Creating Tomorrow’s Legacy Today

“The sins of the father are to be laid upon the children”
William Shakespeare - The Merchant of Venice

Here’s a prediction: Tomorrow’s IT executives looking back on what is being delivered today as “the easy times”, sloppy, unnecessary and without any foresight. Is this a harsh judgment on the professionalism of current change and programme management, or just a view which is evolving about the opportunity for contemporary IT to embrace a new generation of thinking which is determined not to build the same legacy mistakes of the prior generation?

Let’s examine one simple fact about IT budgets in the insurance industry: 80% of the entire resources available to the average CIO is spent on maintenance. Previous generations have, perhaps unwittingly or perhaps by lack of care, stacked components of cost under every application, heaping on the complexity and cost to maintain. Everything is in there, from the application server, middleware and database through the operating system to the people resources needed to develop, support and maintain the application.

If the Pareto distribution were around the other way, new spending would be well catered for by 80% of the budget and even during financially lean times business would only face a slowdown in change delivery – but it’s not. In most insurance organisations, innovation is being stifled, and the ability to keep the lights on comes under greater pressure every year. When illustrating this, the big analyst firms go to great lengths to show clever calculations of lifetime TCO versus initial cost but the maths is simple. Tomorrow’s maintenance is today’s initial spend and the ratio is mainly 80:20.

The problem has always been that the business approval for the initial investment in the application pays scant attention to the complexity and OPEX implications of the CAPEX decision. The result is that IT is heavily criticised every year for high operational costs.

It is no surprise that all predictions on IT spending in the insurance sector currently say that the focus is on revenue growth through sales, marketing and new product development. The life blood of these functions is constantly finding new and different ways to excite customers into spending their cash with your company, and not the competition. This needs to be changed and, as digital channels grow exponentially in importance, IT is increasingly becoming the limiting factor for the business.

In addition, multiple distribution channels that have evolved over the years (branches, contact centres, on-line and now mobile) are products of their time. They are developed in silos, in different languages and unable to talk to each other or share the customer journey transparently across them.

Add these factors together and you have a constrained budget, focussed on running the business as usual, being constantly challenged by an insurance business that wants to move on and modernise.

New thinking is required and it is based on seven simple and self-explanatory rules:

  • Choosing a strategic software partner should be 80% about maintenance costs and 20% about the initial investment
  • All applications must be substantially reusable – with an 80% reuse target and zero need to replicate any existing code, e.g. when implementing in a new division or geography
  • Every new channel of distribution must be 100% integrated with all its predecessors
  • Everything must be built to eventually be self-service for the customer
  • Tools for development must move business decisions onto the critical path of application development rather than being the bottleneck
  • All applications must be both Cloud and on-site capable (and switchable) from day one
  • Stack vendors should be purged from the organisation with a religious zeal

Some readers will admit defeat immediately and say that this is unachievable.

The facts prove differently. Today, major financial services companies are delivering transformational IT which is replacing the vendor stack, building applications with 80% reusable code with transparent cross-channel architecture, deployable on the cloud or onsite at will. Furthermore, they can show full functioning applications being constructed in front of the eyes of subject matter experts while they define processes in workshops.

As this becomes mainstream and others begin to understand the art of the possible, the questions will begin to come from the business community: “Why today are we paying the costs of legacy applications which were built without taking these questions into account?”

Yes, it requires a whole different attitude to application development but tomorrow, there will be a judgement on what is being created today and no matter what the financial constraints may be on today’s 20%, the implication for tomorrow’s 80% will be far greater.