Developing a Performance Assessment Framework for New e-Business Projects

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Developing a Performance Assessment Framework for New e-Business Projects

By Coen Crijns

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Mind Your Own e-Business!

Developing a Performance Assessment Framework for New e-Business Projects

Author: C.F. Crijns Student Number: 1226894

Faculty of Management and Organization University of Groningen:

First Supervisor: dr. W. Westerman Second Supervisor: mr. drs. H.A. Ritsema ING Insurance Asia /Pacific:

Coach: drs. D. Garceran Nieuwenburg Groningen/ Hong Kong, March 2006

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Preface

“Yearly 9000 billion emails are sent worldwide. That means that on average every person in the world sends 1500 emails yearly. However, over half of the global population has never made a telephone call in their life.”

Dr ir. Guus GM Pijpers MBA, Managing Director ePortals

During the last decade, electronic business, or e-Business, has made huge developments.

Email has become an unmissable communication tool for businesses to speed up their information flows. Through our mobile phones emails can be received and websites can be accessed. Almost every organization has a website, many large organizations have an intranet, and some organizations’ existences solely rely on the emergence of the internet.

New e-Business initiatives are launched every day ranging from advertising on the internet to installing search engines for intranets. The variety of electronic business initiatives is endless, but the outcomes and probabilities of success of these initiatives are often uncertain. Therefore, this research focuses on developing a performance assessment framework for new e-Business projects.

Several aspects of this research will be based on my findings as an intern at the e- Business Department of ING Insurance Asia/Pacific. For my research I was not only restricted to Asia/Pacific, but I also had the ability to collaborate with ING members globally through the Global e-Insurance Platform and the Global Insurance Conference in Hartford, U.S.A.. I would specially like to thank my coach within ING Insurance Asia/Pacific, David Garceran Nieuwenburg, and the rest of the e-Business department for the opportunities they provided to me, and for their support during my internship. Also, I would like to thank my supervisors of the University of Groningen, dr. W. Westerman and mr. dr. H.A. Ritsema, for their guidance. Finally, I would like to thank my parents, sisters, and friends.

Coen Crijns March 30, 2006

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Executive Summary

This research was conducted by order of the ING Insurance Asia/Pacific Regional Office in Hong Kong. The main input for this research was generated through information exchanges with e-Business employees of ING Insurance Europe, ING Insurance Americas, and Insurance Asia/Pacific. Significant relationships were developed with a number of these employees during the Global e-Insurance Conference in Hartford, USA, 2005.

Reasons for Research

Up till recently, the outcomes of e-Business initiatives were often uncertain and difficult to compare with the outcomes of other projects in ING Insurance. To reduce this uncertainty, an online template needed to be developed which would had to be used by Business Units within ING when applying for budgets for e-Business projects, and which would be indicative for management to compare future performances of e-Business projects competing for the same resources as any other new project within ING Insurance.

In this research paper, a framework for assessing new e-Business projects in ING Insurance was designed, and the designed framework was applied to a specific e- Business project, ING Wiki, which resulted in a modified framework for assessing new e-Business projects.

Designing an Assessment Framework for New E-Business Projects within ING Insurance Asia/Pacific

In the designed framework for assessing new e-Business projects, the strategy of the e- Business department sets the scope of e-Business project performance. A first tool, Tool 1: e-Business Financial and non-Financial Measures Template, was created to aid in constructing direct financial and non-financial measures. As many e-Business projects will also have intangible benefits, a second tool, Tool 2: List of Intangible Benefits of e- Business Projects, was created to identify these intangible benefits. Opportunity savings and opportunity costs are derived form intangible benefits and non-financial measures.

These opportunity savings and costs are then included, together with direct investments, sales revenues and operational costs, in the calculation of net cash flows. These cash flows are discounted according to the twelve percent discount rate nominally used to discount project within ING Insurance. A last tool, Tool 3: Risk Checklist, was created to incorporate uncertainties in the assessment of a new e-Business projects.

Applying the Designed Framework to a New e-Business Project

The designed framework was applied to ING Wiki, an e-Business initiative for which a business case needed to be constructed. Three scenarios were created, and the Net Present Value of ING Wiki is: €708,733 in the Pessimistic scenario; €3,936,847in the Expected scenario; and €8,463,219 in the Optimistic scenario.

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Modifications

After the framework had been applied to ING Wiki, the most significant modifications were made to the designed framework included:

- Like the financial measures, estimates for non-financial measures were revised in the original version of Tool 1 to include estimates for multiple years (i.e. after one, two three, four years and an extra year);

- In Tool 1, the Financial Overview worksheet was modified to include opportunity savings and opportunity costs;

- The net present value of a page visit is an important performance measure for management, and therefore included the Present Value of Pages worksheet in Tool 1.

- Net Present Values of an e-Business project need to be constructed in different scenarios, and as such in the revised framework three scenarios need to be created by a project team.

Limitations

The limitations of the framework for assessing new e-Business projects are:

- The framework is not a standardized online template, as was originally an aspect of the goal of this research;

- Project team members still have to conduct some qualitative research themselves;

- The number of risks in the risk checklist is relatively small, and the classifications of risk scores are not yet integrated with probabilities of outcomes.

Recommendations and Further Research Recommendations and further research include:

- In ING Insurance, more quantitative data, derived from intangibles that e- Business projects generate, should be gathered, and the data findings should be centrally stored;

- The risk checklist should include more risk scores, and the outcomes of risk checklist scores should be incorporated in estimating probabilities of possible outcomes of an e-Business project;

- The tools created in this research should be further integrated into a single template.

