Based on ongoing conversations, by and large, most industry executives are becoming a more optimistic group. As optimists, the growing belief is that moving forward from 2012 there will be gradual improvements presenting market opportunities built on a more certain—yet still fast-paced—business-operating environment.
What this should mean to senior executives, and operations leadership in particular, is a need to expand focus from market-share retention and maintenance of static or incrementally lower expense ratios to include a more aggressive, comprehensive approach to achieving operational excellence. That value proposition has elements formally or informally embraced by nearly all companies, but its comprehensive adoption has become more urgent for all companies. This is because of the painstakingly slow pace of the economic recovery.
As you prepare to again make optimal use of your managerial muscles, exploring the development or purchase of market-differentiating capabilities, it's worthwhile to pause briefly and consider the state of your operations' fundamentals. Sustained excellence in nearly every field—sports, construction, the arts and the military, to name a few—necessitates sound fundamentals before higher-order expertise and capabilities can be developed. Business operations, whether in property/casualty, healthcare or banking, are no different. There are three questions to ask:
One approach to answering those questions in the affirmative is a 10-step, continuous operations-improvement process. The process begins with vigorous value analysis, exercised under the overarching guidance of clear customer identification, strategies to satisfy customer needs and exceed their service expectations, and an unqualified statement of each function's essential purpose and value proposition—a distilled declaration of why the function exists and a statement of the function's approach to executing its essential purpose, respectively.
The process appears straightforward. Yet, as we all know from management experiences, straightforward does not always mean simple. To assist those charged with managing this process, there are four rules that, if knowledgeably applied, will provide some discipline to the effort and, usually, optimize results.
It's easy to grasp the likelihood of multi-faceted solutions for complex business problems; however, quantifying the sources of benefits and managing expectations are thornier challenges. A useful approach to managing expectations for a generic, multi-issue operations improvement effort is displayed below, highlighting four typical improvement sources and their relative value, assuming an improvement target of 20 percent.
Although there is little doubt that change will continue to be a companion, there are good reasons supporting a cautiously bright outlook. As you develop your improvement plans, be sure to target high-opportunity areas and achievement approaches.
Dave Edwards is a senior consultant for the Robert E. Nolan Company, a management consulting firm specializing in the insurance industry.
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