CASE-5 AXA FINANCIAL

The AXA Group is a global financial services organization with 140,000 employees and headquartered
in France. Some 10,000 employees work in the United States at AXA Financial. Its retail businesses
include AXA Advisors, LLC; The Equitable Life Assurance Society of the U.S.; Alliance Capital
Management; and Sanford C. Bernstein & Co. Its wholesale division (AXA Distributors, LLC) works with
brokerage houses, large banks, and independent financial planners that sell Equitable Life products
through their own channels. As of June 30, 2002, AXA Financial had approximately $441 billion in
assets under management, and its IT group employed 650 people.

Paul Bateman leads the enterprise governance process, which resides within the IT organization yet
spans AXA Financial. He spends about half his time working with the business units. He was hired to
manage AXA Financial's IT portfolio. Prior to his hire, senior management believed IT provided
competitive differentiation and made so many significant investments in IT infrastructure and
applications that the company needed to get more control of its growing portfolio. In 2000, some 200
high-priced, significant projects were in development.

Bateman introduced a governance process to instill more efficient management controls. A key
principle of the process is that all projects and investments are not created equal. Each one's merit
depends on its economics, not on an executive's emotional attachment to it or other nonfinancial
factors. This new governance process has brought discipline and a way to value projects.
Introducing a New Methodology
Bateman first undid the level playing field by introducing a methodology to help AXA Financial
executives define a hierarchy of importance and prioritize projects against that hierarchy. He called on
the people at United Management Technologies (UMT) to demonstrate their portfolio prioritization
methodology. He had been exposed to it while at Citigroup and found that UMT had since increased
the methodology's functionality, making it best in class. He proposed it to senior management and
they agreed to bring the methodology into AXA Financial.
To begin acquainting the company with the new governance model, Bateman held a series of kick-off
meetings with the CFO from each area, including retail and wholesale sales, marketing and product
development, service delivery, and IT. Needless to say, they were pleased with the financial emphasis
of the approach.

Then he introduced it to the executive vice presidents (EVPs)-the business unit heads-explaining the
need to begin managing the portfolio of major IT projects the way fund managers manage their
portfolios. Once the EVPs agreed on the concept, Bateman described the UMT tools that could help.

The top-level project review committee is the governance committee, which is co-chaired by the
company's CEO and CIO. It also includes the CFO and the EVPs. By representing all the lines of business,
the committee ensures that approved projects benefit the entire company. This committee helped
develop the governance model, which initially was called "IT governance," but has since become
"enterprise governance" because the process is now used to prioritize more than IT projects.

The Prioritization Process

The process begins each year with the EVPs turning in their wish lists of all projects they would like for
the coming year, as if they had an unlimited check-book. Last year, the lists totaled close to 300
projects.

Winnowing the Wish List: Next, the EVPs are asked to split those projects into three categories: must-
have (or else AXA Financial would incur revenue or operational risks), should-have, and nice-to-have.
Taking out the nice-to-haves still left over 170 projects.

Selecting Business Objectives: To reduce the 170, AXA used the UMT methodology, which begins by
having the enterprise state the objectives upon which the projects will be judged. Although the CEO
has set out an AXA Financial-wide vision and goals, the business units are too diverse for a single list of
objectives. Therefore, each business unit developed its own objectives with the CEO's strategic goals
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in mind. Bateman and UMT assisted each business unit to arrive at four to six measurable objectives
(such as increase customer satisfaction) that could be tracked and that aligned with the CEO's
strategic direction.

Prioritizing the Objectives: Each business unit led by the EVP and including his or her direct reports,
then ranked the objectives using UMT's pair-wise methodology. One at a time, the business unit
decided how one objective compared with each other objective on a scale of importance. They had
seven choices: extremely more important, strongly more important, moderately more important, of
equal importance, moderately less important, strongly less important, or extremely less important.

As each decision was made, a color-coded choice was recorded by a facilitator on a matrix displayed
on a large screen in front of the group. The side benefit of this ranking exercise was the business
discussion it elicited among department members. Executives' assumptions and rationale for their
decisions often surfaced when they debated how much more or less important, say, increasing
customer satisfaction was compared to increasing market share. The pair-wise comparison approach
made it easy to debate two objectives solely on their own merit. The model took care of the final
overall ranking among the objectives.
Ranking Projects Using the Objectives: Given this list of prioritized objectives, the committee moved
on to ranking each project) against how much that project supported each objective - extremely
supports, strongly supports, moderately supports, low support, or no support.

There were several keys to performing this step confidently. One key was, understanding what, say,
strongly supports meant. Some business units quantified each level of support beforehand to vote
from a level playing field.

