It's no secret that the onslaught of insurance industry mergers and acquisitions (M&A) has left many a carrier bruised and battered. Combining systems-IT and human-requires forethought, skill, dedication and focus.There may not be much consolation in the knowledge that insurance M&A activity increased in 2005 to the highest level since 2001 and may foreshadow an acceleration of activity this year and the next, according to Conning Research and Consulting Inc., Hartford, Conn.
Conning may have had The Hartford in mind when it collected its research. The Hartford, Conn.-based life insurer recently completed its final steps to acquire CNA's group life, accident and short-and long-term disability business.
From an IT integration perspective, the vast scope of the project (converting 22,000 CNA cases and 134,000 claims to The Hartford's up and downstream systems, including case management, billing, claims, commissions and data warehouse systems), which began in late 2003, also required the vetting and merging of diverse staff from several disparate areas of the country.
Of the 3,300 employees involved in the integration, 10% of the workforce would ultimately be eliminated.
This meant providing leadership that could foster effective project and stakeholder management, creation of a realistic timeline, clear communication of project vision goals, objectives and expectations, and effective executive sponsorship throughout the project's lifecycle.
SENIOR-LEVEL INPUT
"Our priorities emerged naturally as the groundwork was laid back in late 2003 when we signed the acquisition agreement," says Dick Mucci, executive vice president of the Hartford's Group Benefits Division.
"What separated us from other bidders is that we used a fairly large number of senior people to conduct the due diligence necessary to attain depth of vision quickly. We put together a series of tentative scenarios; how we would integrate from a big picture as well as from a detailed perspective," he says.
Separating the big picture from the details would challenge Mucci and his integration team, led by Jim Casey, senior vice president of group specialty markets in The Hartford's group benefits division, for the duration of the project.
"We began by looking at where major functions were performed, and identified the two largest CNA locations besides the company's headquarters in Chicago: Maitland, Fla., and Overland Park, Kan.," recalls Casey. "The geographic footprint became simple for us to figure out, and through due diligence we decided not to try to maintain two separate corporate identities or a dual corporate structure."
Mucci said making early structural decisions (keeping the functional organization in Hartford) helped frame identification of direct reports.
"Marshaling the best possible corporate resources-business, HR and IT-as quickly as possible was critical to our ability to move forward," he says.
While I owned the integration," says Casey, "Dick made it clear that everyone had skin in the game. Everyone had functional responsibility, and that allowed me to put together cross functional teams."
Functional leaders were told to establish teams that had a vested interest in the integration, and would be the best possible candidates to complete the project with minimal disruption to customer service. Leadership then quickly chose the staff that would comprise cross-functional teams (CNA and Hartford).
"Although the entire organization was involved or affected in some way, accountability and responsibility fell on the shoulders of the folks who would be responsible after the integration," Casey explains.
In fact, adds Mucci, there was a certain bias against using a consultant to facilitate the project. "People felt a consultant might not allow our people to be fully engaged," he says, "so we brought [Bermuda-based] Accenture in only to fill the gaps and advise the "do's and don'ts" of certain IT elements. We also had IT resources offshore to cushion the workload."
THE PRICE OF SPEED, EFFICIENCY
With the magnitude of the tasks before them, The Hartford's executives shared a project perspective that spoke to the need to keep pace: Integrate first, improve later.
The need for speed also meant making decisions with less information than normal, says Casey, whose "perfection is the enemy of good" phrase is now a familiar one to staff members.
"One of our important guiding principles was and continues to be efficiency," he says. "We had various deadlines, and there were only 30 days between signing the deal and making all employees of CNA employees of Hartford. Plus we had regulatory deadlines, financial deadlines and more. In order to accomplish that speed, you need to make decisions with less-than-perfect information at the time. We usually take time to delve into the details. In a perfect world you need 95% of the information, but 60% to 70% had to be good enough. We had to trust our gut."
Another outgrowth of keeping pace was the need to be upfront with those team members most affected by the integration. "Because we were moving quickly, we put a heavy emphasis on the communication side," recalls Mucci, "and some of it was tough."
