CIGNA Reengineering Methodologies.doc

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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 PresidentCIGNA CorporationOne Liberty Place1650 Market Street

P.O. Box 7716Philadelphia, Pennsylvania 19192-1520

USA215-761-6006

Sirkka L. Jarvenpa

Marvin Bower FellowHarvard Business School

Soldiers FieldBoston, Massachusetts 02163

USA

Donna B. Stoddard

Assistant ProfessorHarvard Business School

Soldiers FieldBoston Massachusetts 02163

USANote: 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
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Considerable uncertainty and confusion exists about what business reengineering is andwhen it succeeds. This paper provides a longitudinal view of CIGNA Corporation's

experiences in business reengineering since 1989. CIGNA is a leading provider of insuranceand 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%, cycletimes 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 toescalate from this quick hit to reengineering larger and more complex parts of the

organization. CIGNA's reengineering successes have also required a willingness to allowfailure 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 businessreengineering.

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 (Davenportand 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'sexperiences. Our hope is to help clarify how business reengineering can be effectively used inan organization, as well as the conditions necessary for its success.

The "real story" behind CIGNA's success is that business reengineering started small - in apilot 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 fromthis "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 reengineeringeffectively worked - and was sustained - from the bottom up, with learning transferred
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"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 thandescribes 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 theinformation systems (IS) function. The final section summarizes the lessons CIGNA haslearned.

The Reengineering Journey[3]

Reengineering at CIGNA started as radical transformation programs often start: a newchairman stepping into a troubled environment. In 1988, CIGNA's income had fallen nearly11 percent from the previous year. As part of a new corporate strategic planning processinitiated 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 studyrevealed that sophisticated applications were layered onto an old organization withoutchanging 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. CIGNAReinsurance (CIGNA Re), the division sharing the risk of other insurance carriers' policies onlarge life, accident, and health coverages, volunteered. The pilot effort succeeded beyondexpectations and CIGNA's chairman became a strong advocate of reengineering. Hechallenged 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 reengineeringknowledge from one project to another. It consisted of 10 people with an average of five toten years of CIGNA experience and a mix of business and systems experience. Their firstdirector described them as, "future leader types who would do a tour of duty for 12-18months." 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 seconddirector 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 thedivisions to develop their own "problem solving" methodology for bottoms-up change. Areengineering database allowed knowledge sharing from project to project. The third directorof CIGNA Reengineering explained:

The CIGNA Reengineering group provides leverage points for divisions to create their owncapabilities for business reengineering. We also help to diffuse the latest business

reengineering concepts from outside CIGNA, and help divisions to tailor those to theirspecific 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
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reengineering will be used to refresh the corporate training curricula, and to provide tools andmethodologies 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 (itemployed approximately 150 people, most of whom were located at one site). Althoughsmall, CIGNA Re offered complex products and services and therefore was a rich test of thereengineering concept.

Prior to signing up for reengineering, CIGNA Re senior management had concluded from itsstrategic planning process that the mix of business in its portfolio needed to change. Thedivisions' 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 theindustry leader in one product segment accomplished 10 times the volume of business as didCIGNA Re with the same number of people. The division head offered CIGNA Re as a testsite for reengineering when she heard that the reward for volunteering would be newinformation 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 newstrategy. Reengineering enables an organization to figure out radically different ways to dothings. And, while it is not a substitute for a strategic planning process, it also enabled us tolook forradically different things to do."

In 18 months, CIGNA Re implemented new work processes and cross-functional customerservice teams in the administrative operation along with team-based pay incentives. ByFebruary 1991, the division had downsized by 40%, with everyone required to reapply fortheir jobs. The operating costs were cut by 40% and a two-week underwriting procedure wascompressed into 15 minutes. The number of application systems in use decreased from 17 to5. The administrative and systems staff were reduced by 40% and 30% respectively as bothorganizations moved to team-based management. A major change was a new culture thatemphasized accountability and customer orientation.

Although CIGNA Re's reengineering was a successful effort, the project faced unanticipatedbarriers along the way. A manager explained, "We had a high energy change-orientedconsultant come in and get people psyched-up. In the next phase of the project, we engagedanother consulting firm to model the organization. That was a mistake. The work was verytime consuming, and frankly, the data did not tell us much. At one point, we lost allmomentum. In the third phase of the project, we engaged a third consulting firm with amethodology that presented a much more holistic approach involving a simultaneous reviewof the business strategy, business operations, and IT structure."

