Adding IT Value to Evolving Business Models

Executive Summary:
Change has become the new normal across industries. The healthcare industry is dealing with changing market dynamics and is only now realizing the full impact of the Affordable Care Act. The financial services sector is facing growing regulatory challenges on one side and the opportunities offered by the recovering global economy on the other side. The US retail and B2B banking sector is under the impact of changing customer preferences vis-à-vis mobile banking. US Retailers are also dealing with domestic “low price” challengers and the avenues offered by the investment opportunities in the emerging economies, especially in the e-commerce sector. Manufacturers have the need to optimize the production and supply chains in order to lower costs. This article explores how effective IT decision making could help firms deal with the constant flux in their business models.

Healthcare:
The market dynamics in healthcare is changing, as the firms involved understand the true impact of the Affordable Care Act. There is increased competition because of insurance exchanges and the existing market shares are being disrupted (see exhibit 1).The reimbursement models are being updated, the healthcare networks are evolving and the Medicare market is expanding as more baby boomers retire. Hospitals are revamping their service delivery models to better improve patient outcomes and insurance companies (payers) are trying to negotiate better contracts with hospitals (providers) and formulate the most optimal benefit plans for patients. Under such a scenario, it’s critical for both the payers and providers to understand the evolved preferences of the old and new clients/customers. Do customers prefer a high deductible plan with wide coverage or a low deductible plan with narrow coverage? What type of group insurance are the employers demanding with geographically diversified work force? Are more employees telecommuting to work and if yes, have their insurance needs changed?

The second key aspect is to re-evaluate the firm’s business value. How can I drive better business value in the changed landscape? Are we targeting the correct market segment? Are our plans/benefits still relevant? Are our claim adjudication systems capable of meeting the new SLA’s? After deliberating on the above questions, the firms have to assess the capabilities that need shoring up. Creating a rules based, flexible reimbursement, network, contract and benefit management systems and having a better control of the business processes by automating them will help the insurance companies. Since the changes are continuous, it’s beneficial to set up a Service Oriented Architecture within the enterprise and better integrate the disparate source systems. Firms can deal with changes better when a service oriented enterprise is created.

Exhibit 1:

Financial Sector:

As the global economy recovers from the financial crisis of 2008, it presents both challenges as well as opportunities. Various regulatory requirements put in place such as Basel III, Dodd Frank Act, Simpson-Bowles Plan etc., to prevent a repeat of the financial crisis force significant changes to the business model of the financial firms. A KPMG study on the impact of regulations on the financial services sector predicts a high impact on the net income of the firms (See exhibit 2). With these regulatory changes, firms have to update their IT systems to better capture critical data. Firms are better off undertaking an effort to optimize their IT infrastructure, overhauling their enterprise application security, enhancing their digital user experience interfaces to capture additional data and migrating and modernizing their IT applications. These efforts could be staggered to prevent disruptions to the everyday business but are very critical to effectively comply with regulatory requirements. 

The recovery of the global economy also provides new opportunities for growth to the sector. As new business models are discovered and new market segments identified, the firms have to put in place business processes and rules to capture those segments. Digitizing business processes and rules gives better control to the firms and the required flexibility to deal with any future changes.

Exhibit 2:  

Banking:

The new retail and B2B banking customer is increasingly conducting his/her transactions via the mobile application. As per a McKinsey & Co survey, today 65 percent of customers interact with their banks through multiple channels. Human interactions are generally reserved for more complex problems: only 25 percent of agent phone calls are inquiries that could be serviced in other channels. Banks that do not provide the seamless banking experience to customers across various channels – branch, mobile and web – risk the possibility of losing out the customer’s business to other banks that provide a seamless experience. Effective mobile strategy that provides banking value to the customer and also provides banks an ability to cross sell products to the consumer similar to a physical branch is needed. Banks need to adopt cloud mobile development platform such as IBM Worklight to quickly create mobile applications and roll it out to the end consumer.

In a B2B setting, banks that can quickly set up new accounts and add/update financial products to the banking business customer can capture additional market share. The sales representatives should be able to present the product information and capture customer information on a tablet. Designing and selling new financial products that offer convenience to the businesses will provide the competitive edge to the banks.

