Takes Two to Tango

Takes Two to TANGO

With insurers moving as fast as they can to stay competitive, alignment between the IT department and the business units remains an imperative at the top of most companies' dance cards. Implementing the right choreography of technology and business strategy enables successful enterprise performance and a sense of teamwork that eliminates project missteps.

Is there anything more fulfilling (and difficult to do) than creating a lasting partnership? Such relationships have been complicated–while the IT department has moved to the grown-ups' table, business units have been slow to recognize the full value IT can bring to their own business strategy and performance. “Instead of the age-old practice of having a business strategy and then having IT map itself to the business strategy, the fact people are valuing the need for alignment is a reflection of the fact things have changed and a partnership is expected,” says Piyush Singh, CIO of RLI Corp. “The traditional way of having a clearly defined business strategy before you did an IT strategy is no longer viable due to the pace of change in today's world. Both sides need to work more in tandem. Once that is agreed upon, then you start getting into what is the best way to achieve alignment.”

The difficulty Craig Symons, a principal analyst with Forrester, sees in aligning IT strategy and business strategy is both are moving targets. “In fact, as time has evolved, those targets keep moving faster and faster,” says Symons. “Technology is changing more rapidly as are the demands on business. What is required is a tightly integrated process in order to be successful, and a lot of companies just don't have that yet because their IT people and their business people still are talking in different languages.”

Some see an alignment between the two sides as a work in progress. After surveying insurance carriers for TowerGroup's 2005 executive survey, director Cynthia Saccocia reports the top five areas where the insurance industry expects to focus its efforts for the remainder of this year and next involve the disconnect between IT and the business side. “We believe many of the most pressing issues insurance companies face today are rooted firmly in the ongoing disconnect between business and IT,” says Saccocia. She lists those five areas of concern as:

o Introducing innovation to reduce business complexity.

o Showing business leaders how to innovate with technology.

o Instilling a business discipline and focus in IT.

o Upgrading the infrastructure.

o Persuading business to participate in technology investment decisions.

Centralized or Distributed?

Depending on the organizational style of the company, Symons claims some businesses use a centralized IT formula, where technology people are working in the business units but reporting back to the CIO or the central IT organization. In other cases, Symons says he has seen decentralized organizations, where essentially the relationship managers are in fact the business unit CIOs, so each business unit has its own CIO. These unit CIOs report directly to the general manager or the president of the business unit and have a dotted line back to the corporate CIO.

“In the past few years, we've seen more and more a move toward centralized IT and away from distributed,” notes Symons. “Or if not directly to a centralized IT, you see more of a federated model, which is a hybrid. In financial services, you tend to find distributed or decentralized IT organizations because the various business units within a financial services firm tend to be run as autonomous businesses with unique needs. That's the one [industry] where you probably still have a preponderance of decentralized IT. I think in many other industries today they've gone with either a federated model or a centralized approach.”

From his perspective, Singh believes centralized IT works best, but he adds it is critical to have decentralized business owners who have an understanding of processes and what really is required. “Otherwise, what happens is business owners typically have their own full-time jobs and they don't have the time to define, align, and dedicate the resources to define the project requirements,” he says. “But if they have a group of people within their business units who understand and have the incentive to achieve success with the projects, I think it makes life different for each one of them.”

Understanding project requirements is more critical than centralized vs. decentralized, Singh contends. “If you look at the way SOA is moving and other developments taking place, I think a centralized IT function is better suited for the business units from a long-term cost basis,” he says. “We've had a couple of business units that actually have people who are focused on business processes and assisting in how [the unit] can work with IT, how to define projects, and how to define specifications.” Singh claims RLI has found the maximum effectiveness and best communication between IT and the business units occur within those particular units. “It's easier for them to understand and easier for us to explain,” he says. “Once you get clearer definitions, it's easier to deliver.”

Segmented Spending

From an IT person's perspective, Singh believes when you have more structure, more coherence, and much more communication with the business units, you have reached the first stage of achieving some level of alignment. “You can do everything else, but unless you have good communication with the business units–on footing they understand and can relate to–you never are going to have any level of alignment,” he says.

What RLI did as a first step in a long journey was to get a basic understanding of what IT was doing and whom it was doing it for. “If the answer remains unclear, you take it down to another level and say, 'Which [unit] are you mapping to, and if you are mapping to one unit within the organization, are you really aligned with the other units?'” he explains.

