Diversity at Allstate: A Competitive Weapon

The latest development is to leverage diversity as a competitive business strategy.

by Louisa Wah

As the American population becomes more ethnically and culturally diverse, companies are struggling with the issue of workforce diversity. While diversity management has been a management trend for a few years, the latest development is to leverage diversity as a competitive business strategy. How does diversity offer an edge? Mainly by reflecting the diversity of a company's customer base in its workforce. Ideally, such a well-represented workforce is sensitive to specific needs that may go unfulfilled in a workplace less attuned to other cultures and lifestyles. In this way, diversity can be a powerful weapon for capturing a much wider market--one that includes arenas outside the "mainstream."

"Increasingly, companies are beginning to look at representation as a business issue, as opposed to a legal compliance issue, a moral issue or a social responsibility issue," observes diversity guru R. Roosevelt Thomas Jr., founder of the American Institute for Managing Diversity and CEO of R. Thomas Consulting and Training Inc. in Decatur, Georgia. But the difference between diversity initiatives and affirmative action programs only started to become clear to the business community about five years ago, he says. The idea that diversity can be leveraged as a business strategy is even fresher and still foreign to many.

A number of progressive companies that had a head start in elevating diversity to a strategic priority are starting to see the results, from better customer satisfaction to increased sales. Allstate Insurance Co. is one of those leaders. Since 1993, the Northbrook, Illinois, insurance company has been managing diversity as a central business issue closely connected to its overall corporate objectives. The focus is to drive greater levels of employee and customer satisfaction by taking an integrated approach to diversity in the workplace and the market.

Joan Crockett, senior vice president for human resources at Allstate, stresses that the company's diversity initiative isn't a nice-to-do, social conscience program. "It's a compelling business strategy," she says.

While a growing number of companies are treating diversity as a business issue, and many are doing a good job, Allstate stands out as one of only a handful that attempt to measure the impact of diversity on corporate performance. In fact, Allstate boasts a rigorous measurement system as part of its initiative, and that process has proven a strong link between the diversity strategy and business growth. "We measure our environment through a survey process," says Crockett. "We are able to set goals and hold leaders responsible and tie their rewards to diversity--that really gives us an edge."

In the heated competitive environment of the insurance business, Allstate not only faces renewed competition from traditional insurance companies, but also new challenges from financial services firms and direct marketers who skip over agents and sell via 800 numbers and the Internet instead. Phil Lawson, vice president of sales, says the competition became especially intense in the past two to three years. "It's highly intense, highly competitive--all these battles going on in the business. But it's a finite market out there. There are only so many people and so many kinds of risks," he says.

An ability to make positive use of the diversity in its workforce and customer base thus helps Allstate strengthen its competitive edge. Lawson says, "Being in a relationship business, how can you not look like and sound like your clients? It's an obvious competitive advantage when you can mirror the clients that you serve."

An Integrated Approach

For Allstate, the concept of diversity is not limited to ethnicity and gender. It is based on a wider perspective that includes diversity in age, religion, sexual orientation, disability, etc.

Diversity at Allstate is rooted in the company's culture, which has embodied inclusiveness and equal opportunity since the 1960s. But it wasn't until 1993 that it became a strategic initiative. Carlton Yearwood, director of diversity management, says that programs in the 60s and 70s were geared toward assimilating cultural differences into Allstate's culture. Today, the focus is on accepting these differences. The question thus becomes: "How do you take this workforce of differences and bring them together in a more powerful way so that it can impact business results?" asks Yearwood.

The answer was to incorporate differences into all business processes, such as decision making and product innovation. Once Allstate began this process, it started to see an increase in its customer base and greater levels of customer satisfaction as well.

"Diversity has become an initiative that has clear business outcomes," Yearwood says. "If you start by having customers say they want to interact with knowledge workers who are like themselves, that gives the customers absolute best services and products. Through the diversity initiative, we demonstrate our commitment to a diverse marketplace."

Just as a company would inject financial goals in its daily operations, Allstate is resolved to penetrate its day-to-day functions with the concept of diversity. A number of processes have been established to bring the concept and strategy alive. These processes go beyond recruiting a diverse mix of employees to encompass a proactive retention strategy, ongoing training and education, a rigorous feedback mechanism and community outreach.

Karleen Zuzich, assistant vice president of HR, sums up the rationale behind Allstate's integrated approach to diversity: "Diversity is something that doesn't just hang out there and [get] managed separately. It really is part of our culture at Allstate."

