January 30, 1997




Mr. Chairman and members of the Commission, my presence here today comes by way of invitation extended to General Robert T. Herres, Chairman and Chief Executive Officer of USAA. On behalf of General Herres and USAA, please accept our sincerest thanks for your invitation. It is an honor for USAA to participate in these proceedings and a personal privilege for me. My testimony will reflect on my experiences through 25 years in the field of Information Technology.

It is my understanding that based on the findings of the General Accounting Office and the National Research Council, this commission seeks information on the successful application of enabling technology to satisfy specific automation needs for the Internal Revenue Service. Areas of interest include, but may not be limited to, technical management, systems architecture, process improvement, systems security, business strategy, general management practices, software development and technical infrastructure related to the development of the Tax Systems Modernization program. With the chairman’s permission, I wish to convey a series of lessons learned by USAA’s Information Services organization relating to these issues.



USAA, founded in 1922, is a worldwide insurance and diversified financial services association. It is made up of 87 subsidiaries and affiliates and owns and manages more than $40.5 billion in assets. The 1996 Fortune 500 ranks USAA 200th among the largest U.S. corporations in terms of revenues. USAA’s policy holders are primarily members of the U.S. military and their families. The association ranks as the nation’s fifth-largest insurer of private automobiles and fourth-largest homeowners insurer. In addition, USAA currently has more than $72.8 billion of life insurance in force, and ranks as the nation’s 33rd largest life insurance company. USAA’s Investment Management Company offers a diverse family of 33 no-load mutual funds, and ranks 34th of 387 companies in assets under management.

The USAA family of companies provides a full range of insurance and financial products. These include property and casualty insurance, life and health insurance, annuities, no-load mutual funds, real estate opportunities, and a discount brokerage service. The USAA Federal Savings Bank, rated "Best Bank in America" by Money magazine in its June 1995 issue, offers both Visa and MasterCard credit cards, deposit services, consumer loans, mortgage loans and home equity loans. USAA also has a travel agency and a member buying service.

USAA is at the forefront of insurance and financial services organizations due to its emphasis on quality service and information technology. As a pioneer in the use of computers, telecommunications, image processing, and other information technology and management tools, USAA has significantly increased the productivity of the nearly 16,500 employees worldwide and enhanced its superior customer service. In the August 1993 issue of CIO Magazine, USAA was listed among the Top 21 Consumer-Services Companies as "providing the best infrastructures, applications and interfaces, and the training and backup to go with them." Also, in 1993, USAA was listed among the top five companies to work for in "The 100 Best Companies to Work for in America," a best-selling book, which calls the Association "a safe harbor where employees have incredible opportunities…"

A strong culture permeates USAA and engenders an employee attitude and behavior that makes these achievements possible. This culture is manifested in the way employees relate to members and customers, as well as the manner in which employees relate to each other. One result of this culture is a strong focus on service. This service orientation governs operational behavior extending beyond the direct service community to every staff function including the entire Information Services operation. As a result, the members of the technical community view themselves as partners with every agency in USAA. Each person has a particular set of skills, each performs a certain duty, however, all are focused on how they contribute to the ultimate goal – servicing the member and his or her family. A clear sense of purpose produces collaborative results and reduces conflict.



Information systems and telecommunications play key roles in the operations, growth, and overall success of USAA. Strategic exploitation of technology enables USAA and its family of companies to provide operator-efficient, customer-convenient and cost-effective products and services for our members and their families, worldwide.

USAA is committed to using technology aggressively to maintain its competitive edge while providing the best service possible. Medium and large-scale IBM and Tandem computers along with a variety of smaller servers, support business interactions which are conducted over 8,000 AT&T toll-free telephone lines. Ninety percent of USAA’s business transactions are conducted by telephone (over 340,000 calls per day). Traditional mail service makes up the balance. An automated voice-response system allows customers to conduct business with USAA, 24 hours a day, seven days a week. On average, 888,000 calls each month are processed exclusively by our voice response system. Seventy percent of all telephone calls placed to the Federal Savings Bank and the Investment Management Company are handled exclusively by the voice response system.

