Management Information Systems Quarterly SIM Paper of Year for 1994

Vol 18, No. 3, September, 1994

Business Reengineering at CIGNA Corporation: Experiences and Lessons Learned From the First Five Years [1] First prize Society for Information Management's 1994 Annual Paper Awards Competition
J. Raymond Caron Senior Vice President CIGNA Corporation One Liberty Place 1650 Market Street P.O. Box 7716 Philadelphia, Pennsylvania 19192-1520 USA 215-761-6006 Sirkka L. Jarvenpa Marvin Bower Fellow Harvard Business School Soldiers Field Boston, Massachusetts 02163 USA Donna B. Stoddard Assistant Professor Harvard Business School Soldiers Field Boston Massachusetts 02163 USA
Note: the copyright for this document is owned by the MISQuarterly. The article may not be printed out or sold through any service without permission.

Abstract] [Introduction] [The Reengineering Journey] [Reengineering Internationally] [The "Second Wave of Reengineering"] [Aligning IS with Reengineered Businesses] [Conclusion] [Acknowledgments] [Endnotes] [Bibliography] [About the Authors] [Appendix]

Abstract

Considerable uncertainty and confusion exists about what business reengineering is and when it succeeds. This paper provides a longitudinal view of CIGNA Corporation's experiences in business reengineering since 1989. CIGNA is a leading provider of insurance and related financial services throughout the United States and the world. Between 1989 and 1993, CIGNA completed over 20 reengineering initiatives, saving more than $100 million. Each $1 invested in reengineering has ultimately brought $2-3 in returned benefits. This article describes projects with major payoffs: operating expenses reduced by 42%, cycle times improved by 100%, customer satisfaction up by 50%, quality improvements of 75%. It also highlights how CIGNA's reengineering started small and how learning was used to escalate from this quick hit to reengineering larger and more complex parts of the organization. CIGNA's reengineering successes have also required a willingness to allow failure and learn from failures. Only about 50% of the reengineering efforts bring the type of benefits expected initially. Repeated trials are often necessary. CIGNA's lessons can help other firms anticipate what they will experience as they ascend the learning curve of business reengineering. Keywords:

Business reengineering Business process redesign Radical change Longitudinal case study Insurance industry Strategic alignment Organizational learning Knowledge transfer

ISRL Categories:

BA0214 AF10 AI0102 EF0201

Introduction
Despite the wholesale enthusiasm surrounding business reengineering in the last five years, there is considerable confusion about what it is and whether - and how - it works (Davenport and Stoddard, 1994; Earl, 1994). This article describes how one company, CIGNA, introduced business reengineering into its organization five years ago and saved more than $100 million. There are lessons, positive and negative, that can be drawn from CIGNA's experiences. Our hope is to help clarify how business reengineering can be effectively used in an organization, as well as the conditions necessary for its success. The "real story" behind CIGNA's success is that business reengineering started small - in a pilot project in a vulnerable division of the company. That pilot was a success - a quick hit. The organization then ramped up from this success, transferrring the knowledge learned from this "experiment, " into larger and more complex parts of the organization. This was not a smooth transition; there were many difficulties along the way. But business reengineering effectively worked - and was sustained - from the bottom up, with learning transferred

"across. " The way it worked at CIGNA is different from the exhortations of some consultants (Hall et al, 1993; [2] This paper describes the experiences of CIGNA and highlights the lessons they have learned. The next section describes how reengineering got started at CIGNA. The section after than describes in detail a number of projects that are illustrative of CIGNA's experience. The following section explores the roles played by the chief information officer and the information systems (IS) function. The final section summarizes the lessons CIGNA has learned.

The Reengineering Journey[3]

Reengineering at CIGNA started as radical transformation programs often start: a new chairman stepping into a troubled environment. In 1988, CIGNA's income had fallen nearly 11 percent from the previous year. As part of a new corporate strategic planning process initiated by the chairman, the new chief information officer (CIO) launched a review of how well the systems organization was supporting the strategic direction of the business. The study revealed that sophisticated applications were layered onto an old organization without changing the underlying processes and without the desired impact on the business. In 1989, the CIO set out to find a division to pilot business reengineering. CIGNA Reinsurance (CIGNA Re), the division sharing the risk of other insurance carriers' policies on large life, accident, and health coverages, volunteered. The pilot effort succeeded beyond expectations and CIGNA's chairman became a strong advocate of reengineering. He challenged other businesses to match the success of CIGNA Re. In 1990, ten reengineering projects were initiated.

