How to Implement Business Process Improvement

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Published Date:15-07-2017
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Business process improvement: Seven steps to operational excellence PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence INTRODUCTION Total Quality Management. Six Sigma. Eight Omega. ISO 9000. CMMI. BPMM. SCOR. The number of process improvement frameworks out there is stagger- ing. Where does one begin? What should we believe? Is there a right way and Albert Einstein famously said, a wrong way? To be sure, we should make a distinction between a framework “Everything should be made and a methodology. While a framework provides a foundation typically de- as simple as possible, but not signed to promote a standard operational architecture, a competitive advan- simpler.” tage may only be derived by applying an improvement methodology that aims to distinguish one company’s processes from another. Why improve in the first place? There’s typically a contingent of folks who believe the old saw, “if it ain’t broke, don’t fix it.” But there are competitors out there, each a moving target, each determined to take customers away from you. Insurance companies face a particularly daunting problem: there is only so much room for price reduction. Unless you’re already a major player, growth strategies built entirely on price competition, especially in the personal lines markets, are largely opportunistic and ultimately difficult to sustain. Soft markets demand greater attention to the other side of the profit equation – cost cutting brought about by operational efficiencies is how the game must be played to ensure sustainable growth. Yet we find a world rife with complexity; as businesses Process struggle with the quickening Best Practice Excellence pace of new technologies and global markets, many have lost sight of the basics that underlie excellent operations. In this white paper we pres- Industry Process ent a simplified approach to Standard Improvement improvement initiatives for the overworked executive intent on improving internal organiza- tional processes in their quest Thought Leadership for operational excellence. Take a look at the graphic above. The lower left quadrant is where you’ll find a myriad of insurance companies vying for the same business. Here we of- ten see emphasis on new product development to meet the demands of their target markets. While product innovation is a critically important function to drive premium growth, a focus on new product development alone offers an invitation to competitors to imitate and, once again you’re caught competing Page 2 of 16 PERR&KNIGHT Competitive AdvantageBusiness process improvement: Seven steps to operational excellence on price. To sustain their competitive edge, savvy companies embrace the thought leadership that drives process improvement efforts (lower right quad- rant). In so doing, they develop excellent operations which provide a distinct competitive advantage (upper right quadrant). However, over time, the processes that drive excellent operations become written about and spoken about as examples of great ways to do business, and, as such, become codified as part of a larger body of “best practices” to which everyone has access (upper left quadrant). As a result, the competitive advantage they once provided begins to erode as these “best practices” be- come relegated to the heap of industry standards – thus providing no advan- tage at all. To thwart this vicious cycle, it’s incumbent upon good competitors to continuously evaluate and improve their operations in order to preserve the competitive advantage that truly excellent operations provide. WHERE DO WE BEGIN? So I’ll assume that you accept the notion that there’s a place for continuous im- provement, that by itself, it’s not simply a buzzword or a faddish management mandate and that, sure, I’ve got your attention. But where to begin? Organiza- tions can be terribly complex; a typical insurance company manages dozens of operational processes, all important, and all designed to influence the ef - ficiency and effectiveness with which work gets done. There may be hundreds of staff members impacted by a single operational change, and technology – often millions of dollars worth of investment – to consider as well. To be sure, I’m not advocating an all-at-once assault on the way things are What I am advocating is the done in an organization; those initiatives often fall flat, take too long and cost proliferation of a culture of con- far more than anyone anticipates. At the end of the day, the benefit derived tinuous improvement – a work- is simply not worth the effort (just ask those involved in business process re- force committed to monitoring engineering initiatives in the mid-90s). What I am advocating, however, is the and improving the way they proliferation of a culture of continuous improvement – a workforce committed perform their work. to monitoring and improving the way they perform their work. So we’ve set up the thesis: (a) there are many approaches to process improve- ment; (b) there is a viable argument for undertaking a program of continuous improvement; and (c) given the complexity of most organizations, most