By Rob Berg

Faced with the need to continuously squeeze ever-greater returns from their operations, insurance companies have a tremendous amount to gain by adopting Business Process Management (BPM) tools and techniques. The impact can be substantial: Successfully deployed BPM initiatives typically see returns that far outweigh the investment. Time and cost savings on the order of 75% or more are not uncommon. Capacity increases – the ability to deliver far more output without adding more staff – can easily range from 20% to 30% with even modest effort. Even better, early process improvement initiatives generally bear the most fruit, a consequence of Pareto’s Law that says 80% of the problems in a process result from 20% of the potential causes. Those early improvements can cut away huge swaths of process clutter, quickly validating your efforts.

So what’s the downside? Naturally, I’m somewhat evangelical about the work. But it’s not all fun and games. While there’s a lot of science behind BPM that yields predictable outcomes, there’s another major component that can bog these efforts down: Human nature.

Cultural considerations
Funny creatures, we humans are. No matter how bad a process is, you’ll find that many of those who work daily within its confines are simply comfortable there; they don’t want to change a thing. Employees who have performed the same 17 steps day after day, year after year, don’t care much that the same output, or more, can be had in 5 steps. Be prepared for complaints.

Effective BPM pervades the company culture. A culture that respects autonomy and individual creativity will fare much better than a classic “command-and-control” culture, however, the best processes are the ones that are well-documented and procedurally uniform. Reconciling these apparently conflicting notions is the idea of “process thinking,” where creative license is granted, but only within the constraints of a well-defined framework. The notion of process thinking is a major theme of an empowered BPM-enabling culture. Companies that encourage process thinking become hotbeds of ideas, reliable sources of innovative ways to get things done. An organization bound by a command-and-control structure will ultimately suffer from the obsolescence brought about by the disempowered workers who toil daily in the fulfillment of inflexible mandates. Process thinkers are empowered, energized and committed to process excellence. Their ideas are embraced and considered as readily as their labor. They own their work – an important distinction. As such, BPM efforts begin with the company culture; weigh this fact heavily when deciding on any change initiative involving processes.

Key enablers of process excellence
So clearly, processes should never be considered in a vacuum, though they often are. Improvement work on a process will not be effective absent the culture and its offspring – vision, mission and values – given serious consideration. These intangible, or “soft” aspects surrounding the process environment often take shape over years, represent the heart of organizational strategy and are driven by company leadership. The “tangible” – if not more practical – aspects needed to enable process excellence include the existing technology infrastructure, key performance indicators, policies and regulations, hiring, training and other human resource functions, and the physical layout of the facility in which workers operate. Ignoring their impact on process results severely cripples improvement efforts.

• Technology infrastructure is a major consideration when improving processes. The intensity of information flows and criticality of document management in insurance operations is a big concern. If your company has technology from 1957, think about an IT overhaul before you embark on anything as ambitious as a BPM initiative.
• Key performance indicators – those numbers management so diligently monitors to indicate whether the company is on the right track – provide important guidelines for process improvement objectives. An insurance company focused on being a low-cost provider to its customers will have a different take on key metrics than one that is committed to super-servicing theirs. Some will watch the top line – pushing for growth in premiums as a prime objective – while others might emphasize cost savings, operational efficiency and better margins. Those metrics that are given the most weight will have a significant influence on the direction of process improvement initiatives.
• Policies and regulations also impact improvement efforts. Many processes – especially those at insurance companies, and even more especially at those insurance companies that trade publicly – suffer inefficiencies due to statutory imperatives. There’s not a whole lot you can do about those, and they must, of course, be considered when designing an improvement initiative. Internal policies, however, are often malleable, and as such should be looked at with an open mind to see if any are unnecessarily constraining.
• Hiring, training and other human resource functions are also major enablers of excellent processes. Good hiring practices facilitate the identification of “process thinkers” from any pool of available resources. A thorough, methodical approach to training will ensure a level of uniformity in the way work gets done, and in organizations that embrace BPM, that uniform way is a best practice. All good work begins with the quality of the people who are charged with performing it. The quality of those who perform the work is enhanced through good, selective hiring practices and well thought-out, formal training.
• Physical facilities must be considered as well. If your staff is constantly running paper from the fourth floor to the tenth to get a claim handled, your process is unnecessarily bogged down. If you’re aggregating documents from four corners of the country using email, perhaps a shared, central data repository would provide a better solution. If work is done in piecemeal batches at each process step before moving to the next, think about an assembly line approach instead. Considering the physical layout of the people involved in a process is an important aspect of any improvement initiative.

The big picture
BPM is not a fad, or something you can pick up in a weekend course, or something that’s easy to implement. It encompasses so many aspects of the organization because the organization is a whole, and the parts should not be considered without considering the whole. The first law of ecology states that everything is connected to everything else. The fundamental notion behind BPM is just that: the whole organization must be considered to derive optimal outcomes from improvement initiatives.

The compartmentalizing and “silo”-ing that characterizes so many organizations is a severe impediment to process progress. Territorialism – fighting for turf, for resources, for recognition – thwarts improvement efforts by relegating performance evaluation to the individual. As a comprehensive organizational improvement framework, BPM promotes teamwork, collaboration and attention to the whole.

Thinking about BPM?
If you’re thinking about a BPM initiative, start small. Change should take place incrementally. Buy-in at all levels, from the very top to the trenches, is made far easier by promoting BPM in bite-sized pieces. A thorough, candid assessment of where the organization stands begins with in-depth audits that produce detailed narratives and maps of key processes. From these “as-is” models, what-if analyses are performed in a simulation (software) environment to uncover that set of process modifications that produce the optimal result prior to actual implementation. It’s a lot of work, but well worth the effort.

BPM is powerful, but like all management methods, not without its limitations and caveats. The right approach is a holistic one, one that balances the outcomes of key processes against the overarching aims of the organization. The result? The numbers stated in the introduction are real – big process improvements are the rule, not the exception. Even more important, however, are the long-lasting organizational impacts: an empowered work force, increased productivity and a better bottom line – the promise of Business Process Management.

About the Author

Rob Berg is Director of Business Process Outsourcing for Perr&Knight, management consultants and leaders in the delivery of outsourced actuarial, regulatory compliance and competitive intelligence services to the insurance industry. You can reach Rob via email at rberg@perrknight.com.

© Entire contents copyright 2006 by InsuranceNewsNet.com, Inc.  All rights reserved.  No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.