CIGNA Reengineering group

The CIGNA Reengineering group was started in 1989 to enable the transfer of reengineering knowledge from one project to another. It consisted of 10 people with an average of five to ten years of CIGNA experience and a mix of business and systems experience. Their first director described them as, "future leader types who would do a tour of duty for 12-18 months." She explained the high turnover in the group: "The idea was to populate CIGNA businesses and systems with people who had hands-on experience in business reengineering. A tour in CIGNA Reengineering was seen as part of a competency model for leadership. These high performers would work on a couple of projects and then be transferred to the business, where they would apply their skills on a continuing basis. The group's second director had a similar view: "Future leaders need to drink from the cup of reengineering. Reengineering has to become a way of life." Personal transfers diffused reengineering learning; training programs also enabled the divisions to develop their own "problem solving" methodology for bottoms-up change. A reengineering database allowed knowledge sharing from project to project. The third director of CIGNA Reengineering explained: The CIGNA Reengineering group provides leverage points for divisions to create their own capabilities for business reengineering. We also help to diffuse the latest business reengineering concepts from outside CIGNA, and help divisions to tailor those to their specific problems. Each project team, in turn, is responsible for capturing its learning and publishing it in a reengineering database. The know-how that is being accumulated on

reengineering will be used to refresh the corporate training curricula, and to provide tools and methodologies across divisions. Lesson 1: Diffuse and leverage learning from one project to another

CIGNA Reinsurance (CIGNA Re): The pilot project

CIGNA Re, the business reengineering pilot site, was one of CIGNA's smallest divisions (it employed approximately 150 people, most of whom were located at one site). Although small, CIGNA Re offered complex products and services and therefore was a rich test of the reengineering concept. Prior to signing up for reengineering, CIGNA Re senior management had concluded from its strategic planning process that the mix of business in its portfolio needed to change. The divisions' information systems were outdated; yet support for developing information systems for targeted products and markets was inadequate or non-existent. Administrative expenses, product prices, and staff counts were all too high. One benchmarking study suggested that the industry leader in one product segment accomplished 10 times the volume of business as did CIGNA Re with the same number of people. The division head offered CIGNA Re as a test site for reengineering when she heard that the reward for volunteering would be new information systems. The division head described the expected advantages of reengineering, "We recognized that it would be a powerful tool to enable the implementation of the new strategy. Reengineering enables an organization to figure out radically different ways to do things. And, while it is not a substitute for a strategic planning process, it also enabled us to look for radically different things to do." In 18 months, CIGNA Re implemented new work processes and cross-functional customer service teams in the administrative operation along with team-based pay incentives. By February 1991, the division had downsized by 40%, with everyone required to reapply for their jobs. The operating costs were cut by 40% and a two-week underwriting procedure was compressed into 15 minutes. The number of application systems in use decreased from 17 to 5. The administrative and systems staff were reduced by 40% and 30% respectively as both organizations moved to team-based management. A major change was a new culture that emphasized accountability and customer orientation. Although CIGNA Re's reengineering was a successful effort, the project faced unanticipated barriers along the way. A manager explained, "We had a high energy change-oriented consultant come in and get people psyched-up. In the next phase of the project, we engaged another consulting firm to model the organization. That was a mistake. The work was very time consuming, and frankly, the data did not tell us much. At one point, we lost all momentum. In the third phase of the project, we engaged a third consulting firm with a methodology that presented a much more holistic approach involving a simultaneous review of the business strategy, business operations, and IT structure."

Other Early Efforts

Other early efforts demonstrated that success might require multiple trials. For example, in the early 1990s, the IS application areas[4] supporting the nine business divisions launched a reengineering effort with ambitious goals that resulted in major benefits for seven of the nine units' IS application groups. Benefits included reduced staff, improved alignment with the business, and a better understanding of the strategic value of information technology. A second trial was initiated soon after with similar goals, resulting in additional improvements in leadership, teamwork, and strategic alignment. Together these efforts resulted in savings of over $60 million and reductions of 500 people. But even after two attempts, the process of developing applications had not changed to a significant degree. The development processes were still not repeatable, predictable, measurable, or of high enough quality. A third trial was initiated to make fundamental changes in the software development processes. Accepting initial failure could be difficult as a senior manager noted, "I was used to winning on nine out of 10 projects. On reengineering projects, the odds are a lot higher." Overall, CIGNA has found in its analysis of reengineering projects that only about 50% of the reengineering efforts succeed in the first go around even if the project has senior management's full backing. According to one division manager, "The chairman was instrumental in creating an environment that promotes the divisions' learning from each other's successes and failures." CIGNA's experience exemplifies how a prerequisite for success in reengineering is a corporate environment that promotes learning, including learning from failure.

Lesson 2: Learn from failure

Leadership and Ownership for Changes The early efforts crystallized the type of commitment needed at all levels of the organization. The CIGNA Re division president was unquestionably committed to the success of the project and personally invested a lot of time. During design, she spent 50-75% of her time on the project and during implementation, 30-50%. She reflected, Everyone knew this was my project. I was the chief cheerleader, but I also carried a big stick when necessary. I made it clear that this was a project that required everyone's commitment and cooperation." She and her management team reviewed the project regularly (often weekly). This type of executive commitment was not always forthcoming in the other early efforts. CIGNA Re's success prompted CIGNA's chairman to challenge the other divisions to match that success. A flurry of new projects were initiated, but sometimes with inadequate senior management involvement. The first director of CIGNA Reengineering explained: "Initially, we were not so good in screening projects. Some division heads were more interested in results, not so much of being personally involved in driving the changes." The first director's successor explained: "In quality improvement projects, the visibility of senior management is important early on, but decreases in importance over time. In reengineering projects, the visibility is vital from the start and only needs to intensify as the project proceeds." Although personal, frequent involvement was needed from the top, ownership of the changes had to exist at all levels, particularly in front-line personnel. One division head noted, "real change is only going to occur when your people, from the top down, from the bottom up, and across business function lines believe in its merit and the importance of their own roles." Another division president concurred, "Initiation of the project has to come from the top. But

