beyond functional excellence: organizing for results at london life

Beyond Functional Excellence: Organizing for Results at London Life

Steve Warren and Tim Weizer

Oqanizational productivity (or revenuesper employee) has long been an important factor in the financial seruices industry. London Life Insur- ance Company, a leading individual life insurer in Canada, has achieved an average rate ofproductivity improvement of 7.lpercent over thepastfive yearn and in 1986, the company was awarded the Canada Award for Excellence with a gold medal forproductivity. But London Life recognized that to sustain and improve on such aperfomance level would require breakthrough thinking. ma3 article demonstrates bow the company went beyond traditional approaches to find new ways to maximize the effectiveness of its oqanization and, thus, improve value forpolicyholden.

Steve Warren if vice president of compensation and quality at Lon- don Lfe Insurance Company in London, Ontario. He has been in charge of the company’s organizational @ectiveness programs since 1988. Tim Weizerisaman- ager with the gbbal consulting firm A.T. Kearney, Inc., special- izing in organizational and sales force effectiveness for North American clients. He is also a frequent lecturer to executive groups.

For more than a decade, London Life Insurance Company had been achieving productivity improvements through the efforts of its internal operations improvement department (OID). The department took a vertical approach to organizational reviews and dealt primarily within functional boundaries. The department’s studies had facilitated improved efficiency through automation, elimination of duplication, and the implementation of new procedures and function or department organizational designs. OID at London Life was viewed as a valuable and necessary building block on the road to world-class positioning. While successful at generating individual functional excellence, however, the department’s approach did not address the effectiveness or efficiency of business processes that cross functional lines.

London Life recognized the drawbacks of this vertical approach and realized that there are limits to what functional excellence can actually achieve. No one function, no matter how superior its performance, can by itself achieve a company’s strategic objectives. Moreover, the attainment of a company’s strategic objectives is often hindered by the weakest link in the multiple functions involved in achieving superior execution or manag- ing the innovation on which key strategies are founded. London Life determined to adopt breakthrough thinking to assess the structure of its organization.

Talking about breakthrough thinking is easy, but actually doing it is a different story, Where does one start? What approach can be used? And what results are potentially available? This is how London Life did it.

GETTING STARTED Late in 1990, London Life worked with A.T. Kearney management

consultants to test an innovative analytical approach that looks across the

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full scope of a business unit to generate breakthroughs in organizational effectiveness. The company decided to conduct a pilot study and establish a joint London Life/A.T. Kearney team. Three London Life employees- two from OID and one from the selected pilot business unit-and two Kearney consultants collaborated for this work. The consultants provided understanding of and training in the analytical approach, along with overall project management guidance. The London Life team members contrib- uted the resources needed to understand this particular business unit and its business processes. A comprehensive, fourteen-week project timeline was developed that divided the work into four basic activities:

A comprehensive, fourteen-week project timeline was developed.. .

Organization. The first step was a four-day kickoff meeting designed to enable the company to get a grasp on the overall objectives, framework, and work plans of the project; to discuss the business processes used; and to establish individual team member work plans for collecting and analyzing data. For the consultants, the kickoff meeting provided an opportunity to develop a better understanding of London Life’s business processes and the pilot business unit’s strategies and objectives. In addition, the meeting helped establish the basis for an effective London Life/A.T. Kearney working relationship. Fact Finding. A month was set aside for collecting the basic data necessary for the study. A combination of personal interviews, questionnaires, and a review of existing company documents was used. In this way, the team was able to develop a solid, working understanding of important topics, including environmental dynam- ics, the fundamentals of the pilot business unit, and important cross- functional working relationships. During this time, the team and the pilot unit’s top executives participated in group discussions with the consultants. These discussions focused on discovering and/or con- firming the processes most important to the company’s competitive advantage and on eliciting innovative thoughts for structurally supporting the pilot unit’s key strategies.