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Other early efforts demonstrated that success might require multiple trials. For example, inthe early 1990s, the IS application areas[4] supporting the nine business divisions launched areengineering effort with ambitious goals that resulted in major benefits for seven of the nineunits' IS application groups. Benefits included reduced staff, improved alignment with the

business, and a better understanding of the strategic value of information technology. Asecond trial was initiated soon after with similar goals, resulting in additional improvements

in leadership, teamwork, and strategic alignment. Together these efforts resulted in savings ofover $60 million and reductions of 500 people. But even after two attempts, the process ofdeveloping applications had not changed to a significant degree. The development processeswere still not repeatable, predictable, measurable, or of high enough quality. A third trial wasinitiated to make fundamental changes in the software development processes.

Accepting initial failure could be difficult as a senior manager noted, "I was used to winningon 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 thereengineering efforts succeed in the first go around even if the project has seniormanagement's full backing. According to one division manager, "The chairman wasinstrumental in creating an environment that promotes the divisions' learning from eachother's successes and failures." CIGNA's experience exemplifies how a prerequisite forsuccess in reengineering is a corporate environment that promotes learning, including learningfrom 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 projectand 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 myproject. I was the chief cheerleader, but I also carried a big stick when necessary. I made itclear that this was a project that required everyone's commitment and cooperation." She andher 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 seniormanagement involvement. The first director of CIGNA Reengineering explained: "Initially,we were not so good in screening projects. Some division heads were more interested inresults, not so much of being personally involved in driving the changes." The first director'ssuccessor explained: "In quality improvement projects, the visibility of senior management isimportant early on, but decreases in importance over time. In reengineering projects, thevisibility 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 changeshad 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, andacross 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
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an important transition of ownership has to take place. People who work with new processesand systems have to take ownership - or the project is never going to work." Particularly whenthe organization spanned multiple sites, the head office could not hand down a design to anoperation 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. Forexample, on one project the business committed to grow 15-20% without any added staff. AtCIGNA Re, the estimated savings for reengineering were included as forecasted savings inthe division's budget. Corporate management also sought to ensure that when a project wasderailed, the discussion focused on what needed to be done to get the project restarted or backon 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 CIGNAmanagement. 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 majorregulatory 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, andcost 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 tothe new, less expensive location of Greenock, Scotland. Marketing, sales, and underwritingremained in London.

The UK Reengineering of CIGNA International

Reengineering began in November 1991. The objective was to build an organization for thenew UK business strategy. A full-time reengineering team of eight people was comprised ofthree from CIGNA information systems organization (including internal reengineering

consultants), two from the business unit, and three from an outside consulting firm. Overtime, 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 fundamentalchanges in organization structure, roles and responsibilities, work flows, IT, and culture (seeTable 2). Six functions were consolidated into two processes. The functional hierarchy wasflattened by pushing decision making to self-managing teams as crossfunctional teams of 6 to8 members delivered an end-to-end service to a customer. The organizational changes allowednew business practices that promoted accountability, flexibility, and skill deployment, whilereducing redundancies and hand-offs.


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The UK reengineering effort transformed roles and responsibilities. Team leaders faced anormal daily workload in addition to their leadership responsibilities. Team-basedcompensation was adopted, and a group of junior staff decided that 15% of individual salarieswould be contingent on overall team performance. Significant internal reengineering wasaccomplished in financial metrics, billing, and commissions to ensure new behaviors wererewarded. 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 AfterBefore Reengineering After Reengineering

Organization * Functionalized * Self-managed

* Management intensive customer-focused

teams

* Highly specialized * Skill generalist

* Many hand-offs * Reduce on in hand-

offs

Business Practices * Lack of accountability * Accountability

* No common view of the * Common view of the

customer customer

* Limited flexibility * Flexible procedures

* Fragmented metrics/no * Enterprise wide

metrics

end-to-end quality focus * Skills applied

where

* Underutilized skills add value

Results * Poor quality * High quality

* Weak customer service * Superior customer

* High cost service* Growth impairment * Lower operating

expenses

* Growth enablement

Much of the design for the new customer service process emerged from pilots. These pilotsbuilt ownership at the front line. For example, in one process pilot, the desks and workstationsof two people from claims, two from accounting, and two from administration were co-located. Physical partitions between people were removed. Employees were asked to carry onwith their jobs. The physical co-location became a source of many innovative ideas. Theleader of the reengineering team commented: "It was revolutionary to ask very junior peoplehow 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 raisedeyebrows in some of the US divisions." She continued, "our approach pulled the change ideasout 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 incycle time was aimed for while close to 100% was reached. In one process, the time to delivera quote to a customer was cut from 17 days to three, all seven authorization steps wereeliminated, 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 whoused 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


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[[sterling]]2 million in 1993. Many customers came to see the new operation in Scotland andfound customer service teams full of energy and enthusiasm.