an important transition of ownership has to take place. People who work with new processes and systems have to take ownership - or the project is never going to work." Particularly when the organization spanned multiple sites, the head office could not hand down a design to an operation and expect a successful change to take place. Corporate management also had a key role; it was only willing to "invest" in a reengineering project if the business agreed to commit to a certain rate of return on that investment. For example, on one project the business committed to grow 15-20% without any added staff. At CIGNA Re, the estimated savings for reengineering were included as forecasted savings in the division's budget. Corporate management also sought to ensure that when a project was derailed, the discussion focused on what needed to be done to get the project restarted or back on track, rather than who was at fault.

Lesson 3: Foster commitment and ownership at all levels

The next section discusses another reengineering effort viewed as successful by CIGNA management. This international effort reinforced the lessons learned at CIGNA Re, while providing new ones.

Reengineering Internationally: CIGNA International

CIGNA International's country units were relatively small - many with fewer than 500 people. The first reengineering initiative took place in the United Kingdom (UK) where a major regulatory change demanded a redefinition of that unit's business strategy. A six-month analytical study assessed the implications of the new strategy on the structure, operations, and cost drivers of the business. Nearly 40% of the business was divested. The operations unit (i.e., customer service, financial accounting, claims) was moved from a suburb of London to the new, less expensive location of Greenock, Scotland. Marketing, sales, and underwriting remained in London.

The UK Reengineering of CIGNA International

Reengineering began in November 1991. The objective was to build an organization for the new UK business strategy. A full-time reengineering team of eight people was comprised of three from CIGNA information systems organization (including internal reengineering consultants), two from the business unit, and three from an outside consulting firm. Over time, the use of consultants lessened as the business developed competency in reengineering. This competency was later leveraged across country units. Within two years, CIGNA International's UK reengineering team accomplished fundamental changes in organization structure, roles and responsibilities, work flows, IT, and culture (see Table 2). Six functions were consolidated into two processes. The functional hierarchy was flattened by pushing decision making to self-managing teams as crossfunctional teams of 6 to 8 members delivered an end-to-end service to a customer. The organizational changes allowed new business practices that promoted accountability, flexibility, and skill deployment, while reducing redundancies and hand-offs.

The UK reengineering effort transformed roles and responsibilities. Team leaders faced a normal daily workload in addition to their leadership responsibilities. Team-based compensation was adopted, and a group of junior staff decided that 15% of individual salaries would be contingent on overall team performance. Significant internal reengineering was accomplished in financial metrics, billing, and commissions to ensure new behaviors were rewarded. The information systems organization was similarly transformed. This group of 57 people was reduced to 22 people whose area of responsibility was broadened. Table 2. CIGNA International Reengineering - Before and After
Before Reengineering After Reengineering * Self-managed customer-focused * Skill generalist * Reduce on in hand* Accountability * Common view of the customer * Flexible procedures * Enterprise wide * Skills applied add value * High quality * Superior customer service * Lower operating * Growth enablement

Organization teams offs Business Practices

* Functionalized * Management intensive * Highly specialized * Many hand-offs * Lack of accountability * No common view of the customer * Limited flexibility * Fragmented metrics/no end-to-end quality focus * Underutilized skills * * * * Poor quality Weak customer service High cost Growth impairment

metrics where Results

expenses

Much of the design for the new customer service process emerged from pilots. These pilots built ownership at the front line. For example, in one process pilot, the desks and workstations of two people from claims, two from accounting, and two from administration were colocated. Physical partitions between people were removed. Employees were asked to carry on with their jobs. The physical co-location became a source of many innovative ideas. The leader of the reengineering team commented: "It was revolutionary to ask very junior people how work should be done. In the past, we would have gotten their input for systems support, but not for process changes. The way we let junior people design the new process raised eyebrows in some of the US divisions." She continued, "our approach pulled the change ideas out of the organization. They owned the change from day one." The implementation officially ended in July of 1993 and met or exceeded the target objectives (see Table 1). Objectives calling for a 30% improvement in cost were met. A 50% improvement in quality had been targeted but 75% was achieved. A 50% improvement in cycle time was aimed for while close to 100% was reached. In one process, the time to deliver a quote to a customer was cut from 17 days to three, all seven authorization steps were eliminated, 14 hand-offs were reduced to three automated hand-offs, and so on (see Table 3). Overall, the new processes delivered a 50% improvement in customer satisfaction. Staff who used to process between 35 to 40 claims a day were now able to handle 75 to 90 claims a day. A UK underwriting loss of [[sterling]] 2 million in 1992 turned an operating profit of over

[[sterling]]2 million in 1993. Many customers came to see the new operation in Scotland and found customer service teams full of energy and enthusiasm. Table 3. Process-Specific Results From CIGNA International Reengineering
Corporate Medical Presale Process Before Reengineering After Reengineering * * * * *

* * * * *

17-day cycle time 14 hand-offs 7 authorization steps 6 hours of total work 4 hours of value-added work

3-day cycle time 3 hand-offs - all electronic 0 authorization steps 3 hours of total work 3 hours of value-added work

The move to Scotland presented a "clean slate" reengineering opportunity. Of the 200 people employed in Scotland, only 13 were transferred from London. The new employees hired for the Scotland location had only been with CIGNA for six months before reengineering pilots began. The lack of legacy helped to institutionalize the new behaviors.