folks don’t know where to start. Fair enough? Given this, there are four important “big picture” items that must be in place in advance of an effective business process improvement effort. They are: ▪ PROVIDING THE VISION. Widely communicating what the world will look like in the event process improvement efforts are successful is critical. Good leadership skills are needed to promote and reinforce the notion that the hard work of changing the way things get done will yield phenomenal results. ▪ PROVIDING THE SKILLS. Absent the simple means to set about im- proving their own work, staff members will wallow in their own incom- petence as they struggle to make things better. This should not be so much an exercise in futility and frustration as one of the disciplined Page 3 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence application of proven methods. Provide new skills and employees will be better equipped and far more enthusiastic about the program. This paper attempts to provide an overview of such skills. ▪ PROVIDING THE GOALS. Consistent with the vision, goals and mile- stones indicate that the program is working even before it has fully matured. Like the vision, goals, too, must be widely communicated and universally understood. ▪ PROVIDING THE REWARDS. When those goals and milestones are met, reward the team Build compensation plans that reserve a portion of annual bonuses for meeting or exceeding the process goals estab- lished. Take a process improvement team out to dinner when a major milestone has been met. Reinforce the good work that’s being done and you’ll get the repeatable behavior that marks a culture of continu- ous improvement. WHY WE DON’T DO IT If there is such obvious value to be derived from disciplined improvement ef- forts, why aren’t they more widespread? The challenge with many process improvement methodologies is that they portend to offer something uniquely valuable, something that, if embraced in their entirety, will provide a perfect response to the ills typical of poorly designed and executed processes: exces- sive handoffs, high rates of error, rework, delay, etc. However, we find man - agement often stymied by choosing between methods, and getting staffs up to speed once one has been decided upon. Is there a “correct” methodology? Which provides the best means to accom- plish the goal of improving processes for sustainable competitive advantage? We all want to claim ownership over the best known way to approach some- thing; we all want our names and companies associated with some proprietary method for achieving world-class status. But at the end of the day, there really is a simplified approach which is far easier to embrace; one that borrows from all but commits to none. Understanding the principles of process improvement helps to remove the mystery and overwhelm that comes with attempting to approach many of the more comprehensive systems for improvement. A simple but often overlooked idea is based on Pareto’s Law – that 80% of the problems we find in a process A simple but often overlooked come from 20% of the potential problem causes. Why is this helpful to real- idea is based on Pareto’s Law ize? Because finding and isolating that critical 20% – those “vital few” causes – that 80% of the problems we – and separating them from the other 80% – the “trivial many” – helps focus find in a process come from improvement efforts such that they’re far more effective much earlier in the ef- 20% of the potential problem fort. Rather than attempting to fix everything at once, a committed, disciplined causes. effort that first identifies the main causes of process problems and makes their remediation a priority means big gains and stellar results early on. And what does this accomplish? In addition to the obvious benefits brought about by bet - ter processes, the buy-in that’s needed to continuously improve is instilled in both the workforce who inevitably must change they way they approach their Page 4 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence work, and among senior management, without whose support few initiatives would get done. GETTING TO WORK To this point, we’ve (hopefully) convinced our readers that there’s a solid argu- ment for undertaking a process improvement initiative, and the foundations for doing so have been adequately conveyed. Next we define a simple but disciplined approach to such a program. Covering seven major steps, the fol- lowing pages contain a simplified approach to process improvement that any company can embrace and implement immediately. STEP 1: CREATE A PROCESS MASTER The first step of any process improvement initiative is to take stock of as many organizational processes as possible. Why? Because everything is connected to everything else in the value chain – from concept to customer. Consider- ing all organizational processes will force the team to think about the interde- pendencies between individuals, departments, vendors and customers, all of Everything is connected to ev- whom may influence the process. The tool we use to accomplish this is the erything else in the value chain process master (see following page) – a table that lists each process in a – from concept to customer. particular operational value chain. For