Strategy Development and Implementation

Background

The COO of a major multi-line insurer faced the expensive prospect of building one or multiple international services centers, based on the CEO’s and Board’s desire for expansion into new markets and the capacity constraints of the company’s current headquarters footprint. 

The Board and C-suite had publicly committed to significant growth in Latin American markets within a 12–36-month time frame, but the COO was concerned that their existing infrastructure made such goals unreachable. Both the C-suite and the Board felt strongly that low-cost processing was a key element to the success of the plan, and felt it would be essential to locate new processing and underwriting capacity away from the high-cost home office location. Indeed, they viewed a combination of real estate infrastructure and market proximity as a core strategic element of their overall expansion strategy, and wanted to leverage it. 

Part of the issue was pragmatic. The company’s HQ campus was close to its capacity, and local zoning (and neighborhood interest groups) had made additional construction impossible. Since everyone believed that having the servicing and underwriting units “closer to the market” would be helpful for the purpose of customer intimacy, marketing, etc., consensus developed around the acquisition of a satellite facility (build or rent) in Latin America.

The COO was concerned, however, that his organization did not have the bandwidth to execute such a multi-faceted project within the required timeframe, and asked us to provide an evaluation and set of recommendations on how to proceed.

Complication

As we assessed the situation, we found that the anticipated delivery timeframe was indeed challenging, and perhaps unattainable. The service center (or centers) needed to process business from multiple countries and languages. Although the countries were primarily Spanish-speaking, the company also wanted to include Brazil in the center’s responsibility, which required Portuguese language capability.

We began with a traditional assessment of geographical sites, using criteria such as labor costs, educational quality of the available workforce, political stability, technology, travel infrastructure, etc. Using these criteria, we evaluated more than a dozen cities throughout Central and South America. The process was exhaustive, but inconclusive. Although each city had specific strengths and weaknesses, when taken as a whole, no particular city or combination of cities stood out. 

Moreover, it appeared that the language issue would be particularly challenging. Initially, we considered a separate Brazilian unit for Portuguese speakers, but this turned out to be an expensive option. In follow-on discussions that we conducted both internally and anonymously with outside parties, we learned that country-specific Spanish might also pose a problem. Both accent and idioms can vary widely from country to country, thus making communications more difficult. The dual goals of customer intimacy and lower-cost were at odds with the schedule. It appeared impossible to satisfy both of these goals unless we established truly local centers in multiple countries, which would be cost-prohibitive and not allowed by the schedule.  And the overall anticipated cost savings from the new sites appeared much less compelling than initially assumed. 

How We Helped

Seemingly at a dead end, we suggested that we take a clean sheet approach to the problem and challenge existing assumptions. We reviewed the issue of Home Office capacity constraints by conducting an actual census of residents, using not only payroll data but security access logs. Almost 9% of seats were occupied by external vendors who required frequent access to the facility, but not a dedicated office location. 

Moreover, overall office layouts were inefficient, as standards such as square footage/FTE had not been established or consistently enforced across individual business functions. Enhancing facility standards and standardizing furniture configurations yielded an additional 16% of usable square footage, making the Home Office capacity sufficient to accommodate the LatAm initiative. We also reviewed existing facilities contracts, and renegotiated the cost basis to reflect actual square footage per FTE, rather than total building square footage. Reclaiming vendor offices and restacking the existing layouts thus yielded about 25% more capacity which could now be managed, cleaned, etc. at a reduced cost. This altered the project economics drastically and made the existing real estate infrastructure economically competitive with the remote options.

We next turned our attention to the issue of establishing and maintaining cultural and language intimacy between various LatAm locations and the US home office. Since the home office campus was close to a major urban center that had a significant Spanish-speaking population, we were able to find a significant pool of potential Spanish-speaking employees from all of our target countries. In concert with the COO and local government officials, we invested modestly in a partnership and training program for Hispanic employees who wished to join the Insurance industry. 

The program, which initially started at a local community college, was expanded to high school internships as well. This fulfilled the objective of providing a “local market feel” to the customer experience, and also won praise and recognition from local governmental officials and our internal HR staff as a significant DEI effort that yielded immediate results for both the company and the community.

Results

By reframing the problem to utilize existing internal resources better—rather than spending considerable time creating expensive new ones ,we reformulated the strategy so that it met the goal of creating and delivering an infrastructure platform within the 36-month schedule that met the client’s needs. The project avoided more than $15 million of annual incremental expense, and satisfied the customer intimacy goals that the company had set. And, the LatAm initiative continues its successful trajectory.

