Catherine Brune doesnt see herself as an IT version of Solomon, but Allstates senior vice president and CTO knows there are difficult decisions facing all IT departments today. And when you have to cut those babies in half, she says, its good to know which half will drive the revenue. Finding ways to stretch your IT dollars is imperative in todays economy. Brune was only half-kidding when she said to this reporter, If youve picked up any great ideas, Ill pay you for them before you put them in your article, because Ive tried all that I know.

James Fridenberg, vice president, applications development, for Los Angeles-based Farmers Insurance Group, agrees this is how business is done today. We always have an eye on trying to reduce expenses and improve efficiencies wherever we can, he says.

Outside the Box

Both agree outsourcing some of your operations, particularly overseas, is a great place to start. For Allstate, headquartered in Northbrook, Ill., opening its own technology subsidiary in Northern Ireland has proven to be extremely beneficial. Its been an absolute home run for us, Brune says. Allstate was having trouble finding employees with the skills it needed for its U.S. operations. The differential between what a Northern Ireland employee costs versus here is huge, she says. Allstate started with a few managers in Northern Ireland, and today has 550 employees there. It was a lot easier than I ever imagined, she says.

The Northern Ireland operation does a lot of maintenance work on Allstates infrastructure, but recently the operation began to relieve some of the help desk burden. Ive actually got them doing some help desk nighttime stuff because we were having trouble filling some of the later hours, Brune says. Thats really first shift for them. Many companies have chosen India as a site for outsourcing. Brune wont rule out taking large maintenance projects to India for short-term work. The unsettled political environment there has made us a little nervous using them full time for a long-term project, she says.

Farmers also has had success in dealing with an application maintenance outsourcer it contracted with in India, according to Fridenberg. Weve really expanded in that area over the last couple of years, he says. Weve got millions of dollars in savings. These are dedicated resources. Almost an extension of the company.

Farmers runs on a capacity model, where projects are assigned a certain amount of work hours. We tell the business side you get, say, 50,000 hours in this particular functional area, Fridenberg says. Twenty-thousand of those hours will be from India. We use that to reduce total cost from an application development standpoint.

Outsourcing allowed Farmers to rid itself of its traditional contractors. We either converted them to employees or went to an outsourcing vendor, he says.

Lower costs are just one benefit to outsourcing, according to Fridenberg. Farmers is much more nimble today. The other piece of this application development thing is it provides us flexibility and speed to market, he says. With our outsourcing relationships and the way we set up our SLAs [service level agreements], we can ramp up quickly to meet business demand and do it quickly.

Fridenberg likens the new way of business to a speedboat compared to the old way: Queen Mary-isha luxury cruise liner.

Fridenberg cautions against jumping into an outsourcing agreement if processes are faulty. You have to put your ducks in a row, he says. I call it cleaning your backyard before inviting your guests over. If you have a mess inside your company, you are just making it worse by outsourcing.

This Is Only a Test

Another successful project for Allstate involved testing every platform used by the carrier and then submitting a request for pricing proposal with every major vendor operating in that space. This was not a quick or easy project. We had to put all the systems into our environment and run applications through them to see how much work it would take to switch if the decision was made to switch from a particular server supplier or a particular PC, Brune says.

The project took 12 to 15 months, but Brune believes it was worthwhile. We probably stayed with 75 percent of our incumbents and ended up with a much better price from them, she says. We did switch some of our platforms and ended up with a better price there, too. It was a win-win for us all the way around.

She says the initial intent was not to look at every piece of hardware in the company. Once we got one or two under our belt and saw the success, we saw this made a whole lot of sense, she says. The first six months were spent seeing if it was worth the time and effort, and it turned out to be very lucrative. The ROI is almost immediate.

Fridenberg says basic contract review is also a non-technical way to stretch the technology budget. I think companies need to make that a core competency, he says. There is so much money in services on the software side. A good, enterprise-wide contract negotiation team that can work the best deals can save millions. Ive heard horror stories where there are siloed functions that do just one piece here and a piece there, and no one ever looks at the enterprise view of [the contracts].

Consolidation, Elimination

Farmers took a look at its software to eliminate some products and consolidate some of its tools. You take a hard look at the tools youre using and the software products you have to see if you really need them, says Fridenberg. Either convert it or get rid of it.

Going with a thin-client environment can benefit a company from a maintenance standpoint. Software is purchased that can reside on a server as opposed to the PCs. It also helps in bandwidth consolidation because youre not sending the data back and forth, he says. Youre sending transaction processing across the lines, so youre not clogging up the bandwidth with a lot of data. You can still go anywhere, plug in, log into your network, and still have access to one of your applications. Maintenance costs and desktop support all go down.

Next on the Agenda

The next major step for Allstate is to build in a governance process within the company that ensures business and technology go hand in hand everyday, and we build what the business knows it is going to need moving forward, says Brune.

A lack of accountability has meant wasteful spending in the past. She says there were times the business side would bring in suppliers, a vendor, or even an application. They had already decided they wanted to use something when it might not be a very good fit for our environment or our architecture, she says. We would force feed it in like any good IT department would do, but over time that drives up the total cost of ownership.

Brune says IT departments have to accept part of the blame for this problem. We probably werent as good a business consultant or IT consultant for our business process, she says. But when you get a product handed to you and your job is to just be an integrator, you lose some of those business relationship skills, Brune notes.

Today, each and every project on Allstates table is prioritized with the business side. We are getting realistic cost analysis on each project and [together] with the business side, we are going to decide what our focus areas are going to be and what we are going to work on over the next year, she says.

Help for All Sizes

Economy of scale can work for and against insurers, which means creativity, not just size, matters when trying to stretch the budget. A carrier the size of Allstate can afford to renegotiate all its vendor deals, but on the other hand, it has trouble purchasing software solutions. Our size knocks us out of being able to use a lot of off-the-shelf applications, says Brune. They just wont scale for us.

So the lesson here is regardless of size, there are ways to stretch those dollars and make every IT department ready to tackle the new year.

What to Do In 2003

You may already have these on your To-Do list for 2003, but Farmers Insurance Group vice president James Fridenberg has a checklist of IT re-engineering initiatives his company will be examining in 2003. How does it compare with yours?

- Tape Automation

- Scheduling and Balancing Automation

- Disaster Recovery

- Thin Client

- Telco Audit and Outsourcing

- Bandwidth Consolidation

- DMZ Consolidation

- Contract Negotiation

- Server Consolidation

- Help Desk Consolidation

- Storage Management

- Application Simplification

- Application Maintenance Outsourcing

- Software Product Elimination

- Test Automation

- Tool Consolidation

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Stretching Exercises

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