Lesson 4: Exploit "clean slate" opportunities

A "clean slate" also meant that institutional knowledge did not get transferred. This led to some initial lack of financial controls in the new work processes and systems. Rather than interfere, corporate management chose to give units time to remedy these problems on their own. Additionally, there was difficulty in coordinating the changes across the two sites. For example, teams in the 50-person London office were much slower to take form, and some of the process and tool changes faced more resistance than in the 200-person Scotland office.

Transferring learning beyond the UK

In 1991, the reengineering head of the project began to communicate to other strategic country units about the UK accomplishments. Leveraging the UK effort, while being sensitive to differences in country units, required some restraint. A manager commented: We resisted the temptation of saying that now that we have done this once, let's do it everywhere. Rather, we chose the next target of opportunity carefully. We wanted to apply reengineering at a site that was large enough so that changes would have significant bottom line impact - 10% or 30% improvement was not going to be significant enough. Chile was the next site. We, however, did not approve the project until the local management had proven that the expected benefits were high. CIGNA International's office in Chile embarked on a formal reengineering program in the middle of 1992. Although principles and learning from the UK were applied, the effort was a separate project. One manager noted, "You cannot hand a design to another site; the site must redesign its work processes, roles, and sometimes systems. The country units vary in cultures, regulations, and lines of businesses. " Business reengineering was not seen as applicable in every country. In Japan, a process improvement approach was emphasized instead of reengineering. According to the division head, "We try to be sensitive to what might be culturally based management approaches. In Japan, we felt reengineering would not work. Reengineering is top-down and results in new

structures and work flows. The top must dictate, 'we are going to do things differently.' In Japan, things are done in a much more consensus mode. Changes are driven from bottom-up." Lesson 5: Tailor reengineering to the characteristics of the environment

The "Second Wave" of Reengineering

By 1993, CIGNA had completed a number of successful projects. But interest in reengineering was waning. The number of reengineering projects underway had declined from the previous year. Successes had been demonstrated in small businesses, but some questioned the applicability of reengineering to large businesses. Moreover, many of the efforts thus far had been focused on improving operational excellence rather than strategically positioning the firm for future growth and for new businesses. To re-energize the reengineering effort, the CIO and his management team brought in a new CIGNA Reengineering director from an outside consultancy. They also wanted to move away from initiatives that primarily focused on cost cutting and improvements in service delivery, the so called "first wave" of reengineering. New"second wave" initiatives were to be closely associated with new business strategies and new businesses. The new director was committed to applying reengineering in larger businesses, those employing the most equity capital, and with a scope that went beyond increasing the efficiencies of core processes. He elaborated on his views of reengineering: "CIGNA's 'first wave' focused on dramatic operational improvement, bringing the organization's cost structures in line with changed market conditions. The new form is more strategic and focused on growth objectives and new core competencies." The "second wave" moved reengineering closer to what ; Venkatraman (1994) has described as level 5-type IT-enabled change[5]. Such change redefines the business scope and builds the key competencies to achieve the new vision. The CIGNA Property and Casualty (P&C) project, described next, is an illustration of "second wave" reengineering. Lesson 6: Ascend to "higher forms" of reengineering over time

Reengineering a large business: CIGNA Property and Casualty (P&C)

In 1993, Property and Casualty (P&C) was in dire straits: from 1989 to 1993, this 8,000person business unit had lost $1 billion. Standard & Poors had downgraded P&C from A to BBB+. High prices had left the division with high risk business that no one else in the industry wanted. The numerous reorganizations had drained the organization's critical underwriting skills and capabilities. While the organization was burdened by duplication of functions in its home office staff, it faced a highly downsized and stretched field staff. All contributed to the organization's inability to react to market changes. Redefining Business P&C's new vision was to become a top-quartile performer in the markets it participated in. Management wanted to transform the unit from a generalist to a specialist organization (i.e., P&C would now target certain market segments). The new strategy called for fundamental conversion in the products, customers, mindset, processes, behaviors, and technology. The first step was to reorganize the division into three separate businesses in order to more easily

