As every CFO knows, saving $1 million is hard. $25 million very difficult. But $750 million? Near impossible. But that’s just what Prudential Financial EVP and CFO Ken Tanji has done.
Prudential Financial, in business now for more than 100 years, began an enterprise-wide transformation before the onset of the pandemic. This included a plan for cost savings. The insurance company reached $765 million of annual run rate cost savings in Q3 of 2022, exceeding a target of $750 million, one year ahead of schedule.
“Our cost savings program has allowed us to simplify, automate, and change the way we do business and enhance the customer and employee experience,” Tanji tells me.
Workforce composition is one of many components that figure into Prudential's program. Along with that, implementing a hybrid work model and reducing office space footprint in the U.S. by approximately 50%.
The use of artificial intelligence accelerated many individual life underwriting processes from 22 days to 22 seconds, according to Prudential. And digital claims processing capability can now deliver funds to most customers in six hours as opposed to six days. Automation reduced the timing of fund verification and processing on about one-third of new annuity sales from two to three weeks to now two to three days. Group insurance claims processing is now three times faster, due to the data systems installed. For finance employees, the expense management platform, forecasting and analytics, and scenario planning have had a tech upgrade.
Tanji discussed what the cost-savings initiative entailed.
Fortune: When setting out on this journey, was the initial target of $750 million in cost savings by 2023 considered an achievable goal for the company? Or was it a goal that would be a challenge?
Tanji: We initiated our cost savings program in June 2019, aiming to achieve $500 million in run-rate savings by 2022. In November 2020, we increased our target to $750 million by 2023 based on our progress. We were able to meet this goal 15 months ahead of schedule because we continued to take learnings from our experience and improve the process. Equally important has been a cultural shift in which employees embraced change and took the initiative to lead new transformation projects.
The cost savings include $180 million realized in Q3, at a time when inflation reached its highest point in 40 years and uncertainty persisted. Was that a result of following the initial plan? Or were there some adjustments during the quarter?
By Q3 in 2022, we had three years of experience driving the cost savings program and established a robust system. While we monitored economic conditions closely and adjusted our course as needed, we could stay on track for our cost savings target.
Can you explain how the finance team determined the viable areas for cost savings? And how did you devise the plan of action?
When we set our cost savings goal, we looked at all aspects of our business and operations and worked with internal business partners to identify areas of opportunity. Our efforts have focused on four key areas: improving the cost structure, adopting new ways of working, building a highly skilled talent pool, and delivering a seamless customer experience. To keep us accountable, we introduced 12 metrics and tracked our progress against them.
What are some of the metrics you’re using?
We're measuring our success against a mix of strategic metrics such as the business mix generating Prudential’s annual operating income and operating metrics such as Net Promoter Scores and Return on Equity.
What are some of the highlights of the cost-savings initiative?
By embracing a hybrid model, we reduced our real estate footprint in the United States by approximately 50%, resulting in an annual run-rate savings of about $50 million. In addition to cost benefits, a hybrid model provides flexibility to our employees and greatly enhances their productivity. By bringing the best of both in-person and remote work models together, we strive to achieve valuable benefits of efficiency and in-office collaboration and connection.
What do you attribute to the momentum of reaching and exceeding the goal a year early?
Our enterprise-level transformation strategy provided a solid foundation by simplifying decision-making, clarifying accountabilities, and streamlining reporting. Strong cross-functional collaboration has also been critical to accelerating our progress. For example, the finance team partners across the company to find opportunities, build business cases for investments, prioritize resources, and track progress.
With any transformation, there are challenges. Can you explain a challenge you faced and how you overcame it?
We focused on communicating to our stakeholders the necessity and urgency to change, as well as empowering our employees to discover and implement improvements and process changes. We also provided a clear direction of where the company was headed and why. We did this by setting a vision to be a global leader in expanding access to investing, insurance, and retirement security. Aligned with this vision, we continue to support our employees in driving the change because we believe the people doing the work have the best ideas on how to get better.
What will be your approach to cost savings in the year ahead as we continue to face uncertainty?
Our experience with the transformation program has set the stage for a culture of continuous improvement. We will keep making progress with this mindset, capabilities, and discipline as we kick off the new year.
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This story was originally featured on Fortune.com
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