Table 3. Process-Specific Results From CIGNA International ReengineeringCorporate Medical Presale Process

Before Reengineering After Reengineering

* 17-day cycle time * 3-day cycle time

* 14 hand-offs * 3 hand-offs - all electronic

* 7 authorization steps * 0 authorization steps

* 6 hours of total work * 3 hours of total work

* 4 hours of value-added work * 3 hours of value-added work

The move to Scotland presented a "clean slate" reengineering opportunity. Of the 200 peopleemployed in Scotland, only 13 were transferred from London. The new employees hired forthe 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 tosome initial lack of financial controls in the new work processes and systems. Rather thaninterfere, corporate management chose to give units time to remedy these problems on theirown. Additionally, there was difficulty in coordinating the changes across the two sites. Forexample, teams in the 50-person London office were much slower to take form, and some ofthe 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 strategiccountry units about the UK accomplishments. Leveraging the UK effort, while being sensitiveto 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 iteverywhere. Rather, we chose the next target of opportunity carefully. We wanted to applyreengineering at a site that was large enough so that changes would have significant bottomline 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 proventhat the expected benefits were high.

CIGNA International's office in Chile embarked on a formal reengineering program in themiddle of 1992. Although principles and learning from the UK were applied, the effort was aseparate project. One manager noted, "You cannot hand a design to another site; the site mustredesign 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 processimprovement approach was emphasized instead of reengineering. According to the division

head, "We try to be sensitive to what might be culturally based management approaches. InJapan, we felt reengineering would not work. Reengineering is top-down and results in new


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structures and work flows. The top must dictate, 'we are going to do things differently.' InJapan, 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 ReengineeringBy 1993, CIGNA had completed a number of successful projects. But interest inreengineering was waning. The number of reengineering projects underway had declinedfrom the previous year. Successes had been demonstrated in small businesses, but somequestioned the applicability of reengineering to large businesses. Moreover, many of theefforts 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 newCIGNA 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 closelyassociated with new business strategies and new businesses. The new director was committedto applying reengineering in larger businesses, those employing the most equity capital, andwith a scope that went beyond increasing the efficiencies of core processes. He elaborated onhis views of reengineering: "CIGNA's 'first wave' focused on dramatic operationalimprovement, bringing the organization's cost structures in line with changed marketconditions. The new form is more strategic and focused on growth objectives and new corecompetencies."

The "second wave" moved reengineering closer to what ; Venkatraman (1994) has describedas level 5-type IT-enabled change[5]. Such change redefines the business scope and builds thekey 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 8,000-person 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 theindustry wanted. The numerous reorganizations had drained the organization's criticalunderwriting skills and capabilities. While the organization was burdened by duplication offunctions in its home office staff, it faced a highly downsized and stretched field staff. Allcontributed 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 fundamentalconversion in the products, customers, mindset, processes, behaviors, and technology. Thefirst step was to reorganize the division into three separate businesses in order to more easily
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measure performance and analyze the trends in business. Field operations were alsorestructured to transform relationships with distributors and customers. The second step wasto use reengineering to turbo-charge the structural changes. The P&C division presidentreferred to the effort as "transformation." The ultimate goal would be increased shareholdervalue.

Managing a Large, Division-Wide Initiative

The reengineering project was initiated in October 1993. Phase I was a 10-week effortfocused on analysis and design. The reengineering team carried out over 30 differentdiagnostics 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. InDecember, a brown paper fair was conducted. Over 450 feet of brown paper showed theexplicit details of how, for better or worse, P&C actually worked in its current processes. Thefair, 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 notwork in the current processes. This broad involvement of employees helped build ownershipfor the project.

The team identified critical success factors for achieving the new strategy (e.g., creatingmultiple but connected profit centers, building relationships with distributors, and maintaininga strong claims unit). The team developed a map of the key value chain processes andanalyzed the activities and tasks that were most in need of repair. This analysis led to theidentification of six areas where the implementation would first take place. A dedicatedimplementation team was assigned to each area (called a stream). Table 4 presents themembers of the teams.