our purposes, we’ll focus on a subset of processes that comprise the regulatory compliance function of an insurer, which taken together represent the core of the compliance value chain: Exemplary Insurance Company Master Regulatory Compliance Process List Business Supplier Input Key Steps Output Customer Measures Process State Filings Actuaries Rates 1. Prepare Filings Filing Pack- DOI’s Cycle time Product staff Rules 2. Submit age Errors Bureaus Forms 3. Gain Approval Resubmissions Regulatory PCIAA Updated info 1. Access Source Actionable Compliance Cycle time Tracking Lexis/Nexis 2. Review relevant info Currency of info 3. Document 4. Notify Producer Li- HR New producer 1. Gather info New li- HR Cycle time censing Legal Expiring license 2. Schedule exam cense Compliance 3. Verify results Renewed 4. Note status license New Marketing Marketing re- 1. Review Approved Marketing Cycle time Product De- quest 2. Draft rate plan product Producers Time-to-market velopment 3. Develop forms IT 4. Update PAS Regulatory Policy System Policy data 1. Generate data Data file ISO Errors Reporting Claims data 2. Run edits NCCI Cycle time 3. Submit Resubmissions A process master for a regulatory compliance organization ▪ State filings ▪ Regulatory tracking ▪ Producer licensing ▪ New product development 1 ▪ Regulatory reporting Page 5 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence Once the processes have been identified, for each, further identify and note on the process master: ▪ The supplier of inputs to the process; ▪ Each input upon which the process depends; ▪ The major activities performed by the process participants that, when performed in sequence, lead to the output; ▪ The output(s) which result from performance of the activities; ▪ The customer who receives the output of the process; and ▪ The key metrics that indicate the effectiveness and efficiency of the process (cycle time, error rates, delay, etc.). STEP 2: PRIORITIZE PROCESSES We next determine which process(es), if improved, would have the greatest positive impact on the organization (i.e., would most likely contribute to the ful- fillment of the organization’s goals). To do this, we’ll develop a process priori - tization matrix that ranks processes accordingly. There are five steps involved 2 in building the matrix, depicted on the following page: Some processes have greater overall impact on an organiza- tion than others. Prioritizing processes assists greatly in decision support. Process prioritization matrix 1. List success criteria. Success criteria are those measures, ranging from most tangible (e.g., financial measures) to least tangible (e.g., strategic measures), that indicate the larger organization is on the right strategic path. In this case, the organization has determined that hit ratio, combined ratio and compliance are the three criteria that demon- strate it is performing according to its strategic plan. 2. Weight success criteria. Success criteria are then weighted relative to each other, using an index from 0.5 to 1.5, where 0.5 indicates the criterion has the least weight, and 1.5 indicates the criterion has the most weight. In our example, the organization has deemed new busi- ness to be a critical success factor. As such, hit ratio (1.5) is the most important strategic measure relative to compliance (1.0) and combined Page 6 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence ratio (0.5). They are all important, however; this is simply a relative weighting. 3. List processes. List the names of the processes from the process master on the left-hand side of the matrix. 4. Assign anchors. A number from 1 to 5 (each, an “anchor”), is inserted in each cell indicating the strength of correlation between each process and each success criterion. 5. Determine score and rank. The resulting scores, which are the prod- ucts of the relative weights times the anchors summed across each process, provide a ranking, based on the success criteria, that indicate which processes should be given improvement priority. In our exam- ple, it has been determined that the state filings process (with a score of 13) most contributes to the fulfillment of the organization’s strategic objectives. It should be noted that prioritizing processes in this manner is purely for deci- sion support. Obvious needs should be addressed first and must trump the outcome of this type of prioritization analysis. Assembling process improve- STEP 3: ASSEMBLE A PROCESS IMPROVEMENT TEAM ment teams is critical in gaining Since the single greatest impediment to change is a lack of buy-in on the part the input and support needed of those who we hope will embrace it, it’s important to involve representatives for any process improvement from every part of the organization that might influence or be influenced in any initiative. way by the modified (i.e., improved) process. As such, input from the following individuals should be solicited throughout any process improvement initiative: ▪ The executive sponsor is typically a member of senior management who endorses the process improvement initiative. ▪ The process supplier is the source of input to the process being evalu- ated. ▪ The process owner is the person responsible for the quantity, quality and timeliness of the