Firemans Fund Insurance Co., based in Novato, Calif., has awarded IBM a $94 million, 10-year contract to modernize its IT application development and maintenance operations into an on-demand infrastructure aimed at reducing the total number of applications it runs by 70 percent.
Lawson Software Inc. says it will base its ERP (enterprise resource planning) applications, including financial, supply chain management, human resources, enterprise performance management and procurement, on IBM middleware.
By the first half of 2006, Lawson intends to ship versions of these applications that include components of IBMs DB2 Database, the WebSphere Internet portal technology, Tivoli middleware and Rational application development components, according to Dean Hager, chief product officer with Lawson, based in St. Paul, Minn.
Hager said that Lawson decided to work with IBM middleware as the lower-cost and faster way to modernize its applications to work in an SOA. "In carrying out this modernization, we did not want to build anything proprietary and we wanted to adhere to standards," he said.
Before selecting IBM as its middleware standard, Lawson started a project last summer to study all the available middleware technology options. Lawson decided to go with IBM because it seemed to be the best pick from the standpoint of cost and because it was the best firm for its 2,000 customers, Hager said.
IBM and Lawson already "have synergy in the markets that we serve … and we dont overlap at all," Hager said.
However, the deal with IBM doesnt mean that it is shifting to exclusive support for IBMs middleware stack. Lawson will continue to sell versions of its ERP software that support the Oracle and Microsoft database platforms, among others, he said.
For Firemans Fund, the shift to an SOA portfolio is seen as the best way to get the most out of its IT budget, said Fred Matteson, CIO of the property and casualty insurance carrier. The company estimates that it can save as much as $200 million per year in application and IT support costs. This sum would be more than double the estimated cost of the project, he said.
The company currently spends about 3 percent of its premium revenue on IT expenses, and Matteson said he would like to reduce costs to free up money to develop new Web-based applications that make it easier for agents and policy holders to do business with the company.
The overall goal is to reduce the effects of the typical business cycle that affects the insurance industry. When sales and earnings decline, IT is one of the departments that usually get hit hard by layoffs.
The problem is that the cuts are usually severe enough that "you cut into your ability to delivery new IT capacity" when the market recovers and you want to provide modern applications to serve the latest business needs, Matteson said.
Firemans Fund plans to move to SOA to provide the flexibility to shift to an on-demand environment in which its IT operations are lean enough, yet agile enough to keep working productively even during an era of accelerating business cycles, Matteson said.
To do that, the company has also made the aggressive cost reduction move of transferring management of its IT hardware infrastructure to IBM, and has consolidated its telecommunications services under a contract with AT&T.
One of the problems of the insurance industry is that it often has to support legacy software applications, some developed in the dawn of the computer age to support old lines of business.
Firemans Fund will work with the IBM Global Services insurance practice to develop a modernized application portfolio. One of IBMs jobs, Matteson said, will be to sort through the companys legacy applications to see which ones can be consolidated into SOA.