ICT STRATEGY FORMULATION: A CASE STUDY OF INSURANCE

COMPANY
Smilka Janeska Sarkanjac
Ss Cyril and Methodius University in Skopje
Faculty of Computer Science and Engineering
Rugjer Boskovic 16
1000 Skopje, Republic of Macedonia
smilkaj@hotmail.com
Insurance companies, as a part of a mature and prolific financial sector, rely to a large
extent on information and communication technology in everyday operations. In
developing countries, however, they often lack clearly formulated functional ICT strategy,
to harness the full power of ICT in their efforts to achieve the business objectives of the
company.
This paper describes the process of developing an ICT strategy for an insurance company
from Macedonia according to Adams, Xia, and Ball method. In this case study the
theoretical foundations of Adams, Xia, and Ball method are briefly presented as a part of
the introduction. Then, the ICT strategy of the insurance company is conceptualized in
terms of ICT roles, ICT organizational capabilities, and ICT governing policies and
principles. Further in the paper an appropriate ICT strategy is proposed, in order to align
the ICT and the business domain of the company according to Henderson and Venkatraman
ICT/business strategic alignment model. In this particular case, the implementation of the
strategy was accepted as one of the key priorities for the insurance company, and the
strategy has been progressively implemented since 2009. There is sufficient evidence of
improved business performance of the company, partly as a result of implementation of the
ICT strategy.
In this regard, this paper presents a case which can be used as a pattern that could be
followed in the analysis of ICT roles, organizational capabilities, governing policies and
principles in a given company, and as pattern that could give directions in developing and
implementing an ICT strategy, in insurance companies as well as in business companies in
the private sector.
Keywords: ICT strategy, ICT management, ICT/business alignment, management
information systems, insurance company, case study.
1.

Introduction

Good ICT strategy is recognized as an important factor for achieving sustainable

competitive advantage of the company. Unlike the process of formulating the business
strategy, there is no one or a few widely accepted ways of formulating the ICT strategy.
One of the most significant efforts in offering method of formulating functional ICT
strategy of the company is conducted by Adams, Xia, and Ball [1].
In the next, second section we will briefly present the theoretical foundations of the
aforementioned ICT strategy development method. Then, in the third section, we will
present a case of formulating an ICT strategy for an insurance company, so that we can
gain a good insight into the process and the results thereof. In the final section, we will

discuss strengths and weaknesses of the applied method of the development of ICT
strategy in the company of the private sector, in order to align the ICT and the business
domain of the company according to Henderson and Venkatraman [2] ICT/business
strategic alignment model.
2.

Adams et al. method of development of ICT strategy

Adams, Xia and Ball from the University of Minnesota, USA, in 2004 made an attempt
to conceptualize typology of ICT strategies based on the role of ICT in the company, ICT
organizational capabilities and ICT governance. Role of ICT represents the degree of
involvement of ICT in the value chain of the company, and the impact of ICT on achieving
a business result. On the other hand, ICT capabilities can be defined as organizational
"soft" inputs that contribute to achieving these results. ICT governance refers to the
policies and principles of management in the company that manage daily ICT activities.
According to this perspective, the ICT function must have the proper mix of capabilities to
support its role in the company, and they have to be properly managed.
2.1.

The role of ICT in the company

As a result of their extensive work with CIOs during the research that preceded the paper
we analyze, Adams et al. identified four ICT roles defined in terms of expectations of ICT
contribution in the value chain of the company. Every higher role is more demanding of
ICT, compared to the previous role. The roles suppose ability to:
1. Support the individual activities of value chain of the company - enterprise systems
must provide significant functionality for maintaining the basic functions in the company;
2. Integrate the value chain in the company this fosters the ability to support individual
activities and to integrate systems, applications, data and business processes across the
company;
3. Change business processes that is, to support and integrate the value chain, to
improve business processes, and support relationships with suppliers and customers;
4. Change business scope and business models this should be the catalyst in the
changes of the organization regarding the products and services the company offers that
improves the performance or the reach of the company on the market or catalyst of the
paradigm shift of the company.
2.2. ICT capabilities
As Adams et al. define, capability is more than an organizational resource, or
combination of resources, and it is the ability of the organization to mobilize resources in
order to accomplish an organizational objective.
Besides business value chain, the company should manage its ICT value chain in order
to deliver ICT products and services.
Activities of the primary ICT value chain are:
- Monitoring of the ICT market - monitoring emerging technologies,
procurement of ICT or related services, benchmarking the ICT with the competing
companies in the industry etc.;
- IT research and development acting as the first mover in the field of
information technologies or their application;
- Delivery of applications and solutions timely and in the budget;

