Industry Research Report:
Financial Services
A tale of two industries: banks andinsurers adopt different approaches
to transformation

Ready by Design#ReadyByDesignReady by Design
Industry Research Report: Financial Services

A tale of two industries: Banks and insurers
adopt different approaches to transformation
Banks and insurers are competingin markets characterized bydisruption, strong challengers andquickly changing market dynamics.
They are also burdened with legacy systems andapplications that restrict their growth, increase time tomarket and limit their ability to compete effectively. Ifthey are to respond to rapidly changing technologies
and customer demands, they need to adopt an
approach to transformation that is ready by design.
Ready by design is a holistic approach tomodernization that allows you to:
•
•
•

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Create new business models by designinginnovative applications at speed
Increase business agility by leveraging legacy
investments and unlocking the value of the cloud

How are banks and insurers doing? While there arefeatures common to both industries, there are twodifferent tales to tell:•Banks express confidence when it comes to the
future, with greater cloud adoption and lower
legacy spend. They are currently scaling up
usage of AI and automation across the business.
However, this is balanced by a lack of in-house
DevOps skills and concerns over security.

Design innovative
applications at speed

Liberateyour talent

Unlockthe valueof the cloudInsurers are struggling to modernize theirbusinesses. Whether it’s areas such as cloud
adoption, use of AI and automation, legacy spend
or agile and DevOps approaches, insurers arebehind the curve.

Ready
by
DesignThis report outlines the key findings from ourresearch1, explores the challenges of becoming readyby design and identifies the key priorities for banking
and insurance executives.

Design innovative human-centeredapplications at speed•

Use agile and DevOps approaches to liberate yourstaff and get to market faster

Liberate your talent to use proven agile and DevOps
approaches for software product engineering
Leverage historical investments and securely
unlock the value of the Microsoft cloud

140 senior banking and insurance executives across the Americas (US, Canada, Brazil), Europe (UK, France, Germany, Italy, Spain, Netherlands and Nordics) and Asia-Pacific (Japan, Singapore and Australia).

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Ready by Design
Industry Research Report: Financial Services

Tale #1

Banks: Rosy future or wishful thinking?
Banks are still grappling with the legacy of “silos and spaghetti”, despite
talk of transformation. There is confidence when it comes to the future,with greater cloud adoption and expected lower legacy spend. Banksare currently scaling up AI and automation across the business. However,this is balanced by a serious lack of in-house DevOps skills and significant
concerns over security.

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Ready by Design
Industry Research Report: Financial Services

Optimism around legacy and cloud,
but not security
When it comes to sorting out legacy issues, banks
in our study believe microservices (78%) andAPIs (69%) are key strategies for unlocking value
in the business and for core banking renewal.
However, they are struggling: 43% see legacy IT andthe costs of integration as a major obstacle to an
agile approach to disruption. And they think legacy
is a significant hindrance to retaining staff (39%) andinnovation (30%).
But banks are optimistic about lowering their spend
in this area. Many respondents (43%) said they
currently spend between 10% and 30% of their IT
budget on legacy issues; but in three years’ time, athird (31%) say they will spend only 5% to 10%.
There’s a similar level of optimism around cloud
adoption. Among respondents 17% think theirorganization is currently ‘optimized’ (the highestof five categories, including – in descending order- measurable, systematic, opportunistic and initial)
and a third (33%) said they will be in that category inthree years’ time.

However, a third (35%) still expect to be in the initialand opportunistic phases at that time. Just over athird (36%) still experience security issues aroundthe cloud.
In fact, security was a major reason for a delayed
response to market disruption in general – almost halfof all banks cited this as a factor (46%). Over a third(39%) said the biggest challenge to IT modernization
was security risks around legacy systems.
So there’s plenty of ambition. But the debate is over
how quickly legacy will be addressed and cloud
benefits delivered. In addition, security issues will stillneed to be resolved.

