With more than $26 billion insurance investment sales, New York Life Insurance Company, a Fortune 100 company founded in 1845, ranks as one of the largest mutual life insurance companies in the United States and one of the largest life insurers in the world. It has the highest possible financial strength rating from all four of the major credit agencies. Headquartered in New York City, New York Life's family of companies offers life insurance, retirement income, investments, and long-term care insurance. New York Life Investment Management LLC provides institutional asset management and retirement plan services. Other New York Life affiliates provide an array of securities products and services, as well as institutional and retail mutual funds.

While the economic downturn has wreaked havoc with some major insurance companies, New York Life has held its own, if not exceeded its expectations for financial growth and stability. Much of the company's success builds on a solid IT strategy that supports both the present and future needs of the company.  Eileen Slevin, senior vice president and chief information officer for New York Life, say that the company looks seven years to ten years out to see what types of technology investments the company needs to make, what applications the business units anticipate, and what type of infrastructure needs to be built to support those applications.

Enterpriseleadership.org recently sat down with Slevin to learn more about the company's IT strategy and its approach to long-term planning for IT investments. Here is what she had to say:

EL. Can you describe your IT organization?

ES. I have a centralized group of 1,400 full-time staff members. About 1,250 of them are employees and the rest are consultants. We have an applications development group, an architecture group, an engineering group, an operations or service delivery group, a finance group, a human resources group, and a best practices group, which includes the project management office. I also have a security group. One of our senior executives manages our innovation program, which includes employees spanning the department.

EL. Can you describe a couple of the key technology initiatives that have helped to make the company more customer-centric?

ES. Over the last several years, we introduced some large systems in a couple of significant areas. In 2005, we introduced our new business system, which we have been continually updating. This mission-critical system firmly planted us on the Web. In fact, we call it the cash register for the company. For example, the customer applications the agents submit come through the system, where they get underwritten, and issued.

For the past several years, we have been updating our agency portal, which provides the agents with all of the sales support tools electronically. Since our dedicated, career force of agents provides the main interface with our customers, this portal is critical to our success. We also conduct our business through supplemental channels as well. We recently introduced a contact system as a major addition to the agency portal. Prior to that, we had delivered a collaboration platform to them.

EL. Any other key technology investments you care to mention?

ES. We have an entire program going which focuses on how we make technology investments to support the future needs of the business. We began the process about two years ago by sitting down and trying to understand what the business units would need in the future. We are talking about seven years to 10 years out. We needed to build the infrastructure in advance of the business units building applications upon it. By understanding what applications the business units would need in the future, we would have an easier job of defining the infrastructure they would ride on. We currently have approval for 14 infrastructure projects and nine business projects. The infrastructure projects are spread over seven years to eight years, and the business projects are spread over 10 years.

EL. What are some of the business projects?

ES. One project involves a new system for our sales proposals or sales illustrations that agents present to clients. It is actually part of the agency portal process. We are taking the former client server version of this system and bringing it to the Web. The basic agency portal was built around content and information the agents needed to get access to, such as forms. The contact system we just rolled out helps them to manage information about their customers. After the agents determine what they need to sell, they can use the illustration system to explain the finances around the offering. The new business system is at the end of the process. We will be developing some things that fit in the middle. We have a program for our agents to be able to turn over their business to their family members, such as children who may be taking over the business, or colleagues who may be doing so. We provide them a more effective way to do this as they are near retirement. It gives them the ability to slowly transition that business over to someone else to manage it for them, thereby providing the long-term support that our customers have come to expect from New York Life.

EL. Why have you gone out as many years looking at technology investments?

ES. In the past, we had done three-year planning.  We believe that seven years to -10 years gives us a more favorable time frame to build the infrastructure that these applications would need to run on. We need to make sure that we are building a full and robust infrastructure. The company has been doing rounds to plan and to set goals for ourselves for 2015 and 2020. Using that as a basis, we then spoke to the business unit leaders about the applications they would need to meet these goals and objectives. Preceding that, we needed to understand what infrastructure we had to build.

EL. Can you talk a little more about your strategic planning process?

ES. We have been working from the top down, including every business unit. This work has been around more of the wide-reaching scenarios, such as inflation. Because we have set our aspirational goals out that many years, we talked about breaking through some metrics that we have not yet achieved. For example, what happens if we double the number of agents, or what happens if we get to five million customers? How will our systems hold up? What will we need to be able to do to support them? The business would need to do some of these things seven years to 10 years from now. We needed to look at how we would support all of these different things based on our growth.

EL. Are there any particular tools that you used to help you through this process?

ES. We have a unit set aside for some of the strategy planning and economic scenario planning. Most of the effort has been task forces and publishing position papers.

EL. Has all of this planning changed your governance process?

ES. We set dependencies for building out these infrastructure programs and business programs. For example, if we were going to install this infrastructure, it would be needed for our customer service applications in the future. We need to make sure we tie these projects together between infrastructure and business. The importance of specific technology was one of the things we always had a difficult time explaining to the business units. As a result, the governance process is something we now look at for each of these projects. Specifically, we look at the relationships between the projects and in the interdependencies. We make sure that these relationships still hold, and we adhere to the things we said. We have brought this program to the executive management committee several times. For top management, the governance process has been around understanding and telling us what the business objectives are, then sizing how much we can absorb into our financial model and making sure all of that runs through all of our numbers going out in the future.