measure performance and analyze the trends in business. Field operations were also restructured to transform relationships with distributors and customers. The second step was to use reengineering to turbo-charge the structural changes. The P&C division president referred to the effort as "transformation." The ultimate goal would be increased shareholder value. Managing a Large, Division-Wide Initiative The reengineering project was initiated in October 1993. Phase I was a 10-week effort focused on analysis and design. The reengineering team carried out over 30 different diagnostics and gathered inputs from more than 1,000 P&C employees through surveys, interviews, process models, full-day customer workshops, brown paper fairs, etc. Brown paper [6] was used to map 19 different processes in order to understand their broken parts. In December, a brown paper fair was conducted. Over 450 feet of brown paper showed the explicit details of how, for better or worse, P&C actually worked in its current processes. The fair, which was open to all P&C employees, attracted more than 800 people. Employees attached 800 to 1,000 Post-It Notes to brown papers, commenting on what worked or did not work in the current processes. This broad involvement of employees helped build ownership for the project. The team identified critical success factors for achieving the new strategy (e.g., creating multiple but connected profit centers, building relationships with distributors, and maintaining a strong claims unit). The team developed a map of the key value chain processes and analyzed the activities and tasks that were most in need of repair. This analysis led to the identification of six areas where the implementation would first take place. A dedicated implementation team was assigned to each area (called a stream). Table 4 presents the members of the teams. Table 4. Implementation Teams at P&C
Stream Descriptions Stream 1 Balanced scorecard actuarial Stream 2 Support alignment facilities, P&C Stream 3 Producer management management, CIGNA insurance services Stream 4 Underwriting learning and reengineering, knowledge transfer underwriting Stream 5 Claims learning and CIGNA knowledge transfer management, Stream 6 Information systems Implementation Team Members P&C systems, financial, financial, specialty risk systems, specialty lines P&C systems, producer reengineering, commercial P&C systems, CIGNA

underwriting management, claims, P&C systems, claims management, reengineering, casualty product claims all P&C systems

For example, one of the streams focused on translating the P&C vision of top-quartile performers into a set of quantifiable measures throughout the division, down to the level of an individual. The measures were also linked to performance models associated with drivers and

levers. This top-down view helped to ensure that, rather than optimizing any particular area or function, the effort would optimize the end-to-end view of the business. The implementation phase formally began in January of 1994. Over 20 "best" performers, selected from business and systems for the implementation teams, worked full-time on the project. Additional employees participated part-time. Each team was aided by outside consultants, and each had two sponsors who reported directly to the division presidents. Sponsors were in daily contact with their teams. Additionally, all sponsors, acting as a team, reviewed the project's progress weekly and set direction for the upcoming activities. Most attention was devoted to creating a new culture that promoted learning and innovation. Learning and training programs were instituted to strengthen the weakened underwriting skills. Best practices were documented and diffused throughout the division. A new information culture promoted sharing of information across the groups. Progress To-Date The division head summarized the effort's progress in April 1994, "Right now the implementation phase of the project is not quite three months along. We sense that things are moving as they should, and on schedule, and that resistance is being replaced by cautious receptivity." In the eyes of the division head, eventual success would be easily gauged, "The project will be successful when everyone in the P&C organization understands our strategy, where they fit, and how they contribute." The division head was also quick to acknowledge, "In the rapidly changing world, success will only be sustained if the transformational thought process becomes a basic work style." The CFO predicted, "The project will be a success because the management demands that it work. Sponsorship is REAL; management won't quit until the changes have happened. Field involvement has built ownership from both the top and the bottom. In general, organizations that have had poor financial results are likely to be more successful because the front-line knows something is wrong. You get broad acknowledgment that we can do this better." The implementation plan for the P&C's transformation project called for changes in 12 to 24 months. Urgency and unquestioned top management team commitment were essential for speed. A manager noted, "We have to fix the business, or risk being out of business." Maintaining spped was, however, a major challenge because, as the division president explained: " ...the business unit was paralyzed by the fear of what might happen. Over the previous five years, employees had been told again and again that 'the building's burning down' - but having seen so many fire-fighting efforts fail, they were going to take their time accepting, and attempting, any new fix."

Managing Change in a Large Initiative Much of the success in mobilizing for change and gaining broad commitment for the project was the willingness to address human resources issues early. The division head noted, "Management has to address the staffing issue right in the beginning. Otherwise our hands are tied. I changed 4 out of the 8 senior executives to ensure a unified front. Speed also required a manageable effort. Because the CIGNA P&C project was divisionwide, the implementation would occur in slices. The first "slice" represented 3,000 employees

or 25% of the P&C premiums. It had been chosen because the detailed analysis of Phase I had found it to be the most broken. The slice cut horizontally across functions of the business, but focused on one divisional profit center. Because each of the P&C profit centers shared the same high-level processes, the lessons from fixing the "slice" would be used to create a template that with modifications could be applied to the remaining "slices." Pace was critical in all facets of the project. For example, lengthy manuals and formal presentations customary to the organization had to give way to graphs and charts and to more informal workshops. The CIO commented, "If months go by without major progress, you know you have lost the project."

Lesson 7: Move with lightning speed

Besides speed, communications were important. Management told employees early and repeatedly that the project would result in a downsized home office and that nearly everyone in the division would have to learn new skills. During the analysis and design, a lot of the communication occurred through employee involvement. Over 1,000 employees at all levels, in the home and field offices, participated in various diagnostic activities. During implementation, the reengineering teams carried out a special communication program preparing all affected employees for the imminent change. All employees of P&C received a monthly newsletter on the project . Employees, either anonymously or otherwise, were encouraged to send electronic mail or faxes to and/or call the project office. Answers to the most commonly asked questions were circulated organization wide.

