In the Year 2000, National Life of Vermont will celebrate a century and a half of providing insurance. But of all those 150 years, it's the year just past that may prove to be the watershed--the year that everything changed.
The way company leaders spin it, 1997 was the year National Life did not become some other company's acquisition. It was the year National Life declared its continued independence, the year that ensured the company's 150th birthday would be marked in Montpelier.
"It's not going to be painless," Chairman and CEO Pat Welch stated (or understated) in the May 9, 1997, issue of the corporate newsletter. "But it has to be done by us or it will be done by our successors, and they will not be as sensitive." The "it" to which Welch referred was a companywide initiative to cut costs by way of a six-stage Efficiency Improvement Process (EIP). At that point, Welch had been at the helm for just over three months, replacing Fred Bertrand, a 27-year veteran of the company. The initial phase of Welch's EIP, conducted by a consulting firm working side by side with National Life employees, took six months to complete. When it was over, more than one in five National Life employees had quit, retired early, or been laid off; the company was leaner by $12 million; and the rating agencies were taking note.
Among the survivors of the process is Lynn Averill, director, travel and conferences. Averill, who can still remember boarding a train to Montreal in November 1990 terrified at the thought of attending her first Insurance Conference Planners Association meeting, emerged as a strong and positive leader for her team during a brutal period. The story of how she and the team scrambled to prove their value while watching 200 of their colleagues leave the company is one to inspire other insurance conference planners. The bottom line: You can demonstrate your department's worth, even with auditors that place zero value on relationships. And you can show senior executives what the conference department brings to the company in terms of competitiveness, service, and cost control.
In fact, you might want to start now.
"Any time you have saved the company any kind of money, keep track of it," Averill advises. And find a way to get those savings noticed.
In Averill's case, that took some doing, even when the company was wholly focused on saving money. The consultants leading the EIP were interested only in time: How long does it take to make a hotel reservation? Create a menu? The National Life auditors doing a cost-benefitanalysis just wanted the numbers: How much does the conference department spend on meetings? How much does it cost to operate that department?
Amid this scrutiny, there was no place to point out, for example, that Averill's relationships with suppliers had saved the company tens of thousands of dollars inand cancellation penalties. So, with the blessing of Senior Vice President of Sales and Distribution Charlie Kittredge, Averill embarked on her own cost-benefit analysis, taking on this additional project with no guarantee that it would be considered or that the fate of the conference department hadn't already been sealed.
"I really believed in what we did," says Averill in her office, looking out at the Vermont countryside under a deep blue winter sky. "But it was scary for a while. Nineteen people were let go in one day. These are people you've worked with for years. It was tough." She manages to sound both resigned and resolute--a realist, but one who finds room for optimism.
A Fateful Decision
It all began at the August 1996 Board of Directors meeting. In the preceding months, National Life had been in talks with potential buyers of the company. Nationwide, the insurance industry was in flux, and that year's rampant mergers among insurers suggested that many com- panies believed the secret to their survival lay in consolidation.
But remaining independent was still an option, and at the August meeting, the board voted to maintain National Life's heritage if at all possible--to find some way of increasing its competitiveness and strengthening its ratings other than by merging with another insurer. The decision brought immediate changes. Shortly after the meeting, President and COO (and 35-year veteran) John Harding resigned. The departure of CMO Bill Cassidy (30 years) came soon after, and finally Fred Bertrand retired. "We were in limbo from August until February," Averill says.
That's when Pat Welch, the former president, CEO, and chairman of GNA Corp., a Seattle-based insurance and financial services subsidiary of GE Capital Corp., arrived in Vermont.
The conference department got an early introduction to Welch's focus on costs and his rather reserved manner (a stark contrast to Bertrand's down-home gregariousness) when he attended the April President's Club Conference at the Westin Rio Mar in Puerto Rico. First surprise: When he found out he was to have his own car and driver for the trip from the airport, he told Tammy Davis, conference planning specialist, that they should share a car instead. (She'd figured that downgrading his transport from stretch limo to sedan would have been frugal enough.)
