Towards The Alignment Of Business And IT In Insurance Company
International Journal of Scientific and Research Publications, Volume 4, Issue 3, March 2014ISSN 2250-31531Towards the alignment of business and IT in insurancecompanyD. Krstajiić1, R. Cvetković2, M. Majstorović31InfoLink, Belgrade, SerbiaTelekom Srbija a.d. IT Support & Integrated ICT Services, Belgrade, Serbia3Information Technology School, Belgrade, Serbia4Faculty of Computer Science, University Synergy Bijeljina, Bosnia and Herzegovina5Faculty of Informatics and Computing, Singidunum University Belgrade, Serbia2Abstract- The relationship between business and IT is aconstant theme in both academic and industrial circles for morethan 30 years. Aligning Business and Information Technology(IT) is generally seen as an important component of thefoundation to optimize business performance. Due to constantchanges in both the IT world and in modern business, working onan alignment of business and IT is becoming increasinglyimportant.The aim of this paper is to offer an approach to solving thealignment problem of IT and business complex in the company,with particular emphasis on applications in the field of insuranceindustry. The cause of alignment problem lays primarily indifferent abstraction levels of business and IT concepts [9]. Inorder to solve this problem, this paper proposes the constructionof Enterprise Architecture (EA) [25], which connects models ofthe organization and its business processes to softwarearchitecture models and an implementation environment. Thefirst layer of this architecture is a Business architecture that isdefined here as the map of comprised business processes, and is aconcretization of contemporary business models in the field ofenterprise architecture. Concretization is done here in the contextof the insurance company, and is the basis for the definition ofthe other layers of the architecture.Index Terms- ACORD, Business and IT Alignment,Enterprise Architecture, NGOSS, Process map.I. INTRODUCTIONThe insurance industry operates in an uncertain businessenvironment that is changing rapidly. Uncertainty of operationsis, among other things, caused by the following facts: New technologies are becoming available, Requests for new services are coming everyday, New and increased competition appears daily.Insurance companies usually can not quickly adapt to suchradical changes. The reason for this lies primarily in the fact thatmost have outdated enterprise architecture that can be difficultand slow to change. The variety of new services that thiscompany should provide under a very rapid growth in marketdemand, the constant emergence of new technologies, requireadequate changes in the development of information system (IS)as well as changes in the way of performing business. Newbusiness models need to be developed through complex andcomprehensive electronic communication with all types ofpartners (e-business), a new approach to IS development shouldbe based on a service-oriented architecture (SOA) and the use ofpackaged software products and services provided by othercompanies or independent software vendors.Thus the objectives of development of insurance companiesare usually implemented through the general approach for thedevelopment of complex distributed systems and specificinternational initiatives and standards, in the field of serviceoriented business. Despite all efforts, a complex problem ofalignment of business and IT, [3, 4, 36, 41], usually is not fullyresolved in practice. IT services cannot fully meet the businessrequirements, i.e. IT is not aligned with business. The problemarises due to different levels of abstraction between the businessand IT services (applications). In fact, there is no compliance oflevels of abstraction, since the level of abstraction of theimplemented IT is low, while business steadily has requirementsto automate a high level of business abstractions. An example ofthe high level of business abstraction is an End-to-End process,which contains a number of chained activities, [14]. On the otherhand, IT typically provides services that represent the lowerlevels of abstraction that can automate individual activities oractivities of the parts of the process. For example, bidding,invoicing, contracting, etc.In the last thirty years, the more general EA approach has beenproposed, [5, 29, 37, 38, 39, 42], each of which has itsadvantages and disadvantages, and they are complementary toeach other, [35]. It turned out that the existing EA approaches arenot sufficient to cover the domain of companies providing ICTservices. Thus, in the telecommunications sector in the lastdecade appeared The New Generation Operating System andSoftware (NGOSS). NGOSS program develops internationalassociation Telemanagement Forum, and it is an EA for telecomdomain [23, 32].The organization ACORD (Association for CooperativeOperations Research and Development), formed by the insurancecompanies all over the world, in the 2006 defined developmentstrategy of the business architecture of insurance companies - EA(Enterprise Architecture). The main result of this activity is theACORD Framework - a framework that provides thewww.ijsrp.org