Lesson 8: Communicate truthfully, broadly, and via multiple forums

Aligning Information Systems with Reengineered Businesses

As businesses reengineered their processes, CIGNA's information systems groups faced increasing pressures to improve their own processes to meet the growing divisional needs. The businesses demanded more integration of services and fewer hand-offs than previously experienced in working with the information systems groups. This led to additional reengineering initiatives.

CIGNA Technology Services (CTS)

CIGNA Technology Services (CTS) had historically provided large-scale data center and communications network services to its customers. CTS management acknowledged that as the technology base continued to shift toward LANs and PCs, this 1,000-person unit needed to be able to (1) provide more integrated services expanding over a wider array of technologies, (2) demonstrate that the value of its products and services could meet or exceed the value of similar services available in the marketplace, and (3) provide high-quality services in a timely fashion. A quality program in place since 1990 had made continuous progress toward these requirements, but management felt that the pace for changes had to

become much greater to keep up with the demands of divisions. CTS initiated reengineering in the winter of 1993. Reengineering initially focused on human resources. A new process-based organizational structure was announced for the unit in July 1993 along with new leadership positions that would report to the unit's head. All candidates, including those currently reporting to the CTS head, had to apply for these positions. Each of the managers considered was interviewed by an outside consulting firm to assess whether he or she had the required skills and competencies for the position. In addition to the new leadership team, 30 "business process reengineers" were identified at the end of September to redesign the unit's processes in light of the new organizational structure. This group was labelled as CTS Reengineering. The positions were staffed with high-performing, forward-thinking middle to senior-level managers who viewed the business from the customer's perspective. In the fourth quarter of 1993, the reengineering team members and the new leadership team went through an extensive orientation program. A senior manager at CIGNA remarked, "One has to carefully select the people for the transformation project. Those people either make or break the project."

Lesson 9: Select the right people

The new leadership team and the 30 business process reengineers decided to focus on three processes in 1994: processing, communication services, and the customer service hotline. Teams were formed for each process. Two other teams were formed, the "changing our environment team" and the "CTS business practices team." The Changing Our Environment team focused on the culture, values, structure, and communication that would be necessary to implement the new designs. The Business Practices team focused on the identification and development of business practices to enable the implementation of the new vision. The reengineering leader of the effort commented, "We must first create an environment that encourages employees to come up with innovative ideas in support of the goals that the management team has established for CTS."

Lesson 10: Focus - most of all - on a mindset change

Cultural change beyond CTS

The environment in the other IS groups similarly demanded a mindset change. CIGNA IS leadership developed a new set of basic values for all IS professionals (see Table 5). The values included a change from focus on technology to focus on business processes and results, on change management, and on teamwork. The proactive partnership relationships with divisions would give way to reactive arms-length relationships. Table 5. Contrasting the Old and New Values of Information Systems Professionals Strategy

Old: Technology Focus

New: Integrated Business Strategy

Management Style

Old: control, functional bias New: leadership, teamwork

Organization

Old: hierarchical, rigid New: flatter, team-based, flexible

Alignment

Old: fractional, smoke stack New: business process

Measurement

Old: internal focus, weak New: business results-based

Skills

Old: mainframe technology, project management New: reengineering/process engineering, broadbase of technologies, business knowledge

Funding

Old: incrementa New: business value-based

Relationship with Business Units

Old: we/they, mistrust, formal, interface groups New: dummy

Relationship with CUSTOMER

Old: weak to none New: frequent

Focus

Old: Technology New: Business Processes and Business Results

The changes in behaviors and skills did not come easily. IS areas had to fundamentally retool themselves. For example, for the IS organization to support CIGNA Re's initiative, nearly everyone within CIGNA Re's IS organization had to be replaced to equip the organization

with development skills in new client-server applications. The new iterative development methodology was highly counter cultural to the traditional ways of developing systems. The methodology "build it, test it, fix it" meant that as modules (i.e., called slices) of applications were available they were rolled out. Even then, because of the lead-time to develop systems, it still took until 1992 to roll out all the modules (see Table 6). The systems development had begun in the spring of 1990. Table 6. Key Milestones for CIGNA Re Reengineering Time Key Event or Milestone Sept. 1989 Project initiated and staffed. Apr. 1990 All parts of technology infrastructure platform available. Sept. 1990 Crossfunctional administrative (administration, sales, and underwriting personnel) teams established. Teams assigned to customers. October, 1990 Slice 1 of application systems implemented (individual Life Underwriting support and Tools). November, 1990 Slice 2 implemented (Consolidated Client database plus Group/Special Risk Treaty/Quote support). January, 1991 Slice 3 implemented (Individual Life Assumed Policy Issue and Maintenance, 60 percent of Individual business). Data converted from old system. Systems organization moved to team structure. February, 1991 Slice 4 implemented (Individual Life Assumed Billing). Slice 5 implemented (Group/Special Risk Cash and Payment Allocation). Administrative staff downsized and organized into new teams. March, 1991 Slice 6 implemented (Individual Life Assumed Policy Issue and Maintenance, 20 percent of Individual business). April, 1991 Slice 7 implemented (Individual Life Ceded Pool Billing). Data converted from old systems. June, 1991 Slice 8 implemented (Group/Special Risk Administration and Accounting). business). August, 1991 Slice 9 implemented (Individual Life Individual Ceded business). Data converted from old systems. October, 1991 Slice 10 implemented (Individual Life Individual Ceded Billing capability). January, 1992 Slice 11 implemented Individual Life and Group/Special Risk Year-End Processing). March, 1992 Final slice implemented (Individual Life IFSD Processing, 5 percent of Individual business; Individual Life Bulk Policy Issue and Maintenance, 15 percent of Individual business).

