Business Turnaround

By Robert J. Grossman Apr 1, 2008
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HR Magazine, April 2008 The chief executive officer and the human resource director work together to build and keep a strong workforce at Aetna.

At Aetna Corp. in Hartford, Conn., a chief executive officer with an appreciation for HR and a charismatic HR executive partnered to rescue the company from the brink of disaster. Now they’re looking to the future, creating a comprehensive talent management system that will enable people to reach their full potential at all levels of the organization.

In 2000, after more than 150 years, Aetna’s multibusiness, multinational strategy had gone sour. Health care, financial services, insurance—the company was spread too thin and performing poorly. With red ink saturating the ledger and bankruptcy talk in the air, leaders decided to jettison the company’s financial services and international businesses and focus solely on health insurance and employee benefits products.

But triage hadn’t cured the patient, and Aetna was in the market for a top executive who could engineer a do-ordie turnaround.

Finding the One

Ronald A. Williams, a California-based group president at Wellpoint Inc., a major health benefits provider headquartered in Indianapolis, emerged as one of the leading candidates. Williams was an experienced health care executive with a degree in psychology from Roosevelt University in Chicago and a master’s in management from the Massachusetts Institute of Technology. He had a penchant for technology, a thirst for meaningful data and, as it turns out, a passionate belief in the importance of people to the success of an enterprise.

Williams ran his own interview. “I didn’t want to let him out of the room,” recalls Elease Wright, senior vice president for HR. “We’d found the guy. He was the clearest, most articulate about what he knew about the company and what he would do when he came in. Everyone knew they could work with him.”

When Williams took charge in 2001, the trimmed-down Aetna was still in crisis mode, losing more than $1 million a day; market valuation stood at $3.3 billion, and that year the company had an overall net loss of $2.5 billion.

The times were “desperate,” recalls Deborah Kelly, director of learning services and a 24-year Aetna veteran. “Nobody was happy with us; the employees were miserable, demoralized and uneasy about their futures. We had a top-dog mentality with a bottom reality.” To make matters worse, Aetna’s customers—doctors, nurses, health plan administrators—were unhappy and not hesitant about saying so.

Turnaround And Beyond

Under Williams’ stewardship, Aetna achieved one of the more remarkable turnarounds in business history. Today, with Williams as chairman and CEO, Aetna’s valuation has grown nearly ninefold, to $29 billion. Net earnings for 2006, the last full year for which data are available, were $1.7 billion. In 2007, Barron’s ranked Aetna ninth in its annual ranking of the top 500 companies in the United States and Canada, up from 116th the previous year. Last December, Aetna was the only company among 11 leading competitors in the managed health care industry to earn a five-star ranking from Standard & Poor’s.

There’s more: Last year, Aetna was ranked second among health care companies on Fortune Magazine’s “Most Admired Companies” list. The National Association for Female Executives named it one of the top 10 places to work. Black Enterprise cited it among the top 40 companies for diversity and also placed it on its lists of “15 Bests” in corporate board diversity and senior management diversity.

Aetna has 34,000 employees; 75 percent are women, and 26 percent are people of color. Women constitute 46 percent of management. One-third of the members of the board of directors are female, and one-fourth are people of color.

Williams states a fundamental strategy: “Create a high-performance culture to attract and retain the best, brightest and most talented. Give people a clear and compelling vision of what they’re to do, and unlock the creative energy that’s available. The HR business partners in helping us figure out how to do this.”

Many share credit for the turnaround, creating a fascinating case study. It illustrates the ways Williams supports and empowers HR professionals, and how they serve as potent factors in Aetna’s stunning success.

“Ron understood HR; he didn’t dismiss it as other executives sometimes do,” Kelly says. “He realized that addressing the human capital malaise was as important as addressing the business issues that were draining the company’s resources. He directed equal emphasis to rebuilding pride, engaging the workforce and solving critical business problems.” (For more on the steps he took, see “Taking the Temperature.”)

Choosing the Team

On arrival, Williams took stock of the executive leadership team, eventually keeping about half. Among the incumbents was Wright, who has a bachelor’s degree in education from the University of Connecticut and joined Aetna in 1982. In addition to holding senior positions in the Education, Pension and Employee Relations departments, she has been head of Human Resource Reengineering and head of Human Resource Finance and Administration. Since 1997 she has led HR, operating below the radar, reporting over the years to a succession of top executives who reportedly did not fully appreciate HR or value it as a strategic partner. “We were in the camp of implementers, taking orders from the top,” she says.

