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3/11/2010
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Chris Murphy
Chris Murphy
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Global CIO: What's IT Worth? Northwestern Mutual Life CIO Knows

CIO Tim Schaefer's team puts hard-dollar values on IT systems as assets, and boldly says the language IT uses is important.

CIO Tim Schaefer thinks words do matter.

He looked at the words IT used inside Northwestern Mutual Life, and felt they sent exactly the wrong message about IT's role in meeting business goals. So, over the last 18 months, these words are out: IT costs, internal customers, IT leaders, Alignment, IT systems, and "IT and the business." In are these: IT investments, external customers, business leaders, integration, service levels, IT assets, and "our business."

"We came to realize we ourselves were building the wall. We were distinguishing ourselves from the rest of the company," says Schaefer, who spoke at WTN Media's Fusion CEO-CIO Symposium, in Madison, Wis., this week. "We were somehow different. We had all this special knowledge. So this whole concept of black box, and the gap in the relationship, we came to realize was of our own doing." As part of a broader change of IT strategy and culture, Schaefer has asked the top 150 leaders in IT to commit to being business leaders, not IT leaders.

Symbolic, semantics, and a whole lot of hoo-hah? Sure --if IT continued to behave exactly the same way it always has. Northwestern Mutual, a life insurance and investment company with more than $155 billion in assets, has not. IT started by working very hard to put a real value on IT assets. While the process is ongoing, Schaefer says the company now knows it has IT assets worth "somewhere north of $3 billion." It can talk about service levels in terms business units care about -- that causing problems in the underwriting process costs $11,000 an hour in lost productivity, and problems that keep the field force from using their client management tools costs $25,000 an hour.

Schaefer's goal is to get IT systems to be viewed as a business asset, with a value every bit as real as the buildings and land the company owns. Getting there requires a portfolio approach to all its IT assets. That's not a project portfolio approach many IT teams have, but an investment portfolio with the same type of processes the company uses to manage holdings in stocks, bonds, real estate, or private equity. Instead of considering whether to buy, hold, or sell assets, though, the IT asset portfolio assesses IT systems and applications through a framework of TIME: tolerate, invest, migrate, or eliminate.

Putting a value on an IT asset isn't easy. Northwestern Mutual's IT team does so by working hand-in-hand with the business units that rely on them. How many more employees would it take to process claims if the software system used for that didn't exist? What's the replacement cost? What's the cost per hour to the business if it goes down? Getting an asset value is only the first step, though. All these factors go into whether and how to invest more into that asset. "If we don't do the right things with these $3 billion worth of assets, we're not going to optimize the value," Schaefer says.

This asset-and-investment philosophy drives what IT projects the company puts money behind. Lots of companies have a technology strategy committee, which help guide IT spending, and Northwestern Mutual Life does as well. "We're transitioning them into an investment management board," Schaefer says. Northwestern Mutual Life has a number of boards to guide its investment into financial asset classes on behalf of policyholders, boards that set broad strategy for where the best opportunities are for return in those categories. Discussions in the technology strategy committee are moving to that same thinking.

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From that process, they've targeted specific high-return investment opportunities for technology. For example, technology that reduces barriers of time and space is on that list. Northwestern Mutual's network includes more than 7,000 financial representatives, and those in the Western U.S. states cover massive territory. Yet they're obligated to meet with clients regularly, to make sure they're recommending suitable investments. A video link that lets a Colorado-based representative do live meeting conversations with his three clients in Wyoming in a half-day instead of three days on the road offers a measurable value.

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