International Journal of Scientific and Research Publications, Volume 4, Issue 3, March 2014ISSN 2250-3153II. LITERATURE REVIEWThis section gives a brief overview of the literature, which hashad the most influence on this study, whose results are partlyshown in this paper. Review is separated in two parts, the firstrelated to the alignment of business and IT (BIA) and the other toEnterprise Architecture (EA).A. Businessand IT AlignmentA key factor for the success of the company in a dynamicenvironment is effective and efficient IT support of businessstrategy and processes. The paper [36] concludes that in mostcompanies IT and business are not aligned and that it remains aconstant concern. Despite the importance of this problem, in theliterature still remains unclear definition and in practice theunclear application of this concept. Consultants and ITcompanies use this concept in ambiguous and often differentdirections.The most accepted framework of alignment is given in [22],which is defined by the model for the conceptualization and thestrategic management of information technology (called theStrategic Alignment Model). This model describes the BIA intwo dimensions (Figure 1), [36]. Strategic coupling (strategic fit)has external focus, directed towards the business environmentand internal focus, directed towards administrative structures.The second dimension, functional integration separates businessand IT. Along with these dimensions, the model defines fourfundamental domains: business strategy, information technologystrategy, organizational infrastructure and processes, andinfrastructure and information technology processes. Thesedomains should be harmonized in order to achieve alignment.From this model, four perspectives of alignment were derivedwith specific implications for management practices (StrategyExecution, Technology Transformation, Competitive potentialand Service level) [22].ITBusinessStrategicfitExternalFunctional IntegrationInternalarchitectural basis of insurance companies to faster and easierprepare and implement the changes necessary for a successfulbusiness in a dynamic market, [21]. ACORD framework offersinsurance companies a robust, detailed, consolidated, and acomplete set of models that support business processinnovations, transformations and improving their efficiency.In this paper, the direction of possible solutions of abovementioned alignment problem is given, through the incorporationof: EA, NGOSS and ACORD approaches. Combining them themethodological framework for the development of a flexibleinsurance industry domain EA has been achieved.The following section provides an overview of the literaturethat has had an impact on the motivation and approach to EA inthis paper. The third section gives a brief presentation of theresults of the analysis of the current state in the case study of aninsurance company, which pointed out the basic characteristicsand problems of current business. The fourth chapter presents themain contribution of this paper, through the definition of aninsurance company's business architecture. Finally, the fifthsection provides an overview of achieved and plans for futurework.2Business StrategyIT StrategyOrganisationalInfrastructureand ProcessesI/SInfrastructureand ProcessesFigure 1: The ‘Strategic Alignment Model’ [36]The paper [8] starts with a thesis that IT strategy usuallydepends on the business strategy and the alignment of bothstrategies improves their strategic plans. That paper presents anoverview of strategic importance of business and IT alignment,and suggests the use of EE (Enterprise Engineering) approach toachieve this alignment. The necessary components for modelingIT strategy and increase the alignment of business strategy andIT have been identified. According to the EE approach thespecific building blocks are defined and a new phase of life cyclerequired for the incorporation of IT strategy in the EAframework.In [3], a literature review is conducted and the framework isproposed, useful for evaluating different approaches to thealignment problem. Referring to the results of some studies thathave addressed this issue, it was noted that the performance ofthe business and IT is firmly connected and that the company cannot be competitive if their business and IT strategy are notaligned. These studies are oriented at different levels ofabstraction, from the operational to the strategic. Strategicalignment occurs when goals, activities and processes of thebusiness organization are in harmony with the informationsystem that supports them, [7]. On the other hand, the functionallevel of analysis of the existing alignment between businessprocesses and software systems is essential in order to optimizethe effectiveness of software support, [3].In [40], a framework for the specification of requirements,oriented towards company objectives is presented, taking intoaccount the organizational context and that should enable ITdepartment to better understand the business objectives of theorganization, with the aim that the IT system better meetbusiness expectations. The process of managing the procurementof automotive company is presented as a case study to illustratethe approach.B. Enterprise Architecture(EA)EA is a comprehensive approach to modeling organizationarchitecture. At first, it only applied to application developmentbut after that, it became a framework for modeling the entireenterprise. In his paper [42], the author has presented challengeswww.ijsrp.org