Wright’s flexibility served her well. “Few people could have weathered the personalities as well,” observes Mary Fox, senior vice president, product group; her responsibilities include pharmacy management, home delivery and behavioral health.

But Williams was looking for more from HR and its top executive than his predecessors did. Could Wright provide the business perspective and dynamic leadership that he required? Williams sensed she could, and, in what has proved to be among his best decisions, he asked her to stay on.

“She was thinking about HR from a strategic perspective,” Williams says. “She didn’t approach it from a functional point of view. She was focused on the role HR would play in helping us meet our strategic goals—the skill sets we need, the culture we needed to build.”

Williams had gotten it right: “She’s smart and has never lost touch with employee issues,” Fox says. “She’s trusted, pragmatic in solving problems, and will speak her mind. If she doesn’t understand something, she seeks out other business heads to learn.”

From the turnaround to today’s challenges, the relationship between HR and the CEO has blossomed. “You find these partnerships between the CEO and HR in enlightened companies, and it makes all the difference,” says Fred Foulkes, director of the Human Resource Policy Institute at Boston University.

At Aetna, Williams spends about 30 percent of his time on the people side of the business, and he regularly studies a range of HR scorecard data, looking closely at turnover, succession and loss of talent.

Wright does not have to vie for Williams’ attention. He’s deep into HR issues. “Ron is the only CEO I’ve worked for who will have read the HR article before I have. He’s a dream if you like the challenge; it’s not a place where you can be lax about what you do. The benchmarks go up every year.”

Wright is a valued member of Williams’ inner circle. “Elease sits on the executive committee as a direct report to me and as the head of HR,” Williams says. “She’s not only expected to comment on HR issues. If we’re talking about finance, acquisitions, a capital issue, she’s expected to have an opinion and perspective.”

Other HR executives are involved. “When we go through our businessplanning process, the HR executives are there,” Williams says.

HR Looks Inward

In the beginning, as Williams looked for ways to cut costs, the various divisions, HR included, faced tough choices. Eventually, as many as 10,000 jobs were cut through attrition or layoffs. Wright approached the belt-tightening as an opportunity. Committed to retaining HR services, she struggled to find less-costly delivery systems.

“I saw it as an opportunity to streamline and reorganize, and figured if I was going to do it, it should be all at once,” she says. From 2000 to 2007, Wright cut HR staff by about 47 percent—or about 230 full-time-equivalent positions—and reduced operating costs by $17 million, or about 32 percent. In contrast, Aetna’s overall workforce grew during the same period to 34,000 employees from 25,000, about a 40 percent increase.

Wright also created “HR partners” to work directly with line executives, eliminated redundancies that led to “answer-shopping” (having multiple decision-makers, enabling employees to shop around for the answers they prefer) and outsourced routine transactional activities. Employees accustomed to services offering “high touch” by live professionals had to adapt to online selfservice, although the high-touch services were still available.

When the dust settled, HR had had a complete makeover and was ready to step into its strategic-partner role.

Succession Planning

Williams moved rapidly to embed succession planning into the business, establishing a process that examines elite talent twice each year. He dedicates the first hour of biweekly executive committee meetings to a discussion of “the top 200,” and to examining critical positions. “We look at the leadership of each of our organizations,” he says, “and ask who is ready now, who could be ready within three to five years, and what experiences would they need to be ready. We also identify who might never be ready and if there is someone who is blocking a critical position. We may need to figure out what to do to make sure we can open that position up. We also look at who has special competencies in developing talent.”

Six months later, these individuals are discussed again, but not in the context of sliding into any particular position. “We look at their long-term career potential, their aspirations, and ask if we’re doing enough to help them live up to their potential,” Williams says. “It’s paid substantial dividends as we have developed a very diverse and effective leadership team.”

The system has enabled the company to fill key slots through succession. For example, Fox is home-grown, as is 15-year veteran Patricia Farrell, vice president for national accounts.

For some positions, however, gaps in the pipeline remain. “The organization hasn’t been following this process for 20 years; we’ve only been at it for four or five years,” Williams says. “When you reach places where the right things weren’t done 10 years ago, you don’t have the right person coming out of the pipeline today. In those cases, we go outside.”

Back to Basics

From the beginning, Williams pressed Wright with questions about talent management. Williams wanted data, systems and information that he could use in making decisions. “Ron would ask, ‘How do we know our managers are assessing or developing individuals? How do we hold them accountable?’ ” Wright says.

