No one ever said it was easy understanding the most effective, fool-proof methodology when making a major technology purchase. Confusion mounts amidst the many and varied business requirements and associated recommended IT paths to follow. The one-size-fits-all advice no longer applies, notes Celent, a Boston-based global research and advisory firm.
In its latest report, “Tug of War: The Competing Forces That Drive Insurance Technology Strategy,” Celent notes a certain tension between the competing demands placed on businesses and their supporting technologies, and proposes a methodology that is designed to stimulate useful thinking and discussion among enterprise architects.
“The criteria have been deliberately defined in the model to reduce overlap and to emphasize the tension between them. The model provides a useful discussion point in prioritizing an insurer’s activities and seeking consistency in an insurer’s IT strategy,” notes Craig Beattie, analyst with Celent's Insurance Group and author of the report.
Beattie says that in many cases, the key to solving complex problems is in how the questions and possible answers are expressed.
“Methods for evaluating information technology solutions often give the impression that the various criteria and requirements are independent, when this isn’t the case,” he points out. “Providing a few high-level criteria and arranging them so as to express the natural tension between them can allow for a very accessible and visual representation of the problem and the solutions.”
The criteria described in the report, says Beattie, are often expressed in insurers or within enterprise architecture teams as principles, requirements, or properties that aid in governing and evaluating solutions. This model has two control criteria, two change criteria, and a capability criterion. They include:
1) Cost (criteria), Control (type): Cost refers to cost control and financial governance procedures. Its measures naturally reduce risk and increase flexibility. Cost control has taken on renewed focus in many insurers since the financial crisis. An enterprise architect must be able to justify and minimize costs for any project.
2) Risk (criteria), Control (type): Risk control is the criterion that a solution manages and mitigates risk to the insurer. An enterprise architect needs to choose not only the best technological approach but also the approach that best controls operational risks and ensures adherence to regulations. Improved risk control reduces the likelihood that investment is misplaced or, in this case, duplicated. Risk control typically has a positive influence on capability and skills.
3) Flexibility (criteria), Change (type): Flexibility is defined here as a solution that provides multiple options to an insurer. Having an increased number of options typically enables cost control activities and improves agility. Flexibility means taking advantage of these options when considering a solution and making choices that don't limit future options.
4) Agility (criteria), Change (type): Agility is the requirement for speed of delivery and the ability to quickly start up new projects. An agile solution enables the insurer to quickly turn around a change from the point the idea is conceived. Solutions that enable speed to market typically improve the flexibility of the insurer because short turnaround times can allow for prototyping and early trials. Agile solutions rely on having strong skills and frequently have the property of improving skills and capability.
5) Skills (criteria), Capability (type): Skills is defined here as having access to resources and capabilities necessary to support the insurer. For any approach to work, an insurer must have the skill sets available to deliver and support a solution. In this model, options or solutions that have requirements for a smaller or limited skill set score well for the skills criteria. Having access to strong skills improves risk control because many of the risks inherent in the problem domain and in the IT systems are well understood by the people involved. Having access to key skills also drives speed to market.
An added benefit to the model is that it highlights where existing sets of strategies might be contradictory, notes Beattie “Executing a program to improve speed to market while adding governance to constrain costs is likely to lead to neither initiative succeeding.”
The model demonstrates that one objective must be prioritized over the other, thus offering a way to measure consistency between initiatives. Understanding that there is tension and that one criterion takes priority over another is key to success.
“We believe that insurers of all types and styles would benefit from reevaluating their technology strategies against broad business objectives. Utilizing the framework in this report will confirm strategies that are consistent with objectives, confirm the strategies are consistent with each other, and highlight those that need reconsideration.”
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