2013

A Tale of Two Failures

Cigna Healthcare and AT&T Wireless
SPJIMR PGPM Group A7

Contributors: Chirag Barhate Dibyayan Das Deep Dey Dashmanth Reddy Gaurav Gupta Jaydeep Joshi

A Tale of Two Failures By Group A7 Index

Case 1:
a. b. c. d. e. f. g.

Failures of Cignas $1 Billion IT overhaul

Overview What made Cigna go for IT transformations? What was the hurry? What went wrong? THE BIG MISTAKES CIO - Did Anania fulfil her responsibility? Role of the name brand system integrator, CGEY Corrective Measures

2 2 2 3 3 4 4 4

Case 2:
a. b. c. d. e.

AT&T Wireless Self destructs with CRM Upgrade

Why AT&T needed to upgrade? Challenges of the CRM upgrade project Reasons of project failure Impact of project failure Lessons learnt

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Case1: Failure of Cignas $1 Billion IT Overhaul

Case Overview In January 2002, Cigna HealthCare's $1 billion IT overhaul went live with 3.5 million members of the insurance company moved from 15 legacy systems to two new platforms in a matter of minutes. However, the resulting glitches in customer service were so significant that millions of dissatisfied customers walked away, and analysts downgraded Cigna's stock. The problems stemmed from Cigna's haste to get its new systems up and running. The IT team didn't take time to do thorough volume testing, and the back-end data just didn't work at the front end. The result was: A loss of 450Million Dollar A loss of 6% in health care membership: 13.3 million at the end of 2001 to 12.5 million by January 2003 40 % plunge in stock in the market.

What made Cigna go for IT transformations? The 3000 members of the Cigna IT staff have to be integrated with each others system of the company, improving the visibility of the IT process. To have an integrated system for enrolment, eligibility and claims processing so that customers would get one bill, medical bills could be processed faster and more efficiently , and customer service representatives would have a single unified view of members to accomplish that. To get a system, that will boost Cignas business productivity and will require less man power then the current system. As per the proposal of CIO, it was expected that there would actually be two integrated systems, one for customers of Cigna's managed care offerings (HMOs) and the other for its indemnity products, including its lucrative business of administering self-insured plans for very large employers.

A Tale of Two Failures By Group A7

What was the hurry? Cigna spent too much of its capital from various sales of noncore companies, such as property and casualty insurance, on stock buybacks rather than on infrastructure improvements. This resulted in lack of funds allocated towards CRM implementation. In continuance of Cigna's late start; they plan to build two AS400 infrastructure platforms to support two main systems, Cigna purchased Siebel software to handle the call centre functions and selected a Computer Sciences package for claims processing. All these systems were separate packages which needed to be integrated to communicate between each other. Having started late, Cigna was under considerable pressure to get the new systems in place as quickly as possible. Cigna, along with other national insurers such as Aetna and Humana, was being sued by thousands of doctors nationwide who were furious about delays in payment for patient care. This created an additional pressure on Cigna to finish off its projects as quick as possible. Cigna's sales team, in order to win large employer accounts in an increasingly competitive environment, had promised that the new systems would provide improved customer service and would be up and running in early 2002. This created a high expectation quotient among Cignas customers. Cigna's management was under pressure to cut costs after posting disappointing second quarter results in 2001, and they were anxious for the new systems' promised cost reductions and productivity gains.

What went wrong? THE BIG MISTAKES In a hurry to implement and decision to finish off the projects as quick as possible, Cigna did not test and retest the CRM software in real environment. Combined with its rush to jump-start the new systems and save money on headcount, proved disastrous as Cigna laid off experienced man power (customer representatives) before the system could be stable. Improper planning and misunderstanding the complexities behind integrating the legacy system with the new ones. Problems with the actual migration of data from the legacy systems to the new platforms resulted in the non-sync of back end and the front end. Going by the words of Implementation team without self-assessing the relevant deliverables and benefit of implementing the CRM system.

A Tale of Two Failures By Group A7 Technical glitches in new CRM system failed to deliver its expected deliverables, and customers very much unhappy. Scarcity of experienced call centre customer representatives and lack of training to new hired employees, deprived people from quality service post CRM implementation.

CIO - Did Anania fulfil her responsibility? NO. Not completely. From a CIO, it is expected that she should have a better fore sight about the intricacies associated with an implementation project. She should have involved more senior executives in this project to assess the pitfalls in advance. She should have asked for few real time pilot test before Go live actually. She did not do proper evaluation of the skill set and implementation capability of CGEY system integrator team.

