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help Read The ICE Strategy on Human Resource Management (pp. 8–9) of the PDF in Aetna: Investing In Diversity Case. Also review Exhibits 6 and 7 on pp. 22–23 of the case study to see the link between Aetnas strategic focus and the diversity outcomes that can result. From Exhibit 7, select one of the eight strategic focuses and one of the 10 diversity implications that you feel relates to that focus. Discuss the relationship between the two and describe three specific actions Aetna could take to accomplish the diversity implication. Include at least one citation and reference in your initial post. Case Aetna: Investing in Diversity Case By Wayne Cascio, Ph.D. StrAtegIC Hr MAnAgeMent case study Project team Author: Wayne Cascio, Ph.D. SHR M project contributor: Nancy A. Woolever, SPHR Copy editing: Katya Scanlan, copy editor Design: Blair Wright, senior graphic designer © 2009 Society for Human Resource Management. Wayne Cascio, Ph.D. Development of this case was made possible by a grant from the Society for Human Resource Management and the National Academy of Human Resources. All of the characters in the case are fictitious. Information presented was current as of the time the case was written. Any errors are solely the author’s. Note to Hr faculty and instructors: SHR M cases and modules are intended for use in HR classrooms at universities. Teaching notes are included with each. While our current intent is to make the materials available without charge, we reserve the right to impose charges should we deem it necessary to support the program. However, currently, these resources are available free of charge to all. Please duplicate only the number of copies needed, one for each student in the class. For more information, please contact: SHR M Academic Initiatives 1800 Duke Street, Alexandria, VA 22314, USA Phone: +1-800-283-7476 Fax: +1-703-535-6432 Web: www.shrm.org/education/hreducation 09-0365 © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. 1 Aetna: Investing in Diversity INtroductIoN Raymond Marcos, chief diversity officer at Aetna, is preparing to make a presentation to the company’s board of directors at its mid-December meeting. In a deteriorating economic environment that seems to be global in its reach, the board is looking to cut expenses in any way possible. To do that, it is reviewing every major company business initiative. Diversity is one such initiative, and the board wants to understand the business case for it. It also wants to see a clear plan to measure outcomes, including systems and data. Raymond knows that some of the board members are relatively new, that almost all of them are independent directors from outside the company and that they may not have a deep understanding of the historical roots of Aetna’s diversity efforts or the objectives of those efforts. At the same time, he is eager to showcase the company’s diversity initiatives and their results, both direct and indirect. The board has allocated 35 minutes for Raymond’s presentation and another 15 minutes for questions. In preparing his remarks, Raymond has assembled a wide range of information and has to decide what to include and what to exclude. Time constraints simply do not allow him to present everything he would like. Bottom line: he has to make logical arguments and a compelling case to the board to support the company’s continued investments in diversity. He has information relevant to the following issues: Company background.1. Current economic environment. 2. The business case for diversity.3. Aetna’s 2009-2011 HR strategy.4. Aetna’s values-based approach to running its business and its broad-based 5. approach to diversity. Direct and indirect payoffs from Aetna’s diversity efforts.6. 2 © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. As Raymond surveys the information, he is feeling a bit overwhelmed. He asks himself, “How am I ever going to be able to condense all of this into a 35-minute presentation?” While he is unsure of all of the details of his presentation, Raymond has a deep appreciation and understanding of diversity at Aetna. He wants to build his presentation on a long-standing belief that broadening the definition of diversity is actually an opportunity. “In the past, diversity was an employee relations issue, largely around race and gender. This was the traditional first-order view of diversity, born out of compliance and human resources. We have learned that diversity comes in many different shapes and flavors, and we have an obligation to recognize the many different ways people present to us. The beauty of diversity is the differing perspectives everybody brings to the table. Those perspectives enrich the dialog, and that, in turn, promotes better decision-making.”1 As he ponders the best way to proceed, Raymond considers the information he has collected. comPaNy BackgrouNd Aetna is one of the nation’s leading diversified health care benefits companies serving approximately 37.2 million people (17.5 million medical members, 14.2 million dental members and 10.9 million pharmacy members, some of whom fall into more than one category).2 Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical- management capabilities and health care management services for Medicaid plans. Aetna customers include employer groups, individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans, labor groups and expatriates. Aetna’s health care network includes 4,919 hospitals, more than 843,000 health care professionals, and more than 490,000 primary care doctors and specialists. It subsumes five member companies: ActiveHealth Management, Aetna Student Health, Goodhealth Worldwide, Schaller Anderson and Strategic Resource Company. More than 35,000 employees work for the company. Of those, 31 percent are people of color and 76 percent are women. People of color hold 16 percent of management/ supervisory positions, and 11 percent of senior leaders are people of color. Women hold 64 percent of management/supervisory positions, and 30 percent of senior leaders are women. Aetna’s 2007 revenue was $27.6 billion. Exhibit 1 (located in the appendix) is a snapshot of the company’s 2007 financial highlights. © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. 