Recruitment

Recruiting employees with diverse backgrounds is the first step to ensuring fair representation. Unlike the old days of affirmative action, says Crockett, today's diversity initiatives are meant to ensure there is a qualified, diverse slate of candidates for every position at all levels of the company. "If we don't have women [candidates], the next step is [to ask], How do I develop female employees so they can be promoted? Or, we could go outside to hire women," she says.

Crockett says leaders in the organization are held responsible for proactive hiring and promotion. While it is fairly easy to have diversity at the entry level, she says, developing and providing opportunities to ensure diversity at every level is a challenge for companies. Increasingly, attracting the best talent is difficult in a tight labor market. Prospects generally can pick and choose their employers, so creating an environment where people feel comfortable working is a priority, Crockett says. "We want to outperform the competition, and for us, the best talents are diverse because the customers are."

Thanks to the various awards Allstate has received, such as the "1999 Best Companies for Hispanics to Work," the "1998 Top 10 Companies for Minority Managers" and the "1997 Best Companies for Working Mothers," the company seems to have no difficulty in attracting qualified candidates.

Another interesting recruitment method at Allstate is hiring people who approach the company as potential customers. Some people arrive at the doorstep because they are looking to have their specific needs met in the market. By getting involved with the company and becoming employees, they are representing the very markets from which they come.

In terms of college recruitment, the company makes a conscious effort to reach out to students in historically black colleges and universities in Puerto Rico, according to Yearwood. The latter is especially important because the company aspires to expand its Hispanic customer base.

Allstate also benchmarks against diversity initiatives in other companies to identify best practices in recruitment. Having large legal, financial, accounting and technical shared services departments, Yearwood says, Allstate needs to look beyond the insurance industry and benchmark against companies that excel in those areas. For example, it looks at Microsoft's and Motorola's practices when it comes to hiring in the technical shared services department.

Poractive Retention

All the elements in Allstate's integrated diversity strategy are aimed at retaining the best employees. That's why the company builds diversity into its performance model.

From the moment employees join Allstate, they hear a clear message from management that they will enjoy a bias-free work environment. Management sets the tone by giving each employee a booklet called "The Allstate Partnership," which is akin to an employee contract, sans the legality. It states in plain language what employees and the company can expect from each other. For example, Crockett says, "An employee can count on being treated with respect and dignity. On the other hand, the company expects employees to develop their skills so we can outperform competition. It's a two-way street."

Among the various points in the partnership are three explicit statements related to diversity issues. While employees are expected to "exhibit no bias in interactions with colleagues and customers," they can expect the company to "promote an environment that is inclusive and free from bias." The company also is expected to "foster dignity and respect in all interactions."

Career development is the next step in retention, and a very decisive one at that. A diverse slate of candidates is given the training and opportunities needed to advance their careers. This ensures a mixed representation of prospects for promotions. In fact, Crockett says, the company actually requires a tailored development plan for each employee to help him or her move in the most suitable directions.

In succession planning, Allstate uses several methods to seek out the best candidates. One is to mine schools and other sources for diverse candidates. The alternative is to look internally, which requires long-term planning.

"Internally, when we look at the pool of candidates being developed for key assignments, we look at the diversity in this group," says Crockett. If the hiring manager for a certain position can't identify a diverse slate of candidates, developmental plans will be put in place to ensure that a broader pool will be available in the future. In time, when an employee is ready to pursue a new position, he or she will receive classroom training or be given job assignments to develop the necessary skills and experience, Crockett says.

Measuring Diversity

Creating an environment with a truly diverse spirit is easier said than done. It takes constant vigilance to keep that spirit alive in a big organization and ensure that it does not exist in name only. Allstate has found that a structured measurement and feedback system helps foster companywide diversity beyond the recruitment stage.

The measurement system helps glue the initiative to the corporate objective of increasing customer retention and sales. It also ensures managers are held accountable for creating a trusting and diverse environment for their employees.

One of the methods used to gauge leadership effectiveness in managing diversity is an employee feedback system. Under this system, all 53,000 employees are surveyed twice a year through a quarterly leadership measurement system (QLMS). This online feedback system measures employees' perception of how well the company is achieving aspirations for its customers, shareholders and employees.

Results from the QLMS are then placed in various indices that are tracked twice a year. The diversity index and leadership index, among others, measure the effectiveness of Allstate's diversity efforts. Senior management compares the two indices to identify any correlation between them.