EL. Any specific methodology do you use for measuring the effectiveness of technology investments?

ES. We use most of the common techniques such as ROI. We did a rigorous cost benefit financial analysis. For example, we looked at what projects would drive down costs versus the projects that would promote growth. Where we had sales coming in, we did marginal value add. Where we had expense savings, we used net present value analysis.

EL. Have you driven cost out of the company?

ES. Because we just initiated this program in 2009, we have not driven out cost with it yet. Separately, we have some strategic initiatives looking at how to drive down some future costs. In doing the cost benefit analysis, we said we could see more cost savings if we could automate some of the work done by our service centers, or provide self-service capabilities. We have identified what the savings would be. We have done this very conservatively, and have made it part of our analysis.

EL. Are you looking at cloud computing for some of these applications?

ES. We are at the very early stages of looking into cloud computing. We are also looking at how we can do our own kind of cloud computing in addition to that. We think cloud computing has a definite place for us in the future. I still have some concerns around security. I am not as comfortable with the public cloud as I am with a private cloud.

EL. What are you doing in collaboration?

ES. We do have a collaboration platform right now for our agents. We built several custom applications for them to use on that platform. We introduced that three years ago. We also use Sharepoint at the team level, but we have not done anything with it across the board for our employees. We have developed some grassroots wikis. One of the 14 infrastructure projects looks at a collaboration suite and expands that. We were early in this space. Because of the large number of agents who use it, we now need to advance that collaboration platform.

EL. What was the catalyst or driving force for your strategic business technology investment program?

ES. Back in 1999 or 2000, we put together a seven-year technology strategy plan. It enabled us to rollout our initial Internet application capabilities in early 2000. We hit the end of that plan around 2007. At that point, we knew we had to start developing our next technology strategy for 2008 and beyond. As we spoke with the business unit heads about some of the infrastructure and technologies that had good business applications, we realized that they were not thinking about the future to the degree we needed them to. To this end, it made it difficult for us to understand what infrastructure we should build and what technology strategy we would devise. That is how we then went down the path of working with the businesses to understand the applications. About 18 months ago, the executive management committee, on which I sit, came up with the goals and objectives we need to aspire to going forward. Using these things, we worked with the business units to help them define the applications they would need to meet those objectives. That is what has enabled us to lay out the infrastructure plan. All and all, that is how we developed our technology strategy.

EL. Have you done anything in the meantime to help the businesses understand the significant of this technology?

ES. At the start of this process, we did several educational sessions for the business on such topics as networking, legacy modernization, and collaboration.

EL. Has the economic downturn affected your company?

ES. We did well in 2009. While we are not are immune to this type of economic environment, we had a great year. We maintained the highest ratings from the four major ratings agencies. We believe that we have seen a flight to quality. Our financial stability, which is one of our foundational pillars, served us well. Our history of conservativeness also served us well. Our agents got the right messages out to customers. Because we are a mutual company and not a publicly held company, we can plan for the future and not worry about the short term. I am glad that we have been able to invest in technology.

Elizabeth M. Ferrarini is a technology writer from Boston, MA. Reach her at elizabethferrarini@yahoo.com.

Enterpriseleadership.org sat down with Dan Mintz, the former CIO of the U.S. Dept. of Transportation, to discuss the roadblocks he had to overcome in order to bring about change in IT across the entire department. Before becoming DOT's CIO, he was director for government compliance program at Sun Microsystems.

Established in 1966, the U.S. Department of Transportation (DOT) has an annual budget of more than $70 billion and employees more than 60,000 people across the country.  Its mission is to "serve the United States by ensuring a fast, safe, efficient, accessible and convenient transportation system that meets the vital national interests and enhances the quality of life of the American people, today and into the future." Some of the agencies that comprise DOT include the Federal Aviation Administration (FAA), Federal Highway Administration, and the Federal Transit Administration.

About $3 billion of the DOT's annual budget goes to making sure that all of the DOT agencies have secure, timely, and cost-effective solutions. When Dan Mintz became head of the Office of the CIO in 2006, he found the organization concentrated too much on technical issues, He changed that focus to a business orientation, and improved the governance process by making needed changes to the investment review board. He also put mechanisms in place to rate how each agency implemented IT and security initiatives.

Enterpriseleadership.org sat down with Mintz, who left his post in 2009, to discuss the roadblocks he had to overcome in order to bring about change in IT across the entire department. Before becoming DOT's CIO, he was director for government compliance program at Sun Microsystems. Here is what he said:

He changed the organization's focus from being technical to a more business oriented and also improved the investment review board.

EL. Can you describe the IT organization's key responsibilities? How much did it allocate for IT spending?

DM. DOT has about 66,000 employees and spends about billion a year, much of which is grant money. The department spends mostly on programs. The FAA's air-traffic control spends about $2.5 billion a year on IT. I had policy impact. I had to ensure that the various requirements the government faced got done for all of that spend. My office had oversight for all of that. An appropriated budget supports the people who do oversight auditing. We ran a portion of the shared services for the department.

EL. Did you have oversight for all of the IT professionals in DOT?