- Implementation testing, training the users, migrating the system and

implementing;
- IT operations and post-implementation services - dealing with low downtime
and errors, maintaining low costs, achieving high quality, change management;
- Management of business requirements from ICT - promoting the use of ICT,
communicating business value of ICT, understanding the requirements and customer
needs, communicating and managing the users' expectations and maintain the
support of top management.
The activities of secondary value chain of ICT are related to the general skills and
abilities, and management of resources:
- Planning and strategy development strategy;
- IT organizational development;
- IT integration;
- Creation and strengthening of ICT architecture and standards; and
- IT portfolio management.
Resources management capabilities, as another secondary value chain include:
- Management of technical resources - older technologies and systems, wide
range of technologies, etc.
- Management of ICT human resources - portfolio of skills, recruitment and
retention of professionals, hiring external consultants if necessary, etc.;
- Financial management of ICT resources;
- Managing ICT relationships - maintaining partnerships with customers and
suppliers, communication and negotiating ICT priorities with customers,
management of outsourcing relationships, etc.
2.3.

ICT governing policies and principles

ICT roles and capabilities position ICT strategy externally. As opposed to them, ICT
governing policies and principles deal with the internal positioning of ICT strategy.
According to Adams et al., ICT governing policies and principles guide the company
through the individual elements of the position of IT: technical architecture, organizational
architecture or structure, relational architecture, processes and resources.
2.4. ICT capability maturity
In order to determine the extent of involvement of ICT in the value chain of the
company, the authors offer a matrix of ICT capability maturity. In the columns of the
matrix, four levels of maturity of the role of ICT in the company are listed, and in the rows
the ICT skills are listed. ICT skills are assigned with 3 levels - low, medium and high. The
level of maturity of ICT capabilities is based on assessment of ICT skills in the company.
The model of maturity of ICT capability, shown in Figure 1, contains 4 levels of ICT
capability maturity: technical maturity, enterprise support, strategic management and
organizational learning and development. The matrix shows the appropriate level of
maturity of ICT capabilities for each capability maturity level.
Figure 1 - ICT Capability Maturity Model

Source: Adams Carl R, Xia Weidong, and Ball Nicholas L., IS/IT Strategy: Concepts, Frameworks and Case
Observations, SIGLead Conference 2004, Athens, Georgia, 2004, p.8.

By using a framework similar to the product/market matrix developed by Hayes and

Wheelwright [3] that describes the product strategy, the matrix of the Role of ICT in the
company/Level of capability maturity is a mechanism to describe the ICT strategy, and it is
presented in Figure 2.
According to Adams and his associates, the level of ICT capability maturity and the role
of ICT in the value chain of the company, determine which ICT strategy fits that particular
company. The possible strategies are: operational support strategy, enterprise integration
strategy, organizational value creation strategy and organizational change and development
strategy.
The columns in the matrix are the role of ICT in the enterprise, and the rows are levels
of maturity of ICT skills. Based on those two dimensions, there are 16 possible
configurations of ICT roles and capability maturity. However, only those configurations
that lie on the diagonal represent the optimal relation between the role of ICT and ICT
capability maturity. These four configurations are ideal types of ICT strategies. Those
configurations that lie below the diagonal represent the level of ICT skills in the company
that exceed the level necessary to adequately perform the expected role of ICT in the
company. In this case, it is considered that the company invested too much in its ICT
capabilities without a corresponding benefit from that investment. Those configurations
that lie above the diagonal represent the opposite situation - they lack some important ICT
skills to achieve the expected role of ICT in the enterprise. These companies do not invest
enough in developing ICT skills to be able to deliver the necessary capabilities.
Figure 2 - ICT Roles/Capabilities Matrix

Source: Adams Carl R, Xia Weidong, and Ball Nicholas L., IS/IT Strategy: Concepts, Frameworks and Case
Observations, SIGLead Conference 2004, Athens, Georgia, 2004, p.9.

