CEO/CIO CHALLENGESThe Tech Questions That Vex Them

CEOs top [technology] concern is revenue growthways to attract and retain customers, says Kimberly Harris, vice president of research at Gartner, citing a recent Gartner study of financial services execs. In contrast, that particular worry ranks number seven among CIOs, whose number-one insomnia inducer is data protection and privacy.

We talked to CEOs and CIOs to uncover the questions that vex them and to discover the strategies and solutions their companies have developed to help them get a good nights sleep.

Are We Getting the Greatest Business Value From Our Technology Investments?

Just as in Gartners study, the top technology worry of the CEOs interviewed for this article was whether their companys system investments are having a positive impact on the bottom line. Dennis Rowe, CEO of Penn National Insurance, Harrisburg, Pa., says he wants to be sure the company avoids its technology investment mistakes of the past, when Penn Nationals strategy was less focused on business impact and more concerned with jumping from something we already had to something else that had more bells and whistles, he says.

When Rowe became CEO in 1998, he was determined to do something about that problem and to give himselfand the board of directorsthe assurance Penn Nationals IT dollars were being effectively spent. Business took control of IT proj-ect initiation, steering committees were formed to meet regularly on key projects, and top management became involved in and supported IT to improve business/IT alignment.

Chief executives also have learned to look beyond rosy ROI projections. Dave Zwiener, president and COO of the property/ casualty company of The Hart-ford, Hartford, Conn., explains in the past, cost-benefit analysis (CBA) work stopped after the project was scoped. We were left wondering whether we got what we set out to get, he says. In contrast, today the company has established metrics around each of its projects to define success and then tracks and monitors those objectives. Weve gotten a lot better at that, so Im sleeping better today than five years ago, Zwiener comments.

Penn National has shifted its focus from the cost-benefit analysis to an ongoing business impact assessment. Back in the 1990s, we had a fairly sophisticated CBA procedure in place, which sounds like a good thing to do, Rowe notes. But what we found is people were trying to sell their particular projects, and the CBA became a vehicle to do that.

In recent years, the company has completed several projects targeted to both revenue growth and internal efficiency that have garnered press attention, such as its Penn-Connect agent Web site, an imaging and paperless workflow system, and a new admin system for commercial lines. Rowe credits these and other initiatives with helping the company achieve gains such as a net income increase from $1.5 million in 1998 to $30.7 million in 2004.

Are We Investing Enough?

On the flip side of the first question is CEOs concern their companies might not be investing enough in leading-edge technology, particularly in light of competitive pressures. Were always concerned about return on investment, but there are some technology initiatives you need to do irrespective of the return because thats where the industry is going and you will be left out in the cold if you dont [go there], says Dr. Robert Dennison, CEO of Delta Dental of Illinois. He adds investing in technology will become increasingly difficult for regional carriers that lack the resources of larger nationals, which is one of the reasons the 39 Delta Dental plans frequently work together to share development costs.

Additionally, both CEOs and CIOs are concerned equally about maintaining any technological advantage. You can never rest on your laurels, states Richard Connell, CIO of Selective. You can celebrate success, but as soon as something is implemented, we have to worry about whos going to cut in on that competitive edge.

One of Delta Dentals recent big-impact technology projects was the transition of a legacy IVR system to a VoIP solution that is integrated with the carriers Oracle-based enterprise data warehouse. Ross Gosnell, the companys vice president of information systems and technology, says the resulting increase in customer self-service transactions allowed Delta to reduce its call center staff by 40 percent.

However, the industrys inexorable movement toward customer self-service has Delta now working on a project to link that call center technology to the corporate Web sites of the employers and groups Delta insures so that members need not leave their corporate intranet in order to obtain benefit and claim information. Thats a [goal] thats shared by health plans, HSAs [health savings accounts], and HRAs [health reimbursement accounts], as well, says Denni-son. Right now, to be first out of the box [with that capability] will be a point of differentiation. But quickly, that will become the price of admission.

Are We Secure?

In Gartners survey, Harris indicates system security and data privacy and security were ranked separately. However, they share enough conceptual similarity many CIOs consider them as a single issue, particularly for those who also wear the hat of de facto CISO. Security- and privacy-related regulations also are on everyones worry list, and in the wake of recent high-profile customer-information theft, those regulations are likely only to expand in scope.