AT&T, Northern Telecom and Intecom telephone systems support the Home Office complex and remote offices. Field offices access the Home Office computers via AT&T dedicated communications lines.

Office Automation support (including electronic mail) is provided nationwide by means of a cluster of five VAX processors from Digital Equipment Corporation, producing a simple text messaging capability. In addition, IBM’s Lotus Notes provides a messaging alternative for compound document distribution. The Office environment is undergoing a significant transformation at this time as USAA explores the use of web-based technology as a replacement alternative to the existing products and services offered by current systems.

USAA’s corporate goal of a "paperless" environment led to the development of its Image Processing System. The technology allows for the scanning and digitizing of incoming mail for on-line viewing through high-resolution terminals. Employees process the correspondence electronically and can retrieve images in a matter of a few seconds. Of particular significance are the automatic workload distribution features of the Image applications and their ability to route pending work to service representatives, by skill level. Over one billion pages are stored in the Imaging System. One significant characteristic of the Image System is the reusability of the imaging infrastructure. Having incurred the cost of its initial development for the Property & Casualty Company of USAA, the incremental cost of the application’s reuse for USAA’s remaining operating elements is significantly less. Hence, the Image System is in fact a utility, configured for each line-of-business entity according to its operational needs. Such is the case for many of the application components used throughout USAA’s information systems technology inventory.

USAA’s Property & Casualty Company is supported by a very sophisticated and highly integrated platform of product systems. The policy issue and maintenance components of that platform offer a variety of automated facilities such as automatic coverage selection, automatic classification of vehicle operator, and automatic reversal processing. Designed largely to eliminate the need for the service representatives cross-referencing of volumes of regulatory and procedures manuals, the system now contains the requisite information necessary to accurately issue, adjust, cancel, rewrite, assign and/or reinstate a policy as a "one-stop process."



Business volumes, increasing complexity of internal processes and external competitive pressures created an awareness of the need for change. To realize that change is necessary is much easier than determining what result that change should produce. Crafting business plans -- reducing intent to the clarity and precision of the written word -- was the essential, first step in the transformation that occurred. The plan that was ultimately fashioned in order to configure the one-stop operation detailed not just an overall program, but the scope, costs, and deliverables for each embedded project. In order to speak to the characteristics of this transformation and relate these to the issues and findings of the Government Accounting Office and National Research Council, I offer the following illustration.

In the early part of the 1980’s, USAA undertook a series of significant initiatives intended to upgrade its inventory of Property & Casualty Company systems -- it was termed the Long Range Systems Plan. Prior to that time and despite an already substantial, installed systems base, policy processing for automobile policies required paper applications to traverse 54 separate steps in order to complete the issuance process. At various steps in that process, vehicle operators were classified, coverage was selected, policies were rated, etc. After the completion of the Long Range Systems Plan, the one-stop processing objective of the plan became a reality.

Today, supported by toll-free long distance services, when a service representative completes a telephone call with our insured, all manual involvement required to complete the issuance process is also complete. That is to say, all subsequent processing – premium calculations, receivable posting, ledger posting, document printing and assembly, etc. -- occurs without further manual intervention.

The upgrading of the systems base was more than a series of modifications to the existing legacy base. New concepts of policy processing were crafted well before business process reengineering became a popular concept. A whole new way of viewing the inventory of systems and managing development was also crafted, establishing principles of systems operations that included reuse, outsourcing, project management, and systems life cycle management. In addition, a whole new concept of information systems governance was instituted.

The development of the Automated Insurance Environment (AIE) perhaps best illustrates what USAA achieved with its Long Range Systems Plan. It was through the realization of the Automated Insurance Environment that policy processing was collapsed from days to minutes. The Long Range Systems Plan itself was the product of a collaborative effort between USAA and a third party -- Andersen Consulting. Leveraging third party capabilities remains a consistent theme at USAA where a wide range of skills, job competencies, and experience are required to extend internal capabilities.

The plan was structured into several categories. Generally, they were administrative, policy issue and maintenance, financial products and infrastructure. Beyond this plan definition was a comprehensive architecture that defined individual product design as well as an overall environmental design. I hasten to add that the architecture and design originally crafted were not ultimately the architecture and design that were implemented. Perhaps more important than the original design was the identified need for an office of primary responsibility to manage the architecture and design through plan completion. This need was also found for each project. As more detail became available, adjustments were made to each project and the overall plan.

