Transforming Your Customer Experiences in a Lean Environment

Toyota Motor Cars, Toyota Production Systems, and Taichi Ohno have nearly perfected lean manufacturing techniques.

TPS has been in constant pursuit of perfection since the concept of lean was introduced by Sakichi Toyoda of the Toyoda Automated Loom Co. Toyota Motor Cars came out of Toyoda’s desire to automate processes and improve things along the way. W. Edwards Deming of MIT improved on this by adding his statistical approach to quality control and management philosphy shortly after World War II ended. The guiding principles behind lean have always been to eliminate waste, and improve flow by identifying what adds value to a product, and what doesn’t.

What Are Examples of Value?

An example of value for Toyota Motor Cars and its customers is the physical transformation of raw materials into a single structure that becomes an automobile. The transformation, and therefore value, takes place by bending, stamping, forging, and painting multiple components and raw materials into an automobile. It is the bending, stamping, forging, etc. that customers are paying for.

What Then Is Waste?

Waste, “muda” in lean terms, on the other hand, can include things like the excess movement of the automobile from location to location before the product is finally delivered to the customer. It also can be unnecessary steps or time spent in sales and service processes that add no value to the final product you are delivering. While some muda may be necessary, anything that is excess waste can be identified and thereby eliminated by careful analysis in a process called value stream mapping.

The Value Stream Mapping Process

VSM is a mapping process whereby the entire value stream of a product is put on paper in a map format and evaluated in its entirety. The process of VSM begins by going to the place where the work is done (the “gemba”), and analyzing the process and flow of raw materials from the day they come into being until the day the finished product is put to its intended use. By mapping out a current and ideal state value stream, we’re able to better see what steps in the process truly add value – the the transformation of raw materials for example – to the customer experience, and which ones don’t. When muda can be identified and therefore eliminated, and flow improved by better seeing the value stream, it improves the customer experience.

The Value to Others in the Value Stream

Improved value streams lead to greater efficiency, higher inventory turn ratios, and greater stakeholder equity.

Toyota has demonstrated this year after year by maintaining some of the highest inventory turn ratios and profits in the automobile industry. They also have some of the most engaged employees in the industry, and don’t resort to layoffs when the chips are down. Toyota believes its most valuable asset is employee engagement. After all, underutilization of talent is one of the seven deadly forms of waste that Ohno taught others how to identify and eliminate.

Risk Management and Insurance in a Lean Environment

So, what does this have to do with risk management?

We get things done timely, have beautiful proposals, have numerous markets, and offer a wide selection of products at a competitive price.

We issue certificates accurately, offer online education libraries for our customers, conduct safety and claims reviews each quarter, and have a certificate tracking process in place that is terrific.

Lastly, our revenues are growing consistently with our competitors.

Sound familiar?

Since insurers in the middle- to upper-middle market gave up the ghost on helping end users identify, reduce, and manage risk, much if not all of that responsibility has fallen on the agency system. Agency principals and brokers (traditionally trained insurance sales people, not risk managers) were not prepared or sometimes even trained in how to deal with the onslaught of risk identification processes additional customers demanded because of their particular business.

Because of the financial commitments a risk-based reduction model was assumed to require, and the agency resources necessary to support risk analysis based training, risk reduction strategies had to be put on the back burner.The commoditization of an industry took heed. In addition, during this commoditization period the ability of insurance purchasing agents to get data more rapidly on their own unique risks only exacerbated the insurance professional’s problem.

Because of this shift, agency principles began competing more on price to acquire business, and focused less on the underlying cost drivers behind the client’s total cost of risk (TCOR). This death spiral of chasing price has had the long-term impact of creating the commodity mindset of an entire generation of brokers and purchasing agents making agency and insurer selections today. It’s the hamster wheel effect everyone is on, but can’t or won’t get off.

Yet when you see the research on the satisfaction levels of insurance purchasing agents – CEOs, CFOs, etc. – few of them admit that everyone is contributing to the commodity mentality because few think differently about the value stream of the customer, or how to fix it. Commoditization of the insurance transaction has done little to reduce TCOR, and often times actually drives TCOR upward because of poor risk identification processes, gaps in coverage, or inferior claims handling by poorly trained, but inexpensive adjustors.

