By Patricia Brown

To best serve internal customers, Stuart McGuigan, CIO and senior VP of Liberty Mutual Group, a diversified global insurer and sixth largest property and casualty insurer in the U.S. based on 2006 direct written premium, is working with his business partners to transform the insurer's IT group into a full-fledged business operation. McGuigan also believes IT should be managed by the same sort of metrics and standards as any other business function. "In other well-run business operations, every dollar can be tied to achieving clear business objectives. There is no reason IT should not be moving to the same high standard." Living up to this ideal has been his mission since taking the CIO helm three years ago.

In that time Liberty Mutual's CIO has made some significant changes in the way IT is organized. Like most IT groups, the infrastructure organization was organized around technology disciplines. But in today's marketplace, technology excellence is not enough to be competitive. IT organizations need to understand how they are performing from the end user's or customer's perspective. "We were generally doing a good job in managing each individual technology function, but by giving IT management the tools to see how different areas come together, we have been able to dramatically reduce cycle times, improve quality and reduce cost," McGuigan says. One impressive result: Delivery cycles that previously took 20 to 25 days are now completed in as little as two days.

To do this, McGuigan has introduced new processes, including Lean Six Sigma and ITIL®, into his department. As these approaches prove their worth in infrastructure, Liberty Mutual IT is applying these techniques to application development as well. "Lean techniques are particularly well suited to service organizations," McGuigan says, "because they keep you focused on the things that your customers value."

Liberty Mutual is a force to be reckoned with. Since 1994, the Boston-based company has almost tripled net revenue, to $23.5 billion, while shedding noncore businesses like financial services and health care. The company today has $85 billion in assets and $74 billion in liabilities. With 39,000 employees worldwide, Liberty Mutual has actually reduced the top line, even as it empowers general managers with P&L responsibilities to run their businesses as they see fit. The insurer's highly decentralized structure calls for the IT organization to deliver the technology needed for specific business units to explore business opportunities and respond quickly to market needs.

It's a powerful business model, but one that presents many challenges for IT. The enablement model allows individual business units to have an active role in choosing the technology they need, independently from other groups. While that helps the business units, it can also lead to extremely heterogeneous technology environments. The challenge for McGuigan: Make Liberty Mutual IT more than the sum of its parts.

The key, McGuigan believes, lies in aligning IT with the company's business goals and objectives. At the heart of his strategy is establishing meaningful IT metrics, tracking those metrics and using the results as a guide for improvement. "Forward-thinking CIOs are attempting to move to systematic accountability," McGuigan says. However, IT organizations rated against true business performance standards remain relatively rare." "Whenever we put in place clear and accurate systems of measurement, we move away from managing by anecdote to managing by metrics," McGuigan says.

Alignment of IT and the business is mission critical for any organization this size, agrees Karen Pauli, an analyst with TowerGroup. "Carriers that don't align IT and the business, we see in great peril for the future," she says.

Historically, Pauli explains, insurance carriers have made IT the scapegoat for all kinds of failed projects. Behind this thinking was an endemic lack of communication between business units and IT. For this reason, when insurance carriers bucked the trend and actually aligned IT with the business units, they tended to become highly successful, Pauli says. When business units make their own IT-buying decisions, those decisions tend to closely match the group's strategic direction.

It's a good theory, and one that McGuigan has been putting into practice. Over the past three years he has created and filled four business unit CIO positions. These executives act as IT leaders and ambassadors to their respective business units. The jobs are big ones, since one of Liberty Mutual's business units generates more than $6 billion in revenue annually.

Extending IT
These divisional CIOs go beyond representing systems development and support in the business units. In fact, they act as an extension of the entire IT organization, assuming a partner role in each business unit. Currently, three business CIOs are aligned with U.S.-based business units: one that sells insurance to individuals for auto, health and life; another that sells to medium-to-large commercial customers; and a third — the company's newest business — which provides insurance for individual and smaller commercial customers through independent agents. The remaining divisional CIO represents Liberty Mutual's corporate departments and enterprise systems.

In the past, IT has played a limited role in setting strategy and in business planning within business units, according to McGuigan. "IT has always had a key role in enabling business groups to achieve their objectives," he says. "However, the increasing pace of competition now requires that IT help envision what is possible and contribute as a true business partner in all aspects of business management."