The CIGNA International project similarly challenged the development paradigms, skills, and knowledge of the information systems organization, resulting in major personnel changes. These changes were occuring at the same time that IS dvelopment areas felt the greatest pressure to perform. Information Systems were critical for new processes. In the UK, the mainframe and dumb terminals gave way to new personal computers (PCs) and client server architecture, the salesforce was equipped with portable PCs , an integrated claims system processed claims across product lines, and a state-of-the-art quoting system was implemented. However, because of the lead time to develop applications, technology was rolled out gradually after the process and role changes. But once in place, technology enabled and reinforced the new processes and behaviors. In the P&C effort, the information systems personnel had to be much more proactive than in the past because of the short project implementation time frames. The IS members from the different teams met weekly to exchange information to ensure integration and minimize redundancy across the implementation teams. The implementation teams also held special two-day work sessions to identify the information support requirements for new processes. An additional IS team (a seventh team) was put in place to evaluate the business value of applications currently under development (but not part of P&C reengineering) and develop a process to free IS resources from those projects as they were needed for P&C reengineering.

Shifting Roles in Reengineering

Additional changes had occurred in the relative roles of the IS groups and divisional management (see Table 7). The CIO of CIGNA had introduced reengineering to the corporation. He had been the one who initially convinced the division president of CIGNA Re to pilot the new concept. He had been actively involved in the first project along with the division's senior information officer. Over time, however, the CIO had changed from the champion of reengineering to its marketeer and then to its guardian. He explained, "As an initiator, there was an initial desire to hold on. But to succeed I had to give ownership of reengineering to the business divisions. It must be theirs to get the necessary business commitment. Businesses need to talk about reengineering, not IS. I am in the background, pushing ideas, starting fires. If IS was to control this, it would be a disaster." Consequently, divisions led the initiatives; IS groups served as partners enabling the radical changes. Table 7. Changing Roles in Reengineering
Form of Reengineering Focus of reengineering (new strategy, new customers) Role of business leaders Role of CIO Guardian/cheerleader Role of CIGNA for Reengineering group broker for services First Wave Streamlining of operations (lower cost, cycle time, improved quality) Partner Gatekeeper/champion Expert in applying reengineering Second Wave Transformation business markets, new Champion Corporate memory reengineering; facilitator; reengineering

The role of CIGNA's Reengineering group also changed with time. Initially, outside consultants (1) educated the group on reengineering concepts, (2) furnished the group with a reengineering methodology to approach and structure projects, and (3) assisted in project leadership where this was deemed as beneficial. After successes at CIGNA Re and elsewhere at CIGNA, the Reengineering group's own expertise and knowledge often exceeded or equaled that of outside consultants. The outside consultants' role changed to bringing fresh thinking and specific skill sets (such as client server computing), and the CIGNA Reengineering group subsumed the broader change roles of consultants. Also, whereas in the early 1990s, CIGNA worked primarily with one reengineering consultancy, later CIGNA contracted with several reengineering consultancies. The "second wave" of reengineering coincided with further changes to the role of the Reengineering group. By 1993, a number of individuals from the Reengineering group had been diffused back to the divisions where they continued to practice reengineering. Some businesses had even begun to build their own core group of process reengineers, which further helped to institutionalize and facilitate reengineering thinking in the lower levels of the organization. While the number of process specialists increased in the divisions, the CIGNA Reengineering group decreased to five individuals. Rather than manage or lead reengineering projects (except those in the largest businesses such as CIGNA P&C), the group served as a conduit for sustaining the state-of-the art reengineering thinking and practice at CIGNA. The group helped to diffuse the latest reengineering concepts from inside and outside of CIGNA and tailor them to the divisions' needs. The Reengineering group also ensured that reengineering champions in businesses were given visibility and recognition for their accomplishments. Finally, the group served as brokers for reengineering resources that resided within the systems groups, businesses, and outside consultancy groups.

Conclusion
As we have observed at CIGNA, business reengineering can yield great rewards. However, it is a complex and difficult change strategy that is mastered only over time. An organization must develop learning capabilities early and learn from failures as well as successes. The organization that succeeds with reengineering over a long term has to be tenacious and overcome difficult odds. According to the CFO of CIGNA: Reengineering is like fighting a war against an organization's antibodies. Reengineering is a foreign organism; the organization's defense mechanisms try to relentlessly defeat it. The only way to win the war is to wear the enemy out. You have to keep beating the drum. The moment you ease up you have lost the battle. We have had our share of victories and defeats. We have lost battles, but we have not given up on the war. Reengineering is about trying and trying once again. It often takes a couple of trials to succeed. Although competencies have been developed, CIGNA is not at the end of the learning curve with business reengineering. According to the CFO: We are at an early stage of institutionalizing reengineering. Institutionalization means that a significant portion of an organization uses reengineering. Currently, there is a good understanding by senior management of the power of reengineering. The institutionalization of reengineering requires constant reinforcement. You need trial after trial; project after project. After you have built a critical mass of believers, the management practice starts taking on a life of its own.