 

Retail:

US retailers are being challenged over price by “online only” retailers such as Amazon and other competitors that are offering e-commerce channel. The retailers are struggling to reduce high costs due to big investment in stores. A key method to reduce high inventory costs is to have an integrated supply chain visibility and to be able to sync the merchandize ordering with that of supplier inventories. Also retailers can no longer have fulfillment channels in silos. There is a need to integrate the fulfillment channels and provide visibility across – a consumer should be able to add a desired product to their wish list on the website, review that product in store, purchase the product in store or place an order online and receive the product. The product return procedures should be similar irrespective of where the product was purchased. In order to provide the new business value, the retailers need to transform the customer digital experience, better integrate their source systems and modernize their IT applications by moving them into new platforms.

 E-Commerce provides an exciting opportunity in the emerging markets. As per RESEARCHANDMARKETS study, the e-Commerce industry in India is expected to grow at a CAGR of 40%, from US $ 5.9 billion in 2010 to US $ 34.2 billion in 2015E. An India based e-Commerce retailer, Flipkart, recently raised $1 billion in fresh funding. Amazon is increasing its presence in India as well. The emerging middle class of the developing economies provides a huge opportunity for the retailers. The new consumers with disposable income favor purchases of latest technology products, mainly electronic goods, over the internet. There is a significant margin that could be captured here. These new markets provide additional area of growth for those retailers with global ambitions. The retailers should fortify their e-commerce offerings and build a strong supply chain integrated with their e-commerce sites both over the web and mobile. The proliferation of smart phones in emerging economies also provides a huge opportunity in the m-commerce space. The mobile development strategy is critical to capture this opportunity.

 

Manufacturing:

With increased competition from global competitors, US manufacturers face a growing need to optimize production and reduce costs. It is more critical than ever to identify the core strengths in manufacturing and outsource any parts that are better off supplied by a supplier with a low cost. The manufacturers need to constantly evaluate available supply chain options and choose the most cost effective option. As per a KPMG survey, many manufacturing executives (49 percent globally; 54 percent U.S.) admit that their companies currently do not have visibility of their supply chain beyond Tier 1 suppliers. Moreover, only 9 percent of the 335 global respondents of the 2013 KPMG survey say they have complete visibility of their supply chains. This number is even lower among U.S. executives, with only 7 percent claiming complete supplier visibility (see exhibit 3). Adopting a robust Business Analytics and Decision Management solution is a key lever in the changed landscape. Using a business analytics and reporting software such as IBM Cognos provides the manufacturers with access to real time data on production capacity, inventory management, supplier inventories, budgeting, forecasting etc., so that  more informed decisions could be made.

Exhibit 3:

Conclusion:

While updating the business model to better deal with the changing landscape is a challenge, overhauling and effectively implementing an IT ecosystem will help smooth the journey to a great extent. Taking the help of advances in IT will help to reduce the productivity disruptions caused while modifying the current business model. Choosing a trusted IT business partner that can provide holistic IT services will also go a long way in alleviating this pain.

To learn about how Prolifics provides business value to clients around the world, visit www.prolifics.com.

N.R. Vijay is a Solution Architect in the Business Process Management division of Prolifics. He has over 10 years of consulting experience across domains such as Retail, Healthcare and Banking. Specializing in technology, management concepts and enterprise strategy, he is focused on change management and process improvement initiatives. He co-authored a whitepaper titled "Improving Customer Loyalty through Business Process Optimization and Advanced Business Analytics"

Achieving Regulatory Compliance with Decision Management

The 2008 financial crisis affected each of us in some manner. In particular, financial institutions and banks felt most of the heat. There were several repercussions of this crisis in the form of increased regulations and various legislation in an effort to curtail such an occurrence in the future. The aim of such regulations is to maintain confidence in the financial system, to increase financial stability, to protect consumers at some level and to reduce financial irregularities.

Since financial institutions now live in a climate of increased compliance and regulation, there has been an increase of consulting firms – both technical and advisory – in providing specialized services to help these institutions implement regulatory compliance so that these institutions can focus on their business while complying with these ever changing regulations.

It would be futile to jump into a solution of how this can be achieved without understanding what regulatory compliance means. Compliance means conforming to a rule which can be a policy, standard or law. Regulatory Compliance describes the goal that companies aspire to achieve in order to comply with relevant laws and regulations.

Where do business rules fit in the picture?
Business rules are by definition a statement that describes the policies or constraints of an organization. Since compliance requires conforming to a policy in general, business rules fit the perfect picture as a placeholder of such policies. This is for various reasons. First, rules are repeatable and tractable to automation. Second, rules are transparent and easily traceable. This makes for increased visibility of the policies which are to be complied with. Business rules implemented with IBM’s Operational Decision Management software can be exported to a word or excel document, and even be emailed to an organization’s legal department in the format they are written. Third, rules can be changed easily with zero down time to make the change to production. This helps organizations cope with an ever-changing regulatory environment and allow them to focus on its business rather than inviting preseason resources keeping up with a changing regulatory environment.

