitization of our economy poses new demands on organizations to leave the product-centered way of selling and buying and embrace more holistic (management) models. 
To me both point 1 and 2 are at the core of SSME/Services Science as in Services Organization, Opertation and Information go hand in hand.  And changing such a system is a complex endeavor which makes clear the strongly relation between change and Services Innovation. 

I'll scratch my brain meanwhile to blog in the latter subject next time.

No comments: