Management for the 21st Century

By | March 11, 2002

What ever happened to Total Quality Management (TQM)? Was it a concept that ended up on the trash heap of old management thinking?

TQM has been around for a long time and will continue to be around for a while longer. It is a structured system for satisfying internal and external customers and suppliers by integrating the business environment, continuous improvement and breakthroughs with development, improvement and maintenance cycles while changing organizational culture. Phew!! Is that clear??

But does TQM apply to the typical insurance agency, and if so, how? Everyone can and should implement TQM into their business. To avoid sounding like an MBA geek, instead of TQM let’s call it GBS—Good Business Sense.

The new consumers
Consumer sophistication is greatly expanded today. The typical insurance customer demands more-for-less with higher quality. The Internet is a large factor to this trend. Customer-oriented management is part of GBS.

Due to the costs of producing and servicing an account, the average agency needs to retain an account for three to four years to earn a profit. Agencies with superior customer service have account renewal virtually guaranteed. Find out not only what the customer needs, but also what they want you to do for them. This will also mean expanding into non-traditional areas for the typical P/C agency. Since financial institutions are getting into insurance, it makes sense for insurance agencies to enter into financial services.

Quality and the end result
Faced with declining profits, the hard market condition and competition from new sources, agency owners need to discover the advantage of quality. But even when the commitment to quality is made, the question remains: How do we translate our goal of quality to results?

Quality is not checking policy forms for errors or excessive documentation to avoid E&O claims. Quality is a thought process that everyone must develop. It means focusing on the end result. Keeping the end result in mind as a task is performed will open any mind to more innovative approaches to improve a process. The end result insurance agencies must focus on, is satisfying existing clients and attracting new customers. Each day’s decisions and actions must be made with this end result in mind.

So how does this all fit into an insurance agency? GBS is very simple. Out with the old and in with the new. The old management techniques used deductive thinking (define the problem first then seek the solution). The new techniques use inductive thinking (recognize solutions first then seek out problems to solve).

Practitioners of GBS have incorporated the following four principles into their business model:

Synergistic Relationships: It’s very important to understand how quality and customer service translate to practical information. To do this, the definition of a customer needs to be expanded. A customer is anyone who receives the firm’s product. An organization must focus, first and foremost, on its suppliers and customers. In a GBS organization, everyone is both a customer and supplier.

In the case of a CSR, not only is the person purchasing an insurance policy a customer, the underwriter who is sent the application is also a customer of the CSR. Producers should treat prospects, underwriters, claims people as well as the CSRs as their customers. This concept does not need to be complicated; just list the people who receive any of the firm’s end products, and they are the customers. Service them well and they will be kept satisfied. Employees must believe they work for their customers and not their bosses.

Continuous Improvement and Self-Evaluation: The second pillar of GBS is that everyone in the organization must be dedicated to continuous improvement, personally and collectively. One technique to implement this principle involves an increased emphasis on training, “quality circles” (in which everyone involved discusses ways for improvement), research and communication (with clients—old and new—underwriters and company representatives).

Often, the difference between happy and unhappy people is that happy people mostly evaluate their own behavior and constantly attempt to improve what they do. Unhappy people (read: employees), mostly evaluate the behavior of others, and spend their time criticizing, complaining and judging in an attempt to coerce them into “improving” what they do. GBS, therefore, concentrates on developing happy employees.

Understanding what motivates each employee is critical. Often time off is more important to people than more money. The effective use of bonuses means more than promotions. Contribution to the firm and customer service performance should be the criteria to evaluate employees. Develop compensation plans based on an employee’s efforts to increase productivity and profitability and improve customer service.

Institute incentive programs. Give a paid day off to the employee of the month. Take top producers and their spouses out to dinner. Everyone wants to be recognized for doing an excellent job. Management’s job should be to find out what forms of recognition employees most appreciate.

A System of Ongoing Processes: The third pillar of GBS is that the organization must be viewed as a system, and the work that people do within the system must be seen as ongoing processes. In general this principal means that the employees are less to blame for failure than the system in which they work. This is not to say that there are no bad employees—of course there are.

The goal of quality is to work on the system. It must be continually examined to identify and eliminate any flaws in the processes that might allow its participants to fail. Once a good system is developed, the average employee can excel.

Allowing personnel to handle a wider variety of tasks by using teams will simplify processes. Quality is a result of teamwork not individual effort. Teams break down the need for the artificial separation of labor called departments. Firms that utilize teams require less management. Producer units can be the nucleus of a team. However, pay attention to ensure the producer units do not become firms within a firm. If, for example, a CSR is reluctant to help another producer when someone is out sick, this will destroy any team spirit.

The new model for an agency should be “a complex job for smart people.” Continued education over the lifetime of a job should be the norm. Producers need to work as if they are underwriters. CSRs need to understand the claims process. Bookkeepers need to think like owners. Everyone must be sales-oriented.

This does not mean the producers should be doing the filing. Tasks should be stratified and performed by the lowest paid qualified person. Employees, however, must be well trained and should know what information is needed in order to best service the client, even if that information may fall out of their job scope.

Leadership: The fourth TQM principle is that the success of GBS is the responsibility of top management. The leaders (the agency owners) must establish the framework in which the employees can best achieve their potential.

Agency owners need to be creative in their association with their employees. Firms that allow the employees to act as entrepreneurs and share in the growth of the firm will generate creative thinking and new ideas.

GBS starts when the agency owners understand the direct service work of their organization. “Management by walking around” is a useful way to stay in touch with the staff and their needs. Also, the golden rule is to always practice what you preach; the owners must use GBS on their own processes.

Meet frequently with middle managers regarding their personal efforts to use GBS. Build analysis into the culture—”stop and think about how we work.” Constantly check with employees to assess their comfort with the process. If people are feeling threatened, slow down.

A final thought
Successful implementation of the four GBS principles requires a great deal of patience. GBS is not a quick fix—it represents a system whose rewards begin to emerge when its ideas and practices become embedded in the culture of the organization.

The concept of TQM was developed after World War II by an American, W. Edwards Deming, to improve the production quality of goods and services. We highly recommend his book “Out of the Crisis” for further insight on TQM.

Bill Schoeffler and Catherine Oak are partners in the international consulting firm Oak & Associates based in Northern California. The firm specializes in financial and management consulting for national and international agencies, including valuations, mergers, acquisitions, clusters, sales and marketing planning, as well as perpetuation planning. For more information, call (707) 935-6565, e-mail catoak@sonic.net, or visit www.oakandassociates.com/catoak/.

About Catherine Oak

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Oak & Associates. Phone: 707-936-6565. Email: catoak@gmail.com. More from Catherine Oak

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Insurance Journal West March 11, 2002
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