Data miner Featured

7:00pm EDT February 24, 2008

Stephen W. Lilienthal grew up getting used to having the weight

of a company on his back.

Working in his father’s delicatessen in New York City, one of his

jobs was to take the recyclables — then mostly glass bottles —

up the stairs to the street. The bags often weighed nearly as

much as young Lilienthal did, but he realized that if he could just

get ahold of the bag and get some momentum going, he’d be fine.

When Lilienthal took over as chairman and CEO of CNA

Financial Corp. in 2002, another heavy load awaited him: The

business and personal insurance giant was losing ground fast. By

2003, the company had a net loss of $1.4 billion, and Lilienthal

knew that getting his arms around the problems was going to

take several years.

CNA, an umbrella organization for a wide range of insurance

providers, had $12.3 billion in revenue in ’02 but was segmented into

different organizations with different data. A truth that just hadn’t

been processed among the nearly 10,000 employees was that the

company was in a nosedive.

“The hardest thing was getting recognition of the issues at hand,”

Lilienthal says. “There was not a common acceptance that the place

was struggling and had confronted some very serious and life-threatening issues.”

So he began taking those first momentum-building steps. He headed up the project to collect all the data to see the company’s mis-steps, and he began promoting and hiring the smartest, most direct

people he could find. Meanwhile, he tied the data coming in to uni-lateral goals for the company by making CNA’s success equal

employee compensation.

Gather and communicate the facts

To a fact-driven leader like Lilienthal, there are two simple steps

to starting a turnaround: You acquire data, and you clearly communicate the problems to employees.

“You have to say you’re struggling,” he says. “It’s that acceptance,

then it’s understanding what success is, what are the metrics that

we’ll be using, and what’s the data that we’re going to need?”

To say you’re collecting data is one thing, but Lilienthal says you

have to realize that it’s a big task, and you will need to put things

together incrementally and make changes regularly as you go forward.

“My project for the first two or three years was building a system

that would let me get at the data and refine it, and we planned it out

over a two- or three-year period so the refinements would come at an

incremental basis,” he says. “It’s not like we could shut down the

place for a couple of years while we rebuilt; we were operating a $12

billion company on the fly and trying to make sure we had something left after we did all of our re-engineering.”

Not only does getting data take time, but you have to realize that

some of the old data may point you in the wrong direction. At CNA,

the data from one portion of the business wasn’t always qualified the

same as another portion.

“Data quality was a huge issue because when you silo an organization to the extent that CNA had, it fractured the database and

made it difficult to get data in a consistent fashion and deliver it in a

way that I could really get my arms around,” he says.

By making redefining the data job No. 1, Lilienthal spent vast

amounts of time digging in and seeing some big problems at CNA.

Though the truths were often a bit scary, he says negative data can

be paramount during a turnaround.

“In terms of the ability to have a strategic vision and to develop a plan,

that will drive the organization to the desired outcome,” he says.

As data came in, Lilienthal and his senior leaders released it

through every communication process possible. It explained where

the company was off-balance and helped justify future moves while

giving employees a new standard for success.

“We release things and make people aware of any changes,” he

says. “The less surprises we have, the more stable, motivated and

focused the employees are in terms of the task at hand rather than

the noise that surrounds it.”

The more CNA could get the information out, the more it helped

employees get behind the turnaround. A new vision was created,

and employees got a better understanding of how what they were

doing would rebuild the company.

“The concept of leadership very much gets focused on one person

having a great idea and yelling, ‘Charge!’ and often not having anybody to go with them,” Lilienthal says. “We expect our leaders to

communicate on a regular basis whether people are meeting the

objectives, and that’s fact-based and quantitatively based.

“What differentiates an organization in terms of how it’s able to

motivate, attract and retain people is how you do it. You can have

hard challenges and act in a humane way and achieve more because

people are not afraid. They understand fact-based expectations and

the consequences, but they’re not living in fear.”

Let smart people do the work

As data was coming in, Lilienthal used another lesson he learned

at his dad’s deli.

“My dad’s message to me was, ‘You’re never as smart as you could

be, and you’re never going to be smart enough,’ so if you can recognize that, then you are unafraid to surround yourself with smart people who will help you get it done,” he says.

With data being released incrementally, Lilienthal began to apply

that to CNA. Whenever it became time to bring in or promote a new

leader, he looked for someone smart who could learn from data and

communicate it clearly.

