The best of both worlds: Integrating large organizations, processes and cultures

Ahead of Operational Excellence Financial Services New York in March, PEX Network Editor, Craig Sharp speaks to John Martino, Executive Director of Operational Excellence and Integration at Aetna about their recent acquisition of a large healthcare provider, and how they go about integrating 14,000 people into their organization, their processes and their culture.

Craig Sharp: Your presentation at Operational Excellence Financial Services New York will be sharing experiences from Aetna’s recent acquisition, and how you merged this large organization with your own. Could you start by telling me a little about how you began this?

John Martino: Sure. When we made the acquisition, one of the things we really focused on was how to make the integration very seamless; how we could we get everybody wrapped around the same alignment of goals and objectives from an integration perspective.

They’re both very large corporations – Aetna previous to acquisition was about 35,000 people, the company we acquired was about 14,000, so you’re talking about a fairly significant integration of people and a very significant integration from a cultural perspective.

One of the things that we really wanted to make sure we did well was come up with goals and objectives that were very aligned, and so we used the process Hoshin Kanri planning to do that. Hoshin Kanri planning is really getting wrapped around the critical elements, in our case specifically, around achieving savings targets in terms of integration of platforms, etc, and then as we created those goals and objectives we wanted to make sure we cascaded them properly throughout the organisation so that everybody understood what goals and objectives they had, and how they were a subcomponent of the larger overall goals of the business.

Craig Sharp: When did this process begin? Was it something you began work on prior to the acquisition?

John Martino: It began as part of the due diligence process right at the start of the acquisition because our senior leadership challenges us with a question: "How would we know we are a better company post-acquisition?"

That threw down the gauntlet for us to really to figure out a way to make sure that, from an integration perspective, we integrated seamlessly and we could measure where we were today and how we would measure ourselves in the future.

Craig Sharp: This may sound like an obvious question, but why was integration such an important aspect of the acquisition? Why was this one of the focal points of the due diligence?

John Martino: Well you know, when you integrate companies, any two companies that come together usually have two very distinct approachs. So you can acquire and leave as is, giving you two separate and independent entities with their own culture, their own processes, or you can integrate the two companies to make it a better company overall. You can try to integrate the processes, systems, cultures and try to take the best elements of both organizations to make a better whole.

Given everything that’s going on in the United States from a healthcare reform perspective we thought it was important that we integrate these two companies and bring everything together to make us a better company, a more efficient company, a more nimble company.

Craig Sharp: And I guess from a compliance perspective it’s easier to stay legally compliant if there’s a uniform process?

John Martino: That’s correct.

Craig Sharp: So when did actual integration begin? I’d guess after the acquisition closed in May last year?

John Martino: Well, there was a lot of preparation on our side pre-close. We were subject to regulatory approval and so while we were waiting for approval, we began to formalise our integration efforts.

We established an integration project management office, of which I’m a part and we began to work as this sub-organization whose purpose was to bring the two companies together.

Craig Sharp: This is an incredibly large project. Bearing that in mind, what were the stages for the rollout? I presume there was some methodology there – what was your process?

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John Martino: We looked at things pretty systematically. We examined things from a P&L perspective, individual P&Ls, combined P&Ls. We looked at it from a headcount perspective – number of people within the joint organization. We looked at spans and layers, how many people on a span of control, how many layers the company would need in the end. We looked at facilities – you know they had a fairly large number of facilities and so do we. Some of them were in the same State and not all that far from each other, so we had to make the decision which locations we’d keep and which we’d close. We did a real analysis of our geographic footprint. We looked at it from a systems perspective, who had the better systems, where would we take elements of their systems and vice versa. And of course we looked at outsourced relationships; we both had fairly large supply chains for example, so we looked at the best way to integrate those supply chains.

It was pretty detailed in terms of all facets of the overall project.

Our blueprint was really separate work streams that we’d set up. We had work stream leaders on different elements of integration, HR, systems etc. We structured weekly calls and rhythms around the integration with very specific due dates and deliverables.

Craig Sharp: The idea of picking the best elements of each culture and organization appeals to me – you weren’t just enforcing your own company culture, you carefully picked which elements worked best from both. Was that important to Aetna as part of the acquisition?

John Martino: Absolutely yes. I would go so far as to say there were several platforms that they had which were of significant interest to us and I think made the acquisition even more attractive.

Craig Sharp: So what stage is this project at now?

John Martino: We’ve hit our first year of synergy targets so we’ve delivered back to the corporation the estimates that were put together, both from the savings, an the cultural perspective. All the targets that were put in place, we’ve hit those, and now we’ve begun to plan for 2015 and our two year target.

Some of those targets involve savings totalling a substantial sum, and the mothballing of unneeded platforms. It’s the rationalization of our footprint and our supply chain. It’s also the rationalization of our culture, in terms of delivering on, improving and enhancing our culture. For example our current employee engagement score is around 70%, our goal is to increase that to around 82% by 2020.

We’ve always measured employee engagement – as a company we spend a lot from an employee survey perspective. I’ve been in the company since 2008 – we’ve been measuring it every year, and it’s been relatively flat for the last few years so we’re looking at the integration as a way to drive it to another level.

Craig Sharp: Do you think the integration has had a positive effect on that score – or how has it impacted the score?

John Martino: I would say initially, no – but that’s almost to be expected. It drove our score down a little bit because there’s apprehension when you have two companies come together about people losing their jobs and stuff like that, but I think we’ve done such a good job from a communications perspective, that we were able to drive our scores back up in a relatively short period of time.

It’s not easy – it requires a daily effort on our part.

Craig Sharp: What would to any other companies looking to embark on a similar integration project? You mentioned yourself it’s not easy so I imagine there are quite a few pointers you could give.

John Martino: My biggest advice would be to really make the time and put together a really well-rounded and well-thought-out plan, and if you do that then you have to really work the plan. You can’t radically alter the plan throughout the process so you have to make sure that it’s properly fleshed-out and then you have to make sure that you’re can commit to it for the duration. I mean, will you make changes and modifications? Absolutely, but you can’t make wholescale radical changes to it because that creates turmoil in the organisation, and the more turmoil it has the harder it is to get things done.