The Globally Integrated Enterprise and the Insurance Factory Model

IBM Global Business Services Financial ServicesExecutive Brief

Real world solutions for Global Insurance Delivery: The Globally Integrated Enterprise and the Insurance Factory Model

IBM Global Business Services 3

The current economic climate, with its increased level of competition, market consolidations, offshoring, and outsourcing landscape shifts, as well as disruptive technologies and increased regulations, is imposing enormous pressure on insurance firms.1

Now more than ever, the insurance business demands major cost reductions, increased speed to market and the need to mitigate delivery risk. To accomplish all these, Insurance Executives, and not just ones doing business globally, need to understand and manage a Globally Integrated Enterprise – right now.2 Global integration requires the insurance enterprise of the future to optimize information technology to prudently support the mix of local and global talent; it also involves vendor management with the global management of resources needed for profitable operations.

According to a recent survey of CEOs across the globe, firms adopting approaches to global integration that are more focused on embracing change are more likely to outperform their competition.3

Most major insurance firms we have worked with have either undertaken, or are considering global integration to reduce costs. Cost reduction has been the immediate reality for all firms – going global provides labor arbitrage that lightens the balance sheet and allows firms to focus resources on strategic work. But beyond those savings, how can companies turn global integration into an engine to fuel long-term efficiency, differentiation, speed and growth for the enterprise?

Getting Started: The AssessmentAs with any other major initiative, firms should begin the journey toward global integration with assessing where you are today. Even firms that have already achieved notable success by moving work offshore will find many opportunities to squeeze out additional cost savings and efficiencies via a thorough consideration of all the capabilities necessary to become a globally integrated enterprise.

Figure 1 - Suite of Six CapabilitiesFor instance, a thorough assessment can lead to new considerations for business design and operating models. Taking a diversified approach from a global delivery perspective with more than just another “BRIC”4 in the wall approach can lead to a sub-division of work by geography and this allotment can aid in role definition and reduce function overlap.

Manage Value in an Ecosystem of

Increasingly Specialized

EntitiesLeverage Global Assets

Build a Specialized Enterprise

Serve Distinct Global

Markets

Enable Collaboration

Address Shared Risk and Control

Globally Integrated Enterprise

4 The Globally Integrated Enterprise and the Insurance Factory Model

Using techniques such as a mind map exercise can help teams identify critical success factors and interdependencies among all the critical components used in global delivery, or refine existing delivery processes.

Figure 2 - Mind Map — Global Integration Critical Success Factors

Once firms have a thorough understanding of where they are in their global integration journey – as well as the specific areas where focus will improve efficiency and results – they must adopt a global integration framework that enables full advantage of the opportunities.

Global Integration Critical Success Factors

ProjectDefinition

Roadmapand Plan

Governance

Business Case

Project Management

CommunicationManagement

RiskManagement

QualityManagement

ProcurementManagement

KnowledgeTransfer

IntegrationManagement

Cost & Time Management

ChangeManagement

DefectManagement

Exit & EntryCriteria

DeliverableReadiness

MethodologyAdoption

ResourceManagement

One-TimeEducation

ContractManagement

On Boarding

Human ResourceManagement

InfrastructureSet-up

RequirementsManagement

Design

Code

Test

ExecutionArchitecture

Release Package& Planning

Deployment

Hardware

Connectivity

PhysicalSpace

Logistics &Taxes

Software

Unit & StringTesting

UAT

Functional

System

PerformanceIndicates Key Components that need to be in s before effectively starting other streams.


The Global Insurance Factory Model Insurance Executives need to understand and manage the Globally Integrated Enterprise using concepts, principles and disciplines similar to those manufacturers have been employing for years. To be successful and meet the challenges facing the insurance industry, companies must deal with globalization – leveraging a repeatable factory approach to insurance product development, and application development to improve speed to market while reducing total cost of development – whether it be maintenance or new development.

For many insurance carriers, the capacity to quickly make new and differentiating products has become a key element in long-term strategies for success. With that in mind, industry leaders are taking advantage of the value of a factory model for faster development of product and process applications to help deliver speed and efficiency across the enterprise.

