Tech Decisions Summer 2009 Online Analyst Series: Part IV

Green has always been the color of business, but in 2009, it doesn’t just stand for money anymore. Green initiatives offer ways for insurance companies to become good corporate citizens and save some money in the process, according to Doug Washburn, an analyst with Forrester Research.

TD: Like any important issues insurers face, they need a strategy to address the challenge. How are insurers establishing a green strategy?

DW: On one level, the green IT strategy for insurers is really no different than any other organization. However, there are some nuances, so I’ll just talk about the general approaches in the market organizations have taken toward green IT. Forrester buckets green IT into two categories: The first is green IT 1.0, and that’s really about green for IT–reducing the environmental impact of owning, operating, and disposing of your IT assets. Think of the initiatives you might see in the data center to reduce energy consumption, or turning off PCs at night, or duplex printing–those all are things that would fall into the 1.0 category. However, there is an emerging green IT 2.0 world, which really is about IT for green–using IT as an enabler for greener business practices. Things such as video conferencing and remote working are in there either to reduce carbon emissions from corporate travel or even allow workers to work at home. The insurance industry tends to have a tremendous amount of data storage compared with other organizations. In some of my conversations with insurers, they’ve found until they’ve actually measured how much energy was being consumed by their IT assets, they didn’t realize storage was one of the largest sources of energy-related carbon emissions, so they’ve taken tactics to minimize their storage burden. That’s really a green IT 1.0 tactic. In the 2.0 world, insurers typically are very paper based, so we’re seeing a lot of interest in continuing to move to a more paperless organization for either statements or just cutting down on internal paper.

TD: As we know, insurers constantly are looking at ways to save money. This sounds like a good place to start in addition to offering the benefit of being a good corporate citizen?

DW: Absolutely. In many cases, it can be tricky to find examples of green IT that don’t lend themselves to cost savings in particular. With a lot of environmental regulation cropping up and heightening, it’s a way to mitigate pending risk, for example, powering off your computers at night. In particular, technology-oriented companies likely have a lot of people working on computers, and the personal computer is a tremendous energy source. In many cases, your distributed computer fleet all together might be consuming more energy than your data center. So, things such as turning off your PC overnight or on weekends when people aren’t actually using them really could lend itself to some pretty significant energy savings. Beyond just the operating costs, a lot of tactics we see in the data center can help alleviate some issues of reliability or at least extend the life of your data center. We are seeing a lot of data centers hit a wall in terms of ability to free space in the data center, access the power, and manage the cooling capacity challenges. A lot of green IT tactics such as server virtualization, for example, can help alleviate much of that. Not only will it help reduce your energy consumption, because there are fewer servers drawing energy, but you are not going to have to buy as many new servers in the future and you can free up space and cooling capacity. A lot of this lends itself to some immediate short-term financial savings but also postpones major capital investments down the road.

TD: Many companies have not made steps toward going green. What are a couple of tips that might not need corporate approval that IT departments could implement to get going in a green direction?

DW: There is almost an endless laundry list of green IT activities folks can look at. In particular, none of these really have to cost anything upfront except dedicating some time and changing some processes. In many cases, when people think green, they often think it is going to be expensive or they are going to have to make some sort of large capital investment. That might be the case, but there are a lot more examples of areas where improving operational practices can save you money. The data center is ripe with a lot of these opportunities, many of which we see boiling up. The hardware manufacturers now are manufacturing gear that can operate at much higher temperatures. Cooling in a data center generally is one of the single largest energy draws of a data center. Organizations can turn up the temperature in the data center, which will reduce the amount of energy needed for cooling. It’s a relatively simple step to put in place. Another thing I’m seeing is rearchitecting rows in the data center to go into a hot aisle/cold aisle architecture and then containing those hot aisles in a bit of a do-it-yourself fashion with either Plexiglas or hanging baffles. The idea is a very low-risk tactic. It allows you to isolate the hot air that gets expelled out of the back end of your storage equipment and servers and not mix with the cold air. It allows you to reduce your cooling burden. Many organizations have taken on virtualization, but a lot of people aren’t maximizing investments. So, instead of investing in new hardware and going up the learning curve with some new technology, you can increase your virtualization ratio. Outside of the data center, I’ve seen PC power management as a relatively simple step. That might involve a little more [corporate] approval, but it’s a relatively cheap option. Another example is simply duplex printing. Even though IT doesn’t pay the cost of paper, it adds up, and particularly for insurance companies, it’s a high cost. Reducing internal paper consumption by flipping the duplex setting as default really can help cut down on the unnecessary facilities costs.

TD: A lot of companies are leery of doing projects because of the economy, but isn’t this one area they can create some positive results for the company?

DW: We’ve surveyed over a thousand IT professionals, and we’ve seen the down economy help accelerate green IT initiatives rather than slow them down. The primary motivation for green IT is cost savings. Green may come across as an altruistic motivation, but the primary motivation is to reduce costs. These are organizations–most are very large corporations–where the intent is to maximize shareholder value. In many cases, mitigating some of the environmental impact–energy consumption, space, paper–lend themselves to tangible dollar savings. In an environment where everyone is trying to reduce costs, green IT is a pretty interesting way to bring out costs IT might not know about or pay for, but it increases overall profitability for the firm.

TD: Getting to the corporate citizen aspect, is there pressure on companies to go green?

DW: In many cases, the financial crisis actually has escalated this a bit more. It’s requiring companies–either through shareholders or the public in general–to act more responsibly. When you think of broad corporate social responsibility, it’s how we work with our communities, how we treat our employees, how we work with our customers and suppliers. The environment is just one piece of that. This is lending itself to another level of social responsibility. But to tie back to the finance piece, there is some interesting research that’s come out from The Economist that relates environmental sustainability to higher share prices and higher profits than those companies that are not doing a good job. I’m not going to say there is direct causality, but there is a relationship between companies that say they are doing well and tracking all their costs and impacts and those companies that are having good financial performance.

TD: Is there a push from the top down within a company by establishing green committees or green officers?

DW: Corporate responsibility is a defined role within corporations now. On a top-down level, those are the groups that initiate broad-level environmental strategy. They’ll look within IT and across operations–the supply chain of the organization, facilities and real estate, and things such as that. They are not necessarily subject matter experts in the departments that are incurring the environmental impacts in the first place, so they work with those groups. For organizations that don’t have that type of function, there is an opportunity for IT to step up. A number of CIOs have taken on the role of sustainability champion throughout the whole organization, and they feel IT is ideally situated to do this, because unlike any other group, IT looks across every single function of the organization. IT generally has good analytical skills for tracking environmental impact and the ability to propose technology solutions that can help mitigate these situations. So, there is a good grassroots groundswell that could happen from down below, but generally we see it as a top-down initiative.

TD: Thank you for your insight on this important issue. If someone wants to speak with you further on this subject, how can they get in touch with you?

DW: The best way is e-mail. My e-mail address is [email protected] .