Almost 30 years ago, I sat in a large carrier meeting, in an upscale hotel meeting room. The company had brought 20 or so people together from their offices around the country in multiple divisions to discuss “The Next Big Thing.” The speaker spoke as an apostle, delivering the message from the Ivory Tower. His sermon was absolutely one of the stupidest management sermons I have ever heard. He said that the carrier now had a full and complete understanding of what Dr. Edward Deming meant, what Six Sigma meant, and the company was going to quit measuring performance.
Absolute proof of complete egotistic ignorance. I honestly doubt he’d ever even read Dr. Deming’s books. Dr. Deming wrote extensively regarding the need to carefully and constantly measure every meaningful performance metric available. Following World War II, he tried to teach U.S. manufacturers the importance of this, but they ignored him. He went to Japan where the auto industry drank up his message and developed a successful culture around quality performance. The U.S. auto industry felt the pain of their egotistic approach. Companies fell apart and only by grace have others with the same level of ignorance not fallen by the wayside too, including many agencies.
The confusion between the speaker and Dr. Deming’s message regarding measuring everything has to do with progress. He emphasized measuring progress whereas most corporate cultures think of measuring against some kind of industry benchmarks. It is a total ego centric approach: “I just need to be better than average” versus “I am never perfect and therefore, I need to keep progressing.”
My competition is myself. I have the ability to continually improve. If a person plateaus at sales that are three times the industry average, then against the benchmark, they are stellar. But do they have room to improve? Absolutely.
Measuring oneself against best practice metrics is just silly from a different perspective too. Different companies and different agencies have different practices, different priorities, different settings, and lots of different factors that are not automatically interchangeable and do not get entered in the algorithm measuring performance. Therefore, what works for one will not work for another, and the comparisons are not close to apples-to-apples.
Do not get me wrong, I understand how seductive aspiring to outperforming one’s peers can be. All the way through youth sports, kids are taught to just beat the other team. People grow up being cheered for having competitive personalities. The aspect I love most about the X Games is their emphasis on always progressing, because in today’s ultracompetitive world, simply being better and then resting on one’s laurels is suicide. Focusing instead on just being better each and every day is a far more successful culture.
Progression is so simple, so logical and so incomprehensible though to the insurance industry. Here is a simple example of just how badly the industry has abused the entire concept of “Best Practices.” Agencies purchase best practice metrics, but where are the “practices?”
Metrics are not practices! To take a set of metrics and apply them presumes all agencies have exactly the same practices — the same percentage of personal lines, commercial lines, surety and benefits, the same socio demographics and the same everything — and therefore, all agencies should be able to achieve the same metrics. Practices are not metrics and metrics are not practices. Do not be fooled.
In my 30 years in the industry, the industry has made almost no real progress in understanding the basic concept of continual progress. The simplistic, almost religious, need to find meaning in excessively basic, one dimensional numbers floating free of any tether to practices keeps agencies and companies from achieving their full potential. It keeps them from delivering higher quality consumer experiences.
A simple agency example is the agency that advertises their best practices award or their top 50 position but has disappeared hundreds of thousands of trust monies and no one has called them out yet. Surely, best practices does not include failing a fiduciary responsibility, does it? Practice vs. metric. They are not the same.
A less nefarious example is the revenue per person metric. Take two agencies: One does a lousy job of reviewing renewals and one demands all renewals be remarketed. In best practice metrics, the former will be a celebrated hero and the latter will be a goat. Neither has quality practices but only one metric is being used. The entire scene is a comedy.
This comedy explains why, when actually tested, revenue per person proves to be meaningless. I have tested the correlation between revenue per person and the publicly traded brokers’ results for the last 10 years. In statistical terms, the correlation is that of a blindfolded man throwing darts while standing on a revolving platform. The darts land randomly, and so is the correlation between profitability and revenue per person. I have tested different sets of publicly available benchmarks. I have tested my own private database. Revenue per person is not correlated with profitability.
Doesn’t it make more sense to first create actual best practices in the sense of high quality procedures specific to the organization? Next, doesn’t it make sense to use metrics that consider multiple perspectives instead of one (revenues per person is a one-dimensional perspective)? In other words, tie practices to the metrics, then measure progress and improvement.
A large percentage of agencies I have met or with whom I’ve consulted that achieved fast growth did so by questionable means, including cheating (customers not really getting the coverages they thought they were getting, though cheating might be too harsh a word), fraud, rebating and other unsavory practices. While not unethical, many also made no profit. Why measure growth without also measuring profit and vice versa? At least make benchmarks multi-dimensional. Doesn’t it make sense to use benchmarks that show an agency it has to sacrifice profit for growth and vice versa (which is generally quite true), rather than blindly thinking the agency can have it all?
Metrics tied to practices tied to consistent progress is what matters. Doing so prevents stagnation. Doing so when everyone else focuses on useless metrics means you will eventually outperform everyone without them having a clue what you are doing. Doing so creates flexibility in a fast changing marketplace where profit compression is coming hard and soon.
We have built three-dimensional practices and metrics with which an agency can implant upon their unique characteristics. Contact me, and we can begin the path of continuous improvement.
Was this article valuable?