How can regulatory compliance be achieved by Operational Decision Management (ODM)?
The best way to describe ODM’s capabilities for regulatory compliance would be to take existing compliance policies that firms have to constantly deal with, and propose an implementation using ODM. We take one of the most challenging regulations that was recently (2010) enacted by the 111th US Congress – it is the Foreign Account Tax Compliance Act or more popularly known as FATCA. The act aims to tackle tax evasion by US Citizens to tax havens or strong data protection countries like Switzerland. Foreign financial institutions like banks, insurance firms and fund houses are affected by FATCA and need to comply with FATCA regulations. Individuals with US nationality, US address or phone number and corporations with substantial US ownership are affected by this legislation. Complying with FATCA became so complex and necessary at the same time that IBM has offered a specialized FATCA solution in their offerings.

One of the challenges FATCA brings is the amount of information it requires an organization to process which especially creates a hassle to the organization’s technology platform. There are three different impacts to the technology platform with FATCA – customer classification, transaction monitoring and finally IRS reporting.

In our business case example, let us study customer classification. In order to comply with FATCA, financial organizations have to collect a W-9 form from all account holders who are US Persons. This is clearly business logic which can take an ugly and complex turn when implemented in application code. The solution: WebSphere Operational Decision Management (ODM). The above business logic can be copied word to word and represented in the form of a business rule. It can be created in what is called a rule designer. This is how the same business logic looks like when written in ODM as a business rule:

The above business rule can be exported as-is to what is called the decision center which is the special portal that business users have access to with the ODM suite of products. Decision Center gives immense visibility to the rules across an organization. Major stakeholders can log in to this portal and view the contents of critical decision tables or business rules. Returning to our scenario above, the same FATCA rule when deployed to the decision center, can be edited by business users by click of a button. Clicking on the “Edit” link below, the rule can be easily modified by a non-technical user:

Any changes to these business rules in general can be directly deployed to production environment, through the decision center portal. Obviously, there are various recommended governance strategies that provide checks and balances along with regression testing, so that incorrect information is not pushed to production servers. Nevertheless, the capability to change an existing policy (or a decision table) is available with ODM.

Conclusion

Regulations are here to stay and the sooner organizations adapt to implement compliance with these regulations, the better they will become for their competition. In our example for FATCA we just saw how ODM can be leveraged to implement changes at a lightning pace. There is much more that can be achieved with ODM, this just gives a small glimpse of what your organization can look forward to when selecting ODM as a solution to meet your organization’s compliance.

Akshat Srivastava is a Senior ODM Consultant at Prolifics with about 7 years of experience in the IT industry having worked in insurance, banking, retail and public sector companies. He is experienced in all aspects of the development life cycle, including bottom-up estimates, analysis, design, development, testing, release management, and bug-fixing. He has created rule based solutions at various clients, authored rule repositories and best practice documents while focusing on WebSphere Operational Decision Management as the implementation environment. He has also created BPM applications for client onboarding for leading financial institutions. Akshat holds a bachelor’s degree in computer science from California State University.

Facilitating Core Banking Transformation Through BPM and Rules

This is a guest blog entry by Scott Simmons of IBM. Scott is the BPM Solutions Architect for the Banking and Financial Markets.

Faced with aging systems, banks are reaching decision points in terms of buying a packaged solution or building/extending their existing core banking solutions.  Often banks find that packaged solutions will not meet the needs of the bank and opt for a transformation approach based on their existing solutions.  Using BPM and rules, organizations can extend existing core banking applications and not have to sacrifice the intellectual capital that is part of their current solution.  We often find that this is done in conjunction with (often) a service middle-tier normally implemented with an ESB.  As the BPM and Rules/Events technologies have evolved over the last few years, this approach has become a common and well tested pattern enabling banks to iteratively replace portions of the system while still providing key core banking functions to the business.

If we review how process and rules can be used to extend an existing solution - let's take retail lending as a key application.  In the legacy situation - Retail Lending is normally a set of COBOL programs residing on the mainframe.  In the current regulatory climate - this is an impediment to change as the 3GL solutions are not very flexible.  In short, it becomes increasingly difficult to modify code on an continual basis.  Equally important, when we need to introduce new functionality such as mobile, social or analytics functionality - this often requires code modifications as well.