International Journal of Scientific and Research Publications, Volume 4, Issue 3, March 2014ISSN 2250-3153and vision for enterprise architecture for the next twenty years.Challenges were related to manage complexity of distributedsystems. Zahman EA was multiple perspectives approach.Zahman EA has had a major impact on the first attempt of theU.S. Department of Defense to create an EA. This effort isknown as the Technical Architecture Framework for InformationManagement – TAFIM, [39]. TAFIM EA gave promise oftechnical projects to be better aligned with business needs.Consequently the US Congress passed an act in 1996, alsoknown as the Information technology Management Reform Act,[6]. In April 1999, the CIO Council, which was formed by CIOs(Chief Information Officer - responsible for major iT) from themain state institutions has launched a project called the FederalEnterprise Architecture Framework – FEAF, [37]. New ideas inthis paper were related to segmentation architecture in largeenterprises. FEAF, in 2002, was renamed in FEA - FederalEnterprise Architecture.TAFIM is then submitted to The Open Group, and thustransformed into a standard known as The Open GroupArchitecture Framework (TOGAF), [29, 38]. In 2005, EA FEAwas dominant in the public sector, while GARTNER dominatedin the private sector, [5, 11].EA approaches, discussed above, are very different. Theanswer to the question "Which approach is best for a particularcompany," is ambiguous. In [35] a comparison of theseapproaches is performed using 12 criteria, giving score of 1-4 (4is the best score). According to this comparison, none of EAapproaches that are compared is complete, each of them has itsadvantages and disadvantages and they are complementary.However, it appears that previously presented approaches toEA are not sufficient to cover the domain of companiesproviding ICT services. Thus, in the telecommunications sectorin the last decade appeared The New Generation OperatingSystem and Software (NGOSS) program. NGOSS programdevelops international association Telemanagement Forum, andit is an EA for telecom domain, [23, 32].NGOSS is a reference architecture for the telecommunicationsindustry, [32]. It contains a set of frameworks which representthe generic classification scheme for design of a complex domainas the telecom domain, [18, 23].A framework for business processes - eTOM (EnhancedTelecom Operations Map) defines all major business processeswithin and outside the company, [12-17].The framework related to the company information - known asSID (Shared Information and Data Model) provides acomprehensive general information model for performingtelecom activities in the company, [32, 33].A framework for system integration - known as TNA(Technology Neutral Architecture) defines the basic principlesfor the development of NGOSS solutions. Architecture is3intentionaly called "Technology - neutral" because it does notdefine the implementation [20].Framework for applications - known as TAM (TelecomApplication Map) is designed to be used by all participants in thesoftware chain of telecom company. eTOM provides aframework for telecom processes and TAM framework fortelecom applications, [19].Telemanagement Forum changed thestandard to Frameworx. All eventsdevelopmentofthisindustrytelecommunications, members of TMFthrough the website, [23].name NGOSS industryrelated to the furtherstandardfortheassociations can followThe organization ACORD (Association for CooperativeOperations Research and Development), is formed by theinsurance companies all over the world, in 2006 defineddevelopment strategy of the business architecture of insurancecompanies - EA (Enterprise Architecture). The main result of thisactivity is the ACORD Framework - a framework that providesthe architectural basis of insurance companies to faster and easierprepare and implement the changes necessary for a successfulbusiness in a dynamic market, [21].ACORD framework offers insurance companies a robust,detailed, consolidated, and a complete set of models that supportbusiness process innovation, transformation and improving theirefficiency. The five basic components of the model are, [24] : (1)The common vocabulary of terms that exist and are used ininsurance ecosystem - Business Dictionary. The main purpose ofthis dictionary is to improve communication throughstandardization of business terms names and unambiguousmutual understanding of work teams; (2) Model of functionalitiesthat are basic in business of insurance companies - BusinessCapability Model. This model provides multilevel decompositionof field of business up to the level of