Other parts of this series:
Making a business case to overcome the legacy technology trap is tricky. But insurers will know that it’s time for change when the pain points of the legacy application estate start to outweigh the challenges of migration. The moment might arise from a major transformational event like a merger or simply with the realization that the expense ratio is becoming a burden.
Piecemeal is rarely the best approach
A business case for piecemeal legacy transformation can be difficult to make based on bottom-up cost savings alone. The incremental cost difference following the replacement of platforms in isolation rarely offers an attractive benefits position when it’s based exclusively on total cost of ownership savings.
This is because legacy transformation typically involves not just implementing a new platform, but also migrating data and decommissioning legacy platforms. None of these are trivial activities. The complexity tariff of implementation usually means that—unless there are disproportionate costs in maintaining a legacy platform—incremental savings from a new platform are not sufficient on their own to make a financial business case.
To make matters worse, because the legacy platforms have typically resided in the estate for years, capitalized expenditure on their deployment might be fully depreciated. Run-rate costs are therefore likely to be proportionally low. And where the platforms have not been actively enhanced or maintained due to ongoing concerns about the complexity risks associated with change, this perceived low cost of ownership can be magnified.
For these reasons, a platform-by-platform remediation may not work.
A business-driven focus is essential
Re-orienting the business case with a top-down focus can, however, have a very different outcome. This requires a radically different way of thinking about the enterprise estate—no longer viewing it through how it exists right now, but constructing a vision of how it would look unencumbered by legacy. An immediate side effect of this focus is that it requires the organization to look at the enterprise estate through the eyes of its business users—and it quickly brings attention to the capabilities users need to execute business strategy.
By emphasizing new target capabilities, the organization can start to build the business case around opportunities for business growth through new revenue pathways and new target customer segments. It’s no longer a business case driven from within the IT department. Instead, it becomes a driver of core business strategy with legacy transformation as just one component of the how the strategy will be implemented.
In my experience, a business-led approach demands a compelling vision that captures the C-suite’s attention and secures their commitment to the journey. To arrive at this vision, it’s essential to focus the business case on satisfying needs that lie at the intersection between business and IT strategy.
Another key step is working out how current and future products will be serviced in the target enterprise estate. Accenture’s Insurance Rationalization Radar Framework can help insurers make the difficult decisions about product management, by pinpointing where the value lies within each product set and how it can be serviced in future.
Making the case for change
With the product rationalization strategy completed, insurers must turn their attention to the business case for change. Here, Accenture’s High Performance Business Case Framework for Insurance can be a valuable tool. Based on our experience, we’ve codified and inventoried the main tangible and intangible benefits of insurance transformation programs.
As I noted earlier, the cost savings associated with removal of legacy platforms may not, on their own, be enough to make the change compelling. Often, it’s the intangibles that make a real difference. Our research and toolkits bring heuristics for highlighting measurable financial outcomes from intangibles that may ultimately affect whether a business case flies or not. We also bring tools to enable insurers to measure and evaluate the business case once the change program is underway.
A tailored solution
Lastly, there’s the question of what the solution to the legacy problem looks like. Not all legacy platforms are equal in terms of business relevance and shareholder value. In my experience, it’s not uncommon to use different tactics for each platform or group of platforms to achieve the outcome of rationalization.
In my next post, I’ll look at how to minimize the pain of migration.
In the meantime, register to download Overcoming the Legacy Technology Trap.