*Analysis. Various techniques were used to analyze the data and draw conclusions. Among these were span and level analysis, work distribution, cycle-time analysis, inputloutput balancing, business process, and value analysis. Testing and Modification. Based on the results of the analyses, the team developed various hypotheses and assessed their overall cost benefits, advantages, and disadvantages. These hypotheses focused on ways to manage the pilot unit’s business processes for enhanced productivity and competitive advantage. Once developed, they were prioritized and tested with the appropriate London Life manager or executive to solicit additional input and obtain support and commit- ment for their implementation.

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Beyond Functional Excellence: Organizing for Results at London L$e

Business process analysis ... is not designed to replace operational improvement efforts but to complement them.

At the conclusion of the team’s work, a final presentation of the study’s findings, hypotheses, and concepts of change-including the costs and benefits of each-was prepared and presented to senior management. Specific implementation plans were then formulated to translate each opportunity into a reality.

THE NEW APPROACH The approach used in this pilot study is based on investigating two

elements within an organization-business processes and value-added chains. A business process is a systematic set of activities performed by all departments involved in producing a specific tangible value or result for the company. Examples of business processes include putting a new customer on the books or creating a new product. Figure 1 depicts the eight-step new product business process for London Life’s pilot unit.

At each step of the process, people and monies contribute to the desired business result. Typical business results are increased profits, reduced costs, increased market share, new sales from new markets or products, increased customer loyalty, or a combination of these elements. Before initiating this study, London Life had made continuous productivity improvements in individual areas, such as product management, by focusing its efforts on achieving a best-of-the-best level of excellence in individual departments or functions. The operations improvement department

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used a variety of techniques to analyze work tasks for:

Effectiveness (the need for the task) Efficiency (work flow, technology deployment) Pace (documents processed in a specified time period) Skill balance (aligning task complexity with skill capability) Organization (the redeployment of department or functional resources and the design of specific jobs)

The OID traditionally used a classic approach, shown in Figure 2, which was limited in scope and perspective. It would primarily remain within the boundaries of a particular activity, such as generating product ideas, or a single function, such as product management.

Although very successful, this approach was no longer considered sufficient to fulfill the company’s needs. “Although we were very proud of the operations improvement department’s past accomplishments,” said Steve Warren, vice president, compensation and quality, “we were seeking a new methodology to supplement our traditional strengths.” Business process analysis, however, is not designed to replace operational improvement efforts but to complement them.

Business process analysis is of a higher order. The outcome of a business process is a business result. Business results, in turn, depend on multifunctional contributions. Achieving best-of-the-best excellence in one specific department or function (the thrust of operational improvement), while important, cannot assure excellent business results. Figure 3 shows



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3 74 National Productivity Review/Summer 1992

Beyond Functional Excellence: Organizing for Results at London Life

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the new product business process and the distinction between the classic and new approaches. While the classic approach took a vertical bore in its examination, the new approach featured a horizontal bore that cut across all the functions of a business process.

The second element in the new approach, value-added chain analysis, is the prime method for reviewing all business processes. The underlying basis for this element is a recognition that any company has a limited amount of resources. Therefore, resources need to be redeployed from no- value and low-value activities to those of greatest importance to the organization-namely, those that improve shareholder and customer value (see Figure 4). In applying the value-added chain method to the business processes, the following analytical tools are important:

1. A Categorization System. Each business process within the pilot business unit was identified by the team as either wealth producing (WP), wealth-maintaining or supporting (WMOS), or other required (OK). Wealth-producing processes contain activities that directly contribute to the unit’s business results and help achieve the company’s key strategic goals and objectives. Wealth-maintaining or supporting processes consist of activities that support wealth-producing processes. Examples include training, financial analysis, and recruiting. Other required processes consist of activities generally necessitated by government, industry, or fiduciary requirements.

2. A Priority Grid. To help clarify and communicate the relative priority and emphasis of the business unit’s overall strategic philosophy, a grid was used to facilitate team discussion. The grid, shown in Figure 5, helped the team address a number of important questions, such as:

a. What counts? How will the pilot unit win versus competitors in this business category?

b. Where does the pilot unit need to be more competitive?