Postscript: Although COVID completely disrupted operations, this project has continued to generate significant dividends for the client. Companies are now encouraging or enforcing “in-the-office” days, but it is unlikely that there will ever be a full return to the workplace. Thus, the company now possesses significant real estate overcapacity which it is attempting to sublet. This will present a challenge for the indefinite future, but the renegotiated contracts allowed the client to dial down service requirements, and reduced carrying costs. Truly a win!

Background

An old-line, specialty Auto Insurer had been struggling with numerous problems around executing projects and reaching company objectives. And, owing to some unique market changes, it was confronted with the task of assuming multiples of their current policy volumes, in dozens of new states. These changes in scope, mission and products would stretch the company like never before, and senior management could not only see the tsunami of potential operational problems on the horizon, but see it approaching quickly. Thus, they retained the Ironwood Consulting Group to review their Organizational Capabilities in light of current problems, develop a Gap Analysis, and provide a prioritized set of recommendations to help them prepare for and succeed in the new world into which they were thrust.

The company had tried to anticipate these challenges by building and implementing a new and highly customized Policy Administration system, but had experienced significant delays and quality shortcomings during the process. As we reviewed the situation, it became clear that the problems they were experiencing with this large and ambitious project were indicative of more systemic problems related to Organizational Design, Company Communications, company talent, and other issues.

The client had been quite unrealistic in estimating the complexity and timeframe required for its effort, and experienced substantial creep regarding scope, time scales and resources. This had not been appropriately communicated as the project progressed, leading to multiple “unpleasant surprises.”

Complication

The company has been around since the early 1970s, and it was not uncommon to meet employees who have been there 30+ or even 40+ years. And as the company had not had many changes in scope or volume of services in its history, many people had been “molded into their roles” for quite some time.

The stress created by these strategic changes proved extremely challenging to the organization. The culture, which had largely been non-confrontational and quality (rather than deadline) driven, was struggling to adapt. As the multi-state rollout was scheduled to proceed, there was concern that the process would either grind to a halt or the company would suffer considerable turmoil both in its internal culture and its external reputation within the industry.

How We Helped

We used the McKinsey 7S Organizational Assessment framework to guide our analyses of both the enterprise in general, and the Policy Administration system development effort in particular. This framework evaluates alignment along seven organizational dimensions to understand performance. By way of background, the seven elements of the assessment included Strategy, Systems, Skills, Structure, Staff, Style, and Shared Values.

We reviewed each of these dimensions by meeting with members of the Executive Management Committee and conducted targeted interviews with senior staff across multiple company functions. We also reviewed project charters and status reports, as well as organizational charts, the company’s mission / vision statements, etc.  

Overall, we determined how the organization’s culture and beliefs had gotten out of alignment and what was necessary to restore that alignment between the traditional company assumptions and the new realities of the changed marketplace. The culture transition required demanded a thoughtful communication plan, upskilling of the workforce, and a substantial upgrade in core project management skills. Above all, however, it required a much clearer articulation of the company’s strategy and end game. 

Our work focused on producing several key deliverables. The first was a review of the Policy Administration development project, in terms of a what went wrong, Root Cause Analysis and recommendations to “right the ship.” 

We then developed a Current State view of the organization’s capabilities and a Gap Analysis detailing which changes would be needed to execute against the company’s new mandate and environment. 

Results

We developed an action plan to identify and implement the quickest and highest-yielding improvements. The plan included Project priorities, challenges, dependencies and constraints. 

We provided the client with recommendations in several key management areas, including leadership, communications, and improved decision-making processes. Since all of these were intertwined, we provided a sequence of actions that would help senior management develop a clear vision and strategy, and then communicate this downward into the organization so that it would direct the staff to execute against the company’s objectives. We also provided recommendations for changing aspects of the company culture that had served it well in the prior decades, but would not be advantageous in this next phase of the company’s life.

This client, like other clients, also suffered from the “doing many things, but neither well nor to completion.” Thus, we gave them recommendations around evaluating and prioritizing their efforts so that they could work on what was needed, and do that work better.

Regarding the Policy Administration system development effort, communications were also a central issue and focus of our recommendations. And to enable better communications, it was clear that the company needed to upgrade the Organizational Structure and team skill sets around the Project Management Office function if they wanted to get better project outcomes more consistently.

Overall, the company has adopted our recommendations and made selected hires in key areas consistent with our recommendations. And the ongoing Communication Plan we developed has been warmly received throughout the company. Although the process will require substantial organizational change over several years, the company has gained considerable momentum and morale has improved significantly. The turnaround is well underway, and existing clients and the internal staff once again are energized and share a common vision and objective. The organization is newly aligned.

Background

The CEO of a regional personal lines carrier presented us with a unique challenge. He felt that his organization had “stalled” and that, although most everyone was doing their job satisfactorily, the company was becoming complacent. The organization, he feared, was losing its edge. 