“One of the reasons you absolutely have to have the smartest and

the best people is that smart people and experienced people can

operate with data that’s not perfect,” Lilienthal says. “You get people

who look at data and say, ‘I understand where this is leading and

what we need to do.’ That’s key because I couldn’t sit here and just

say I’m going to wave a wand over this technology and it’s all going

to be fixed in two weeks.”

To make sure he was getting smart people, Lilienthal and his senior team reworked the way they hired. First, CNA expanded interviews to feature several leaders — including those from other

departments — talking to candidates to see if the person displayed

the ability to work with other teams.

Beyond that, an emphasis was placed on patience. Lilienthal

worked his way up the insurance chain from one chair to the next,

and he knows the industry smarts that come with logical progression.

“To get to senior levels within any organization, you need to understand the fundamentals,” he says. “In this day and age, people are

impatient, and a lot of companies take chances on people that

skipped one or several levels of experience. So you wind up with

compensation levels being out of whack and with a lot of variability

in performance because people skipped the fundamentals.”

Lilienthal says the final litmus test is letting the interviewee show

his or her smarts by describing clearly and without prodding how he

or she would be successful.

“We don’t tell them the expectations of the job, we give a broad-based description and I ask, ‘If you had the job tomorrow, what

would you do, how would you do it, and how would you structure

the organization?’” he says. “And then I shut up. The measure is

their ability to communicate in a very crisp and concise way exactly what is in their head, how they would do it, the people they

would hire and what the core functions are.

“Sometimes what you get is an inundation-type answer, where if

they keep talking long enough and say enough things, somewhere in

there is an answer. The people I want are direct, very focused, they

have the facts and maybe they’ve done it before. They express themselves well because if they can’t communicate, they can’t develop

followership — and if they can’t develop followership, nothing gets

done.”

The test for an employee’s intelligence may seem basic, but

Lilienthal says it’s often overlooked.

“You have to have A players,” he says. “If you lose a year in today’s

business world, that’s a generation. You lose two, and you can say

it’s over. Smart people equal smart business, and if you give them

good data and good solutions, you have a shot at winning. If you do

not have smart people, it does not matter what your product portfolio or data quality looks like — marginal people equal marginal

business.”

Tie employee efforts to compensation

Besides reconfiguring how data was collected and utilized,

Lilienthal made another blanket move that helped CNA’s turnaround

gain traction: He tied senior employees to the success of the company with compensation. That doesn’t mean you tie people to the

success of their department, but you make sure everyone is looking

out for the company as a whole.

“They have vertical responsibility, but they also have horizontal

responsibility to help all the other areas get better,” Lilienthal says.

“That means the finance department would have primary responsibility for financial functions but also have an ancillary responsibility

to help other departments if they need support.”

In order to get everyone thinking in that horizontal fashion, the compensation plans at CNA didn’t let any one department earn extra compensation if the company was struggling.

“Our compensation plans are skewed toward the success of the

company, not toward the success of a department,” he says. “If CNA

does well, everybody shares in it.”

It sounds basic enough, but Lilienthal says some employees have

a hard time grasping that one’s personal success doesn’t always

equal big benefits.

“People ask me, ‘Does that mean that if my staff department hits

their target that we’re not going to get compensated over and

above?’” he says. “And I say, ‘You’re absolutely right because it wasn’t good enough. Whatever you did didn’t work because the results

weren’t there for CNA.’”

The idea isn’t to punish your employees when the company struggles, but you have to make them recognize that there is an overall

business objective, and you make them care enough to help in any

way they can.

“You have to care about a place if you’re going to be part of a winning team,” he says. “Otherwise you’re just a robot, and robotic

behaviors ultimately fail because you wind up gravitating to the middle. And if you are in the middle, you are just dead meat — sharks

hit when you stop swimming, so you have to keep moving.

“If you take one of the guideposts that you use, compensation has to

be there. It is probably the simplest and crudest way to keep people

focused on the results of the organization, but it’s recognition of success or failure.”

Compensation doesn’t fill in all the gaps, but motivated employees

will do that on their own. At CNA, the new direction created by tying

compensation to success bred an atmosphere where employees

wanted to do more. CNA had a record year in 2006, posting $1.1 billion in net income on revenue of $10.4 billion.

“It’s not just about compensation; the organization starts to

achieve traction, and people like to be part of a winning team,” he

says. “As the company does better, and our reputation and financial

results start to push forward, people feel good. They feel that it’s a

good place to work, and they stay here despite being potentially

recruited away.”

HOW TO REACH: CNA Financial Corp., (312) 822-5000 or www.cna.com