Now, with the divisional CIOs in place, McGuigan has shifted his focus to organizing infrastructure resources to more effectively respond to business-units' needs. To do so, he has transformed the infrastructure group. Gone is the old organization arranged solely by technology verticals such as desktop, mainframe and networks. In its place is an IT organization that supports total workplace solutions. McGuigan also has charged his 700 infrastructure employees to think of what they do as a service for the company's internal employees and customers. By implementing the right measurements and identifying the root causes of failed expectations, the Liberty Mutual CIO has reduced unplanned outages across all critical systems by more than 90 percent.

Liberty Mutual's approach to IT is being adopted at other insurance companies as well. Most insurance CIOs say they are improving IT efficiency, while improving the measurement of IT's impact on business performance and adopting better processes, according to a Forrester Research survey, conducted earlier this year, of 38 insurance IT professionals. Some 60 percent of those surveyed said their IT budget would increase in 2007; the average increase cited was 9.5 percent.

Also, many large insurance companies simultaneously support older legacy systems and newer real-time computing technology, says Craig Weber, a senior analyst at Celent, a consultancy that focuses on financial institutions. Weber adds that the insurance business is becoming more customer-focused by offering self-service options. The technology, he says, still has to catch up with the trend. In fact, to stay competitive, insurance CIOs will essentially need to fight on two fronts: They will need to hire technologists who are well versed in such Web 2.0 technologies as Web services and SOA, Weber says, while at the same time making sure they maintain all their legacy Cobol systems.

To meet these new technology demands, McGuigan is part of a Liberty Mutualwide initiative to bring in recent college graduates as 50 percent of new hires. In fact, McGuigan plans to hire 150 new graduates into his IT department this year.

Aligning IT as a Service
Before McGuigan streamlined the several processes in his department, navigating the IT organization could be challenging. For example, whenever a new employee joined the company, one group in the IT organization was charged with ordering him or her a PC, a second group installed the software on the new employee's PC, and yet another group was responsible for integrating the PC with the employee's cell phone, e-mail reader and other mobile devices. Between wait time and scheduling complications, this process could take as much as 20 days, according to McGuigan. To further complicate matters, every group had its own set of processes and tools; for example, some took requests by e-mail, while others took them only by phone.

Now that McGuigan has bundled these activities into a service, new employees can get set up by visiting just one Web page on the corporate intranet and making one phone call. They also now have a single point of contact for all PC-related issues. In this way, McGuigan has shortened the process of assimilating new employees into the organization from nearly four weeks to just one. Looking ahead, he hopes to further shorten the time to a mere two days.

Another gain: McGuigan can now forecast internal demand for IT resources. "The system lets me see that, for example, 200 PCs were ordered for a business unit," he explains. "I therefore have some warning about the workload that is going to be placed on the enterprise systems and staff. It's not just about better service and turnaround, but it also allows us to manage costs through improved workforce management."

Another gain has come in the way Liberty Mutual provisions servers. Previously, for example, when a business manager wanted a new Unix server, that manager would have to work with separate groups within the infrastructure, including networking, database and marketing systems. The lead time for a server was typically 100 days, McGuigan says. Today it takes just six to 10 days.

McGuigan's favored methodology for process reengineering is Lean Six Sigma. Lean and Six Sigma are complementary management philosophies that focus on setting objectives, collecting data and analyzing those results. McGuigan now uses Lean Six Sigma in IT, and he is partnering with Liberty Mutual business groups to help them reduce cycle times and eliminate waste.

While Liberty is still in the early days of introducing Lean Six Sigma to the overall organization, preliminary results have been encouraging. For example, in one of the company's underwriting groups, process reengineering has helped reduce cycle time by as much as 70 percent.

Within the IT group, Lean Six Sigma is the foundation for all process-improvement efforts. At first, McGuigan introduced the concept quietly, with a focus on results rather than on tools. He appointed a "Master Black Belt" — a Six Sigma quality expert who has gone through extensive training and who is primarily responsible for training and mentoring — and had him work within the infrastructure group on process improvement.