"We were wondering, 'What does this guy expect?' " Averill remembers. "As I'm ushering him to the presidential suite, I'm saying, 'We negotiated this. This isn't costing us anything.' But the meeting went beautifully, and Pat thought it was great." And despite losing the close relationship and guidance of Bertrand, Averill says she has been impressed by Welch's "knowledge of National Life, and how soon it was 'we' and 'us.' All of a sudden he's one of us, he's a part of it."
A Call to Arms
It was not long after that incentive meeting that Welch's cost-cutting plans for the entire company came to light. At an employee meeting in May, Welch and newly named President/COO Tom MacLeay (formerly the company's chief financial officer) announced that West Hudson, Inc., a consulting firm, had been retained "to help us improve efficiencies."
Welch and MacLeay made it clear that National Life's independence was at stake. "I want you to feel the urgency," Welch told the May meeting. In a later interview printed in the corporate newsletter, Welch called on employees to step up to the plate. "I want to see employees rise to the occasion and not shy away from the efficiency improvement process."
The straight-talking and loyal Averill took that message to heart, even though it came from a newcomer--an outsider. "I felt I owed it to National Life. I've been here 24 years," she says. "I love what I do, I love the company. I'm sincere when I say it would be horrible if this building were empty. But this is the most stressful time I've ever been through."
The EIP was equally stressful for the rest of the travel and conferences team, who faced the challenge of having a consultant come in regularly over a period of 16 weeks and look over their shoulders. For three of those weeks, they were required to keep a log of what they did every minute of every day. (Sample log entries: to Xerox machine, 8:20 a.m. to 8:22 a.m.; sent fax, 1:09 p.m. to 1:10 p.m.) "Going through the process was rough," says Tammy Davis, who remembers that one of the first things the consultant said was: If you don't have a watch with a second hand, get one. "It was intrusive. You had to justify your job every day."
Meanwhile, friends and family in this close-knit company watched each other go through the process, department by department. Travel Advisor Patti Brown joined National Life "right out of high school" and has been there for 19 years--along with three siblings, four cousins, three in-laws, and numerous high school friends. "It was a difficult process," she says. "You'd say, 'Okay, today it's going to happen on the third floor: I wonder if my sister-in-law is going to be okay.' "
Keeping the log sheets was "time-consuming and nerve-wracking," Brown recounts. It also involved educating the consultant assigned to travel and conferences. "[The consultant] came up with the idea that it should take me three minutes to make a hotel reservation," she explains. "Then she said, 'Something's wrong. It took you 15 minutes to make this reservation.' Well, when you have to call four properties because there's no space, that takes longer than three minutes." Not to mention trying to explain that a minute of small talk with local suppliers fits into the category of relationship-building, not unnecessary time spent on task.
No More FedEx
This is not to say that the travel and conferences team didn't benefit from the EIP. "It was eye-opening," says Tammy Davis. "We did eliminate some things we didn't need to do--things we'd been doing just because we always did them."
Averill also reports that once the process began, it was easy to see room for improvement. "I realized that we don't challenge anything we do. We're so busy, we just keep doing what we've been doing." When department members started asking questions about what they did and why, they came up with nearly two dozen ways to improve efficiency or save money. Among them: revising the corporate travel policy, including requiring receipts for any expense of $10 or more; improving the tracking of all travel expenses; streamlining the paying of bills, including replacing paper records with Microsoft Excel files; automating the reconciliation of the monthly American Express travel bill; and increasing the awareness of the conference department to encourage others to use its services.
The biggest change was to bring the travel agency function in house. The department to this point had awith a local Carlson/Wagonlit affiliate to book all air travel. Now, corporate air travel is booked by Patti Brown, with commissions coming to National Life. Brown will eventually book group air as well, except for incentive trips, which Carlson will retain. And instead of keeping commissions, Carlson is being paid a management fee.