business processes. Thebusiness functions are located on the upper levels of thehierarchical decomposition and include all the standard featuresfound in insurance companies; (3) Information model that is thereference model for the implementation of enterprise applicationsof insurance companies - Information Model . This is the mostdetailed model that represents a conceptual overview of theinsurance industry. It is based on UML (Unified ModelingLanguage) and covers all functional areas of the company andensures the communication of other XML, EDI and XBRLstandard forms with ACORD standards; (4) Data modelspecifically designed to meet the needs of enterprise dataarchitecture of insurance companies - Data Model. It representsthe logical level of entity-relationship model and is usedprimarily as the basis of a physical model of relational databasemodel for data warehouse; (5) Comprehensive model ofcomponents that form business processes with a detaileddefinition of the interface and service in the entire chain of valuecreation in insurance companies - Component Model.In [25], EA is defined as a set of concepts and practice, basedon a holistic view of the system, the principles and the commonlanguage and long existing disciplines of engineering andwww.ijsrp.org
International Journal of Scientific and Research Publications, Volume 4, Issue 3, March 2014ISSN 2250-3153architecture. The paper sets the EA as the architecture of thewhole company, including its IT. It also describes the ontologynecessary for holistic definition and representation ofarchitecture and highlights the significant challenges faced by ITprofessionals, educators and researchers. Finally, it isemphasized that EA is one of the most critical tools for thesuccess of the organization and will take on an increasinglyimportant role as the requirements for speed, agility, synergy,efficiency, quality and complexity are escalating.III.FEATURES AND PROBLEMS OF CURRENTOPERATION OF INSURANCE COMPANYThe methodological approach for the development of aflexible EA for the insurance industry, which is proposed in thispaper, has two main steps: analysis of the current state of thecompany and defining the new architecture of the organization.Enterprise architecture has four layers: business architecture,application architecture, data architecture and technologicalarchitecture. In this section we briefly present the results of ananalysis of the current state in the case study of an insurancecompany, [31], and in the next section, business architecture asthe first layer of the new architecture is defined.In the step of the current state analysis, business procedures andbusiness documents are studied, and interviews with the heads oforganizational units were conducted. After, IT supports ofbusiness processes in the company were analyzed. The result wasprecise and detailed specification of the company's business,[31]. Below are the basic characteristics of an existing business.Business is not sufficiently well defined. Technologicalprocedures are the most often, well-defined and documented forthe current mode of operations. However, there is a tendency thatthey slowly change and adapt to the rapid changes required.Business processes are not formally specified in a standardnotation such as, e.g. BPMN (Business Process Model andNotation), [28], which would create the conditions for theirproper automation by the IT sector.System technologies are fragmented. In the company, thereare different software products from different manufacturers:operating systems, data management, programming languages,different user interfaces, different applications, and so on.Fragmented solutions in the current mode of operations, are theconstraint in the implementation of business processes.Fragmentation of business processes. Many businessprocesses are very fragmented and often isolated inorganizational units. Business processes are adapted to theexisting fragmented IT solutions and this is one of the reasons fortheir fragmentation. In the company, there is no system forbusiness process management (workflow engine) as thetechnological foundation for the implementation of the businessprocesses, which is another reason why the processes are notautomated end-to-end.4change. It is, for example, seen clearly in the moments oflaunching a new product or inability to respond to newcompetitive products.High costs. Due to the above, operating costs are inevitablyhigher with a very inefficient processes and a low level of Endto-End process automation. Financial investments in the ITsector are high. Nevertheless, the IT sector usually does not givethe required results; IT services
insurance company's business architecture. Finally, the fifth section provides an overview of achieved and plans for future work. II. LITERATURE REVIEW This section gives a brief overview of the literature, which has had the most influence on this study, whose results are partly shown in this paper. Review is separated in two parts, the first related to the alignment of business and IT (BIA .
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