CIOs ignore this responsibility at their own peril. As AMR Research pointed out in its report on “How Leading Companies Unite IT With the Business,” IT organizations that are viewed as expensive technical support are prime targets for being outsourced.

“Isolation is dangerous for IT and the CIO. It opens the door for misconceptions. It opens up the risk of IT being perceived as a commodity. Isolation can lead to extinction,” Travers says.

MAKING PROGRESS

The challenge of achieving effective alignment between business and IT certainly is not a new topic, but it's one that continues to be top of mind for CIOs. In fact, an IDG Research study from late 2008 found aligning business and IT goals was the number-one priority for IT.

Encouragingly, business/IT alignment has improved in the insurance space in recent times. “The trend is in the right direction,” says Travers. Part of the credit for that trend goes to the CIO.

“The CIO role itself has evolved into truly an information officer as opposed to a technologist,” Travers observes. “CIOs have had success in pushing the concept of their role in the organization toward providing management support and automation to enable better business processes.”

Another factor has been competitive pressure. “When carriers look at successful companies that have made a huge impact on their perception in the marketplace by their successful implementation of technology, it creates parity pressure,” says Travers. “Business is asking, 'If other companies can make technology work to their business advantage, why can't we?'”

And finally, Donald Light, senior analyst at Celent, credits a shaky economy with improving alignment around shared business and IT objectives “The economic crisis has had a positive impact to some degree,” says Light. “A lot of companies have looked for ways to tamp down expense growth. There is a natural opportunity, driven by necessity, for the CIO to be engaged with his peers on the business side around that issue.”

“The economic downturn has helped because decisions are simpler around project prioritization,” Travers adds. “Discretionary projects aren't up for discussion. The focus is on compliance and cost savings. It's easy to align around those and have the opportunity to come out a hero.”

INTEGRATION OR ISOLATION?

It's difficult to build an effective business/IT team when team members operate in isolation, but that has been a traditional organizational structure of IT. “An IT department should not be isolated, yet interestingly enough, in some companies, IT has its own department, its own building, and its own data center,” says Travers. “Yes, protect your data center but promote your people.”

Chubb believes in an integrated IT organization; in fact, the company's philosophy is illustrated by first letter of the acronym BASIC–Boundaryless, Agile, Strategic, Innovative, and Collaborative–which the P&C insurer uses to describe its IT strategy. Chubb is achieving a boundaryless organization through its federated IT structure and strong governance processes.

“Alignment definitely is easier in a federated model. Some would suggest it's more costly, but the value it adds is greater than any extra costs that arise,” says Jim Knight, Chubb's enterprise CIO. “Also because of our structure, IT knows the business well and vice versa.”

Within each business unit is a CIO who reports both to the unit leader and to Knight. Each unit has authority and responsibility for its own development within enterprise architectural guidelines. At an enterprise level, Chubb's core IT handles compliance and risk management, infrastructure, and standards and manages shared services. Core IT also is responsible for managing “centers of excellence” that serve as a resource for cross-unit development.

In turn, this cross-unit development has helped Chubb target the A in BASIC. “We're going to be agile and not let departmental barriers get in the way,” Knight says. “Even though we have alignment with and within individual business units, at the highest level, we are one IT organization. We won't let the fact different business units have to get involved to make something happen prevent a project from going forward.”

Because ownership of and accountability for IT assets rest with the business units, crossing boundaries requires governance to establish the authority for cross-unit team building and to ensure projects are developed in alignment with business strategy. Chubb's governance starts at the top and includes both an overall IT governance model as well as a combined business/IT governance model.

“Our business/IT governance is about making the right business investment in IT, regardless of the IT unit,” Knight says. He chairs the business/IT governance committee, which also includes the company's top underwriting officer, chief admin officer, and chief field officer. Enterprise projects go through a three-stage vetting process, with approved projects sent to Chubb's executive committee for final review.

At IFG Companies, business and IT staff are integrated both strategically and physically. “There is not only an IT presence in different locations, but there is a rapport and respect built up between the business and IT. It's probably the best organization I've been involved in,” says Mike Sciol?, IFG Companies' CIO.

IFG Companies has instantiated procedures into its organizational strategy and project governance that benefit business/IT alignment. “Our projects are prioritized by an IT steering committee. Those projects go into the budget. I go in front of the board and talk about strategy and budget. Every project has a business user group and a business executive sponsor,” Sciol? says.

