A Piece of the Puzzle

By Matt Buttell, Deputy Editor

At insurance company Liberty Mutual, information technology strategy is inseparable from business strategy. The more important IT is for your business, the less it is about the technology, as CIO Stuart McGuigan explains.

Even with the current state of the market, insurance businesses are still investing in IT. But, while technology continues to play a crucial role, the day to day focus can change. As Stuart McGuigan, CIO at insurance giant Liberty Mutual notes: “One of the keys to being a successful CIO today is to view yourself as part of the business. This means understanding and even anticipating changes in business cycle. A soft market may not be the best time to pitch a systems replacement project. It may be a great time to use process improvement to drive down maintenance costs.”

Can a career information systems professional bridge that gap? “There are some very good CIOs who have spent their entire career in the systems organization,” continues McGuigan, “but they have all managed to become experts in their company’s operations. I would advise aspiring CIOs today to get direct business experience early in their careers. Having a very realistic sense of what it takes to run a department or manage a P&L (Profit and Loss) makes you a much better partner with the different businesses you're supporting.”

The focus on technology at Liberty Mutual may be enterprise wide, but to truly comprehend it McGuigan believes it is essential to understand how the company goes to market in each of its individual lines of business. “Liberty Mutual is very successful in growing its businesses by empowering general managers in whatever market they're trying to develop,” explains McGuigan. “We are decentralized in our operations, and each general manager with P&L responsibility has the latitude to organize things the way he or she wants, to get the technology that they need to be successful, and develop the products and services without a lot of micromanagement.”

Of course, that decentralization brings some challenges of its own. In the case at Liberty, that means trying to get economies of scale in a large organization that is the sum of a lot of independent decisions. “What we first worked to establish was consistency in fundamental IT operations,” says McGuigan. “First, we focused on the reliability and consistency of user experience of our systems across the board.” What you don’t measure you can’t manage. Liberty Mutual implemented user-centric application monitoring to get an idea of where the hot spots were. “Like many other companies in competitive industries, we manage a lot of change but sometimes made the mistake of sacrificing discipline for speed. It is a hard lesson to learn but you are not really moving very fast if you have to continually fix defects. Rework is the enemy of agility.”

The next area of focus was on Liberty’s ability to deliver projects on time and on budget. To do this, Liberty Mutual “borrowed a page” from product development and implemented a quality gate approach to project governance across the enterprise. This means that no matter what methodology a project leader uses, there are common, predefined “stage gates” in place where project managers are required to stop and assess the quality of what they have done and their readiness to go on to the next stage of the project. They need to verify that the same business case that was thought to justify the project still actually applies, and then reforecast if necessary what it will take to get the next stage complete. “Implementing that approach has dramatically improved the predictability and consistency across projects,” explains McGuigan. In fact, while he does admit that we still have the occasional wayward project, once a project enters our stage gate process, very few fail to hit their mark. McGuigan calls this aspect of IT management “foundational.”

The crux of the business
“The expression ‘run IT like a business’ has been around for a while, but I am not sure everyone knew what it meant,” says McGuigan. “One result was a lot of technologists running around asking for business ROIs for everything. Running IT like a business really means running IT like every other business area, like a customer service or manufacturing operation. Those areas do not spend a penny without a clear idea of the desired business goals, and they know when they reach or miss them. “Even simple things like replacing ‘end of life’ servers or network equipment should be driven by business metrics. If a technology is not broken then don’t fix it.” By extending the useful life of technology on the floor, more resources can be devoted to driving business improvement, McGuigan believes.

Once a firm operational foundation is in place, it is time for IT to move further upstream into the business planning process. Companies need to get people who understand the needs of the customer and market with people who understand the capabilities of IT in the same room. And then they need to speak the same language: business leaders need to understand something about IT, and systems pros need to understand the basics of the business. Then they can talk about what they will do in order to compete in the marketplace. As McGuigan notes, “If IT is only hearing what the company is going to do after it is decided, then there is no opportunity to contribute to the decision and help your business partners better envision what's possible.” To address this, Liberty has dedicated senior IT people to each business unit, to participate in each and every part of business management. The final step that McGuigan cites as “absolutely critical” is to take these strategic plans and “operationalize” them to the point where the IT group knows exactly what to build. McGuigan believes that the better a business understands the operational improvement required to compete, the better that business unit can drive its IT investment. “The more specifically it can direct IT,” he adds, “the faster, better and cheaper it will get its solutions.”

Keep the faith
What McGuigan refers to as “faith-based initiatives” have been quite common within the industry; “All too often in the past, insurance companies have taken a ‘shotgun’ approach to systems development,” he laughs. “But today you need to go through the diligence of figuring out exactly how much help you need. If it takes you a day to turn around a small commercial quote, what do you actually need to complete it? Is it four hours? Is it same day? Is it an hour?” It is a business bet on whether getting that process down to an hour is actually going to be competitive or not.. But in order to contribute efficiently and effectively to business execution, McGuigan believes you have to understand very specifically what the business is trying to do in order to be competitive.

Speaking with him, you get the impression that McGuigan is in the enviable position of having strong business engagement in IT. “Liberty Mutual senior management is very focused on IT, and there has been an increase in IT investment every year well before I arrived,” he says. “That's a vote of confidence in return on investment. But the challenge you have when running an IT organization is continually improving transparency and alignment,” he adds. “Ultimately, there should not be a dollar spent in IT that is not clearly and directly contributing to business goals. It’s something we all need to get to. It just hasn't been in the operational management repertoire of most IT departments to date.”