He was especially interested in restoring “sharpness” to the Claims organization. Although the function had long conducted closed file reviews and retained specialty consulting and actuarial firms to review its closure performance, the process had become more of a check-the-box exercise, rather than a meaningful process to assess and reduce leakage, to ensure accurate and appropriate application of policy coverages, and to improve the overall customer experience for policyholders and claimants. 

Part of the difficulty was rooted in multiple legacy systems. Several external consultants had recommended significant systems upgrades for the Claims and Policy Administration areas, but the company was reluctant to embark on a significant systems effort due to limited internal IT resources. Moreover, the CEO felt that a new Claims system implementation would not necessarily get at the problem of energizing the organization. 

Complication

The CEO asked us to propose a concrete set of actions, but set several constraints. First, both he and the Board had tired of lengthy consulting engagements that provided detailed implementation plans but few results. He insisted that the company needed an “organizational intervention” and not a traditional approach that would simply reinforce the status quo. Second, he wanted measurable improvement results. He gave us a limited budget and four months to grab the organization’s attention and deliver concrete results, rather than just a plan or report.

How We Help

We realized that our approach had to be different enough to attract the organization’s attention yet personal enough to make employee feel involved and committed. We brainstormed multiple approaches, and finally arrived at an approach that integrated our Lean Six Sigma expertise with some previous retail experience. We knew that the “secret shopper” concept generated powerful engagement among retail staff, because it made them wonder who exactly in their store had been the subject (who was sometimes revealed and sometimes not). From Six Sigma, we knew how to conduct industrial style experiments to assess variation across many different industrial processes, even including some advanced techniques to isolate variation caused by the process itself vs. that caused by the measurement methods. What if we employed these techniques to both the claim adjusters (the measurement tools) and the actual repair results (the process) to see what variability we could identify across the groups? And do it anonymously to provide the “secret shopper” surprise element? 

We decided to blend the two concepts in a unique experiment to provide new and personal insights into organizational performance.  The CEO was intrigued with our approach. We took five damaged automobiles and had repair costs estimated by three of the following: internal branch adjusters, desk adjusters, and outside adjusters. We reasoned that the process would have some inherent stability, because estimating tools and software are standard, and parts prices are transparent. We arranged the estimates in a way that was anonymous to the participants and did not slow down the actual settlement process. At the end of the exercise, we created a 5 by 9 matrix with one row for each auto and nine columns (three each for the three different types of adjusters). 

Results

We looked for patterns of variation across the estimates, knowing that the sample size was too small to be accurate or precise. The results were striking, in that significant variation existed across all  45 estimates, and it was much greater than what would be expected in any mature process. There was significant variability across type of adjuster (internal, desk, or external). Not surprisingly, outside adjusters were highest, but branch adjusters were relatively close to them. Desk adjusters had the lowest results. More striking, however, was the substantial spread of the estimates within each of the three adjuster types. It appeared that the selection of an internal or outside adjuster was irrelevant in selecting for best cost and quality. Because the estimates were so scattered, the outcome was much more dependent on the individual (and random) skill of the adjuster. This was at odds with the internal belief that outside adjusters were almost always more costly.

When we shared the results, the Claims staff reacted with surprise and wanted to engage further. They were troubled that the snapshot had indicated that their performance was not much better than that of external adjusters. We then explored the underlying reasons for the internal performance spread. It became clear that judgement and training played a role, as did the problem-solving and perceptual style of the individuals. 

Based on our findings, the client retained us to organize a series of team workshops on learning styles, decision-making, and group problem-solving techniques. Starting with Claims, we videotaped team members solving problems in group settings to reveal how individuals approached problems differently  and how this created individual blind spots and communication difficulties. This approach was so successful that the CEO decided to expand the seminars and training beyond Claims to all other areas of his organization.

As the Claims staff internalized our training on how to approach problems and understand their individual styles, they remedied their blind spots. We repeated the exercise a year later, after claims expenses had shown a 3-point decline. Market condition or even luck might explain some of the improvement, but more importantly, the individual adjuster group tightened up their range of estimates considerably, making them the clear alternative to outside adjusters. 

The organization regained its edge, and the CEO was satisfied that we had creatively fulfilled his unique and demanding requirements. 

Background

A Regional Personal Lines Property and Casualty Insurance Carrier had recently received feedback from a major ratings agency that its Enterprise Risk Management (ERM) capabilities and practices, while adequate, suffered from several serious shortcomings. The company felt that an improvement in its ERM capabilities would be good news for all interested parties, amidst the challenging pricing and underwriting environment that all carriers were facing.  Based on our insurance expertise and partnership with the leading ERM software vendor, we put created a plan for the company to upgrade its ERM capabilities, especially regarding the technology pillar of People / Processes / Technology.

