Although not all insurers have the same level of maturity around rationalization, most companies understand the basic process of identifying, assessing, and managing applications in the portfolio. However, each of those stages presents its own challenge, says John Santucci, global practice leader of IT transformation for the Hackett Group research firm and consultancy.

"Simply understanding which business processes are supported by applications and what data applications deal with is not an easy task," he says. After identification, those applications need to be assessed, and although there are scorecarding and advisory tools on the market to guide the process, those tools are no substitute for experience, Santucci asserts.

"You still need people who understand how to rationalize not only for number of applications but also for technical and functional health of applications and ongoing viability. Those [decision support] tools are only as good as what you put into them, and there's not a tool that does the actual analysis that replaces what someone in the industry understands," he notes.

And finally, translating analysis into action is difficult because each application exists not in isolation but as part of an ecosystem of systems, interfaces, and dependent processes.

"We have a 'solar system' of applications representing all the different places to which we need to interface a particular product. Particularly when those are mission-critical systems, we need to be careful when making any changes to systems that connect to it. You need to track and monitor those types of dependencies in your IT portfolio management," says Bill Garvey, an information technology director at The Main Street America Group.

GREATEST NEED

"If you have a relatively new company that has new technology, it probably doesn't perceive the need for portfolio management as much as a larger firm with a mixture of 30- to 40-year-old applications, some new applications, and some merger-and-acquisition activity," Pattacini says. "That [mixture] creates a feeding ground for the opportunity to do portfolio rationalization."

Excellus BlueCross BlueShield was formed from a merger of several health organizations serving upstate New York. Following the merger, Excellus found it had applications with overlapping functionality within its portfolio and there were different architectural standards throughout the enterprise.

The insurer formed an enterprise architecture group to create a standard for development. However, Excellus also needed an effective strategy for identifying its catalog of applications before it could address its legacy environment in light of that standard.

"There are many parts that need to stay running to keep the business successful, but we didn't want to create piles and piles of spreadsheets to keep track of those parts," says Scott Hendler, functional business process manager for IT at Excellus. "We also needed to enable better project planning and better information for senior management."

Excellus used MediaWiki to create a consolidated inventory of applications and their metadata that could be accessed across the enterprise, a project that took about 18 months to complete.

"We created portfolios for different business units, working like a fund manager handling an investment portfolio," says Jeffrey Pankow, director of the functional business process managers at Excellus.

The wiki gave the company a place to store and share information, but it lacked a modeling environment. Therefore, Excellus deployed Mega's architectural modeling suite to help visualize application interfaces and the system environment as they related to critical business processes. "The [Mega] user interface is intuitive, and it has a robust query engine, which is essential for impact analytics," Hendler explains.

To perform the analysis part of the rationalization process, IT consultants meet with business staff and score applications on the dimensions of business value, alignment with IT architecture, the ability to provide needed functionality, and overlap or redundancy with other applications.

The process has enabled Excellus to develop a prioritized, needs-driven portfolio management strategy. It also has allowed the company to respond more quickly to unanticipated changes than it would have without the inventory and assessment systems. For instance, when the vendor that provided Excellus' provider-credentialing software announced it would no longer support the platform, having detailed information on the existing application and its connections and dependencies enabled IT to replace the platform quickly.

"The project team utilized the Mega diagrams to identify all the associated touch points, which helped the team craft its solution set," Pankow says. "The process would have been a disjointed, piecemeal approach before without having attributes captured. At best, we would have gotten close to where we were at the end, but most certainly there would have been gaps."

Acquisitions created the need for portfolio rationalization at QBE the Americas, a subsidiary of global P&C insurer and reinsurer QBE Group. In June 2007, QBE the Americas completed the acquisition of Wisconsin-based insurer General Casualty and sister company Unigard Insurance Group, folding those firms into its QBE Regional Insurance division. Both General Casualty and Unigard also had been through previous mergers and acquisitions.

"We ended up with four and, in some cases, five different systems that did core insurance processing. We needed to do something about it," says Tony Buschur, vice president, information services department-corporate applications, at QBE the Americas.