The Hartford established an intranet for employees to obtain information and routinely communicated its vision and clarity of purpose and objectives.
"We had a lot going on but tried to rise above the details," says Mucci, "and we committed to people that we would communicate as soon as we knew what was happening."
For Casey, it meant "communicating the company's guiding principles, norms, what was important to us, and ultimately giving them a lot of authority and the ability to delegate."
PEOPLE INVESTMENT
Casey asserts the time devoted with the teams early on was well spent. "We found that they internalized it all and just kind of ran with things."
By April, 2004 all the "people" decisions were made, Mucci says, "and we kept the big boulders in front of people."
The "people" Mucci refers to were 300 employees who, at various times during the project, were "hands on," giving up the bulk of their day jobs and dedicating 50% to 60% of their time to the effort.
"We invested a lot in the people who were going to have a vested interest," Casey points out. "At the same time, the other 2,700 members of the organization picked up the slack. We recognized that and rewarded the 2,700 for keeping the lights on."
For example, in The Hartford's functional areas, such as underwriting, the No. 2 person was designated a core member of the team, playing a dual role with direct underwriting responsibility, along with a functional role on the team for the duration of the project.
Mucci admits that in spite of beefing up the business during the duration of the project in lieu of forcing layoffs, "some people had to live with ambiguities, and some lame ducks (employees who would be phased out upon project completion) received additional financial incentives. It's people, process and technology, in that order," says Mucci. "You have to take care of the people."
In spite of The Hartford's best efforts, however, change is change, notes Mucci, and by June, anxiety levels among some team members were coming to a peak.
"We enlisted a feedback mechanism and heard comments such as 'How will I learn the new job?' We know new technology is a pain, especially for those CNA folks who liked their technology and were comfortable using it. So this period of ambiguity was the hardest, because fear of the unknown is powerful. Yet you simply can't answer all the questions. Instead we were sensitive to their anxiety and asked them to hold on and be patient."
By September, teams saw and touched the new system and understood the weaknesses and strengths of the new platform, Mucci adds.
CONFIDENCE GOING FORWARD
Mucci modestly admits his leadership style might best be described as transformational (see "What Type of Leader Are You?" page 10) and credits the success of the project to the freedom he was given to motivate teams to get the job done.
"It relates more to a philosophy of caring about people," he says. "It doesn't mean to keep people on board if you don't have to, or give them false praise. You have to be honest. And you have to go extra lengths to make them feel comfortable, such as getting the incoming employees' pay cycle on board without errors."
Although Casey agrees that his management style might best be described as mix of participative and transactional, his philosophy doesn't vary much from Mucci's. "We asked a lot of people to do sprints early on, which meant they weren't able to take much time off. So after the initial sprint, we encouraged time off so the team members could refresh and bring back good perspective. We also went out of our way from a reward and recognition standpoint to make it a positive experience (physical and monetary rewards). You can't pay people enough to go through what they went through."
Both executives agree that the massive integration project lent itself to certain takeaways. "Setting priorities was key," says Casey, "and we learned to accept the fact that there were things we wanted to get to on our agenda that simply had to be placed on the back burner.
"Second, we realized our organization is capable of doing some amazing things. It's given us a lot of confidence in case we do another acquisition. We know we have the horsepower."
If Conning Research and Consulting's M&A study is on target, that may happen sooner rather than later.
WHAT TYPE OF LEADER ARE YOU?
- Autocratic uses dominant tactics and pressure on team members to accomplish tasks.
- Laissez-Faire applies minimal control over team; team sets its own direction with little input from leader.
- Participative involves others in the process including subordinates, peers, superiors and stakeholders.
- Situational modifies leadership style based on the given situation.
- Transactional establishes clearly defined expectations and requirements to subordinates; establishes commensurate reward system for meeting expectations.
- Transformational articulates a common vision, involves all stakeholders and rallies the team to achieve the vision through action.
SOURCE: "Transformational Leadership: A Prescription for IT Project Success," Mitchell Valentine.