Configurations that do not lie on the diagonal may represent transitional states. For
example, during the change the business strategy, the company may decide that ICT needs
to change its role in the company from support value chain activities to integrate value
chain. Assuming that the company was on the appropriate level of ICT capability maturity
and they satisfied the role of support value chain before the change, it can be expected that
after the changeover the company will temporarily lack ICT capabilities to fulfill
integrative role. In such case, the company will be in a transition stage before it develops
the necessary skills to fulfill the new role.
Other models of development of ICT strategy, such as Balanced Scorecard and Analysis
of critical success factors are more business oriented and business managers would
probably chose them as tools for creating an ICT strategy. The model that is presented in
this paper, developed by Adams and his associates, is largely technically oriented and
operates with the technical terms that are close to ICT managers, and probably represents a
model of choice of ICT managers. Model and the steps for its implementation are intuitive
and not very difficult to follow even for ICT managers who are inexperienced in the field
of business and strategic management.
3.

Insurance Company ICT Strategy

In this section, we will introduce few general characteristics of a company from

Republic of Macedonia, which, for the purpose of this paper, we will provisionally call
Insurance Ltd MKD. The Insurance Ltd MKD company was founded in the early
2000s, five years before this particular ICT strategy for Insurance Ltd MKD was
developed. The company started with about ten young but experienced employees who
were appointed directors of departments. They set the foundations of the company that in
just 10 year become the second on the insurance market in Macedonia, competing with
companies 70 years old, or companies that were almost monopolies, or with companies

who were brand names in Europe and had powerful headquarters and strong financial and
logistic support.
Since its foundation, the company developed integrated insurance information system
witch was built from the scratch with the business knowledge from inside of the company,
and with outsourcing help of computing company Computing Ltd. Project manager of
information system development project was the ICT department director of Insurance
Ltd MKD. The company introduced an integrated insurance information system and ERP
applications that not only automated individual processes of the business value chain of the
company, but also integrated, in the most part, the individual functions, and in doing so the
ambition of ICT function was never below the role of value chain integrator.
The ICT department in the company was designed to have few employees, and to rely on
complete outsourcing of ICT services from external software, hardware, system integration
and ICT service companies, according to the contemporary business management
philosophy of in sourcing only the core business. The time proved that it was a good
approach, because with wisely spent money [4] the company received high quality ICT
services originating from hundreds of ICT experts.
Nonetheless, there was one shortcoming, namely ICT capabilities of Insurance Ltd
MKD were tightly connected and highly dependent to the skills and abilities of the
outsourcing companies. In the first five years the foundations of the company were laid in
all business areas including ICT. Integrated insurance information system was up and
running, ERP applications also, automating vast majority of the processes of the company
and providing efficient substitution of human labor and real-time control of the processes
at the same time. Besides the core information system, design, setting and maintenance of
the computer network, Internet and VPN connections were taking place, and several
document management systems for structuring of non-structured data in the company such
as word documents, digital photographs, fax files, e-mails, etc. were also up and running.
In the fifth year of the companys existence, the company showed signs of maturity, and
it was time to rethink the business strategy of the company, to evaluate its achievements
and to develop future strategy and goals, including ICT strategy [5]. But, the support for
ICT faded out during the time. That was the main reason that it was decided to develop
separate business strategy and separate ICT strategy. The method of choice of ICT strategy
development was the one from Adams et al.
To make it clear, when the top management supports ICT function, ICT may introduce
innovations and propose ICT enabled business models. When ICT function lacks such
support, it still has to operate effectively and within the budget. So, ICT strategy is
necessary in either case, but the former leverages the power of the information technology
and creates conditions for innovation and flexibility.
The first step of ICT strategy development in this company was to assess current
situation, using the ICT capability maturity matrix. The results of the analysis are given in
Figure 3. The analysis of the ICT capability maturity model conducted for Insurance Ltd
MKD says that the role of ICT is somewhere between integrate value chain and change
business processes. We will present the analysis in more details of each capability below:
1. Applications and Solutions Delivery - level of development of this ICT capability is
directly dependent on the quality of service or capability of the main outsourcing partner in
the application software section that we provisionally call Computing Ltd, and it
fluctuates over the time. Computing Ltd occasionally experiences dynamic staff
turnover, and in periods when the number of employees working as a support of Insurance
Ltd MKD information system is reduced, or when the Computing Ltd employees are in
the learning phase, the quality of services decreases, particularly response time