Lack of DevOps skills is a major obstacle
Half of the banking respondents felt they lacked
in-house skills for handling market disruption.
Specifically, acquiring DevOps skills is the biggest
obstacle (53%) and banking was the top sector(we covered 21 in total) when it came to this issue.
This was a theme we also saw in our earlier IT
modernization research.

Significantly, almost half of banks (47%) reckon
they can free up 25% to 50% more time forother activities when they use modern software
engineering approaches, such as DevOps. So thelogic for increased investment is strong, but it
appears that the business case has yet to be made,given the lack of skills in this area.

Banks are using AI and automation
at scale
Banks are using AI at scale to modernize IT (53%),
improve employee experience (EX) (41%) and
optimize customer experience (CX) (50%). This
compares to pilots around IT modernization (19%),
improving EX (34%) and optimizing CX (25%).
The trend is even stronger for automation. Banks areusing automation at scale in the same three areas:
modernize IT (66%), improve EX (44%) and optimize
CX (53%), compared to pilots (22%, 38% and 38%
respectively), although EX and CX are still high for thepilot stage. This resonates with our research arounddigital transformation which shows that automationand integration are the top banking priorities over the
next five years.

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Ready by Design
Industry Research Report: Financial Services

Banks are not ready by design
There are a number of areas where banks can focus:••

Banks need to unlock value from legacy
systems and applications. Core banking
renewal is not an option nor something thatcan be pushed into the future. Banks should beseriously considering how to use microservices
and APIs in order to “digitally decouple” andbecome more agile. This will drive the lower
spend on legacy they desire.
Moving to a cloud environment needs
serious assessment. Banks are keen to optimize
the way they use cloud in their business. But they
still need to work out what cloud platforms aremost appropriate for their business and how they
will manage their service providers. Getting thisright will provide banks with the agility they needto adapt to shifting market dynamics.

•

Security is a major area for focus. Banks
should review cloud security, given the recent
need for remote working. They need to also
review the security capabilities of their partners,
especially given the ecosystems developedaround Open Banking.

•Invest in DevOps skills. The benefits of suchinvestment are clear in terms of improved
productivity. This should be the basis for thebusiness case.

•

Evaluate the work required to scale up AI
and automation. Be realistic about the level ofactivity required to move from a pilot to a fully
integrated position. Work out how cloud cansupport this transition. Do not underestimate thetime required to develop “clean” data.

While banks would
prefer a rosy future,
there are still plentyof challenges to beresolved before they
are ready by design.

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Ready by Design
Industry Research Report: Financial Services

Tale #2

Insurers: Make transformation a priority
Insurers are also struggling to modernize their businesses. Whether
it’s in areas such as cloud maturity, their use of AI and automation,legacy spend or DevOps approaches, insurers need to focus ontransformation as a priority.

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Ready by Design
Industry Research Report: Financial Services

Ripe for disruption
In our research, insurers admitted they have a strong
cultural aversion to change (41%). This was the highest
score in all 21 sectors we covered. One of the biggest
challenges to modernization for insurers is their backend systems (42%) – again, the highest score in all
sectors.
Unsurprisingly, Accenture finds that insurance is one of
the sectors ripe for disruption, based on factors suchas a high operating base, weak brand recognition andloyalty and only modest R&D investment comparedwith other industries.
IT respondents agreed that business executives don’t
fully understand how complex IT transformation
initiatives can help them realize value (80%) andstruggle to develop business cases to justify suchactivity. Interestingly, banks made similar comments
three years ago in a study we undertook around IT
modernization. By way of contrast, business executives
think that IT could be better at creating business casesand showing outcomes (80%). Unsurprisingly, 65% saythat the two sides aren’t working well together to createbusiness cases!

