Leadership Insight > Michael Paravicini

Zurich Financial CIO Talks About Bringing Technology and Business Closer

By Elizabeth M. Ferrarini

When Michael Paravicini joined Zurich Financial Services in 2003 as the new Chief Information Technology Officer, he certainly had his work cut out for him. He had to spearhead a move to examine how a highly decentralized, locally based staff of 7,700 professionals, including 30 CIOs, could better respond to the company's global demand needs. Each year, the Swiss-based Zurich Financial Services, one of the world's largest business and personal line insurance companies, writes about $50 billion in premiums. The company's 60,000 employees service customers in 150 different countries throughout North America, Europe, Asia Pacific, and Latin American.

In 2004, Paravicini signed major outsourcing agreements with four IT providers to hand off developing applications, managing the infrastructure, supporting strategic initiatives, and reducing the IT headcount. Although it has been a tough road, Paravicini says he has been pleased with the results. "We've been able to reduce costs by about 30 percent." He says that today his IT organization can respond either locally or globally as business units' needs scale up or down. He adds, "We weren't able to do this three years ago. However, we still have to work at making sure we stay close to the business units."

The BTM Institute recently sat down with Michael Paravicini to discuss his organization's on-going challenge of delivering IT services both locally and globally, the initiatives his organization needs to improve in order to get closer to the business units, and how he decides which of those initiatives to invest in. Here's what he had to say:

Our different business segments include the following: Global Corporate, Personal Lines, Farmers in North America, North American Commercial, Global Life, European General Insurance, and finally our International Businesses Unit

Q. Can you describe how your organization delivers its services?

We divide the structure of our IT organization into local delivery and shared services delivery. Highly centralized consolidated functions, such as infrastructure and operations, run as shared services. Most of our global sourcing, which we've centralized, supports and provides services to our local businesses. We classify our global applications according to shared group capabilities. We have local delivery of the business-specific applications for Farmers or the North American Commercial business. By keeping our local applications within a global execution framework, we can make sure that our employees behave and deliver the project in a consistent manner.

Q. What changes have you made to your organization to get closer to the business?

We have proven that our current organization works very well. We created an important liaison role between IT and the business. Our key account executives serve a dual function: they act in similar ways to that of local CIOs, who are responsible for end-to-end delivery of all IT services for a particular business. Their other duties include business analysis and business change management. Our goal is to have these people become part of the local executive team. For each business segment, we have one key account executive. If the business is large, then we'll have an account executive for each line of business.

Q. Can you describe your enterprise architecture?

We started off by focusing on the delivery of IT strategy roadmaps specific to each of business segments I mentioned. From that we evolved to where we're moving away from a pure business segment roadmap to looking at which capabilities we can share across all of the different business segments. We'd like to have a higher percentage of group capabilities than local capabilities. It's a difficult process. We've experienced some considerable success. For example, we installed a group capability for all the financial, human resource, and some of our business capabilities, such as a global billing platform of procurement. To this end, we're shifting to a target-operating model delivered from a group capability. We'll locally deliver only those elements that are specific to a particular segment.

Q. Do you have a business technology framework or a formal way of looking at your IT investment strategically and tactically?

We don't follow one specifically. We have our own way of looking at the value we generate for our businesses. Group finance then captures this value and monitors what we invest it in to see if we have provided that value, and if the business is generating the benefits out of the investments. We've become quite good at coming up with the upfront cost of the benefit assessment. We need to improve how we're forecasting the follow-on benefits for subsequent years. They should flow into the equivalent business planning process every year. We've starting to do that.

Q. Do you use a particular methodology for this?

We use standard NPV and ROE calculations. Every single group project goes through our chief information technology officer (CITO) approval panel, which I chair. Everyone provides the identical information with the same granularity. We get a superb overview of what's happening with the group. For example, we know what kinds of investments are being done, where we can share the investments, and how everything fits into the overall group, as well as the local strategy.