"We had significant overlap and feudal ownership of the different systems. There was no visibility to the business about how many of these systems we had and the problems that resulted. We also were under intense pressure because we were slow to market, our total cost of ownership was high, and opportunity dollars were small because our budget was going into keeping the lights on," Buschur relates.

QBE Regional Insurance used Mega's platform to document and model its system environment en route to an enterprise architecture. But the insurer needed, as well, an efficient way to assess applications in its inventory.

"Doing a study like that can bring you to your knees," Buschur says. Therefore, QBE Regional Insurance retained Cognizant to do a detailed portfolio assessment.

"Cognizant brought together tools and expertise to gather the information and had a methodology to put that information together and dive more deeply into application architecture than we already had," says John Williams, enterprise architect at QBE the Americas. "We also leveraged the resources of Cognizant's offshore group. The fact Cognizant had people working with us here as well as in India allowed [the solution provider] to turn things around quickly."

After the analysis was completed, QBE the Americas realized there were other companies it had acquired that had similar systems and challenges. Therefore, the company repeated the assessment process to incorporate its QBE Specialty, QBE Reinsurance, and QBE Latin Americas divisions and completed a final, enterprise end-state plan in January of this year.

Having a third party perform the analysis addressed QBE the America's resource constraints and helped overcome internal objections about entrenched systems, allowing the company to identify more applications for retirement than it otherwise might have, Buschur reports. With the analysis complete, all options are on the table for rationalization.

"We are going to buy some new solutions, but we found systems we already have we can leverage and enhance," Buschur says. "For instance, the study identified a personal lines system our architects confirmed all the units could use."

The analysis additionally identified opportunities for both expanding and, in some cases, reducing the use of outsourcing. "We uncovered we have several automation outsourcing arrangements in place we can eliminate by extending applications we already have elsewhere in the enterprise. That will free up several million dollars," Buschur indicates.

"We know what the end state is, so every opportunity our architects have had in projects to pick off pieces helps position us closer to that state," he says.

SHOW ME THE ROI

To be most effective, portfolio rationalization cannot be exclusively IT driven. "There needs to be top-down leadership from the executive level to get [rationalization] done on a scale where savings can be achieved on a companywide level vs. a business-unit level," Santucci says.

"I know CIOs who have started on rationalization and simplification and who have had architectural initiatives with all kinds of acronyms. But they ended up not being able to do anything because they didn't have the management support to act or even to create a decision structure that would bring people in and require them to talk through the options," Nelsestuen says.

"You need to show the metrics of rationalization and simplification," he adds. "If you have 1,000 applications and you cut that to 500, that has a tremendous impact. You also need to show metrics that demonstrate how much applications are actually used, because if you just ask people whether they're used, they'll say yes."

To get at those metrics, AXA Equitable uses portfolio management software to gain a better understanding of where the company spends on IT. It also developed a portfolio rationalization methodology that analyzes business benefits of systems across five strategic categories. That analysis produces a "benefit value indicator" AXA incorporates into its overall governance methodology, weighed along with other factors such as net present value and ROI.

AXA Equitable's CEO, Christopher "Kip" Condron, is an advocate of and active participant in governance, according to Kevin Murray, executive vice president and CIO of AXA Equitable. This combination of business support and fact-based analysis has helped AXA place emphasis on rationalization as a strategic initiative.

"It's easy to get caught up in just enhancing and modifying the tactical legacy world. We use the local and group governance processes to align the business areas and act as a catalyst to break away from that," Murray says.

As a result of its governance and rationalization processes, AXA targeted its inflexible legacy policy administration environment for a major overhaul. "We have systems for each line of business, and the legacy world was proprietary, particularly so in the middleware layer," Murray says. "We needed systems that were easier to integrate, rules based, and HTML based so screens and functions weren't locked inside the AXA service centers and could be pushed out to our new customers and distribution channels."

