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The Critical Path to Excellence

The implementation of governance bodies, project methodologies and portfolio tools are improving insurers' abilities to manage technology initiatives successfully. But if there's a secret to effective project management, it's genuine alignment of the business and IT.

The implementation of governance bodies, project methodologies and portfolio tools are improving insurers' abilities to manage technology initiatives successfully. But if there's a secret to effective project management, it's genuine alignment of the business and IT.


It often is said that adversity is a good teacher, and a good example might be the improvements in project/program management achieved within the insurance industry as a consequence of the recent economic downturn. As budget resources grew scarce, insurance companies were forced to become more disciplined in their technology investments, from solution decisions to project deliverables and beyond. In an industry notorious for failed IT projects, project management-related initiatives proliferated in the form of measures such as the institution of governance bodies, the implementation of process methodologies such as Six Sigma and CMM, the adoption of project portfolio management tools and the requirement of Project Management Institute (PMI) certification for project managers.

That these measures have had some effect in rehabilitating the reputation of IT is impossible to doubt. And yet, the overall progress of the industry seems easy to overestimate. Positive results of project management-related initiatives have been well publicized, but little information is available about the overall performance of the insurance industry, and anecdotal evidence suggests that it continues to be disappointing - and costly.

In this respect, it's no accident that so many insurance executives continue to identify IT and business alignment as a high priority - the desire for alignment exists in proportion to its absence. And as long as that's the case at many insurers, project/program management will remain a troubled endeavor.

Not surprisingly, the companies that employ a more deliberate approach and more consistent methodology - from high-level and detailed business requirements through development and user testing - are the ones more likely to succeed, according to Ed Fenwick, a partner at Dallas-based consultancy R.E. Nolan. However, in most organizations, "That process is still broken," he asserts. Depressingly, the breach exists where it always has - between what the business wants and what IT actually delivers.

Over the Wall

"Once business requirements are submitted, the wall goes up and IT says, in effect, 'We'll be back to you with a solution,'" comments Fenwick. In a majority of cases, he adds, "That solution is at odds with the real needs of the business, for one reason or another."

But large-scale project management efforts are not a panacea, Fenwick cautions. Project/program management offices can over-bureaucratize the project process and result in unjustified extra overhead, he asserts. "The blind adoption of tools and techniques without maintaining tight business accountabilities can leave you no better off than you were before," Fenwick says. "At the end, you have all the boxes checked and everything done, but you end up asking, 'How is the project different than if we didn't go through all this rigamarole?'"

Methodology and documentation even can serve to mask failure, Fenwick continues. As an example, he cites the experience of a mid-sized insurer where, upon completion of a major initiative, the outcome was found to be totally unsatisfactory by the sponsoring business executive - even though "They did a postmortem on it and all the steps and requirements were accomplished," Fenwick relates.

Behind cosmetic demonstrations of success was a tacit agreement between the IT manager and members of the business team to the effect that "We'll get something in place," according to Fenwick. In other words, they gamed the system in order to be able to produce something that could be declared a success. "That's not a new trick, of course," notes Fenwick. "But it was done in the midst of a project that had a fairly sophisticated project management capability - the executive in question was absolutely dumbfounded that such a thing could happen."

Crisis of Credibility

Executives who are put in this position by IT are not likely to forget, and the result is likely to be the very opposite of IT/business alignment. Such an outcome is not merely unfortunate, but potentially catastrophic, in the view of Todd Eyler, vice president, financial services/insurance, for Stamford, Conn.-based IT research firm Gartner. Eyler believes that insurance industry executives face a crisis of credibility with their business partners.

"There's a perception within companies that IT doesn't execute projects very well, and that makes it very difficult for [IT executives] to do a lot of the more complex things that they need to do to drive the business forward, whether that be straight-through processing, enterprise data warehousing projects, big BPO or BPM deals, etc.," Eyler submits. "Business executives don't think that the IT folks have their house in order, and they don't want to spend tens of millions of dollars with people they don't necessarily have a lot of trust in at this point."

Credibility will only come when IT executives prove that they can execute projects on time and at or under budget. But the majority of projects continue to fail that requirement, according to Eyler. "Historically, there's been a game of obfuscation whereby IT people try to make themselves look important and smart by making technology seem complicated," Eyler argues. "Obfuscation combined with a high project failure rate means that business people just tune out, and that creates a huge challenge for the industry."