3 Founded in 1853, Aetna has a long history of community involvement and leadership on employment and diversity issues. For example, 2009 is the “Year of the Woman” at Aetna, where it will celebrate 100 years of employment of women. Aetna’s diversity activities have a long history. Since 1982, Aetna has published an African-American History calendar, profiling 12 well-known and lesser-known African-Americans in a variety of fields and professions each year. In that same year, Arthur Ashe, famed tennis player and world citizen, was voted to the Aetna board of directors. Ashe was not the first African American on Aetna’s board, however; Hobart Taylor, Jr., was named to the Aetna board of directors in 1973. Aetna’s current ‘mature’ vision of diversity is a broad view that includes a wide variety of attributes that make all of us uniquely diverse from one another in some way. Exhibit 2 presents some key milestones in the company’s history. curreNt ecoNomIc eNvIroNmeNt While examining each major business initiative at Aetna, the board is well aware of global and domestic economic conditions. In 2008, widespread defaults on sub- prime mortgages triggered a global crisis in capital markets. Many of the world’s leading investment banks collapsed, credit markets tightened considerably around the globe, and governments and the private sector battled to shore up the global financial system. Following the demise of Lehman Brothers, Bear Sterns and Merrill Lynch as independent entities, the U. S. government undertook a massive bailout of troubled lenders Fannie Mae and Freddie Mac, insurance giant AIG and major banks. All 15 European countries that use the euro currency (the “euro zone”) have been in a recession following two straight quarters of declines in their gross domestic products. Governments across the world—including the UK, Belgium, France, the Netherlands, Germany, Ireland, Italy, Spain, Portugal, Iceland, Norway, Sweden, Austria, Hungary, Ukraine, Russia, China, Saudi Arabia, the UAE, South Korea, Japan and Indonesia—stepped up interventions to stem the worst financial crisis in decades. Those interventions took the form of interest rate cuts, capital injections and lending guarantees to restore liquidity, revive the ailing banking system and rebuild investors’ confidence.3 Against this backdrop, Aetna reported its financial results for the third quarter of 2008.4 Exhibit 3 presents more detailed information for the total company, and Exhibit 4 shows the performance of Aetna’s common stock from December 2000 through November 14, 2008. In summary form, third quarter 2008 results were as follows: Operating earnings n were $1.12 per share, a 15 percent increase over the prior-year quarter, in line with the Thomson/First Call mean of $1.12 per share. Net income n was $0.58 per share, a 39 percent decrease over the prior-year quarter, primarily as a result of net realized capital losses. 4 © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. Net realized capital losses n totaled $232 million after tax; capital adequacy and holding company liquidity remain strong. Medical membership n increased by 169,000 to 17.7 million. Guidance: n Full-year 2008 operating earnings per share were projected to be $3.90 to $3.95, a decrease from prior guidance due primarily to lower fourth quarter net investment income. Preliminary 2009 guidance: n Operating earnings per share were projected to increase 3 to 5 percent over full-year 2008 operating earnings-per-share guidance. This includes a projected $0.30 to $0.40 per share increase in the company’s 2009 pension expense, driven by 2008 equity-market performance. Commenting on these results, Aetna’s chairman and CEO said, “Despite the significant weakening of the U.S. economy as well as the unprecedented turmoil in the financial markets around the world, our core business performance remains solid. We continue to win in the marketplace by offering a broad range of products and providing excellent customer service. Aetna also continues to be proactive at the national and state levels in promoting the important issues of increased accessibility and affordability of health care and improved quality for more Americans. Our national presence, strong competitive position and well-conceived strategy have continued to produce solid results even in this difficult economy.” In a related comment, Aetna’s executive vice president and CFO said, “While we did incur investment losses this quarter due to the turmoil in the capital markets, Aetna is well-capitalized, with a strong balance sheet and excellent cash flows and liquidity. We expect to generate over $1 billion of excess capital in 2008 and currently have no need to raise additional capital. Our underwriting results were strong, demonstrating our continued ability to manage costs and price with discipline.”5 tHe BusINess case for dIversIty At Aetna, celebrating diversity means appreciating and valuing individual differences. In general, managing diversity means