Are Bottlenecks Choking You?

The setting: A major storm hits a major city bringing twelve hours of heavy rainfall.

The result: Contractors’ phones are ringing off the hook for the next 10 days.

The effect: Your project managers and estimators gallop in all directions for three months, your paperwork piles up; four months later, you have paid most of your subs and materials suppliers and your line of credit goes into overdrive. Five months later, you’re still sending out your invoices for jobs completed months earlier. Seven months later, you’re still chasing outstanding payments and your accountant makes crazy eyes every time he sees you.

You are the victim of a process bottleneck.

Simply put, a bottleneck in a process occurs when incoming demand exceeds output capacity. There are two types of bottlenecks:

• Short-term – triggered by temporary events like employees going on sick leave or vacation
• Long-term – caused by faulty processes – often most evident at month-end or other recurring cycle

Both varieties cost you in lost revenue, sub-standard service (see Failure Demand), dissatisfied customers, and stressed employees. You can’t do much to avoid short-term bottlenecks; however, you can moderate their effect with proper planning (staggered vacations, backup employees). Long-term bottlenecks require a more robust solution.

First, though, how do you identify a bottleneck? They’re sometimes difficult to spot in a business process. They’re often impossible to spot when you’re the cause. Think about something in your routine (daily, weekly, monthly) that consistently causes you stress. Some indicators that point to the presence of a bottleneck are

• Delays: For example, the gap between completing a job and sending out your invoice exceeds 5 days
• Backlog: Piles of paperwork related to work completed accumulating on desks (possibly yours)
• Friction: Stressful relationships within an organisation caused by questionable deadlines

A common cause of bottlenecks is superfluous levels of supervision. This occurs most often in organisations that have grown from one-man operations to something bigger. There is an inherent desire for the owner/manager to approve everything even though there’s no actual need for this. Giving up ‘control’ in such situations isn’t easy but is always beneficial. The manager gives up a pointless task and the employee gains confidence from the new accountability and trust.

There are several tools to help you analyse the situation. Process flowcharts are one of the easiest ways to identify bottlenecks. By breaking down tasks, you can easily spot where pileups are likely to occur. The key is to fully dissect every component and then work out which activities add value and which ones don’t. It often requires resolve to acknowledge and drop a long-standing but value-eroding task.

All analysis tools help bring your attention to the root cause of the issue. In a surprising number of cases, the solution requires a relatively simple correction to be made in your process. This highlights a major flaw with many processes – they can hide bottlenecks quite effectively because once in place, a process is seldom reviewed, even when outputs are clearly deteriorating. So, remember to review all your processes as your organization evolves or else you risk throttling your business’s full potential to prosper.

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Rusting Supply Chains

A supply chain is a system of manufacturers, suppliers, distributors, retailers and customers.  Within this system information flows both ways between any two participants. Supply chains tend to consist of autonomous parties with particular requirements. This range of needs creates dependencies and no single party has the capacity to optimise the supply chain. A supply chain that permits a single party’s needs to override the needs of other members will generally fail.

The insurance industry is still some distance from realising the ideals of supply chain principles in its insurer/contractor/policyholder relationships. This is because the market has not matured fully yet and insurers are still intent on bringing service direct from the insurer to the policyholder. This is a flaw in the service mechanism that few insurers have successfully overcome.

To properly look after the customer, an insurer has to have a multitude of systems embedded flawlessly in the work stream that services the end customer. This goes all the way from effective contact points at the time of coverage purchase to an efficient termination process should the policyholder decide to take their business elsewhere.

For many years, insurers have worked with various suppliers to perfect many of their systems. IT is a prime example. Office equipment, staffing, vehicle fleets, and banking are others. A common theme within all these relationships is a clear supplier/buyer dynamic. Matters are more complicated when it comes to the insurer/contractor relationship. Although in theory there is a supplier/customer relationship, the identity of the real customer is not always clear. Is it the insurance company or the claimant? Vendor programs directly connect the insurance company to the contractor; policy terms link the contractor to the claimant. As far as the policyholder is concerned, if a contractor works off a preferred supplier program, accountability lies with the insurance company. It is this gray area that distorts the working of true supply chain principles in property claim. Insurers are quick (and correct) in stating that the contractor works for the claimant yet they want the control and authority to direct the contractor. This approach removes to a great extent the give and take dependency of true supply chains. Instead, we get an entirely one-sided set of requirements that must be filled in order to sustain the commercial relationship.

This does not make the insurance industry unique. There are many successful supply chains in other markets that contain at least one very powerful and directive entity whose needs may override those of the other members. However, there are a few crucial differences: those other markets are mature, they have identified their capabilities, and they are run on established supply chain principles. Not one of these attributes is prevalent in any single entity in the property insurance industry.

Our industry has set up the semblance of a supply chain and then allowed the mechanism to corrode. The real loser is the claimant who is lulled into a sense of security with compelling marketing images of efficient service up front but hits reality with a thud when a claim has to be serviced.

Is the situation beyond recovery? It is definitely not. There are a number of insurers and contractors that have started the process of developing truly collaborative service programs. It’s still early days but progressive moves are underway and the end customer, the policyholder, will ultimately gain from this new direction our industry has finally taken.