With the current financial climate being how it is, this raises further challenges as well. “Overall, the state of the economy directly affects the state of the insurance market, and I don't think there's any debate that we're in a softer market than we've been in previously. So naturally, there is an increased focus on operational costs.” He also believes there are two parts to answering these challenges. “One is that there is even more interest in technology that can fundamentally reduce the cost of doing business, so that's coming at the challenges from the investment side; then there's also interest in looking at IT like any other business operation, which is if you're doing the same thing in the same area as you did last year, you need to do it much more efficiently.”

What’s more, technology can prove to be a major differentiator in a tough customer environment. “If you’re a consumer,” explains McGuigan, “and you’re online and one website is easy to navigate and the language is understandable, you'll have an advantage because the consumer will have greater confidence that they understand what's being offered. Assuming you have the quality and the service operations to back it up, you'll have a highly satisfied customer.” McGuigan thinks that if you create an environment that supports continual experimentation, then you can rapidly try new things and iterate and tune the customer experience to match the people you want to serve, thereby differentiating you from the competition.

Future proof
Perhaps because of the current economic climate, McGuigan has a keen focus on the future of the insurance market. “Over the next few years, we're really going to be focusing on three fundamental things, and I've seen companies in other industries going in the same directions.” One is treating system maintenance costs as a form of waste; first separating out things that actually help the company do business. McGuigan explains, “If you change prices in a catalogue and you make more money, that's not waste. That's not even maintenance. That's an enhancement, however trivial. But there are things that we do that we just have accepted because they have always been done in maintaining our systems. That’s the work that can be automated or eliminated.”

As well as this, on the front end, Liberty Mutual is incorporating business process reengineering, and is using Lean Six Sigma at the front end of automation projects. “So with any project that's aimed at helping us operate faster, better and cheaper, we’re starting with a very rigorous and disciplined process reengineering.” In doing this, McGuigan says, “it will ensure processes are not being automated that don’t add value, nor will those processes that could otherwise be streamlined or eliminated be automated.”

The third focus will be on the maturing of Business Process Management (BPM) and how it can hopefully move into business operations and dramatically increase business agility by taking programming out of the business change loop. “There are a variety of tools out there that seem to be mature enough,” says McGuigan. “If you have a high-performing business operation, moving IT out of the day-to-day and giving business operations the ability to make process changes can produce a dramatic reduction in the cycle time.”

Customer Data & Security
While the underlying technology more and more determines the quality of customer experience, it's very clear that IT needs to be driven by a marketing organization. As McGuigan comments, “That’s the organization which is charged with developing the products, identifying the markets, identifying customer needs and measuring how well we're doing in satisfying those needs.” All that work requires more and more detailed data. At Liberty Mutual, the fundamental golden rule is to treat the customer's data as we would want it treated if it was our data.

With security threats ever-evolving, it is crucial for financial services companies to be aware of exactly what sorts of threats are out there. There may well be no such thing as “perfect security,” but companies must recognize their exposure and manage accordingly. Managing this in the insurance space is particularly challenging, as McGuigan explains, “Insurance doesn't have the same set of precise security standards that, say, healthcare does. When HIPAA ( Health Insurance Portability and Accountability Act) came out and prescribed some security standards, the first reaction might have been negative. Ultimately, though, (as at the time I was running Information Services at Medco Health Solutions), having a clear idea of what ‘good’ is was helpful. You could point out in the regulations what you were doing, and as long as you complied with those, you were in good shape.

“When you look at companies that have lost credit card data, and the reputational risk and exposure that that entails, it is clearly something that has to be taken very seriously,” he adds. “What we have done is work to appropriately strengthen our protections, and our track record has been very good so far.”

Anything that affects the market, regulatory compliance and the perception of a company due to a security issue obviously becomes a major priority for all management. The damage, as illustrated over the last twelve months throughout the financial sector, can be very severe. “We’ve done some very basic, but also very powerful things, in encrypting all of the hard drives on our laptops and PCs, for example,” says McGuigan. But ultimately, he is aware that there is only so much that can be done. After all, technology is only one piece of the puzzle. “By looking at all the points of exposure and making sure we’ve taken proper steps, we’re doing our jobs,” says McGuigan, “but if you think you have ever eliminated the threat altogether, then you are fooling yourself.”

Highlights of a 96-year old company

1912 Company founded

1914 The company opens its first branch office in Springfield, Massachusetts.

1925 The first meeting of the Liberty Mutual Board of Directors and Customer Advisory Board takes place.

1937 Completes expansion of its operations to all 48 states.

1941 During World War II, the company provides more service for policyholder contractors operating overseas than any other casualty company.

1957 Introduces two prototype “survival cars.” Standard features such as headrests to guard against whiplash and safety belts are introduced.

1967 Liberty International Agency was formed to handle the foreign insurance requirements of the Company’s domestic policyholders doing business overseas.

1973 Liberty Mutual Insurance Company (Massachusetts) Limited was chartered in London to participate in the international reinsurance market, becoming the company's first wholly owned international office.

1985 Enters the financial services business with the purchase of Liberty Financial Services.

1997 Acquires Golden Eagle Insurance of San Diego, California, the first of many acquisitions that would be combined into Liberty's Regional Agency Markets organization.

2002 Converts to a mutual holding company structure, better positioning the company to compete on the global property and casualty stage.

2006 Launches national advertising campaign posing the question: “Responsibility: What's Your Policy?” and Turkey’s insurance market with acquisition of Seker Sigorta A.S.
Liberty Mutual Group.