establishing a heterogeneous workforce (including white men) that can perform to its potential in an equitable work environment where no member or group of members has an advantage or a disadvantage.6 This is a pragmatic business strategy that focuses on maximizing productivity, creativity and commitment of the workforce while meeting the needs of diverse consumer groups. Aetna pursues a more nuanced definition of diversity, namely, that it is more than just gender and racial or ethnic diversity. It is also diversity of background, training, functional experience, generational identity, etc. To be sure, a mature view of diversity in corporate America requires a legitimate and sellable business case of diversity for the organization and its bottom line. An internal business case for diversity must extend beyond compliance (and the pain of fines and bad PR that non-compliance can bring) to a true strategic contribution to business growth and bottom-line results, employing the resources and market view of a diverse employee population. © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. 5 Aetna’s Employee Resource Groups (ERGs) are good examples of such contributions. Here are just a few of them: Aetna’s African American ERG served on focus groups to contribute ideas for n greater penetration of urban markets, from product design to distribution and advertising. The Telework, Caregivers and Aetnabilities ERGs serve as invaluable resources to n Aetna and strong contributors to creating a work environment that is welcoming to their particular segment while identifying external business opportunities. The Hispanic and Asian ERGs provide translation support. Documents translated n by firms that specialize in that work may get the literal word-for-word match from English, but that translation may not have the same overall message as was intended. The Hispanic and Asian ERGs know Aetna’s terms and the messages it wants to convey, so they help develop high-quality translations of the English text into similar-meaning texts in non-English languages. Gen Y ERG is helping Aetna develop a recruitment and retention strategy that n resonates with this employee segment. The Gen Y ERG also assists with marketing efforts to this younger population. Broadly speaking, there are two key drivers of Aetna’s corporate strategy to pursue diversity: (1) growth opportunities in non-traditional and other targeted growth markets (e.g., gay/lesbian/bisexual/transgender (GLBT), Asian-American business owners); and (2) the need for an organization that reflects and understands the customer base it serves. To accomplish these objectives, Aetna is taking the following steps: Creating innovative and tailored product and service solutions that will meet » customers’ unique needs. Developing a diverse supplier base that reflects the company’s multicultural » marketplace. Building a workforce that understands the communities where Aetna does » business. Fostering a culture of inclusion that attracts a diverse talent pool and recognizes » and rewards the contributions of every employee while allowing employees to do their best work. According to Aetna’s mission and values statement (www.aetna.com/about/aetna /ms/), Aetna appreciates effort but recognizes and rewards employees for achieving business results. Toward this end, Aetna uses the following metrics to assess the business impact of its diversity initiatives. 6 © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. Initiative Metric Business Impact Area Affected Local Market Initiative and Targeted Growth Markets • Number of new markets • Membership growth • Profitable growth in local markets • Local markets • Small and middle markets Supplier Diversity • Number of suppliers and amount in expenditures • Promote strong company brand • Profitable growth • Small and middle markets • Individual markets AARP • Number of new members 50 years of age and older • Profitable growth • Enterprise-wide • 50+ demographics Multicultural Investments • Money invested with minority- and woman- owned funds • Promote strong company brand • Competitive returns • Enterprise-wide Cultural Competency Training • Percentage of employees who have completed training • Promote strong company brand by understanding different population segments • Enterprise-wide Multilingual Capability • Percentage of employees who speak languages in addition to English • Percentage of materials available in languages other than English • Promote strong company brand by understanding different population segments • Increased market share • Enterprise-wide Multicultural Customer Satisfaction Index • Percentage of customers satisfied with our products and services • Promote strong company brand • Increased market share from the multicultural market • Enterprise-wide Diversity Index Gaps • Differences among employee demographic segments • Increased employee engagement and productivity • Enterprise-wide HR Recruiting/ Retention • Differences among employee demographic segments • Hiring and turnover savings • Employee satisfaction • Employer reputation and brand • Enterprise-wide Miami Advisory Council • Miami market share • Increased market share and brand recognition • Miami-Dade County Diversity Annual Report • Reports printed and distributed • Languages used • Promote strong company brand as an industry leader • Increased market share • Enterprise-wide © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. 