Complication

The company had set a goal of showing the Ratings Agency real progress in upgrading its ERM capabilities by the time of its next annual review, and created a new full-time CRO position who was committed and empowered to strengthening the company’s core risk processes and culture.

The company had been using a home-grown, excel-based Risk Register, which the CFO managed as needed. The spreadsheet appeared to document many different issues and provided Red /Green categorization, but provided minimal insight into or tracking of Key Risk or Performance Indicators, Risk Appetites, or progress toward mitigation objectives. 

Both the CEO and the CFO recognized the need to create an integrated risk culture, in which individual LOB heads and risk owners could monitor their major risks, and push ownership, accountability, and mitigation responsibility lower down in the organization. 

Because the existing process was CFO-driven, they also felt that many risks, currently overlooked from the C-suite perspective, would surface once the rank and file was involved, and that those closest to the action would also be best suited for identifying and implementing the required solutions. What was required, they believed, was a process they could monitor closely at the executive level, while holding risk owners and managers accountable for active management and ongoing mitigation.  

How We Helped

We began by gathering and analyzing the company’s current risk information, and incorporating it into a   an initial SRA Watchtower™ “baseline” implementation, which encompassed six major risk categories:

· Liquidity and Solvency

· Pricing and Underwriting

· Claims Management

· Distribution Management

· Reserving

· IT / Cybersecurity

We conducted focused interviews / workshops with functional leaders or risk category owners as determined by Senior Management. Leveraging our significant Risk Library to provide industry-specific risk ratings, descriptions, KRIs and KPIs, we quickly focused the effort to make it productive immediately. We collectively agreed on which risks required tracking, and which already existed in the Watchtower system vs. new content that had to be developed. Rich discussion ensued where both management and risk owners gained new insights into their strengths and their gaps, and determined how to utilize their existing information to craft specific KRIs for their individual situations.

Excited and encourage by the initial results, the Client requested that we expand the effort to create a comprehensive ERM solution by including several new categories:

· Strategic

· Reputational

· Operational

· Talent Management

Most of these categories were either haphazardly monitored or poorly documented, which would have required a significant amount of effort to create and organize. Our pre-existing libraries, however, turbocharged the implementation process by providing a complete frame of reference and baseline for these risks. Working side-by-side with the client Category owners and the new CRO, we jointly customized existing Risk Management content and developed / added new content so that the platform was truly their ERM Platform.

We developed specific implementation recommendations for rolling out the new technology to the Risk Owners and beyond, and early involvement of risk personnel enabled the rapid adoption of the software. The Client assumed primary responsibility, calling on us for occasional technical support, insights into best practices, and assistance with benchmarking of their risk processes in relation to competitors. 

Results

At the end of Phase 2, the Client had a fully customized ERM platform consisting of ten Risk Categories, with five of them being Insurance Industry-specific, and five of them being general business risk. The system has been rolled out to the organization, and they are now updating risk information, gaining insights, and using the system to prioritize risk tracking and mitigation needs. The CEO, CFO, and Board have been pleased with the results of the efforts, as goals are clear, responsibilities and accountabilities are aligned, and the new risk culture has taken hold.

Additionally, the client has met with Ratings Agency and Regulators for their annual reviews, and these interested parties have acknowledged the company’s significant progress in upgrading its abilities to identify and manage risks.

Senior Management feels it has realized both its risk goals and its organizational change objectives and is confident that Watchtower will provide benefits for many years to come. 

Background

One of the world’s largest IT development and implementation firms was experiencing considerable difficulty with the implementation of a large Policy Administration system. The project, which involved one of Latin America’s largest financial institutions, had the objectives of both replacing its legacy system for greater immediate functionality and preparing for anticipated growth. After a lengthy evaluation process involving multiple vendors, they selected the system that best met their overall needs. However, significant customization would be required and the company prepared and budgeted for a large development effort prior to the installation.

Progress in the initial phase had ground to a halt, due to project complexity and communication difficulties between various project teams around the world. The project was 10 months behind schedule and substantially over budget (40%+). Worse, no one saw a viable path forward. The participating companies asked us to determine whether the project was salvageable, or whether they would need to arrive at some kind of a settlement agreement. 

We sensed that there were substantial shortcomings in the communication and specification documentation process and that an entirely new method of managing the process would be required. But how to proceed?