According to Yearwood, there is a positive correlation between the diversity index and the leadership index, meaning the better employees perceive their managers' effort to produce a diverse work environment, the more satisfied they are. The spillover effect is greater customer satisfaction and retention. "We know there is a correlation between customers' intention to renew and how employees respond to leadership and diversity questions in our survey process," he says. "The correlation suggests the higher the leadership and diversity indices, the more likely it is for customers to renew [their insurance policies]."

Indeed, Allstate's claim that its diversity efforts contribute to better business performance is supported by more than anecdotal examples. The company uses the same yardsticks it applies to other business initiatives to judge how well it's doing in its diversity arena--employee satisfaction, customer satisfaction, new business acquisition, customer retention rates and sales. "Those are hard measures and help understand the financial implications [of our diversity initiatives]," says Yearwood.

According to Zuzich, extensive analysis in the company's sales operations showed that people who achieved higher QLMS scores also have better business results, and vice versa. "Leaders who focus on leadership skills and the environment are really producing better business results," she says. "We were actually surprised to find out about the high correlation."

Allstate's business performance has also been tracked by independent parties. The Simmons Research Group in New York, for example, did a study in 1996 on the market share of insurance companies among minorities in the United States. It found that Allstate was the No.1 life and auto insurer among African-Americans, and the No. 1 homeowner and life insurance firm among Hispanic Americans.

Leadership Accountability

The compensation system at Allstate is closely linked to the goal of upholding diversity in the workplace. For managers at all levels, 25 percent of merit pay is tied to the diversity measures mentioned above. In addition, incentive compensation for senior leaders, who are eligible for bonuses, also is tied to the measurement system through the leadership index.

Zuzich, who is responsible for employee relations and all measurement systems at Allstate, says embedding diversity into leaders' pay and recognition helps sharpen the focus on the initiative. "What you measure is what people focus on. This really sends a clear signal that management of people and doing that well is really important," she says.

To deepen the understanding of diversity, the survey for evaluating leadership--the outcome of which eventually determines the 25 percent of managers' merit pay--includes questions about how well managers communicate with their employees and how many personal development opportunities they provide. Zuzich explains that what drives dignity and respect--the cornerstone of diversity--is the issue of whether an individual gets a chance for meaningful work and personal development.

Zuzich admits there's always a danger that people want to start managing the results of anything tied to pay. But what's important, she says, is for managers to use the measurement as feedback on how they can improve the way they promote acceptance and respect in the workplace.

Sensitivity to Customers

Allstate's leading position in market share among minorities reflects its commitment to local communities consisting of many ethnic backgrounds. The key to success is that local agents, with backing from Allstate's relationship marketing managers and staff, have learned over the years how to relate to the specific needs of their respective communities.

Allstate's director of relationship marketing, Andre Howell, says that learning from customers is the best way to develop products and services which serve their specific needs. "Education, education and education will be my primary lead," he says. "We need to be continuously in a learning mode from customers."

Howell works with a team of six to create community outreach programs whose ultimate aim is to capture a larger market share. These programs include financial and expert contributions to ethnic, local and other organizations.

The company also works with community groups and homeowner associations to accelerate urban revitalization projects through its Neighborhood Partnership Program (NPP). There are currently 33 NPPs operating in 26 cities, including Chicago, Cleveland, Los Angeles, New York and Philadelphia. By establishing a good relationship with residents of the communities, Allstate has been able to accelerate its customer acquisitions. In many cases, the company's businesses in inner cities that used to lose money are now profitable, says Ron McNeil, senior vice president for product operations.

"Our diverse workforce has allowed us to establish relationships in communities and allowed us to shorten the acquisition curves for new customers," he says. The partnership program in Philadelphia, for example, boosted Allstate's market share in the city from 7.3 percent in 1993 to 33 percent in 1997.

Other community and national outreach programs include "From Whence We Came," an award ceremony for outstanding African-American citizens who have helped build stronger and safer communities where they live. Recently, responding to customers' requests that the company should help ensure the safety of its insured, Allstate rolled out a youth program called "The Law and You," which provides guidelines to teenagers on how to react appropriately when they have interactions with the police on the road.

"It's important to listen to customers and the organizations that represent them," Howell says. "We need to have a platform and sensibility to be able to voice their concerns."