DM. There was a faint dotted line to me. IT people within each of the operating administrations report directly to the CIO in charge. Program officers manage an IT spend, out of the control of those CIOs. There was a dotted line responsibility between those CIOs and me. I had policy input over the hiring of new CIOs. I participated in the performance plans and the performance reviews of the CIOs.

EL. What were the key challenges you faced in putting governance around IT investments?

DM. There were two issues. I had two responsibilities associated with the CIO function: how to transform the mission of the department, and how to optimize the use of technology. The civilian departments in the government are federated organizations. They are not a single organization. Each of the pieces of the civilian departments has its own political life separate from the middle. For example, DOT has the Federal Highways, the Federal Aviation Administration, and the Federal Railroads. All agencies of these are different. They all have their own budgets, and they eventually collect to the top. We needed a mechanism to pull together decisions that crossed all of these organizational boundaries, and to look at how to do the two responsibilities I mention. For example, how do you reduce congestion, how do you improve safety, and how do you start using more recent technology innovation? We needed a method of making decisions that supported those secretarial initiatives. These did not come naturally because they were independent organizations.

EL. Can you describe the investment review board you put in place?

DM. We needed a better mechanism to make investment decisions for what the budget did with things such as technology. We had an investment review board, which we revised on occasion to change its focus.  The investment review board consisted of the senior management of the various operating administrations. The deputy secretary chaired the committee. The goal was to look at these types of decision making.

We went to a two-layer investment review process -- one is at the department level, and the other, two individual investment review boards at the operating administration level. The latter boards fed into us. We did not have an organization that took into account this federated nature very well. This was a major part of our governance process at the management level.

EL. How did you measure the success of capital investments and capital planning?

DM. That is an on-going issue for the government to wrestle with. For example, if we did a grant program, we would have to determine if our goal was to be fast, accurate, or to make things more available. Those things might all contradict each other. Which is more important? We used ROI at least to bring some direction to the shared services part. If we consolidated the desktop support, consolidated data centers, or decided to do payroll in one place, we would use ROI to measure whether or not we saved money. Unfortunately, government cost accounting does not support that analysis very well. We did audit ROI. For consolidating desktop support, we looked at the investment. We tried to use metrics commercially. For example, we had a cost per desktop to provide support. We measured ourselves against other government departments, and we measured ourselves against industry standards. Our goal was to be competitive with that.

We got better at the output of programs. For example, if we did a grant, we needed to know how well it was received, and how accurate it was. The Office of Management & Budget (OMB), which represents the White House, puts out a quarterly rating for all the major programs. It is a red, yellow, and green rating. Everyone wants to get to green. We did that internally within our department, including smaller programs within the department. We tried to make it as objective as possible. We had numerical factors, but we provided a summary. Typically, the summary measured operational numbers, financial numbers, such as earned value management (a tool to measure whether or not we carried out the project successfully). Because of the importance of cyber security, we had many security measurements that we applied to determine how well we complied with our security controls. The National Institute of Standards generates an entire series of controls that we rated against various programs.

EL. Can you describe a couple of the capital programs that you put in place that required large investments of technology?

DM. The largest capital investment in our department included what we called the Next Generation for the FAA. The air-traffic organization managed most of that money. This investment's primary goal focuses on modernizing all aspects of the air-traffic control system. It involves both upgrading all of the systems in place at the FAA, and developing an integrating the activities of other departments involved with air activities. These other departments include the Air Force and National Oceanic Atmospheric Administration. The FAA has much work to do to improve its project management, making sure the project managers meet standards. The major focus here included using earned value management as a tool to do that kind of project.

Cyber security has been a big issue in the government, and always will be.  Historically we did cyber security oversight across the department. Each of the federated pieces of our department use to do their own security thing. We consolidated all of the cyber security activities and merged them into a single center. We gave it to the FAA to run because it is the largest, single proponent of that department. It runs under the direction of the CIO of the DOT. We created a cyber-security management center. For the first time, we had visibility into all of the systems for the entire department. We started to identify those areas where we had problems so that we could fix them.

EL. You gave a presentation that talked about collaborating more with the CFO.  How did you accomplish this?

DM. In a private company, the sales force drives the company.  The OMB functions as the federal government's equivalent to a private company's sales force. The money comes from that office. Typically, the strongest day-to-day activity associated with spending regardless of whatever legislation you have, focuses around the budget process. If you do not devote energy to improving the IT/CIO relationship, you, as a CIO, might make decisions completely disconnected from the way the budgeting process gets done. This problem exists within the larger civilian departments because they are federated. You have to pay attention between the IT staff and the budget staff. If you do not do this, you will have breakdowns in multiple locations, such as not communicating at the department level. Each of the individual components are not communicating. Decisions have no meaning.

We closed the communications gap by identifying a lead person within the CFO group and my office. Both of these people handled all of the coordination between the two departments. We adapted our calendar so that CIO activities folded more tightly into the budget cycle. We had been reviewing IT programs at the wrong time. We typically work on a budget two years ahead of time. If we did not decisions and have a discussion where we projected out two years, we would be late.  That was another one of our problems. We got agreement from OMB that nothing went out unless it had my signature. We assigned staff at local points. We integrated ourselves into the budget process. We made sure that the CFO got involved when we had IT discussions, which were also business discussions.

