Elite CIOs Think Leaner and Meaner

Despite having their budgets trimmed and staffs reduced, insurance CIOs are being asked to increase productivity and stretch IT dollars farther than ever before. But even though times are tough and the economy shows no clear signs of turning the corner, there is a silver lining within the cloud of the sometimes difficult decisions IT leaders have had to make. "Situations like these actually make IT organizations stronger," contends Greg Ross, president, eStrategies Consulting, Inc. (Acton, MA). "If they are well managed they can become more lean, mean and agile, and better positioned to come out of a downturn."

Further complicating the CIO's job during the past year, many companies' plans for enhanced technology infrastructures and e-commerce initiatives were put on the back burner to make way for disaster recovery and risk-scenario planning. Because most CIOs already were working with limited financial resources, even the most constant of needs—such as core systems maintenance—could become an obstacle.

But "doing more with less" hasn't only meant cutbacks. In addition to trimming fat by canceling pending projects, IT leaders also have found ways to cut costs through options such as strategic outsourcing and renegotiation of existing vendor contracts.

Although it has been one of the most difficult of years and the problems may continue into 2003, for the elite CIOs who have managed it well, there is a light at the end of this long, uncertain tunnel. The experience of Byrne Chapman, an Insurance & Technology Elite 8 2001 honoree and vice president of information services, American Family Mutual Insurance (Madison, WI, $10 billion in assets), reflects that of the typical insurance CIO in 2002. The carrier's "IS has been challenged to deliver more value to the business through IT systems without a significant increase to our budget," concedes Chapman. "While we focused on delivering new technologies, we must also work to control our costs of infrastructures. This scenario goes beyond doing more with less."

Increases Not Significant

Although Chapman and a number of other insurance CIOs have actually reported increases in their 2002 IT budgets, for the most part tech budgets in the industry were flat this year, according to Mike Adler, partner responsible for PricewaterhouseCoopers' (PwC) New York-based Americas insurance consulting practice. And even though CIOs (like Chapman) are working with increased budgets, they haven't exactly been spending to their hearts' desires, according to eStrategies' Ross, who points out increases were by no means significant.

Not surprisingly, limited spending by CIOs has been reflected in the technology solutions marketplace. "Vendor revenues have dropped substantially because some projects have been cancelled," reports Ross, who has observed a scaled-back or level-spending approach by IT leaders during the past year. Fortunately for CIOs, the decline in demand for insurance technologies has been accompanied by a reduction in hardware and software prices. Furthermore, because of the downturn, vendors of insurance technologies are now more open to contract negotiations—and renegotiations. American Family's Chapman has taken advantage ofvendor flexibility. "Across the board we have worked with our major vendors to renegotiate long-term agreements," he says. "American Family has successfully renegotiated contracts with key software, hardware and network vendors to deliver a significant impact."

In addition to more flexibility on pricing, vendors are focusing on marketing smaller, less-comprehensive packages. "Vendors are delivering functionality but not on such a grand scale," says eStrategies' Ross. This actually creates additional challenges for CIOs because, according to Ross, the ROI with such products is questionable.

Actually, insurance-specific systems have not been the focus of much of the insurance company tech spending this year. In addition to allocating funds for products to aid in disaster recovery and other security-related issues, September 11-spurred legislation had to be taken into consideration by insurance CIOs. Although they have yet to feel the full financial impact of USA PATRIOT ACT compliance, IT executives, depending upon their market coverage, may be expected to allocate between $250,000 to several millions of dollars for compliance-related expenses, according to Jamie Bisker, director, insurance practice, TowerGroup (Needham, MA). Although not all CIOs will have to dip into scarce funds for compliance needs—because some carriers' boards set up special project budgets for this task—every insurance company CIO will have to consider the new regulations during strategic planning for 2003. Such is the case with American Family's Chapman, who says, "Regulatory compliance issues add another caveat for IT professionals to consider when designing functional requirements for new and existing systems."

Back to Basics

With all this weight on their shoulders, it's a wonder that CIOs are even able to tread water, much less move their organizations ahead competitively. In order to balance these seemingly unmanageable concerns, Ross from eStrategies stresses the importance of a simpler approach. "Usually, when there are fundamental changes, it's always good to get back to basics," he relates. "This is a time when IT can try to focus on core processes and mechanisms within the company that help them to deliver high value."

Additionally, in these times of economic stress, the close examination of ROI as a decision-making factor has resurfaced, according to Ross. Projects that may only begin to reap returns in the long term are giving way to those with shorter ROI-the reason being that the shorter the return, the less risk there is involved with a project. Also, projects expected to bring a quicker return can be tracked more closely because it's easier to time-box implementation steps. Lastly, Ross says, while certain projects reap fairly quick returns, IT leaders must avoid being overeager and invest an adequate amount of time in planning.

These same concerns apply to the increasingly popular practice of outsourcing. According to PwC's Adler, most outsourcing deals are long-term and, although they can reap fairly quick returns, CIOs who enter into such deals too quickly run the risk of failure. "It will take some time to outsource in a big way and get dramatic ROI," relates Adler. "Sometimes CIOs jump in too quickly and deals are not managed properly on an ongoing basis."

Additionally, risk-averse CIOs cannot be strictly short-sighted when it comes to length of time they'll have to wait to see returns. Although he does focus on short-term projects, American Family's Chapman stresses the strategic importance of investing in long-term initiatives, as well. The carrier, says Chapman, has been able to balance its focus between both types of initiatives. "CIOs need to keep the lights on and focus on their current business environment," he advises. "Yet, you also need to be thinking ahead and working to support the company's long-term strategy."

No matter the means of surviving the downturn, the main concern of IT executives, says eStrategies' Ross, should not be "the size of the IT budget or number of projects managed," he says. "The most important thing is that a CIO is someone business members can trust to advise them on the technology needs of the business." For those who strategically solve business problems, "the downturn presents a great opportunity to demonstrate how to make an impact to the bottom line," adds PwC's Adler.

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ELITE 8 2002 CONSULTANTS ADVISORY BOARD

Mike Adler, partner, PricewaterhouseCoopers' Americas insurance consulting practice (New York)

Karen Furtado, vice president, consulting services, CGI (Montreal)

John Johnsen, managing director, TCi Consulting (Cresskill, NJ)

Chuck Johnston, program director, insurance information strategies, META Group (Manchester, CT)

Matt Josefowicz, senior analyst, Celent Communications (Boston)

Mike LaPorta, global leader, insurance, Deloitte Consulting (New York)

Greg Ross, president, eStrategies Consulting (Acton, MA)

Glenn Sieber, managing partner, insurance industry practice, North America, Accenture (Chicago)