Web services offer real business benefits today to chiefinformation officers at insurance companies, and CIOs are reapingthe rewards of this new technology without exposing the enterpriseto undue risk. The most promising path in Web services is keep itsimple, keep it incremental, and learn, learn, learn.

By simple, I mean working with simply structured data, simpleprotocols, and simple business processes. By incremental, I meanproceeding in small steps so you (and your partners) can learn whatworks best and build confidence in the technology. Heres how Webservices will provide a significant catalyst in helping insuranceCIOs break out of the boxes that confine them today.

Generating Business Value

Web services technology offers a different approach togenerating business value from IT. It does not require the removalof the extensive IT infrastructures that have accumulated withininsurance carriers over decades. Instead, it provides an overlaythat can help to connect IT platforms more effectively to providegreater value for the business. The connections can be establishedmore quickly, flexibly, and cost-effectively than previousgenerations of technology. Of course, connecting overlay like thiscould substantially reduce IT development and operating costs. Butthat is a small part of the business value.

The real value is the increased capability of CIOs in terms offlexibility and collaborationcapabilities that can, in turn,produce significant operating savings and growth options across theentire business. In particular, insurance carriers can achievesignificant economic value by finding new ways for companies towork togetherboth to eliminate the substantial inefficiency thatcurrently plagues connections across companies and to mobilize abroader range of resources to deliver more value to customers.Executives who are creative in reshaping their business andorganization more broadly will be most able to exploit thepotential of new technology as it becomes available.

Economic Rewards

What are the real economic rewards? In the near term, theadoption of Web services technology will be driven by the quest forsavings in operating costs and assets. The value proposition willbe powerful and hard to resist: Relatively modest investments innew Web services overlays can deliver tangible operating savingswith short lead times. As economic pressures mount, this pragmaticproposition will contribute to a rapid adoption of this newgeneration of technology.

But these early economic rewards can be deceptive. They can leadmanagers to view the technology as simply one more tool to dothings faster and cheaper but not materially change the nature ordirection of the business. Such a view is dangerous, since it canblind managers to the real economic value of the technology. Indelivering near-term operating savings, Web services technologycreates the potential for much greater flexibility andcollaboration in business operations.

Managers who understand this and move aggressively to exploitthis capability will find they can accelerate business growthsubstantially. Even better, they will be able to grow rapidly bymobilizing assets owned by another enterprise, such as a businesspartner, de-livering more value to customers with modest assetcommitments by insurers. This leveraged growth opportunity is thereal economic prize offered by this next generation oftechnology.

Change-the-World Promises

We have all grown tired of the change-the-world promises of newtechnology. There is one key difference this time. In the past,CIOs were presented compelling visions of the new world thatawaited, but there was a price to be paidmassive investments overextended periods of time.

Now the proposition is far more pragmatic: Invest modest sumsand focus on near-term economic returns. In fact, insist onnear-term results. Dont move forward unless these returnsmaterialize. When these returns do begin to appear, recognize theintensifying competition will force you to keep moving and toexpand the implementation of this technology while at the same timeyou rethink the business to generate even more near-term economicreturns. Over time, the cumulative impact will be profound, butdont adopt the technology for that reason. Adopt it because it willhelp you to achieve near-term business objectives.

By adhering to these guidelinesuse technology as a catalyst tooverhaul management approaches, target near-term profits andlong-term growth, and proceed pragmatically in rapidincrementsmanagers can escape the boxes that have held themcaptive.

Pragmatic Adoption ofWeb Services

The experiences of early adopters of Web services for insuranceillustrate the following characteristics of the pragmatic adoptionpath offered by this new technology architecture:

Leverage existing technology investments
Implement incrementally
Focus on tangible early wins
Plug in elements over time

As mentioned earlier, insurance carriers do not have to rip outexisting computer hardware and software to take advantage of Webservices. The services can be implemented as an overlay on existingtechnology platforms. But Web services have a further advantage.They can be implemented in small increments, providing an overlayonly on those specific software applications required to accomplisha particular business objective. In this way, even the modestinvestment required to implement Web services technology can bestaged and synchronized with individual business initiatives. Thisinvestment can be explicitly tied to tangible businessbenefits.

Incremental implementation means CIOs can choose where to beginthe migration to a Web services architecture. As with any otherbusiness change initiative, companies would be well advised toprioritize and sequence their actions based on a simple gridcontrasting the size and timing of business impact with the sizeand timing of investment required to achieve the impact. Byprioritizing actions in this way, CIOs can help accelerate businessim-pact while reducing early investment needs. As rapid andtangible business benefits accrue from relatively modestinvestment, insurance carriers may become willing to mount moreambitious initiatives that offer even larger business benefits butrequire more investment and perhaps longer lead time.

To the surprise of many, companies are implementing Web servicesfirst at the edge of the enterprise, in functions that havefrequent interactions with a broad range of business partners. Thisis where significant operating inefficiencies still exist given thecomplexity and expense of automating connections with diversebusiness partners. In the insurance business, early implementationsfocus on automating connections across business partners to reducethe operating costs associated with coordinating activities withlarge networks of agents and brokers.

For example, one insurance company recently relied on Webservices to support its agent initiative. Designed to provide itsnational network of both exclusive and independent agents withaccess to five policy management systems, this initiative faced asignificant integration challenge. By using Web servicestechnology, it was able to deploy the first stage of thisinitiative within several months of the start of the project, ontime and on budget.

The company anticipates the platform will generate significantsavings in call center operations and mailing costs. In addition,it believes greater accessibility to its policy management systemswill help to increase the productivity of its producers and therebyincrease the attractiveness of its products to its independentagents.

Rapidly Evolving

The Web services architecture is evolving rapidly. Not all theelements are yet available. The available elements will continue tobe enhanced as many technology firms continue to innovate with newproduct offerings. Some CIOs might see the evolving state of theWeb services architecture as a good reason to stand on thesidelines and wait for the architecture to become more fullydefined before proceeding with implementation. Although it is easyto understand this response, it is mistaken.

One of the virtues of a Web services architecture is it isitself loosely coupled. New components and services can be addedover time without requiring a wholesale redesign of the componentsand services already implemented. Similarly, existing componentsand services can be easily replaced by enhanced components andservices. This makes it easier to be an early mover withoutincurring the risk of being leapfrogged by later adopters.

Significant Business Value

An insurance carrier can realize significant business value bymoving now with the elements of Web services architecture currentlyavailable. Undoubtedly, even more business value will be realizedover time as new elements in the architecture become available.

Unlike many other technologies in the past, Web servicesrepresent a highly pragmatic technology, one that requires limitedinvestment at the outset and quickly yields business impact. Thisattractive business proposition makes it likely the technology willbe broadly adopted by insurance carriers. Web services can overcomethe natural resistance of CIOs to yet another technologyplatform.

John Hagel III (www.johnhagel.com) is abusiness consultant based in Silicon Valley and the author ofseveral business books. This article was adapted from his mostrecent book, Out of the Box: Strategies for Achieving Profits Todayand Growth Tomorrow through Web Services (Harvard Business SchoolPress). He also is a member of the ePolicy Solutions, Inc.,advisory board.