AHCCCS Virtual Office Evaluation Project

1. AHCCCS Virtual Office Evaluation Project Final Report May 21, 2007

2. Purpose: Evaluate results of the Virtual Office Business Model implemented at AHCCCS in July 2005 Approach Interview senior leaders of AHCCCS Interview employees, supervisors and managers Review AHCCCS documents relevant to Virtual Office (VO) and Alternative Work Arrangement (AWA) Identify “best practices” of value to AHCCCS Analyze available results data Make recommendations based on the above 1.0 Scope of Evaluation

3. Agenda • Findings • Summary of Interviews • Summary of Document Review • Analysis of results data • Summary of Preliminary Benchmarked Best Practices • Recommendations • Next Steps

4. 2.0 Summary of Interviews Thirty interviews were conducted with senior leadership, managers, supervisors, and employees. 100% of those interviewed said the Virtual Office “should be expanded” as opposed to “being continued as is” or “being stopped’. Focus • Recommendation to stop, to continue or to expand • Value to stakeholders (employees, AHCCCS, State of Arizona, members, and partners) • Impacts • Challenges and risks • Recommendations “Employees were concerned that AHCCCS might consider stopping VO”

5. Summary of Interviews: Value to Stakeholders The interviews identified the following benefits to the various stakeholders • Employees • Reduced stress (e.g., being in traffic, interruptions, office politics) • Improved job satisfaction • Feel respected by leaders • Improved Quality of Life • Performance-based compensation is valued • VO valued as a benefit to offset very low salaries • Stipend offsets increased costs of working at home • AHCCCS Results • Improved productivity • Reduced absenteeism • Reduced facilities • Decreased costs • Increased capacity for work • Increased flexibility of workforce • Increased level of talent • State of Arizona • Reduced consumption of fuel • Reduced pollution • Reduced traffic on the roads • Reduced cost of services • Work opportunities for homebound • Work opportunities for remote locations • Members and Partners • Improved service quality • Reduced time for service • Increased hours of availability

6. Challenges Increased workload for supervisors until processes are all revised Difficult to address performance issues Employees sometimes cannot access subject matter experts for information to do their job Processes for accessing needed information (e.g., contract conditions) not automated/accessible Employees not always aware of what is happening in the agency (political and organizational happenings) No mechanism to network and build relationships Current time reporting is time consuming Some organizations/leaders have not yet identified opportunities for VO Risks Hiring people not suitable for Virtual Office environment Development of “virtual” employees as supervisors and managers for the future Culture is difficult to sustain without “visibility” of role model leaders Achievement of needed cultural changes: Focus is continuous improvement in results Belief in value of a virtual organization to improve performance Coach for continuous improvement vs. manage poor performance Development of capabilities to coach for continuous productivity improvement vs. performance management Move attitude towards measuring performance from “identifying perfect measures” to “managing performance to improve key measures of success continuously” for all positions Continuous improvement and measurement of core work processes Summary of Interviews: Challenges and Risks The interviews identified the following challenges and risks

7. 3.0 Review of AHCCCS Documents • State of AZ Guideline • AHCCCS Strategy • Virtual Office Strategy • Policies • Technology Plan • Communication and Training • Pilot Plan • Surveys • Results Process and Reports • Presentations

8. Review of AHCCCS Documents: Findings • State of AZ Guideline: State supports movement to Alternative Work Arrangements (AWA) including VO • AHCCCS Strategy: Organization defined comprehensive strategy which uses VO to realize its purpose and to add value to all key stakeholders • Policies: A combination of state guidelines and AHCCCS policies govern the VO Business Model • Pilot Plan: A structured and rational plan was used to conduct and evaluate a pilot to determine if there is value in a VO Business Model • Results Process and Reports: Measurable results were identified, targets set, and data collected in areas of productivity, quality and costs • Evaluation: A combination of approaches including surveys, collection of results and data collect were used to assess the pilot

9. Review of AHCCCS Documents: Findings • Communication and Training: Used to align and enable employees moving to VO arrangement; the next opportunity is to support improved performance management for the future • Presentations: Executive presentation have been used as a way to communicate the opportunity, strategy, approach, and results • Technology Plan: Included addressing the needs for Virtual Office requirements; consider moving to a focus on technology for a Virtual Organization for the future • Documentation & Knowledge: Current documents are in a database; develop Website to become the portal for the future for sharing business knowledge AHCCCS has used a strategic and systematic approach to designing and implementing their Virtual Office Business Model

10. 4.0 Summary of Benchmarked Best Practices • Fortune: Top 100 companies using AWA and VO (2006) • Jet Blue and Call Center Studies • Research Studies: Culture, Effective Teams, etc. • AT&T and IBM: 20 years of practice • American Express Benchmarking can be used to identify opportunities and define best practices to bring into AHCCCS

