Aligning Corporate Structures

Sweeping managerial vision statements often rest on puny IT budgets, according to analysts. But that might be changing.

By Cyril Tuohy

Young, new insurance executives have never lacked for inspiring the corporate troops with sweeping visions of new priorities, economic growth and their own ambition.

Yet when the time comes to dust off the information-technology budget, somehow the numbers don't seem to support big, bold plans for grabbing market share. Before long, the vision dissolves into a muddle of disconnected initiatives, with C-suite successors left to pick up the pieces.

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"CEOs talk about customers, risk management, wallet share," said Kimberly Harris-Ferrante, research vice president with Gartner Inc. "When we look at IT budgets, it doesn't match up. There's little alignment. They have grandiose business strategies, but can't execute them."

This kind of lopsidedness is called an unfunded mandate, according to Matthew Josefowicz, managing individual

director, Global Insurance Group, with Celent LLC. It's prevalent in the corporate and public sectors: promises first, details later.

There's a force capable of whacking a compromise out of both sides, but it comes from an unlikely place: strong, clear corporate governance following a set of rules designed to look after the long-term interests of customers and investors.

"Strong governance in place allows organizations to execute on vision and strategy," said Mark Gorman, strategic research adviser, insurance practice, Tower Group. "With proper governance, alignment follows."

Gorman served on a panel briefing industry managers on the state of the market in May at the annual meeting of the Association of Cooperative Operations Research and Development, a nonprofit group that develops standards in the industry.

For publicly traded insurance and reinsurance companies, the Sarbanes-Oxley Act is turning into as sound a roadmap as any to keep corporate chiefs focused.

Josefowicz said that, for management and IT to remain aligned at global insurers, it's important to operate in a consistent manner. If a company has a federalized structure at headquarters in the United States, then overseas offices should do the same, he said. Companies that follow a decentralized model can be just as successful, if the structure is consistent across divisions and geographies.

When both models exist in the same organization, then the alignment breaks down. "One of the worst issues is when the CIO reports to the CFO," he said. "That's disaster because the CFO cares only about cost control. Having IT viewed as a costs center is highly problematic."

July 1, 2007

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