The main thing I worry about today is security, says Gosnell. As vigilant as you are, and as good as the technology is to manage it, you have the feeling some day youll walk in and everything will be gone. Unfortunately, there are people who make it their business to try to disrupt other peoples business.
John Chu, senior vice president of e-business and technology of The Hart-fords P&C company and to whom CIOs for individual P&C lines of business report, says he is very much concerned with technology security and data privacy. While solutions could fill an article all by themselves, he explains security and privacy must be fundamental parts of a companys architectural design and core operating philosophy, ultimately affecting every one of its investment decisions.

The vendors we choose, the way we process [business], and the way the world is from a compliance standpointeach impact The Hartfords security and privacy strategies, says Chu. We over-invest both in terms of analyzing the impact of any of those and [then] minimizing that impact.

How Will We Get It All Done?

Resource allocation is a key CIO concern. We always are worried about the constraint of capital, Connell points out. That comes in a lot of flavorsnot just financial capital but human resource capital, [which is] a rare commodity.

Gosnell agrees. Getting resource time and getting my people trained on new programming languages is a major worry, he says.

Another derivative of this question is, How can we keep up? Says Chu: The rates and pace of change, in both business and technology, particularly in the P&C space, has quickened. [Demands on] our ability to manufacture technology and work with businesses to drive change in the business is more than even five years ago. Frankly, theres no diminishing that process on a go-forward basis.

There is no easy solution to the problem of keeping up with tasks and trends. We need to take time away from the other things [our staff] needs to do. Its a challenge, admits Gosnell.

How Can We Better Understand and Use Our Data?

CEOs are vexed with the knowledge companies are data rich, information poor, quips Gregory Murphy, Selectives chairman, president, and CEO. How are you going to make better decisions with the data you have? What will give you a competitive advantage as you work through market cycles, and how do you get more granular in your pricing structure?

A project that will help Murphy sleep better is a multiyear, multimillion-dollar business intelligence initiative. The proj-ect will involve development of a data warehouse and a suite of knowledge management and business intelligence tools. The carriers goal is not just to deploy the system to the usual suspects in actuarial but also to provide predictive modeling and decision support tools to users throughout the enterprise.
Putting [the business intelligence tool] on the desktop of the people is critical, Murphy contends. How can we help underwriters make decisions about [the insurability of] accounts, and how should they be priced? He adds the project has advanced tremendously since it was announced about two years ago, and the first line of business being rolled into the warehouse soon will be complete.

Like a lot of other companies, we struggle with becoming users of data rather than collectors, says William Jenkins, CIO of Penn National. We do have an enterprise data warehouse under way, which also will replace a lot of the back-end systems from a reporting basis and would eliminate a lot of the maintenance and headaches associated with those systems.

Like Selective, Penn Nationals solution is a long-term project, which comes with the potential for long-term project problems. Generally [a data warehouse is] a three-year project at a minimum, Jenkins says. Management understands the value of data, and the problems with getting data out of legacy systems, so its been a meeting of the minds. But what we also need to do in IT is sell continually the value of the data warehouse to keep the project moving forward.

Delta Dental recently has invested in Business Objects, with the goal of assessing and improving both customer and product profitability via the information in the companys Oracle data warehouse. Additionally, Delta wants to make this information available not just to internal staff but to brokers and customers, as well. Collecting and manipulating information so our internal and external clients can use that, which will bring them closer to us, will be a big push, Gosnell says.

Business users insatiable appetite for data extends beyond post-transactional analyses and long-term strategies. More and more, they are asking IT to deliver real-time intelligence on opportunities that exist in the marketplace or to integrate third-party information with internal data to support products that target niche markets with increasing levels of rating granularity. This data-driven search for a competitive edge can create long daysand sleepless nightsfor CIOs.

[Weve developed] very data-centric types of products, Chu says. An example is Hartfords Dimensions product in personal auto. On one hand, the plan cut in half the typical number of underwriting requirements, designed to make it easier for agents to understand and sell. But on the back end, the rating system uses more data than previous plans in order to createsimilar to a data analytics cubewhat Hartford calls a multidimensional analysis that delivers a pinpoint rate for each driver. Our ability to produce data in our IT organization to support that business is [a challenge of] the next generation of work we will be doing, says Chu.

Are We Choosing the Right Solutions?

This question concerns CIOs and CEOs differently. The CIOs mission is to select technologies that have the greatest likelihood of both immediate success and long-term stability. Jenkins, for instance, says he wants to ensure Penn National chooses technologies that are ready for prime time. I dont want to have to reinvent the wheel or get us into [technological] Vietnams, i.e., project quagmires with no exit strategy. Due diligence is the best answer. You have to spend the time upfront to assess a technologys long-term viability, he advises. We dont mind being leading edge, but we dont want to be bleeding edge.

