View from the Top – Retirement Keeps Him Busy

Since its founding in 1918, New York City–based nonprofit financial services company TIAA-CREF has expanded its business beyond pensions to include variable annuities, insurance, financial advice, trust services and college tuition financing. The company, which has traditionally served artists, educators, researchers, health-care providers and the institutions employing them, has had its ups and downs over the years, most recently in the early part of the new millennium. By 2002, TIAA-CREF had expanded so much that high costs were beginning to impair its ability to maintain its position as the low-cost provider in the retirement services business. More agile, innovative and customer-focused companies threatened to lure away TIAA-CREF’s clients.

That year, Herbert Allison was elected TIAA-CREF’s chairman, president and CEO, and was charged with modernizing and restructuring the company. One of the first areas the soft-spoken Wall Street heavyweight targeted was IT. He called for raising the profile of the company’s CTO (in investment companies, the “CIO” acronym is reserved for the chief investment officer), centralizing IT and developing a new technology platform that would allow TIAA-CREF to realize its strategic goal: to become the go-to retirement services provider for moderate to affluent individuals by keeping its prices low and by tailoring products, services and advice to individual clients.

Allison takes pride in TIAA-CREF’s IT department and its accomplishments, boasting about its ability to develop a new technology platform in two years when outside experts predicted it would take three or four. “IT is central to our strategy and to virtually all of our initiatives,” he says. CIO talked to Allison about his views on IT, the role that technology is playing in the company’s turnaround, and how IT’s reputation has changed for the better.

CIO: You worked for Merrill Lynch for 28 years before joining TIAA-CREF. How did your tenure at Merrill shape your views about technology?

Herbert Allison: At Merrill, I saw situations with traders who have half a dozen TV screens in their work areas trying to toggle between different technologies to operate in this very fast-paced world of securities trading. I thought there was an opportunity to use technology to make their lives easier, to plug into more sources of data in real-time, which is vital to their competitiveness.

One of the first things I did when I ran all of Merrill’s trading and investment banking was to appoint the first CTO of that group to catalog all the systems we were using, rationalize those systems, reduce our costs and improve the functionality for our traders and investment bankers. Technology, as was typical in the industry, was balkanized among many different areas.

You found a similar balkanization of IT at TIAA-CREF. Tell me more about the state of IT at TIAA-CREF when you first joined the company.

We had a very large IT staff with a lot of very capable and dedicated people. As much as 30 percent of our people were devoted to IT, but they were not being allocated strategically. They were decentralized around the company and responded to requests from the business and support areas in which they were located to develop the applications and IT capabilities those units needed. They were being pulled in different directions on many, many projects, some strategically vital and others less so, because the company was functioning in silos without any real centralized IT organization.

That [decentralization] led to a proliferation of systems and IT platforms. We have over 525 business software applications within the company, and many of these are not even compatible. They were written in a variety of languages going back as far as Cobol and Fortran, and many of them were designed for a single product or process. Because of this fragmented structure, our IT costs were too high.

Also, there wasn’t one repository of client data. So our consultants in our call centers had to toggle between different systems to pull up comprehensive information about clients. And because we didn’t have integrated systems that would let us produce one consolidated quarterly statement for participants that showed them [the performance of all their funds], a participant could receive two, three or even four statements from us every quarter.

How did these opportunities to streamline IT become apparent to you?

In a variety of ways. Before I actually started [as CEO] and in the first weeks I was working here, I interviewed many individuals around the company—even the head of IT at the time—who said that they thought the [IT] professionals were not delivering projects on time and in some cases were not viewed as being sufficiently responsive. In fact, the issue wasn’t their professionalism or work ethic. It was that their work was not being prioritized.

Also, when I started here, we conducted a project called Decisions 2003. We formed six task forces to examine the entire business. One of the task forces dealt with technology. We had people from all over the company on that task force. They came back with recommendations similar to what I heard in my interviews, that we needed to integrate IT and that we needed to focus on strategic priorities.

So how did you restructure IT, and how did the CTO you hired in 2003, Sue Kozik, figure in the restructuring?