7 Aetna’s diversity strategy is closely related to its broader HR strategy, as reflected in the overall statement of that strategy: “HR will be accountable for the advancement of a diverse, high-performing workforce to sustain industry leadership.” To operationalize that strategy from 2009 through 2011, HR at Aetna identified three key initiatives linked to business priorities and goals and tied to measurable outcomes that reflect success. An executive summary of the overall HR strategy is shown below. executive summary: 2009–2011 Human resources strategy Enterprise Strategy Statement 2009–2011 Human Resources Strategy Statement Aetna will lead the industry in providing high- quality, cost-effective health and related solutions that leverage information to meet the needs of targeted customers. HR will be accountable for the advancement of a diverse, high-performing workforce to sustain industry leadership. aetna’s Integrated Workforce-management strategy Business Priorities and Goals Key Strategic Goals Success Measures • Forecast and plan for a superior workforce to meet changing business needs, including local and targeted growth markets • Attract innovative, results- focused, diverse workforce goal #1: Workforce management Supply a qualified workforce to support near- and long-term business objectives • Effectiveness of workforce plans (e.g., timely delivery of right resources to meet business needs) • Diverse employee base that understands and reflects our constituents • Aligned systems and practices to support delivery of strategy (e.g., utilization of Talent Manager information) • Develop bench strength and career growth in critical job functions, succession plans and enterprise leadership to ensure our ability to meet challenges of our growth strategy goal #2: Leadership and key talent capabilities Identify, develop, utilize and retain talent with leadership and functional capabilities • Internal talent placement into new and expanded roles • Talent retention • Middle management and functional talent development • Diverse pipeline of internal and external talent for leadership • Career progression • Retain, engage and optimize performance of innovative, results-focused, diverse workforce • Drive profitable growth goal #3: High-Performance organization Drive employee, team and organizational performance and advance Aetna’s growth strategy • Pay-for-performance results • Diversity scorecard results • Improved employee survey results • Employee health dashboard results • Contribution to growth/sales 8 © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. aetNa’s vaLues-Based aPProacH to ruNNINg Its BusINess aNd Its Broad-Based aPProacH to dIversIty Aetna employees live by a set of core values, known as the Aetna Way, which put the people who use the company’s services at the core of everything it does. While business results are important, Aetna’s senior managers believe that how the company achieves those results—how it makes a difference for the people it serves— is every bit as important. Exhibit 5 (located in the appendix) shows the company’s four core values: integrity, employee engagement, excellence and accountability, and quality service and value. Raymond focuses on the customer-centric nature of these values—that they all revolve around Aetna’s customers. He also notes how each value is defined operationally in terms of how employees are expected to behave. Integrity: n Do the right thing for the right reason, honor commitments and behave ethically. Employee engagement: n Lead people to success, value diversity, and build confidence and pride in our company. Excellence and accountability: n Make a fair profit, innovate, anticipate the future—look, listen and learn. Quality service and value: n Make it easy. Eliminate hassles; make Aetna the standard by which others are judged; build trusting, valued relationships with all constituents. The “ICE” Strategy Aetna’s diversity strategy is a unique marriage of values and business strategy with roots from more than 35 years ago.7 Its core components are integration, communication and education (ICE). Exhibit 6 is a graphic representation of this overall diversity strategy. Integration means that all diversity components are working together across the enterprise (marketing, HR, Aetna’s philanthropic foundation, investments, procurement, sales, etc.) and that they are fully integrated into the short- and long- term business-planning process. Communication is the creation and dissemination of information to all employees and customers. Finally, education means deepening the understanding of what the diversity strategy is, its components, how it is manifested in Aetna’s business strategy, who is included, and the creation of development tools to increase individual and organizational competencies. The outcome of this strategy is twofold: (1) to serve customers in current markets more effectively while (2) identifying opportunities in new markets. It recognizes that Aetna’s future success depends on a deep knowledge of all employee segments; clear and consistent communication to disseminate information to employees, customers and other key constituents; and an increased focus on developing the cultural awareness and competency necessary to sustain its business success. To be sure, Aetna’s ICE strategy extends well beyond diversity awareness to that of a strategic advantage. © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. 