EL. Can you describe the CIO council?

DM. The federal CIO council consists of the CIOs of the federal departments. A member of the OMB chairs this council. At the DOT, each of the component agencies each had their own CIO. We had a DOT CIO council that met monthly to talk about issues. This structure had been around for several years. I felt that it had too much one-way communication. My office said it needed to have more communication back and forth between the operating administration CIOs and my office. Because it was a federated organization, one-way communication did not work.

I created a CIO council co-chaired by a CIO from one of the agencies. I did not run the meetings. The co-chair allowed me to talk at the meetings. That by itself might or might not survive me. I also created a cyber-security management center managed by a board of directors.  Two votes came from the FAA and two votes came from the department. I created a fifth vote from the co-chair. To make it more authoritative, we made the board a secretarially charted committee, signed off by the Secretary of Transportation. It had a different legal status. Thus, the co-chair position was not someone I knew. That person had real authority and had the fifth vote on one of the most important DOT functions. The biggest issues we had were cultural not technical. By creating that position and giving it authority and then giving it legal authority, we made that position significant.

EL. What professional organizations helped you the most to do your job better?

DM. I belonged to the Information Technology Association of America. IT helps to encourage a good relationship between government and private sector partners. Social networking and Web 2.0 will change the way the government will function. That is a big problem for the government to face. The private sector can better handle this type of organizational change. The government has difficulty changing those kinds of relationships. Organizations like this one will help in terms of that interface by actively allowing informal communications between both sectors.

Elizabeth M. Ferrarini is a technology writer from Boston, MA. Reach her at  elizabethferrarini@yahoo.com.

Americans concerned about the state of the banking industry might just get some relief by joining a credit union. In fact, the Credit Union National Association has increased it awareness of credit unions as a viable financial alternative to banks. In the U.S., more than 92 million members belong to the 8,200 credits unions. Because credit unions are cooperatives owned by their members, they offer better rates, reduced fees, and a form of insurance similar to the FDIC.

One credit union, however, stands heads above the rest as a pioneer and leader in the field. Baxter Credit Union (BCU) began in 1981 initially to serve the financial needs of Baxter Healthcare's employees. During the 1990s, BCU expanded rapidly by merging with other credit unions, and by offering credit cards, home equity loans, prime mortgages, audio response teller, and online banking. Today, with assets of $1.5 billion and 140,000 members, BCU ranks as one of the top 100 credit unions in the U.S. BCU's key to providing first-class service to member companies, such as Cardinal Health and CDW, resides its integrated business and technology management strategy.

Enterpriseleadership.org recently sat down with Jeff Johnson, BCU's chief information officer, to talk about this credit union's business process for making and monitoring investments in technology. Here is what he had to say:

EL. How would you describe BCU's business strategy?

JJ. As a cooperative, our members own us. I am a member of this credit union. We do not have stockholders. We essentially do not report to anyone, such as a board of directors. We are not about maximizing profits to the highest degree. We aim to provide the best services and the rest rates for our membership. That sets our cultural tone.

As a Select Employee Group-based (SEG) credit union, our charter enables us to serve specific groups of employees or associations.

We seek out large, nationwide companies and try to wow their management teams into providing our services to their employees at no costs. We differ from most credit unions and certainly all of the banks. We have a very tight strategy based on servicing companies and the employees of those companies.

EL. How does your organization support the business strategy?

JJ. My department drives the message that we are not about technology, but we use it to support all aspects of the organization. We support the business strategy by having three distinct groups that focus on what key parts of the organization need to accomplish. Each group addresses a different imperative of the organization. One group supports our day-to-day operations so all of the transaction processing goes smoothly. We make sure all the members can log on to home banking and carry out their transactions. We make sure our front-line employees have access to whatever tools they need to service the membership. Another team focuses on strategy. For example, our project management office executes on the business priorities as projects and requests emerge. They do not worry about the infrastructure or worry about support. Our architecture group, which is our last group, makes sure that we make the best technology investments and that we optimize what we have bought. The technology space can spin out of control very quickly if you do not pay attention to the long-term implications of the investments you make.

EL. Do you have a physical preference or are you strictly e-commerce?

JJ. We have more than 35 service centers located across our company member sites. We determine the need for a service center based on the facility's number of employees. The majority of our transactions still come remotely whether it is through the Web, through the ATMs, through the phones, or what we call shared branching.

EL. What do you mean by shared branching?

JJ. We try to leverage what else is out there in the industry. We have something called shared branching. If you belong to a shared branching network, your members can go into other credit unions that are also a member of the shared branching network. We are very active in that. We hone things like shared branching with other technologies with the goal of pushing our own strategic direction forward.

EL. Can you describe a technology investment that helped you to differentiate yourself from your competitors?

JJ. Much cooperation exists across the credit industry. Because our strategy focuses on SEGs, we have made a couple of major technology investments. When we started expanding into new, large organizations in 2004, we created this entire branding infrastructure where we could custom brand a company as having its own credit union. Some companies do not want the Baxter Credit Union name; they want their own name. We create the Web sites, the documentation, the marketing materials, and the credit cards and debit cards. It is a great benefit for a company to provide a credit union under its name and auspices.