ultimate output from the process. ▪ Process participants are those whose daily work impacts the process. At least one representative from each major process activity should participate on the process team. ▪ The process consumer is the recipient of the process output. Without assembling a team comprised of each of these members – even if some only have peripheral involvement – you are almost certain to face resis- tance in the improvement effort. STEP 4: CREATE PROCESS MODELS There are many business reasons for which an insurance company should Page 7 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence model its processes. A well-developed process model renders the depart- ments, resources, activities, third parties, handoffs and decision points graphi- cally; a process deconstructed in this manner expedites analysis and problem identification. They are also increasingly important for compliance purposes, including Sarbanes-Oxley, ISO 9001 and the forthcoming adoption of the NA- IC’s Model Audit Rule by many states. A best practice for modeling a process involves a “swimlane” diagram (see fig - ure on page 36), where each lane represents a department within an organiza- tion. Lanes that “float” outside of the main body of the map (i.e., the three lanes at the bottom of the diagram) represent third parties who provide services in the conduct of the process. Rendering the process in this manner also gives a sense of timing with respect to the flow of the process, as activities flow down - stream to the right as time passes and the process is completed. Rendering the process in this manner gives a sense of tim- ing with respect to the flow of the process, as activities flow downstream to the right as time passes and the process is completed. A detailed process model (segment) I like to keep these diagrams simple, and use only a few mapping symbols: a rectangle to represent an activity, a diamond to represent a decision point and a rounded rectangle to represent an endpoint. Note that activities in the figure can span multiple departments or organizations, indicating that responsibility for completing the activity is shared. In addition, the functional title of the resource(s) charged with performing each activity is included above each activity rectangle, and, where needed for clari- fication, brief narratives are provided below both activities and decision points to describe the step in greater detail. In reviewing the process model, our intention is to identify as many non-val- Page 8 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence ue-adding (NVA) activities – those activities that add nothing of value to the ultimate consumer of the process output – as possible. The list of “usual sus- pects” includes: ▪ Excessive handoffs. Workflow that navigates between multiple staff members in multiple departments requiring multiple approvals is a ma- jor impediment to efficiency. Review the process model to see whether some of those handoffs can be eliminated. A concept known as rolled throughput yield (RTY) exemplifies this best: if there are two activities in a certain process, and each activity is performed with 98% effective- ness, the output, or RTY is 98% X 98% = 96%. However, if the same process involves five activities each performed with same level of ef - fectiveness (98%), the RTY is much lower (98% X 98% X 98% X 98% Similar non-value-adding ac- X 98% = 90.4%). tivities will be discovered dur- ing most business process im- ▪ Bottlenecks. This where someone or something in the process can’t provement initiatives. keep up with the rate of input. Bottlenecks represent the best oppor- tunity for improvement, as they’re easy to identify; the slowest activity and resources with highest utilization rates often indicate bottlenecks. ▪ Rework. When something has to be sent back into the process be- cause of defect or error, it contributes to bottlenecking and decreases RTY. Look for “hidden” incidences of rework at activity steps (does the activity get the job done or is it redone somewhere down the line?) and decision nodes (once the decision is made, is it made again?). Bear in mind that the further downstream in a process rework occurs, the more costly it is, as each preceding activity step has a cost associated with it, and the more activities that have to be repeated, the more the overall cost of the process increases. ▪ Waiting/idle time. Often a by-product of bottlenecks and rework, waiting and idle time are akin to throwing money out the window. Waiting saps the process of productive capacity and even contributes to higher rates of error, as process participants who start and stop multiple times dur- ing the day lose their focus and the consequent ability to get into flow . ▪ Transport. If process participants are physically moving documents for signature or shipping off files to another office for completion or ap - proval, the process is undoubtedly suffering from an inefficiency due to transport. In addition to the direct cost of transport, it, too contributes to idle time and bottlenecks. Pay attention to where the process requires the physical movement of work product for completion, and eliminate as much as possible. ▪ Untapped creativity. The people charged with working daily within the