For the technology area to be most effective, I felt we needed to bring together the disparate groups of technology experts around the company and elevate the CTO position to top management. We also needed to develop policies we could apply across the company to make sure we could marshall technology experts and coordinate their activity most effectively. I wanted technology to be well-integrated and easy to use.

Sue was given full authority and accountability for leading the transformation of IT. She worked closely with her colleagues in executive management to set goals and priorities and to coordinate her division’s activities with the businesses and support groups.

When you hired Sue, what were you looking for in a CTO?

Someone who appreciates the special mission of TIAA-CREF—providing excellent, low-cost financial services to those who serve others; someone who has high integrity and deep professional experience and will work well with the business and support groups; and someone who can rationalize our many different IT activities, prioritize projects and speed delivery of critical functionality while reducing costs.

The retirement services industry is becoming more focused on individual investors. Looking ahead, what does the role of IT need to be to keep TIAA-CREF competitive?

We decided that we’d have to offer products and services from [other mutual fund providers] as well as broaden our own product line. We’d have to offer personalized advice and brokerage services as well as a much more robust Web experience to make us more accessible to our clients. To support those initiatives, we had to convert to an entirely new [technology] platform with far more functionality than our old platform, which literally could not accommodate another mutual fund product being added to it. The old platform was very rigid and incompatible with our strategic needs. We call this new product and service platform Open Plan Solutions. It enables us to carry out our strategy of offering advice and a broad range of products and services tailored to individual participants. It also enables us to provide much better and more convenient record-keeping services to our institutions. It houses all these different pension products, services and customer records, and is the basis for [disseminating] pension-related client information to our consultants in our contact centers, in our field offices, and over the Web.

Open Plan Solutions is a massive undertaking involving about 10 percent of our total employees. We were told by outside experts it would probably take us three to four years to develop, and we did it in less than two. We have already converted our own company, Purdue University and the University of Richmond to that platform, and we just rolled out a new release of this technology that will enable us to begin mass-converting 15,000 institutions in less than two years.

Earlier, you alluded to the importance of prioritizing IT projects. How does TIAA-CREF decide which projects to put on the docket?

Coming out of Decisions 2003, we formed a committee called the New Project Investment Management Committee or, as we say it, “nip-um.” NPIM is devoted primarily to prioritizing IT projects, developing corporate technology policy, and ensuring that technology initiatives are coordinated around the company and take advantage of cost savings.

NPIM is given an overall budget within which to work. The committee conducts a very rigorous and often contentious process of reconciling different priorities around the company into a coherent rank-ordered set of initiatives that are costed out. For each one of those initiatives, there is a business case with expected rates of return to the organization and ultimately to our participants who own us. Every area of the company—IT, finance, all of our businesses, even human resources and legal—contributes to this process and is represented on the NPIM committee.

Are you a member of NPIM?

I’m not, but the executive management committee meets with the NPIM committee several times a year. The reason why [I’m not a member] is [because] I feel, and our management team feels, that we need to have people who are closer to clients and closer to the daily work and who understand these [individual and institutional investors’] needs in more depth than we in top management do, in order to intelligently prioritize IT resources. Also, NPIM is a way for those people, who have a lot of potential for growth within the company, to get to know each others’ priorities and get to know more about how the company operates.

The NPIM committee drives a lot of the budgeting in this company, not just in IT. It’s a powerful committee, and its recommendations are adhered to almost uniformly. Last year, I think [the executive team] made almost no changes to the recommendations that came from the NPIM committee.

During the restructuring you led in 2003, the IT staff was cut pretty significantly. Why did you decide to cut IT staff given your views of technology as a key enabler of business?

We had to reduce our costs. We’ve had a project under way for the last three years to cut $300 million or 20 percent of the cost base that existed at the beginning of 2003 so we could fund new initiatives. There were a lot of IT projects that were lower-priority that we didn’t need to do, so we made cutbacks there.

How has the perception of IT inside the company changed since the restructuring?

I think respect for the IT department has risen even higher. Since we focused our IT people [on the most-strategic projects], they have done a magnificent job of delivering on time—in a first-class way—these priority projects, like Open Plan Solutions. Our IT people are much more productive. They are working on what’s most needed and doing it in a high-quality way.