11. Increasing Number of VO Workers and Savings • Nearly 27 million folks will be working from home offices by year's end, according to research firm International Data Corp. • These employees will save an average commute of 24.3 minutes each way, according to U.S. Census data • They will save money: less visits to the gas pump, less to drop off at the dry cleaner, fewer takeout lunches. • Those working exclusively from home can often take tax deductions. • Source: Money Magazine Online (September 19, 2006)

12. More Companies Using Various Forms of VO Of the 82 Best Companies that allow employees to telecommute or work at home at least 20% of the time, these 10 have the highest percentage of telecommuters. http://money.cnn.com/magazines/fortune/bestcompanies/2007/benefits/telecommuting.html Fortune Magazine: Top 100 companies to work for (2006)

13. Some Companies Have Used VO for Years • AT&T and IBM: 20 years of practice • A range of alternative forms of Virtual Office or Alternative Work Arrangements (AWA) • Annual increasing performance targets • Continuous improvement in processes • Turnover reduced 50% • Increased satisfaction with jobs and personal life • Comprehensive training for implementation and critical capabilities AT&T employees spread out over a geographical area limited their exposure to Hurricane Katrina disaster.  Those workers not affected by this natural disaster picked up the areas for those that were affected and productivity was not affected.

14. New Call Center Trend: Moving from Outsourcing to Home Offices Jet Blue • Role model of a “virtual business” • All call center employees work out of their homes • Standardization of equipment • Reduction/avoidance of real estate • Financial success due to virtual organization approach • Natural and manmade disasters do not impact sales and service centers • Call center employees come into a meeting one day a month • Turnover rates in call centers are only 4% per year compared with call center averages of 50 to 100% in many other companies Farmers Insurance and Proctor and Gamble also support call center employees working at home

15. New Call Center Trend: Moving from Outsourcing to Home Offices Benefits from a research study by Nova Amber, LLC, a virtual research firm • A measurable reduction in capital and operational expenditures • Improved customer satisfaction • Faster time to market • Improved focus on company’s core business Studies from IDC (sister company of Network World), Booz Allen Hamilton, and Purdue University identify expansion in home office workers for call center • Traditional call center employees cost $31 per hour including overhead and training; work at home employees cost an average of $21 per hour (IDC Study) • Uses range from Jet Blue (100% virtual call centers) to 1-800-Flowers (uses virtual workers for peak periods) • Average savings to teleworkers reported at $4000 per year • Improvement in productivity of up to 20% has been realized

16. Companies Use Technology and Leadership to Enable VO • American Express Human Resources Technology Team reorganized • Team scattered throughout the world • Vision: helping technology experts of American Express partner with business leaders to grow the overall company • HR Technology Team goal: valuable technical support in a world of virtual work • Leadership capability important to success • Mutual and individual accountability established • Groupware supported various work processes: videoconferencing, chat rooms, e-mail, threaded discussions, document sharing, project management

17. Use Business Leadership Model to Enable a Performance Improvement Focus • Experts’ models can identify approaches to changing the culture, building a focus on measurement and results, coaching people for continuous performance improvement, building virtual teams and a virtual organinization • Example: The Discipline of Teams identifies a model for creating a performance and accountability discipline in teams (VO and non-VO)

18. 5.0 Summary of Results Impacts

19. Impact of Virtual Office is Significant • AHCCCS • Improved productivity (>10%) • Reduced absenteeism (50%) • Reduced facilities ($5000 per office) • Increasing capacity (10% per year) • Increased flexibility of workers • Increased talent • Employees • Reduced costs ($80/employee/week) • Reduced commuting time (>280 hr/yr) • Reduced turnover (>10%) • Feel respected by leaders • Reduced stress • Value performance-based compensation • Members and Partners • Improved service quality • Reduced time for service • Increased hours of availability • State of Arizona and Environment • Reduced fuel consumption (>250 gal/employee/yr) • Reduced pollution (>4500 lb Carbon Dioxide/yr) • Public and environmental savings (>$5200 per year per employee) • Work opportunities for homebound • Work opportunities for remote cities Many areas of impact can be measured and tracked over time

20. Example: Improvement in KIDSCARE Productivity • Productivity numbers were not available for the month prior to going to a Virtual Office environment • Productivity improved about 10% per month for the 4 month period • Continuous improvement in productivity realized for the 4 months • About 80% of the employees showed significant improvement over the 4 month period; 20% did not show significant improvement

