Xuber Special Report
The Risk of Doing Nothing…
is the Biggest Risk of All
How to Reduce the Risk of System
Implementation in Complex Insurance
According to a Gartner survey, “only 42% of projects meet the
original budget, and 82% take longer than expected.”1 Is this
the way it needs to be? Xuber explores the reasons behind
such hurdles and discusses ways to reduce the inherent risks
in making the journey to business transformation through new
software systems.
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
Contents
1.
Background: the journey
2.
Lessons learned from failed implementations
3.
The importance of data
4.
The principles for a successful implementation
5.
Getting the best from your vendor
6.Summary
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
Introduction: The Journey
The drivers for embarking on a quest for business transformation have stolen many a
cyber-column inch in the last couple of years. Improved operational efficiencies…
embrace mobility… enhanced decision making and business agility… achieve a faster time
to market – all juicy carrots worthy of catapulting core system change to the top of many
CIO agendas.
“Trends such as digitalization, customer
experience management, product
innovation and value chain expansion
are reshaping the insurance industry.”2
Gartner
However, with such projects likely to be a ‘once-in-a-career event’, and with few insurers
replacing a policy administration system more than once a decade3 the stakes of seeking
out business transformation are high. No real pressure then.
Novarica wisely recommends that “CIOs and IT leaders need to consider ways to use
lessons learned from successful implementations.”3 But how do you define what success
looks like? What are the best-practices behind achieving that success, and how do you
seek out the best vendors and get the best from them?
Avoiding a lecture in generic change management principles, this whitepaper aims to
support CIOs and business decision makers within complex insurers on their path to
transformation, examining the key ingredients for a successful implementation of core
insurance systems.
“P&C and life insurance CIOs must build
awareness of the business transformation
happening in the industry and their role on
supporting emerging demands.”2
Gartner
Lessons learned on failed implementations
System implementations are predominantly driven from two camps - quick-fix ‘solve my
pain’ campaigners and long term strategic visionaries. Fundamentally, a balance needs
to be struck between the two, with systems that not only solve business challenges but
that provide a springboard to the future. So looking at these in more depth, what are the
key lessons to be learned from other insurers?
•All change in the rush hour
Rushed implementations are mostly tactical and often a myopic quick fix. Akin to
sticking duct tape on a leaking pipe, while potentially delivering short-term relief, such
moves fail to address the wider and longer-term needs of the business. Often driven
solely by IT, such projects don’t spare the time to consult users, leaving them
disgruntled and unwilling to adopt the new technology put in front of them. Global
companies that succumb to doing a quick fix regionally subsequently find that their
endeavours can’t be transposed to other regions or integrated into centralized
systems.
•
Written in the stars
At the other end of the scale, strategic long term system initiatives are often too
visionary – lengthy to implement and not grounded in driving actual business value,
with benefits realized too late. As aptly put by Novarica, “The world—and your
business—will change during the course of the project, and requirements will need to
be adjusted accordingly.”4
“Poor planning and an overly high level of
optimism are resulting in a significant risk
of failure for the legacy modernization
initiatives of CIOs at life and P&C insurers.
According to a Gartner survey, only 42%
of projects meet the original budget, and
82% take longer than expected.”1
Gartner
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
Other key lessons to be learned include:
•Living the dream
French writer Voltaire said “We never live; we are always in the expectation of living.”
Insurers stand to fall short of inflated expectations of new product capabilities. Often
oversold during supplier parades, such vendors often become victims of their own
success, overstretching themselves to deliver on their promises once invited into the
fold. Attempt to implement a system that is too customized and it is likely to be costly
and time consuming to adapt; opt for something that is completely off the shelf and it
could be unconfigurable and inflexible, promising unrealizable capabilities.
•Who’s on first?
Echoing our first point around short-term fixes, many projects fail to identify early
enough – or identify at all – the different stakeholders required to be involved in a
new system implementation. A CIO from a Property and Casualty insurer commented
that he “should have started seeking the approval and guidance of our other senior
management sooner” because “it takes not days or months, but sometimes years to
get them (PAS projects) off the ground.”3
•Fail to plan, plan to…
Unrealistic planning trips up many insurers, setting improbable expectations in terms
of the time, resources and investment required to make a project successful.
Implementation projects that aren’t built on an agile change methodology will likely
over-run; data migration is a minefield of red flags waiting to be raised, and suppliers
aren’t overly forthcoming with upfront commitments to deadlines knowing that a can
of worms can take a long time to open and unravel.
•“Force has no place where there is need of skill.” Herodotus
Given the infrequency of large scale system change, many insurers lack the internal
knowledge or skills required to undertake such a task. Often more junior or nondedicated staff are allocated to such a project, and are unable to make critical
decisions without senior management input. This causes delays and incongruous
project management. Combine this with a pushy vendor that wants to take the reins
completely, and you are cruisin’ for a bruisin’.
•Look over there!
