Check out the article in InformationWeek on Medicare’s plan to modernize its IT infrastructure. As noted in my earlier blog on insurance and healthcare, the same policy and economic factors are driving related government agencies to modernize their legacy applications and platforms as quickly as possible.
- Dheeraj
Looks like 2011 could be a better year for software companies. Analyst firm Forrester has published a few top-line results from its Q4 2010 software survey of 2400 respondents in North America and Europe – and more than a third of the respondents said they would increase software spending by 5-10% or more next year.
The results also documented a shift from the traditional enterprise-licensing software model to subscription and pay-per-use licensing as well as increased adoption of cloud computing to deliver SaaS offerings.
These last two data points will have interesting implications for what it means to be a software company today and in the future – a subject we’ll expand upon here in the New Year!
- Chris
Check out the latest study from industry analyst firm the Standish Group, “Modernization: Clearing a Pathway to Success,” which shows that application modernization projects have the highest likelihood of success, and deliver the fastest route to ROI – when compared to rewriting or replacing the existing application.
Thanks to Ray Wang for pointing out an interesting blog presenting a Mathematical Proof of the Inevitability of Cloud Computing.
Here’s an excerpt from the introduction:
“To jump right to the punchline(s), a pay-per-use solution obviously makes sense if the unit cost of cloud services is lower than dedicated, owned capacity. And, in many cases, clouds provide this cost advantage.
Counterintuitively, though, a pure cloud solution also makes sense even if its unit cost is higher, as long as the peak-to-average ratio of the demand curve is higher than the cost differential between on-demand and dedicated capacity. In other words, even if cloud services cost, say, twice as much, a pure cloud solution makes sense for those demand curves where the peak-to-average ratio is two-to-one or higher.”
Check out the full post for detailed analysis.
As part of Microsoft’s marketing push to “own” cloud computing, (see its ubiquitous and mildly irritating “To the cloud!” TV ads), the company’s corporate strategists have also published an interesting white paper on the economics of cloud computing.
The paper’s central thesis is that, “Just as in the early days of the car industry, it‘s currently difficult to see where this new paradigm will take us,” and to make that point, it opens with an analogy that compares cloud computing to the invention of the automobile, noting that the first cars were called “horseless carriages” and even included buggy whip holders:
“Even the early pioneers of the car didn‘t fully grasp the potential impact their work could have on the world. When Daimler, arguably the inventor of the automobile, attempted to estimate the long-term auto market opportunity, he concluded there could never be more than 1 million cars, because of their high cost and the shortage of capable chauffeurs.”
Cute story, but rather than a “nugget of brilliance,” this analogy is simply the wrong way to look at cloud computing. You can’t Google “cloud hype” or watch one of those Microsoft cloud ads and conclude that people are having a hard time comprehending the potential impact of cloud computing or imagining its possible applications.
The development of cloud computing is more like the invention of the electric light bulb or pasteurization – a long-sought solution to a widely known problem.
The “horseless carriage” analogy would work if the costs of maintaining a fleet of horses and buggies at the end of the 19th century – the hay and stables and blacksmiths and buggy whips — were painfully high and had forced owners to search for alternative means of transportation for years. The same way IT departments have been searching for cheaper and faster alternatives to their legacy computing platforms for decades.
Having transformed more than 450 legacy applications to run on modern, web-based platforms, we see cloud computing as exactly the kind of catalyst that was needed to help more enterprises solve a very painful and expensive problem.
- Chris
Got two more data points this week supporting the conclusion of our recent survey that client/server and early web applications are the new top priorities for application modernization.
The survey is still live – and the first data point was feedback provided by a leading e-commerce retailer when they completed it. This is a “modern” company born with the rise of the internet, but they said they had a serious “legacy application modernization” problem, because their early web apps, written in CGI and Perl and Java, were holding back the business.