So let's consider another approach.  First, understand that retail lending provides a number of high level business functions comprising multiple processes such as loan origination, loan servicing and loan closure.  We can model and simulate these functions quite easily without the need for direct code development.  The process flow logic and underlying validation/calculation activities can be modeled as decision services (e.g. rules and events).  The process flows can invoke atomic and composite services such as receive loan applications, check credit, approve loan and other key functions which in turn, provide interfaces to the operational systems.  As a result, we see that a process and decision management approach (based on a loosely coupled service design) provides a foundation to extend current core banking applications (e.g. to deal with regulatory change) and to introduce new business functionality more easily and rapidly than traditional 3GL development.  We see this approach being adopted as a key pattern to address the challenges of aging core systems in the face of ongoing market and technology changes.

We see our clients normally initiating these types of transformation projects through top-down process and rules discovery. The discovery process enables business architects to use process modeling tools and techniques to identify and decompose key business functions and requirements specifications.  One of our clients uses IBM Blueworks Live to map 1000s of key processes many of which become implemented as functions on existing core banking solutions.  Although business process and rules management can be undertaken as strictly a discovery exercise with a tool like Blueworks Live -- many tools provide the ability to develop and implement solutions.  These development tools  often provide for rapid prototyping and solution implementation facilitating collaborative design and development between business and IT stakeholders.  This capability is a key functionality of the IBM BPM and Decision Management solution offerings and is a key reason for their use in numerous banking transformation projects.

Interested in hearing more?
Next week at IBM Impact, Scott will be hosting a session titled: Raise Expectations for the Always-on Enterprise
Session Number: BTA-1221
Date/Time: Thu May 1; 10:30 a.m. – 11:30 a.m.
Location: Marcello 4503

Scott Simmons is the Banking/Financial Markets Solutions Architect for IBM’s NA Business Process Management Solution Architect team. Scott specializes on the design, development and implementation of BPM solution architectures with a focus for banking/financial markets customers. Scott has deep experience in the areas of Service Oriented Architecture and Enterprise Modernization and is a Certified SOA Solution Designer.

Session Replay: Estimating your Process Projects presented at FSOkx BPM Forum

Earlier this month, Prolifics' Matt Yeager and Anant Gupta hosted a session at the FSOkx 4th Annual Business Process Management and Technology Innovation Forum. The presentation focused on how business leaders can reduce the guesswork associated with the estimation process by considering the following questions:

• What is it that you are estimating?
• How big is the thing you are estimating?
• What baselines are you using for your estimates?
• Should you be estimating top down, bottom up or somewhere in between?
• How do your estimates tie to your project plan?
• Do your estimates reflect ROI and business value?

If you missed the forum, you can catch a replay of the presentation here!

Prolifics Session: Estimating your Process Projects


Interested in taking a deeper dive? Connect with us today!
Matt Yeager, Manager of Advisory and Consulting at Prolifics
Email - myeager@prolifics.com
LinkedIn - Matt Yeager

To learn more about Prolifics, visit www.prolifics.com.

Learn About Security: Open Authorization in Federated Applications using IBM Security Tools

IBM Tivoli Federated Identity Manager (TFIM) simplifies application integration by providing single sign on between disparate web applications, so the users do not have to share their passwords or re-enter them. TFIM uses various protocols to achieve federation, which include SAML, WS-Federation, and OpenID. Our Security LoB has been invited by IBM to participate in a beta program to implement the popular authorization protocol, OAuth. OAuth, which stands for Open Authorization, is a protocol that allows users to approve applications to act on their behalf. OAuth makes it possible to exchange critical information across distinct organizations based upon a service level agreement that states one application as an OAuth client and the other as an OAuth provider. One major benefit of the OAuth protocol is its emphasis on authorization, when compared to its alternatives. This is giving rise to a hybrid model in which our customers can combine protocols like SAML or OpenID for authentication and OAuth for authorization. OAuth, besides making the token exchange mechanism transparent to the user, provides mechanisms to define the scope which the Client could access regarding the user’s data on the Provider.

Here is a fictitious example. Imagine PFAP as a financial application dashboard developed by Prolifics that provides a user with a consolidated view of his account balances across multiple banks. First, PFAP would have to be in an agreement as an OAuth client across all of the banks, from which account information would be obtained on behalf of the user. Once an agreement is set up with each Provider, PFAP would be registered as an OAuth client to those particular banks (Providers) and so would be provided with a client ID and a shared secret for each one. This information (Client ID, Shared Secret) would help the Provider determine, if the application (Client) requesting data on behalf of user, is one of its trusted OAuth clients. Assuming an agreement between Prolifics and a leading financial firm, PFAP is one of the OAuth clients that has access to the Firm's customer data, upon approval. The first time a user logs into the PFAP application, he will be asked to add his account number to PFAP. Once the user selects “Add Account” button, the user would be redirected to the Firm's website, where he would be asked to put in his credentials. At this step a token would be requested by PFAP from the Firm in the background, which gets authorized upon user logging into the Firm's website. This action grants access to PFAP to act on the user’s behalf.