21. Example: Improvement in Productivity and Quality for Adjudication Group • Data was only readily available on three people • Average improvement in productivity was over 14% • Average improvement in quality was 88%

22. Example: Improvement in Productivity and Quality for Comm Center Group • Data was only readily available on four people • Average improvement in productivity was over 12% • Average improvement in quality was over 1%

23. Example: Savings in Real Estate Costs Annual Cost Savings for Closing 12th St Location: $303,000 • Rent: $252,000 • Electricity: $48,000 • Gas: $600 • Water: $2,400 Dollars saved are essential to being able to fund the needed improvements in the infrastructure to realize further savings

24. 6.0 Recommendations to Expand Potential Impact Based on the value created by VO, the risks and challenges identified, and the results of benchmarking, the following items need to be addressed to continue to expand the impact of the VO Project • Define a strategy for the degree and nature of “Virtual Office” or “Virtual Organization • Use a Business Case/Pilot Approach for Forecasting Opportunities and Reporting Actual Results • Expand Virtual Office Implementation • Modify the Process for Collecting Business Impact and Performance Results • Create a “Virtual” Structure to Continue to Share Best Practices with the State • Continue with the Current High Level of Communication

25. Recommendations to Expand Potential Impact • Develop a Formal Talent Management Process • Modify Staffing Process to Select for Attitudes and Skills for VO Environment • Partner with State Agencies to Increase Diversity Including Homebound and Remote Locations • Continue to Improve Learning and Development • Create a Learning Architecture for a “Virtual Organization” • Continue to Enhance Technology Training and Support • Continue to Bring in Applications to Support Creating a Virtual Organization Infrastructure • Continue Process Projects Essential to Doing the Work • Expand Approaches to Rewards and Recognition • Use High Performing Studies to Achieve the Next Level of Performance • Re-evaluate Current Ratio of Employees to Supervisors in VO Organizations

26. 7.0 Next Steps to Implement Recommendations Revise and communicate the Virtual Office strategy to the entire organization through a series of top down meetings • Virtual Office or Virtual Organization is the AHCCCS model • Expectations to move to a form of Virtual Office • How the strategy is enabled through this organizational business model • Measurement focuses on identifying the few key measures • The need for continuous improvement as a survival strategy • Different models for going virtual (VO, hotelling, mobile worker, telecommuter, etc.) Create tool for leaders to help expand Virtual Office by helping them in • Identifying groups with potential to move & provide various AWA models • Identifying how to develop performance measures for staff and operations positions, • Developing the business case to forecast opportunities and impact AND report actual results • Forecasting productivity and quality improvements for the following year Modify the process for collecting business impact and performance results • Collect actual results as well as normalized results • Report year over year improvements • Include productivity, quality, absenteeism, turnover and costs Establish a state-wide group of resources to support all agencies Design a Talent Management Process • Identify capabilities for leaders, managers and supervisors • Develop a talent management and development process integrated with performance management

27. Next Steps to Implement these Recommendations Modify staffing process to ensure selecting for right attitudes and capabilities for the future and increase diversity of the workforce • Define future capabilities • Revise staffing interview process • Partner with other state agencies to increase diversity remote, disabled, and older workers Develop the Learning Architecture Model to be the basis for Learning and Development in the organization • Blend of content on the intranet, live virtual classes with Microsoft Meeting • Development of skills through application projects and experiences • Create one-page picture of the approach, expectations, and eLearning system Design workshops needed to realize recommendations (Coaching for Continuous Improvement, Using Measures for Continuous Performance Improvement, Working in the Virtual Office, Managing in the Virtual Office) Identify groupware that can be used to support communications, knowledge sharing Expand approaches to rewards and recognition • Identify a range of rewards and motivational approaches • Create rewards and recognition document and tools Complete internal best practices (high performing groups) study • Identify specific best practices within AHCCCS in high performing groups and individuals • Identify practices to be moved to other groups to continue to improve performance

28. 8.0 In Conclusion • AHCCCS took a strategic and systematic approach to the trial and evaluation of VO as a key move to improving the performance of the organization for the long term • The pilot and rollout have demonstrated VO can add significant value to their stakeholders and improve performance of the Agency • Productivity improvement ranged from 10 to 40% • Error rates reduced up to 90% • As a result of this project the organization has built various best practices • There is an opportunity to systemize the knowledge and best practices to ensure continued improvement in performance and value creation • There is an opportunity to further improve performance and create value by expanding VO within the Agency and to other agencies in Arizona • There is an opportunity to collect actual impact on results with a business case/pilot approach to data collection • There are various enhancements needed in the various components of the organization to enable the full benefits of Virtual Office and other Alternative Work Arrangements … or to move ultimately to a Virtual Organization Model