dramatically increases. Generally, the cost out of this strategic partnership with a company
that has made custom software solution is high, the highest of any other migration in
technology in the enterprise.
Figure 3 - ICT Capability Maturity Model for Insurance Ltd MKD.
ICT Capabilities
1. Application and Solutions Delivery
2. Implementation
3. Operations and Services
4. Project/portfolio Management
5. Manage Technical Resources
6. Manage Business Demand of ICT
7. Integration
8. Develop Architecture/Standards
9. Manage of Relationships
10. Manage the ICT Market
11. ICT Planning and Strategy
12. Manage ICT Financial Resources
13. ICT R&D and Innovation
14. ICT Organizational Development
15. Manage Human ICT Resources

ICT Capability Maturity

High
High
Moderate to Low
Moderate
Moderate
Moderate
Moderate
Low
Moderate
Low
Moderate
Low
Low
Low
Low

The integrated insurance information system itself is a quality one, and possibilities of
its development as Insurance Ltd MKD grows and develops are wide. Insurance Ltd
MKD staff is familiar with the information system, and finds it helpful in their day-to-day
operations. Weakness of the information system is that Computing Ltd owns the
copyright, and it has the right to sell it and it did sale it to several insurance companies in
MK.
There are two possible negative consequences for Insurance Ltd MKD that could
result form the sale.
First one is that the information system is sold to insurance companies that compete on
the same market (Republic of Macedonia). This may cause Insurance Ltd MKD to loose
its competitive advantage, and other companies to gain it by using the information system.
On the other hand, the system is custom made, especially for the company with
experienced, but open-minded professionals, so that competing insurance companies which
introduce the system, will need some time to learn to use its features with full capacity.
Eventually, if Insurance Ltd MKD doesnt develop the system, the position may change
in favor of these competitors.
Another drawback of the main information system is that is developed in older
technology that is not very suitable for remote data processing (simply said, it is slow), and
appears to be an obstacle for spreading the Insurance Ltd MKD in several branches
throughout the country. The most efficient solution to this problem is a gradual migration
of the application to a Web application, with retention of the existing database structure
and data. This means that for the classes of insurance that have large number of clients and
policies the information system has to migrate to Web technologies first. Large industrial
property insurance, for example, that do not require a short response time, which are
among the most complicated for processing and would cost the most to migrate, may
remain in the old technology.

Second negative consequence, which is, at the same time, a source of risk in strategic
partnership with Computing Ltd, is the possibility to close the operations or even go
bankrupt, although it has been on the market already 20 years. An effective solution to this
problem would be to deposit the source code of an information system to a notary.
Other applications that are purchased from Computing Ltd or other software
companies are not essential for the operation and their impact on strategic advantage of
Insurance Ltd MKD is minor. In any case, the delivery of applications and solutions for
other applications so far went according to plan, with no major problems.
General assessment of IT capabilities of Insurance Ltd MKD with respect to
applications and solutions delivery is that the capability is high.
2. Implementation The capability for implementation of new software is generally
high. Applications are created on the user friendly way and the versioning is automatic,
getting a new version of software is on one click. On the other hand, all new employees are
trained as they are employed, including the use of software applications in the company.
Cooperation and mutual assistance among employees is high, and the introduction of new
applications and their implementation is conducted without major problems.
3. Operations and services general assessment of the operations and services ICT
capability in Insurance Ltd MKD is medium with periodic shifts to low. Historically, the
company started with 10 employees, with no branch offices outside the headquarters and
10 desktop PCs in 2002-2003, and with one person in charge of ICT function. In 2008, at
the time this strategy was written, the company had about 70 employees, 16 branch offices
besides the headquarters and about 100 user PCs, but only two employees in ICT
department. During all that period, total spending in ICT was kept relatively constant and
well below the industry average, which is between 4 and 5% of the gross premium of the
company, as shown in Figure 4.
Figure 4 Financial analysis on ICT spending
Year