Table 4. Implementation Teams at P&C

Stream Descriptions Implementation Team Members

Stream 1 Balanced scorecard P&C systems, financial,

actuarial

Stream 2 Support alignment financial, specialty risk

facilities, P&C

systems, specialty lines

Stream 3 Producer management P&C systems, producer

management, CIGNA

reengineering, commercial

insurance servicesStream 4 Underwriting learning and P&C systems, CIGNA

reengineering,

knowledge transfer underwriting management, claims,

underwriting

Stream 5 Claims learning and P&C systems, claims management,

CIGNA

knowledge transfer reengineering, casualty product

management,

claims

Stream 6 Information systems all P&C systems

For example, one of the streams focused on translating the P&C vision of top-quartileperformers into a set of quantifiable measures throughout the division, down to the level of anindividual. The measures were also linked to performance models associated with drivers and
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levers. This top-down view helped to ensure that, rather than optimizing any particular area orfunction, 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 underwritingskills. Best practices were documented and diffused throughout the division. A newinformation culture promoted sharing of information across the groups.

Progress To-Date

The division head summarized the effort's progress in April 1994, "Right now theimplementation phase of the project is not quite three months along. We sense that things aremoving as they should, and on schedule, and that resistance is being replaced by cautiousreceptivity." 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 successbecause the management demands that it work. Sponsorship is REAL; management won't quituntil 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 bemore successful because the front-line knows something is wrong. You get broadacknowledgment that we can do this better."

The implementation plan for the P&C's transformation project called for changes in 12 to 24months. Urgency and unquestioned top management team commitment were essential forspeed. 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 presidentexplained: " ...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 burningdown' - 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 projectwas 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 aretied. 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 division-wide, the implementation would occur in slices. The first "slice" represented 3,000 employees


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or 25% of the P&C premiums. It had been chosen because the detailed analysis of Phase I hadfound it to be the most broken. The slice cut horizontally across functions of the business, butfocused on one divisional profit center. Because each of the P&C profit centers shared thesame high-level processes, the lessons from fixing the "slice" would be used to create atemplate that with modifications could be applied to the remaining "slices."

Pace was critical in all facets of the project. For example, lengthy manuals and formalpresentations customary to the organization had to give way to graphs and charts and to moreinformal workshops. The CIO commented, "If months go by without major progress, youknow 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 everyonein the division would have to learn new skills. During the analysis and design, a lot of thecommunication occurred through employee involvement. Over 1,000 employees at all levels,in the home and field offices, participated in various diagnostic activities. Duringimplementation, the reengineering teams carried out a special communication program

preparing all affected employees for the imminent change. All employees of P&C received amonthly newsletter on the project . Employees, either anonymously or otherwise, wereencouraged to send electronic mail or faxes to and/or call the project office. Answers to themost 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 facedincreasing 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 additionalreengineering initiatives.

CIGNA Technology Services (CTS)

CIGNA Technology Services (CTS) had historically provided large-scale data center andcommunications network services to its customers. CTS management acknowledged that asthe technology base continued to shift toward LANs and PCs, this 1,000-person unit neededto be able to (1) provide more integrated services expanding over a wider array oftechnologies, (2) demonstrate that the value of its products and services could meet or exceedthe 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 continuousprogress toward these requirements, but management felt that the pace for changes had to


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become much greater to keep up with the demands of divisions. CTS initiated reengineeringin the winter of 1993.

Reengineering initially focused on human resources. A new process-based organizationalstructure was announced for the unit in July 1993 along with new leadership positions thatwould 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 byan outside consulting firm to assess whether he or she had the required skills andcompetencies for the position.