Immature cloud adoption and legacy
spending on the rise
Insurers are still immature when it comes to cloud
adoption. Almost two-thirds were in the initialor opportunistic phases (rather than systematic,
measurable and optimized phases). By comparison,
almost two-thirds of banks were in the top three
categories. In three years, the picture is relatively
unchanged: Six out of 10 insurers expect to still be in
the initial or opportunistic phases. Interestingly, almost
48% also had security concerns around cloud, which
could account for the low adoption rate.
Insurers are still planning to spend more on maintaining
and supporting legacy systems and applications overthe next three years. By way of contrast, banks are
moving in the opposite direction. Today, almost twothirds of insurers are spending up to 20% of their IT
budget on legacy. In three years, almost half will bespending 20% to 40%, in contrast to a third of banks
that expect to spend only 5% to 10%. Almost nine outof 10 insurers (88%) thought legacy was hindering theirinnovation initiatives.

DevOps investment required
Insurers strongly agreed that they were keen to use
modern software engineering practices, such as agileand DevOps (47%). In fact, insurance came out on
top of all sectors included in the research. This may
be because they have yet to use them in a consistent,
scalable manner across the business. The biggest
obstacle to adopting such practices was lack ofinvestment. But the business case seems clear: 59% of
insurers agreed that 10% to 25% of time was freed up
by using DevOps and agile; 35% said it was as high as
25% to 50%.

AI and automation: Pilot mode
When it comes to adopting AI to modernize IT, improve
EX and optimize CX, insurers are firmly in “pilot” mode
(48%, 41% and 54%, respectively) rather than looking
to scale across the business. Looking at the use of
automation in the same three categories, insurers are
scaling up to some extent in modernizing IT, improving
EX and optimizing CX (35%, 33% and 43%) – but lessso than banks (66%, 44% and 53%).

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Ready by Design
Industry Research Report: Financial Services

Behind the curve?
Insurers have a number of areas that need attention:••

Assessing legacy should be a priority. Legacy
systems and applications need to be reviewed asa priority: policy administration, claims and billingsystems are the key areas. At the very least, anapplications portfolio assessment, based on theirvalue to the business, would be a good start. Thisis critical as legacy is constraining growth in otherparts of the business, such as innovation, including
the use of AI and automation.
Scale up automation and AI. Insurers should
start creating roadmaps to scale up the use of
AI and automation across their business. The
benefits of such approaches, in terms of reduced
operational cost, faster time to market andreduced risk, will justify such investment. But a
more mature cloud approach is the driver behindmaking this happen (see next point).

•

Accelerate cloud adoption. Cloud adoption
is still at the initial or opportunistic phase – andlooks unlikely to change over the next three years.
Insurers need to accelerate their plans to move tothe cloud, including the development of cloudnative applications.

•

Apply DevOps and agile. DevOps and agile
approaches are not being used widely, despitea strong desire to do so. Insurers should makethe business case, based around productivity andefficiency improvements.

It would appear
that insurers are notexperiencing thebenefits of being
ready by design.
Rather they need toseriously consider
how to modernize
their business.

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Ready by Design
Industry Research Report: Financial Services

Design innovative
applications at speed

Liberateyour talent

Ready by Design:
Where it works

Ready
by
DesignDesign innovative applications at speed

Securely unlock the value of the cloud

For a major Spanish bank, the goal was to increasecustomer numbers by delivering mobile solutions
with greater flexibility and faster time to market.
The bank collaborated with Accenture, Avanade andMicrosoft to develop its digital strategy and help
increase satisfaction and experience for its millionsof customers.

Because of numerous acquisitions, Towergate, oneof Europe’s largest independently owned insurance
brokers, had developed hundreds of different systems,
applications and processes. Avanade, Accentureand Microsoft worked together on one of the mostcomprehensive IT transformation and cloud migration
projects seen in the financial services industry. Thistransformation took just 12 months. By modernizing,Towergate began to see immediate, tangible resultswith 30% annual cost savings (approximately $5 million
per year). COO Adrian Brown commented: “I thought
this would take two years. I nearly fell off my chairwhen they said one year.”