EL. What influence has your branded infrastructure had on the willingness of companies to join your credit union?

JJ. The first companies we signed up in 2004 would not have gone with us if we did not offer that branding capability. That was the ticket for us to get in the game. When we approach a new company, we emphasize what people want -- great service, great rates, and convenience. Technology enables all of those things. It is all about price, service, and convenience. On the other hand, our customers would have thrown us out if we did not have the right technology, but we have managed not to be in that situation.

EL. How do you measure the value of these technology investments?

JJ. We measure many of our investments on their ability to enable our strategy. If we did not have shared branching and did not build the branded infrastructure, we would have not been able to sell to most of the companies we have signed up in the past four years. We could not have done it without some of the technologies we have. Our organizational structure plays a key role here. For example, we have a team that focuses on making sure everything runs with 100 percent accuracy. No one really notices that it works. On the other hand, they certainly notice when it does not work. Just the confidence in the entire ability to deliver is important.

When it comes to measuring the effectiveness of investments, we break all of our projects into different quadrants and then we make decisions based on their quadrant. The senior management team focuses on projects in a specific quadrant. Mid-level managers will handle projects in less critical quadrants.

Before we invest too much time and money, we go through two internal review processes. We have an IT review process where we look at the architecture, and we do a total cost of ownership over the life of the asset. We do a lot of internal analysis. If we were to do this project, what would it mean from an infrastructure, cost perspective? On the business side, we go through a gated process. Once we approve the project, we go off and do a scope of the entire thing. We make sure we have a full understanding of everything the business users are asking for and then we gate it. We go back to the stakeholder and say, 'You know this project can do X. We are projecting it is going to cost Y.' They might agree or not. We then ratchet it up and cut out pieces of the scope or pairing it down. If yes, it goes on to the next level. If the answer is no, we take it back and start pairing down.

We have gone from the majority of our projects being significantly over budget to most coming in pretty close to deadline. The gating process in conjunction with the quadrant has really helped us control the overruns and the over budget part of it.                                                                                             

EL. Can you describe how you arrived at this quadrant approach to managing your investments?

JJ. Before 2006, we would look at all of our technology project requests and then try to make decisions about them holistically. We wound up having huge initiatives jumbled up with all of the mid-size initiatives. We decided to go with a four-quadrant approach, similar to what Gartner Group has.  Everything above the horizontal line is ROI positive; everything below that line is ROI negative. We put the projects either an ROI positive or an ROI negative above or below the line. On the perpendicular axis to the right, we look at things that cost more than a certain amount. The ones to the left cost less than that amount. Thus, our management team focuses on the ROI positive things in the upper right quadrant. These things will give us the biggest bang for the buck. As we move over to the left, we delegate less important ROI positive things to middle managers. These things are not large enough to make the radar screen of our senior management team.

As we go through our capital budget process, we try to break everything up into those quadrants and then we decide on our capital spend based upon that. Before investments percolate, I will bring them to the senior management team on an ad hoc basis. Having these conversations has proved to be an effective way to work through these projects before they are put on the quadrant.

EL. How would you gauge your organization's agility to respond to changes in the marketplace?

JJ. The model we have set up allows us to expand and to contract quickly. If we see many things north of the quadrant line, we can usually go out and get contractors to fulfill the projects. We also improved our agility by focusing more on project management and business analysis. We outsourced most of our applications development. The knowledge of our business and the knowledge of project management are the value elements. Applications development is a commodity.

EL. What does business impact of technology mean to you and how do you communicate it to your constituents?

JJ. Once every quarter, I look at our uptime and our transaction volumes. I also look at what our members have said about our services. That is my tactical approach to business impact. The strategic business impact is how well we are providing the services our members require. Each week, we have a meeting to discuss how well we have delivered on the business value of technology. We have not run into any problems in this area, which might sound surprising, but it is true.

EL. Do you tie technology investments to new customers or to improved processes?

JJ. As a financial institution, we have technology integrated with our day-to-day processes. If our systems go down, people cannot do their work. Technology functions as our nervous systems. It is what differentiates us. We do not break technology out that way.

EL. How has the economic downturn affected your business?

JJ. We have members who have lost their jobs or who have seen the value of their houses decline. Because we foresaw the recession, we identified many people who might have gotten into trouble. We told them that if they restructured the loan, we would reduce the fees on their loans. We have been very active to do that. I cannot tell you the number of loan workouts we have done.

EL. Are you using analytics to identify people who need to restructure their loans?

JJ. Yes. Three years ago, we had a major push to get business analytics on the fast track. Today we are doing some good analytics around credit quality. We lend people money for mortgages, not sub prime or any Alt A. We have all prime mortgages. We have not seen too many foreclosures.

EL. Have you made technology investments that turned out to be a mistake?

JJ. In 2005, we made a couple of investments that did not turn out to our satisfaction. We made the mistake of going with vendors who were first to market with their products. It was a dismal failure. Our governance process came about from these dilemmas.

Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

The failure of Washington Mutual Bank, along with 100's of other U.S. banks on the verge of failure, has caused consumers to question if a similar event could happen to their bank. However, consumers who bank with Farmers & Merchants Bank (F&MB) in Long Beach, California, don't have cause for alarm. Rating services, such as Weiss Rating, Highline Data, and others, consider F&MB to be the strongest bank in California and one of the strongest in the nation. The bank has assets of $3 billion and a capital ratio four times higher than the FDIC limit and sufficient liquidity to pay every depositor in full.