In addition to the new leadership team, 30 "business process reengineers" were identified atthe end of September to redesign the unit's processes in light of the new organizationalstructure. This group was labelled as CTS Reengineering. The positions were staffed withhigh-performing, forward-thinking middle to senior-level managers who viewed the businessfrom the customer's perspective. In the fourth quarter of 1993, the reengineering teammembers 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 thetransformation 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 threeprocesses in 1994: processing, communication services, and the customer service hotline.Teams were formed for each process. Two other teams were formed, the "changing ourenvironment team" and the "CTS business practices team." The Changing Our Environment

team focused on the culture, values, structure, and communication that would be necessary toimplement the new designs. The Business Practices team focused on the identification anddevelopment of business practices to enable the implementation of the new vision. Thereengineering leader of the effort commented, "We must first create an environment thatencourages employees to come up with innovative ideas in support of the goals that themanagement 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 ISleadership developed a new set of basic values for all IS professionals (see Table 5). Thevalues included a change from focus on technology to focus on business processes andresults, on change management, and on teamwork. The proactive partnership relationshipswith 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


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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 retoolthemselves. For example, for the IS organization to support CIGNA Re's initiative, nearlyeveryone within CIGNA Re's IS organization had to be replaced to equip the organization


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with development skills in new client-server applications. The new iterative developmentmethodology was highly counter cultural to the traditional ways of developing systems. Themethodology "build it, test it, fix it" meant that as modules (i.e., called slices) of applicationswere available they were rolled out. Even then, because of the lead-time to develop systems, itstill 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

TimeKey Event or Milestone

Sept. 1989Project initiated and staffed.

Apr. 1990All 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 andTools).

November, 1990Slice 2 implemented (Consolidated Client database plus Group/Special RiskTreaty/Quote support).

January, 1991Slice 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 downsizedand organized into new teams.

March, 1991Slice 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 oldsystems.

June, 1991Slice 8 implemented (Group/Special Risk Administration and Accounting). business).

August, 1991Slice 9 implemented (Individual Life Individual Ceded business). Data converted fromold systems.

October, 1991Slice 10 implemented (Individual Life Individual Ceded Billing capability).

January, 1992Slice 11 implemented Individual Life and Group/Special Risk Year-End Processing).

March, 1992Final slice implemented (Individual Life IFSD Processing, 5 percent of Individual

business; Individual Life Bulk Policy Issue and Maintenance, 15 percent of Individualbusiness).


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The CIGNA International project similarly challenged the development paradigms, skills, andknowledge 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, themainframe and dumb terminals gave way to new personal computers (PCs) and client serverarchitecture, 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 outgradually after the process and role changes. But once in place, technology enabled andreinforced the new processes and behaviors.

In the P&C effort, the information systems personnel had to be much more proactive than inthe past because of the short project implementation time frames. The IS members from thedifferent teams met weekly to exchange information to ensure integration and minimizeredundancy across the implementation teams. The implementation teams also held specialtwo-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 ofapplications 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 divisionalmanagement (see Table 7). The CIO of CIGNA had introduced reengineering to thecorporation. He had been the one who initially convinced the division president of CIGNA Reto pilot the new concept. He had been actively involved in the first project along with thedivision'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 aninitiator, there was an initial desire to hold on. But to succeed I had to give ownership ofreengineering to the business divisions. It must be theirs to get the necessary businesscommitment. 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 First Wave Second Wave

Focus of reengineering Streamlining of operations Transformation(new

(lower cost, cycle time, business

strategy, new

improved quality) markets, new

customers)

Role of business leaders Partner Champion

Role of CIO Gatekeeper/champion

Guardian/cheerleader

Role of CIGNA Expert in applying Corporate memory

for

Reengineering group reengineering reengineering;

facilitator;

broker for

reengineering

services


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The role of CIGNA's Reengineering group also changed with time. Initially, outsideconsultants (1) educated the group on reengineering concepts, (2) furnished the group with areengineering methodology to approach and structure projects, and (3) assisted in projectleadership where this was deemed as beneficial. After successes at CIGNA Re and elsewhereat CIGNA, the Reengineering group's own expertise and knowledge often exceeded orequaled that of outside consultants. The outside consultants' role changed to bringing fresh

thinking and specific skill sets (such as client server computing), and the CIGNAReengineering group subsumed the broader change roles of consultants. Also, whereas in theearly 1990s, CIGNA worked primarily with one reengineering consultancy, later CIGNAcontracted with several reengineering consultancies.

The "second wave" of reengineering coincided with further changes to the role of theReengineering group. By 1993, a number of individuals from the Reengineering group had

been diffused back to the divisions where they continued to practice reengineering. Somebusinesses had even begun to build their own core group of process reengineers, whichfurther helped to institutionalize and facilitate reengineering thinking in the lower levels ofthe organization. While the number of process specialists increased in the divisions, theCIGNA Reengineering group decreased to five individuals. Rather than manage or leadreengineering projects (except those in the largest businesses such as CIGNA P&C), thegroup 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 insideand outside of CIGNA and tailor them to the divisions' needs. The Reengineering group alsoensured that reengineering champions in businesses were given visibility and recognition fortheir accomplishments. Finally, the group served as brokers for reengineering resources thatresided within the systems groups, businesses, and outside consultancy groups.

