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When Herb Allison took the helm at TIAA-CREF (Teachers Insurance and Annuity Association of America - College Retirement Equities Fund) in November 2002, the former President and COO of Merrill Lynch encountered an organization focused on its primary product, the largest private pension fund in the United States. Founded as TIAA in 1918 to help academics avoid poverty after retirement, TIAA-CREF had grown to a Fortune 100 company, managing over $260 billion in assets for 3.2 million participants. However, for a company with so many assets and so many individual customers, TIAA-CREF was not well known. It had limited direct contact with its customers. Allison observed, €œIt was like a big factory with a tiny store in front.€?

TIAA-CREF's "storefront"? had become increasingly important with the sweeping changes in financial services and pension markets in the preceding decades. At the time of TIAA's founding, pensions were relatively passive instruments generally managed by employers. But since the 1970s, pensions and other long-term investments were increasingly under the control of individuals, prompting financial service companies to intensify their marketing efforts and increase the breadth of offerings in order to gain management of those assets. As the new century unfolded, individuals confronted a bewildering array of choices. They had seen how some funds could bring high returns, while others collapsed amid scandal.

TIAA-CREF reacted slowly to the trend toward greater customer choice and service. By 2003, more customer-oriented financial service firms had made significant inroads into TIAA-CREF's base. Where once TIAA-CREF had a near monopoly on campuses, now 83 percent of its largest institutional customers offered competing vendors like Vanguard and Fidelity. Seventy percent of TIAA-CREF's assets were with participants who were fifty or older and would move into payout stage over the coming 15 years. Potential participants, particularly those entering academia from the private sector, had never heard of TIAA-CREF and found its limited offerings uninviting.

TIAA-CREF's Boards of Trustees had given Allison a charge to transform the organization to make it more customer-focused. Upon taking over, Allison organized six employee teams to take a hard look at every aspect of the company and to make recommendations. In a feverish six months, the teams amassed a mountain of data and presented a series of bold and controversial options. Now Allison and senior management had to make recommendations to present at the July 2003 strategic retreat of the joint boards. He had to decide which options would maximize TIAA-CREF's competitiveness, as well as evaluate how much change this "sleepy" organization could absorb.

Published Date: 23/10/2006

Suggested Citation: Jean W. Rosenthal, Jaan Elias, K. Sudhir, and Joel Podolny, " TIAA-CREF (A)," Yale SOM Case 06-015, October 23, 2006

Keywords: Customers, Equities