'Maximizing Value'
Once McGuigan got a couple of successes under his belt, he created the position of VP of quality. The position reports directly to the CIO. Today, McGuigan has a team of internal consultants who work within the group looking at processes and talking with IT and business unit executives on how to prioritize and develop more efficient operations. "Part of creating change involves holding two incompatible ideas in your head at the same time and somehow still functioning," McGuigan says. "Being highly responsive to our business partners and customers' needs and creating standardized processes and technology platforms can seem like conflicting goals, but doing both is key to maximizing value at Liberty."

This is where the principles of Six Sigma have come in handy. By providing a standard for process management, McGuigan can provide transparency to enable better project governance. "No project becomes a year behind schedule all at once," he points out. "Delays pile up over time. Without transparency, you can end up with a project that is suddenly close to three to six months — or a year — behind schedule."

The key to avoiding delays, McGuigan adds, is to report on and monitor projects closely in a consistent manner over time. "This means that you have to set clear criteria and expectations at the very beginning," he says, "whether people want to or not."

To help manage these strategic projects, Liberty IT has implemented a common project management and time-tracking platform across all of IT. More specifically, the company uses the tool to manage the portfolio of IT projects, as well as resources associated with those initiatives. The PPM solution allows him to track and manage the specific details of every project phase, he says. This delivers better visibility from a management standpoint. It also helps McGuigan with his compliance efforts to ensure that he allocates appropriate costs to the various departments that consume IT resources. Looking ahead, McGuigan is also exploring ways of linking these and other tools to create an "ERP" capability for IT.

While McGuigan has no desire to micromanage projects, he must ensure that critical IT tasks are completed in a high-quality manner. To do so, McGuigan enforces use of simple business rules, or "stage gates," that define when a project can move on to a next phase. In essence, a project manager must use the system to assess, document and certify that a project phase has been appropriately completed. If the project manager's review is unacceptable, then that phase of the project is escalated to another layer of management attention. Says McGuigan: "This enables us to have the appropriate controls in place as a by-product of the way we manage our enterprise."

McGuigan has also introduced basic support of the IT Infrastructure Library. Better known as ITIL (and pronounced "eye-till"), it is an integrated set of best-practices recommendations that cover such areas as incident management and change management. McGuigan calls ITIL a "common-sense model" and believes it can empower a large organization like Liberty Mutual by helping the organization break work into meaningful components and achievable goals. He also says that ITIL gives him a common language that was missing during the days when each technology silo had its own terms and conventions. "ITIL," he says, "has given us an end-to-end vocabulary."

Cultural Changes
Among McGuigan's team, the move to a hosting-services model came easier for some than for others. Many members of the IT team welcomed the transition as an opportunity to become more responsive to customers; they embraced the opportunity to move beyond the role of mere order-takers. But others remained focused on their desire to dictate technology strategy, according to McGuigan. "In addressing change, we see both of these behaviors," he says. "The key to making this work is transparency."

Toward that end, Liberty Mutual's CIO regularly solicits feedback from the IT ranks. McGuigan has set up a host of channels for feedback, including "town hall" meetings and e-mail boxes, and he routinely meets with small groups of individual contributors. "The combination of having a lot of channels and feedback offers very good metrics that show where we're accomplishing what we set out to do, and where we are not." McGuigan says. "We get a good window into the organization and expose any inefficiencies."

McGuigan also meets regularly with joint business and IT oversight committees. These meetings are critical, he says, particularly during big transformation projects when team motivation becomes especially important. He has found that the opportunity to contribute to business success motivates his CIOs even more than an offer of a pay raise.

In addition, Liberty Mutual has a technology steering committee that includes all of the IT stakeholders. The committee meets monthly to discuss enterprise, regulatory and process issues.

McGuigan sums up his approach: "At the end of the day, IT creates value by enabling our business partners to do what they do faster, better and more efficiently. If we tie everything we do to those objectives, we can make an enormous impact on the service we provide to our customers and for our company." Indeed, at a recent senior management off-site meeting, technology was the main theme, and all of the business units discussed how they would use technology to improve customer relations.

That kind of buy-in from other C-level executives can be critical, says Pauli of TowerGroup. "The CIO can come up with the greatest idea on earth, but if it's not a business-accepted process, it's going to be another failed process," she says. "It's only successful if the CIO has a place at the table with the business and other C-level executives." McGuigan has earned that place at the table.

Patricia Brown is the executive editor of Smart Enterprise. She was formerly the senior executive editor of Optimize magazine.