Conclusion

As we have observed at CIGNA, business reengineering can yield great rewards. However, itis a complex and difficult change strategy that is mastered only over time. An organizationmust develop learning capabilities early and learn from failures as well as successes. Theorganization that succeeds with reengineering over a long term has to be tenacious andovercome difficult odds. According to the CFO of CIGNA:

Reengineering is like fighting a war against an organization's antibodies. Reengineering is aforeign organism; the organization's defense mechanisms try to relentlessly defeat it. The onlyway 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 givenup on the war. Reengineering is about trying and trying once again. It often takes a couple oftrials to succeed.

Although competencies have been developed, CIGNA is not at the end of the learning curvewith business reengineering. According to the CFO:

We are at an early stage of institutionalizing reengineering. Institutionalization means that asignificant portion of an organization uses reengineering. Currently, there is a goodunderstanding by senior management of the power of reengineering.

The institutionalization of reengineering requires constant reinforcement. You need trial aftertrial; project after project. After you have built a critical mass of believers, the management

practice starts taking on a life of its own.


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To CIGNA, the institutionalization of reengineering means that reengineering is part of whata 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 whichreengineering can sustain and succeed in the company. The lessons have a familiar ring tothem. Even though the change is more radical in reengineering than what an organizationmight 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 groupfacilitated the sharing of lessons learned from one project to another. Personal transfers fromCIGNA's Reengineering group back to business areas were an effective way to enableknowledge 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 includingorganization structure, systems, culture, and increasingly, strategy. Radical change is hard toaccomplish. To succeed, one must be willing to accept failure, learn from it, but remainfocused on the end goal. Multiple trials were sometimes necessary to enable success withreengineering. The senior corporate management created a culture where failure was toleratedas long as the organization learned from it.

3.Foster commitment and ownership at all levels. Radical change can only be accomplishedwhere 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 andcommitted 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 reengineeringinitiatives.

4.Exploit "clean slate" opportunities. The clean slate opportunity in CIGNA International'sScotland location allowed the organization to implement a new design unencumbered bylegacy facilities, systems, processes, or employees. In fact, clean slate opportunities allowedan 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 whethera top-down radical change program such as reengineering is necessary and can be successfulin light of the characteristics of the organization. Whereas CIGNA International successfullyapplied reengineering in two countries where it did business, it determined that reengineeringas 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" ofreengineering at CIGNA, the aim of the projects shifted from operationally driven efforts toinitiatives where the goal is to increase shareholder value. The costs and benefits of thesecond wave efforts are much higher than those of the first wave. However, to succeed, anorganization must also have greater competency in reengineering. CIGNA's experience
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suggests the advantages of gaining reengineering experience and competency by starting withless complex initiatives.

7.Move with lightning speed. Reengineering involves radical change where radical is definedas broad change that results in "fast" results. The implementation plan within P&C called forchanges 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, andattention 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 whowill be affected by reengineering to understand how the effort will unfold and how it willaffect them as individuals. At CIGNA P&C, employees at all levels were involved in thedesign and analysis phase. During implementation, a monthly newsletter was distributed toemployees.

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 managementacknowledged that the skills required to lead the organization to its desired end state weredifferent from skills required to lead the old organization. A lengthy and involved process wasfollowed to select members of the reengineering team and the leaders to whom those teammembers would report.

10.Focus - most of all - on a mindset change. The most difficult challenge of reengineering isthe cultural change that typically must accompany the process changes that are underway. It istherefore important to acknowledge up front that all employees will have to participate in amindset change to enable the success of the initiative.

In conclusion, business reengineering, as the CIGNA example shows, can be a powerfulinitiator of radical change. The process successfully worked in the initial project in aninconspicuous part of the organization, and it appears to be working in an unavoidablyimportant large-scale effort. What this movement suggests is that the "logic" of learningmoves, 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; toadditional 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 thismanuscript. Funding for this research was generously provided by the Harvard BusinessSchool Division of Research and the Ernst and Young Center for Business Innovation.

End Notes

References

About the Authors

Appendix
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