9 As he examines Exhibit 6, Raymond notes that under the column heading “Integration,” Aetna’s diversity strategy supports its business goals. To illustrate this linkage in greater detail, he consults Exhibit 7, which shows the interplay between the company’s strategic business goals and the diversity implications associated with them. As for the ICE components of communication and education (of new hires, current employees and senior managers), Raymond considers some of Aetna’s major initiatives: New-hire orientation includes an overview of the diversity strategy. » The internal diversity web site includes information and resources related to » diversity, including Aetna’s mission, strategy and other resources. Aetna’s robust performance management process includes diversity-related » behaviors and competencies for all levels of employees. Aetna regularly publishes articles on different diversity topics on its intranet. » Since 2005, the company has published an annual diversity report. » Aetna sponsors a speaker series through its “Diversity in Action Lecture Series,” » available to all employees via live webcast. The Aetna Diversity Board, chaired by the company’s chief executive officers, is » comprised of Aetna executives, including its president. The Aetna Diversity Alliance, a multi-level cross-organizational group that » leverages and integrates each other’s resources to maximize Aetna’s diversity- related presence and reach, internally and externally. The Aetna Diversity Scorecard. » An annual report for Aetna’s board of directors, which captures the company’s » accomplishments related to its diversity strategy. Aetna’s chairman reports the results of diversity initiatives at quarterly managers’ » meetings and at all-employee meetings. Reporting results of key external diversity assessments and surveys such as the » DiversityInc’s “Top 50 Employers for Diversity.” Raymond identifies four diversity focus areas in Exhibit 7—namely, workforce and workplace, suppliers, marketplace, and community and professional alliances. In thinking about the best way to integrate this material into his presentation, Raymond considers how the company measures several of these important outcomes. Workforce In its 2008 and 2009 workforce, Aetna measured the representation of people of color in management, noting where it has under-representation relative to its best practice corporate and industry peers. 10 © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. Workplace Through an annual employee survey for all employees, Aetna measures the work experiences and perceptions among employees of different backgrounds. Specifically, it measures the difference in responses to two questions on the employee survey, collectively referred to as the diversity index. Any difference in responses between groups is referred to as the diversity index gap, and the company works to understand its drivers and make improvements as necessary. Examples of segments measured include: employees with and without disabilities; gay/lesbian and heterosexual employees; men and women; white employees and employees of color; and employees who work at home or in the office. These two questions ask employees how strongly they agree or disagree with the following statements about Aetna: Aetna deals with all employees fairly [an indicator of how a good manager should 1. behave]. Aetna enables people from diverse backgrounds (e.g., ethnicity, race, gender, 2. religion, age, disability, sexual orientation, gender identity) to contribute to their fullest. Suppliers Through its supplier-diversity program, Aetna actively seeks out minority- and women-owned businesses and invites them to compete for the company’s business. By tapping into different backgrounds, perspectives and experiences, Aetna enjoys several advantages. First, it gains access to high-quality goods and services. Second, it gains valuable insight into multicultural markets. And finally, it serves more effectively the communities in which its own employees live and work. Community and Professional Alliances With respect to community involvement, Aetna works diligently to build relationships with local community leaders, chambers of commerce and nonprofit organizations to gain an understanding of the health care needs in the community. It then works with those same groups to help address the identified needs. Sometimes that means reaching out to minority brokers and jointly developing community outreach strategies, as Aetna did in Chicago. Sometimes it means creating a council of business and community leaders to provide Aetna with insight and perspectives on the Hispanic community, as it did in Miami. Sometimes it means working with Chinese health care providers to ensure that Aetna’s members have access to culturally appropriate care, as Aetna did in New York. It always means working on a local level to develop an understanding of the needs of a range of communities, including African-Americans, Latinos, Asian Americans, Native Americans, the GLBT community and women-led businesses. © 2009 Society for Human resource Management. Wayne Cascio, Ph.D. 11 Incremental Costs A question that members of Aetna’s board of directors might reasonably ask is, “What additional costs does a company incur by pursuing a diversity strategy that is as aggressive and broad as Aetna’s?” The honest answer is that Aetna’s diversity initiatives are not all free, but Raymond wants to emphasize that the additional costs are really investments in the company’s long-term sustainability. Aetna has historically adopted this perspective, but given the current economic conditions, he can certainly understand why the board might question such expenditures. Additional costs include: Investments in training and education, people resources, marketing and » advertising. Funding of targeted program efforts and initiatives, such as travel budget to allow » company recruiters to visit historically black colleges and universities and Hispanic- serving institutions or gay and lesbian …