To CIGNA, the institutionalization of reengineering means that reengineering is part of what a company's operating style is and part of the way that its employees and managers think.

What have we learned?

This paper has highlighted 10 lessons that begin to describe the conditions in which reengineering can sustain and succeed in the company. The lessons have a familiar ring to them. Even though the change is more radical in reengineering than what an organization might be accustomed to, the basic principles of managing change still seem to apply (e.g., Goodman and Dean, 1982; Kanter, 1983; Kanter, et al., 1992; Kotter and Schlesinger, 1979; Nadler, 1986; Schein, 1980). 1:.Diffuse and leverage learning from each project. The CIGNA Reengineering group facilitated the sharing of lessons learned from one project to another. Personal transfers from CIGNA's Reengineering group back to business areas were an effective way to enable knowledge sharing, as was the creation of a reengineering data base on completed projects. 2. Learn from failure. Reengineering involves radical change in a number of areas including organization structure, systems, culture, and increasingly, strategy. Radical change is hard to accomplish. To succeed, one must be willing to accept failure, learn from it, but remain focused on the end goal. Multiple trials were sometimes necessary to enable success with reengineering. The senior corporate management created a culture where failure was tolerated as long as the organization learned from it. 3.Foster commitment and ownership at all levels. Radical change can only be accomplished where senior management and front line employees are 100% committed to the initiative. Senior management typically demonstrates their commitment by being visibly involved with the project. At CIGNA Re, the senior executive owned the reengineering initiative and committed a significant amount of her time to the project. Similarly, at CIGNA International, CIGNA P&C, and CTS, the senior executives were visibly involved with the reengineering initiatives. 4. Exploit "clean slate" opportunities. The clean slate opportunity in CIGNA International's Scotland location allowed the organization to implement a new design unencumbered by legacy facilities, systems, processes, or employees. In fact, clean slate opportunities allowed an organization to turn a reengineering project into an "engineering" project. 5. Tailor reengineering to the characteristics of the environment.. Effective reengineering can take many forms. Before starting a reengineering project, management should assess whether a top-down radical change program such as reengineering is necessary and can be successful in light of the characteristics of the organization. Whereas CIGNA International successfully applied reengineering in two countries where it did business, it determined that reengineering as traditionally defined in the US would not work in another location where the change program would need to be managed in more of a consensus-driven mode. 6.Ascend to higher forms of reengineering over time. With the "second wave" of reengineering at CIGNA, the aim of the projects shifted from operationally driven efforts to initiatives where the goal is to increase shareholder value. The costs and benefits of the second wave efforts are much higher than those of the first wave. However, to succeed, an organization must also have greater competency in reengineering. CIGNA's experience

suggests the advantages of gaining reengineering experience and competency by starting with less complex initiatives. 7.Move with lightning speed. Reengineering involves radical change where radical is defined as broad change that results in "fast" results. The implementation plan within P&C called for changes in 24 months given the poor financial results of the division. Pace, which was enabled by senior management commitment, a project structure of manageable slices, and attention to human resource issues, was critical in all facets of the project. 8. Communicate truthfully, broadly , and via multiple forums. It is important for those who will be affected by reengineering to understand how the effort will unfold and how it will affect them as individuals. At CIGNA P&C, employees at all levels were involved in the design and analysis phase. During implementation, a monthly newsletter was distributed to employees. 9. Select the right people. Whereas all aspects of reengineering are challenging, most would argue that the "rubber meets the road" during implementation. CTS senior management acknowledged that the skills required to lead the organization to its desired end state were different from skills required to lead the old organization. A lengthy and involved process was followed to select members of the reengineering team and the leaders to whom those team members would report. 10. Focus - most of all - on a mindset change. The most difficult challenge of reengineering is the cultural change that typically must accompany the process changes that are underway. It is therefore important to acknowledge up front that all employees will have to participate in a mindset change to enable the success of the initiative. In conclusion, business reengineering, as the CIGNA example shows, can be a powerful initiator of radical change. The process successfully worked in the initial project in an inconspicuous part of the organization, and it appears to be working in an unavoidably important large-scale effort. What this movement suggests is that the "logic" of learning moves, even in our craze of business reengineering. It moves from an initial experimentation (the pilot program) to an internal communication of what happened in that program; to additional experimentation in more risky, rocky organizational terrains; and ultimately to the building of organizational memory that chronicles what succeeds and fails.

Acknowledgements
We are most grateful to Tina Marie Angelo at CIGNA Corporation in helping us prepare this manuscript. Funding for this research was generously provided by the Harvard Business School Division of Research and the Ernst and Young Center for Business Innovation.

End Notes References About the Authors Appendix