One major US Property and Casualty insurer used the concept of the factory and organizational construct to transform their Application Development area. They changed from a silo-based, legacy driven organization to a release-based and portfolio driven firm in order to deliver an additional 15 percent increase in product projects per year.5

The factory model is an organizational and technological framework that utilizes modular teams, mixing and matching resources to quickly and efficiently produce a variety of applications designed to meet the fluctuating requirements of insurance customers. Leaders who leverage this model, creating a repeatable process to more quickly and efficiently deliver insurance products and functionality to market, will create a competitive differentiation for their firms. Keys to the Factory Model include:

Automation and Technology1. . Develop one standard approach to defining a strategy to leverage common tools.6 Consolidation2. . Balance resources across portfolios increasing the overall flexibility of the resource pool.Global Development3. . Utilize global capabilities to provide planning and execution activities in lower cost locations.

Governance4. . Establish sponsorship and align the organization to a common set of management standards.People5. . Implement programs to assess skills, define roles and career paths.7 Quality6. . Provide capabilities to identify defects earlier in the development process and reduce the overall number of product’s software defects released.Standardization7. . Leverage best practice methods to drive consistency across portfolios.

We applied this model to help a major US P&C insurer solve a growth problem in a services industry.

Challenge:• By the end of 2006, growth had become the primary challenge for the company. Revenue grew less than five percent CAGR in the period from 2002 to 2006, and barely two percent from 2004 to 2006.Solution Approach:• Self service quote-and-buy insurance application built for agility.9

Results to Date: • Built a strong foundation for expansion – the company tripled monthly new business applications and purchase percentage, meeting the business case. From a human capital perspective, the group was able to also free up key US resources to focus on other strategic aspects of the customer-facing web application systems. The balanced globally sourced solution resulted in the reduction of a third of the original planned expenditures.

With another US P&C insurer, we applied the factory model to help solve a challenge with their overall IT portfolio management and effectiveness.

Challenge: • Funding for IT projects and programs were varying by as much as 25 percent year to year in response to changes in the business environment and strategy. Program priorities also were being adjusted as the company worked to be more responsive to market opportunities and customer demands.


Solution Approach:• We led the implementation of a co-sourced software factory, leveraging the both company and external IT resources in two locations - at the company’s site for local support and at an offsite Delivery Center to provide flexible capacity at lower costs. The company uses their IT resources and a portion of the external staff to establish a consistent base of project capacity, skills, and experience at a minimum level of funding. The capacity of the local and global resources are adjusted as needed to quickly and efficiently align to changes in workload, funding, or skill requirements.Results to Date:• The consistent leveraging of methodology and processes, combined with groups focused on specific tools and technologies has enabled the company’s IT organization to respond more efficiently and cost effectively to the evolving business demands.

Set up for success from the start: Right Technology and Skills The application platform used to deliver products to agents, call center personal and consumers needs to be flexible enough to enable speed to market. Equally important is a low cost, highly skilled pool of resources that can implement and test a high volume of change within the flexible applications.

Firms must achieve an appropriate mix of local and remote resources through a well thought-out sourcing model. Shifting from labor-based thinking to services-based positions allow companies to compete more effectively in the marketplace by increasing productivity and minimizing cost, risk and time-to-market.10

Sourcing Oversight.• Providing Balanced Oversight over your Global Delivery Program is critical – it is a supply chain similar to that of any manufacturing company – all parties and variables must be proactively and carefully managed.Resource Diversification• . Do not put all your eggs in one basket – it could be the wrong one. Multiple geographies are advised to enable delivery to “follow the sun.” Where possible, leverage a geographic core competency such as housing testing in Brazil, development in India and design in China. This subdivision of work by geography can aid in role definition and reduce function overlap. That said, when picking a partner it is imperative to ensure longevity in the chosen locale and in global integration experience, as well as inscrutable business practices. As evidenced by the recent troubles and reorganization of Satyam, careful scrutiny and selection of a trusted global partner are table stakes to successful global integration. 11 Some firms may be cheaper in the short term, but cost insurers more in time and money in the long term.

The insurance factory model is competency-based, with an emphasis on core skills, consistency, repeatability, optimized productivity, estimating, scheduling accuracy and asset re-use. Communities of individuals with similar but varying skills are gathered into competency pools with the object of making quick work of application development. This allows for deeper knowledge transfer to occur across like skills, broadening capabilities of the delivery organization. Additionally, a factory model can help position an insurer for a transition to a more efficient and flexible delivery model (figure 3).


