Deming's Point #6 as Applied to the Insurance Industry
July 2005
Dr. W. Edwards Deming's sixth principle is
"Institute training. Training must be totally reconstructed." In his description
of this point, Dr. W. Edwards Deming draws a strong distinction between training
and education.
by John
Pryor
Kern Insurance Associates, Inc.
This point is not to be confused with his point #13: encourage education
and self-improvement for everyone. Dr. Deming explains the distinction is as
follows.
We've also learned through insurance and risk management courses offered
by the Institutes (AICPCU/IIA), there is indeed such a distinction. Even though
expressed differently than Dr. Deming, it's not inconsistent or contradictory
with his above statement. In the simplest terms:
- Training tells us how to do something.
- Education tells us why we do what
we do.
New Employee Training
The Institutes have a vast array of training programs for new employees.
Beginning with their very basic course entitled "Insurance Essentials," the
Institutes offer the following "Intro" courses.
-
Introduction to Property and Liability Insurance
-
Introduction to Underwriting
-
Introduction to Claims
-
Introduction to Risk Management
These are highly appropriate for new employees with little or no background
in insurance and risk management.
Management Training
What's especially fascinating about Dr. Deming's description of training
is his emphasis on management training.
Here's how he characterizes this need:
- Management needs training to learn about the company, all the way from
incoming material to customer. A central problem is need for appreciation
of variation. [More on this later.] … Training for a job must teach the customer's needs. [Emphasis mine.]
Senior management admittedly needs to be highly strategic—not operational—yet
they still need to understand the intricacies of operations. To increase innovation
and minimize variation (errors and defects), all 14 of Dr. Deming's principles
need to be employed. That's one reason some refer to his teachings as Total Quality Management (even though Deming
himself did not use this term).
The Importance of Ethics
What is also fascinating about his emphasis on training at the management
level is the current episode of alleged ethical breaches and illegal practices
of a few within our industry. Some will question where ethical training to avoid
this kind of outcome should take place—in our home, church/synagogue, school,
or place of work.
No one will debate the importance of ethics training as part of our upbringing
in our individual families. However, that's not to say such training should
not also be part and parcel of management training and new employee training.
Principles of ethical and customer-focused practices should be integral elements
of an organization's culture.
If the notion of customer focus were fully integrated into an organization's
culture as well as in its systems and processes, it would be much less likely
that bid rigging and account steering practices would occur—even by a few "bad
apples."
I have to ask: Where were the "whistle blowers"? Perhaps these breaches were
so isolated that whistle blowing isn't a reasonable expectation. Or perhaps
it's a situation similar to that of a safety director of a multistate irrigation
company I met with recently. He previously was with an energy company in the
southeast where he "refused to revise the numbers," as he put it. To avoid ethical
problems—or worse—he simply resigned and joined his current employer in California
where integrity and ethical practices are highly visible—and an overt part of
their corporate culture.
But as current Geico auto insurance ads on TV and radio about eliminating
the middleman—me and my broker/agent colleagues—comment, "I digress." Back to
the basic issue of management training.
Broad-Based Management Training
The executive training programs of the Institutes at the Wharton School in
Philadelphia represent an outstanding opportunity for management education;
however, they do not address what it is Dr. Deming is describing. He uses a
Japanese example to illustrate what American managers need:
- A person in Japanese management starts his career with a long internship
(4 to 12 years) on the factory floor and in other duties in the company.
[S]he knows the problems of production … works in procurement, accounting,
distribution, sales.
I suspect this broad-based practice in management training is more prevalent
in U.S. business today—including in the insurance industry—than when Dr. Deming
originally penned this observation. Yet I also suspect there's still room for
"continuous improvement."
The Value of Measuring Variation
Appreciation for variation is a simple, yet complex, notion. The current
popular version of quality practice is what Motorola entitled—and what General
Electric (GE) pretty well perfected: "Six Sigma" Quality.
In brief, this means all processes and systems shall be designed to permit
only 3.4 defects (variations) per million opportunities. Admittedly, most of
our insurers, brokers, and others are not producing policies, paying claims,
auditing payroll, etc., at this near-perfect level of performance.
Even GE insurance subsidiaries are reported only to be at Four Sigma (6,210
defects per million opportunities). So there's lots of room for continuous improvement
(CI is one of the major goals of Deming disciplines).
At the same time, GE people are quick to report that their division building
aircraft engines is operating at "Seven or Eight Sigma"—as close to "zero defects"
as anyone can be. They wanted us to be comfortable on our flights home from
the CPCU seminar at which this report was made by a GE executive.
Speaking of "zero defects," this notion was the "clarion call" of Phil Crosby
while he was part of IIT/Hartford Insurance Group and their efforts to continuously
improve the quality of their organizations' output, processes, and systems.
His positive impact on our industry is still felt even though he departed this
world a few years ago.
Variation tracking is usually in the form of control charts. I'm sure there
are some in use within the insurance industry—I've just not found any evidence
to that effect. If readers have examples from within our industry of this simple
yet effective extension of a "run chart," they will be highly welcome for future
editions of this series.
The ability to distinguish "common cause variation" from "special cause variation"
is critical to any organization. There is always going to be some degree of
variation in any process or system. The issue is: when should management intervene?
A system is deemed to be "under control" when only common cause variation is detected. It's
when special cause variation occurs, i.e.,
when data points are outside the upper and lower control limits in a control
chart, that management need to intervene and take action.
Why more in management don't use this amazing and vital tool is beyond my
understanding.
Conclusion
Deming concludes Point #6 with a contribution by Dr. Brian Joiner who participated
in a Quality Insurance Congress workshop in San Diego in the early 1990s (where
I was initially exposed to these principles). Dr. Joiner says:
- Money spent on training, retraining, and education does not show up
on the balance sheet; it does not increase the tangible net worth of a company.
Dr. Joiner's implication is clear: Training is an investment. Future returns
on that investment are legitimately expected to be very high. However, this
investment is expensed rather than capitalized in order to be in compliance
with GAAP principles—and probably Sarbanes-Oxley. Nevertheless, that accounting
methodology does not deny the reality—and the importance—of this "investment"
in training.
For new employees and management trainees, Dr. Deming's vision of their training
at the outset of their careers can materially improve their contribution and
success as employees and managers/leaders in the future. Whether or not these
kinds of training alone will prevent ethical breaches or illegal practices is
not the point. But what a great step toward molding and shaping a corporate
culture where these kinds of (wrong) choices would be totally out of the question!
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