Howell believes that the company's responsibility as an insurance company should not be limited to selling policies. This principle is best exemplified in the way customers regard their local Allstate agents. At the Allstate office in the neighborhood of Sunnyside, Queens, New York, which serves perhaps the most ethnically diverse community in the country, customers often relate to the sales reps as an extension of their families. Mike Kalkin, the Allstate agent who heads up the office, says that many customers ask questions unrelated to insurance policies, such as what to do when they get a traffic violation.

"We don't give legal information out, but we certainly give them directions about who to ask for help. They come in because they know they are going to be explained things in very simple ways in their own language," says Kalkin. Sometimes, these customers also bring flowers and food from their countries of origin as gifts. "We're always very flattered. It's a fun place to work."

Because the community's immigrant population is constantly changing, Kalkin says, it is important to recruit as diverse a group of sales reps as possible. He constantly scouts for potential candidates from within the community because these prospects best understand their people's needs. The sales reps in his office belong to a wide array of ethnic origins: Polish, Indian, Armenian (who also speaks Bulgarian and Russian), Korean (also fluent in Spanish) and, of course, Hispanic to relate to the large population from Ecuador.

Kalkin says these sales reps are highly educated and comfortable working with people from different ethnic backgrounds. They also are excited about dealing with their own people and putting them at ease. Turnover is low at his office, Kalkin says, with the average sales rep staying for four to five years.

Although Kalkin doesn't have a market share figure, he has a good idea of how Allstate has penetrated the community. "We've been here for 28 years, and there was an increase of more than 700 [customers] last year alone," he says, adding that the office's sales from insurance premium grew more than 20 percent in 1998 as well.

"One of the things we are very proud of at Allstate is we reach out to our community and we hold our business," Kalkin says. "We are of course challenged by competition, but the people whom we are appealing to, they are not leaving."

One customer service provided by Kalkin's office is a 24-hour service center, which takes customers' queries outside of regular office hours. His office also is open till 6 p.m. to 7 p.m. on weekdays and half a day on Saturdays to accommodate the needs of the working community. Kalkin understands these subtle needs because he himself comes from an immigrant family. "My dad is an immigrant, and his time was limited. He felt disenfranchised and he didn't speak the language. What I'm doing is responding to my own background."

This cultural sensibility influences how the business is run. "I don't want people to feel what they ask for is unimportant, that their questions are stupid ones, and that they are bothering us," Kalkin says. "What I tell them very often is, ÔYou have many places to go, but we need you.'" Because of that, even though Allstate isn't always the cheapest company around, his customers have been happy to stay put.

Diversity in a Different Sense

As noted, diversity doesn't always have to mean ethnicity. It can refer to age. At a northwestern Arkansas office, the growing retired population means the sales reps must pay special attention to the way they relate to older customers and prospects.

Penny Wells-Sims, the Allstate agent heading the office, says senior citizens generally are more knowledgeable about insurance and know what they are looking for. But they also have a lot of time on their hands, so Wells-Sims makes sure she and her staff spend a little longer quality time with them. "They like to have the personal service; they want to be in front of you when they talk to you, [whereas] young people prefer to do it on the phone," she says.

A major concern among senior citizens is that their insurance might stop when they hit a certain age bracket. "They hear a lot of companies are discriminating, placing them in a higher premium and not renewing them when they hit a certain age," says Wells-Sims. To address that concern, she says, Allstate offers special discounts on top of not ruling them out from the policies. For example, they will enjoy a 10 percent discount on auto insurance if they participate in defensive driving classes, and they can receive up to a 35 percent discount in their premiums if they join multiple policies.

Wells-Sims says that tapping into the senior market has given her some valuable experience as the U.S. population continues to age. In fact, being open to senior clientele helps give her a competitive edge. "We do not discriminate against old ages. I feel my advantage is that the baby boomers are going to be seniors very soon. In 2011, more than half of the population will be over 55 years old. So now I already have experience," she says.

Going Deep

The spirit of diversity extends far beyond the corporate offices of Allstate--a reflection of the amount of energy and commitment it has put into this endeavor.

Thomas, the diversity guru who wrote Building a House for Diversity (AMACOM, 1999), says the biggest challenge in diversity management that U.S. companies face today, is sustaining a diverse representation of the workforce over time. Thomas believes Allstate is making a serious effort in achieving that representation: "It's difficult to get a sense of how deep these changes are, but they are making a very concentrated effort to not only have representation, but to put in place a context that increases the likelihood of sustaining that representation."