In an increasingly complex and fluid business environment the need for proper planning is greater than ever. Where do you begin? David Stambaugh provides an outline to move your agency in the right direction.
'I’m farming as hard as I can but I know I’m not farming as smart as I can.' George Nordhaus often makes this statement while discussing how agencies and companies work (or don’t work).
Why are doing things better, faster, and less expensively than the competition so difficult? There’s no simple answer to that question, but here are some things we know. Huge re-engineering efforts fail about 70% of the time. Most large system development projects take longer, cost more, and deliver less than promised. According to Mercer Consulting, '80% of technology projects cost more money than they return.'
Managers often fail to attain significant improvements because they get so caught up in day-to-day issues. They don’t take the time to focus on the future. Most managers prefer overcoming problems one at a time rather than figuring out why problems occur and eliminating their root causes.
We recently reviewed a company’s expense reduction plan. It contained 22 areas of opportunity and 72 action items, many with merit, but it never defined where the organization was going. The plan was just a list of 'activities,' not a vision for the future. This company might get short-term results only to see expenses and waste grow back in a few years.
The following approach offers a better way, and its success rate is extremely high. One cautionary note before we begin: Significant results rarely come from casual efforts. Meaningful, sustainable results require focus, attention to detail, determination, and persistence. Leaders must be willing to abandon what is for what can be. It takes toughness to make unpopular decisions because organizational change is never easy. Restructuring Bill and Mary’s roles and responsibilities is easy. Getting them to accept the change is more difficult.
ESTABLISH PERFORMANCE EXPECTATIONS
First, define expected outcomes. If we don’t set performance expectations, why bother doing anything? We need to set and continually measure the results of our work. You need to continually update people on the score, and whether or not they’re winning the game.
Focus on things such as expense ratio versus reducing expense dollars. We really don’t care how much the organization spends; we care about every dollar and every activity generating revenue or supporting a revenue-generating activity.
CREATE A CURRENT OPERATING MODEL
'We are 100 years past the simple economy in which most people knew what others did at work. Farmers knew what most farmers did, and industrial workers knew what other factory workers did. Domestic servants understood each other’s work, as did the fourth major group: small tradesmen. No one needed to explain. But now nobody knows what others do, even within the same organization. Everybody you work with needs to know your priorities. If you don’t ask and don’t tell, your peers and subordinates will guess incorrectly.' — Peter Drucker, 'The Post-Capitalist Executive,' Harvard Business Review
From multi-million dollar insurance companies to small agencies, there are huge disconnects between what managers think is going on and reality. We live in a state of continuous change. Customer needs and expectations, technology, legal requirements, regulation, competition, products, markets, and distribution systems change what we do and how we do it. People modify what they do to respond to the pressure that change brings. Soon nothing is as it was; yet change happens so gradually that no one notices.
Eventually, no one really knows what anyone else is doing. Every organization has duplication of effort, excessive re-work, and totally unnecessary work. Nobody plans to work that way — but slowly and surely inefficiencies creep into every organization. To keep your operation lean and focused, you need to take a critical look at it about every 18 months.
Once the current model is complete we ask one question: 'Do you want to continue to operate the way you currently are, or would you prefer to adopt a new approach?' Without fail, every company or agency that takes the time to create a current operating model chooses to create an ideal operating model.
THE BUSINESS MODEL
This is a high-level plan that keeps your staff focused on how it chooses to do business. It defines your markets, target customers, distribution systems (multiple distribution systems aren’t unusual), products, services (such as loss control or risk management), risk selection (policy criteria, underwriting, and pricing philosophy), customer service methods, and claims.
The business model provides a tool to guide your organization. It shouldn’t change radically from year to year, but point the way for performance over an extended period. All actions, plans, projects, and objectives must be consistent with the business model. If they’re not, you must change one or the other. Here are some of the subjects that you need to address in a business model:
Industry Analysis — This section examines industry trends, what’s going on and how it’ll impact your business. For example, 84% of the risk managers responding to a recent survey said that the insurance market is hardening, prices are firming, and coverage availability is shrinking. If you’re basing your current model on selling product and price, times are indeed going to be rough. However, if this model contemplates providing more risk analysis and alternatives to managing risk you might be in pretty good shape.
The Economic, Social, and Regulatory Environment — Your plan needs to look at the impact that the economy, social trends such as changing demographics, and regulation have on your clients and your business. Other areas your business model needs to address are:
- Where you choose to do business and have a physical presence
- What products and services you wish to offer
- A description of how you plan to market your products and services
- An outline of your distribution (sales delivery) system
- A definition of the customer service functions that the carrier will do and those that your agency will do
- A financial model of your business
CREATING THE IDEAL OPERATING MODEL
'Most planners ride into the future facing the past. It’s like trying to drive a train from its caboose.' — Russell Ackoff, Professor emeritus of Systems Sciences,
Wharton
School
Virtually all technology applications, total quality management processes, and re-engineering processes try to improve by working away from the current state, rather than working toward a desired state. Although this approach works, the concepts offered by Akcoff are far more effective. Rather than trying to solve problems or improve processes, let’s create an ideal operating model.
'To unleash the power of the new technologies, revolutionary reconception of the entire organization system — tasks, people, relations with customers and suppliers — is mandatory.' — Tom Peters
This model focuses on the performance benchmarks in your business. It must deliver what customers, companies, agencies, and employees consider a successful outcome. It defines processes from first customer contact to final service or product delivery. These processes maximize performance in every aspect of timeliness, responsiveness, quality, and cost.
It shrinks cycle times from weeks to days, reduces multiple processing steps to the essential few, maximizes the use of automated systems, eliminates unnecessary paper, and increases the company’s capacity to provide flexible, customer-driven products and services at less expense.
CREATING THE SYSTEMS MODEL
'The leaders of the 21st century will be those companies who find an optimum synergy between the business strategy and an aggressive and innovative exploitation of the potential of information technologies.' — Unisys Users Association, Executive Committee 'Adding high-powered automation to an obsolete operating environment ... is counter productive.' — Gregory Hackett, 'Investment in Technology — The Service Sector Sinkhole?'
The systems strategy defines a vision of the future that’s consistent with defined business criteria. It provides a consistent set of rules to make system integration and collaboration a reality. It creates a plan for utilizing existing systems and platforms while integrating emerging technology. Most of all, it’s the framework for defining strategic operating solutions. This model integrates systems with staff, customers, and suppliers in a logical way that leverages the power of technology and people.
NEXT STEPS
Models point the way to where you want to be. Now you need to build them by defining the specific actions needed for the operational models and systems strategy to become a reality.
SUMMARY
If your company or agency can accurately paint a picture of how it works today and it can accept the truth without value judgments, it can begin the process that will position it to consistently outperform its competitors.
We live in a rapidly changing, increasingly complex environment in which customer needs and expectations change almost daily. Because of this, the ideal operating model is temporary. You must review and modify it regularly. The long-term systems strategy must build in flexibility and adaptability. Speed and continuity are essential and aren’t mutually exclusive.
'Revolution: It’s a word business people have trouble with, and justifiably so. But our competitive situation is dire. The time for 10% staff cuts and 20% quality improvements is past. Such changes are not good enough.' — Tom Peters, 'Thriving on Chaos'