She moved quickly to respond. “If you have someone in your face asking these questions, you’d better have answers,” she says. “We had to come up with backto- basics measures: scorecards for each manager with precise, explicit descriptors of what was expected of each supervisor. They had to log it on a system that we could track in real time.”

Across the Board

With talent management in place, Williams began thinking about Aetna’s human capital needs for the long term. He asked Wright to build a system that would assist managers in identifying, training and tracking talent at the elite executive level and throughout the organization.

Williams explains: “The question is, ‘Are we managing the entire talent pool of the organization to create successor generations of expertise?’ We don’t think addressing that is extraordinary; we think it’s essential if we are to be competitive long term.”

Sounds fundamental, yet only a handful of companies do it, Kelly says. Leaders in “lots of companies worry about talent and bring in talent management systems, but they concentrate on 200 or so top performers. We are recognizing that people are the only sustainable competitive advantage at all levels. We believe that we hire talent from day one and then nurture and grow [it].”

New Tools for New Ways

Currently, HR professionals are putting data about Aetna’s 34,000 employees into a $50 million talent management system accessible to individual employees and managers. Soon, information about every job and every employee will be only a click away.

The information comes from a variety of sources: HR manages the information that connects individual employees to job descriptions and the correlated skills and competencies. Employees provide information on their own background, and they rate themselves and manage the information on their development plan and career goals. Managers rate their employees on skills and competencies, and they can include comments in that review process.

The initiative is now in its second year, and it is not mandatory for employees but is strongly encouraged. The participation rate is 70 percent and rising.

The system, called Talent Manager— customized from a suite of products and provided by Authoria in Waltham, Mass.—yields a breakout of employees at all levels. HR will target solid performers, at-risk employees and possible mismatches. The system will be transparent, allowing employees to see what supervisors say about them, good and bad; they’ll know exactly where they stand and what they have to do to further their careers.

Transparency is a huge cultural change that some find daunting, Kelly says. “It makes managers know they have responsibilities and makes them have conversations they’re not comfortable having.”

Kelly expects some grousing along the road to full implementation. “We’ve created discomfort in the organization, and some in HR may be tempted to pull back,” she says. “But we have Ron Williams in our corner, so we’ll ride it out. The noise is aimed at the change, not the tool.”

Aetna's Net Income

Meanwhile, line executives such as Fox count on Talent Manager for metrics that will help them close the loop in assessing performance. For example, among the product areas for which Fox is responsible is a mail-order pharmaceutical operation in Pompano Beach, Fla. In that business unit, she says, “we’ve got very specific and sophisticated needs surrounding the people we employ.” Within Talent Manager, each employee is encouraged to enter a work history, biographical information and skills inventory that will help managers in any of Aetna’s four companies identify potential prospects for open positions or necessary tasks.

In the past, employees learned of opportunities from job postings. But often, the best candidates might not come forward or even realize they could qualify for a particular job. Talent Manager enables a manager to check throughout the company for someone who may be a good fit and seek them out. Need a doctor who speaks Portuguese? The system has the answer. Looking for an actuary who has worked in Africa? The answer is a click away.

Targeting Cohorts

In the face of tough competition and shrinking talent pools, HR segments Aetna’s employees into five job families: nursing and clinical, sales, actuarial, operational, and underwriting. Identifying the keys to attracting, retaining and engaging people for each family numbers among Wright’s biggest challenges.

Aetna employees average 41 years old and range from 18 to 89; the average tenure is nine years. The overall retention rate has been steady at 90 percent since 2004. Many companies would be delighted with those numbers, but Wright sees room for improvement: “We have to be more creative in the way we target different cohorts of workers.”

According to Janice Deskus, vice president of workforce strategy and planning, one approach requires segmenting workers in the job families by generation cohorts and identifying different wants and needs of each cohort. For example, the millennials, workers in their 20s, want flexibility in their work; many prefer to work at home and will be attracted to work schedules that permit them to do so. Some may favor part-time employment for certain parts of the year or be attracted to telecommuting. Currently, 2 percent of workers companywide have variable work schedules, 4 percent work part time, and 15 percent work from home. The categories are not mutually exclusive; for example, an employee could have a variable work schedule and also work at home.

Characteristically, millennials voice interest in being part of work environments that value and encourage pro bono activities. “This has the potential to be a powerful recruitment tool for Aetna,” Foulkes says. It “can’t offer a campus environment like Yahoo! or Google, but [it] can promote a culture that is attractive to younger workers.”