With all options for legacy rehabilitation considered, the company ultimately decided to standardize on a single, new administration system for all lines of business. Maintenance of ancillary systems that still have tactical value but are not customer-facing is being shifted by AXA to offshore partners.

"We are 'drawing a box' around the tactical, managing expenses by moving as much as we can offshore or near-shore," Murray indicates. "Also, as we've moved the technology support of our legacy systems over the last three years, we've gradually become even more comfortable with moving business workflows to offshore firms."

AXA began the replacement process in its annuities area. The company credits the new system with making it easier for customers and brokers to do business with AXA, which, in turn, helped it grow its business.

"Last year, we became the number-one producer and distributor of variable annuities in the U.S.," Murray reports. "Our governance process and portfolio management methodology were directly aligned with the enablement of acquiring additional market share."

The next area AXA targets for the new system is life insurance. "That project will leverage much of the annuities investment, including the common customer front end, the new imaging and workflow front end, and the new product configurator," Murray says. "Our 2012 vision is we will have a common platform for all lines of business, not just life and annuities."

RATIONALIZATION FOR ALL

A company doesn't have to be a global enterprise with a history of mergers and acquisitions to benefit from rationalization. Neither does it need a bevy of tools to manage effectively its application portfolio.

"Some companies simply have good governance," Nelsestuen says. "Business and IT work together to understand the type of technology they have and the applications that need to be invested in or sunsetted."

That describes the process at The Main Street America Group. The company uses spreadsheets to keep track of applications and interfaces, and it relies on business-IT cooperation to plan project priorities. In fact, portfolio rationalization is inextricably connected to Main Street America's strategic and project planning.

"We have a strong five-year strategic plan that drives our annual business plan," says Joel Gelb, the company's vice president of information technology and CIO. That plan and the insurer's IT steering committee help Main Street America know what technology to target.

"In both business and IT, we are focused on our business, which centers on serving our customer, the independent agent," Gelb continues. IT has one-on-one communication with business staff and department heads to establish goals and decide how those goals can be met by existing applications or determine how the portfolio will be impacted by new projects.

As a result of Main Street America's assessment, the company has committed to an enterprise core system replacement initiative involving every key area of operations. "Our preference is to buy rather than build as long as those [purchased] applications are in alignment with our enterprise architecture. If there are no commercial applications available, we then will assess what the build effort would be like," Gelb says.

The carrier recently wrapped up a major claims administration system overhaul, replacing a legacy platform with Guidewire's ClaimCenter. "That project began with the recognition several years ago we needed to do something," Garvey recalls.

"We had old legacy systems supporting claims, and they were becoming a burden. They were green screen and code driven. They couldn't scale, and you couldn't add interfaces to external services. Really, they had served their usefulness," Garvey says.

The project went through several iterations over time. Main Street America had considered building a system internally before choosing the Guidewire platform. Garvey reports the project came in on budget and was completed in 14 months, just over the 12-month target originally slated for the implementation. "I'd consider that a complete success," he states.

CONTINUED EVOLUTION

If you've ever had to complete an inventory of your personal property, if you remember the last time you packed up all your possessions to move, or if you finally got around to cleaning out the attic this spring, you know organizing all the stuff you own is a daunting task. The same is true for the cataloging, assessment, and action processes of application portfolio rationalization.

"Sometimes, the biggest problem is just getting started," Pattacini says.

Faced with competitive pressures, a challenging economy, and creaking legacy systems, insurers avoid the portfolio rationalization task at their budget and business peril. It is an endeavor where doing something is better than doing nothing.

"Portfolio rationalization is like writing a 500-page novel. You can't just sit down and start writing without a storyline to follow," Pattacini says. "Trying to rationalize a portfolio of 500 applications is equally daunting. As a first step, organizations should categorize applications into a manageable number of clusters–say, 30–and first rationalize those clusters."

"Looking at the whole portfolio is a good idea but can be hard to execute," Nelsestuen acknowledges. "Sometimes you have to live by the 80/20 rule. If you can get your arms around 80 percent of what you have, that might be as good as you need to get."