Changing Strategies Makes Sense In Hard Times And In Hard Markets

The Achilles heel differs in firms. Poor customer service, outdated products, dying markets, high expenses, lackluster growth and mounting employee troubles are among issues that threaten. Unfortunately, many companies are treating these ills as if they are in remission.

Improved financials are welcome for sure, but may be creating false hopes. The patient had better be on guard. When–not if–the soft market returns, these potentially terminal problems will fester.

Another incentive to pull the trigger now is because your competitors wont. Theyve been whipsawed for years by the soft market, and prefer to bask in their brighter, hard market balance sheets. Theyre also fretting about the lagging economy, reinsurance costs, terrorism and natural disasters. This malaise creates opportunity for you to either catch up or widen the gap.

Fundamental changes during these times will also be less jolting to an organization. Improved financials give you the cushion and patience you need to see the process through. Soft market cycles foster price wars, short-term outlooks and less room for error.

Need more rationale? The current employers market bolsters a chief executives leverage to execute his/her vision. The truth is, a well-thought-out change strategy excites your better performers and weeds out the weak.

Unfortunately, some leaders cant or wont change during times like this. Most are hamstrung by an "if it aint broke, dont fix it" mentality. Why change when things are finally looking better?

Skeptics point out that underwriting has been tightened, price increases have been obtained and profitability has improved. Some wait for the economy to turn and terrorism to diminish, while others brace for a summer of more fires and storms.

But history reveals the dangers of standing pat. How are companies responding to change in the current industry environment? They generally fit into four different categories: the Do Nothing insurers, the Do Something insurers, the Do Too Much insurers, and the Do It Right insurers.

The "Do Nothing" Insurers

"Life is a progress, not a station." Ralph Waldo Emerson

The do nothing companies are treating change like the plague these days. They cling to traditional structure, standard practices and controls, and rely on such competitive advantages as superior expense controls, favorable state underwriting results, a specific niche expertise or an outstanding sales force.

The dilemma facing these firms is that competition has grown significantly tougher.

Their growth has stagnated. Employee potential is untapped and morale is poor. Other problems simmer, but since surplus is strong for some and results have improved, management feels vindicated by their "steady course" philosophy.

Their leaders cant grasp whats happening. They see healthy vines; others see root rot.

The Do Something Insurers

"It doesnt work to leap a 20-foot chasm in two ten-foot jumps."Old American Proverb

The "do something" carriers fashion themselves as innovators and change agents, but dont walk the talk, especially during these turbulent times.

They are generally well run, and innovate enough to compete, but are risk averse. They consider changes, but only implement them after studying their cost and benefits in agonizing detail. Their organizations test and analyze, then they tweak. Major changes become incremental improvements. They monitor and implement proven enhancements competitors make, but still play catch-up.

The "do something" insurers structure and culture locks them into this careful approach. Their results, while impressive, arent spectacular. Detractors say these companies underachieve and thus undermine their chances for long-term success.

The "Do Too Much" Insurers

"There is a certain relief in change, even though it be from bad to worse!" Washington Irving

The "do too much" companies dont embrace change, they grope it. Their bold leaders love innovation, but often fall short on forethought and execution. Change comes in waves, in good times and bad, soft markets or hard. Exhausted employees are left to mutter: "Oh, oh, here we go again."

The newest and hottest trends rule.

Sadly, staff goes through the motions and never invests in a change strategy because they think another one is on its heels.

Overconfidence dominates. Some ditch the "stick to your knitting," advice of Tom Peters classic book "Searching For Excellence." They forge new markets, but often forget who brought them to the dance.

Others latch onto legitimate change methodologies, but either cant implement them properly or dont have the patience to persevere.

A few companies embark on change strategies without outside help and fail. They lack the objectivity, expertise and industry perspective a consultant can provide.

The "do too much" insurers sometimes hit a homerun, but more often fail, and their management teams are gutted. Some must seek a white knight, while others are consumed by carnivorous acquirers.

The Do It Right Insurers

"We must become the change we want to be."Mahatma Gandhi

The "do it right" insurers understand the industry is changing dramatically and new business strategies are necessary to survive and flourish. They realize old business practices may not mesh with new competitive challenges, customer expectations, employee needs and new technologies.

Seeing these harsh realities, the "do it right" insurers opt to fundamentally change their structures and operations.

They start by discarding traditional functional org charts in favor of market- or customer-focused alternatives.

Using their best and brightest employees, and usually a consultant, they next identify the ideal structure that meets their stakeholders needs. Their "design team" then identifies enablers that will make this structure work.

The building blocks are customer-focused teams, one-stop processing, dual career paths (for technicians and managers), profit center management, an ownership culture, a results-based team incentive compensation program (gainsharing), lower spans of control, and employee authority and accountability.

Emphasis is placed on customer satisfaction, internal efficiency and bottom-line results.

A key ingredient is gainsharing, a program that earns employees short-term bonuses for additional bottom line results. The incentives motivate employees to take an entrepreneurial business owners mentality.

Gainsharing bonuses are funded from quarterly improvements in revenues, underwriting results, efficiencies and customer quality. An open information environment is created and workers are educated on insurance company finance.

The organization naturally evolves into profit centers that focus on customer needs. Traditional functional areas such as underwriting, claims and marketing are broken down, but technical expertise remains valued and nurtured.

Managers recruit, coach and remove obstacles.

Front-line employees meet customer needs, make decisions and ensure that work is done efficiently.

Senior managers chuck minutiae and concentrate their efforts on the firms core success measures and strategic issues.

Firms that make fundamental changes wonder why they didnt act sooner.

Employees revel in their new-found freedom and responsibilities. Recruiting talent becomes significantly easier for the "do it right" insurers because todays workers love the dynamic environment.

So what are you waiting for? Its not really a hard decision. Times a wasting!

R. A. McDonald, CLU, FLMI, is president and Lawrence W. Borgen, CPCU, is a senior management consultant with McDonald Consulting Group Inc., a Minneapolis-based management consulting firm that works exclusively with insurance companies.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.