Complication

The project would have been challenging under most circumstances, in that it spanned multiple countries (and different regulatory requirements, multiple currencies, etc.). More importantly, however, were the significant cultural and language barriers that the project encountered. The home country of the company was Spanish-speaking, but the country itself was relatively small and somewhat isolated. Almost none of the users were fluent in English, and very few members of the Senior Management team (<10%) were comfortable or effective in either written or spoken English. Additionally, a significant level of custom functionality from the company’s Brazilian subsidiary was needed and had to be translated from Portuguese into several other languages. The Application Development team was primarily based in India, although it did have some Eastern European presence as well. 

Problems emerged quickly during the requirements gathering and specification development phases of the project. The IT company thought it could accommodate the multi-country customization relatively easily, based on past experience in other countries. A first (and quickly abandoned approach) was to have user specification development sessions conducted and written up in the native tongue, translated using automated translating tools, and then checked for accuracy with professional translators. They then provided the finished product in English to the development team in India. 

Since the automated translation proved to be quite inaccurate, Project Management soon modified the process. They hired individual translators to sit it on meetings, translate between the parties, and attempt to document the process. This proved very expensive, because of the number of translators required, the mix of languages, and the varying level of quality of the translators themselves. And the finished output was still unsatisfactory to begin development work, as the client hadn’t signed off on a single specification document in months. 

How We Helped

We assumed that the business users knew their processes and that the development teams understood their technologies. Therefore, getting the project on track—and reducing the communication friction—could be solved by focusing on the translators and how to enhance their effectiveness. Two big insights: 

· Of the fifteen translators used on the project, only about half understood technology enough to understand the implications of what they were translating and could facilitate two-way communications between the user/IT team discovery sessions. 

· Translators had their own styles that contributed or detracted from their effectiveness.  Most listened to the message, condensed its meaning, and reformulated the message. A small minority, however, provided literal and real-time translation with no message truncation. 

Unfortunately, only four members of the entire translator staff possessed both of the desired skills, and we had to find a way to leverage their talents quickly.

We next focused on the core processes and specifications. Interestingly, many of the core processes were the same, regardless of country or language. A central insight was that the teams were re-explaining common concepts each time they met, essentially “reinventing the wheel.” We drew on our Lean Six Sigma experience and developed a unique visual solution to the communication problem. Better than 90% of all processes could be represented with about 200 symbols. We built a visual “process glossary” and tasked our translators to describe precisely what the process meant in each required language. With only a few training sessions, teams created visual maps to create common “pictures” of entire processes, both the current and the future state, and could do it in PowerPoint.

Because there was a common understanding of processes easily expressed in symbols, all parties came to subsequent sessions armed with a broad understanding and focused only on critical issues to be resolved, i.e., on essential or unique requirements.  The process has now been adopted by the client as a mandatory tool on all of its multi-national, multi-lingual projects. 

Results

By flipping the communication paradigm from written to visual, we broke the logjam. After about three weeks of work and experience, the communication process functioned across the scattered world-wide teams remarkably well. Specification documents required less work, and skilled translator resources were sufficient for describing unique situations, exceptions, etc. Teams accelerated their progress, and learned to work together in a visual, rather than oral communication style. Within the first six weeks, the team reduced their backlog by five months, and eliminated it entirely within two and one-half months. 

The project was back on track. A picture is truly worth a thousand words. 

Background

A Large multi-state Property and Casualty Agency wanted to accelerate its growth and improve the productivity of its staff. They felt that they had exhausted many of the traditional approaches available to them, including recently completed efforts for increasing regional marketing for better awareness, enhancing commission incentives for producers, and broadening value-added services such as accelerated claims management and settlement, expanded loss control for larger and middle market accounts, etc. 

The results had been discouraging as neither sales nor productivity showed any meaningful uptick. The company then invested significantly in its customer portal and back-office systems to improve user experience. This effort, too, fizzled. Increasingly frustrated with the lack of results, they felt that an external perspective might be helpful.

Complication

The CEO was nearing retirement and was intent on strengthening the agency’s franchise, fearing that failed growth would be his lasting legacy. Thus, both he and the Board made growth and renewal their highest priorities. They queried Senior staff and satellite offices, but they were at a loss on how to proceed. Internal focus groups, “pep” sessions, and even several kaizen events didn’t produce any meaningful recommendations. 

Although the C-suite and the rank and file were aligned on the overall objective, they struggled with direction. Worse still, the decision-making approach of field operations and mid-level staff grew increasingly reluctant and risk-averse. The CEO felt that additional attention would further exacerbate this split and generate additional organizational frustration. Moreover, he feared that the organization ran a real risk of working at cross-purposes unless they could reach consensus on how to proceed. The top-down approach was failing.

Sensing that an impartial third-party might provide fresh insights and generate new momentum for the stalled process, he asked us to apply a “blank sheet of paper” approach to generate insights.