RLI divided its IT resources into three segments. “We said we are going to work for profit centers, cost centers, and certain things in IT that are required to keep the ship running,” says Singh. “But we were going to do it in a proportion that gives us a sense we are truly in step with what the business imperatives are.”

The decision was made to spend 60 percent of the IT department's development resources on the profit centers, 25 percent on cost centers, and 15 percent strictly on IT issues, Singh says. The advantage this strategy offered from a business perspective was the business units started to see IT wanted to focus on what the business really wanted and needed to be able to achieve its objectives.

“We are going to support the profit centers because they bring in the revenue, and it is imperative we keep providing the necessary enhancements to their infrastructure and systems to be aligned with emerging business models,” asserts Singh. “The cost centers have to be supported because that's the infrastructure. You can't leave them 20 years behind because that will lead to a fairly fat cost structure. On the IT side, we have to keep the ship running. We are going to dedicate certain resources–whether for evaluating and installing network analysis tools, researching e-mail archiving solutions, or things of that kind–which are required for regulatory compliance or just keeping up. We do not need the business unit to prioritize the IT resources. We are going to have our own IT committee to do that.”

RLI set up a committee of only the cost-center people to prioritize those initiatives and a profit-center committee that deals with only profit-center issues. “What would happen otherwise is the cost-center guys never would get any priority because the profit center always came in first,” says Singh. “At least at stage one, this allows us to be better attuned. It also allows IT to provide the forum for the business units to get together and be able to understand and define their own priorities and projects as well as their relative importance compared with other projects that might require IT resources.”

The next step taken by RLI follows up on each project to ensure better communication with the stakeholders. “We'll start at the planning cycle, where we define action plans and say, 'Here's what we are looking at from a strategy map,' and we discover what is going on in their world. [Then we say,] 'Here are the infrastructure capabilities we can provide that will make it easier, cheaper, and quicker to deploy.' [We look at] how can we support them better and be able to map them across business units to provide them the true leverage,” says Singh. As an example, Singh mentions lines such as personal lines and program business may ask for something similar but independent of each other, and IT can try to bridge the gap and provide them the leverage so both are going to save money. In the long run, Singh believes this will allow IT to become better structured and have a lower cost structure.

Say What You Mean

Bill Jenkins, CIO of Penn National Insurance, believes one of the problems CIOs face is an inability to articulate the value they are providing to the business units. He indicates this can be blamed partly on a lack of sophistication from both parties–the user community and the IT shop–in structuring good cost benefits and business cases for IT initiatives. “That's an area that needs to be strengthened,” says Jenkins. “In my consulting days, I saw this all over the place, and I see it in a lot of carriers today.”

Such discussions can be an educational process, according to Jenkins. “Senior management and the CIO need to come to the table and challenge things more strongly,” he says. “They need to demand what is being spent have a return to the business, even if [the expenditure] is something people would describe as the cost of doing business–such as an enterprise data warehouse. Some sort of value needs to be put around investments.”

Jenkins uses as an example a carrier buying CAT models vs. implementing a new data warehouse that would enable the carrier to build its own CAT models. “You would save tens of thousands of dollars a year in [not purchasing] CAT models,” he says.

Symons believes proper alignment starts with establishing world-class IT governance, which basically consists of a combination of structures, processes, measurement, and communication. Improving alignment between IT and the business units is everyone's job, states Symons. “The stakes are increasing, as well, because IT is becoming increasingly important,” he says.

Contrary to the often cited perspective of author Nicholas Carr (famous for his Harvard Business Review article, “IT Doesn't Matter”) that IT is a commodity, Symons believes IT still is an important part of business and companies have to get it right. “Typically, what I tell executives is part of the problem is you haven't been measuring IT,” says Symons. “I subscribe to the management tenet you can't manage what you don't measure.”

Saccocia finds IT executives have a voice in many areas today, including setting priorities for projects and budgeting, but not in the most important area–participating in the overall strategic direction of the company. “Businesses must do more to involve IT in the early stages of strategic planning to gain a better understanding of what is possible with the appropriate technologies,” she points out. “What is clear is insurance companies must assess their capability to link the corporate strategy to business priorities, business architecture, and an IT strategy. Those companies that close that gap can move from simply focusing on cost containment to differentiation and growth.”

