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
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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.