process being examined are a terrific source of ideas. What are you doing to solicit their input? Not only do the front-line staff often have the best ideas, but the implementation of their ideas gives them owner- ship of the process and improves morale. Be sure to actively solicit the ideas and opinions of staff. Page 9 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence The next stage of the improvement initiative, root cause analysis, seeks to identify the underlying causes of these and other process problems. STEP 5: PERFORM ROOT CAUSE ANALYSIS While the first four steps represent discovery and team identification, this step represents the first major diagnostic part of the improvement effort. The root Root cause analysis is the first cause analysis technique that is most easily taught involves using several tools major diagnostic part of any im- from the Six Sigma toolkit, including brainstorming, cause-and-effect diagram- provement effort. ming, affinity diagramming, discrete data collection and Pareto analysis. As such, this stage of our process improvement initiative involves five sub-stages, described in turn below. ▪ Brainstorm possible causes of the problem being investigated. Brain- storming sessions should involve the entire process team and others who may have an interest in the outcome of the effort. For example, if the team includes a member who represents a particular activity per- formed by, say, five staff, all five staff should be invited as well. Brain - storming should be somewhat of a free-for-all, with few rules other than these: ▫ Name a facilitator who calls on participants and jots down ideas on a whiteboard that all can see; ▫ Anything goes – no judgments should be made and all ideas, no matter how far-fetched, are valid; and ▫ Limit the session to no more than 45 minutes. At the start of the session, the facilitator provides the ground rules and addresses the group with a problem statement: “We have a problem. It takes far too long to complete a new rate or form filing and submit it to a DOI. As a result, new product introduc - tions have been delayed. We need to determine why it’s taking so long to get these filings out the door. Any ideas?” Meeting participants then raise their hands to offer ideas, which the facilitator writes down in rapid succession. The goal is to gather as many ideas as possible in the 45 minute session. The facilitator uses the list of generic issues identified during the process modeling step to prompt the group. All possible issues should be considered in their “organizational context” – how they are impacted by workflow , systems, key performance metrics, governance (policies and regula- tions), personnel (reporting structure, hiring, training and compen- sation practices) and the physical environment in which the work is performed. The group should continue to drill down until it can go no further, having reached a possible root cause. ▪ Assign ideas to affinity groups. A good brainstorming session will yield 50, 100 or more ideas in 45 minutes, which becomes somewhat un- wieldy. To make the process more manageable, the group next endeav- Page 10 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence ors to place the ideas into broader categories, called affinity groups. While there is no “correct” set of affinity groups, the major areas im - pacting most processes are those described above as comprising the “organizational context” in which the process is conducted. As such, our affinity groups are labeled workflow, systems, metrics, governance, personnel and environment. An affinity chart of some of the possible root causes typically discovered during brainstorming sessions, as well as a chart showing the possible root causes from our example, are depicted on the following page. Workflow Systems Metrics Governance Personnel Environment Suppliers delayed Training Not specific Onerous policies Inadequate org Rural HQ location insufficient structure Inputs faulty Documentation Not measurable Onerous Poor hiring Wide team lacking regulations practices distribution Process steps Poor integration Not actionable Inadequate Excessive poorly defined training transport Outputs Poor usability Not timely Misaligned inadequate compensation Customer Difficult to access Not relevant disatisfied Each of the possible root Generic root causes by affinity group causes identified are mapped to a cause and effect diagram Workflow Systems Metrics Governance Personnel Environment in order to examine the rela- Inadequate Internal Metrics unavailable Policies Mistakes Logistics tionships between possible training causes. Inadequate External Metrics irrelevant Regulations Wrong form Delivery error documentation used Failure to notify IT SERFF failure Missed deadline Wrong fee paid Excessive transport Incomplete filing Root causes from our example categorized by affinity group ▪ Map affinity groups to a cause and effect diagram. Each of the pos- sible root causes identified are next mapped to a cause and effect dia - gram (also called an Ishikawa diagram, after its creator, or a fishbone diagram, for obvious reasons) in order to examine the relationships between possible causes. At the far right we indicate the process prob- lem we wish to address, and on each of