Even the act of focusing on operating costs had an effect: "We haven't FedExed anything since," Averill quips.
It's Who You Know
Still, there was one big area unexplored. "I wanted and tried to get them to include the relationship aspect of our jobs," says Averill, whose office walls and shelves are dotted with photos of industry friends, testaments to two decades in the business. "I said, 'I can prove that our relationships saved the company $160,000.' They didn't want to hear it."
But SVP Charlie Kittredge did. He encouraged Averill to put together her own report on the department. "Charlie gave me a shot at it," Averill says. "It was critical to the process, because I knew I had a better handle on what we brought to the table than the auditing department did."
The auditing department, looking at its one piece of the complex puzzle, determined thatmeeting planning would not be cost-effective for National Life. The auditors calculated spending on major conferences at just over $2 million (not including air travel) in 1996. They then interviewed two incentive houses about their fees. One gave a fee of between 20 and 25 percent of event costs, the other a fee of 15 percent of event costs. Doing the math to compare the fees against the conference department's operating costs revealed that outsourcing would be the more expensive choice.
Still, Averill knew this report alone would not show that the company would lose a lot more than money if the department were disbanded. So her own analysis, confirmed by the auditors' report, was the foundation for Kittredge's recommendation to Welch and MacLeay: Retain the travel and conferences department, minus its administrative team member; bring corporate travel bookings in house; and follow through on the slew of other cost-cutting ideas from the EIP.
The Challenges Continue
The downsizing in travel and conferences had started before anyone ever heard the acronym EIP, when Scott Uselding, the former director of incentive programs and special events, left the company in January 1997. He was not replaced. Then, merely a month after the EIP, another of the conference staff quit.
"We're all finding it a little more stressful," Brown says. "There's more work and fewer of us to do it."
And there may be even more work on the way as the department investigates selling its meeting planning services to outsiders such as the State of Vermont (which leases space in National Life's building, spitting distance from the gold-domed capitol), other local Carlson/Wagonlit clients, and Life Insurance Company of the Southwest in Dallas (an affiliate of National Life that currently uses BTI to plan its annual incentive meeting).
Despite the additional work and the grueling EIP, Averill credits her team with always trying to move forward. "It was so unproductive, but they were fabulous," she says. "There was very little conversation around here, but it was hard to escape elsewhere." Indeed, Tammy Davis says "the rumor mill was going full force" throughout the company. Some even said the consultants' real aim was to get people so angry, they'd just throw their hands up and quit. "We did a lot of guessing, we felt so out of control," she notes. "But the bottom line was we needed to cut expenses and increase productivity. We didn't want to see National Life cease to exist."
Jen Davis, conference planning specialist, agrees. "While it was difficult for all of us, I realize that it was necessary for the survival of the company," she says, "and I think it opened our eyes to a lot of things. Now that the official process is over with, our jobs are back in our own hands and it's up to us to keep looking for ways to be more efficient."
One positive result of the process was that travel and conferences gained a little clout with clients. "It's easier now to approach a client and ask for a budget," Tammy Davis explains. "People are much more budget-aware. It's given us more authority."
But it'll be a while before the benefits come into clear focus for the shaken and battered troops. "We know we've got to move forward and we're doing it," Tammy Davis says, "but it's going to be a long, slow recovery."
Patti Brown concedes that if the goal of keeping the company in Vermont is met, then in the long run the current turmoil will have been worth it. "If the company moved, there would be a lot more than 200 people without jobs," she says. But it's still not clear that the war has been won, according to Brown: "They say we're on the right track. They haven't said we're out of the woods yet."
That National Life of Vermont has been a Montpelier institution for a century and a half is evident at every turn--when you talk with employees who joined the company as teenagers; when you walk past a home-office wall covered floor to ceiling with black-and-white head shots of former presidents, directors, and other luminaries; and even as you follow the winding, uphill road to the corporate headquarters, which seems to spring up out of the woods. And it's very clear when you stay at Hopkins House, the company's own guest house, whose story you've read in these pages before.