“At the same time, there's a lot of communication back and forth with my staff and the business,” he adds. “Therefore, everyone is on the same page, and there's a high level of visibility into pain points and criticality and urgency of projects.”

Knight believes a centralized IT structure still can be effectively aligned with business, but it requires additional layers of governance.

“If every business unit has to make an appeal directly to the global IT organization, it gives that organization a lot more power. It takes a strong governance process to focus on the truly high-value projects and avoid 'politicking.' At the same time, it's more difficult to hold business accountable without unit-level integration, so business takes a hands-off approach, particularly when things do go wrong,” he says.

CULTURE WARS

Organization and governance are important, but so is a company's culture.

“There really is no substitute for a good culture and a reliable, trustworthy atmosphere,” says Matsumura. “The industry has learned over time mistrust is pretty expensive.”

Culture building starts at the top. “Leadership commitment is essential,” says Travers. “You can't just say, 'We're going to align business and IT.' You need to have teeth behind it. For example, the CIO needs to understand products so he or she can orient information to support them. IT needs to be encouraged to develop a deeper understanding of the business and the value 'levers' that drive it so IT can initiate and maximize contributions to the organization. The culture must enable that.”

CIOs also have to “take a stand,” stresses Travers, and insist business counterparts engage with IT. “CIOs take the heat for automation or technology that isn't working, but often that's because business simply dumps requirements on IT and doesn't engage,” he says. “The CIO has to stand up and say, 'I'm not getting engaged on this product until we get engaged around common measures of success both sides can agree on.'”

Communication also is essential to build a culture that values teamwork. “Whether you are CIO, VP of application development, or even a level down in the IT management structure, having regular conversations with your 'customers,' who are your business users, is essential. That could mean a formal feedback structure, having lunch once a month, or simply popping your head in their office,” Light maintains.

However, communicating effectively can be a challenge. “A lot of times IT doesn't understand business nomenclature and vice versa,” admits Sciol?. “Having your IT staff gain a broad understanding of how the business works is important.”

Therefore, Sciol? established a program at IFG Companies to train IT in how business works. He found business staff, including people who taught CPCU and other insurance coursework, who were willing to lead lunch-and-learn sessions with his staff.

“Over an eight-month period, we covered how underwriting works, what coverages and risks are, how claims flow, how losses are adjusted, and so on,” he says. “Not only did this familiarize my staff with the business operations, but the more people are used to working with each other through informal settings such as these, the faster things get done in an actual project.”

Sciol? would love to take business users through an “IT 101″ course, as well. “I could find an architect who can put things into layman's terms to explain at a high level what types of changes are easy and what ones are hard, or the time and effort that goes into developing a particular system feature,” he says.

However, establishing a formal training program for business staff would be impractical. “I do not want to take away front-line time from the people,” he says. Instead, Sciol? expects his staff to take the lead on bridging with their business counterparts.

Similarly, Knight says the C in BASIC could stand for communication as well as collaboration.

“Our structure means IT folks are quite business-savvy in regard to the line of business they're associated with. Commercial lines folks know commercial lines business. Personal lines folks know personal lines. Claims knows claims. Importantly, by being familiar with the whole process of that business, they can come up with better ideas for process improvement.”

Chubb does have collaborative technologies in place, including a social networking application on the company's intranet where ideas can be presented and discussed. Recent topics have included ideas for profitable growth, how to be more efficient in IT, and how efficiencies can be reinvested to make IT even more effective. Comments are opened to various constituencies based on how ideas impact them.

“Ideas can be built upon, comments can be added, and topics that rise to the top get attention,” Knight says. That attention includes a review by Chubb's internal venture capital team for funding consideration.

Another element of building a culture that embraces teamwork is promoting project success. “We see a lot of investments made and a lot of projects get done where there isn't a demonstration of results,” says Travers. “Those results should be communicated and celebrated throughout the organization. That is the extra effort that should happen at the end of the project to promote team building.”

Companies may tie compensation or bonuses to project success, but the devil is in the details of how success is defined. “Without some sort of a reliable measurement and trustworthy atmosphere, you can end up with people gaming the system, particularly as you come up with bonuses,” says Matsumura. “One CIO told me after the company created an on-time delivery bonus, IT delivered more projects on time or ahead of time. However, the CIO did that by rescoping the definition of 'project.'”

