Unfinished Symphony

Buzzwords in the technology field sometimes take on different meanings. Business process management (BPM) is one such term the insurance industry has focused on in recent years. For some, it is a set of tools; for others, it is a methodology. However you plan to deal with BPM, though, you need to understand it is not business as usual.

Art Barrios, managing director, PricewaterhouseCoopers, contends the primary benefit of BPM–and its biggest challenge–is it requires carriers to look at their business from a horizontal perspective and to stop looking vertically within specific system silos. This is a major change for insurers. “They've invested tens of millions of dollars over decades in their systems, and now comes a significant paradigm shift where you tell them, 'Let's not worry about how we are going to fix a particular business problem by looking at a system, enhancing it, or replacing it,'” says Barrios. “'Instead, let's look at the process–where it begins, who touches it, what systems are dependent on the process.'”

Traditional applications don't provide necessary feedback to the business process owners, explains Peter Kastner, vice president and research director of technology integration for the Aberdeen Group. Where there is emphasis on customer service, people are moving toward the business process monitoring capabilities of BPM packages because the process owners are demanding more visibility–almost on a real-time basis–into their critical business processes. “[Process owners] want to know what is going on,” he says. “How many claims are being tracked? In whose Inbox are they sitting? What are the risks as of the moment? Is compliance being met?”

Todd Eyler, research vice president for Gartner, views BPM as both a set of tools and process improvement methodologies that allow companies to better understand and manage the core areas of their business–the core processes. From a tools perspective, BPM includes workflow or document management. For software applications, BPM entails rules engines or process modeling tools so companies can lay out the workflows, relevant systems, and people who look for bottlenecks and areas for improvement. BPM also involves the middleware that allows workflow and modeling to take place as well as individual systems to connect to each other. “There are methodologies, such as Lean Manufacturing or Six Sigma, which enable companies to take a structured approach toward building the right metrics or understanding a given process and have a structured way to improve that,” reports Eyler.

Barrios doesn't see any downside to BPM. “You can start orchestrating how you're going to leverage an existing core system, how you are going to build brand-new application functionality that doesn't exist now, and how you are going to route specific workflows,” he says. Nearly every company Barrios speaks with is looking at BPM today, he continues, but he believes it is difficult for carriers to change the way they look at the process problem and how they are organized around the silos. “The politics are around the silo, and now we are seeing the only way to benefit from BPM is to get rid of the silos and start building out your business capability in a process-oriented horizontal way,” he says. “It's frightening to some because you have head counts at stake, budget dollars at stake, and technology turf wars at stake. Those are obstacles to adopting BPM.”

American National Insurance has been doing BPM since 1998, according to Gary Kirkham, vice president of planning and support, adopting it to address issues in the carrier's call center. “Our contact centers were dealing with multiple back-end systems, and it was a miracle we could get anything done at all,” he notes. A CSR would obtain the information the customer had called about from one database, but since American National offers life, health, and annuity products–and those products were not in the same system–the CSR first would enter one system, go through security, and find the level of detail needed. If the customer then would ask a second question, the CSR often would exit out of that system and go into the next system. “Our average handling time, instead of being measured in minutes and seconds, almost was being measured by a calendar,” says Kirkham.

The carrier determined if some business process could be set in front of CSRs that presented all the information to them when the call was received, response times would be greatly reduced. At the same time this initiative started, Kirkham explains American National started an enterprise data warehouse project. “After a while we saw we either could write anAPI to snatch the data from the legacy system or go to the data mart, pull up the same information, and know it's always going to be there and be accurate,” he says.

Kastner understands American National's concern for improvement in the call center. In Aberdeen Group's recent survey, 70 percent of the Global 5000 companies chose a customer service application as their first BPM project. The explanation for these results, Kastner believes, is dealing with customers is very human-centric, which translates into labor intensive. Therefore, carriers also are using BPM to raise revenues and cut costs. “That's no surprise,” he says. “Eighty percent of services companies are trying to get greater real-time visibility in business operations. There are competitive pressures.”

Commercial lines carrier Preserver Group was drawn to BPM when it began writing BOP 02, a new line of business. “We were not happy with our conventional interfaces because they were more than a decade old and somewhat inefficient,” reports Elaine Salvadore, IT manager. Preserver decided to use a product from Adeptia as the BPM mapping tool to create the interface from the carrier's rating and policy issuance system to the back-end system. “It was a lot easier than we expected it to be,” she says. “It had a lot more functionality than our other interfaces.”

The previous interface product was one long string of data, according to Salvadore. “There were no files, per se,” she says. Cover-All Technologies, developer of Preserver's rating and policy issuance system, implemented a new tool that created data files from that data string, which made things work more efficiently. “We took the Cover-All data files and mapped them to the [back-end] data files,” she says. “In doing that, we were able to populate a lot more fields than we had in the past.”