It's a legend that bears repeating, as it is another instance of the company deciding to maintain a tradition, to hold on to its roots. Back in the late 1800s, visitors to National Life often arrived by way of the milk train from Boston. Passengers were left in Montpelier at the (usually dark) hour of 5:30 a.m., as the train continued on its way north to the dairies before returning to Boston's Hood Milk Company in the late afternoon. National Life provided a horse-and-buggy (or sleigh) to carry visitors to the home office, then downtown, but still, it was a good two or three hours before the office was open. Where were they to go in the meantime? The company solved this problem in short order, buying and renovating a downtown mansion next door to the home office. There travelers could rest, freshen up, and eat a hearty breakfast before their day of appointments.
It's the romantic idea of an earlier, simpler time that makes this story endure. But it's not only the story that's still around--so is the guest house.
In 1960, National Life moved its headquarters from downtown Montpelier to its current site. The original plan was to fund a Howard Johnson's or Holiday Inn on land the company owned next door to the new headquarters. The difficulty of preparing the site for a major hotel--along with an outcry from former guests, so the legend continues--caused that proposal to be scrapped and the new guest house to be born.
Hopkins House has recaptured the old-fashioned ease and elegance that must have charmed those early visitors. And a hearty breakfast is still served--now by Ruthie Adams, the modern incarnation of the house mother, who becomes at once a traveler's friend.
Hopkins House is under the purview of travel and conferences, and it's another operation that was hit by the efficiency process. Proposals are now being considered that would maximize occupancy at the guest house by outsourcing its management and opening the facility to the public. A decision was expected by the early March.
The Case for an Internal Conference Department
In a report to Charlie Kittredge, National Life's senior vice president for sales and distribution, Lynn Averill, director, travel and conferences, detailed the number of meetings handled by the department every year, the expense of those meetings, and the cost to operate the department. In addition to those numbers, she included the following for consideration:
THE CONFERENCE DEPARTMENT ADMINISTERS THE CORPORATE TRAVEL POLICY
* National Life entered into an agreement with its official travel agency in June 1988.
* Although recent reports show that travel expenses are up, our records indicate air expenses are down. We have realized savings on individual travel by advising travelers to travel smarter. "Lost savings" (which result from travelers not choosing the least-expensive carriers or routing, or not using earned travel certificates) have been reduced by nearly $50,000 since 1994.
* National Life'swith five major airlines earn it airline travel certificates based on total travel volume. Using earned certificates available right now would mean an immediate savings of approximately $21,000.
* National Life's contracts with car rental companies have generated car rental certificates worth more than $1,000.
THE CONFERENCE DEPARTMENT'S RELATIONSHIPS BENEFIT NATIONAL LIFE
* I can document cost savings and benefits to National Life and its affiliates based on the time I and my team have spent building and maintaining relationships with members of the travel and hospitality industry. Those savings amount to more than $160,000 over the past three years alone from the following:
* Attrition/cancellation penalties waived
* Amount of required deposits reduced by tens of thousands of dollars
* The same hotel rate negotiated for three consecutive years
* Savings realized from local inns and hotels that allow reductions in anticipated attendance on the day of the events
THE CONFERENCE DEPARTMENT IS MORE COST-EFFECTIVE THAN AN INCENTIVE HOUSE
* Incentive houses negotiate commissionable rates rather than net rates.
* Incentive houses charge, on average, a fee of 20 percent.
* Interest from deposits is placed in escrow for the incentive house, not the company.
* Since negotiations are between the incentive house and the hotels, the company loses its own negotiating clout.
* Typical concessions negotiated as part of a contract, such as complimentary suites and airport transfers, discounted staff rooms and food and beverage, and the complimentary one room per 50 used, are usually not passed on to the company when they are negotiated by an incentive house.
* Incentive house representatives do not have comprehensive knowledge of company culture, internal operations for awards and recognition, and program development. The connection to the field force is lost.