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(Source: ING Wiki Statistics) ...63 Table 6: Excerpt form Tool 2, the Relevant Intangible Benefits of ING Wiki Identified by Project Team Members...64 Table 7: Constant Quantities for the Pessimistic, Expected and Optimistic Scenario ...67 Table 8: Excerpt from the Worksheet Equipping, Increasing Performance of, and/or Retaining Employees and/or Agents Constructed in Tool 1 (Appendix 13)...70 Table 9: Net Cash Flows and Discounted Cash Flows in the Pessimistic Scenario in the Pessimistic Scenario (Appendix 13)...71 Table 10: Excerpt from the Worksheet Present Value of Pages and Visits in the

Pessimistic Scenario Constructed in Tool 1 (Appendix 13). ...72 Table 11: Excerpt from the Worksheet Equipping, Increasing Performance of, and/or Retaining Employees and/or Agents from the Expected Scenario Constructed in Tool 1 (Appendix 14). ...73 Table 12: Net Cash Flows and Discounted Cash Flows in the Expected Scenario

(Appendix 14). ...74 Table 13: Excerpt from the Worksheet Present Value of Pages and Visits in the Expected Scenario Constructed in Tool 1 (Appendix 14). ...75 Table 14: Excerpt from the Worksheet Equipping, Increasing Performance of, and/o r Retaining Employees and/or Agents from the Optimistic Scenario Constructed in Tool 1 (Appendix 15). ...76 Table 15: Net Cash Flows and Discounted Cash flows in the Optimistic Scenario

(Appendix 15). ...77 Table 16: Excerpt from the Worksheet Present Value of Pages and Visits in the

Optimistic Scenario Constructed in Tool 1 (Appendix 15)...78 Table 17: Tool 3 Applied to the ING Wiki Project ...80

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Chapter 1 Research Context

Introduction

In this chapter, the context of this research project will be described. First of all, a general overview of the ING Group will be given. Thereafter, ING Insurance Asia/Pacific, and the e-Business department of ING Insurance Asia/Pacific will be discussed. Finally, the Global e-Insurance Project will be highlighted because it was relevant for the research context.

1.1 ING Group

The Internationale Nederlanden Groep was founded in 1991 when Holland’s largest insurer, Nationale-Nederlanden, merged with Holland’s third largest bank, the NMB Postbank Group. Because the market abbreviated the name to I-N-G, the company followed suit and changed her statutory name to ING Groep N.V. (hereafter also referred to as ING). After the merger, ING became one of the world’s first integrated financial service providers in the world. Currently, ING operates in more than 50 countries with more than 113,000 employees¹.

ING seeks to provide a wide range of financial services to private, institutional, and corporate clients through a variety of distribution channels. ING’s strategy is focused on execution and growth. Execution stands for implementing plans and operational excellence. It has several components: managing for value, customer satisfaction, managing costs, managing risks, and a performance culture. The second component of ING’s strategy is growth. ING aims to keep investing in future growth and aims to keep expanding in mature markets at a steady pace through cost efficiency and customer satisfaction. ING has identified three growth areas: retirement services, direct banking, and developing markets.

In 2004, ING introduced a new structure of six business lines, namely Insurance Europe, Insurance Americas, Insurance Asia/Pacific, Wholesale Banking, Retail Banking, and ING Direct.

From here on, the three business lines ING Insurance Europe, ING Insurance Americas, and ING Insurance Asia/Pacific altogether will be referred to as ING Insurance.

1www.ing.com

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Figure 1: The Six Business Lines of ING Group

1.2 Insurance Asia/Pacific

The ING Insurance Asia/Pacific business line holds the insurance operations and asset/wealth management activities in Asia/Pacific. It has well established positions in Australia, Hong Kong, Japan, Malaysia, and Taiwan. The activities in India, China and Thailand are future growth engines for ING².

Figure 2: ING Insurance Activities in Asia/Pacific (Source:)

There is a distinction between the ING Insurance Asia/Pacific Regional Office and the ING Business Units within Asia/Pacific. The ING Business Units are the headquarters of the ING offices in a specific country. The role of the ING Insurance Asia/Pacific Regional Office (from here on also referred to as Regional Office) is to “Lead, Control, and Support”³the ING Business Units within the Asia/Pacific region.

2ING Insurance Annual Report 2004, 2004; p. 3.

3CEO of ING Insurance Asia/Pacific, Presentation “Towards Performance Excellence”, 2003.

Insurance Europe

Insurance Americas

Insurance Asia/

Pacific

Wholesale Banking

Retail Banking

ING Direct ING Group

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Lead is the Regional Office process of defining the market focus and growth options for the different Business Units. This is a process done by Regional Office management in consultation with Business Unit management. Lead is also the process of allocating resources to the Business Units.

Support is the Regional Office process of deploying new activities or processes for business functions (such as Marketing, Finance and Human Resources) within Business Units. Support also consists of exchanging knowledge, such as ‘best practices’, throughout Business Units.

Control is the Regional Office Process of monitoring the performance of Business Units.

Control furthermore focuses on compliance monitoring which is concerned with, for example, regulation issues, and maintaining adequate ethical standards.

1.2.1 Products, Channels and Processes of Business Units within ING Insurance Asia/Pacific

In this section, the products that are sold in local markets by Business Units of ING Insurance in the Asia/Pacific region will be explained. Also, the channels through which these products are sold will be highlighted, and, finally the main operational processes will be outlined.

1.2.1.1 Products

The products business units provide to its customers in the local markets in Asia and the Pacific region may vary, depending on the local situation. Also, the channels and processes through which insurances are sold may differ in each Business Unit’s market.

Generally speaking, the product categories offered include life insurances (such as participating whole life, health, critical illness, endowment etc.), pension plans, general insurances (such as fire, marine, motor etc.), and financial planning (which is supplying platform/business management services to the independent advisers sector).

However, pension plans and financial planning will not be within the scope of this research field. Therefore, only the life insurances and general insurances are the relevant product groups for this research. From here on these two product groups will also be referred to as insurances or insurance.