the major “fishbones” we in - dicate the major affinity categories. We then place possible causes on branches of the major fishbones, and drill down as necessary until we get to the possible root cause. In our example, you can see that per- sonnel (staff) involved in the process run the risk of using the wrong form, paying the wrong fee or making typographical errors, which the group attributes to poor training. We’ve illustrated just a few of the pos- sible root causes for each of these process errors. Page 11 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence A cause and effect (Ishikawa)diagram ▪ Collect data. At this point, we’ve already begun to discover many pos- sible causes of process delays that result in increased cycle time. How- ever, it’s important to make fact-based decisions about improvement efforts and further refine our analysis by recording each incidence of each possible root cause to measure the frequency with which each occurs. Such measurement is per-formed using another simple tool, the checksheet (pictured below). The checksheet simply provides a list of possible causes (of increased cycle time, in our example) in a grid in which process participants record the number of times a particular type of defect is discovered. Exemplary Insuance Co State Filings Unit Period 1/07/08 - 1/11/08 Staff Rob Berg Defect Mon Tue Wed Thu Fri Total Typographical Error /// // //// //// ////// 19 Wrong Form / / / //// 7 Failure to Notify Client // / / 4 SERFF Failure / / 2 Wrong Form / // 3 Delivery Problem / 1 Wrong Fee Paid /// // //// /// ///// 17 Filing Deadline Missed // 2 Incomplete Filing / 1 Other // 2 Total 10 9 10 12 17 58 A checksheet used for the process study Pareto charts are histograms depicting the frequency with ▪ Perform a Pareto analysis. After a reasonable study period (which, which each possible cause oc- depending upon the process, will typically last anywhere from one to curs – to help separate the “vi- twelve weeks), the results are translated to a Pareto chart (see fol- tal few” causes from the “trivial lowing page) – a histogram depicting the frequency with which each many.” possible cause occurs – to help separate the “vital few” causes from the “trivial many.” Our objective here is to eliminate the sense of over- whelm that accompanies process improvement approaches that fail to Page 12 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence zone in on the most pressing problem causes, and instead attempt to fix everything at once. In our example, of the nine causes of increased cycle time identified by the team, three stand out as most problematic – typographical errors, wrong fee paid and wrong form used account for 74% of the causes of the undesirably long cycle time required to submit a com- plete filing to a department of insurance. The job of the team is to determine how best to address these issues. Pareto Chart State Filings Defects 20 120% 18 100% 16 14 80% 12 10 60% 8 40% 6 4 20% 2 - 0% Filing Typographica Wrong Fee Failure to SERFF Incomplete Delivery Wrong Form Wrong Form Deadline All other l Error Paid Notify Client Failure Filing Problem Missed 19 17 7 4 3 2 2 1 1 2 Quantity 33% 62% 74% 81% 86% 90% 93% 95% 97% 100% Cum % % of Total 33% 29% 12% 7% 5% 3% 3% 2% 2% 3% A Pareto Chart STEP 6: ADDRESS TOP 2 – 3 CAUSES While there are far more comprehensive approaches to process improvement using advanced techniques like statistical process control or experimental de- Simple analysis, supported by sign, our simple analysis, supported by real data and not just guesswork, has real data and not just guess- revealed some important information and we’re in a strong position to develop work, has revealed some im- our first hypothesis. In conducting root cause analysis, the process team de - portant information and we’re termined that each of the three potential causes we’ve chosen to address are in a strong position to develop most likely caused by poor training. As such, we hypothesize that by improving our first hypothesis. our training program we would realize a profoundly positive impact on our pro- cess – to the tune of a 74% decrease in errors and a corresponding decrease in cycle time based on our data. At this point, the team should charter a project aimed at creating or revising training materials and delivering the improved training program. STEP 7: RE-MEASURE Once the selected improvement project has been completed and the revised practices have been implemented, it’s time once again to take a tally of the possible root causes identified in the earlier stages of the improvement initia - Page 13 of 16 PERR&KNIGHT Occurences Cumulative PercentBusiness process improvement: Seven steps to operational excellence tive. Each subsequent measurement serves to validate the effectiveness of the improvement program, which reinforces team and management buy-in and sets up the organization for the next set of initiatives. SUMMARY If you’ve made it this far, well, you’ve got yourself a bona fide process im - provement framework – certainly enough to give you a feel for a simple – and Only through successive itera- perhaps best – way to approach troublesome process problems. The process tions of the improvement pro- doesn’t end here, however; only through successive