Financial strength has formed the underpinning of F&MB from the day it was founded in 1907 by C.J. Walker, great grandfather of Henry Walker, the current CEO. For example, F&MB didn't need any government assistance. When Gus Walker, Henry's grandfather became the bank's chairmen and president in 1938, he started the important tradition of transferring much of the bank's annual earnings into capital and reserve accounts. This wise practice enabled F&MB to flourish during the inflation-riddled 1970s, the fluctuations of the 1980s, the recession of the early 1990s, and even to grow despite today's problems.

Today, Henry Walker, along with his brother Daniel, who is chairman and president, continues to carry out his family's legacy, but with one difference - a heavy emphasis on capital investments in technology and facilities. The goal of these investments says Walker is to provide new services and to improve the bank's quality of customer service. Enterpriseleadership.org recently sat down with Henry Walker to talk about the business processes and the investments that've helped F&MB to earn its coveted reputation for financial soundness.

EL. What motivates you to follow in your great grandfather's  footsteps?

HW. The bank has three executives: my brother Daniel, who is chairman and president; a chief financial officer; and me. The bank is our life. My father and my grandfather mentored both my brother and I. The bank's safety and soundness come from our founder. Every day, we carry out the bank's long history of guiding principles. That's how our job differs from other people in banking.

EL. What decisions have  you made to avoid some of the problems other banks have encountered?

HW. Our decisions reflect the safety and the soundness of our balance sheet. We have the willingness to stick to our core principles, which others in banking aren't willing to do. For example, we have a very sound and very secure investment portfolio, which has minimal risk. We have no sub-prime loans in that investment portfolio. A number of investments and its loan portfolio typically comprise a bank's balance sheet. We have a very sound loan portfolio. We continue to run with those conservative principles we've always had. My grandfather guided our bond portfolio, and my father designed our lending standards. Those core principles from both of those generations have really flowed to my brother and I. We continue to run what is considered the safest bank in California.

EL. You've had some customers for many generations. How are you leveraging the right technology to provide service for multi-generational customers, especially young people?

HW. We're providing a stratified approach to customer-to-customer service. At times, it's a challenge. The younger people want technology, but they don't comprehend the idea of relationships. Business owners appreciate the value of relationships, especially with their lending partners. Meanwhile, the elderly are accustomed to banking in a certain fashion and value relationships. The nature of forming a relationship hasn't changed in consumer banking. As the demand for technology has come about, we've stayed up to date on everything. We have top of the line software vendors that provide our online banking, our online bill paying, and our remote deposit capture. We also have a voice response unit. We complement all of these things with the highest level of security available today in the banking industry. We consistently make sure we have all of the proper safeguards, the proper firewalls, and the proper audits and validated programs.

EL. What criteria do you use for  measuring the quality of customer service you provide?

HW. We continually monitor the customer experience both in our call centers and in our branches. As executive officers, my brother and I make sure we can deliver on this promise of service. This goal isn't that noticeable with customers we've had for years because they've become comfortable with our level of service. However, when people switch from other banks to ours, they say things like 'Why didn't I use you people years ago.' Comments like this provide us with the contrast we did to really notice our level of service. Without any contrasts, we'd wind up resting on our laurels and taking our service quality for granted. We have to keep improving on it.

EL. Can you describe some of the capital investments you've made  to improve the bank's technology?

HW. Technology is continuously changing. It may be hitting a bit of a plateau as the population absorbs how the changes have affected their lives during the past decade. Data is very accessible. The changes we've made include continuing to upgrade our internal hardware, especially our scanning systems within the branch system to process deposits more efficiently. We have consistently updated all of our online banking applications, all of our bill paying applications, wire transfer applications, and anything that has to do online to test the customer. This year we moved forward again with a substantial investment in our technology infrastructure. Our $20 million data center is a completely new facility for us. This facility will enable us to bring together the core departments that touch customers so we can continue to provide them the highest level of service possible.

EL. Can you describe your process for making capital  investments in technology, such as your data center?

HW. We did a cost benefit analysis in quantified dollars in our ability to manage and to provide customer service, and in our ability to make an investment like this. After we look at all of these benefits, we bring the investment to our board of directors. We have three committees: a technology committee, an executive committee, and a board committee. We have three levels of review for that kind of infrastructure investment.

EL. How do you look at the payoff for an investment like the  data center?

HW. We track all of our expenses around the clock. Because many businesses come to us for loans, we're quite familiar with how people run their businesses. We look at how they track expenses, how they use technology, and what kind of reporting they do. Most of the time, these people can't get a balance sheet out for 30 days or 60 days or until the close of the quarter or even at the end of the year. We produce a balance sheet every day.

EL. Do you have a dashboard that shows  you how much you're spending on technology?

HW. I get monthly reports on capital expenditures from all departments. I also get a profit and loss statement on all the monthly transactions. It would be too much data to absorb daily. On the other hand, if I wanted the data daily, I could have it.

EL. Do you use  technology to track marketing campaigns and to do lead generation?