We built agile mobility expertise, introduced a newservice fabric architecture to replatform current
back-end operations to Azure and automatedtest-and-deploy processes. We kept on developing
DevOps maturity, introducing new processes tohelp the team test and deploy in the most efficientway. This reduced the number of customer issues by
50%, time-to-market accelerated by 15%, there was
86% mobile application take-up after the launch of
the new version and customer feedback was 4.5/5
and rising.

Unlockthe valueof the cloud

The program has provided Towergate a solid IT
foundation that not only accommodates newacquisitions, but also enables digital and business
transformations that will aid the growth of the business.
As CIO Gordon Walters explained: “Our operating
model is completely different now. By transforming to
the cloud, we now have service-on-demand, as wellas collaboration across all our businesses. They can all
see the same customers. They have access to real-time
information that allows them to understand what we as
an organization are doing.”

Liberate your talent by using provenagile and DevOps approaches
For a major European bank, working with Accentureand Microsoft, we developed algorithm-based
liquidity (cash flow) forecasting for the bank’s small
and medium-sized businesses using a customercentric, agile approach. This iterative approach
included direct customer feedback throughout
the development lifecycle.
The bank particularly valued our knowledge ofalgorithms and experience in agile development.
Decisions were made faster due to co-location ofbusiness and IT teams. Small development cycles
meant customer feedback could be incorporated
into the project in weekly releases into the cloud(Microsoft Azure). The client commented: “Thepeople joining us from Accenture and Avanade wereexperts in agile project management. This meant [theproject] was much faster and could adapt to changes
much more easily.”9

Ready by Design
Industry Research Report: Financial Services

Transform your business andbecome Ready by Design
Avanade helps you create new digital business models, achieve faster time to market and increasebusiness agility. We do this by designing innovative applications at speed, liberating your talent andsecurely unlocking the value of the Microsoft cloud.
Find out more about our approach to business transformation, Ready by Design, a holistic approach
to applications that includes cloud-native architecture and modern software engineering techniques.
Ready by Design helps banks and insurers adapt quickly to changing market dynamics and ensuresthey are effectively prepared for disruption, in whatever form it comes.
Wherever you are, we’re ready.
Visit us www.avanade.com/readybydesign

North America
SeattlePhone +1 206 239 5600
America@avanade.com

South America
Sao Paulo
AvanadeBrasil@avanade.com

Asia-Paciﬁc
Australia
Phone +61 2 9005 5900
AsiaPac@avanade.com

EuropeLondonPhone +44 0 20 7025 1000
Europe@avanade.com

About Avanade
Avanade is the leading provider of innovative digital and cloud services, business solutions and design-led experiences on the Microsoft ecosystem. With 38,000
professionals in 25 countries, we are the power behind the Accenture Microsoft Business Group, helping companies to engage customers, empower employees, optimize
operations and transform products, leveraging the Microsoft platform. Majority owned by Accenture, Avanade was founded in 2000 by Accenture LLP and Microsoft
Corporation. Learn more at www.avanade.com.
© 2020 Avanade Inc. All rights reserved. The Avanade name and logo are registered trademarks in the U.S. and other countries. Other brand and product names aretrademarks of their respective owners.

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Ready by Design
Industry Research Report: Financial Services

Why salmons are
Ready by Design
Salmon are a kind of “super fish” that can live
in both freshwater and saltwater and mighttravel hundreds or even thousands of miles
over a lifetime. Salmon are born in freshwater,and most live their adult lives in the ocean.
Then they make an incredible upstream
journey to spawn (lay eggs) in the same places
that they were hatched.
For salmon, the trip upriver to spawn isfilled with threats that range from predation,competition and disrupted habitat. Despite themany challenges, the fish manage to complete
their journey. They are ready by design.
The fish expend nearly every ounce ofenergy they have fighting currents, leaping
up waterfalls, and dodging predators. Theirbodies change—they absorb parts of theirskeleton and parts of their skull, using thecalcium to fuel the trip.
Sources:

https://www.hakaimagazine.com/news/the-salmon-that-were-born-to-survive/
http://www.streamexplorers.org/fish-facts/salmon-life-cycle

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