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3 76 National Productivity Review/Summer 1992


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c. Where does the pilot unit have to surpass competitors to offer purchasers a compelling reason to buy from London Life?

3. A Hierarchical Value Table. Once the business processes had been categorized as either WP, WMOS, or OR and the underlying tasks and activities sized by means of interviews and questionnaires, the team classified each process’s work tasks into one of nine matrix boxes located within a hierarchical value table. During this phase of the study, all team members discussed the placement of tasks and their value to a WP, WMOS, or OR business process. Figure 6 displays the value table format used in the study, while Figure 7 shows one of the actual value tables that were generated. It displays the savings realized by eliminating unnecessary work, shown in the table as full-time equivalents (FTEs). Using the value table, the team identified and developed eight specific improvement opportunities and concepts of change for eliminating and/or reducing low- value or no-value work in each key business process. Figure 8 details one of the eight opportunities that were discussed with London Life management.

RESULTS ACHIEVED The results achieved from the pilot study were significant. Implement-

ing the opportunities identified by the joint team provided substantial cost reductions to the business unit, thus improving the return on business investment. London Life also enhanced shareholder and customer vdue- both essential to becoming a world-class competitor and both increasingly important to policyholders. A side-benefit of the work was that it helped the London Life team develop a pragmatic blueprint for transferring the new concepts and work approach to other London Life business units. In

National Prodzdpity Review/Summer 1992 3 77


Figure 6 Value Table

DActivity part of a wealth-producing process

Process executes 1. prime strategic phi1 osophy

DActivity part of a wealth-maintaining or supporting process

Process directly 4 . supports the prime strategy

Activity part of another required process

Process indirectly 7. supports all producing processes

Process executes 2 . secondary strategic philosophy

Process executes 3. a thrust needed to stay competitive

Process directly 5 . supports the secondary strategies

Process indirectly 8. supports all other processes

Process directly 6. supports a “stay competitive” strategy

Process supports 7 . another wealth- maintaining process

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DActivity part of a wealth-producing process

DActivity part of a wealth-maintaining or supporting process

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. Service-new and 1. existing .5 FTE Direct marketing project .18 FTE

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Pricing .13 FTE 3. Product development .3 FTE

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National Productivzty RevmdSummer 1992


Figure 8

W Objective: Reduce unit’s staffing levels by eliminating low-valueho-value activities

Concept of change: Focus on high-value activities through reduction and redeployment

W Benefits: Approximate savings of $165,000 in salaries and benefits plus associated support costs

W Advantages Disadvantages 1. Elimination of unnecessary work 1. Morale implications of staff reductions 2. Improvement to the bottom line 2. Anxiety associated with having to prioritize 3. Better customer service through activities

4. Minimal implementation costs to improved information retrieval

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fact, London Life has firmly ingrained this new analytical approach into its productivity enhancement efforts, clearly viewing it as a complementary method. Subsequent studies of other units have been undertaken with equally impressive results. More important, London Life employees working in the pilot unit viewed the study’s recommendations not as a means to reduce staff, but as a clear-cut approach to redeploy human resources and monies to high-value areas-that is, business processes- where London Life can build advantage in a highly competitive, highly regulated business arena. Roger Lillyman, the business unit’s senior vice president, summed up the study by saying: “The pilot program analysis has had a significant impact on our business. With it, we have set new strategic priorities, reduced operating costs, enhanced our sales support, and focused on initiatives that add value while improving the bottom line.”

The results achieved at London Life reinforce the belief that individual organizational functions, even top-performing functions, cannot indepen- dently achieve key strategic objectives and key business results. Results are limited by the weakest link in a business process, and real competitiveness can be attained only through an integrated approach. A core benefit of the approach used at London Life is that it enables senior management to think differently and more effectively about a line of business, strategic priorities, and the organization. Companies in a wide range of industries can experience similar results: reduced costs, elimination of low-value activities, improved customer value. By focusing on key business processes and the value-added chain, major organizational effectiveness breakthroughs can propel companies to world-class competitive status. 0


beyond functional excellence: organizing for results at london life

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