How We Helped

We conducted a series of interviews with key constituents spanning the C-suite and individual offices. Although the company had rightly identified marketing and sales as key levers for improved performance, they did not dig deeply enough into the actual behavior of producers at the branch level. We soon concluded that analyzing producer daily activities and processes were required to identify root causes and create required solutions. 

It became apparent that the behavior of individual producers at the branch level was the limiting factor. Although the company conducted an annual account review for individual producers and their associated accounts, it was usually confined to the top 20 accounts in the branch. Typically, it focused on incremental sales opportunities from the established base, i.e., how to increase the percentage volume of sales in the established business lines that were generating current sales volume. The process overlooked the additional potential for sales in other lines across the account, especially where the producer may not have had familiarity or expertise. When asked to estimate time percentages devoted to major accounts, producers allocated their sales efforts largely in direct proportion to the commissions they generated in the respective accounts, which showed that their “return on sales” effort was broadly correct. But it entirely missed the potential for account rounding within the established accounts!

The measurement system, therefore, was inadvertently geared toward strengthening the status quo, rather than generating new opportunities across the account with new products and new relationships. We soon realized that a system that aligned actual effort against actual potential was the missing piece of the equation. With this in mind, we set about building a better system to measure return on potential sales,rather than return on effort expended.

We began with a renewed focus on the customer rather than the internal producer. First, we set about determining the total amount of commissionable business available from the customer account across all insurance lines rather than the percentage of business the company actually wrote in those lines. We asked all producers to survey each of their accounts to learn the total business the enterprise generated, regardless of which agency, broker, or carrier wrote the business. This gave us a quick understanding of total accessible market by customer, which we segmented into size categories (Low, Medium, or High). We also asked producers to expand their time allocation beyond their top accounts to all of their account assignments, which we also segmented into Low, Medium, and High categories. We conducted these efforts as separate and non-overlapping workstreams so that participants would not be able to see the results and thereby try to game the system.

Results

Using the submitted data, we created a nine-cell matrix which revealed substantial misalignments between sales efforts expended and the actual potential sales those efforts could yield. Incumbent producers focused on legacy accounts where they had established relationships, but failed to look at the account holistically, thereby overlooking major opportunities. Overall, 60% of their efforts were spent on accounts with good relationships, but marginal incremental potential. Conversely, many high potential accounts received insufficient focus beyond the one business line or the personal relationship that the producer had created. Lacking information on their addressable market, the company and its sales force could not round out the account or capture greater customer share of wallet.

Armed with a better understanding of actual market potential, we revised the account review process to ensure that large accounts were “product need” rather than “relationship” driven. This meant, in some cases, creating service teams of producers to leverage specialized product or program expertise. More importantly, nearly 45% of total producer effort was redirected toward accounts with greater potential. The company now categorizes all of its customers by the segments # 1 (L,L) through #9 (H,H) and uses this as the basis for the annual review process. Although some upgrading of sales skill was required, the company has consistently grown its book by 10% annually over the past few years while reducing headcount and increasing productivity. Commissionable business per producer has increased by more than 20% in each of the last two years. 

And, finally, the CEO feels that he has achieved his objective of creating a lasting, positive legacy for the enterprise. 

Background

A Large Multi-Line Property and Casualty Insurance Carrier faced a long-standing and continuing challenge with its ever-growing IT project backlog. Progress was slow and projects were rarely completed (and never on time!). More importantly, priorities among the 60+ projects seemed to be shifting constantly. Although there was a prioritization process that weighted six factors (such as financial return, complexity, regulatory necessity, etc.), the process just didn’t seem to work. Both IT and the Business Units felt that the process had degraded over time to the point where “whoever screamed the loudest” got the most attention. This, in turn, often depended on the organizational stature of the individual project patron.  

Complication

Several changes in the regulatory landscape and competitive environment gave the company an attractive opportunity to expand its business in multiple states, but it needed to develop or build out new service and system capabilities quickly, thus adding a considerable burden to the relevant IT development and business user teams. The entire C-suite felt that the organization simply could not handle the additional demands of the initiative, and attempting to do so would put the entire company’s franchise at risk. 

Reluctantly, they decided to pass on the expansion, but the decision forced management to confront their process deficiencies, as the decision exposed the significant (but previously downplayed) costs that the flawed project prioritization process was now imposing on the organization.

Both the CFO and the CIO believed that IT project management needed a complete “re-think” to achieve better credibility in the minds of business and IT participants, and attain great stability and discipline. The process, they felt, had to be perceived as both objective and consistent, and had to be more efficient. 

However, given the longstanding nature of this broken process, their expectations were modest. During our initial discussions, they indicated that a 10% decrease in project cycle time would be a big win, and set this as the project goal. They all agreed that improved user satisfaction would also provide an enormous organizational benefit but didn’t know how to quantify it. 