The second data point was a briefing we had with the leading application modernization analyst at a major firm (with an aggressive copyright group, so will remain nameless here) – who said he was 100% sure there was growing need for client/server modernization. The evidence he cited was direct feedback from corporate clients and the growing number of vendors briefing him on solutions focused on this problem (including Nexaweb!).
What’s your experience? Finally modernized your mainframe apps and now moving on to client/server? Need to push your early web apps to mobile platforms? Click here to fill out the survey and share your thoughts.
– Chris Heidelberger
Introduction: Starting with this entry, Nexaweb’s Solutions Architect Dheeraj Remella will be sharing his experience working with companies/governmental organizations such as Blue Cross Blue Shield of Massachusetts, West Corp., State of Tennessee, Citibank, US Navy, Sam Houston Electric Cooperative and ValueOptions to offer an analysis of the business and economic challenges companies in the healthcare, financial services, Call Centers and Utilities industries that are driving their need for application modernization.
I picked Insurance industry to start with for two reasons: immediately prior to joining Nexaweb, I worked in the industry as a solutions architect, so I have fresh insight into current practices and processes; and the insurance industry is by far the oldest industry in modern history, hence it comes with all the challenges around keeping up with times and streamlining its mechanics.
Without further ado, let us begin the journey together.
Insurance by definition is a vehicle for managing risk. People or companies that want to protect themselves against one or the other kind of a disaster prepay a fixed amount to another person or company to come to the rescue in case a disaster does happen. The idea of risk management has been in existence for a very long time.
There is recorded evidence of risk management in ancient China in 2100 BC when the farmers would distribute their produce across multiple ships to minimize the potential for losses for individual farmer but at the same time, also enabled sharing the risk with a large group of farmers thus reducing the cost of the risk i.e. a ship sinking. The earliest evidence of an agreement-based insurance is found in the aftermath of the Great Fire of London in 1666.
The insurance industry is unique in that it has no product to sell, for all practical purposes. All it sells is an opportunity for entities to share risks with other similar entities and peace of mind that, in case of a disaster or the expected calamity striking, the entity or the dependents (in case of life insurance) are protected from financial ruin. Home insurance, life and accidental death and dismemberment insurance and health care insurance are all familiar examples.
From a business perspective, there is but one common thread amongst all insurance companies. The more efficiently the operations are run, the better the monies are managed to sustain the insurance model for the longest period, reap profits, build reserves for large scale disasters, pay the employees better instead of paying for the operational maintenance, enhance the employee and customer experience interacting with the organization and thus eliminate or minimize turn-over.
Challenges for Insurance
Any analysis of the insurance industry’s challenges must start with an overview of the operational processes associated with generating revenue and maximizing profits:
Insurance company income comes from the premiums paid and the investment returns. One of the key measures that insurance companies use to measure the effective management is the “combined ratio,” which is the ratio of losses (i.e. payments) and expenses together, over premiums. Today, the combined ratio is at or close to 100%. This ratio does not include the investment returns since it would muddle the operational efficiency equation. The only way to get better at the combined ratio is to improve the operational efficiency.
Due to the investment markets underperforming or staying neutral for the most parts, there is little left to offset the underwriting losses. To address this challenge, insurance companies can: increase premiums or decrease expenses. We are not going to talk about increasing premiums, because we know how that discussion would proceed. On the other hand, as simple as it sounds, decreasing expenses means being more efficient which translates to boundary-less information flow. For this to happen, the company needs to get off antiquated technology and systems and embrace modern practices i.e. modernize the business capability.
Insurance companies face another challenge involving the enrollment period. The formula for calculating risks is based on outdated factors such as age and gender based risks that are not in tune with advances in medical innovations, and the companies can sometimes intentionally or inadvertently working with incorrect information supplied by the applicant. This highlights the need for updated business intelligence (BI) engines and up-to-date information for the BI to be based upon.