Another key to success was each staff member's understanding of each project well enough to make
these decisions, which meant having well-defined and consistently defined projects.

A third key was not having too many projects and too many objectives, or else the ranking process
would take too long.

As in the objective-ranking meeting, a major benefit of this project-ranking meeting was the personal
revelations that surfaced when members explained why they voted that a project strongly supports an
objective whereas others voted that the same project provided low support. When done well, these
discussions yielded both insights and a group consensus. A high comfort level emerged with the
results.

Following these two rankings; each EVF had a prioritized list to present to the enterprise governance
committee. By this time, the total number of projects had been culled from the over 170 to
approximately 70. One by one, the EVPs defended their own list, explaining why each project was
included. The committee then decided which ones would advance to the funding phase.
Funding the Projects: To help the governance committee decide which projects could be funded a
business case application was then filled out for each one. The application asked for financial
projections for the current year plus 5 more. Financial calculations for net present value, rate of return,
cash flow, and pay back period were then determined using the business case application.

Of course, not all projects are alike. For those that aim to produce income, the committee focuses on
payback period. For those that will implement infrastructure improvements, the committee looks at
operational efficiencies to be gained or extenuating circumstances (such as the vendor no longer
supporting a system).

Thus, the process uses four filters, the EVP's wish list filter, the must-have/ should-have filter, the
UMT prioritization filter, and the business case filter. The result is a list of projects that can be
funded.

Throughout the year, the governance committee meets two to three times a month for 2 hours. It
reviews the launch dates for new products and works backward to determine when the support
mechanisms, such as the underlying IT system, need to be in place.

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Projects costing over $250,000 require the full 5-year analysis and approval of the governance
committee. Projects requiring less funding need a mini-business case; these are reviewed monthly by
the governance committee to ensure that they are strategically linked to company goals. The EVPs
have learned to do their own filtering of projects, only taking the ones they know will pass muster at
the governance committee meetings.

AXA Financial then uses Pro-Sight portfolio management software to manage its portfolio of ongoing
projects. The plan is for the governance committee to begin reviewing this data to keep tabs on the
progress of projects, as well as their budgets.

Benefits of the Project Prioritization Process

The UMT-based process provides the enterprise governance committee with a panoramic view of the
business, thus discussions of IT projects no long center around budgets. Rather, they center around
business strategy, such as looking at the cross-functional nature of a product and how it fits on the
road map laid out by the CEO. The attendees benefit from these discussions because they have both a
view and a say in that future. Knowing the pending projects in the other areas has significantly
increased cross-functional communications. Bateman acts as the secretary for the meeting, recording
what has been approved and listing follow-up items. "It is a disciplined way of helping AXA Financial,
manage its future," he notes.

Another benefit is that approved projects are no longer questioned because they have the blessing of
the CEO. The group discussions that precede the approvals also create a powerful group concurrence
effect.

Now that AXA Financial has been using the UMT methodology and the Pro-Sight monitoring software
for 2 years, it is turning its attention to comparing planned benefits to actual benefits because it is
beginning to receive actual performance numbers. Bateman is working to refine the estimation
techniques so that they are more accurate. Furthermore, once a project has been implemented, its
projected savings are being taken out of the appropriate budgets by the CFOs.

This enterprise governance structure is now seen as a best practice throughout the AXA Group. It is
now being introduced to and adapted by some of AXA's European and Canadian operations.

Future Plans
Due to the success of the enterprise governance, process in funding and tracking new projects,
Bateman is always looking at ways to expand the use of governance tools to other areas of the
business. The on-going goal is to continually search for ways to increase the value of money spent. This
year, AXA Financial has started a zero-based budgeting process (based on activity-based costing) where
each business looks at the activities it performs each day and calculates the number of people and the
time spent on each activity.

As an example, they could then potentially integrate the discipline of a zero-based budgeting process
with the UMT prioritization tool. This approach would give the company a new way to see options to
further increase the value of investments.

Another way to improve value throughout the IT organization is to ensure that project proposals list,
say, two or three options. For instance, one option could be to deliver 80 percent of the functionality
the first year for $1 million; the other option could be to deliver 100 percent in 1 year for $2 million.
Options would yield better business cases and save the company money. In the past 2 years, the
enterprise governance process has deferred approximately $20 million in expenses. The business
cases showed the money would have been poorly spent. Bateman and his team are looking at ways to
improve the governance process further to help ensure that the governance committee is making
informed investment decisions in support of future growth.

Case Questions:
1. What is the major focus of the case?
2. List out the key points highlighted in the case.