Total ICT Maintenance

spendings

2005
2006
2007

718 478
1 719 884
2 126 239

620 499
1 657 998
1 999 216

Investments
in ICT

Gross
Premium

97 976
61 885
127 023

336 000 000

403 500 000
525 500 000

Investments in
ICT/Gross
Premium
0,2%
0,4%
0,4%

As in the case with software services, the company decided to outsource hardware and
networking services. It made a choice of a company, Computing Two Ltd, and it became
Insurance Ltd MKD subcontractor for ICT services but application software. Here, with
the hardware and services, as well as in software, the weakness of complete outsourcing
repeats, that means that the quality of service is directly dependent on the capabilities of
employees in the outsourcing company. When the staff of the Computing Two Ltd
reduces, problems with the large response time in administering the database and the server
arose.
Second negative issue for the insurance company in choosing Computing Two Ltd as
a partner in hardware and system support is that it is based in Skopje only and has no
branch offices across Macedonia. They have only one company vehicle and a modest
number of employees in the hardware and system support section, so the quality of support
is inevitably low.
Third issue is that Computing Two Ltd has no experience in creating and supporting
an enterprise which has branches throughout Macedonia and that need to work on-line at
full capacity and reliability. At this stage of development Insurance Ltd MKD needs a

strategic partner who has experience as a systems integrator in banks or insurance

companies, and which may transfer best practices from the operations of other enterprises
to Insurance Ltd MKD.
4. Project/portfolio Management - moderate level of maturity. The fact that Insurance
Ltd MKD company is young, that it uses its own custom made integrated insurance
information system from the very beginning, and has no legacy systems, simplifies the
situation [6] and does not require a high level of skills management portfolio and projects.
5. Manage Technical Resources the same analysis applies from the previous section.
6. Manage Business Demand of IT moderate. Business requirements are delivered in
the ICT department, smaller and less requiring in terms of resources are implemented
immediately, and major ones are presented and discussed at the Board of directors and
accessed to deliver with the approval of the Executive Director. A steering group is not
established or any formal body in charge of the priorities that will be awarded on ICT
projects and resources.
7. Integration moderate level. In terms of geographical spread, enterprise integration
of LAN and WAN networks and the communications in general becomes a thorny issue
that has been addressed incidentally. This issue became a turning point in the ICT domain
in this stage of development of Insurance Ltd MKD. The current solution of the
telecommunications and the WAN was applied at the end of 2005, when the company
opened the first branch office. The intention of introducing interim solution was to allow
branch offices to access the headquarters by acceptable cost, because of a modest
workload. Also, because of the small workload of the new branch offices, lower speeds of
WAN connections were rented. The plan was to introduce professional and stable WAN
solution when the branch offices will become developed enough. Meanwhile, the number
of branches increased from 3 in 2005-2006 to 17 in 2008, which stress the network and
slowed down the larger branch offices in their work and the situation demanded a better
solution. Attempt to resolve the situation with a free VPN service that was installed in all
branch offices starting in September 2007 was a success, until the number of branch offices
grew drastically and that solution proved not to be stable and fast enough to support the
growth of the company.
At this stage of development Insurance Ltd MKD needs a strategic partner who has
experience as a systems integrator in banks or insurance companies, and which may
transfer best practices from the operations of other enterprises to Insurance Ltd MKD.
First contacts with the company Computing Three Ltd are realized, and it has a reference
list with a number of banks not only the country but in the region, and has a specialized
department for system integration.
8. Develop Architecture/Standards Low. Market experience shows, in terms of the
correlation between market share and standardization of the work in insurance companies
is not positive, but it has negative correlation. For these reasons, there is lack of support
from the top management to introduce the ISO, ISMS or other formal standards.
9. Manage of Relationships Moderate. The relations with the outsourcing companies
are on continuous basis, but the quality varies depending on the quality of the job done,
that is on the quality of the current staff in the outsourcing company.
10. Manage the ICT Market Low. Amounts on cost reducing management.
11. ICT Planning and Strategy Moderate. Plans that take place in the company are
financial ones, and this is a first effort for written ICT strategy, probably the first one in the
industry in the country.
12. Manage ICT Financial Resources Low. Lack of the top management support for
ICT.