How We Helped

We began by analyzing the company’s current project inventory and reviewing the criteria and associated weighting factors used to prioritize the projects. The company used a traditional approach to avoid an arbitrary process. Business and IT participants first defined six grading criteria and added associated weights. They then graded the projects according to the weighting factors, and averaged the scores to create the final rankings and make resource allocations. 

We first assessed the six grading criteria used and then reviewed the final results that the process produced.  We concentrated on sampling some of the submitted participant excel worksheet results and then conducted selected participant interviews. 

Although all parties had agreed upon the six factors to be used—and their relative weights—they couldn’t apply them consistently.  For example, consider Factors A, B, and C, where A =2B and B=2C. Logically it follows that A=4C.  Although this seems apparent, it is very difficult to keep three factor relationships like these consistent while grading a large and diverse portfolio of projects, despite best efforts. With six factors, it is virtually impossible. You must use mathematical tools to ensure the logical consistency of the grading (pair-wise factor comparisons). When we evaluated the actual scores that they applied, we found that over 80% of the project assessments were inconsistent with the criteria and the weightings.  Thus, although the company believed that they had a rigorous project prioritization methodology, it was in fact, no better than random.  

To remedy this situation, we conducted a series of workshops on how to implement pair-wise factor comparisons to the evaluation process and educate participants on its necessity. Evaluating each participant’s submittals, we worked with them to modify their assessments. During the discussion we discovered an additional problem: There was a missing decision factor. Through our discussions we defined the seventh factor, had participants update their individual project scoring accordingly, and refined the results using pair-wise comparisons. The improved process reduced inconsistency to less than 4%, and produced sensible and understandable results.

Results

At the end of our engagement, the Client had a stable and credible IT Project Prioritization process. IT and Business users achieved consensus on priorities and adhered to them, except when unanticipated and mandatory Regulatory changes legitimately forced priorities to change.  And these were now easily accommodated without the need for extensive discussion and review.

Identifying the seventh factor “Core Technology Skill” also reprioritized the existing project portfolio dramatically. The new factor divided projects that must be developed and retained in-house from projects that were operationally important but did not require proprietary technical solutions. This expanded the scope of potential projects to be outsourced. Overall, the perspective on the project portfolio became more strategic, and the best alternatives became clear.

The project easily exceeded its defined goals. Project cycle time for internal projects decreased by nearly 50%, both from creating a sharper focus on technology-critical projects and from identifying a larger pool of outsourceable projects. IT developer satisfaction increased with more interesting and challenging in-house projects, although they did need to upgrade external vendor management skills. Business user satisfaction improved through faster project delivery. Complaints and resource contention declined by more than half, and 88% of project participants expressed satisfaction with the new process. The company has since adopted the methodology in individual business units and the corporate strategic planning process as an enterprise best practice.

And, above all, the company leveraged the new process to launch the expansion initiative and realized its goals!

Background

A large Mutual Life and Annuity Company retained The Ironwood Consulting Group to undertake a financial review of product economics and distribution channel performance using Activity Based Costing (ABC) methods. 

The client had the deceptively simple question: where exactly do we make money and where are we losing money? 

Thus, the objectives were as follows: 

1) Review overall activities to understand which activities relate specifically to individual Products and specific Distribution channels, thus providing a window into how to better allocate Operating Expenses to them.

2) Allocate non-operating and non-product specific expenses to the right Product Families, and conduct the same exercise with distribution expenses, allocating them to specific Channels.

3) Determine overall Product and Channel profitability for products and product families. 

4) Identify the pool of truly enterprise-level costs.

5) Use these findings to guide the Client in preparing its overall strategic blueprint for the future. 

Accomplishing the objectives above would enable us to develop a prioritized series of recommendations on how precisely to triage the client’s products, channels, or business model to improve individual product or channel performance and attack overhead expenses (instead of arguing over their allocations), thereby increasing the Economic Value Added of the overall enterprise.

Since its inception many years ago, the company had evolved from simple captive agency distribution to a multiple channel approach for distributing its Mortality and Annuity products.  It had also developed a full suite of Life products (Term, Universal, Whole, etc.), and a range of Annuity products targeted to different markets (fixed, variable, TSA, etc.). 

Each distribution system had its own compensation system, commission arrangements, and specific support elements for marketing, promotion, and financial incentives. In addition, there was only limited sharing of products across the various distribution channels. Although the fundamental product chassis might be similar, the Company tailored its products (largely based on inputs from producers) to the individual distribution channel. This, in turn, resulted in a considerable number of distribution specific product features and policy riders.

