CIO Tested by Concurrent Y2K/Demutualization

Year 2000 was a major headache for most insurance company CIOs. However, Y2K was only a small portion of the late '99 IT migraine for Robert Walters, executive vice president and CIO at Boston-based John Hancock Financial Services.

While Walters was de-bugging John Hancock's systems of the Y2K problem, he was also busy readying systems for John Hancock's demutualization. "Y2K and demutualization happened within weeks of each other," Walters reflects. "The technology work for demutualization was the largest single project ever undertaken here," not to mention the enormous Y2K project occurring at the same time.

"It was probably the most stressful time of my career," Walters says. "The imperatives of the two projects were conflicting." Y2K remediation called for "locking down" systems, or making the systems unavailable for changes, once they were deemed Y2K-ready. Demutualization called for constant access to systems to make continual changes in accordance with regulatory (SEC and state) requirements. "Demutualization required a great deal of communication, not only within John Hancock, but also with the regulators. It was quite a challenge balancing the two projects and it was definitely a unique time in my career," according to Walters.

One of the largest sub-projects for John Hancock's ($127.8 billion in assets under management) demutualization was building a demutualization database that calculates the value each customer should get once the company becomes public. Walters used a combination of internal IT staff and systems integrators to build the system. "There was a lot of interaction with the internal business partners," Walters says. "We had to keep them up to date and there were always changes and tweaks that were coming from the regulators. As you can image, there were a lot of re-runs during the demutualization."

Employees' Knowledge Proves Vital

Luckily, Walters says, John Hancock's IT staff was up to the task of readying the systems. "The success of the demutualization really depended on the knowledge of the internal people," he says. "I was really amazed at how complicated life insurance administration is. Opening up the systems to develop new products for a public company required an in-depth knowledge."

Walters' surprise at the complex world of insurance is due, in part, to his extensive background in banking. "I'd like to think I was one of the first banking technology people that was tapped to come into insurance," says Walters, who joined John Hancock in 1995 after a long tenure at Citibank. "My background at Citibank was an important reason why John Hancock recruited me. I managed the creation of Citibank's systems for the creation of the European Community," namely bringing 14 separate banking systems together. "When I joined in '95, Hancock's systems were decentralized and we wanted to become more centralized."

Walters' experience with "banking typical" front- and back-end systems also helped him at his new company. "I found that insurance applications lacked a front- and back-office orientation," Walters says. "Everything was together in one large application. The adoption of front- and back-end architectures has helped us, especially when we moved to the Web."

By moving towards becoming a more centralized IT shop, Walters was looking to cut out some redundancy at John Hancock. "When technology was decentralized, no two groups had the same technology standards and many had competing or conflicting technology," Walters says. "Now we have the same tool set. All developers have to develop according to the same standards."

While standardizing technology, Walters also began a consolidation of third-party consultants and technology partners that worked with John Hancock's IT. "When I got here, all of the Big Six consulting firms were working with us. Now we are free of all of those companies," he says. The third-party consolidation effort was aimed at reducing the average cost of a development day. "When I got here, I took the cost of development expenses and divided it by the number of working days. It was very high," partially because of the many consultants, Walters adds. "We got rid of most of the systems integrators and now we primarily work with IMR Global and CGI," in both onshore and offshore development roles. "We can get large volume discounts and we are able to do more for less."

Weathering the Storm

The scaling back of external help and the centralization of IT have positioned John Hancock's IT well for the current economic climate. "We hit our spending peak in '99," Walters says. "We have not been forced to cut back staff at all. We are spending less, but we are doing more. The businesses are willing to make cuts in other parts of the organization's budget before they cut back on IT," he adds. "So far there have been no cuts in the IT budget. When business partners make cuts in other areas before IT, it tells you something about how important technology is to John Hancock. As a CIO, it makes you feel good."

The successful demutualization and the shift to a centralized and standardized IT shop have gained the attention of David F. D'Alessandro, CEO and president. "There is definitely a greater focus on IT from our CEO," since Walters first joined John Hancock. "He is very understanding of information technology and how important it is. He was pretty impressed with the demutualization, so much so that he was smart enough to put the technology in front of the stock analysts when it came time to go public."

Another measure of the importance of technology to John Hancock, says Walters, was his recent naming to the six-member Policy Committee, an executive committee that includes CEO D'Alessandro. "My elevation to the executive committee says a lot about the function of IT here," Walters says. "Technology gets to sit in the office of the chairman. If you look at the organizational charts of other companies, it is rare to see technology in that position. Being named to the committee is one of my greatest accomplishments."

Another achievement Walters is proud of is John Hancock's recent qualification as Capability Maturity Model (CMM) Level Two, a software development and management methodology. "I think John Hancock is the only insurance company that has the entire organization certified as CMM Level Two," Walters boasts. "We worked very hard at it and I am very proud of our team. The CMM qualifications are very rigorous. We will recoup the investment in other projects, because CMM Level Two will help us get a better cost-benefit analysis on projects. Other companies claim they are CMM-qualified, but we actually went through the certification," Walters adds.

With the more efficient and centralized IT operation, Walters says John Hancock will be well positioned to take advantage of future insurance trends. "Consolidation is certainly going to increase over the next few years," he says. "We can't afford to spend technology dollars on the same projects in different parts of the organization. We get together and when the project lists from different business unit look the same, we work together."

Also, Walters sees consolidation happening first within insurance before it spreads across all of financial services. "I don't think the synergy will be easy to find with banks buying insurers," Walters says. The lack of synergy especially applies to the technology side of financial services. "Technology for insurance and banking is just different enough that you don't get the cost savings. Combining technology is a hard, risk-ridden job."

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Robert F. Walters

Executive Vice President and CIO

John Hancock Financial

Size Of IT Staff: 1,100

Interests/Hobbies: A master carpenter, "I beaver away every day in my workshop."

If He Could Start Over: "I would have gotten into the international scene a lot earlier. Living overseas was very rewarding."

Favorite Movie: The Godfather (Part I)

Ideal Vacation Spot: "Any villa on the water in Europe."

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio