MARKETING AGENCY OF THE MONTH
Montana agency merges three firms
and achieves significant growth
By Dennis Pillsbury
Payne Financial Group executives include (left to right) Brian Donahue, chief operating officer and managing executive-Commercial Lines; Bill Wrigglesworth, president and CEO; and Ed Heine, executive vice president, Payne Financial Group and managing executive-Surety.
On January 1, three independent agencies, representing 14 different offices and nine or 10 different cultures, took the plunge and became Payne Financial Group, Inc., Missoula, Montana. The new agency, the brainchild of Terry Payne, who had holdings in each of the agencies, has a huge territory that includes the entire state of Montana, as well as parts of Wyoming and 185 employees, many of whom are shareholders. (Stock ownership is available only to employees, who must be invited to participate based on their achievement at the agency.) The merger, which took several years of planning and the consulting efforts of John Jaques, brought together the retail division of Terry Payne & Co., Inc., Missoula (the risk management division continues as a separate entity); Montana International Insurance, Inc., Helena; and Hoiness Labar Insurance, Inc., Billings. Bill Wrigglesworth was recruited from the Marsh office in Spokane, Washington, to become president and chief executive officer to the new agency.
Bill joined Terry Payne & Co. on June 30, 2000, and spent the rest of that year on the road, meeting with every one of the 185 employees of the three agencies and racking up the mileage on his Ford pickup. He was trying to find a structure that would bring the 14 offices together into a coherent unit that could take advantage of its multifarious expertise and geographic spread, while eliminating or, at least, downplaying the disadvantages of being so far removed from each other.
Management by location was considered and rejected, as was management by region. "Both these management styles required a second layer of management and we wanted to be very lean," Bill explains. "We also wanted to focus our resources and expertise across all the offices and neither of these approaches would accomplish that. We ultimately decided on silo management and have divided the agency into seven silos: commercial, financial services, personal lines/small commercial, surety, administration (human resources and Payne University), accounting, and information technology (the agency's own system and training in conjunction with Payne U). Each silo has a manager who is responsible for the success of his or her silo and for integrating its activities with each of the other silos. To accomplish this integration, the agency has regular meetings with the management group. The meetings are designed to teach the managers "to trust and rely on each other."
It's hokey, but it works
The meetings focus on team building. The managers have to report on their progress to the group, "but we try to do it in a way that adds a little levity. For example, at one meeting, we were in a u-shaped set-up with a microphone in the middle. Each manager spoke for 15 minutes and then faced 15 minutes of questions. In order to ask a question, the other managers had to crumple up a piece of paper and throw it at the speaker. It helped to break the ice a little bit but it also visually showed us how much work we had done when we saw hundreds of pieces of paper on the floor." Another team building exercise involved managers "saying something about themselves that was not work related. The speaker held a ball of yarn and when he or she was done, they held on to the end and tossed the ball to someone across the room and it was his or her turn to talk. By the end, every manager had shared something personal and also saw that they were part of a 'yarn network'."
The meetings also feature musical interludes where managers bring in a CD of a song or musical piece that relates to their report. "Most of these ideas sound hokey and I guess they are, but they seem to work. Our managers really have learned to work together and trust each other."
Bill continues that "we've made tremendous progress in less than a year, but we're not there by any stretch. We literally had nine or 10 different cultures that had to be integrated and that doesn't happen overnight. We had 38 different producer compensation plans. By the end of the year, we'll have one. You can't develop the necessary trust if you have all these different ways of compensating people."
The new producer compensation plan, which will go into effect January 1, 2002, was developed at four meetings with the agency's sales executives. In addition, "Brian Donahue, the COO, and I met with every sales person to present the plan and assure them that we would honor their current contract through the end of the year."
The three C's
He adds that the new producer compensation plan is designed to support the agency's mission statement which focuses on the three C's -- Clients, Colleagues, Community.
"The reason we exist is our clients," Bill says, "and we take that into account whenever we make any change. We even have a doll at every meeting that represents the client. Yeah, it's hokey. But on a number of occasions, someone has pointed to that doll and asked: 'Is this the right thing to do for him?'"
The second C represents "our obligation to our employees. We believe it is incumbent on us to provide our employees with fair wages, a safe workplace, a path toward promotion, a good benefit program, and so on. We'll measure our success in this area by turnover and intend to keep it in the single digits."
The third C represents the fact that "we are members of the communities in which we live and work and should be willing partners in the community. We encourage our employees to be involved in the community. In fact, one of the requirements in the new producer compensation plan is for the producer to be involved in at least two community activities. It's up to him or her what they are. We just want them involved." He adds that the agency also is involved in the insurance industry community. "We're proud members of Assurex and of IIAA. Ed Heine, head of the surety silo and a board member, is involved in NASBP."
Astounding progress with little disruption
The effort to become one agency has taken a "lot of communication," Bill says. All the offices are connected via an intranet that includes the employee manual, a chat room for employees, and a regular "Wriggy" memo that provides information on the agency's financial results, 401(k) options, a list of heroes in the company, and so on. "We gave every employee two shirts with the new logo, which is a combination of the logos of the three predecessor agencies. One has a button-down collar and the other is an informal polo shirt. We told the employees the shirts were appropriate attire at any time. We've set up producer groups, with the young unvalidated producers in the Olympians group and the senior producers in the Titans group. We ask a representative from each group to come to the managers meetings to see what's going on." (An interesting side note, Bill points out, "the Olympians ultimately defeated the Titans in Greek mythology. The younger take over from the older producers.")
