Modern
Thinking
Continued
Take German insurance provider WGV Group. When the European insurance industry was deregulated in 1993, the company quickly deduced that in the newly competitive market, it could no longer depend on its antiquated systems to retain its market-leading status. For the past 14 years—yes, the company's modernization effort has spanned that length of time—WGV has reinvented its IT strategy by migrating away from a combination of outsourced applications and mainframe-based legacy infrastructure that inhibited its efforts to integrate and automate its applications. In place of its aging infrastructure, an architecture combining Oracle JDeveloper and Oracle Application Development Framework (for building Java Platform, Enterprise Edition applications) with Oracle Database for production and data warehousing on HP's HP-UX operating system has been developed to support a new generation of SOA-enabled applications for such core activities as policy generation and claims processing.
Not that such change came easily. Aside from the obvious IT challenges inherent in migrating core systems, the company had to instill a sense of confidence in the new technology among its employees, says Klaus Hackbarth, CIO of WGV and a member of the company's board of managing directors. It's an ongoing effort because WGV's newly flexible IT architecture allows for frequent changes as business conditions evolve, requiring employees to constantly adapt. "It's necessary to change the organization and the minds of people, so that they are able to use all of the functionality in the system," Hackbarth says. "We train our people to be able to change very often."
Cutting IT Costs, Creating New Revenue Streams
The results of WGV's IT modernization efforts thus far are eye-popping. The company has reduced its IT costs by 40 percent, to just 0.4 percent of revenue, or about one-tenth of the average in the German insurance market. The company has been able to move 30 percent of its back-office staff to front-office customer service positions, yielding vastly improved service and an increased ability to capitalize on growing opportunities for cross-selling its array of insurance products. And WGV has slashed turnaround time for providing customer quotes from five days to just 15 minutes, an incredible 99 percent reduction. What's more, WGV achieved full payback on its Oracle-HP platform, dubbed ICIS (for Insurance Company Information System), in just 33 months, and has so far achieved a 446 percent return on its investment.
WGV also has created a new revenue stream by becoming a technology provider to other insurance companies, offering its industry standard platform as a turnkey solution for competitors looking to modernize their systems. To date, more than 20 insurance companies in Germany have deployed ICIS, with an average implementation time of 10 to 12 months.
And still there is much more on the horizon. Among the coming additions: the company is preparing to launch a new service known as Pay-As-You-Drive Insurance, which will depend on the WGV data warehouse to crunch data transmitted by global positioning system-enabled monitors installed in cars, allowing WGV to set rates based on actual driving behavior rather than demographics. The company is also planning to roll out a new analytics application that will be used to improve vendor relations and is streamlining the processing capabilities of its e-invoicing system for auto repairs.
Make no mistake, though; not every IT department acts with WGV's proactive vision. Instead, they allow shrinking IT budgets to prevent them from committing to big-ticket projects. They see a fast-changing business environment and are paralyzed rather than energized. They look at their diminishing legacy programming expertise and are unsure how to minimize that skills gap. And they watch helplessly as their antiquated systems prevent them from complying with an ever-expanding sea of regulatory requirements. Instead of tackling those issues through IT modernization, they employ a patchwork approach to tweak their existing systems. But they do so at their own peril. "The forces that are impacting modernization are often out of your control, but you can't ignore them," says Gartner's Vecchio.
And the opposite problem happens as well—too often companies realize the risk but plunge into modernization projects hastily. They embark on poorly planned efforts that are doomed from the start, when, in fact, the road to IT modernization is paved with preparation and strategic thinking. "In the worst cases," says Vecchio, "you spend the money and you never get what you were looking for; in the best cases, you have significantly reduced the cost of IT, and your ability to respond is much, much greater."
There's not a CIO around today who won't see the value in that, but how they make the trip will determine whether they, and their businesses, will succeed.
For More Information
Oracle IT Modernization
Oracle IT Modernization Insight
Tony Kontzer is a freelance business technology writer based in Silicon Valley. He recently concluded a six-year stint at
InformationWeek, and over the years he has written for
Investor's Business Daily, CIO Insight, Network World, and
Wired.