The Automated Insurance Environment was originally the vision of a senior individual within the company, although thinking on that vision evolved over time as contributions were made by others. However, that individual championed that vision until it became a reality. There can be no doubt that without that ownership, the revolutionary changes embodied by the Automated Insurance Environment might not have come to pass. I mention this because it is suggested that too often in the information systems business, the relationship between the systems group and the business community it supports fails. As a consequence, so too do projects and programs. Those failures reflect the lack of a common basis upon which to agree. Mutual interests are overlooked in favor of parochial interests. In the case of the Long Range Systems Plan and AIE, the size and complexity of the plan required a close relationship between the business community and the systems organization.



Governance of systems requires a formal relationship between the business community supported and the information services organization providing that support. To use the Long Range Systems Plan as an example, an oversight group was established and chaired by the most senior officer within the business organization whose operation was most affected by the plan. Senior Officer representatives from all affected organizations comprised the remainder of the committee that was commissioned as the Executive Steering Committee for Systems – ESCS. It was their role to provide guidance to the Information Services group during plan execution, and coordination throughout the entire business community on matters relating to projects -- scope, objectives, funding, and schedules. For each of the 80+ projects in the plan, a project sponsor was established. This sponsor was a senior member of the business community with specific interests in the business objectives targeted by the project. For example, the senior underwriter in the Property & Casualty Company was the sponsor for the underwriting systems projects. With this technique for governance in place, the next, significant hurdle was project management.

Again, USAA retained the services of Andersen Consulting to assist on project execution. The relationship proved to be beneficial, largely because USAA, at that time, lacked the experience required for large systems development and project management. Andersen brought with them a development life-cycle methodology and a project management rigor that was essential to plan success.

From a technology point of view, the infrastructure components of the plan provided its greatest advantage. The plan required the development of a series of utilities which were then reused by systems that produced tangible results. The utilities included, for example, a "session control" facility that produced a common look and feel to the desktop of the service representative community; a table maintenance utility that each application would incorporate as opposed to recreating like facilities in each subsequent application; a correspondence utility that simplifies the generation of outbound mail; an intelligent printer utility that simplifies the production of high-volume, complex documents. Toward the completion of the Long Range Systems Plan, these utilities comprised as much as 60 percent of the applications fielded.

Throughout plan execution, a development group managed the collaborative efforts amongst the various project teams. This oversight provided the framework within which the myriad of details, issues and conflicts were resolved in a timely enough fashion so as to effect the desired outcome.

Not all that was achieved within USAA’s Information Services was a product of the plan. Portions of what is in use today were developed before the systems plan, even though improvements were subsequently introduced. A few of those early systems concepts remain part of USAA’s competitive advantage today. Subsequent to plan completion, many technology enhancements were also introduced that proved to be of significant benefit to USAA and its membership. Imaging was initially studied during the Long Range Systems Plan, but was not introduced to the operational environment until the late 80’s. Coupled with its work-flow distribution capability, imaging proved to be a key, cost effective component of our technology inventory. More important is the significant service improvements it affords. Every policy service representative can access every document forwarded to our attention or distributed by USAA to its customers.

Not all of USAA’s systems needs were satisfied by internal development. Many systems currently in use by our service community are "out-sourced," that is, acquired as a service or purchased from a vendor. Out-sourcing makes sense when mature products are available on the market that satisfy most business requirements. It is trivial to observe that purchased software is less expensive because the vendor can amortize the expense of that application development over many customers as opposed to a single company incurring the total cost of development. The requisite caution and the problem with a purchased software strategy is the identification and implementation of vendor solutions too late in the development process. It is possible to begin fielding a series of internally developed applications that eventually grow to preclude the incorporation of a product or service that is offered on the open market. Therefore, it is necessary to establish an overall design and architecture prior to the actual development of applications. An overall design and architecture allows for the development of a standard interface between vendor products and custom components, where necessary.



