Deming's Point #7 as Applied to the Insurance Industry

October 2005

Dr. W. Edwards Deming's seventh principle is: "Adopt and institute leadership." He distinguishes leadership from management in a manner similar to his distinction between education and training in Point #6. Both distinctions are critical to the insurance industry in today's challenging times.

by John Pryor
Kern Insurance Associates, Inc.

Dr. Deming's Point #7:

In his more recent book, The New Economics for Industry, Government, Education (MIT, 1994), Dr. Deming expands on leadership in Chapter 5:

• … the job of a leader is to accomplish transformation of his organization. He possesses knowledge, personality, and persuasive power. How may he accomplish transformation? First, he has theory. He understands why the transformation would bring gains to his organization and to all the people that his organization deals with.

• Second, he feels compelled to accomplish the transformation as an obligation to himself and to his organization.

• Third, he is a practical man. He has a plan, step by step, and can explain it in simple terms.

• But what is in his own head is not enough. He must convince and change enough people in power to make it happen. He possesses persuasive power. He understands people.

Organizational Transformation

The notion of organizational transformation has major implications in today's insurance industry. In his recent address to (admonition of?) the 2005 annual meeting of the Risk and Insurance Management Society (RIMS), Willis Group Holdings Ltd. Chairman and CEO Joe Plumeri concluded his comments by saying:

• Addressing the concerns of regulators [Eliot Spitzer, et al.] is not the end, as something we put behind us. Rather, it must be about putting our traditions behind us and beginning a transformation of how we operate that elevates our clients' interests, advances openness, spurs innovation, improves service, and—most important—delivers value based on true relationships.

I can't help but think that that Dr. Deming would say "Bravo" to this conclusion. This clearly is a leadership role and a leadership perspective Plumeri is describing.

As important as are the notions of "continuous process improvement," lean Six Sigma, minimizing variation, along with all the other highly important applications of quality principles, each is essentially a management function. Management functions evolve out of leadership's vision. It's leadership vision that helps management produce the envisioned transformation required.

Mr. Plumeri focused on three principles:

1. Client advocacy
2. Transparency
3. Innovation

Each of these management functions leads to "delivering value" through the insurance industry's systems and processes of manufacturing, distribution, and service. Yet, none of these management steps will be effective without first being envisioned at the leadership level. Moreover, as Dr. Deming says above, "… what he has in his own head is not enough. He must convince and change enough people in power to make it happen."

The Power Dimension

Power is a fascinating dimension of any organization. Obvious to all is the misuse of corporate power that has led to the tragedies of Enron, WorldCom—and perhaps even what some in our industry have characterized as the Greenberg "family tragedy."

Lord Acton's famous words of wisdom that "power corrupts" no doubt ring in your mind as you think this through. Yet many will say this is only a half truth. Leaders emerging into a position of power may use their power wisely, positively, and ethically—or corrupted people can seek, and achieve, power. This notion says a lot about our country's selection process for those in leadership roles, in both public as well as private sectors.

Leaders blinded by their power and might are legendary. French king Louis the Fourteenth is quoted to have said, "L'etat, c'est moi." "I am the state." This is an example of the remainder of Lord Acton's quote: "… and absolute power corrupts absolutely."

On a more mundane basis, I continue to be impressed by the inevitable convergence of leadership, ethics, and quality. This convergence has been addressed by others. However, I'm unable to find it addressed in any manner in the Institutes' (AICPCU/IIA) curricula or in the offerings of the CPCU Society's National Leadership Institute. Each element continues to be treated individually rather than as an integrated methodology for knowledge and discipline.

Former CEO of Hanover Insurance, William J. (Bill) O'Brien, said it very well, "Power is one of those rare commodities that, the more you give away, the more influence you actually retain." Much more can be said about leadership. Volumes are available for all to read and digest.

It seems to me the solution to our industry's crisis of leadership and ethics may ultimately rest within each of us, regardless of our position or role in our profession. Bill O'Brien said it very well before his recent passing, "Do not confuse leadership with position in the pecking order."

Dr. Deming, I think, would concur that leadership emerges at all levels. He says as much in Point #7: "The required transformations of Western style of management requires that managers be leaders."

It's in this realization that I have a strong hope for a positive outcome on the part of our industry—once current challenges and allegations are behind us and we shall have moved on to practice what Dr. Deming has taught.

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