In addition to these internal factors, there is the giant external factor – government-enforced regulatory changes that carry implementation costs, monitoring costs, auditory costs and non-compliance fees. In some cases, the company’s systems are so old that the cost of implementing a regulatory tracking becomes either largely inaccurate or prohibitively expensive – so much so that the non-compliance fee could be smaller compared to the implementation cost involved. This is again mostly due to deprecated systems and rare skill sets needed to work on such systems instead of commodity skill set to work on standards based technology.
Unexpected regional or global catastrophes such as Katrina or the H1N1 flu or even local incidents such as a Salmonella outbreak eat into the reserves that an insurance company keeps for exactly such scenarios. But once such an event does occur, there is a time and cost associated with rebuilding that reserve.
Health care insurance companies face a wide range of additional challenges. An equivalent of the combined ratio is the medical loss ratio (MLR) for the health care insurance companies, which measures the portion of revenues applied to providing services (the remainder being administrative costs). The Patient Protection and Affordable Care Act (PPACA) mandates an MLR of 85% for large payers and an 80% MLR for small and medium payers starting Jan 2011. This has created a significant challenge for health care insurance companies to play “clean the house” and reduce their administrative costs. This compliance does not come cheap, especially for the small companies, since their profit margins are typically one-third less than that of the large companies. Starting in 2012, health care insurance companies will have to reimburse the customers for the difference between the threshold MLR and the actual medical expenditure. These rebates could run into the billions. “Organizations in each sector that know how to innovate, operate lean and navigate change, while not getting tangled up in their own structure, will survive and do well,” says Paul Keckley, Executive Director of the Deloitte Center for Health Solutions. (Quoted from the article, “2011 State of the industry” in Managed Healthcare Executive magazine).
PPACA also guides the creation of health insurance exchanges to provide affordable care for individual patients. This creates the challenge of how to transfer the risk and calculating the risk parameters and placing an individual in the appropriate tier.
Another trend in health care insurance is pay for performance (P4P) programs where the providers are remunerated based on the quality of care delivered to the patients. The payers ( insurance companies) can only track this information if they have the necessary technology solutions in place to track the medical necessity, contiguous body parts and the necessary waivers and additional information from the providers, integration with external utilization management vendors etc.
Another really big concern coming to the health care providers is the implementation of ICD-10, the latest version of the International Statistical Classification of Diseases and Related Health Problems codes, which must be used on all HIPAA transactions, including outpatient claims with dates of service, and inpatient claims. Since this standardization is looked upon as an overall cost cutting measure, strict adherence would be necessary from the both the cost cutting standpoint and the government imposed compliance standpoint.
In addition, the 600-member Healthcare Billing and Management Association (HBMA) has identified the following 10 challenges for cost cutting:
1. Confusing codes and non-standard remarks with electronic payment
2. Inconsistent benefit information and separate mailings with paper payment files
3. Inefficient claims appeals process
4. Non-standard recoupment deadlines
5. Denials for multiple visits on the same day with different specialists
6. Incorrect claims adjudication based on a physician’s specialty
7. Inconsistent loading of contract payment terms across multiple systems
8. Outdated web sites
9. Outdated authorization systems
10. Unregulated credentialing processes
All of the 10 challenges could be addressed and alleviated if there is real time information exchange between the various parties involved in a transaction. But for that to happen, organizations either need to make expensive band-aid fixes to the legacy or client/server applications that are in place or completely transform their applications onto a modernized, standards based platform.
– Dheeraj Remella
PowerBuilder has been around and successful for almost two decades now and after many discussions with PowerBuilder developers, it has become apparent to me what the marquee feature of PowerBuilder really is. Some developers would comment on the ease of report creation, and others on the presence of client-side processing capabilities, but most only wanted to talk about their beloved Data Window. After taking a look at what makes the DataWindow tick, it is truly the power of the DataWindow that makes developers’ lives easy.