It’s very easy to get distracted when a project involves many stakeholders, with
varying needs and timescales. Scope-creep often abounds in a new system initiative,
usually born out of inexperience, obliviousness or sheer lack of discipline. Conversely,
steadfast rigidity is also a threat to project success, and such inflexibility fails to
recognize the ever-changing needs of a business, its customers and the market as
a whole.
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
The importance of data
Once seen as the elephant in the room, insurers are increasingly becoming aware of
the mission-critical role of data as a strategic asset in driving advantage through
better insight and decision making.
Previously, many failed to understand the micro-level of data and data structures at a
macro-level, but so significant now is the value of data that a new role of ‘data
scientist’ has emerged in an effort to help insurers get under the skin of its data and to
gain value from its greatest asset. But few insurers have invested in this role yet. In the
absence of it, they may need to plug the data skills gap with external expertise.
Data needs to be nurtured, and if a company is prevented from using or accessing its
data during or after new software implementation, it simply can’t operate. Data from
legacy systems has to be accurately transferred to the new platform – without fail and a robust data migration strategy is without doubt an intrinsic and vital element of
any system implementation.
Many considerations need to be given to an insurer’s data to ensure that any new
system delivers against expectations, before, during and after implementation to
ensure success. How complete is your data? What condition is it in? What data needs
to be migrated and what can be left behind?
To avoid the pitfalls of data migration, it is worth learning from others who have
stumbled at one of the biggest hurdles to successful implementations.
•Agree on a target model for data migration. Think about what you want for the future
because there’s an opportunity to set up new rules. What does valuable data
intelligence look like, and how are you going to use it? What level of data
consistency and granularity do you need? Once you have that target model agreed
upon, you can implement against it and plan a migration path for your existing data.
•Overcome the risk of data migration with the simple 80/20 rule. Invariably, 80% of
your ‘routine’ data (transactional data such as policy, claims and billings) will map
across to your new system automatically, with little need for human intervention. Yet
20% of non-standard data invariably trips insurers up in terms of resource and time
required to hand-hold complex data. Using a data migration utility, insurers can
identify and separate the routine from the complex, and put the ‘hard to handle’
data in the hands of a technical data analyst. This person understands the data and
the business’ requirements, and will help you avoid the need for hard-coding
one-off ‘fix’ solutions to engineer data into its new home.
Murli Buluswar, Chief Science Officer
at AIG Property & Casualty:
“It’s not just about data, it’s about insights
- this is where science should meet the art
of decision making. Models need to work
with human intellect.”
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
The principles for a successful implementation
“Don’t skate to where the puck is, skate to where it’s going to be.” Wayne Gretzky
For a new system to have any chance of succeeding, it’s vital to have a complete
understanding of three things:
1. Where your business is today.
2. Where you want it to be.
3. The art of the possible.
Where are you today?
While you need a full understanding of how you do things today, avoid overdocumenting your current system in minute detail for fear of “repaving the cow path.” 4
Consider and understand in-depth the elements that will be affected in a wider
change program, such as operating processes and practices, organizational culture
and structure.
Where do you want to be?
In a recent survey, Celent asked complex P&C insurers what strategic drivers they
were looking to address in the next 12 months.5 Coming out at the top of their wish
lists were cost reduction and efficiency, followed by growth through new products
and then business process optimization. If we refer back to two of our common pitfalls
in implementations – quick term fixes versus too visionary in scope - to achieve these
goals effectively, it’s vital to strike a balance between the two when determining
your goals.
Understand the art of the possible
You know where you are, you’ve defined where you want to go… now you need to
look at your options for getting there. And the biggest, brightest software in the
market might not be the easiest one to help you navigate through a successful
implementation – more on that shortly when we talk about getting the most from your
vendor. As recommended by Gartner, “Evaluate new technologies, such as cloud
computing and big data architectures, for their ability to address growing performance
requirements.”2
In addition to the best-practices around data that we have already defined, here are
our top 5 essentials for implementation success:
1. Secure boardroom buy-in
It’s essential that the rationale behind any new system implementation is aligned
with where an organization wants to be at a strategic level. This process needs to
start in the boardroom - debating, articulating and documenting what success looks
like across the C-level spectrum to delve into objections, manage expectations and
to avoid distraction. Key drivers for change should be agreed at two clear levels
– what is the business value to be derived from system change, and also what the
functional outputs of change look like. KPIs should be built around both of these
co-dependent areas.
“Until you understand what packaged,
modern solutions can do in terms of
both out-of-the-box functionality and
configurability, it’s impossible to know
what your future state should look like. It
should almost certainly not look like your
current system, and documenting it in
great detail will simply lead you to build a
new version of your old system.” 4
Novarica
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
2.People, people, people
Gartner recommends that CIOs within insurers “Identify all internal and external
stakeholders who are relevant to your digitalization initiative,” and to “Develop a
RASC model for stakeholders that defines who is responsible, accountable or
supportive, and who needs to be consulted.”2 The power of creating a focused
working party of people cannot be underestimated when aiming for a successful
implementation. You need to consult all relevant department heads, define different
user types and their requirements, and identify the impact of change on each. In
other words, you need to help your people to help your people. It’s also essential to
identify the skills you are going to need to facilitate a successful implementation
– e.g. the specialist data analyst role. Then map the skills within your own
organization to identify the gaps, and build these requirements into your vendor
wish-list.