Eyler refers to an absurd and yet pervasive situation whereby the distrust of the business has a paralyzing effect on companies' abilities to become what they need to in order to be competitive. This creates waste and frustration. But every cloud has a silver lining - the companies that do have a tight linkage between their IT organizations and their businesses will be able to execute successfully on projects over the next couple of years. Those companies, opines Eyler, "will be the hunters rather than the hunted in the next round of industry consolidation."

What Eyler identifies as a cause for concern also can be seen as a spur to better performance - and not just on the part of IT. The adversity of the post dot-com era may have taught companies to be more conscientious and careful, but it also led to sterility - companies were focused on economy rather than growth. Now that the purse strings are loosening, many insurers are once again looking to invest in technology as a means to grow. Those insurers not content to wring their hands and dwell on the incommensurability of IT to the task are looking to find the IT capabilities they need wherever they can find them and are arriving at an even more novel insight - that success in project and program management requires expertise on the part of the business as well as IT.

Markus Nordlin, CIO of Los Angeles-based Farmers Insurance (a subsidiary of Zurich Financial Services; Zurich; $2.12 billion in net 2003 income), says that as many insurance companies push toward growth - Farmers included - their technology executives find themselves facing large-scale transformational initiatives as opposed to the medium-size projects that had become more common over the past few years. Accordingly, "middle- and senior-level individuals need to have large-program management skills on top of project management skills," Nordlin argues.

Some individuals within organizations can be brought up to speed, but in many cases carriers have to look externally. "Those skills are sometimes more readily available among, for example, consulting refugees - people who have been on those large types of transformational engagements," Nordlin says. "We can draw those into IT to help bolster our internal [skill] core."

But another important step many companies are taking, according to Nordlin, is to develop some of the same capabilities on the business side, where they have traditionally been absent. "The business partners are several years behind IT," he argues. But now, at least in some cases, he adds, "They are putting their own folks through the project management classes that our [IT] folks might have been in several years ago, and they are also recognizing the need for more senior, even officer-level, change agents that can drive large transformational initiatives."

Business Ownership

Since such initiatives affect the entire organization and have, at the core, a business logic and rationale, they are best driven by the business. "We can't push these from IT," Nordlin submits. "They are much more successful when they're pulled from the business and the business leader in the particular unit involved." Farmers' large programs today are, whenever possible, led by a designated business lead who has skills and experience in large change initiatives and serves as the single responsible actor, with line-of-sight accountability for the entire program, according to Nordlin.

The Guardian Life Insurance Company of America (New York; $39.5 billion in assets) also has instituted the accountability of business leads - business project managers, in the life insurer's terminology - to lead and take ownership of overall project plans, of which an IT project plan is considered only a part. The rationale for such ownership, as expressed by Dennis Callahan, Guardian's executive vice president and CIO, is built on a perspective shared by many in the business. "So often, IT projects go awry owing to the piece around requirements gathering, testing or controlling scope, or putting together the marketing, training plan, etc. - things that are not directly within IT, but that all need to work together with IT for a project to be effective," he says.

Guardian has extrapolated from that common insight to take the uncommon step of establishing a corporate project management office (PMO) with oversight for both IT and business projects. "We've positioned the corporate PMO as an objective third party to be an advocate and [provide] insurance for the success of projects," Callahan declares. "It is much more activist than an audit function might be, working with both the business and IT areas to make sure that both do what they need to in order to maximize the success of the project."

The antecedents of the corporate PMO are Callahan's institution of the company's first PMO when he arrived at Guardian in late 2000, as well as the forging of a tight partnership with business and IT upon his assumption of his duties as CIO. Working with the business side of the house as well as IT on project management discipline remained a priority as the PMO evolved over the following years in terms of standards, process and methodology, he relates.

Over the nearly five years that the IT PMO has been operating, it raised the IT organization's percentage of projects completed on time, on budget and delivering on promised value, according to Callahan. Company leadership recognized that project/program discipline applied to the businesses as well as to IT, and between 2004 and the present, Guardian's two major businesses - individual and group insurance - established their own project management offices and teams.

This April, the insurer took the further step of establishing the corporate PMO, headed by assistant vice president Jim Sweeney. "Jim came aboard as a consultant to run an enterprise resource planning initiative for us, and then to run the IT PMO," Callahan relates. "Now, he brings all the areas together, reporting to the CEO and looking to leverage project management best practices across the whole business rather than just focusing on IT."