13. ICT R&D and Innovation Low. Companies from the financial industry usually
work on the safe side, and do not prefer innovations, especially not ICT innovations.
14. ICT Organizational Development Low. Because of the lack of the support of the
top management, ICT is not counted as a part of the core business, but as a supporting
service. That is why it cannot serve as catalyst of an organizational development.
15. Manage Human ICT Resources - Low. There is no political will of the top
management to employ more ICT specialists, and the company cannot influence
outsourcing companies in their staff selection process.
According to the analysis of the level of ICT capability maturity and the role of ICT in
Insurance Ltd MKD, the conclusion states that the role of ICT is between levels 2 and 3,
that is between integrate value chain and change business process. The level of capability
maturity is between 1 and 2, respectively, which is technical capability and enterprise
support. This shows that in the recent past the role of ICT has come to change as a result of
the development of the company and as a result of the business strategy shift. As a result of
the changing role of ICT, a discrepancy between the ICT role in the company and level of
capability maturity appeared. Solution for this discrepancy is to raise the level of maturity
of IT skills. Proposed ICT strategy for Insurance Ltd MKD is to strengthen enterprise
integration strategy, which takes part in some ICT areas, but not comprehensive enough in
other ICT areas.
The ICT strategy document for Insurance Ltd MKD continues with practical
recommendations as to how the implementation of the enterprise integration strategy
should be conducted, such as to change system integration outsourcing partner, with the
specification of requirements that a new partner should fulfill in order to strengthen
operations and services capability and integration capability; how to rise the level of
telecommunication services in the company; to audit the network and the configuration of
network servers to optimize their work and adapt to distributed access from multiple
remote branch offices; to introduce a new database server taking into account cost/benefit
analysis and the price of RAM, which is necessary to supplement the existing server; to
purchase new anti-virus software that will make tighter control of viruses and other
malicious software and increase network reliability and reduce the need for interventions
on computers in branch offices in order to strengthen management of technical resources
capability; to deposit the source code of integrated insurance information system from
Computing Ltd to a notary in order to strengthen development of architecture/standards
capability; to develop written procedures for the main ICT processes in order to develop
architecture/standards capability; to initiate establishment of a steering committee in order
to improve management of business demand of ICT; and other technical recommendations
that exceed the interest of this paper. After fulfilling previous tasks, project/portfolio
capability and management of relationships capability will become more mature as a result
of the actions taken in other ICT areas.
4.

Conclusion

There is no one or a few widely accepted ways of development of an ICT strategy, in

theory and in practice. Our opinion is that Adams, Xia, and Ball method should be a
method of choice of one ICT manager in developing an ICT strategy of a company. This
paper presents a case of developing an ICT strategy for an insurance company in
Macedonia. This case study is meant to help ICT practitioners to translate general, abstract

method descriptions into specific, tangible, day-to-day ICT issues, during the process of
development of ICT strategy in a company.
Of course, the development of high quality ICT strategy is just a prerequisite of the final
goal its successful implementation, and becoming important factor in achieving the
business goals of the company.
5.

References

1. Adams Carl R, Xia Weidong and Ball Nicholas L., IS/IT Strategy: Concepts,
Frameworks and Case Observations, Proc. SIGLead Conference 2004, Athens, Georgia,
USA, 2004.
2. Henderson John C. and Venkatraman N., Strategic alignment: Leveraging information
technology for transforming organisations, IBM Systems Journal, 32(1), 1993.
3. Hayes, R. H. and Wheelwright, S. C. (1979). Link manufacturing process and product
life cycles.Harvard business review, 57(1), 133.
4. Rapp William V., Information Technology Strategies: How Leading Firms Use IT To
Gain An Advantage, Oxford University Press, New York, 2002.
5. Earl Michael J., Information systems strategy formulation, in R.J. Boland and R.A.
Hirschheim, eds, Critical Issues in Information Systems Research, John Wiley & Sons,
Chichester, UK, 1987.
6. Ward John and Peppard Joe, Strategic planning for information systems, John Wiley &
Sons Ltd, Hoboken, 2006.