Role of the name brand system integrator, CGEY CGEY was the main player responsible for under estimating the complexities of post implementation glitches. Being an well experienced system integrator in the market, its their responsibility to do proper analysis of the system and the complexities it is going to bring in during and after implementation. Below are the few steps they could have taken to avoid the glitches:

Inform the customer about the complexities of the project. Should have paid careful attention while integrating the front end and the back end which is critical for any transformation. Must have avoided going Go live out of pressure without properly testing the system in real time. Careful analysis of the benefits which could be reaped out of the system after implementation and conveying the same to Cigna. Lack of functional knowledge or input. Rollout of the entire project could have been done in phases.

Corrective Measures Cigna slowed down the migration and shored up those process around the conversion of customer data Called back the experience customer representatives 4

A Tale of Two Failures By Group A7

Implemented through testing of the processes, and brought in more experienced manager to monitor Launched the mycigna.com portal that helped customers to view and check the status of the claims and retrieve health info and interact with nurses. Recent surveys showed 83% customers were satisfied. Medical claim process has become more effective and better managed customer needs, and this enabled downsizing eliminating duplication in claims

Time series plot of Net Income

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A Tale of Two Failures By Group A7

Case2: AT&T Wireless Self Destructs with CRM Upgrade

Why AT&T needed to upgrade? AT&T wanted its new customers and existing TDMA customers to use its newly launched GSM network system for mobile communications that had additional features such as data transfers and global compatibility with overseas providers. This change in technology created new needs that necessitated the CRM upgrade. Existing CRM system (Siebel 6) was inefficient as customer service representatives had to go through 6 screens to fetch customer data from multiple legacy systems. Slow access to information resulted in high Cost per subscriber. New System (Siebel 7) was more powerful and had capabilities to capture telcospecific information.

Challenges of the CRM upgrade project The need to tie up the complex back end legacy systems required the CRM system to be highly customized. Stringent deadlines to complete the project milestones. System changes required for federal mandated number portability needed to be accomplished in parallel with the CRM upgrade.

Reasons of project failure Bad communication management Lack of coordination between the team leads and the system integrators. This is evident when unit testing was done without interaction with other groups. Confidence and employee morale were badly hit due to constant rumours of layoffs and offshore outsource. Also at a critical time of the project, the CIO resigned and the new CIO didnt try to allay the fears of layoffs. In fact, layoffs when confirmed were very ill-timed as it was announced just days before implementation

Poor quality control

Configuration of software releases was not managed properly as in many cases code
was changed after unit testing without the knowledge of the tester. Project managers relaxed testing requirements for meeting the deadline. This made the test results unreliable and not fool-proof. Ineffective time management AT&T was counting on post-ponement of number porting instead of taking into account the risks involved in implementing it in parallel with the complex CRM upgrade project
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A Tale of Two Failures By Group A7

Deadlines need to be flexible given the complexity of the project.

Inadequate risk management Back up of the old systems were not taken sufficiently to restore the CRM system in the event of a roll-back. The risks arising out of the complexity of the integration were not properly assessed. Even though the system was not fully stable, project managers went ahead with the implementation ignoring the post-delivery implications that were bound to come up.

Improper planning in procurement management Wireless number porting system required integration with the CRM of other service providers. AT&T chose NeuStar as its vendor for number porting while all other service providers chose TSI for the same. AT&T choice of vendors added increased complexity and integration overheads.

Impact of project failure Customer service was adversely affected and this resulted in many customers moving away from AT&T wireless. Due to reputation damage AT&T wireless lost market value it was sold to Cingular for $41 billion dollars half of its value when the company went public. More than half of the number portability complaints filed with FCC were from AT&T.

Lessons learnt Proper Planning Follow established IT best practices - freeze code on every software unit when testing. Establish Plans for Development and Testing cycles that should be flexible to change, if required. Establish project milestones after assessing all the project risks.

Risk Management Identify various risks associated with project and assign a Risk Owner to every risk. Develop a Contingency Plan (Plan B) such as Backups of Old Systems

Effective Communication Inter and Intra team communication must ensure that everyone is in the same page while making changes during development or testing. Avoid any communication that can lower employee motivation especially during the critical phase of the project.