The Hartford created a research and development group within its P&C technology organization that is focused on the viability of new technologies. Its objective is to look across three dimensions: one year, three year, and seven year, Chu explains. One-year technologies are scalable, mature, and ready for adoption but not currently in use; three-year technologies have a short incubation period needed but will be ready in the near future and may deserve current investment; and seven-year technologies are those The Hartford believes are too immature to invest in.

From the CEOs point of view, the question becomes not just that the specific technology chosen addresses the business objective but that it performs in a user-friendly way the business actually will want to adopt. Thats why Selective has built usability into its criteria for project successa particularly critical component when developing systems targeted to independent agents whom the company cant control directly, Murphy says.

We need to make sure the technology were deploying is done in concert with [agents], explains Murphy, adding the company tracks the usage of every major systems deployment. Were looking for utilization rates, and were not afraid to put that in the project specs as well as in our cash compensation plan for development staff, he says.

What Do We Do With Our Legacy Systems?

Assuming existing systems pass the business value test, the fact still remains those systems wont last forever.

Core processing, including legacy system maintenance, still is the top investment in [insurers] IT spending, Harris reports. Even if the CEO says, We need to reposition the company, or We need to focus on customers growth mode, if you are the CIO, you need to deal with the reality of aging legacy systems. As CIOs look to the future, they worry they are making the right decisions regarding maintaining, consolidating, rearchitecting, or re-placing legacy systems in order to meet business goals.

We constantly are assessing the scale and competitiveness of our systems, says Selectives Connell, who explains the company assigns color codes to both existing systems and prospective proj-ects. Green indicates a leading-edge system Selective either has or will soon acquire that fits its current and future architectural vision; yellow is a part of the architecture it is no longer developing but is retaining in a maintenance mode; red components are those that are no longer relevant and need to be sunsetted; and blue technologies are those that arent quite ready for prime time, Connell says.

Since we put that process in place about four years ago, weve eliminated more than 75 percent of the red technologies in-house, he says. The carrier gradually is rearchitecting the remaining systems to fit its service-oriented architecture.

For instance, in 2003 Selective completed an internal rewrite of its client-server commercial lines underwriting system (which itself had been a rewrite of a DOS-based GEN-A-RATE system from Programming Resources Company) to a Web services application, called CLAS (Commercial Lines Agency System). A rewrite was the best way for Selective to leverage its existing legacy investments while offering its independent agents Web-based quote, issue, endorsement, and renewal processing in commercial lines.

Can IT Deliver What the Business Promises?

When CEOs meet with agents and brokers, they sell their companies capabilities and make assurances about upcoming technical capabilities. And those CEOs dont want to be left holding the bag.

The worst thing we can do is get in front of a group of agents and make promises we cant keep, Rowe says. You need to tell them exactly what your resources are, when you believe you can get things done, and then deliver. To make promises where you fall shortor where [agents are] sitting there and dont believe you can get things donedoesnt help with the effort at all.

At Selective, Murphy and Connell co-chair the companys Enterprise Pro-gram Management Office (EPMO). Having the CEO and CIO as committee co-chairs helps ensure both business and IT are on the same page. Every large initiative comes [to the EPMO] with a full business case, so we understand where the opportunities are, get deeply into the business requirements, and minimize scope creep, says Murphy. Connell also indicates being a regional carrier makes it easier for IT and business staff to communicate. We have the benefit of having enough scale so that we can make the right kind of investments in technology but not so much scale we have too many different drummers to march to, he says.

The Question That Didnt Make the List

Just a few years ago, how to cut IT spending was on the minds of many CEOs, and the actions they took as a result kept their CIOs up at night. However, How can we cut the IT budget? didnt show up in either our informal survey or Gartners study. Perhaps better technology/business alignment and improved financial results in recent timesmeans, in general, CIOs no longer are anxious CEOs view their divisions solely as cost centers, and CEOs no longer worry their investment dollars are being thrown into a black hole by the CIO.

Gartners Harris, however, offers an alternative view. [Cost cutting] has been a concern for so many years, its almost become a constant, something CEOs wont mention but will pick out as a key concern if they are presented with a list of choices. While, in general, the view of IT is shifting from cost center to business asset, how far a carrier is in that transformation all depends on the company, Harris says.