Insurers are tackling transformation projects due to various factors identifying the current system landscape as not fit for the (future) operational requirements or/and not economically sustainable to keep modernising and using it.
An important dimension of the business and IT strategy, driving the project portfolio and the project goals of modernisation- or transformation projects, is which type of change the organisation has to implement to stay competitive. Based on the stage of the IT System lifecycle the organisation is currently in, we require different measures and different areas of expertise for the underlying IT platform. On top of this, we also have to be aware of which efforts the necessary changes have attached to them.
Figure 1 - Effort vs. Type of Change
Evolution
During the evolutionary stage(s) of your IT platform modernising your IT systems is sufficient to fulfil your operational requirements and to comply with the regulatory measures of the supervisory authorities. Modernising an insurance platform to stay competitive has normally a small to medium effort attached to it.
Revolution
As soon as your current IT platform is not able to sufficiently support your operation anymore[1], or you want to develop new areas of business, an IT revolution has to take place. Such a revolution can either be achieved by reengineering your current IT platform, or by implementing a transformation project alongside improving the existing business process to adapt to a modern market. Implementing such transformation projects, which are never IT projects alone but will always also affect the whole organisation and its processes, require a lot more effort for their preparation and implementation.
Measures for the different approaches
It is quite obvious that the scope and necessary activities that come along with e.g. a transformation project will always produce more effort than a modernisation due to its nature. On the upside, it also produces more potential for significant improvements in your organisation.
The important thing for the business and IT strategy is, that you are taking into account that both approaches have very different prerequisites attached to them. Expertise in the source and the target system (technical and functional aspects) is essential for any implementation project. This very fact has vastly different implications for the two approaches:
To modernise a system landscape, your internal IT and business departments are the skilled experts regarding your IT platform and business processes. To get a fresh view or state-of-the-art concepts external consultants and industry experts can support the organisation with new concepts, ideas, and industry experience.
During a transformation project, you will heavily depend on external know-how, considering that the target platform's technology, to which the organisation are transforming, is completely new to a big part of the organisation. Experts in the field are already aware of the potential obstacles and solutions along the way and are essential for avoiding a failed project. Unfortunately, it happens quite frequently that new and unknown technologies are implemented inefficiently in an organisation, which leads to enormous problems during the implementation project itself, but even more issues during the maintenance and modernisation phases. Due to the complexity of insurance implementations, with dozens of functionalities building on top of each other[2], a point of no return is reached quite quickly and the organisation is stuck with a sub-par solution too expensive to redesign and expensive to use.
Disclaimer & Notes
The categorisations in Table 1 are based on the averages for the type of change. Off course e.g. a lengthy refinement of the business processes can fall into the revolution category and on the other hand the introduction of an insurance product framework can fall into the modernisation category. It all depends on the current situation of your IT platform and on the necessary steps to achieve your goals.
The "effort" and "improvement potential" shown in Table 1 are predictions. Off course, it is very possible to spend a lot of effort (and budget) on a transformation project and the result is barely maintaining the status quo of your current IT platform. Being aware of the effort and consequences alone is not enough to take the right steps and implement the correct measures to achieve all of your organisation's goals. This is where the experts come in :)
In such a short read it is impossible to cover all aspects and nuances of the discussion. If you are craving more details and insights on transformation projects and IT projects in general, feel free to check out my recent publication “Replacing Core Insurance Systems - Learning from the past to be prepared for the future” (especially chapters1.1 IT System Lifecycle, 1.5 Insurance Product Lifecycle, 1.7 Insurance Product Framework, 1.13 Supervisory Measures and Standards, 2.4 Architecture Vision, 2.15 Agile vs. Waterfall and 5.1 Time to Market), or to reach out to me in the comments or via linked in.
[1] e.g. due to new business and supervisory requirements, or insufficient time to market and a slow product development process
[2] (product development process, all downstream systems, regulatory reporting, financial reporting, etc.)
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