So at this point, you're probably wondering why this isn't just a story about negotiating your way through a merger rather than the feature
article. Well, that's because Payne accomplished all this and will exceed commission revenue of $18 million this year. That's up from the $15.5 million in commission revenue that was produced by the three agencies, an increase of better than 16%. Net profit will exceed budget this year.
But that's not the only reason. It's because Payne is taking steps that appear to have it heading for even more success in the future, not the least of which is the establishment of Payne University.
The University was established to help build the skills of the people in the agency and "allow them to move up the pay scale," says Brian Donahue. "We operate in an area of the country where there are very few people for the geographic area, so training and recruiting is very difficult," he continues. "It is imperative that we have the ability to build the skills of our own people and also a place where we can educate new people about our business." Connie Clarke is the head of Payne University and it is her job to "bring this dream to reality."
The University has already had a law update seminar and is working with the managers of each of the silos to determine what skills they believe are needed by their people so the University can develop a curriculum that will help employees move forward. "Her job is to identify a need and then find a teacher either from inside or outside." She also works to get CE credits for classes where appropriate, but "that is not the main goal," Brian says. He continues that "the employees have been very enthusiastic about the concept."
Match company needs
Another change that was necessitated by the merger was determining the new agency's relationship with its insurance companies. "If there is a fourth C, it is Companies," says Bill, adding that Payne has worked hard to "systematically review its relations with each of the companies it represented." Bob Biskupiak was appointed to handle company relations. In that position, he established a market database that delineates accounts by SIC (Standard Industrial Classification) Code and shows which companies are writing that business. "This allows us to place business with companies that have an appetite for that business." Bob also had the job of paring down the number of companies to a manageable size. "After the merger, we found we just had too many companies and, in some cases, really were not providing some of them with a decent volume of business," Bill points out. "We wanted to be in a position where we were very important to those carriers that we represented."
Brian adds that contingency income is extremely important to the agency and that also "necessitated reducing the number of companies so that we could focus on the marketing needs of those that remained. We have underwriting authority from some carriers," he says, "and are very proud that we have produced loss ratios averaging less than 30% for that business. That's definitely helped on the contingency side."
No more "running in place"
One of the problems that needed to be addressed was the fact that commercial producers continued to service all the business that they wrote, including many small accounts. "That's our meat and potatoes," Bill admits, "but we were losing money on it. There had to be a more effective way to service this business." The result was the formation of the Select Business Division within the personal lines silo to handle the small business market. That went live on July 1. The division provides online service to all the family-owned businesses. "We also identified three primary carriers and one surplus lines carrier that liked this business and could handle it in a paperless environment," Select Business Division Manager Kathie Watson notes. "All our small business accounts will be placed with one of those companies."
Bill says that "one of the biggest difficulties was convincing the producers to give up this business. For most of them, these clients were friends. You don't know how many times I heard things like, 'but I have coffee with him every morning. I can't tell him I'm turning him over to someone else.' Even when we showed them that the system meant more touches and better service, there was resistance. On one occasion, I remember sitting down with a producer who had a book store owner as a client. I asked him when he had last been in the book store and whether he knew that they now were selling cappuccino in the store. 'He is?' the producer responded. I admitted that I really didn't know whether he was or not, but that was my point, neither did the producer. With the online servicing of the account, we regularly check to see if there have been any changes."
There were conversations like that with every producer, but finally Bill found a real convincer. "We told the producers that they'd get paid for the business for up to two years if they gave it up and wouldn't if they kept it." The process of moving that business quarter by quarter is going on right now. And it's freeing up commercial producers to bring in more business.
Specialty products initiated
Even with all the changes, it has continued to be difficult for producers to call on the expertise of individuals who may be many, many miles away. "Sometimes, they just don't know that so-and-so knows everything there is to know about the widget business and could help them land an account," Bill says. In order to help in the process of "sharing collective wisdom, we are starting to set up specialty practices within the commercial silo. Katie Matthias, who joined us from an agency in Denver, was hired to head up the first specialty -- technology. As technology practice leader, Katie set up a team of technology experts who are available to accompany a producer when he or she calls on a technology account. We're now looking at establishing specialty practice units in financial institutions, agriculture, construction and other areas that we identify in the future."
"In reality," Bill adds, "our first specialty program was surety. We decided from the very beginning to make that a separate silo from commercial with Ed Heine in charge. It was worth specializing in since we already write more than $1 million of surety business and are looking to grow that area. Ed, with his years of knowledge and expertise, was the perfect choice to head up that silo."
Bill concludes that "we've made significant progress. We've had two big sales meetings and its absolutely astounding the difference between the first and the second. The camaraderie has grown. Our producers have embraced the changes. I'm just so proud of all our people," he says, adding names to those already mentioned in the article, including Brian Donahue, COO and head of the commercial silo; Ken Laddusaw, who in addition to being CFO runs the IT silo along with Lisa Fordham; Sarah Kelly, head of administration; Peggy Kerins, HR manager; Kathie Watson, who handles commercial customer relations and runs the Select Business Division; Bill Wolfe and Debbie Rampy, who head up the Personal Lines silo; Chuck Mazurek, who heads up claims; Steve Culbertson, who heads up financial services and is moving the agency toward adding other financial services, like annuities and 401ks, to the employee benefits currently offered. "They've all done such a tremendous job. Financial services is really starting to make inroads into our current client base. Claims is working to become an advocate for our clients without becoming so involved in the process that we wind up slowing things down. We've really moved this football a long way down the field. The challenge now is to keep everyone enthused and focused on the progress we're making every day, not discouraged about the mountain we still have to move." *