What Do We Need to Do to Fix It?

Let’s begin by getting together a few of our higher level steps and processes in the insurance agency current state value stream.

The Current State Value Stream

• Secure prospect information
• Contact prospect to meet
• Meet prospect
• Agree on markets, disagree on agency or producer value
• Compete anyways (red light or not, Katie bar the door we’re going in!)
• Gather data (loss runs, copies of policies, lease agreements, etc.)
• Conduct basic risk analysis of account
• Safety walk
• Market account
• Negotiate with insurers
• Secure quotations
• Deliver quotations in a nice proposal
• Get rejected on initial request for BOR
• Go back and ask for a BOR when proposal isn’t good enough, or cheap enough
• Propose your best solution
• Win some, lose some
• Certificate the process when successful
• Conduct claims reviews twice annually
• Present experience rating forecast and budgeting discussions for renewal

This is not intended to be an entire list of all of the actual steps in your current state value stream and some agencies have certainly eliminated some of the steps listed above. The list however does give you some idea of what a current state value stream looks like in an insurance business.

What Are You Trying to Accomplish?

What is the product you are delivering? Is it simply a risk financing transaction, or is it a risk analysis and TCOR reduction strategy, or a combination of both? Which processes add the most value to your customer’s product? Which steps in the process are not adding any physical value to what you are promising to deliver to your customer? Which ones are necessary muda, and can and should be improved upon? Which steps can or should be eliminated because they waste valuable agency resources and time spent not adding value to the physical product customers are purchasing? Remember my discussion and comparison of the transformation of materials into an automobile (value), versus the excess movement (muda) of the automobile from location to location?

My viewpoint is that time spent by staff, producers, agency principles, and others is truly being wasted trying to outguess our competitors, out proposal them, out technology them, and under-price them because of market selection. It is not focused on transforming the raw materials into a finished product that our clients are paying us to transform.

What Can We Do?

What if we studied this problem, created our own current and future state value stream and implemented more lean concepts, by eliminating more muda, and removed unnecessary steps in the sales and service processes? What if we then re-deployed with the cost savings from the process improvements with new strategies that specifically embraced the concepts from the lean environment to better focus our efforts only on resources that improved the customer value stream (think TCOR)? What could that look like for the customer and therefore agency profitability?

What Lean Is Not

In the world of insurance, lean is not a strategy to cut services or reduce staffing levels. Lean is built on the premise that employee engagement is the solution to identifying muda and improving flow. In fact, if your agency is in such disarray that staffing levels must be cut, you may wish to study the lean concept of “kaikaku,” which is the equivalent to radical improvement in production, or manufacturing capability. It parallels the term of “kaizen,” which means small step improvements. While our overall industry is in drastic need of kaikaku, your agency may not be.

When to Consider Lean

Lean should only be considered when an agency is poised to grow, but has had difficulty getting out of its own way in terms of increasing profitability because it lacked or didn’t want to commit additional capital to add resources that would directly benefit the product the customer is paying for. Value stream mapping is a method for identifying muda within the current operating environment to increase value to the customer’s final delivered product.

What Lean Can Do for the Insurance Brokerage Community

Through the implementation of lean concepts, and understanding the VSM process, we can find new ways to identify and eliminate muda, and improve flow within the agency system. Doing so establishes a unique presence in the customer’s mind leading to more actively engaged executives who are more apt to work closer with you to reduce their company’s overall TCOR.

Because of this, agencies that embrace lean will become uniquely branded in their client’s eyes leading to increased referrals from C-suite executives, and less time spent chasing deals that add little value to the customer experience. Eliminating muda and improving flow allows agencies to grow using existing resources to increase their brand’s visibility.

Lean is a different hamster wheel than the one you’re on now and I encourage you to pursue it. I always wanted to be lean, don’t you? Perhaps this new hamster wheel will help.