1.2.1.2 Channels

Insurances are generally sold through the following channels: insurance agents, brokers, call centers, mail, and internet websites, but also through financial institutions, such as banks. These channels not only have a function in selling products, but also in servicing them to policy owners. Policy owners are the consumers that pay a (monthly, quarterly, yearly) fee in order to be insured for the occurrence of certain events.

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Agents: Most agents work out of field offices and are referred to collectively as the company’s field force. Other agents work out of personal offices located in or close to their homes, called detached agents (Huggins et al, 1996, p.115). The agents are the closest contact with personal purchaser of insurances. The functions of the agent fall into three categories: producing new insurance business, conserving existing business, and providing service to policy owners.

Brokers: A broker is an agent who sells insurance for more than one insurance company (Huggins et al, 1996, p. 517). In some cases, ING allows its part-time agents to conduct broker business. The functions of a broker are similar to those of an ordinary agent.

Mail: For some products, customers receive product offerings via mail. Customers can apply for products by sending the filled in application forms to ING.

Call centers (telemarketing): Some insurance are directly offered through calls centers.

However, the call centers mainly have a service function as center where customers can file complaints, ask questions about policies, report address changes, and make appointments with agents. The selling of insurance has low priority for call centers.

Internet: Some, not all, insurances are sold online. These are mainly standard (not personalized) insurances for which customers pay a fixed premium, and these insurance policies do not require underwriting. For example, travel insurances are sold online. For more complex insurances, like life insurances, only parts of the process of buying an insurance product are available online. For example, a person can fill out the application for the product, and then an agent will schedule a face-to-face meeting with this person to discuss the premiums and terms of the insurance product

Financial institutions: Many insurance products are sold through bank channels. Banks offer insurance products complementary to their financial products in a form of cross- selling, also known as bancassurance.

1.2.1.3 Business Processes

Within the Business Units of ING Insurance, the four main operational processes of selling and servicing insurance include: managing new business and underwriting, policy owner services, claims processing, and managing call center services.

Managing new business and underwriting: Managing new business is managing the process chain of selling insurance policies to (new) customers.

After a customer has applied for an insurance policy through one of the above mentioned channels, the application form is sent to the underwriting department of ING. The underwriting department then assesses the risk of the customer.

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During the underwriting process several factors are taken into account, for example: an applicant’s age, weight, physical condition, personal and family history, occupation, financial resources, and such alike. Taking these factors into account, the underwriting department then decides whether or not to offer an insurance policy to the applicant, and decides what the monthly rate will be for the applicant. These rates are pre-calculated by the actuarial department and vary (again, depending on the factors mentioned above). If the applicant decides to take the offer, he will receive a policy contract (which contains type of insurance, payment details, constraints etcetera), he becomes a policy owner, and he is insured for certain events.

Policy owner services: The policy owner service center offer new policies to existing policy owners. Also, the policy owner service center can make changes to a policy owner’s policy, or cancel policies. Basically, if a policy owner wants to change something in his insurance portfolio he calls the policy owner service center. If a policy owner has a question, he must call the call center.

Claims processing: Claims that are filed by policy owners or beneficiaries (for example, in case of death) are assessed and investigated in this process. First, when a policy owner files a claim, the claims processing department checks whether the claim is covered by the type of insurance. If not, the claim is denied. If there is a match, the claim is sent to the underwriting department which will check whether a policy has lapsed or surrendered.

A lapse occurs when not all policy payments have been made by the policy owner, but the policy is still valid (and consequently the policy owner still has to make the remaining policy payments first before he can receive payments of the claim). A lapse only occurs if the policy owner has not made policy payments within an acceptable period. If the policy owner has not made policy payments for a long time (and unacceptable to be accounted for as lapse), the policy becomes invalid, or surrendered. After this check, the actuarial department studies whether the policy offered and the size of the claim coincide with estimations made earlier when offering the policy. Then, if the claim is approved by underwriting, the policy owner receives payment.

Managing call center services: The call centers are information sources for agents, customers, and non-customers. The call center agents reply to questions on policies, payment methods, filing of claims, coverage, and such. The call center agents mostly work on a ‘read only basis’ which means that they cannot make any major changes in policies, or cancel policies, or file claims. Sometimes, call center agents sell simple general insurances through telemarketing.

1.2.2 Business Functions at ING Insurance Asia/Pacific: Towards Performance Excellence

Rather than positioning them in an organizational chart, business functions within Insurance Asia/Pacific Regional Office are aligned according to a strategic framework, called Towards Performance Excellence (TPE), as shown in Figure 1.

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The mission and strategy of ING Insurance Asia/Pacific is “to be the customer’s preferred choice, delivering financial prosperity and security through Performance Excellence.”⁴

The mission and strategy are the basis for the six drivers of Performance Excellence (in Figure 3 displayed inside the circle), namely Portfolio Excellence, Marketing Excellence, Organizational Excellence, Operational Excellence, Reputation Excellence, and Financial Excellence. These six drivers are known as level one drivers, and within these level one drivers central themes and business functions are grouped. These themes and business functions are called level two drivers. All level two drivers are shown in Figure 4.

Figure 3: Towards Performance Excellence (Source: Internal Memo ING Insurance Asia/Pacific “Towards Performance Excellence”, 2004).

Each level two driver has its own goals and measures, and eventually these should all contribute to achieve Performance Excellence. Jacques Kemp, CEO of ING Insurance Asia Pacific notes: “The idea of Towards Performance Excellence (TPE) is that employees can say: ‘this is my ‘living organization’, these are the components of it, and this is how we get to our goals and how I fit in.’ ”⁵

4CEO of ING Insurance Asia/Pacific, Internal Memo “Towards Performance Excellence”, 2004.

5CEO of ING Insurance Asia/Pacific, Internal Memo “Towards Performance Excellence”, 2004.