As Deskus looks for what appeals to each cohort, she finds some unique interests and others that may apply universally. For now, she focuses on attracting more older workers—specifically, Aetna retirees. “We want to find out what it takes to get them back,” she says. Until recently, retirees could not continue to contribute to 401(k)s if they returned. “We’ve changed our benefit structure so when people come back on a part-time basis they can contribute to their 401(k) s and still get the match. It allows them to continue to build their retirement when they’re in [partial] retirement.”

Full Speed Ahead

Today, Williams has taken on challenges to grow revenue and income by 15 percent annually. To do so, Aetna is pursuing an acquisition strategy.

Acquisitions, if they are to succeed, require close attention to cultural integration, a responsibility that falls on HR professionals’ shoulders. In 70 percent of the acquisitions that fail, the reasons for failure turn out to be “cultural issues,” says Jack Wiggins, vice president for HR’s Acquisition Integration Strategy. “We’ve been successful because HR pays a lot of attention to it, studying and understanding the differences in the new culture, then developing a systematic plan.”

Last year, Aetna’s acquisitions included Schaller Anderson, a managed-care company in Phoenix, and Goodhealth Worldwide, an underwriting agent for international private medical insurance headquartered in Bermuda. Wiggins says that HR has integrated about 5,400 employees into Aetna since December 2003 through 12 acquisitions that have included offices in 20 states and in six international locations.

The way HR delivers on this and other challenges will be critical.

But the outlook is bright indeed. Recently, when Wright and five other colleagues were named fellows of the National Academy of Human Resources, Williams was the only CEO to appear personally to share in the occasion. He says Wright has been key to Aetna’s success: “We could not have achieved what we have without her.”

Robert J. Grossman, a contributing editor of HR Magazine, is a lawyer and a professor of management studies at Marist College in Poughkeepsie, N.Y.

Web Extras

Web site:
Aetna


Building a Base

Aetna’s employee database contains job descriptions detailing the critical skills and competencies required for each position. Eventually, all jobs and their descriptions will be in the database. In the assessment sections, supervisors complete and post employee evaluations, which employees then can see. The system’s transparency is designed to enable everyone to know where they stand. The evaluations cover the following areas:

  • Performance. Rated from 1 (lowest) to 5 (highest).
  • Retention risk. Rated low, medium, high or extreme threat of leaving the organization.
  • Readiness. Rated according to whether the person is ready for a role change now, will be in six months, will be in one to two years, will be in two-plus years or is bestsuited to staying in his or her current role.
  • Potential. Rated low, medium or high.

Taking the Temperature

Among Aetna CEO Ronald A. Williams’ first challenges was to reinvigorate and engage a dispirited workforce. To learn workers’ feelings, he initiated a 70-question online climate survey. “That was the turning point,” says Elease Wright, senior vice president for HR.

Information in hand, Williams put it to use. “It’s important to do something to change the shape of how the organization functions in order to respond to what you’re hearing,” he says. Williams also made himself accessible by conducting 70 town hall meetings last year.

The annual survey continues to be an important barometer. In 2007, 93 percent of Aetna’s 34,000 employees spent about 45 minutes completing it. “The instrument gives us feedback about whether the organization understands our values, our vision and where we’re trying to go,” Williams says. One question is: “Do you believe the organization is acting consistent to the values we espouse?” Last year’s scores showed improvement from the previous year, but they weren’t as high as Williams would like.

Employee engagement also is assessed through the degree of employees’ assent to the following four statements:

  • I would recommend Aetna as a good place to work.
  • I rarely think about looking for a new job with another company.
  • I am proud I work for Aetna.
  • Overall, I am extremely satisfied with Aetna as a place to work.

Following 'The Aetna Way'

At the outset of his tenure in 2001, looking to reverse the top-down approach that had been the hallmark of prior leaders, Aetna President Ronald A. Williams, asked all employees to give him their sense of what they wanted the company to be. From that, Williams and Jack Rowe, CEO at the time, developed a statement of Aetna’s four values: integrity, quality service, excellence and accountability, and employee engagement. Williams now holds the top job.

“The values statement was reflective of all employees,” says Elease Wright, senior vice president for HR. “It came from the bottom up and was facilitated by HR. People wanted to be led; they welcomed the chance to contribute to the success of the company and to see where they fit into the scheme of things.”

Today, the package of core values is called “The Aetna Way,” and it is depicted in a four-quadrant wheel. The wheel is ubiquitous within Aetna—gracing its publications, desktops and daily conversation.

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