Preserver also created more checks and balances because the Adeptia tool had a transfer entity table that tracked all the transactions that went through on a nightly cycle basis. “There are various steps within the interface that will alert us when the steps are completed and whether they were executed successfully or whether they failed,” says Salvadore. “We are much more on top of our interfaces now.”

American National has achieved dramatic gains in performance and significant increases in business with its BPM application purchased from Pegasystems, Kirkham reports. “One of the areas every insurance company in North America is chasing is the high-dollar, independent market,” he says. “We believe if you can deliver world-class service, that's how you can get those broker/dealers that dominate the market. [The BPM solution] has been used in conjunction with the data warehouse to get a silver and gold level of service to those people.”

The carrier's strategy is to differentiate itself through personal service, Kirkham maintains, and by doing so, it has learned where to develop the workflow. “We trained business analysts in those units to write the workflow, to develop the business rules, and to externalize those rules,” he says. “What the IT people do is the change management. When we incorporate these things, we have a solid system. The innovation clearly has come from the business units. They understand–without a lot of interpretation–the problem they're solving.”

The biggest benefit Preserver has seen is the level of technology needed to write the interfaces has gone from a programmer level to a business analyst level, which gives the carrier more capability as far as programming, debugging, and determining other uses for the product. “There is a lot more control and flexibility now, since we can use our analysts,” says Salvadore.

It also makes it easier to work with other lines of business and other systems, adds Salvadore. Preserver has grown over the years through acquisitions, and in many cases, it kept the system the previous owner had in place. That made getting consolidated data a difficult proposition. “Part of the use for the Adeptia tool is we will be able to map all the data we need from these various systems into one consolidated report for senior management,” she says.

American National initially brought two business units into the system–credit insurance and health insurance. The head of the credit division gave the project development team the most frequently asked questions for the call center. “We tapped into the knowledge of the people who are on the phones as to what were the most frequent kinds of calls and the shortest path from the greeting to once-and-done,” says Kirkham. “What we began to incorporate into our business processes was intellectual capital–how we did things the best.”

The carrier worked on the premise the only reason customers call in the first place is a process has broken down somewhere, Kirkham explains. “We had two objectives,” he says. “One was to resolve the [problem that sparked the call], and the other was to go into the back office and fix the [issue] that caused the call in the first place.”

It was necessary to separate the business process–in this case the contact centers–from the application, Kirkham asserts, because one system did not provide all the information that was needed. “The business process is designed with the customer in mind–a once-and-done philosophy–and then externalizes the business rules,” he says. “We were able to lock in the technologies around us to provide a shorter path to success.”

It is important for carriers to focus on a strategy when contemplating BPM, indicates Barrios. Questions need to be raised such as: What is it you want to be good at? How are you going to compete in the marketplace and differentiate yourself? The next step is to look at the processes that contribute to the strategy. “As for the processes that don't contribute, you may want to outsource or find the most cost-effective way to deliver them,” he says. “As for the ones that contribute to your strategy, you want to be world class at them. What is the best technology you can bring to bear to that process?”

The third piece of the structure is organization, adds Barrios. Many companies are not focused on structure relative to process reengineering, transformation, or cultural change. “Without defining what people do day in and day out, setting goals is an interesting objective, but achieving them is another issue,” he says.

When a company knows the strategies, the processes to deliver the strategies, and the organization that works on the process, the final piece is the technology that supports everything, explains Barrios. Unfortunately, many companies do things another way. “They pick a package first and then go off and look for a problem to solve with the package,” he says. “That's an answer looking for a problem. The challenges definitely are around how we work together across the silos so we can build out end-to-end processes.”

Eyler suggests the biggest task in preparing for a BPM project is mapping out how the business works, the workflows, and the systems that are involved and examining the bottlenecks. Carriers then should determine the right way to measure the operations of the business and apply the tools. “The tools are the last thing,” he says. “Implement what you know you really need to do.”

Claims has been an early adoption area for those using BPM, according to Barrios. Legacy technology has supported imaging and image routing, and he feels this was an early evolution of what is now BPM. Overall, though, Barrios thinks BPM technology still is in the early stages for the industry as it evolves from being systems specific. “Companies would buy a certain core system, and it would have its own workflow capability, but it couldn't go beyond the boundaries of that particular system,” he says.

Today, the industry is seeing what Barrios calls the open BPM systems, which allow carriers to manage workflow end to end across systems and across groups. “It's relatively new, but you certainly are starting to see companies looking at it as they try to figure out how to use the tools and where the tools can help,” he says.

Looking beyond the tools, though, carriers also need to determine what should stay and what should go. Many companies believe they need to do everything, observes Eyler. “There are very few things they want to lose control over,” he says, adding such thinking is not rational. There are only a few key functions he would describe as core processes, and most are found where companies have scale, differentiation, and real efficiency. Areas most companies would describe as core include product development, underwriting, and customer-facing tasks. “There are any number of things that are consistent across companies that still are being done in-house but that don't make a lot of sense,” says Eyler. “Those really should be outsourced to companies that would have scale, expertise, and cost-efficiency in doing those things.”

