10 Steps to Ensuring Success of a Core Systems Replacement
In the last few years, the number of insurers making "significant inroads into their legacy modernization system" and investing in a program of change has doubled to more than 50 percent, according to a new report from Celent. Data from a recent survey is then used to outline a successful path, including the following ten steps, for all those legacy modernizations and change programs.
The business must set a clear business vision and strategy against which to select the solution, and ensure that both internal staff and vendors are on the same page. This vision points to where to differentiate on vendor offerings, necessity, and relevance of the change program. Once the solution has been chosen, the business vision continues to provide this baseline future objective against which decisions can be made.
This program of change is being undertaken in order to achieve the business vision and support the company strategy. IT is an enabler of this new business vision but should not be the driver. This is an important distinction to how programs have been managed in previous decades, and equally important in the ultimate success.
According to Celent, this factor is often overlooked, and it is not uncommon to see IT departments well into a selection program while the business watches from the sidelines with no clear articulation of the new operating model. It is necessary to align business and IT early to ensure an effective transformation because the business target operating model drives the vendor choice and solution design. Then, throughout the transformation, the business must maintain a clear view of how the operations, process, and people should look like in the new world so that the operating model continues to inform how the solution is implemented.
The scope of a program office extends across
both business and IT. In addition to the IT delivery track, the program office manages the change as it touches a variety of areas such as broker, call center, underwriting,
and claim staff.
The program office establishes and implements a common set of processes and templates and is responsible for project planning, risk and issue management, change, and cost control. Through frequent and appropriate communication to project sponsors and stakeholders, the function provides an early warning system to sponsors and is able to tracks organization-wide metrics on the state of project and program delivery.
Replacing core systems has been described as similar to
the process of changing the wheels on a moving train. The CIO and the IT department must be able to articulate the case for change and to have the skills and knowledge to manage and drive this change in collaboration with the business.
Over a third of respondents to Celent's survey scored the IT department as good or excellent in its ability to undertake large projects. Somewhat encouragingly, only 8 percent of respondents felt IT was not up to the task of a large change program.
Large-scale transformation projects will require partnership with several outside organizations for their expertise such as program management, data migration, business process redesign, change management, etc. The insurer needs strong internal capabilities in supplier management to effectively manage these third parties.
One of the lessons learned by insurers that have completed their implementation of new packages is the negative impact of bending the package to fit unique requirements. There will be a strong tendency within the business to minimize the change and to replicate current products and processes. This could lead to increased costs down the road if further updates are need; this potential cost needs to be balanced against the value to the business of bending a new solution to avoid making certain changes.
Legacy systems that are old and need to be replaced have been seen to come back to life when threatened by replacement. Yet at the heart of this is the human resistance to change. When having to undertake a period of uncertainty to get the new system, the current legacy system can all of a sudden seem just fine. Pointing sponsors and business back to the evidence that supported the initial decision as well as the future value as per the business case will usually get everyone back on track.
Much like choosing a replacement strategy, the combination of methods will be unique and appropriate to each organization. It is important to be clear as to where different methods and approaches serve you. Do not allow vendors to dictate use of their methodology when its at odds with other partners, your goals, etc.
While business leaders need to have a strong idea of their wants and needs, Celent also considers it a "perverse tendency" to keep the vendor at arms length during the selection process, using the procurement function and external consultants to layer on a veneer of science to a process that is more an art. The report calls this tactic short-sighted. Also, knowing as soon as possible what the art of the possible is in a new system is well worth the extra effort of engaging with several vendors. During the selection process, this degree of dialogue will improve both your understanding of vendor capabilities, and the quality of the responses you receive to your RFI/RFP.