Break Out of the Box

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

By simple, I mean working with simply structured data, simple protocols, and simple business processes. By incremental, I mean proceeding in small steps so you (and your partners) can learn what works best and build confidence in the technology. Heres how Web services will provide a significant catalyst in helping insurance CIOs break out of the boxes that confine them today.

Generating Business Value

Web services technology offers a different approach to generating business value from IT. It does not require the removal of the extensive IT infrastructures that have accumulated within insurance carriers over decades. Instead, it provides an overlay that can help to connect IT platforms more effectively to provide greater value for the business. The connections can be established more quickly, flexibly, and cost-effectively than previous generations of technology. Of course, connecting overlay like this could substantially reduce IT development and operating costs. But that is a small part of the business value.

The real value is the increased capability of CIOs in terms of flexibility and collaborationcapabilities that can, in turn, produce significant operating savings and growth options across the entire business. In particular, insurance carriers can achieve significant economic value by finding new ways for companies to work togetherboth to eliminate the substantial inefficiency that currently plagues connections across companies and to mobilize a broader range of resources to deliver more value to customers. Executives who are creative in reshaping their business and organization more broadly will be most able to exploit the potential of new technology as it becomes available.

Economic Rewards

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

But these early economic rewards can be deceptive. They can lead managers to view the technology as simply one more tool to do things faster and cheaper but not materially change the nature or direction of the business. Such a view is dangerous, since it can blind managers to the real economic value of the technology. In delivering near-term operating savings, Web services technology creates the potential for much greater flexibility and collaboration in business operations.

Managers who understand this and move aggressively to exploit this capability will find they can accelerate business growth substantially. Even better, they will be able to grow rapidly by mobilizing assets owned by another enterprise, such as a business partner, de-livering more value to customers with modest asset commitments by insurers. This leveraged growth opportunity is the real economic prize offered by this next generation of technology.

Change-the-World Promises

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

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

By adhering to these guidelinesuse technology as a catalyst to overhaul management approaches, target near-term profits and long-term growth, and proceed pragmatically in rapid incrementsmanagers can escape the boxes that have held them captive.

Pragmatic Adoption ofWeb Services

The experiences of early adopters of Web services for insurance illustrate the following characteristics of the pragmatic adoption path 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 out existing computer hardware and software to take advantage of Web services. The services can be implemented as an overlay on existing technology platforms. But Web services have a further advantage. They can be implemented in small increments, providing an overlay only on those specific software applications required to accomplish a particular business objective. In this way, even the modest investment required to implement Web services technology can be staged and synchronized with individual business initiatives. This investment can be explicitly tied to tangible business benefits.

Incremental implementation means CIOs can choose where to begin the migration to a Web services architecture. As with any other business change initiative, companies would be well advised to prioritize and sequence their actions based on a simple grid contrasting the size and timing of business impact with the size and timing of investment required to achieve the impact. By prioritizing actions in this way, CIOs can help accelerate business im-pact while reducing early investment needs. As rapid and tangible business benefits accrue from relatively modest investment, insurance carriers may become willing to mount more ambitious initiatives that offer even larger business benefits but require more investment and perhaps longer lead time.

To the surprise of many, companies are implementing Web services first at the edge of the enterprise, in functions that have frequent interactions with a broad range of business partners. This is where significant operating inefficiencies still exist given the complexity and expense of automating connections with diverse business partners. In the insurance business, early implementations focus on automating connections across business partners to reduce the operating costs associated with coordinating activities with large networks of agents and brokers.

For example, one insurance company recently relied on Web services to support its agent initiative. Designed to provide its national network of both exclusive and independent agents with access to five policy management systems, this initiative faced a significant integration challenge. By using Web services technology, it was able to deploy the first stage of this initiative within several months of the start of the project, on time and on budget.

The company anticipates the platform will generate significant savings in call center operations and mailing costs. In addition, it believes greater accessibility to its policy management systems will help to increase the productivity of its producers and thereby increase the attractiveness of its products to its independent agents.

Rapidly Evolving

The Web services architecture is evolving rapidly. Not all the elements are yet available. The available elements will continue to be enhanced as many technology firms continue to innovate with new product offerings. Some CIOs might see the evolving state of the Web services architecture as a good reason to stand on the sidelines and wait for the architecture to become more fully defined before proceeding with implementation. Although it is easy to understand this response, it is mistaken.

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

Significant Business Value

An insurance carrier can realize significant business value by moving now with the elements of Web services architecture currently available. Undoubtedly, even more business value will be realized over time as new elements in the architecture become available.

Unlike many other technologies in the past, Web services represent a highly pragmatic technology, one that requires limited investment at the outset and quickly yields business impact. This attractive business proposition makes it likely the technology will be broadly adopted by insurance carriers. Web services can overcome the natural resistance of CIOs to yet another technology platform.

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