If you are seeking to build the profitability of youragency or brokerage, you may already be missing your biggestopportunity for 2013. It isn’t an issue of sales or strategy ortraining, or renewals or taxes or systems. Rather, it comes of along-held industry culture of looking outward for growth.

Most management teams underestimate the profits and growth thatcan come from within their own operations. For those who see thepotential, there’s a competitive advantage and profit aplenty toharvest.

For many agency principals, increasing organic growth andprofitability requires hiring more producers, deepeningrelationships with insurers and pumping up sales performance. Whereorganic growth is anemic, there’s always the option of acquiring abook of business or other agencies. Though these activities allhave an important time and place, they are often pursued to theneglect of far less costly and far more efficient means ofdelivering profitable growth.

Related: Read the article "Integrate Success" byTom Barrett.

It may sound like a truism, but to increase profitable growth,you must write accounts profitably. But how many agencies measurethis? How many know which accounts are profitable? How many haveevaluated and measured the steps of their processes in order tocalculate the cost of processing their accounts?

Don’t “Just Do It”

The answer, unfortunately, is very few. Like Nike’s tag line,“Just Do It,” we’ve all been just doing it—managing accounts withlimited reflection—for years. “Just doing it” means neglectingstandardization, process discipline, measurement, compliance andconsistency. This has resulted in enormous inefficiencies that areoften accepted as an inevitable part of the business. Where aproblem is recognized, the simple solution appears to be toautomate it away through new systems. But lacking a disciplinedapproach to understanding process flow, agencies run the risk ofbaking in bad old processes into good new systems. The result: thereturn on investment promised by the software vendor fails to bedelivered.

This is a frequent experience for those upgrading to new agencymanagement systems, particularly for smaller independent agencies.The fact is that system vendors have limited resources availablefor reviewing process architecture and guiding the client throughprocess redesign that would optimize the new system.

“Just doing it” for so many years has resulted in enormoushidden costs within agencies and across the insurance industry. Putaside the E&O risks incurred each day that arise as a result ofdifferent people within the agency performing the same taskdifferently, often in contravention of their agency’s own agingstandard operating procedures. Looked at purely in terms of directexpense, there is a huge drag on productivity, employeecontribution, profitability and growth in allowing unexaminedprocesses to persist. We estimate that most agencies can raiseprofits by 10 percent, which for an organization with a 20 percentmargin represents a 50 percent improvement opportunity throughprocess improvement.

Getting in Shape

“Process” is often neglected because it is so ubiquitous that wetake it for granted. Familiarity breeds contempt. If it is seen, itis as the output of things we do, subject to the needs of theclient or the producer or hour. Worse, it may be viewed as anecessary evil, a painful, boring workout program that theout-of-shape, would-be athlete leaves to another day.

Bad process eats profits for breakfast every day. Good processdrives competitive advantage and profitable growth. Why do we allowbad process to endure? Why do compare it to an athletic workoutprogram? Because process requires an evaluation of where you aretoday. Self-reflection and measurement lays bare all the thingsthat don’t work and challenges people out of their comfort zone tochange. It implies a criticism that if it’s so bad now, someonemust be to blame. And if one is to change, it requires commitment,discipline, endurance and discomfort. No wonder so few agencies areprocess masters. It’s no wonder that few agencies have margins inthe mid to high 30s.

Agencies should not embark on process evaluation and improvementas a source of self-criticism or shame. Rather, it is to becelebrated and embraced with pride. The rewards are profound,recurring and later become part of an agency’s ongoing annuity andvalue multiple. This is not to say that change is easy; it neveris. You take one day at a time, but if you know where you’reheaded, why and how, and you commit, you can achieve great andunexpected changes.

Setting Growth Targets

Consider that to add $100,000 to the bottom line for an agencyoperating at a 20 percent profit margin and combined commissionrate of 10 percent (factoring in workers’ compensation) requiresadding $500,000 in incremental commissions and $5 million inpremiums. What does it normally take to add $5 million in premiumgiven current resources? Hiring new producers can take years to payback this $100,000 in profit. Investments in technology that yieldscale efficiencies can take even longer to pay back.