Mixing the Ingredients

Integrating the business and IT staffs is an important step. Jenkins reports many companies call these employees business relationship managers. “Structurally, one of the steps clearly is the establishment of what we call a relationship manager,” he says. “That's where there is a full-time senior-level person assigned to have one foot in the IT organization and one foot in the business unit and to work on integrating strategies. Sometimes these people come from IT, and sometimes they come from business. The bottom line is they need to be comfortable in both places.”

Companies can achieve a solid marriage whether IT is decentralized or centralized with business relationship managers working specifically with individual business units, Jenkins believes. “[Managers] understand the business well and how IT can help,” he maintains. “It becomes an ongoing dialogue between the two sides, and that's important. Then we get down to the trust issue–knowing what technologies can be used and trusting technologies will be delivered based on what the needs are.”

Singh claims RLI needed to define how much resource IT actually provided to the business units. “A lot of IT people will say even if you are doing an IT infrastructure project, you need to define it to determine what the business impact will be,” he says. But this can lead to an overstretching of creativity with people justifying anything and everything they do. “It only confuses [the business units] because how do I explain to them what impact a router has on the business and how it compares in cost impact to the other business units?” he says. “It's a little difficult. That's when you start confusing them, and they say, 'You guys do whatever the heck you want, anyway.'”

If CIOs have a seat at the senior table, Jenkins believes their job is to don the business hat more than the technology hat. “The CIO's whole role would be to educate the senior business staff on the value of IT and bring to the table those emerging technologies that will help the company either bring in additional revenue or reduce expenses or help it be more efficient and effective,” he says.

Ultimately, the business side has to understand IT is a major player as it relates to what the business units do going forward, Jenkins points out. “I've been a big proponent of the viewpoint business people can't plan properly unless they understand how IT can help them in their operations,” he says. “Therefore, it is incumbent upon [the business people] to understand the value of IT as it relates to their jobs. Over the years, I've seen the user community get more sophisticated in how IT can help.”

Through his experience with different IT shops, Jenkins describes the criticism of IT as being IT has good technicians, but it doesn't understand how to apply the technology to the business because it doesn't understand the business. At Penn National, Jenkins and his IT staff work hard on making sure the technologists understand the business of the business. “They should understand the business and how the technology can solve business problems,” he says. “We foster and promote education, not only in IT but also in insurance. People get rewarded for taking CPCU and IIA classes.”

Size Doesn't Matter

Should the size of the business matter in aligning business and IT? Jenkins doesn't believe so. “I'm with a medium-size company, and I have found the folks here are very literate about the business,” he says. However, Jenkins operates from a position of strength. He reports the average tenure within Penn National's IT operations is approximately 13 years.

With larger insurance carriers, there usually are more controls and/or formal processes to deal with, according to Saccocia. “But overall the size doesn't matter when it comes to business-IT alignment because it's a leadership and cultural issue to align business priorities with IT investment,” she says.

There are personnel issues to deal with, as well. “What you want to do is match up the personalities the best you can because you want the chemistry to be there so you can build that trust and credibility,” Jenkins says. Recently, Jenkins had another insurance company CIO visit his office, and the discussion led to aligning the business community with the IT operations. “He wants to make the next leap and educate his user community on the value of IT,” Jenkins relates. “It really becomes an educational issue.” Among the methods Jenkins has deployed successfully in the past include bringing in research groups such as TowerGroup and consulting firms such as Accenture to educate the business on how IT can be used to the best advantage of the company. “It builds a pent-up demand for more IT services, but it also underscores a lot of the plans we have in place to get things done to help them,” he says.

In the past, Jenkins has compared the fate of IT projects to abandoned babies–putting a baby on a doorstep, ringing the bell, and running away. “[IT] had to bring up the baby,” he comments. Today, though, most CIOs demand the business units become an integral partner. “From what I see, that seems to be more of the case than the exception,” he adds.

In summing up, Singh indicates communication is the biggest key for alignment. “When we started prioritizing our projects, people found it a little bureaucratic,” he says. “But overall the perception is this is much easier. They know what we are doing. We even have a simple spreadsheet. It has four different column sets. In the right column is our running list of projects, the column left of that is under review, the column left of that is in queue waiting for IT resources to be freed up, and the column on the extreme left is where projects are being executed. To be able to show the business units our priority set in a simple manner makes it easier for them to understand.”