HW. Yes. We have a system where we input data on customer sales, and on customer follow up by our people. For example, we can track how long it took us to handle a new customer referral. We have good reporting from this standpoint.

EL. What is your business  technology management strategy?

HW. We want to continue to update and to provide a high level of service. As technology changes, we have to address the cost and benefits of it as it changes. Many times technology comes about and there is no immediate benefit for a couple of reasons. The customers might not know how to use it. You can have the best technology in the world, but if the customers don't harness it, than it doesn't make sense to incur an unnecessary expenditure. If customers start asking for a specific technology, that's when we seriously have to look at making the investment. We analyze technology from that standpoint to see what benefits it would provide us and will our customers use it.

For example, we decided to offer remote deposit capture or the ability to enable customers to scan their deposits at their place of business and then to forward the deposits to us via the Internet. Some customers said that they liked the idea of not going to the bank every day. However, after trying the service, these same customers said that they didn't realize how much work it took to scan their deposits. They questioned whether or not the bank should be doing the scanning for them. These customers decided to go back to coming to the bank each day or doing a nightly deposit. On the other hand, many customers said they liked the service and had desire to visit the bank each day. Technology always has its plusses and minuses.

EL. Have you had any technology failures?

HW. Not really! We've had some issues with getting new  technology to work with our business processes and our current systems. 

EL. What kind of a technology team do you have?

HW. Our chief information officer (CIO) has been with us for about 10 years. The technology committee, one of our three executive governance committees, meets regularly with the CIO. My brother deals on a daily basis with the CIO. My brother and I take a balanced approach to running this company.

EL. What are you key responsibilities?

HW. I handle most of the business strategy. I also hire the bank's officers and oversee the strategies they put in place for their time. I make sure our credit portfolio is safe and sound from a policy standpoint. My brother and I both handle branch acquisitions.

EL. Do you have a  fifth generation who will be taking over the bank?

HW. My brother's two children work in the business. One manages our Laguna Hills office and the other one works as a compliance officer and risk officer in our trust company.

EL. How aggressive have  you been with acquisitions?

HW. Although we've reviewed some potential candidates, we haven't found an acquisition we want to make. Because of the economic climate, we're seeing an increase in our branch business. In fact, we totally rebuilt one of our branches and added several ones in Orange County.

EL. Do you provide personal investment  services to your customers?

HW. We don't offer brokerage services. However, for our high net worth, long-term customers, we make it possible for them to invest in the same securities we invest in. These securities include municipal bonds, treasuries, or mortgage-backed securities. We provide this service at no cost. All of our transactions go through our CFO who buys all of our bonds. These customers receive an account statement.

Author: Elizabeth M. Ferrarini - She is a technology writer  from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

Mark D. Lutchen knows what it takes to unleash the full potential of IT so that organizations can derive the maximum benefit from it. As the former global CIO at PricewaterhouseCoopers (PwC), one of the largest professional business services firms in the world, Lutchen oversaw an IT organization of more than 2,500 professionals serving more than 120,000 employees in 144 countries. Today, Lutchen is a senior practices partner in PwC's IT Effectiveness Practice, where he helps clients get more value from their IT investments and their IT strategies. In 2004, he wrote Managing IT as a Business - A Survival Guide for CEO's. Many graduate school professors have used his book in MBA courses on IT management. Lutchen says that the basics IT management principles in his book haven't changed much since it was published.

Enterpriseleadership.org recently spoke with Lutchen, for the second time, to discuss what disciplines CIOs must put in place if they want to run IT like a successful company. This is what he had to say:

EL: Why did you write the book in the first place?

ML: I wrote the book because the IT clients I worked with seemed to have similar issues. It became clear that technology wasn't the problem. Instead, it was about managing IT and being disciplined about doing it. If you look at the failures that have occurred, you start to see some of the patterns. People have not instilled within IT the disciplines we use in other parts of the business. If you're a CIO running a billion dollar IT organization or even a half billion IT organization, that's the equivalent of running a business. To this end, you need all of the kinds of things in place for running a business. The book was to put this idea into context.

EL: Why did you decide to title the book as A Survival Guide for CEOs and not CIOs?

ML: The book is really for the C-level executives. I wrote it from a business orientation. If you look at the role of the CIO five years to 10 years from now, you'll find the CIO of a major corporation acting more like a CEO of a business around IT.

Many of the IT books that have come out in the past two years have redefined the CIOs role. That's what I did, except I redefined the CIO role as that of a CEO. I also wanted other people in the business, such as the CFO and the COO, to understand what happens in an IT organization from both the IT and the business side.

EL: Since your book came out, have CIOs become better at developing IT strategies that meld with the overall corporate strategy, as well as the needs of the business units? If not, how can they be doing a better job.

ML: Some of them have been trying to do that. Upfront in the book I address the issue that IT doesn't provide the one process or the one tool to take care of everything. Instead, if you want to do things right, you always need to be working on about 13 or 14 competency areas. All of competencies have to be at the right level for your organization. If you have the world's greatest technology but you don't have the ability to motivate your skilled people, then you're going to have an imbalance, and the technology won't perform the way you want it to. On the other hand, you have the technology spirit and the people with the right skills but you don't interact with the business units effectively. In other words, you don't set goals, prioritize things, or make sure you're linked to the business strategy. If this's the case, the technology you have, the way you put it in, and the skills you use to support it might be completely off target for the business units.