Figure 3 - The Factory Model: Execution View

Focus on the Fundamentals: Consistent Governance and StandardsIn a globally integrated enterprise, the fundamentals of best execution do not change. No technology solution, group of resources or cost savings precludes the need for consistent governance, project management and standards across the enterprise – in fact having these is fundamental to creating a globally integrated enterprise. Key factors for success include:

Methodology adoption in all geographies. Developing clear •documentation and traceability for Insurance Product Specifications within your home-office based product teams enables fast and efficient development, testing and delivery back for product sale.High-quality project managers to oversee/manage complex •projects. CMMI level appraisal in delivery sites worldwide promotes consistent, replicable and effective processes, helping to allow global teams to identify and resolve issues faster. Security-enhanced worldwide infrastructure protects intellectual property and sensitive data.

ManagerToolsmith1

Release Planning Release Rollout Release Closeout

Requirements & Functional

Design

Technical Design

Build Test

PM PM PM PM PMAN ANAN

AN AN AD AD ADAD C/I C/I C/I C/I

C/I

QC QC QC QC

QC

AR AR

AR AR

Quality Control

Information ArchitectApplication ArchitectDomain ArchitectPackage ArchitectNetwork Architect

Factory Roles

Project Manager

- Release Manager- Project Management- Associate- SOA Project Manager1

Analysts

- Business Analyst- Systems Analyst- Designers- Process Flow- Designers1

ApplicationDeveloper

- Legacy Systems- N Generation- Database- Security - Service Developer1

- UDDI Designer

Configuration /Infrastructure

- Environment Specialist- Network Specialist- Source Code Manager- Toolsmith1

Architecture

- Quality Control Analyst- Test Executor- Load & Performance Test- Script Automation Specialist

1Emerging roles in SOA projects and definitions from (Service-Oriented Architecture (SOA) Compass: Business Value, Planning, and Enterprise Roadmap)

Release Monitoring and Control

Release Initiation Release Execution

Requirements & Functional

Design

Technical Design

Build Test

PM

AN AD AD

AR

Quality Control

- Information Architect- Application Architect- Domain Architect- Package Architect- Network Architect


Monitoring progress and costs• . Metrics should be assessed against a clear baseline to capture the total benefits of the approach, and allow for rapid identification and reinvestment of cost savings. In addition, firms must weigh their budget choices carefully. While on-site management, communications and a minimal number of bench resources may seem like unnecessary costs, failure to retain any of these could result in reduced efficiency and/or delivery delays.

Creating collaboration: The unique needs of a global teamLastly, managing a global team involves intricacies often not present in non-global relationships – some which are expected (language and time gaps) and some which are not (manage-ment hierarchies and unique cultural customs). A 2008 Forrester Research report states that a successful transition to a managed outcome relationship typically yields an additional 20 to 30 percent savings improvement beyond the benefit of labor arbitrage.12

Approaches for improving communications, and working around time zones and language gaps are widely published. However, none of these reports can provide as much value as an experienced on-site representative of the vendor company and culture with a high emotional quotient.

For instance, Westerners working with global counterparts may perceive that their teammates seem indecisive, say yes when they mean no, or are reluctant to escalate issues. In reality, these perceptions stem from core differences in the way cultures communicate.13

The on-site lead should be able to function well in all cultures across the relationship, and be granted decision-making status, to be able to address these communication differences and ensure that avoidable misperceptions and miscommunications do not derail delivery. The lead can be the conduit for other details of the global relationship that may be overlooked – such as cultural holidays and customs that must be planned for in advance to keep delivery running smoothly. In addition, keeping a consistent team for the life of the project with a single point of contact in each remote delivery location will create consistency in the global relationship as well as results, and help with managing the interdependencies of multiple projects.

All resources should be prepared to operate in a global environment in order to fulfill the needs of a globally integrated effort. Depending on the need, resources may be required to deliver on foreign soil. Global delivery depends on avenues of communication and effort that flow in multiple directions.


ConclusionThe emerging global economy introduces a vast and complex new competitive landscape. There are multiple new opportunities and pressures that all organizations – large and small, private and public – must deal with to survive and succeed in the new global marketplace.

While there is no one formula for success, all organizations must embrace and in effect, become integrated into the fabric of the new global economy to understand and leverage the economic value and innovation possibilities it offers. The opportunities are there and available for the taking in the following areas:

Criteria Results

Business Partner Satisfaction 30 to 90 percent improvement

Severity 1 Defect Rates 58 to 82 percent reduction

On – Budget 27 to 41 percent improvement

On – Schedule 20 to 41 percent improvement

ROI14 3.6 to 9 times

Source: IBM Research

To learn more about how you can avoid the many potholes in the flat world through the creation of a repeatable, insurance focused, software factory model, and how IBM has helped companies in the Insurance and other industries navigate the global stage, contact Patricia M. Hamilton at [email protected] or Tom Duffy at [email protected]

To read more about how IBM is helping leading Insurers win, go to

ibm.com/insurance.