Based both on its internal culture and regulatory requirements, the company also found it extremely difficult to sunset legacy or antiquated products, or even adjust their resource expense and resource consumption levels. Thus, there was a considerable closed block of business which had its own behavior and resource needs, and which further contributed to the “murkiness” of the expense pool.  

Complication

As a result of their culture and history, the company found itself supporting more than 50 active L&A products that were being sold or renewed across the three channels, with a comparable level of products (although many fewer policies) in the Closed Block. Some specific products required significant one-off efforts (such as annual valuations) while others in the Closed Block were simply running off, with fewer than 100 legacy policies remaining. Thus, senior leadership didn’t have a good idea of which products or product families were profitable, which ones weren’t, and why. Furthermore, the company didn’t know the magnitude of these differences, either. Although there was a desire to reduce expenses, overhead never declined which people attributed to the shared costs across all of the product portfolio.

To complicate matters further, the company stored its policy information, accounting data and personnel data in several disparate systems, which made the tasks of data gathering, analysis and synthesis daunting.

How We Helped

Given the time and budget constraints, we had to employ a “Pareto” approach to the analyses to ensure focus on the most important products, cost drivers, overhead buckets, etc. This was critical, as the company’s accounting systems and schemas didn’t support accurate cost allocations.

We had to devise a unique “Accounting Unit Roll-Up Structure” that assigned costs in an analytically useful way. We then collected, analyzed, and attributed enterprise costs to their appropriate level within the organization.

Once we completed these analytical steps, which enabled our profitability / Return on Spending (ROS) analyses, we were able to develop clear recommendations around pruning products, narrowing unattractive distribution channels, sunsetting certain activities, and abandoning others immediately. 

Results

We successfully attributed >70% of the organization’s total expenses to the level of specific product, about 20% to product family, and the remainder as true corporate overhead. Results for the channel split were comparable. This was similar with first pass efforts we had undertaken at other clients. 

Interestingly, the analyses put multiple myths to rest, especially when we attributed revenues in the same hierarchy. The captive channel, long considered the high cost / low profit system, remained quite profitable given its average policy size and persistency. The Broker and Advisor channels, which were much more transactional, consumed considerably more resources than had been anticipated.  Furthermore, the cost allocations revealed that significant home office resources, traditionally booked as Expenses into the Captive Distribution channel, were actually being consumed by the other channels. When the increased levels of marketing requirements and compliance demands of the brokerage channels were more accurately attributed to them, the difference became much less than the common internal folklore.

Our analysis led the Company to institute a Return on Spending metric for its entire portfolio, enabling reallocation of resources (no more than regulatory required updates) from newly identified underperforming products, and accurately redeploying resources to higher return products. The Company has since used the ROS analysis to extend existing products into new markets profitably, based on very accurate estimates of its incremental costs. Truly, an increase in Economic Value Added!

Background

A large, rapidly growing Credit Card company with one of the largest Direct Mail Marketing capabilities in the country wished to reduce its costs for the production and distribution of Direct Mail Marketing campaigns. Direct Mail Marketing campaigns were being driven by the Marketing function, and not Procurement, and thus vendors were dictating pricing for the most part. And since Marketing was responsible for the Direct Mail campaign specifications, they often submitted specs which drove the costs up, but without knowing which specs had real cost impact and which did not.

Complication

We had to first break Direct Mail into its component Sourcing sub-categories – Commercial Print, Printed Envelopes, Letter Forms and Lettershop. Then, we had to develop methodologies for achieving pricing transparency for the costs of different package designs and baseline spending to enable savings calculations. 

In the current state, the client just had the vendors provide pricing to them, and with varying degrees of detail / transparency. The Marketing function really didn’t know how much a Campaign was going to cost until it received the quote.

How We Helped

We had to develop ways to enable buyers in both Marketing and Procurement to work up pricing prior to engaging vendors, and evaluate the relative costs before engaging with suppliers.

Thus, we developed a Sourcing Strategy for the four Direct Mail sub-categories. Our strategy, which included detailed RFPs and multiple rounds of negotiations created hyper-competition among the vendors in each Direct Mail sub-category.  We also provided the client with Negotiation strategy development and support.

We developed a software “Electronic Rate Card” that enabled buyers and marketing staff to run different feature combinations/ volume scenarios to see what the costs would be prior to placing orders to execute. This enabled the client to work with suppliers to define those marketing campaign attributes which could help reduce their production costs, which they in turn shared back with the client in the form of industry-leading pricing.

We also defined the relative value to be gained via volume discounts, volume commitment discounts, etc., and how to best leverage those discounts.

Results

The company achieved >50% cost savings on a baseline of about $130 MM per year, which was well in excess of the Project Sponsor’s expectations. The company was acquired roughly a year later, and the cost savings created about $1 B in value for the company at acquisition.