Most recently, USAA introduced significant change to its strategic planning process. The modifications institutionalize a planning rigor that extends to include the information technology acquisition process. Planning conference agendas address and document both strategic and near-term operational goals and objectives that drive business priorities as well as the budgeting process. The plan now links individual and organizational performance goals to corporate goals. This planning process also differs from the earlier one mainly in its inclusion of strategic technology infrastructure and cross enterprise-wide programs – a much greater challenge than focusing on an individual operating organization. The planning process also includes rigorous status review. A consistent reporting of program and embedded project status is required. All incremental changes to budgets and schedules require executive approval.

Along with infrastructure and cross-enterprise technology programs come the need for technical and functional integration. A well understood and supported technology architecture is necessary to guide the selection and implementation of technology solutions. The combination of an adopted, technical architecture and a rigorous planning process result in the appropriate level of management attention to technology investment decisions. It is here, perhaps, that the lessons learned from USAA’s experience may be of most use to you in your review and evaluation of technology solutions for the IRS systems complex. A rigorous business-case validation process, identifying specific benefits as well as costs must accompany the design alternatives chosen.

The principles that govern USAA’s Information Services organization continue to evolve. Given the revolution in technology over the last ten years, the need to develop internally has given way to the policy of acquire first, out-source if acquisition is not feasible, and only then build as a last resort. In addition, an evolution in management roles is redefining management strategies. As opposed to the Executive Steering Committee for Systems (ESCS) technique used to oversee the Long Range Systems Plan, individual executive accountability and responsibility is emphasized while preserving broad-based review and coordination. Hence, the benefits of involvement of all parties affected is preserved without the loss of individual, executive decision making responsibility.

The base of product systems in use at USAA today reflects the breadth of existing and emerging technologies. The evolution that occurred in the plan of the 1980’s continues unabated through today. For example, sixteen thousand workstations will be deployed over the next several years. To support this, a major network upgrade is underway that enables the delivery of high performance, client-server applications. In addition, plans are in place and system design is under way for the fielding of a self-service, electronic distribution channel for products and services from USAA.



The application of technology to business interests at USAA produced the cost-effective, customer-convenient inventory of systems currently in use. To suggest that no mistakes were made in that journey would be misleading. Much of what was learned was the product of trial and error. The key to ultimate success is to recognize failure as soon as possible. There can be no doubt that our largest failures occurred when we did not recognize early enough that we were failing.


The lessons we, as systems developers, learn, and perhaps invariably relearn, are the subjects of industry analysis, books, and articles in trade magazines. The significant lessons our experience taught us are:

· Begin with a clear sense of purpose, detailed specifications, and strong commitment from both the business community defining the requirements and the information services organization providing solutions.

· Embrace the concepts of life cycle management, project management, work planning, work scheduling, and resource modeling.

· Manage risk directly by dealing with the three factors that tend to increase risk: scope, technology and complexity. Inadequate risk mitigation measures will surely result in project failure. Inappropriate constraints imposed on programs increase risk and the likelihood of failure.

· Large projects that propose the use of new technology and deal with complex business problems are at greater risk of failure unless they are segmented into smaller projects with short term deliverables. Speculating with new technology may be best left to research and development.

· Requisite skills, job competency and experience must be available to the project, whether acquired internally or externally.

· Architecture and design must be programmed into plans. If left to project increments, serious integration problems will result. The framework must always come first.


There may be no shortage of advice on how to succeed and no shortage of sources for "good" advice. Deliberate decision making, effective governance processes, and well defined objectives are lessons the industry has always promoted. Think big, implement small and scale fast are good principles that should govern program development. Ultimately, enabling technology must produce value – either through service improvement, net cost/benefit, or product differentiation. Failure to focus on the desired outcome of applied technology will likely result in waste and expectations not met. Technology systems development unfortunately remains largely an art-form. Despite the developments in computer assisted software tools, creative genius remains a necessary prerequisite to systems development.

Mr. Chairman, on behalf of USAA I thank you for this opportunity to share these experiences with your commission. I hope these comments prove helpful to you in your endeavors and justify your perceptions that USAA’s technology achievements merit your attention. If we can be of further assistance, you need only ask.