Over the last 18 months, I’ve gotten to work with a variety of PowerBuilder versions, and had first-hand experience with the Data Window. When you look at it, it is a fantastic piece of tech. For those of you who don’t understand the concept and what it does, let me try to explain. The DataWindow is a group of user interface elements that can easily be tied to the database using the PowerBuilder IDE. What makes the DataWindow so sticky is that once the interface has been defined and the SQL statements have been written, the two-way data connection can be made. Two way data means that if the data is updated on the UI and saved by the user it will be persisted to the database, and if the data changes on the database, upon refresh of the UI that data will be sent back. Developers love this because it is a minimal amount of code to begin developing screens that map to their business requirements quickly. This allows them to focus on the solving the business problem at hand because they do not have to worry about application infrastructure.
Unfortunately, there are number of architectural elements of PowerBuilder that severely limit its ability continue to be a viable option for continued IT support. Most prominently is its lack of support for a rich web environment that can recreate the performance, client side processing capabilities, and UI widgets that are considered standard in today’s Web 2.0 frameworks and delivered in a centrally managed, no-install medium. Also, finding resources to maintain and enhance PowerBuilder are severely hindering the IT department’s ability to continue support these applications as they age. The customers I’m working with are in need of a solution for the deployment issues, legacy language/skillset issues, diminishing support for PowerBuilder, and the need to move to a more open codebase like Java.
To help these customers, we’ve built Java technology that should be an easy transition for current PowerBuilder developers and Java developers interested in building a Java web app that gives that “Desktop Application in a Browser” feeling. In addition to building technology that can meet or exceed the client side capabilities of a PowerBuilder application in the web, Nexaweb has developed a semi-automated process that can quickly cut the process of moving from PowerBuilder to J2EE with greater functionality, flexibility and maintainability.
Modernizing to J2EE from PowerBuilder will be our focus in a demo today (Wednesday, February 17 at 2 p.m. EST) during our webinar with Sierra Atlantic. I would definitely recommend checking it out. You can register here: https://www1.gotomeeting.com/register/798601449.
The current state of affairs has most organizations asking IT to build business cases for new expenditures, especially when it comes to updating an application that isn’t necessarily broken. For IT, broken tends to mean that an application is getting harder to find resources to keep it current, maintenance is time consuming, and the technology it’s built on can’t support the features the business is asking for. For the business, it’s about revenue. If an application gives them what they need, let’s them do their job, it works. However, if they feel the application is holding them back and keeping them from realizing the most revenue possible, it gets top modernization priority. For example several of our most recent banking customers want to leverage existing back office systems (e.g. pricing engines) to extend their global trading systems to external traders, partners and banking customers. This drives significant revenue by dramitically increasing transaction volume and customer satisfaction through eCommerce.
When a decision is made to modernize, the discussion always get political. Some folks are in favor of building their own application to ensure it serves their business, while others feel the cost savings of going with a Commercial Off-the-shelf Software (COTS) solution is a no brainer. The build vs. buy dilemma is as old and stubborn as PowerBuilder, Visual Basic and C++ themselves. Neither approach is wrong, but all have their drawbacks. Modernizing an application using in-house resources ensures that specific features and functionality will be included, but not without a cost. A COTS solution can dramatically reduce the costs, but tends to require a trade off of features and functions leaving the business without any real advantage or edge. So, what’s the answer? That’s a million dollar question, and a puzzle more and more organizations are having to solve. How are you approaching modernization at your organization? Is revenue driving final decisions? What are your thoughts on the build vs. buy question?
Chris Heidelberger, CEO, Nexaweb
A large percentage of outsourced, onshore and offshore resources, are skilled in XML, Java and other Internet-based languages and development techniques, meaning their ability to tinker with and add features to 3GL/4GL applications is limited at best and that cost savings of such as model is neutralized. Adding to the conversation is the acknowledgment that more than 200 million lines of COBOL code are currently in use while another five million are being written each year. This presents a challenge given the waning number of students studying computer science and the shrinking number of experts in legacy applications.
According to Gartner, “interviews conducted with IT sourcing managers across the Gartner client base hint at what’s to come: Many have seen price hikes of 10% to 15% in certain skills during the past year.” Read the rest of this entry »