Q. What areas do you need to improve?

We need to do a better job of closing the loop on how well the benefits from our investments are materializing. We need to ask ourselves if these benefits really flow back into the business plan on a yearly basis or not.

Q. What's your governance model?

We have a three-tier governance organization. All projects must first go through the respective local governance council, which includes IT, business, and finance. These local councils agree on the priorities, timing, and schedules for these projects. Once the projects have been approved, they go to the CITO approval panel, which looks at them from an architectural and finance perspective. Specifically, this panel looks to see if anyone has done a similar project, and if so, is it possible to share some of these capabilities. After this panel approves the projects, they move to the project approval panel (PAP). It's the group finance committee of the operations council that is chaired by a group CFO, the COO, and myself. We review these thought projects and make a final decision.

Q. How involved are you with the strategic investment decisions made by the company?

I'm part of the group management board, which is close to the group executive board. I'm also part of the operations council. This important body looks at the future target model and key projects, and has to approve all of the proposed initiatives. I also belong to the growth council, which looks at where Zurich wants to invest going forward, and those areas that offer the highest future growth potential. This representation really shows how important IT is to the company, and how crucial it is that we get close alignment between the business and IT.

Q. What are some of the business applications or process improvements you've made and how are they making the company more competitive?

As part of the sourcing environment, we have a lot of flexibility in getting access to the right kind of skills, and in ramping up and ramping down resources according to the needs of each of the businesses. Because of our highly consolidated infrastructure, we have a higher scale and a lower cost than before. We didn't have this flexibility a couple of years ago.

I'd estimate that we've taken out about 25 percent to 30 percent of the total cost of the infrastructure for the business. By outsourcing our infrastructure, we're able to have a global infrastructure so everyone has the same desktop build. This is important for building group-wide applications. If the business has a different desktop built, we wouldn't be able to rollout group applications and get a consistent message.

We’ve built a Pan European infrastructure where we have a single provider for all of our networks. For example, we can now provide applications that merge voice and data across all of Europe. We wouldn't have been able to do this a couple of years ago. Finally, on the applications side, we have a good start on leveraging shared capabilities. We're moving more into shared business applications, such as rating engines and claims applications, where we can leverage that capability throughout the different business segments.

Q. What benefits will your SOA framework provide the business?

It's a very critical element particularly because we have a significant amount of legacy in this environment. SOA will provide us with a high level of reusable services to the business. It also will allow us to break up these large legacy environments, isolate them over time, and then to decommission them at a better speed and at a lower risk.

Q. Are there any areas you need to improve between IT and the business?

We have some different areas we'd like to improve. We'd like to bring more strategic views to the table rather than just looking at the business plan and figuring out how we can support it through the IT strategy plan. We should be able to give input and to feed proposition into the business plan based on emerging technologies and trends, and the implications to the business. We also went very quickly from a low degree to a high degree of offshoring and outsourcing. I'm very happy where we are, but we're by no means a mature company in a multi-vendor environment.

Q. How would you classify your company's ability to respond to shifts in the marketplace or the global economy?

Four years ago, my fixed costs were 95 percent. Because of all of the outsourcing, my fixed costs today have a lower ratio than in the past. If the demand goes down in one business area, I can map that area into another and really reduce the cost significantly. Because we are providing a shared services infrastructure, we always have the possibility of shifting services to other business segments. For example, if one business segment requires less CPU power, other segments that need more power can absorb it. Finally, by reusing and leveraging the investments in one business segment, we'll be able to speed up the time to market within other businesses.

Q. How do you drive innovation and what improvements do you need to make to the process?

I have a direct report who works on IT strategy and IT innovation. Our growth council looks at how we can drive shared innovation across the organization. We're interested in innovations that will give us a competitive advantage by facilitating and accelerating our growth opportunities. We definitely need to do more work on emerging technology innovations. Each quarter, we do a competitor intelligence report which highlights some of these technology trends. We need to go beyond that and really explore the potential impacts on the business and how can work to provide the customer with a unique value proposition. This last area is still in development, and certainly a work in progress. Stay tuned.

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