Other parts of this series:
Agility is the key to competitiveness, but so many organizations are trapped by their legacy systems and can’t move ahead.
If budgets and resources were not a consideration, every organization would aspire to be the one to beat, to be the company everyone is talking about or that offers the newest or fastest or most intriguing product. The entire organization – executives, professionals and support staff — would revel whenever the company’s name appeared in stories about forward-looking companies or products to watch.
While that goal could be attainable, getting there requires agility – and there’s the rub. Obsolete or aged technology capabilities are hampering insurer agility and the ability to move forward. It’s reasonable to make a case to pursue a new product or distribution method, but it is extremely difficult to make the business case to resolve the issue of stagnation from inflexible systems.
Mature insurers are especially vulnerable to inflexible or unresponsive systems, but these problems can also affect younger organizations that may have deployed older technologies.
Regardless of how your organizations got there, you know you are caught in the legacy technology trap when you have any or all of the following problems:
- Duplication. Multiple systems-of-record duplicate the products and services they offer, often creating confusion and waste.
- Application Complexity. Applications are poorly understood either because platforms are outdated and overly complex, or because they require unusual expertise to use.
- Application Obsolescence. Applications use obsolete technologies or cannot accommodate today’s business data and use-case needs.
- Integration Issues. Systems lack clear, well-understood integration mechanisms, so integration occurs on an ad hoc basis.
For the data-heavy insurance industry, these problems create real pain points that can slow down or even threaten the viability of organizations competing in a world of technological agility. Fixing them, though, has many challenges including cost, need for deep systems expertise, evolving digital expectations, and regulatory and operational risks. Simply bringing systems on to a single application and eliminating duplication without losing valuable information can be a showstopper. No wonder many organizations can never find the right time or resources to make changes.
How did you fall into the trap? Perhaps an M&A?
Recent research shows insurance businesses involved in a merger or acquisition (M&A) generally rank integration of IT systems and internal process as their second most difficult challenge, just behind customer retention and satisfaction. That’s no wonder because of the difficulty of merging systems and the length of time it takes to complete a large merger. And experience shows that system and platform consolidation can be so onerous that the effort is quickly abandoned, leaving siloed legacy platforms and unwieldy business practices, which continue to operate as separate entities for years.
This is no isolated problem. In 2015, there were 841 insurance M&As in the U.S. worth $123 billion, according to the Institute for Mergers, Acquisitions and Alliances. That number dipped slightly in 2016 to 796 M&As, with the value halved to $61 billion. The organization’s forecast for 2017 is a significant 720 M&As worth $41.4 billion.
Compounding the problem, 92 percent of operations targeted for 2015 acquisition were located in places where the acquirer already had operations. Experience has shown that when acquirer and target share the same operating location, problems with systems become even more pronounced, often resulting in siloed mini-businesses operating alongside main operations.
Or maybe low insurance margins have squeezed your organization’s technology investments?
While trying to operate with limited, sometimes inadequate allocations, many carrier technology operations have made do, pasting fix on top of fix onto legacy systems and becoming less and less relevant to the business organizations as time passes. Meanwhile, businesses divisions, are perceived as “revenue-generating operations” while IT is perceived as “a revenue-user operation,” so businesses don’t face the same fiscal restrictions.
During engagements, we frequently find shadow IT pockets within business operations that have been frustrated by what seems like an unresponsive technology organization. These businesses have hired their own technology staffs to create siloed solutions that add operational complexity. And without controls, the business’s hot technology often becomes tomorrow’s legacy system.
There are other ways legacy systems are created and other reasons why they remain in use, but one thing is clear: Legacy systems are like leg irons, restrain movement and progress. And that’s something no organization can afford.
Next week, I will discuss how to make the business case to free IT from the legacy technology trap.
To learn more, read: The Financial Impact of Older Technology is Eye-Opening