Dr. W. Edwards Deming confronts my all-time favorite management guru, Peter Drucker, in Point #11.
Point 11 flies directly in the face of Dr. Drucker's MBO—management by objectives—when Dr. Deming says:
Eliminate numerical quotas for the workforce … and for people in management.
Yet in his classic, Management: Tasks, Responsibilities, Practices (Harper & Row, 1973), Drucker seems to understand what Deming is saying. Drucker focuses on outcomes where Deming focuses on the processes that create outcomes—yet Drucker, to his credit, understands the notion of "self-control through measurements." It's my understanding that late in life, Dr. Drucker agreed more with Dr. Deming than with his own earlier writings on MBO; however, I'm unable to find any specific written confirmation of this conclusion on his part.
Here's the crux of the issue:
- Merely setting goals for frontline workers or for management teams is actually counterproductive—especially if there's no plan on how to "get from numerical goal A to numerical goal B."
- It's far better to monitor the system and its processes that produce outcomes. If the system is stable—with only predictable and acceptable variation—it can be continually improved to generate increased productivity. If the system isn't stable, there's no point in setting a goal. Only frustration and lower morale will result.
Focus only on outcomes is reactive. It all too frequently generates the opposite results of those intended.
Focus on systems and process is proactive. It enables adjustments to be made on an ongoing basis to generate increased productivity and fewer defects and waste.
A book about Dr. Deming's intensive four-day seminars entitled, Four Days with Dr. Deming—A Strategy for Modern Methods of Management, by authors William Latzko and David Saunders (Addison-Wesley Publishing, 1995), includes the comment:
We need to change from MBO to MBP (Management by Planning). This focuses on process, not outcome.
In a very recent interview on NBC's Today Show on the first anniversary of Hurricane Katrina, former FEMA Director Michael Brown commented that errors occurred at all levels of government. However, his major criticism (of the system) was the total absence of any plan for response to an event as devastating as Katrina. He added that the federal government had been talking about such a plan for 3 years preceding this event but none ever emerged. Moreover, no funding was provided FEMA during Brown's tenure to draft a plan.
Such a plan would have included a multitude of processes that comprise an overall system designed to produce intended results. As "heckuva job Brownie" quickly learned, having a goal without a plan to bring multidisciplinary and cross-functional processes together to create a disaster recovery system is a condition that could (and did) cost him his job..
Whether your numerical goals pertain to the quantity of new business applications processed, the number of claims closed, or the number of audits conducted, etc., etc., the response is the same, viz:
- Focus first on the underwriting or claims or audit processes—and the quality of their delivery from the customer's perspective—and then it can be determined if productivity is optimum.
It's management's responsibility to be certain that processes and systems are in place to generate the most positive outcomes—in terms of both quality and quantity. However, there's nothing wrong with the practice of previous General Electric insurance subsidiaries where GE Management required each and every employee to continually improve two processes "owned" by each of them each year. (You "own" a process if it's one in which you're personally involved and over which you have some level of control.) Improvement recommendations are then reported to management for acceptance and implementation. You can easily imagine the extensive impact of the companywide accumulation of these process improvement efforts!
Speaking of GE, that company's success continues beyond the leadership of former CEO Jack Welch through use of what is now called "Lean Six Sigma Quality." Here you will find the same principles advanced by Dr. Deming even though in a somewhat different format in which Green Belt and Black Belt trained employees oversee and assist in the continual improvement of processes and systems.
Documented results include:
- Reduction in operation costs and increase in revenue—usually to significant levels.
- Elimination of non-value added steps (waste).
- Increase in productivity.
- Increase in customer satisfaction.
- Increase in employee morale.
Any manager can implement these disciplines within his/her department—if a company's CEO isn't (yet) a "true believer" in Lean Six Sigma Quality. Moreover, staff members don't necessarily need to have Black Belt certification. The less intensive Green Belt training can be sufficient and is highly recommended. For introductory purposes, there are usually offerings on a one-day basis of "White Belt" training. At the very least, this will help you understand the requirements and benefits of this kind of change in your company's (or department's) corporate culture.
At the same time, the following books are recommended for further study:
- Six Sigma Beyond the Factor Door
- Leading Six Sigma
Both are authored by Ronald Snee & Roger Hoerl and published by Prentice Hall in 2005 and 2003, respectively.
Although it has nothing directly to do with Point #11 and system or process improvement, by implication it has everything to do with these disciplines. What I'm alluding to is the recent J.D. Power report on personal automobile insurance ratings—from the perspective of the consumer.
Two insurers stand out—"head and shoulders" above all other players. Much to my dismay as a former broker (for 45 years), each of these two insurers is a direct writer. Not only do they outstrip the performance of agency companies, they also outperform the captive agent insurers such as State Farm, Allstate, Farmers, et al. They are Amica Mutual and USAA. The question is: What are they doing differently than all the rest of us?
I'm told anecdotally that each is committed to Quality in one or more of its forms—whether the basic Deming principles or the more contemporary Lean Six Sigma—or something in-between. I'm told they have a significant number of employees who have completed the Institutes' Quality improvement course, AIS-25—Delivering Insurance Services. However, this is all anecdotal.
It would be interesting to go beneath the surface of the J.D. Power report to determine to what extent continuous process improvement—including significant customer focus and listening to the "voice of the customer"—would be found. RIMS has been making this kind of effort on the commercial side of our industry in recent years.
Yet, in the good tradition of "root cause analysis," do we really know why and how certain insurers and brokers are "set apart from the pack" in such a dramatic manner?
This was the intention of RIMS a few years ago with their Quality Scorecard. Data sets were converted to scatter charts. The charts clearly indicated a couple of insurers were isolated well out in front of all others in terms of excellence. The charts also clearly indicated a couple of insurers who were well isolated behind all others in this regard. Of course, most were clustered around the center—otherwise known as "average" in their performance. Those in the lower quadrant of the scatter chart where assigned the more traditional grade of D or D-minus.
RIMS and the (former) Quality Insurance Congress (QIC) paid a heavy price for this daring declaration. The QIC lost its essential insurer funding and is no longer in existence. More recently, RIMS has responded well with a more moderate effort that I hope isn't too "watered down" to be of value. It more clearly defines the reasonable expectations of risk managers of their brokers and insurers than did the Quality Scorecard.
The question remains: What are the high performers doing differently—and what can we learn from them? There's no panacea, of course, but Quality disciplines—as part of any organization's corporate culture—come very close.
I've long believed there's a strong correlation between three converging forces in any organization: quality, ethics, and leadership. If these three values and skill sets are inculcated into an organization, its competitive posture in the marketplace for its products and services—as well as for its employee recruiting—will be greatly enhanced. Lack of any one of these "legs of a three-legged stool" will adversely affect outcomes and numerical goals.
For the quality dimension of this convergence, I encourage readers to look into the Institutes' AIS-25 program—Delivering Insurance Services. It's a one quarter (or one semester) course that will change lives and transform organizations with enhanced results—in whatever manner those results may be numerically measured!
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.