Zurich North America Small Business is no different. The commercial property and casualty organization is a business unit of Zurich North America, which itself is part of Zurich Financial Services. The small business group deployed a Web-based under-writing system in 1999 that has helped the company triple its annual revenue. More recently, IT investments have helped the company with its goal of improving its competitive position in the automobile insurance market.

CEO Ray Thomas has driven IT investments at Zurich because he recognizes that IT is essential to the company achieving its strategic goals of expanding its market share and increasing the number of agents who sell its policies. But Thomas doesn’t simply hand a blank check to the IT group. He pushes his direct reports and his IT team to work together to jettison projects that aren’t meeting deadlines and won’t yield big payoffs. His philosophy: Late deployments mean missed opportunities to generate profits.

But it takes more than a mutual devotion to making the numbers to ensure collaboration between business leaders and IT. Thomas says employees need to feel good about their jobs too. He devotes significant energy to keeping up morale by making sure IT workers know the results of their work and by letting them know when they’ve done a good job. On the day Thomas talked with CIO Senior Editor Elana Varon, he attended a luncheon for 60 IT employees who were celebrating the rollout of a big project. "I don’t think American business really understands the importance of reinforcement, of communication, of a pat on the back," he says.

Zurich Financial Services recently outsourced application development and maintenance for all of its business units worldwide—a move designed to cut costs and provide labor flexibility. As a result, many former IT staff members are now on the outsourcer’s payroll. Thomas says he’s watching carefully to ensure these workers are treated as members of the team, lest the company’s collaborative ethos be placed at risk.

Thomas shares his secrets of successful IT projects, how he makes investment decisions and his wariness about outsourcing.

CIO: You like to joke that the typical CEO-CIO relationship is like the scene from the film Jerry Maguire, where Cuba Gooding Jr., as the football player, shouts, "Show me the money!" You say your relationship with IT is more collaborative. What makes it that way?

Ray Thomas: We’re constantly refreshing our priorities with each other. We meet every quarter in an executive decision group, where we probably have 40, 50 of us—the leadership of the IT organization mixed with middle and senior managers from product underwriting, marketing and sales. Tom Peach, senior vice president for IT, who has responsibility for our platform, leads it, and David Saul [formerly the CIO of Zurich North America, now head of Global IT Architecture and Strategy] on occasion will come in. We go through every major open project to determine what stays and what goes. That helps create some glue in the relationship because it helps them understand that we’re willing to throw some things overboard that aren’t going to give us the biggest bang for the buck.

I’ve worked for three different insurance companies, and I think that for the most part, when IT fulfills a spec it’s almost like how McKinsey works. IT is great at doing the diagnostics, at laying out the recommendations and quantifying empirically all the things that go with that. [Then] they’re on to something else and nobody cares to show them what the actual result was. We try aggressively to plug all of the IT people into what their work has done to our bottom line.

You recently deployed a new system for pricing commercial auto insurance policies. What role does this system play in helping you make money?

We have two things that we focus on as top priorities right now. One is [agent] retention—I feel like we’re in a pretty good spot there. We let ourselves slump a little bit in terms of the sophistication of our rating engine [which is a system for pricing insurance policies] for the commercial automobile line of business. So we made a decision about two years ago that it was critical to reengineer the whole architecture so that we could compete effectively against Progressive. All they do is automobiles. We felt that the quid pro quo over the next 10 years is huge, in terms of the payback, if we can get this thing right.

What metrics do you use to measure whether you’re getting value out of your IT investments?

Productivity per employee is probably the most critical thing, but many other things enter into it too. When you look at a traditional paper transaction, you’re looking at the cost of about $33 per transaction. Where you have some form of technology helping you through a service center, it drops closer to $18 or $19. When you operate in an Internet self-service environment, you’d see that cost drop to about $1.17.

You claim to have an 88 percent success rate for IT projects. How do you define success? And how do you achieve it?

Success is delivering on time and delivering a quality product that meets the original specifications within 15 percent or 20 percent. On any launch, you’re going to have some things that you change in your first 90 days. But we try our best to make sure our quality control is aggressive and effective on the front end. With the Internet, it’s so easy to get a launch out there, and if you haven’t paid attention to dotting your i’s and crossing your t’s, you’re going to wind up really paying the piper in the marketplace.

We’re also diligent about making sure we prioritize our projects based on our key success factors on the business-unit side of things. And then we’re very good listeners when Dave [Saul] or Tom [Peach] come to us and say, "You know what? We’re not going to be able to meet these specifications and requirements if we continue to do this, this and this." There’s strong collaboration involved.

I can be very difficult if something goes off track. There’s got to be a sense of consequences if things don’t go the way you want them to go. There are consequences of firing people, but I think most of our consequences have more to do with peer pressure, with not letting each other down. That is, of course, the highest level of relationship.

You compete for IT resources with Zurich North America’s other business units because IT is managed centrally. What do you expect CIO Dave Saul to do to meet your needs?

The piece that is incredibly important to him is being able to manage his intellectual capital in a way that we’re getting what we need to serve our projects. Don’t underestimate the challenge of that for him; it’s balancing many balls in the air at once.

But we have to jointly create the necessary communication. What’s the governance to make sure all this happens? We have an array of different processes. Everything in IT is matrixed to the CEOs [of the business units], and our job is to compete for the most capital through a steering committee, where we make our cases relative to our cost-benefit analysis.

How do you make choices at the business-unit level about which new technology investments to fund?

I have 10 direct reports. It is so hard for all of them to sit around the room with me and for us to look at our projects and say, "OK, this is Christmas morning, you’re only allowed two or three gifts. If you had to pick three, what would they be?" We might wind up with four projects, but we’re certainly not going to wind up with 10.

You go through this exercise of prioritization, and you really force their hand because you have only so much capital to spend. They want a little bit of everything, not three things that are really going to make them win.

Tom and one or two of his staff need to be at a high level because you don’t want to wind up getting emotions involved. Without question what the IT people want is for people to narrow the scope of the things that they’re doing to get the greatest returns.

Now that your parent company has outsourced applications development and maintenance, the programmers who worked on your projects now work for Computer Sciences. What concerns do you have about whether outsourcing will succeed?

Number one would be turnover. If I saw significant turnover in the outsourced facility, I would be very concerned. Number two would be the morale of the IT staff [that] is still here at Zurich managing the outsourcers. Obviously, it’s incredibly important that they, as the leaders of this process, feel good about their ability to manage it. And then the third piece, which is the real rubber hitting the road, is how my success ratios are going on my projects.

We’ve got to do everything we can to make sure we secure the outsourced staff’s contribution to us and make sure they still feel like they’re part of our team. That is a challenge for all of the managers in IT now—to try to create an environment that allows them to continue to form relationships that make them feel like they’re part of this team. You can’t underestimate people’s view of getting a paycheck from a different employer.

Senior Editor Elana Varon can be reached at evaron@cio.com.