“You have to have IT success measures that align with business goals,” says Travers. “It's not just about getting it done on time. Did you save money? Reduce cycle time? Improve customer service? What were the objectives we accomplished? You need to come up with the most relevant measures that are the least subject to manipulation and tie the compensation of both business and IT to that. However, that's not something that a lot of companies are truly comfortable with, particularly on the business side.”

In addition to metrics-based performance benefits, Chubb has an “Enterprise Rewards and Recognition” program that is open to both business and IT staff. “We identify those teams or people who truly cross boundaries to get something done for the enterprise,” Knight says. Rewards include compensation bonuses, gift certificates, office parties, or extra days off.

But Chubb also holds business' feet to the fire for benefits that are projected when project proposals are approved. “The business sponsor is responsible for the benefits, which are tracked by our financial department. If business says a project will result in a lower budget in a particular area in X years, financial lowers the budget accordingly in X years. That means only the truly high ROI or strategically important projects make it to the top.”

Chubb's metrics-based approach is growing beyond project management into overall IT operations. “We're starting to run IT like a business–truly management by metrics,” Knight says. “It's not about asking how much IT costs but how much value we provide. Are we investing our money in the right way? How much of our money is spent on strategy and innovation and not just keeping the lights on?”

ZEN AND THE ART OF
ARCHITECTURE

Technology cannot create alignment, but it can impede it. “Business asks for a change, and IT says it will take a lot of time and money. The business folks are not happy. So, slow, unresponsive, inflexible IT systems make it difficult to align business and IT,” Light says.

“What frustrates business users is that a change sounds easy to them, so what's the problem with getting it done? The issue is that business doesn't understand the complexity of some insurance systems. Therefore, the right architecture can contribute to alignment by enabling flexibility, increasing understanding, and creating intersection between business and IT ways of thinking,” Matsumura says. “Architecture can become the language for collaboration.”

“One of the great selling points of newer systems that have been built or replatformed is greater flexibility,” says Light. “The average time and average cost for the average request should be a lot less than it has been with legacy systems.”

“Technological evolution, particularly SOA, has had a profound influence on insurers' ability to get things done,” Sciol? says. “We have software development kits that are more and more sophisticated. There's been better logic put around XML schemas, marshalling data, where and how to store data elements. There's an overall reduction of ETL processes. All of this makes us more agile as a whole, which improves our ability to deliver business value.”

But architecture can be a tough sell. “For instance, if you're getting a new admin system, you can talk about all types of benefits. If you're making an investment in SOA, other than some very general statements, it's hard to say the benefits to underwriting will be X, Y, and Z,” Light explains.

As anyone who has ever taken a writing course has heard, “Show, don't tell” is the objective. “We're demonstrating tons of value from reuse, Web services, and BPM technologies. We've been able to share knowledge and work across the IT organization so we can move quicker. We've shown the value of having enterprise tools such as our rules engine and document management platforms. As we learn more about them and become more savvy in their use, we can respond more rapidly to what business needs,” Knight says.
“We also have implemented an agile development center to inculcate that into our culture, and so as the next year or so plays out, we really can improve our ability to execute,” he adds.

Still, architectural change is a marathon, not a sprint, and Knight admits IT's ability to deliver everything a business wants, and to do it quickly, often is constrained by some legacy system inflexibility.

“Business users are frustrated along with us, not at us,” Knight says. “They know we have real challenges.”

GAME PLAN

Will alignment remain a top concern for CIOs in the coming months? Likely so, Light believes.

“It's a long slog. People change. Priorities change. Demands on the business side are very dynamic. However, IT is resource constrained, and it should be by nature,” he says. “Also, there is an inherent tension between IT and business. The trick is to recognize it, manage it, and do what you can to make the working environment as productive as possible.”

The primary responsibility for reaching across the aisle will fall to IT, and rightfully so, Sciol? maintains.

“At the end of the day, IT costs business money,” he says. “Therefore, the business needs to believe we are a true service provider and an integral part of the business rather than a commodity.”

“We don't want to be order takers, we want to be solution providers,” Knight says. “We are making good progress in that area, but we always have room for improvement.” TD