EL: So how do you get all of this to balance?

ML: People have had a desire to do it, but they have to work hard at it. In some cases, it requires ripping up what's there, and dramatically changing the culture. It also requires having a good base of quality and credible data, visibility, and transparency around what's going in the IT organization. You really need to look at the how the IT spend and IT performance support the business. People tend to work on parts of the problem. They really need a program to work on all the parts. It never ends. People have tried to make progress. It's been expensive.

The tighter money becomes, people begin to say that they don't need the disciplines they put in place, and thus start to cut costs here. For example, they might say no to rolling out an IT dashboard because they have the perception that it won't add value. Of course, an IT dashboard will add value much the same way, as you need a CFO to run a billion dollar business.

EL: What are some of the effective criteria processes C-level executives, including CIOs, and other business leaders or other constituents should consider in deciding on the mix of IT investments?

ML: People can't look at these as just IT investments or just IT spend. The companies making good progress have begun to understand that other than certain specific things, such as infrastructure, these aren't IT projects any more, but business projects with strong IT components. You need to approach things differently by saying that we, as an organization, need to decide on the mix of the total investments. Before you start making any decisions, you need a set of criteria for determining if the investment is a mandatory item, or if it is a regulatory item. Once you get that criteria agreed with by the business unit, then you can start to define the IT components, and to lay them in place. You also need to have a business measurement.

If the project has many business components and one IT component, then the business should unit own the entire project. Once you have structured the process and have agreed upon the criteria, you can start to have an intelligent discussion about which business projects must take priority over others. This discussion drives the platform of the portfolio of business projects you're going to do, and defines the IT components needed to support each project.

When the project gets going, you need to have a way to assess the results and to measure the benefits. At certain intervals, you need to stop and to make sure you can meet the targeted benefits. You can't wait a year or two years to see if there is any benefit. If you can't reach the first set of benefits in the first time interval, why would you let the project go forward?

EL: Where are companies falling short in finding IT dollars to invest in areas such as innovation?

ML: Companies that understand the activities what drive their costs, and make the effort to reduce unnecessary costs are more prone to have a mix of IT investments. On the other hand, if a company understands that 90 percent of its spend is tied up in legacy systems, then it's playing a zero sum game by having to spend money on maintaining these systems. If the company doesn't shift gears, it's costs will increase. You can't stand still. The older your systems get, the more they cost to maintain. People view this spend as a water faucet that they can turn off and turn on as needed. This saw tooth approach adds to the capital expenditure.

You need to understand how you spend capital to reduce costs to keep rolling forward. That translates to how do I free up cash if I'm not going to get any more money to be able to fund innovation? It gets back to perception. Do you have a group that just focuses on innovative things or innovative uses of technology for the rest of the organization or within anyone business unit? Many people view that has a luxury. It's a necessity. You don't always have to be on the leading edge, but you have to be on the edge of certain things, and to understand how these things would help the business to do something better, or to help the IT organization lowers its costs.

EL: What are the hot IT areas your clients are investing?

ML: This's an area where I'm going to tread lightly on. If you think back over the last couple of years, everyone was pushing service-oriented architecture. It was perceived as a major breakthrough in Web-based delivery of IT services. I haven't seen much about that lately. I lot of it was hype as opposed to the basic set of blocking and tackling you need when a new technology comes out.

Several years ago, we saw many companies heavily investing in customer relationship management systems. CRM had the same problems ERP had. People charged ahead and put in very large, global standardized systems to accomplish some objective. Many of these systems failed because of other factors. Some people, still to this day. haven't dealt with certain infrastructure issues that could remove large pockets of costs and make things more efficient. Using a tool as simple as virtual asset management, you can cut costs and improve efficiencies. If you don't understand your asset base, how are you going to understand how to move within a different direction?

Within the business itself, the use of things on the Internet and the Web have reached a certain plateau. We're doing more wireless activities. To this end, we need to have better wireless security and a better way to keep these wireless systems running.

EL: How should a company go about seeing if it can benefit from a new technology?

ML: You need to work with parties that help you to experiment with new technologies so you can evaluate how you can apply them in your organization.

Let me turn back the clock to 1995 when PriceWaterhouseCoopers had 100,000 of PCs and 1,000s of employees traveling all over the world each day. These people used to connect to the office via phone lines to get their Lotus Notes email. Broadband didn't exist at the time. Their calls would go from a server to a modem bank in the office. This service was expensive and the security wasn't where it should've been.

We decided to look at how we could provide connectivity that wouldn't drop calls, would require just a local call or a local connection, and would provide more security. We essentially laid the groundwork for our virtual private network. We asked MCI if it would work with us to develop the VPN. We needed a partner to help us to keep our costs in line. Our need to reduce the costs and to improve the security drove this innovation.

Today VPN is a staple. There are many other things like that out there. We couldn't have done that ourselves. The communications companies didn't understand what we were talking about when we first started speaking with them. You have to work collaboratively with other parties to get some of that innovation going.

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Author: Elizabeth M. Ferrarini - She is a technology writer from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.