Core System Modernization – Another IT Project, or Something More?
Blog: Capgemini CTO Blog
When undertaking core systems transformation projects, some carriers focus narrowly on technology rather than on the broad needs of the business. But an IT-centric approach might miss opportunities to align the firm’s technology needs with its current and future business needs. To ensure this alignment, both IT and business stakeholders must participate in the process. Too often, IT tries to represent the business or vice versa, only to realize its knowledge of the other’s goals and requirements is insufficient.
While rare, there are situations in which these solutions are implemented as IT projects for valid reasons. In the case of a burning platform, there may not be time, budget, or engagement/bandwidth/capability on the business side to go with a full-fledged transformation. In other cases, there may be a small but strategic line of business that needs to be brought up quickly and may be managed separately from the rest of the business. However, even in these cases, business transformation should be considered on some level within any core systems transformation.
In all other cases, before carriers transform a core system, they must first identify the business needs, challenges, and drivers that are essential to business agility (e.g., speed to market, growth, customer centricity, and operational excellence).
Next, they need to coordinate business and IT strategies and interests. Most CXOs talk about the alignment of IT and the business, but talk is not enough. Too often, alignment boils down to the business saying, “We know what IT can do,” or with IT thinking, “We know what the business wants.”
The business may not consider the benefits or limitations of emerging technologies such as cloud, open APIs, or the potential of straight-through processing performed via BPM, RPA, and AI. And because members of the IT team may not consider the potential to change business processes, they don’t always take full advantage of new technologies. As a result, the firm may overlook considerable transformational benefits.
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Most organizations make plans based on their current state, not on the future business environment. In the case of policy administration system modernization, organizations must focus on upcoming products (some of which may not even be in the pipeline yet), potential markets and future service strategies.
Minimally, organizations (including IT) must understand the business strategy for the upcoming three or four years and the insurance product strategy for at least the next 18 months. The IT organization must gauge the impact of those plans on the entire application portfolio – and even the infrastructure – to determine whether – and when – new technologies are necessary. Can the technology organization handle the planned changes to the business using the proposed platform, or – in extreme cases – veto the potential solution?
Despite the clear need for IT and business to extend their relationship beyond alignment, some carriers still view system modernization efforts as primarily an IT initiative. However, many failed projects over the years indicate that without full business support and involvement, modernization efforts are apt to lose momentum and stall.
Without a clear business case (not just a cost/benefit analysis) and executive support, modernization efforts have limited potential for success. All too often, the definition of success differs among people in various parts of the organization.
A key objective of the process is to define the future state with input from stakeholders across the organization, including operations and IT. Here’s a sample checklist:
- Can we do better things and do things better?
- Can we introduce products faster?
- To what extent do we have/want straight-through processing (STP)?
- Will our retention levels for agents and customers beat industry averages?
- Will we reduce not-in-good-order (NIGO) and not-taken rates?
- Can we lower costs?
- Will all channels deliver similarly outstanding client experiences? Should they?
- Can we boost client profits? Product profitability? The productivity of a specific distribution channel? Can we even measure these things?
Unfortunately, when undertaking an application portfolio review, most of the evaluation centers on the technical condition of the applications within the portfolio, not on the business value and alignment each application provides. That’s why the industry’s most successful modernization initiatives focus on transformational results.
With each new success, business transformation becomes more deeply embedded in an organization’s core agenda, and over time the agenda begins to incorporate business transformation as its core.