From the user’s perspective, once logged in the Firm would display a “Consent to Authorize” page where the user would needs to permit access to PFAP to act on his behalf and retrieve information within a certain scope, which in this case would be user’s account balance. Once the user agrees to permit PFAP to act on his behalf and retrieve balance information, a verifier code is sent to PFAP in the background. PFAP would then request an access token from the Firm's application sending the verifier code, Client ID, Shared Secret and few other parameters to request an Access token. The Firm would verify the Client ID and Shared Secret to determine if PFAP is one of its OAuth clients and then would verify the Verifier Code to generate an Access token. Once PFAP receives the Access token, it enables PFAP to get the user’s data on his behalf though within a permitted scope, which in this case would be the account balance. So next time the user logs in, since PFAP would already have an Access token, the user would be able to see his balance information without having to login to the Firm's website. Now, implementation of hybrid models is being thought upon, where a combination of OAuth with protocols like SAML or OpenID would help us achieve SSO at the same time. For instance, once logged into PFAP, an implementation of hybrid model would enable the user to perform other operations in the Firm's website like balance transfers, by launching a new link to the Firm without the need to login again (SSO).

BPM Best Practices for the Financial Industry

In our current economic environment, the financial industry is challenged today by two very significant needs to improve efficiency and enhance service. I spoke about these business needs last year at an event hosted by Prolifics and IBM, and they couldn’t be more significant today. To satisfy these requirements, organizations are tasked with driving down costs by consolidating duplicated and siloed systems into well-defined, reusable services and managing customer service levels with greater flexibility.

This industry has a collection of 'habits,' or best practices, that have a powerful effect on business performance in these critical areas. Over time, we have captured the best practices that have proven to be successful with process management programs within the financial industry. At this seminar, we reviewed 11 specific practices that help financial services organizations experience success with projects/delivery, team competency and leveraging Business Process Management (BPM) across the enterprise.

I’d like to share some of these ‘habits’ with you now:

Make BPM about Productivity and Visibility

• Metrics, KPIs and SLAs should be part of the DEFINE phase
• Don’t scope out metrics
• Remember: visibility is critical to improvement

Never “One and Done”

• Iterative Approach: continuous process improvement
• Additional phases or versions will always happen: The value in BPM is that you can get your first version out there quickly, but the real opportunity here is really in version 2, 3 and 4 where you are bringing entirely new levels of capability and sophistication of efficiency of effectiveness to your organization

Don’t Skip Process Analysis

• Processes are done by many different parties! Process analysis helps you understand: What does the end-to-end look like? What data is needed at different points? What is the velocity that we need in this process? How quickly do we need turnaround time?
• Process analysis sets apart traditional applications development from building process applications

  
Build a Complete Team

• Have the right mix of resources on the team with a broad set of skill sets
• Java (.NET) developers aren’t all you need

Establish the Owners

• A requirement for succeeding with BPM is that processes must be business-owned. You need people from the business to engage and determine what the process priorities are.
• They key benefit to this iterative approach is that you can make tradeoffs and changes to adapt to changing business conditions and requirements. A level of business engagement will ensure that the right decisions are being made.

In addition, financial institutions face a highly demanding environment requiring exceeding agility. The seminar focused on how customers can reap the benefits of the business rule approach to operational decision making in the areas of payments, credit and lending, risk management and customer care for financial institutions. With business rules, key decisions in your financial processes can be changed in minutes to days rather than months - bringing new levels of efficiency to day-to-day operations.

To read more about these 11 Habits for highly successful BPM programs and the benefits of a business rules management system, please take a look at this presentation. For any questions about these topics or Prolifics’ solutions for the financial industry, please email solutions@prolifics.com.

Don Rivera is a Client Executive with Prolifics managing the NY & NJ Metro territory. Don is a certified IBM WebSphere Solution Sales Professional working with SMB and Enterprise accounts to determine how to leverage IBM software technology to meet their critical business objectives. He brings over 16 years of experience working in the information technology industry in various system engineering, sales and business development roles with companies such as Computer Sciences Corporation, Level 3 Communications and BBN Technologies.