The best of the blues ... and a whole lot more.

• Author: Johnson, J. Douglas
• Position: Associated Insurance Companies Inc., formerly Blue Cross and Blue Shield of Indiana - Cover Story

How the country's strongest Blue--Blue Cross and Blue Shield of Indiana--became a diversified, $2 billion national insurance and financial services empire

When they write the next TV show with a "good-guy CEO" character in it, there's an Indiana man who ought to be cast as the lead. He looks and acts the part.

Tall, gray at the temples, he has direct, green-cast eyes, a leading-man profile and a sincere, mild, spell-binding voice. He is young for the job, a visionary who motivates his people because they know he cares for them. Of course he would never play the role. Ben L. Lytle (pronounced LIGHT-ul) is a real-life "good-guy CEO" who handles more than $2 billion in assets at The Associated Group on Monument Circle in Indianapolis.

Lytle's company is a tough, convoluted one to get your mind around. It is among the 30 largest health-care insurers in the nation. Its tendrils reach nationwide into every state but Alaska, and it has more branches than a blue spruce. Over the past five years it has re-dreamed itself, so what you knew about it in '86 is undoubtedly way off-track by now.

In 1985 the company sat fat and happy at 120 Market St. as Blue Cross and Blue Shield of Indiana. Since it opened in 1944, it had become the largest health-care insurer in the state. Revenue was $1.1 billion. Assets were $850 million. Employees were 2,800. Its customer base was 1.5 million. There had been some roller coaster rides in the '70s and '80s, but management had placed renewed emphasis on service, a "customer-driven" strategy, that was working among the troops. Earnings had been setting records for the past three years. Various organizations, including The Wall Street Journal, were citing Indiana's Blue Cross/Blue Shield company as the strongest such firm in the country. Maybe this was an ideal moment to call time out for a breather and hit the beach to tan the bruises.

Not so. Management realized this "happy" state was an illusion. The company had topped out. Its field, health-care insurance, is plagued by an annoying problem. It is pounded by up and down business tides that scour the beach every three years. "Nobody has all the answers as to why. We know health-care costs increase at about 5 or 6 percent greater than the rest of the economy. This has gone on for 30 years," Lytle says.

We move to 1986. A gathering of senior executives ruminates around the board room table. At the head are CEO Lloyd J. Banks, President Richard C. Kilborn, who both have since retired, and Ben Lytle, then executive vice president in charge of operations. They reluctantly agree, "Our company has a bleak future." Their challenge is to design a new, five-year strategic plan and write a new corporate mission statement that will thrust the company ahead. The key questions are:

* How do we expand into other lines of business? Diversification can keep us from suffering single-product headaches when things sour. The answer: We must balance our business with insurance and financial products that pay off consistently, regardless of a downturn.

* How do we expand geographically to spread out our profit centers? Downturns affect some regions and not others across the country. If our company units are strewn around, local dips will not be as agonizing. The firm is now 100 percent Indiana-dedicated, but the Indiana market has changed. Health-care costs have shot up and competition is tougher. What was once an auto and steel factory economy with large employment numbers has switched to a service economy with smaller company groups. To spread our profit centers effectively, we need to roll out into growing markets, especially the South and West.

* What should our new name be?

Lytle explains the need for a fresh identity. "Blue Cross and Blue Shield is a national organization that is really a trade association for 73 Blue Cross plans. You agree to certain rules and regulations on how to use...