Trying to turn around a giant insurance company is like trying to parallel park a battleship. Just ask Tom Valerio.
From 1993 until this past September, Valerio was the point man on a major push to reinvent CIGNA Property & Casualty, a big-time subsidiary of giant insurer CIGNA Corp. Valerio, 45, a graduate of West Point and a veteran of IBM, was handpicked by CIGNA P&C President Gerald Isom to be the company’s designated transformation officer. As senior VP of corporate reengineering, it was up to Valerio to help move an organization of roughly 6,500 people to the brave, new world that Isom had envisioned.
Because he lacked both a staff and a budget, Valerio had to rely most on his ability to focus — to zoom in on the initiatives that would propel the company toward its goals; to put a wide-angle lens on the big picture; to stay alert to anything that might blindside the effort. Fresh from the front lines of CIGNA’s transformation effort, Valerio shared his four-point plan for bringing clarity to change.
Be brutally honest about where you are.
A company will never figure out where it’s going, says Valerio, if it doesn’t take a cold, hard look at where it’s coming from.
By almost every measure, CIGNA P&C was in the basement when Valerio joined it in 1993. Battered by poor underwriting decisions and claims from natural disasters such as hurricanes Hugo and Andrew, that year CIGNA bled $275 million in red ink. Its combined ratio, a critical measure of an insurer’s health, had spiked to a staggering 140%: For every dollar in premiums that came in, CIGNA paid out $1.40 in claims and expenses.
The numbers were miserable, but Isom and Valerio suspected that the data didn’t tell the whole story. Perhaps they’d learn more if they invited, say, a thousand people into the change process. And so they did.
“We held a brown-paper fair: We took this big, multipurpose room at our Philadelphia headquarters and taped up brown butcher paper all over the walls,” says Valerio. “On the paper was a flowchart of our work process. And we invited everyone in the building to put up anonymous Post-it notes telling us which parts of the process were working, which weren’t, and why.”
Some of what Isom and Valerio saw at the fair was news, and some of it wasn’t. But almost all of it was bad. “We had poor relationships with our customers. We had poor relationships with our distribution channel. We didn’t have the kind of technology in place that would help people perform. And people were cynical. They had been downsized under the guise of reengineering, and now they were about to be ‘reengineered’ again. It was not,” Valerio concludes, “a pretty picture.”
Bring 20-20 foresight to where you want to go.
Any change effort that requires more than a one-page manifesto to articulate its goal is doomed to failure. If the point of the program is complex, people lose focus — and eventually lose their way.
Isom’s vision for CIGNA was so concise, you could write it down on a scrap of paper: to become a top-quartile, specialist property and casualty company. To an outsider, such bloodless words hardly aspire to the kind of oratory that would rally 6,500 employees. But to CIGNA ‘s underwriters, Isom had laid out a radical proposition.
First, he had explicitly linked the goal to what really matters in business: the bottom line. “People have a natural yearning to be part of something that’s profitable,” says Valerio. “And Isom had set a goal that would lead us to profitability.”
Second, Isom had pledged to take a staggering, monolithic insurer that was getting clobbered in the market and transform it into a high-performing specialist insurer comprising roughly 20 discrete business units. CIGNA P&C would abandon its ruinous strategy of chasing premium revenue in a large number of different markets. From now on, it would only go after premiums from carefully targeted customers in carefully targeted markets, where underwriters knew the risks and CIGNA could make good margins.
Focus relentlessly on the things that move you toward your goal.
“In any change effort,” says Valerio, “the real work comes in closing the gap between where you are and where you want to be.” In CIGNA’s case, that meant defining intermediate performance measures and ensuring that all of its energies were focused on getting to the next milestone.
One of the tools that Valerio used to turn strategy into action was the “balanced scorecard,” which identified multiple performance measures for the businesses within CIGNA. And it tracked and billboarded these measures in a very public way.
By booting up an electronic version of the scorecard on their desktop computers, senior leaders could get an instant read on whether their unit was hitting its objectives — and they could follow every other unit’s performance as well. If the scorecard flashed green, the unit was on target; yellow indicated flagging performance; and red warned that the unit was in trouble.
The scorecard was an eye-opening tool. Because of this simple piece of technology, a manager couldn’t hide a bad performance. It was out there for all to see — including CIGNA’s president. Isom wouldn’t look at activity reports; he relied entirely on the scorecard to track performance. If his computer screen flashed red, he started asking questions. He might find one big loss someplace, or he might discover a pattern of losses scattered around the United States. Then he’d dig deeper to find out what wasn’t working. The technology forced people to focus on the most critical part of any transformation effort: performance.
“Too many times, people wrongly focus on the activity — ‘I called my key account 23 times’ — when it’s the outcome — ‘I didn’t close the deal’ — that shows whether you’re moving toward the goal,” Valerio says. “If we zero in on whether we got the job done, we can then have a rational discussion about what we need to do to improve performance.
“And that’s the critical point: We were trying to create a climate in which people were willing to step up and announce, in effect, that they were in trouble — which is incredibly hard. But gradually people grew to trust Isom enough to know that we didn’t want to punish anyone. They saw for themselves that the sooner we knew what was wrong, the faster we could fix it.”
As you close in on the goal, never lose sight of the big picture.
CIGNA rolled out its change effort in Chicago and Atlanta, then in Boston and Dallas. As Valerio worked feverishly to help CIGNA’s leaders take on a specialist’s mind-set, he realized that they were getting a serious case of tunnel vision.
“We reached a point where people had too narrow a focus on their own goals and performance,” he says. “Say our inland marine unit decides to terminate a licensed agent who’s repeatedly missing his targets. But this agent has been doing a great job handling workers’ compensation for us, and now he’s really mad. So he calls us back and tells us we can forget about any of his workers’-comp business.
“The lesson is this: Even discrete business units can’t work in isolation. A good decision for inland marine might be a terrible decision for another unit. We needed to do a much better job of communicating across businesses.”
To help managers keep the big picture in focus, Valerio drew up a “transformation map” — a one-page document that laid out intermediate milestones and ultimate goals. Essentially, it helped managers ensure that their internal compass remains on true north: achieving the skill and the will that can enable CIGNA to break into the industry’s top quarter.
“The transformation map became the ultimate filter for weeding out the things that might be problems but weren’t getting us to our overall goal, and for identifying opportunities that would lead us to profitability,” says Valerio. “It showed that if we executed these initiatives, the company would move in the right direction.”
Did they make it to the promised land? Just follow the numbers: After sustaining that net operating loss of $275 million in 1993, CIGNA P&C racked up a gain of $80 million in 1998. And its combined ratio improved from 140% to 105% — borderline top quarter. “We did so well,” says Valerio, “that this past July, CIGNA Corp. packaged our domestic and international property-and-casualty operations and sold it to Ace Ltd. for $3.45 billion.”
It took five years, but CIGNA P&C’s change team pulled it off: They parallel-parked the battleship. Valerio left CIGNA in September to become a vice president with the Balanced Scorecard Collaborative.
Coordinates: Tom Valerio, firstname.lastname@example.org