About the authorsSumesh Jose is a Delivery Leader based out of India and part of IBM’s Global Business Services Insurance practice. He can be reached at [email protected].

Luke Kelleher is a Project Executive and Senior Managing Consultant with IBM’s Global Business Services Insurance practice. His specialties include complex systems integration, project management, data conversion and object-based project methodologies. He can be reached at [email protected]

David Lipien, PMP is a Senior Managing Consultant with IBM’s Global Business Services Insurance practice. His specialties include complex systems integration, release management, internet-based technologies, wireless technologies and object-based project methodologies. He can be reached at [email protected]

Contributions byBill Busby Partner, Insurance Industry IBM Global Business Services

Bruce F. Broussard Associate Partner, Insurance Industry IBM Global Business Services

David Notestein Executive, Insurance Industry IBM Institute for Business Value

Dipanjan Ghanti IT Specialist, India Insurance Practice IBM Global Business Services

Gordana Radmilovic Consultant Americas Insurance Leader IBM Global Business Services

Heather Higgins Consultant Americas Insurance Leader IBM Global Business Services

Jeff Kelly Partner, Americas Strategy and Change IBM Global Business Services

Justin Ryan Consultant Americas Insurance Leader IBM Global Business Services

Nick Concha Architect Custom Development, Thailand IBM Global Business Services


1 Spang, S. “Five trends that will shape business technology in 2009; The year 2009 will be challenging for CIOs; Here’s how to play your hand.” McKinsey Quarterly. Mar. 2009. <http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Five_trends_that_will_shape_business_technology_in_2009_2296>.

2 Palmisano, Sam. “The Globally Integrated Enterprise.” Foreign Affairs Magazine. May-June 2006. <http://www.ibm.com/ibm/ideasfromibm/us/integration/010607/images/leaf1/The_Globally_Integrated_Enterprise.pdf?sa_campaign=message/ideas/landingpage/section1/1/newglobal>.

3 IBM Global CEO Study 2008; IBM CEO Survey. <http://www-935.ibm.com/services/us/gbs/bus/pdf/ceo-study-executive-summary.pdf>.

4 BRIC – Brazil, Russia, India and China

5 Lipien, David, and Kelly, Jeff. How a factory development model can help insurers gear up for success. 2007. IBM POV. <GBW03001-USEN-00.pdf>.

6 Gan, P., D. Lipien, and Haines J. Enterprise Software Release Management. 2006. IBM developerworks. <http://www.ibm.com/developerworks/rational/library/06/0925_>.

7 IBM Creating an adaptable workforce: important implications for CIOs (2008).

8 Barrett, Michael, Elizabeth Davidson, Catherine Middleton, and Janice I. DeGross. Federation for Information Processing. 2008.

9 Kelleher, Luke, and Lipien, David. The Online Insurance Imperative: Driving Growth by Expanding Your Online Presence. 2008. <ftp://ftp.software.ibm.com/common/ssi/sa/wh/n/gbw03067usen/GBW03067USEN.PDF>.

10 Services account for more than 50 percent of the economies in countries such as Brazil, Germany, Japan, Russia, and the UK.

11 “The New York Times.” The New York Times - Breaking News, World News & Multimedia. 17 June 2009 <http://www.nytimes.com/2009/01/11/business/worldbusiness/11satyam.html>.

12 “From FTEs To Results: Going Beyond Labor Arbitrage To Managed Outcome Relationships.” Forrester Research (2008).

13 Brett, Jeanne, Kristin Behfar, and Mary C. Kern. Managing Multicultural Teams. HBR. <www.hbr.org>.

14 Scientists at the IBM T.J. Watson Research Center measured the business impact of infrastructure outsourcing on 56 public companies over a five-year period. Their analysis revealed that companies engaged in major IT outsourcing deals achieved better long-term improvements in business performance than their peers. These companies realized lower selling, general and administrative (SG&A) expenses, higher return on assets (ROA) and higher growth in earnings before interest and taxes (EBIT).

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The Globally Integrated Enterprise and the Insurance Factory Model