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IT transformation for a payor

Defining a new IT strategy for a payor results in annual savings and a $300 million reduction in benefit costs.

Challenge

A US payor was facing serious challenges from declining membership and operational changes driven by government health reform. The CIO asked McKinsey to help transform the IT organization's performance to find significant savings through improved efficiency and effectiveness. Our client also wanted help identifying opportunities for technology to play a strategic role in creating and capturing new business.

Discovery

Drawing upon a thorough understanding of US health reform, the McKinsey team looked for strategic business opportunities that were emerging from the changing industry context. It was immediately clear that many new business areas were technology based. The payor could take full advantage of them only with the IT organization's support and the participation of its leadership.

One promising opportunity was in health information exchanges (HIE). Working with the client, the team evaluated the likely evolution of the HIE market in the payor's geography, quantified the size of the opportunity, and developed a plan to enter the market. McKinsey consultants helped IT executives work productively with senior leadership across the company, establishing credibility and helping to align stakeholders.

At the same time, the team worked closely with managers from across the IT function to identify opportunities to improve operational efficiency and reduce costs. The team determined that one of the biggest sources of inefficiency was application development. Based on experience working with many of the world’s largest corporate IT functions, the team recommended that the IT organization adopt lean management across the development process.

To get started, McKinsey experts conducted a series of workshops with application designers, developers, and testers to identify specific sources of waste within the process, using a proprietary lean application development methodology. The workshops allowed participants themselves to highlight the biggest sources of waste and bottlenecks. Workshop participants jointly designed appropriate solutions and then piloted them in initial trials.

The success of the pilots built enthusiasm for the successful rollout of the lean process to the full application development organization. Working collaboratively at every stage of the project helped ensure commitment.

Impact

Our work with the CIO transformed the IT organization and raised its profile with senior leadership. Impact included:

  • delivery of $300 million in cost reduction through the realization of the HIE opportunity
  • organization saw 50 percent reduction in overall cycle time for application development, 22 percent productivity gains across the development portfolio, and an improvement in quality
  • more than $20 million in annual savings from better vendor management
  • over $10 million in savings from improved IT infrastructure management processes
  • tighter integration between the IT function and the business units to ensure more collaboration in the pursuit of business goals

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