The Technology Investment Payoff

AFLAC CIO Jim Lester's soothing Southern drawl and the company's humorous duck mascot could lull one into thinking the insurer is old-fashioned when it comes to technology. Not at all. With an entrepreneurial spirit developed over more than 20 years of creating software companies, Lester keeps AFLAC (American Family Life Assurance Company of Columbus, Columbus, Ga., $11.4 billion in assets) on the cutting edge with important technology initiatives, such as a $60 million IT infrastructure facelift.

Jim Lester, chief information officer, AFLAC

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I&T: As a supplemental insurance provider, how do your challenges as a CIO differ from the challenges faced by CIOs at other types of insurers? What technologies are most important to your business?

Lester: CIOs in any large insurance company face similar challenges, but since most of our business is through payroll enrollment, our enrollment process has to be very efficient. We have fairly well solved this challenge with SmartApps, our point-of-sale laptop enrollment system we built in 1992. With SmartApps, we accomplished a couple of pioneering technological feats, including designing object-oriented forms and improving computational speed. SmartApps helps our agents in the field in a number of ways, including ensuring compliance with all state regulations, taking electronic signatures, and performing strong edit checks. In fact, in 1999 SmartApps was named one of the top 10 business technologies of the decade by the Smithsonian Institute. While many of our competitors have followed suit and now offer laptop enrollment systems, as an early adopter we've gotten great benefits from this technology. As you know, as technology becomes more widely available it becomes more a cost of doing business as opposed to being a competitive advantage.

I&T: Are you moving SmartApps into a wireless environment?

Lester: We don't use SmartApps wirelessly right now because the benefits are debatable. Wireless may have some greater advantages as time goes on. Right now, I'm not sure being wireless is a huge competitive advantage.

I&T: SmartApps was cutting edge when it was released in 1992. Is AFLAC currently deploying other cutting-edge technologies that could continue to differentiate your company from the competition?

Lester: Well, if I told you, I'd have to kill you! There is some stuff we do that we don't want to totally disclose for competitive reasons, but the truth is that there are not a lot of magic bullets out there. We concentrate on good blocking-and-tackling-type technology and emphasize the execution. But one project that has provided big advantages is reengineering some of our nightly batch code into real-time Java code. We researched this project with IBM (Armonk, N.Y.) and others for a year and a half, and the results have been very impressive. We went into production in January 2003, and now process all our electronic applications in real time. With 2.6 million applications a year, you can see how this is a very valuable part of our application portfolio.

I&T: How is the economic recovery affecting AFLAC's investments in its own IT?

Lester: AFLAC has been doing well through the bad times and our executive team has always appreciated the benefits of technology. Unlike a universal life insurer that writes a smaller number of huge policies, we're a high-volume business and we put a lot of transactions through our technology infrastructure. We believe in consistent investment in IT-AFLAC has made a strategic decision to invest $60 million in technology over a three-year period, and it's really paid off for us. Some of the technology work has been fun stuff, but we've also been rebuilding our infrastructure, including our networks, our operations center, and our phone systems. As a result, our infrastructure has been performing great.

I&T: What processes does AFLAC have in place to ensure that IT spending aligns with strategic business goals? Does this help with corporate governance?

Lester: We've been migrating toward a project-based organization and delivery mechanism for IT, as well as developing a corporate IT governance methodology where we allocate budget amounts from a pool of projects sponsored by our business units. It's the major opportunity for IT to align with our business units. It has worked quite well for us and we're very pleased. All of our projects run through our project management office, or PMO. PMO scores and rates projects before they are presented to the steering committee. We initially approve projects through the requirements stage and only approve the whole project when the project sponsors come back with established deliverables and requirements for concrete ROI and benefit/cost analysis. Our organization is matrixed so we schedule people out of IT and PMO to work a project until it is finished, and then we release those resources for another project. Our steering committee includes divisional senior officers as well as the COO and CIO. The CFO and CEO are not on this committee. Since they are also in charge of AFLAC Japan, their scope of responsibilities extends beyond the U.S. Japan does three times the business as the U.S., so compared to Japan, we're small potatoes.

I&T: What kind of challenges have you faced in responding to the increasing demands of regulatory compliance? Which regulations have had the most impact on AFLAC?

Lester: Could you hand me my Tylenol now? It's pretty bad. We are spending a lot of time and money on HIPAA, both the EDI-transaction portion and the privacy requirements. We're spending a good deal of time on the Gramm-Leach-Biley requirement. We're spending time on fulfilling the revisions and requirements of the PATRIOT Act, and on that big guy, Sarbanes-Oxley. We're spending a considerable amount of time on that one. We're allocating substantial amounts of resources-both people and investment dollars-into fulfilling these government requirements. It's a big challenge but our governance process helps us, since our business people already understand the priority we must give to meeting regulatory requirements as opposed to business projects. When the business units understand what we are being required to do, it makes for a better collaboration and better teamwork across the entire corporation in these challenging times. I hope the worst is over, because if it's not, we're going to have to figure out-not only us but all companies--how we are going to continue to do business.

I&T: AFLAC has once again been named to Fortune's list of "100 Best Companies to Work For in America." What are some of the ways that IT contributes to your sixth straight ranking on this list?

Lester: Our employees have machines and systems that work. They have the latest technology available-within reason-to get their jobs done. I think that's encouraging to our workforce. They are not being shortchanged technology-wise. They are not working late hours to make up for bad or slow, unresponsive systems. I'm not saying that all of our systems are perfect and that there aren't hiccups and delays occasionally, but for the most part, we've given employees the technology to do their jobs and do what their customers are asking them to do. That's very important and it makes for a more purposeful life when you come to work.

I&T: What newer technologies do you think have the greatest promise for AFLAC?

Lester: Technologies that enable you to knit together your disparate legacy systems using EAI-type tools are very exciting and offer a lot of promise for AFLAC and other companies. Self-service will have a big impact on AFLAC. We're planning to implement self-service for our associates, our payroll accounts, and our insureds in places where meaningful work can be accomplished and good service can be provided. We don't want to sacrifice our total service quality just to do self-service, but where it makes sense, that's where we are investing.

I&T: As CIO, what's the most challenging aspect of your job?

Lester: Managing the operational in addition to the strategic. It's a real challenge to make sure that your organization is providing for the operational needs of the company and at the same time doing the strategic work that gives you a competitive edge. It's like having children-I had two kids and they both wanted my time. You have to be able to give time to both.