Mission and Strategy

Marketing Excellence

Portfolio Excellence

Operational Excellence

Organisational Excellence

Financial Excellence

Reputation Excellence

Performance Excellence

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Figure 4: The Six Drivers of Performance Excellence and Level Two Drivers (Source: Internal Presentation,

“Towards Performance Excellence”, 2004)

The impact of TPE is that it comprises all management layers of the organization and all functional columns so that employees adopt the same approach, and share the same objectives and measures in an integrated and simple manner. All level two drivers are accessible through the intranet via the six level one drivers, and so knowledge is easily shared. TPE also allows everyone to take a ‘bird’s eye’ view of what is taking place in other parts of the organization, so that one can see how their activities fit into the greater whole and how other parts of the organization are working. For example, on the intranet, clicking on ‘Operational Excellence’, and then clicking on ‘e-Business’ will lead users to the e-Business page (as shown in Appendix 1).

1.2.3 Business Functions Involved in Each of the Six Drivers and Performance

In the Table 1, the business functions of ING Asia/Pacific Regional Office are grouped with each of the six drivers of performance. This shows how each business function relates to the level one drivers of Performance Excellence.

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Areas of Excellence Business Function

Portfolio: General Management

Marketing: Marketing

Organisational: Human Resources

Operational: e-Business

Operations IT

Operational Risk Management

Reputational: Corporate Communications

Legal Compliance

Financial: Finance

Actuarial

Investment Management

Table 1: Business Functions Involved With Areas Of Excellence

1.2.4 Operational Excellence

Operational Excellence includes activities that aim at helping business processes and procedures to be executed more effectively and efficiently to strive for continuous improvement. Operational Excellence includes creating an adequate IT infrastructure, creating business opportunities on the IT infrastructure, and improving operational processes such as underwriting, policy owner services, claims handling, and so on.

Operational Excellence also includes activities that support decision making on costs levels, services levels, and the levels of acceptable risk.

1.2.5 E-Business Department ING Insurance Asia/Pacific

This research was conducted at the e-Business Department of ING Insurance Asia/Pacific.

In Towards Performance Excellence, e-Business, a level two driver, is positioned within Operational Excellence (see Figure 3, Figure 4 and Table 1). As ING is recognized as one of largest global financial service companies, the strategy of the e-Business department is

“to generate additional shareholder value through the use of internet and other digital technology in ways that will foster new and powerful relationships with customers, employees, and partners”⁶.

The objectives of the e-Business department are to:

• Position ING as a recognized e-Leader in key markets;

• Increase satisfaction and retention of customers, agents, employees, and partners;

• Achieve lower cost per transaction;

• Increase revenue per customer.

6Internal Presentation, “E-Business Strategy”, 2005

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1.2.6 Global e-Insurance Platform

The Global e-Insurance Platform is a global ING community that uses the intranet through which members of ING Insurance can communicate and share documents. It contains a list of e-Business department members in different regions, best practices, information on projects currently running, and pilot proposals.

Good e-business ideas can be rewarded because each quarter pilot proposals can be posted on the intranet site⁷. Members of e-Business departments can then vote for their favorite proposal. Eventually, the top three proposals will receive funding.

In 2005, the global e-Insurance chair is in Hong Kong with ING Insurance Asia/Pacific.

Every year a different country or region is the chair of the project. Being chair makes the e-Business department of Asia/Pacific also responsible for conducting innovative research in e-Business fields, and to share these findings with other e-Business departments worldwide. Thus, this research project is in this context, and it is consequently shared with e-Business departments within ING Insurance around the globe.

1.3 Reasons for Research

Since 2002, through the Global e-Insurance Project, various business units of ING Insurance share their views and try to get greater knowledge of financial calculations for new e-Business specific projects worldwide. Examples of e-Business projects include the implementation of a new intranet portal, or the launch of a new insurance product on the internet (See Appendix 4 for a more complete list of different e-Business Projects within ING Insurance).

In the past, many new e-Business project proposals did not receive the necessary funding by budgeting committees. One of the reasons concerns the difficulty new e-Business projects have in competing with other projects for necessary funding. E-Business projects contain many qualitative aspects that are difficult to measure in financial terms. How, for example, can an improved email system easily be stated in quantitative cost savings?

Also, at ING Insurance different e-Business project plans are presented to management in different formats. Therefore, the e-Business projects are difficult to compare with each other.

Furthermore, the outcomes of e-Business projects are often uncertain to management. If e-Business projects are funded, this is often backed up by instinctual reasoning that the outcomes may be successful. “There is still an air of uncertainty surrounding the estimation of e-Business project success⁸”.

Even though a range of parameters have already been identified by the Global e- Insurance Project, there is no format yet that can be filled in by business units applying

7http://www.asia.intranet/sites/Global%20e-Insurance/default.aspx

8Head of e-Business ING Insurance Asia/Pacific

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for budgets. Thus, the development of a standardized template will have to make it easier and more transparent for top management to compare projects.

1.4 Problem Definition

The problem areas stated in the introduction above were thus the basis for the problem definition. The problem definition consists of three components (De Leeuw, 2002, p.85) :

• The research goal

• The research question

• The essential requisites The research goal reads as follows:

“To develop an online template that will have to be used by Business Units within ING Insurance when applying for budgets for new e-Business projects, and which is indicative for management to compare future performances of e-Business projects competing for the same resources as any other new project within ING Insurance.”

The research question is:

“How can a framework look like to assess future performances of new e-Business projects within ING Insurance?”

The research question can be divided into different sub questions:

1. Which existing performance assessment frameworks can be applied to assess performances of e-Business projects?

2. How can a new framework be developed for e-Business projects within an insurance company?

3. How can the framework be tested, and what are the results?

4. Which modifications are needed after the framework is tested?

1.5 Methodology

This paragraph discusses some technical aspects of this research. The planning of this research, the essential requisites, the type of research, and the research methods will be outlined.