Related: Read the article by Chris Amrhein "ReverseEngineering."

But finding $100,000 in reduced processing costs is relativelyeasy and almost mundane. Agencies can do this by streamliningworkflows, standardizing ad hoc tasks, triaging accounts,eliminating errors and rework, templating letters and proposals,segmenting service levels by account size and profitability, anddelegating routine activities from well-compensated experiencedstaff down to competent but lower-paid staff or to externalprocessing partners.

Moreover, once you find those efficiencies, you can reinvest thetime savings back into writing more accounts, improving clientretention through enhanced service and differentiation, engaging ininnovation and, yes, hiring new producers and investing intechnology. In essence, process improvement is the treasure trovein your own backyard.

Do What Counts

Rather than “Just Do It,” I have an alternative phrase I use andshare when discussing agency process and profitability. It is “DoWhat Counts.” This is a way of saying you should focus your peopleon what drives the greatest value to your clients, to what yourclients care about and what differentiates you. This includes goodcoverages, stable carriers, efficient claims handling, proactiveservice and relevant, timely information like stewardship reports.Any activity not directly delivering these outputs to clientsresults in financial leakage and drains organizational energies. Inother words, any activity converted from routine processing toactive client management is accretive to the business.

“Do What Counts” starts from the premise thatyour people are valuable and valued, but they are under-deliveringon their potential through no fault of their own. By streamliningtheir operations, organizations can free up capacity and resourcesalready existing within their organization to manage more accountsand stimulate revenue growth.

Far too many agents and brokers underuse staff by failing torecognize their potential to create value, allowing them to spendcountless hours juggling routine tasks. Many managers are surprisedby the results produced by establishing processing standards,identifying inefficient functions and streamlining workflows.Redirecting tasks and freeing producers, underwriters and stafffrom menial processing functions would inevitably reduce costs andimprove throughput, while increasing the amount of time availablefor quality underwriting and value-added services. These changeswould simultaneously boost retention and create new businessopportunities.

Turning it Around

Good process starts with understanding what creates value forthe client. It then requires looking inward to align and optimizeinternal resources to address client needs. It can be compared topeople individually, who may be sick without knowing it. Theircholesterol and blood pressure may be high and their stamina weak.Their arteries are building unseen blockages that affect theirphysical performance across the board. To feel better, you can turnto workout schedules, which may seem onerous but hold the promiseof transforming the quality of our lives and the scale of ouraccomplishments. Many begin the new year with a resolution to dojust this.

Related: Read the article "Maturing ECM TechnologyTested by Increase in Data" by Robert Regis Hyle.

Similarly for insurance organizations, a New Year’s resolutionthat focuses on what’s inside, on the ways of improving theefficiency, stamina, strength and fitness of the organization, isthe most promising strategy for driving profitability, growth andcompetitive advantage in the new year. All parts of theorganization will communicate and collaborate more effectively witheach other and with clients on the outside.

In his seminal book about baseball, “Moneyball,” Michael Lewiswrites, “scoring runs is less an art than a process.” The authorexplored the subject of how Billy Beane, as general manager of theOakland Athletics, was able to build a winning baseball team basedon a scientific approach to managing the aggregate performance ofthe whole team. With the smallest budget in the league and no starplayers, the Athletics outperformed all expectations, set theAmerican League record for most consecutive wins and changed theway the game is played. The same principles that Beane applied tothe Athletics holds for insurance organizations.

An entire field of study, “sabermetrics,” has evolved inbaseball to optimize process over art. If this is true of baseball,it is even more so for running an insurance agency, which dependson aligning producers, account executives, markets and claimsmanagers to meet the needs and salve the fears of insureds.

So if your producers are spending too much time in the officeand your service staff berate the busywork that keeps them frommeeting expectations and being more productive, consider processimprovement as an approach that can deliver quick, yet meaningfulwins and empower your people to be the engines of growth for yourorganization.