3.Processes:
Deriving value from business change is unlikely to be realized through a new
system and newly structured data alone. Your processes may well need to come
under the spotlight too, and you will need to untangle manual workarounds from
documented processes before you lay them bare during a new system
implementation. Document your processes and map them to new requirements,
identify gaps and incorporate process change as required, securely linked to your
strategic and functional KPIs.
4.Technology:
According to Novarica, “Success rates are much higher for packaged solutions than
for custom builds, and it’s usually cheaper, faster and easier to configure a
packaged system than build a custom solution.”4 It’s an age-old dilemma between
customized and non-customized systems, and true agility has to lie between the
two. To compete on a global stage and to satisfy clients around the world, insurers
need to balance the delivery of global insight and control, with configurable
interfaces to meet global needs, and new systems need to support this flexibility or
global rollouts will likely take years.
5.Be prepared to flex
Leading analysts cite that, “Waterfall-type methodologies aren’t well designed to
deal with changing requirements, but agile-like (iterative) implementation
methodologies are.”
Define your requirements and send out your ‘A’ team to provide resources and
feedback, but be prepared to allow the project to ‘flex’ during the implementation
process. Build this agility into your planning processes, including user feedback
loops and testing environments, and adjust the plan accordingly. You can’t be
absolutely rigid - there may be practical reasons why the scope alters. As part of
the change process, it’s imperative to get people on-board as we have already
discussed - it may be necessary to accommodate scope creep to win the ‘hearts
and minds’ of your people. “The world - and your business - will change during the
course of the project, and requirements will need to be adjusted accordingly. An
iterative approach is key.”4
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
Getting the best of your vendor
Given that many insurers will need to bridge the skills gap between their own resources
and that required to ensure a successful implementation, it is critical that the right vendor
with the optimum solution, people and attitude to meet the needs of your business is
selected. A few tips that might help you to find and get the most out of such a vendor:
• Understand the difference between a software developer and a software integrator
- identify the qualities in both and decide if they have the capabilities to meet your needs.
• Select a vendor that is experienced in insurance implementations and able to
provide solid, thoughtful and proven advice with a track record in working with
multiple stakeholders and third parties. Seek out those with mature implementation
methodologies and solid project management skills.
• Get under the skin of your vendors during the beauty parade, to find out their
constraints versus your expectations. Collaboration and strength of relationships will
be critical moving forward, so it is imperative to understand any limiting factors warts and all – as early as possible in the process.
• While opting for a fixed price contract might seem attractive - putting the risk on the
supplier - insurers are expected to deliver all of their declared inputs without fail to
realize the benefits of such an agreement.
• To maximize the chances of success, you don’t just need a software business that
implements software, you need a software business that implements software and
understands the full journey you are taking - beyond implementation and into the
future. Seek out vendors that have a strategic path that aligns with your own.
• Tempting as it may seem, the benefits of driving pricing down will be short-lived on
the bottom line. As Novarica points out, “It is important that you partner with your
vendor; if you’re squeezing the vendor on price, you’re less likely to get their ‘A
team’ staff and to be a top priority for them.”4
Summary
One European life insurer that Gartner recently talked to mentioned that its
implementation was 18 months late and three times more expensive than the original
expected cost. A North American P&C insurer was running eight years behind with its
claims management implementation.1 The fact is, it doesn’t have to be that way.
While we have only scratched the surface here in considering critical factors that will
increase an insurer’s chances of success, there are some fundamentals that cannot be
ignored: build strong internal teams to garner support around change initiatives;
collaborate with your teams and vendor; set your expectations firmly against both the
goals of your business and those of your teams; and above all, be prepared to flex
those expectations in the same way you are going to expect any new system to flex as
your business moves forward.
Successful system implementations clearly lie between where you are now and where
you want to be. As T.S. Elliot wrote, “Only those who will risk going too far can possibly
find out how far one can go.” And in the right hands, the odds of realistically achieving
business transformation might not be as high as they first seemed. Defining the risk of
making no move at all is truly the real question.
Xuber Special Report The Risk of Doing Nothing… is the Biggest Risk of All
High Failure Rates in Insurance Legacy Modernization Challenge CIOs, Gartner January 2014,
1
Ref G00260479.
Top 10 Business Trends Impacting P&C and Life Insurance in 2014, Gartner April 2014, Ref G00260404.
2
Policy Administration System Lessons Learned, Novarica, August 2013.
3
Core Systems Replacement: 20 Myths and Realities, Novarica, January 2014.
4
Weathering the Storm in Complex Insurance, Celent, April 2014.
5
©Xchanging 2014
Xuber USA
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+1 877 288-3333
[email protected]
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The Horizon, Bangsar South City,
No. 8, Jalan Kerinchi,
59200 Kuala Lumpur, Malaysia
[email protected]