iterations of the improve- gram can you sustain opera- ment program can you sustain operational excellence, and so it becomes tional excellence. important to ingrain the tools and methods presented here among the staff, who are daily charged with performing the good work of the organization. The seven major steps are summarized on the following page. SEVEN STEPS TO OPERATIONAL EXCELLENCE CREATE A PROCESS MASTER. List each organizational pro- cess, and the suppliers, inputs, major process activities, outputs, 1 customers and key metrics for each. PRIORITIZE PROCESSES. Using the organization’s strategic success criteria as weighting factors, determine how each pro- 2 cess impacts their fulfillment and rank accordingly. ASSEMBLE THE TEAM. Include an executive sponsor, the pro- cess supplier, the process owner, process participants and the 3 process customer. CREATE PROCESS MODELS. Detail the flow of activities in the process and identify departments, resources, decision points and 4 narratives where indicated for clarification. PERFORM ROOT CAUSE ANALYSIS. Using brainstorming, af- finity diagramming, cause-and-effect diagrams, checksheets and 5 Pareto analysis, identify the possible root causes of the problem. ADDRESS TOP CAUSES. Have the team charter projects, as appropriate, to address the causes identified as most problematic 6 during Pareto analysis. RE-MEASURE. To validate the effectiveness of the solutions im- plemented as a result of the successful completion of the char- 7 tered projects, re-measure using checksheets. CONCLUSION The adoption of a disciplined approach to solving process problems will pro- vide substantial rewards to organizations and separate those that do so from their competitors. A workforce genuinely focused on continuous improvement – on making things better – is enviable. The dividends from improved morale Page 14 of 16 PERR&KNIGHTBusiness process improvement: Seven steps to operational excellence alone rival the direct financial benefits, by demonstrating to customers and the world at large a dedication to excellence and a commitment to quality. A framework that facilitates the continuous establishment and achievement of goals that are appropriately rewarded breeds enthusiasm – and the optimism “Perpetual optimism is a force infused in the visions that motivate great competitors. multiplier.” NOTES - Colin Powell 1 For a fairly comprehensive list of generic organizational processes, refer to the Process Classification Framework , available as a free download from the American Productivity and Quality Council ( 2 Note that any process being improved must be considered with respect to all other processes in the same value chain. A common mistake is to focus on one area at a time without regard for other areas, and the organization as a whole suffers. Said another way, a set of local optima do not yield a global optimum. Page 15 of 16 PERR&KNIGHTABOUT THE AUTHOR Rob Berg is a Principal and Director of Perr&Knight’s Insurance Technology Group (ITG). In addition to managing Perr&Knight’s internal development ini- tiatives, Rob and the ITG team work with insurers to provide solution design, requirements gathering, vendor selection, business case development, proj- ect planning, risk assessment, business process design, IT governance , data management and staff augmentation services for their technology initiatives. Over a career spanning more than twenty years, Rob has led or advised execu- tive teams in the financial services, consumer retail, software and telecommu - nications industries. His expertise includes strategic planning, organizational design, project management and process improvement methodologies, includ- ing workflow design, analysis and simulation. Prior to joining Perr&Knight, Rob was Chief Operating Officer of SmartReply, a leading retail marketing firm that enjoyed three consecutive years of triple-digit growth during his tenure. Prior to SmartReply, Rob was Chief Executive Officer of Ecor Solutions, a New York- based IT consulting firm that counted Deutsche Bank, W Hotels and American Legend among its clientele. In addition to holding a Bachelor of Arts in Economics from Stony Brook Uni- versity and completing graduate work in technology management, decision theory and organizational behavior, Rob holds credentials from the American Society for Quality (Six Sigma Black Belt) and Stanford University (Advanced Project Management). He is a member of ISACA and a Senior Member of the American Society for Quality, a frequent speaker at industry trade events, and has been quoted or published in multiple industry trades including Best’s Review, IASA Interpreter, InsuranceNewsNet and the Journal of Insurance Op- erations, of which he is Editor-in-Chief. ABOUT PERR&KNIGHT Perr&Knight is a leading provider of insurance support services and a strategic resource that companies utilize to reduce their fixed costs while increasing the efficiency and value of their insurance operations. Perr&Knight’s insurance support services include Actuarial Consulting, Competitive Intelligence, Data Services, Insurance Technology and Regulatory Compliance. CONTACT US PHONE: 310.230.9339 E-MAIL: WEB: © 2008 PERR&KNIGHT Page 16 of 16 PERR&KNIGHT

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