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1.5.1 Research Planning

28-09-’05 till 01-10-’05: sub question 1 01-10-‘05 till 15-11-’05: sub question 2 15-11-‘05 till 15-01-’06: sub question 3 15-01-’06 till 28-02-’06: sub question 4

In Figure 5 the research outline is shown. The first sub question will be addressed in Chapter Two in which the theoretical context of the research problem is described.

Figure 5: Research Outline 2. Theoretical Context

3. Designing a Performance Assessment Framework for New E- Business Projects within ING Insurance Asia/Pacific 2.1 Defining e-Business

Projects

2.3-2.4 The Balanced Scorecard

3.1 Strategy as the Starting Point

for Performance Measurement 4.2 Applying the Performance Measurement Framework for e- Business Projects on ING Wiki 2.5 The Generic e-

Business Balanced

Scorecard 3.2 Tool 1: e-Business Financial

and Non-Financial Measures Template

2.6 Beyond a Scorecard:

Giving Value to Non- Financial Measures and

Intangibles 3.3 Tool 2: List of Intangible Benefits of e-Business Projects

3.4 Methods to Translate Non- Financial Measures and Intangible Benefits into Monetary Values

3.6 Tool 3: Risk Checklist 3.5 Generating Net Cash Flows and the Net Present Value

4.3 Modifications to the Framework

5. Conclusions, Recommendations and Further Research

4.3 Introduction to ING Wiki 4. Case: Assessing the Performance of an e-Business project

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Sub question two will be addressed in Chapter Three where a framework for assessing the performances of new e-Business projects will be developed. This framework includes tools that eventually should help project teams to calculate the Net Present Value (NPV) of an e-Business project, and help them assess the possible risks of an e-Business project.

The last two sub questions will be discussed in Chapter Four when the designed framework will be applied to a new e-Business project, ING Wiki. The framework will form the guide to construct the Net Present Values of ING Wiki. Several modifications may have to be made to the designed framework after it has been applied to ING Wiki.

Finally, recommendations and suggestions for further research will be part of Chapter Five.

1.5.2 Essential Requisites

The essential requisites relate to constraints regarding the methods of research and to constraints regarding the feasibility of research (De Leeuw, 2001, p. 90). The essential requisites can be segmented into requisites regarding the results, namely product, and requisites regarding process.

Product

• The developed framework will have to be usable for e-Business employees who have some, but not extensive financial knowledge, to create stronger business cases for new e-Business projects in ING Insurance.

• The applicability of the framework is restricted to e-Business projects related to insurance processes and products.

Process

• The field research for the research project will take place from August 28, 2005 till March 1, 2006.

• The research area will be restricted to e-Business related projects within ING Insurance.

• The research shall be under supervision of the regional Head of the e-Business Department of ING Insurance Asia/Pacific.

• The method of research and research paper will have to be approved by the first and second internship supervisor in order for the researcher to graduate in the Master of Science ‘Financial Value Management’ at the Faculty of Management and Organization of the University of Groningen.

1.5.3 Type of Research

The type of research conducted at ING can be categorized as policy supporting research, which consists of delivering concrete knowledge which is usable in a specific situation for (a) definable customer(s) and satisfies a part of greater knowledge needs (De Leeuw, 2001, p. 90). Since the eventual product to be designed for ING Insurance has to meet a set of detailed specifications, the research is of policy supporting nature. Specifically, the

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outcome of the research will have to lead to the development of an online template that serves as a tool for Business Units applying for budgets, and as a tool to support management when evaluating applications for budgets.

Furthermore, my research can be distinguished as explorative research since the outcomes of my research are formed through the shaping of ideas (De Leeuw, 2002). The outcomes of my research will give an interpretation to an open research question which simply cannot be answered with a ‘yes’ or a ‘no’.

1.5.4 Research Methods

Below the research methods through which data will be gathered for this research are summarized. The research methods include desk research, online surveys, workshops, interviews, and observations.

1.5.4.1 Desk Research

Via desk research a researcher uses documents (De Leeuw, 2002, p.184) to find information. The documents that will be used for this research include scientific books and articles form the (online) library of the University of Groningen. Furthermore, the online ING archive is an import resource containing historical memos, press releases and presentations.

1.5.4.2 Online Surveys

Through surveys data can be gathered on identifying relevant performance measures to assess e-Business projects. Also, this method will be used to gather quantitative input for cash flow and Net Present Value calculations for the ING Wiki project. As ING Wiki focuses on increased knowledge sharing and shortening of information search times, quantitative data on average employee search times can be gathered by surveying ING employees. Initially, this survey on information needs (Appendix 11) was created in Microsoft Word, but later converted to Microsoft SharePoint because SharePoint automatically processes the results of a survey, and the format of the survey in SharePoint becomes more user friendly (better ‘look and feel’).

The research project website, which employees throughout ING Insurance, will be able to access through the global e-Insurance site or the Asia/Pacific site, also serves as a feedback channel. The survey results are posted on the website for this research (Appendix 1). Employees of ING Insurance have access to this site⁹through the intranet, and therefore able to stay up-to-date with the latest research findings. Visitors are encouraged to leave feedback on the latest uploaded documents.

9http://www.asia.intranet/sites/INGSites/eBusiness/Coen_proj/default.aspx

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1.5.4.3 Workshops

Although workshops are not regarded as a pure scientific method for data collection, it can be a fruitful activity to unleash opinions that arouse because of a group activity. The first workshop will be conducted for the e-Business department members to receive feedback on the performance measures that I had identified so far for different areas.

Furthermore, through a brainstorm session, different performance measures can be identified for each category of e-Business projects.

During the Global e-Insurance Conference in Hartford, Connecticut, USA, from 29 November till 1 December 2005, the latest findings will be presented to employees from e-Business departments throughout ING Insurance worldwide. Members will be briefed as to which aspects will need further improvement. Afterwards, a feedback session will follow through which participants of the conference can comment.