Sweeney himself characterizes the corporate PMO as "creating a triangle, bringing all the parties together, making sure we're talking from the same playbook, and that we're working to satisfy clearly defined objectives."

The corporate PMO essentially monitors IT and the business to assure alignment on initiatives wherein they need to work together. The PMO clarifies the ownership of the project, the definition of the requirements, the responsibilities of the respective parties and the resources required in terms of amount, kind and timing. "Positioning the PMO as we have, as well as the [business lead] project accountability as we have, makes for a dialogue very early in the project around whether we have the right ownership, the right participation, the methodology that matches the project's magnitude and the right plan," Sweeney asserts.

Accelerating Business Leadership

The positioning of the PMO also helps to compensate for the lag in project management acumen on the business side, according to Sweeney. "We find that, while for IT people, project management may be in their blood, on the business side, there may not be a career path for a project management role," he says. "One of the key things we're looking to do is help accelerate the project management function on the business side."

That help includes leveraging existing internal assets, such as driving the adoption of Primavera's (Bala Cynwyd, Pa.) software, which Sweeney describes as "the guts of our project management tool set." Primavera's database currently houses information on all of Guardian's IT resources - and will be adding information on business-side resources - as well as all work plans and work templates. The solution uses that information to drive project and portfolio forecasting and reporting. The corporate PMO also assists the business side by providing just-in-time training, according to Sweeney. "As we go through a project, we assess where they are and whether we can help with any accelerators we have to guide them through a given stage," he says.

Although, on average, Guardian's project managers exceed proficiency norms measured through third-party assessment, there is room for improvement, according to Callahan. But, by leveraging the seasoned and certified experts in the PMO, "We can drive their further evolution as mature project managers and compensate for those who still need improvement," he says.

Guardian's IT organization's performance since the institution of its PMO shows close collaboration between business and IT leadership. But Callahan believes that the corporate PMO paradigm is likely to drive even greater alignment at Guardian and elsewhere. It makes it much more difficult for misalignment to happen between IT and the business, and makes that misalignment evident early in the history of a project, before much time, money and patience are expended, he argues.

Callahan's hope for his own organization is that the corporate PMO will further increase on-time, on-budget performance of projects. "I don't know whether we'll achieve perfection," he says, "but we're going to try like heck."


Fundamentals of Program Management

Insurance companies may have made progress in managing large-scale transformation initiatives, but what has troubled projects historically is likely to continue to trip up project managers. Farmers Insurance CIO Markus Nordlin reflects on how to avoid the most common sources of difficulty in large change efforts.

"There's no rocket science here - it's always the fundamentals," Nordlin insists. The first item on any list of pitfalls should be "good old-fashioned scope control," he asserts. "The projects that we've struggled with are the ones in which we've let scope and change control get too loose."

Governance is critical for the success of large transformational programs. Nordlin recommends "making sure one has executive sponsorship from the top and a very senior executive leadership board to act as a steering committee for all large change initiatives."

Related to ensuring executive sponsorship is managing effective communications to all affected parties throughout the organization - for the entire duration of the initiative. "Much of the time, we focus on our development and testing plans, and no one remembers the communication plan," Nordlin comments. In the absence of good communications, he adds, "The rumor mill kicks in to fill the void and does so very effectively, and almost invariably with misinformation."

That can have a damaging effect on any project, but it can be disastrous for major transformation efforts. In such cases, according to Nordlin, it is paramount that all affected stakeholders learn the goals, the rough time lines and even the communication plan itself. "They need to know when they'll be told what the next stages of change will be and be brought along so that they can be pulled, as an organization, through the change curve, through the valley of despair and back up the other side," he asserts.

Deliverables themselves can serve as a form of communication, and Nordlin says they should happen frequently. "With major programs, there's a temptation to set long lead times because any given phase will be very complicated," he explains. "But one should do one's best to continue to break these phases down," Nordlin adds. In Farmers' case, he says, "We don't have quite 90-day implementations on most legs, but we remember that we need to demonstrate victory early and often." By doing so, he continues, "We keep the sponsors' confidence up, we sustain the morale of our team and that of our business partners, and we keep the funding alive and well."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

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