The number of companies adopting BPM tools remains small, according to Eyler. As companies have studied business process outsourcing (BPO), they discovered a need to achieve a deeper level of understanding about their own processes to prepare them to drive down costs and improve effectiveness, whether it is an underwriting process, customer service in the call centers, new business, or claims. The role outsourcing plays in carriers' operations needs to be assessed. “They also want more flexibility in case they want to outsource selectively parts of a process,” he says.

American National is pleased with how well its system has worked. “If it was just one area [that worked], I would say it was a fluke. If it was two areas, I'd say we were lucky,” says Kirkham. “But it's been across four diverse business units, and they've all had a measure of success we can quantify.”

Kastner believes that is part of the good news in BPM–companies are achieving measurable success. Ninety-four percent of companies Aberdeen Group surveyed report they were moderately or very satisfied with results and they had a median return on investment of 18 percent, relates Kastner. There are many approaches to achieving that success. “You can do everything from spending a couple of hundred thousand dollars on a business activity monitor or millions of dollars on a sophisticated data warehouse project,” he says. “There's no right answer. It depends on how your company wants to run. Some companies have executives at the highest levels who demand to know what's going on in the business on almost an hour-to-hour basis.”

Technology vendors created buzz around BPM starting about three years ago, notes Eyler. At first, BPM was met with skepticism by senior industry people, but as C-level executives have focused on their core operations–driving down unit costs per policy–they recognize there are more sophisticated measurement and methodology activities that need to be done. “Some of the BPM tools actually can help with that–modeling tools and rules engines,” he says.

While operating costs and expense margins have gone down significantly over the last decade in other financial services areas, those figures actually have inched up for life insurers, Eyler points out. “Life and P&C companies are just not competitive with other parts of financial services,” he says. “The expense structures are out of line.”

The reason for BPM's increasing popularity is a combination of service-oriented architecture (SOA) and the ability to integrate systems data in an open manner, Barrios contends, also crediting the predominance of core development technologies such as Java and .NET. “Before, the technology was more fragmented,” he says. “Now, if a company decides to standardize on the Java framework using Web services for integration, it can pick a BPM tool that is Java based, combine with it Web services, and pretty much get all its systems to talk to each other.”

Some BPM systems are quite mature in Barrios' opinion and cover a wide range of categories. There are packages that are core document management and workflow, and other packages are rules based and excel in an environment where the workflow is rules intensive. There also are packages he describes as frameworks–automating any type of workflow–but these don't have many large-scale engagements. “[BPM packages] come in all flavors, and that's part of the issue,” he says. “There are more than 150 BPM packages in the marketplace.”

Barrios anticipates consolidation in the BPM market as smaller providers offering top-tier BPM packages are looking for someone to acquire them. “That's the typical pattern of a small company,” he says. “They are looking for the day they are going to be bought out and investors can cash in.”

At the same time, Barrios points out there are some niche BPM packages that specialize in call center workflows or compliance workflows. Although these packages are labeled BPM, he doesn't feel they fall under the true BPM definition. “BPM is not just the ability to automate a particular process, but it's the longer-term discipline of approaching business problems from a process-oriented perspective and, similar to SOA, defining the process patterns you can reuse over and over again within your organization,” he says. “So, if you buy several BPM packages that are niche players within certain functional areas, you've achieved a level of efficiency, but you haven't achieved enterprise-level efficiency because you can't orchestrate across all the processes.”

If every business unit built a system of its own, eventually the enterprise would need to undertake a major initiative to consolidate all those systems, Barrios explains. BPM is no different today than data warehouses were 15 years ago. “If [companies] go off and do their own BPM thing within business-unit silos, the day will come when you have wrung out all the efficiencies. You will have to look for additional efficiencies at the enterprise level, and you will realize you have different process definitions, different standards, different data definitions, and different rule-set definitions. It's not going to be easy to consolidate them. You are going to have to re-implement toward a common set of tools.”

Preserver could have continued operating without the use of BPM, Salvadore remarks, but the work would have taken a lot longer to process and the carrier would have continued with an inefficient interface. “It wasn't the way to go for us,” she says.

There was a learning curve for the business users, she points out. The back-end system will be the repository for all of Preserver's systems, so the mapping already has been completed. “We have all the independent systems that are creating data needed for management reports, and by using the Adeptia product, we can merge all that at one level as opposed to having individual reports,” she says. “It's an exciting tool. We're just starting to scratch the surface with it. It's just a matter of getting the time to get it all done.”

Looking ahead, Kirkham indicates American National has the opportunity to consolidate multiple processes that effectively achieve the same function and be able to look across the enterprise. “Are there economies? Is there business value–cost savings–around using one process for multiple companies?” he asks. “We've just touched the surface of what we can do with this.”

Barrios has no doubt BPM will have a huge impact on the industry. “All technologies that have had significant impact are adopted at a certain pace,” he says. “But as soon as an important competitor says [BPM] is good and decides to adopt it, the rest will have no choice but to follow.”