1.5.4.4 Interviews

When designing the framework, information will also be assembled through unstructured interviews. Compared to structured interviews more unknown qualitative information can be obtained through unstructured interviews. The interviews will be conducted with the users of the framework that will be developed to assess performances of new e-Business projects. These users, as mentioned in the product requisites, consist of (a) representatives of Business Units applying for budgets for e-Business projects, and (b) senior management evaluating the applications.

1.5.4.5 Observations

For the case study in which the framework (that will be developed to assess performances of new e-Business projects) will be applied to an e-Business project (ING Wiki)

observations in the form of time-motion studies will be used to gather quantified data (Appendix 12).

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Chapter 2 Theoretical Context

Introduction

In this chapter, assessing performances of e-Business projects in a theoretical context will be point of attention. Firstly, e-Business projects will be defined in 2.1. Then, assessing the performances of new e-Business projects will be introduced in 2.2. A popular performance management tool, the Balanced Scorecard (Kaplan and Norton, 1992), may give direction to the problems with assessing e-Business project performance (2.3). Its application for e-Business projects will be considered in 2.4. A Balanced Scorecard that has been developed for e-Business projects, the Generic e-Business Balanced Scorecard (Van Grembergen and Amelinckx, 2002), will be discussed in 2.5. However, a scorecard may not be enough to assess e-Business projects, and additionally, intangible benefits and costs may need to be incorporated in the assessment (2.6). Finally, a conclusion will be made about the theories and their value for this research in 2.7.

2.1 Defining E-Business Projects

Before assessing the performances of e-Business projects, a definition of e-Business projects will be formulated to shape the boundaries for this research. E-Business projects are often associated with just the selling and servicing of products and/or services through websites. These projects are better known as e-Commerce projects, and they just make up a distinct category within e-Business projects. Electronic business projects, or e- Business projects (the abbreviation first used by former CEO of IBM, Lou Gerstner), should be viewed in a much broader context, and they include projects related to all computed information exchanges, both within an organization and with external stakeholders supporting the range of business processes (Chaffey, 2004).

Therefore, e-Commerce touches outward facing processes, while e-Business includes e- Commerce, but also includes inward facing processes (Bartels, 2000). For example, the launch of a new intranet (which is a private network that uses internet protocols to securely share information within an organization) would not be considered an e- Commerce project, but is most certainly considered an e-Business project.

Furthermore, explaining the relationship between e-Business and Information Technology (IT) can be helpful because not all e-Business projects are IT projects. An IT project is regarded as a project focusing on providing the technology needed, whether it be hardware or software, to process information.

Linking IT to e-Business, Brier (2002, p.1) states that e-Business is “an organizational strategy linking IT and the World Wide Web to create strategic advantage through operational efficiency, customer relationships, innovative products and speed.” Although Brier’s definition is about e-Business in general (not projects), and e-Business could also concern linking IT to any other electronic computing channel (besides the World Wide

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Web), Brier’s idea that e-Business is about using IT to create strategic advantage is helpful in explaining the relationship between IT and e-Business projects.

The Head of the e-Business Department of ING Insurance Asia/Pacific¹⁰distinguishes the relationship between IT projects and e-Business projects as follows: “IT projects are just part of e-Business projects as IT is aimed at delivering the appropriate infrastructure.

The larger part of e-Business projects, however, is about using the infrastructure, delivered or to be delivered by IT, to create ideas and business opportunities.” Therefore, certain new e-Business initiatives will not necessarily spur new IT initiatives because the IT tools may already be available to work out the ideas.

2.2 Assessing Performances of New e-Business Projects, an Introduction

A recent survey indicated that ninety-six percent of the organizations questioned wanted to improve the performance management system for e-Business (Marr and Neely, 2001).

The purpose of an e-Business performance system in this research is part of internal control and internal analysis (Kay 2000). Internal control and analysis focus not only on measuring, but also on taking corrective action by management (Garrisson et al, 2003).

Chaffey (2004) states that e-Business projects generally have two benefits: cost savings or increased revenues. He has categorized these into tangible (for which monetary savings or revenues can be identified) and intangible benefits (for which it is difficult to calculate cost savings or increased revenues) of e-Business. Table 2 summarizes some of these benefits.

The intangible benefits of e-Business can contribute to creating higher value for an organization. However, the intangible benefits that are identified by Chaffey (2004) are quite general, and not really specifically categorized. For example, learning for the future can be specified into different learning areas. Also, corporate image communication and enhancement of brand can both be categorized as brand awareness benefits, though these may be further specified. In 2.6, incorporating intangibles in decision making will be further discussed.

10Garceran Nieuwenburg, Regional Head of e-Business for ING Insurance Asia/Pacific

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Tangible Benefits Intangible Benefits

• Increased sales from new sales leads giving rise to increased revenue from:

-new customers, new markets -existing customers (repeat-selling) -existing customers (cross-selling).

• Marketing cost reductions from:

-reduced time in customer service -online sales

-reduced printing and distribution costs of marketing communications.

• Supply-chain cost reductions from:

-reduced levels of inventory

-increased competition from suppliers

-shorter cycle time in ordering.

Administrative cost reductions from more efficient routine business processes such as recruitment, invoice payment and holiday authorization.

• Corporate image communication

• Enhancement of brand

• More rapid, more responsive marketing communications, including PR

• Faster product development lifecycle enabling faster response to market needs

• Improved customer service

• Learning for the future

• Meeting customer expectations to have a website

• Identifying new partners, supporting existing partners better

• Better management of marketing information and customer information

• Feedback from customers on products

Table 2: The Benefits of e-Business (Chaffey, 2004, p.15)

2.3 The Balanced Scorecard

A well known tool for internal assessment is the Balanced Scorecard (Kaplan and Norton, 1992). The Balanced Scorecard is a performance measurement system that is advocated by many authors who approve its application in a broad range of industries (Hoffecker and Goldenberg, 1994; Chow et al, 1997; Meyer and Markiewicz, 1997; Clinton and Hsu, 1997). Furthermore, an Institute of Management Accounting Cost Management Group study found that forty percent of the firms interviewed will plan on implementing a scorecard measurement system in the next two years (Bremser and Chung, 2005). The concepts of the Balanced Scorecard will form one of the cornerstones for developing a performance assessment framework for e-Business projects.

The Balanced Scorecard is a performance measurement model for internal reporting that was developed by Kaplan and Norton in the early nineties. Traditionally organizations evaluated company wide performance on financial accounting measures such as Return- On-Investment and Earnings per Share (Kaplan and Norton, 1992, p.71). Rather than just

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focusing on financial performance criteria, there should be a balance between financial and non-financial operational performance measures. These non-financial performance measures focus on capabilities and intangible assets.

Through the Balanced Scorecard the strategy and vision of an organization are specifically linked to four performance areas: Financial perspective, Customer perspective, Internal Business Processes perspective, and Learning and Growth perspective. For each of these four perspectives, a general mission statement is constructed. This general mission statement is then translated into objectives and specific measures consistent with strategy and mission.

Figure 6: Translating Vision and Strategy: Four Perspectives (Source: Kaplan and Norton, 1996, p.76)

Figure 6 can be interpreted as follows:

• The Customer’s perspective on a company is largely shaped by how an organization’s products and services create value for the customer. Customer satisfaction and customer retention are examples of possible measures.

Vision and Strategy

Financial

“To succeed financially, how should we appear to our

shareholders?”

Objectives Measures Targets Initiatives

Internal Business Processes

“To satisfy our shareholders and customers, what business processes must we excel at?”

Customer

“To achieve our vision, how should we appear to our

customers?”

Learning and Growth

“To achieve our vision, how will we sustain our ability to change

and improve?”

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• The Internal Business perspective focuses on what processes and competencies an organization must excel to meet the expectations of its customers. Reduction of order processing time, for example, may be such a measure.

• The Learning and Growth perspective is related to the skills and capabilities an organization has to innovate, improve and learn. The percentage of sales from new products may be a measure in this area.

• The Financial perspective represents the long-term objectives of an organization through measures such as growth in revenues, profitability and shareholder value.

2.4 Applying the Balanced Scorecard to e-Business Projects?

The applicability of the Balanced Scorecard designed by Kaplan and Norton (1992) for assessing e-Business projects performance will be discussed in this chapter. Although the Balanced Scorecard initially designed by Kaplan and Norton (1992) was a company wide measurement system and cannot be copied directly to e-Business projects, the conceptual ideas of the Balanced Scorecard may apply to lower aggregation levels, specifically to e- Business projects.

First of all, developing a framework to incorporate e-Business metrics in strategies has had very little attention (Bremer and Chung, 2005). The Balanced Scorecard is recognized and widely accepted as a leading performance measurement system that does link strategies with measures. Therefore, this is the first concept that can be used for an e- Business measurement tool.

Secondly, the concept of a scorecard containing financial measures and non-financial performance measures may be useful. Many e-Business projects have qualitative outcomes. Sometimes, no revenue is generated directly through an e-Business project, but the project can definitely contribute to a Business Units strategy. Therefore, monitoring areas other than financial can be useful to evaluate the contribution of an e-Business project.

Thirdly, the concept of balancing measures that are means with measures that are ends may give an e-Business scorecard more value. Kaplan and Norton (1992) pushed the idea of means and ends even further by suggesting a causal relationship existed not only between the measures, but also between the perspectives:

Innovation and GrowthÆ Internal Business ContributionÆ Customer SatisfactionÆ Financial Results.

This causal reasoning spurred some critique (Otley, 1999; Nørreklit, 2000). Nonetheless, when developing a scorecard for e-Business projects, it should be kept in mind that through performance driver measures and outcome measures coherency should be strived for in order to more accurately predict and safeguard results (Nørreklit, 2000).

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Several conceptual ideas of the original Balanced Scorecard that may be applied to an e- Business Scorecard have been explained above. An attempt to develop a Balanced Scorecard tailored for e-Business projects was already developed by Van Grembergen and Amelinckx (2002), and their framework is known as the Generic e-Business Balanced Scorecard. Their framework will now be discussed in paragraph 2.5.

2.5 The Generic e-Business Balanced Scorecard

According to Van Grembergen and Amelinckx (2002), the Balanced Scorecard developed by Kaplan and Norton (1992) can be used as a starting point for assessing e- Business project performance. Van Grembergen and Amelinckx recognize that many e- Business benefits are intangibles that are difficult to translate into monetary benefits.

They start of using Turban et al’s (2000) definition of e-Business “as the process of buying and selling or exchanging of products, services and information; generating demand for them through marketing and advertising; servicing customers; collaborating with business partners; and conducting electronic transactions within an organization via computing networks including the internet”. This definition is quite similar to the definition of e-Business given in 2.1, but as will be explained later, Van Grembergen and Amelinckx’s research focuses largely just on websites.

Van Grembergen and Amelinckx (2002) developed a scorecard, the Generic e-Business Balanced Scorecard, that contains four performance areas, but these are directed towards specific areas of e-Business projects: Business Contribution, Customer Orientation, Operational Excellence, and Future Orientation. Table 3 shows the scorecard they have produced. This scorecard, however, does not incorporate a centered strategy. For each of the main perspectives, a mission is stated, but a binding strategy for all perspectives is not given. The success of the initial Balanced Scorecard developed by Kaplan and Norton (1992) was largely due to making strategy measurable. Nonetheless, each of the four areas will be discussed.

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CUSTOMER ORIENTATION

What is the company’s success in acquiring and retaining customers through the web site?

BUSINESS CONTRIBUTION

How should the e-business project appear to the Board in order to be considered as significant contribution to company success?

Mission

To be the preferred supplier through the internet

Objectives

• Customer satisfaction

• Customer retention

• Acquiring new customers

• Effective internet marketing

Mission

To enable and contribute to the achievement of business strategies through effective application of e-Business

Objectives

• E-Business strategic plan achievements

• Business value of e-Business project

• Compliance with budget

OPERATIONAL EXCELLENCE

At which services and processes must the e- Business application excel to satisfy the stakeholders and customers?

FUTURE ORIENTATION

How will IT develop the ability to change and improve in order to better achieve the company’s strategy through e-Business application?

Mission

To deliver timely and effective e-Business services at targeted service levels

Objectives

• Fulfillment process

• Availability of the e-business system

• Improvement of system development

• Security and safety

Mission

To enable and contribute to the achievement of business strategies through effective application of e-Business

Objectives

• E-Business expertise of developers

• E-Business staff management effectiveness

• Independence of consultants

• Reliability of software vendors Table 3: Generic e-Business Balanced Scorecard (Source: Van Grembergen and Amelinckx, 2002, p.3).

2.5.1 Business Contribution

The Business Contribution perspective focuses on the financial results an e-Business project generates. The first objective, the e-Business strategic plan achievements, focuses on which level e-Business activities are integrated throughout the organization.

Performance is measured by stating in which level, ranging from one to four, the organization is currently finding itself in the Gartner model. This model is shown in Figure 7.

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Figure 7: Gartner’s Four Level of Web Site Sophistication (Source: www.gartner.com )

An organization is in Gartner’s model in level one if it only has a static web site content and giving basic product information. An organization finds itself in the highest level, level four, if it creates new business through the internet and migrates traditional processes to the internet. Also, in level four back offices process are streamlined, and communication with suppliers is improved using the internet.

The objective strategic plan achievement has its limitations because the overall scorecard should be an explication of making strategy possible. Within the insurance industry, Gartner’s model has proven to have its limitations in terms of strategic intentions. Is level four in the Gartner model really what an organization should strive for? Some organizations may integrate their services to level four, but may not be successful because of situational aspects. Real life examples of why fully integrated services may not always be worth striving for are given in Appendix 4.

Another criticism of using the Gartner framework is that this framework emphasizes web site integration. It thereby seems to exclude other computing business channels, such as Small Message Service (SMS) or Wireless Application Protocol (WAP), whose strategic value may also increase as more activities are deployed in them.

The second objective within the Business Contribution perspective is the business value of e-Business projects. This is the financial objective that is explicated though measuring the profitability of an e-Business project. Van Grembergen and Amelinckx (2002) state a shortlist of financial measures. They include: profitability of the web site, Return on Investment (ROI) or Information Economics, direct online contribution to revenue,

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operational cost reductions, cost reductions of acquiring a new customer, cost reductions of customer relationship management, and cost reductions of promotional material.

A list with too many financial indicators can make management lose sight in the jungle of figures. Van Grembergen and Amelinckx (2002) do not, however, include “one of the most important financial concepts in corporate finance” (Ross et al, 2002, p. 66) as a performance measure for new e-Business projects: the Net Present Value (NPV). The Net Present Value of a project is “the present value of future cash flows, discounted at the appropriate market interest rate, minus the present value of the cost of the investment”

(Ross et al., 2002, p. 926). Future cash flows can be future revenues, but also future savings. Those projects that promise savings/revenues earlier are preferred over projects that generate savings/revenues later (Garrisson et al., 2003). Therefore, the NPV takes into account the time value of investments. Throughout companies project performances are being assessed frequently on the Net Present Value basis.

Finally, the last objective within the Business Contribution perspective is compliance with budget. Van Grembergen and Amelinckx (2002) suggest that this can be measured through measuring actual versus budgeted expenses in different cost categories, such as maintenance costs or development costs.

2.5.2 Customer Orientation

The Customer Orientation perspective focuses on retaining and acquiring customers, and sales. The objective customer satisfaction is measured through website satisfaction scores, and the number of customer complaints compared to the number of resolutions downloaded. No measures are stated, however, for customers that start the buying process online, but that abandon or leave the process before it is actually completed. This could be an interesting satisfaction figure.

Customer retention is another objective within the Customer Orientation perspective.

This explained as the degree to which a customer will return to a specific website. This is measured through retention rates of online customers and through the number of customers that place return orders.

Acquiring new customers is the third objective, and it is measured through the number of new customers and/or new leads generated by the website. Also, Van Grembergen and Amelinckx (2002) suggest to compare actual offline sales with online sales.

Finally, effective internet marketing is the last objective within the Customer Orientation perspective. The measures for this are online web metrics such as number of hits, page impressions, site visits, and visitors. Clustering these web metrics as effective internet marketing suggests that these metrics focus on customers and e-Commerce. That means that they do not focus on employees whose usage may also be worthwhile tracking since it would not make sense to maintain an expensive e-Business project that is not being used by employees.

Developing a Performance Assessment Framework for New e-Business Projects

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Developing a Performance Assessment Framework for New e-Business Projects

By Coen Crijns

Mind Your Own e-Business!

Preface

Executive Summary

Table of Contents

Chapter 1 Research Context

Introduction

1.1 ING Group

1.2 Insurance Asia/Pacific

1.3 Reasons for Research

1.4 Problem Definition

1.5 Methodology

Chapter 2 Theoretical Context

Introduction

2.1 Defining E-Business Projects

2.2 Assessing Performances of New e-Business Projects, an Introduction

2.3 The Balanced Scorecard

2.4 Applying the Balanced Scorecard to e-Business Projects?

2.5 The Generic e-Business Balanced Scorecard