Strategy & Tactics – they go deep

There’s a clear distinction between a strategy and a tactic in the business world. A strategy is the macro plan that covers the big picture; a tactic is one of the building blocks that help meet the goals of a strategy.

When one starts off on a new venture one usually has an overall plan. One identifies their target market (insurance companies; building managers/owners; the government; local municipalities; other contractors; direct customers, whatever) and creates a plan to win that market. No matter how small the organisation, a written strategic plan looking forward three to five years is an essential management tool. The strategic plan will have several components and should be reviewed periodically – at least every year.

If you’ve reached this far in this posting, you must be wondering what use this posting is to you because you already have a strategic plan. Your bank or partners or shareholders or common sense dictated you create one right at the outset. This posting isn’t intended to convince you of the benefits of strategising and creating a written record of the outcome. You already know the value of this.

As you know, a strategic plan puts your organisation in a context of positioning to bring it to the target market and will create a compelling case for your target market to support you. Above all, it will give you a consistent reference point to help you steer your organisation through the maelstrom of commerce.

As you have observed in your own experience, each of the strategies in your plan must be fully explored and all alternatives identified. This is one of the most important objectives of a strategic plan: it helps focus the minds of all the business stakeholders on all the risks and opportunities confronting the organisation. It thus leads the way to informed, premeditated decisions instead of emotional off-the-cuff judgements when things suddenly take a turn for the worse and the malodorous stuff hits the fan.

Tactics, of course, are essentially the activities specifically created and selected to reach specific and measurable objectives. Tactics are the actual systems or actions by which strategies are executed. Anything that brings one into contact with the target market with the goal of bringing that market to you is a tactic. This is where websites, conferences, and brochures reside.

Here’s a terrific example of winning tactics I hope you never use: “They pull a knife, you pull a gun. He sends one of yours to the hospital; you send one of his to the morgue” – Jim Malone.

Enough theorising. Do you know how deeply your suppliers have planned for all contingencies that may affect not just them but you, as well? Have they brought you into their strategic planning process? How closely have you been consulted by them in their planning process?

Most of you will say, “My suppliers are closely aligned with my business needs”. Indeed, this is a given in today’s competitive world. You equipment supplier, your labour supplier, your IT vendor, and all your subs have worked you into their strategies and have stated tactics to keep the cogs of commerce spinning no matter what.

So why are so many contractors and insurers bound only by the terms of a one-sided service contract? What happened to all the mutual consultation that you know makes sense? Is there anyone out there who has a completed and agreed written strategic plan supported by agreed tactics worked out with their main insurer?

Strategy vs. Insanity

Strat^.e^.gy [stráttәjee] – Encarta dictionary: a carefully devised plan of action to achieve a goal

The definition above is the most common understanding of a strategy. There’s another definition found in biology: in evolutionary theory, a behaviour, structure, or other adaptation that improves viability (Encarta dictionary).

The phrase “adaptation that improves viability” is significant. The concept here is that modifications lead to better capabilities. I prefer this definition because it implies that progressive change is the key – thereby giving us some direction.

All organizations share one core goal with you and me – survival. Some retain this as their sole strategy. Others have highly structured plans that govern their every action. The rest of us fit in somewhere between these two boundaries.

Most of us have heard the term ‘kaizen’. Kaizen means continuous improvement and came about through systems developed by Toyota and made famous by W. E Deming. Kaizen aims to eliminate waste by way of small, incremental steps. It’s all about bettering processes. We all know how important process is in our work. You can take the best employees, the best materials, the best equipment and work with the best intentions but you can’t make this combination produce a great piece of work without a process.

The problem is how to make that process work in a multitude of jobs from myriad insurance companies. They all want things done a bit differently. Then there are the claimant’s needs to adapt to. What’s the result? You create a mini-strategy for virtually every job. What an effort!

There is a simple solution: work with fewer insurers with similar requirements. If you do this, you’ve got a high-level strategy to achieve a goal. If you don’t do this you’re either a superstar or have tufts of hair missing.

What knocks this simple solution off its perch is the fact that many insurers think along the lines of the first definition of a strategy, i.e., a carefully devised plan of action to achieve a goal. The emphasis is on their plans and their goals. You’re the means.

How to get them thinking about that second way – adaptation that improves viability? Your obvious first step is to think about this yourself. Have you got consistent systems in place that allow improvement? How do you record and measure and implement these improvements? How do you create a common service program with the emphasis on ‘common’, i.e. shared? Are you marketing yourself at the wrong level? Are you scrambling to just keep the customer (claimant? adjuster?) happy? Have you ever considered yourself to be a primary agent of change – the party that drives new and better ways or do you wait for the insurer to tell you what to do? If you’re frustrated with waiting for change, what are you doing about it?

Doing the same thing over and over again and expecting different results is the definition of insanity. Albert Einstein said so.

 

Shifting Power Positions

I believe the following was expressed by Col. Blimp: “I’m all for progress as long as it doesn’t change anything”. If you have to ask who Col. Blimp is, this posting isn’t for you.

How often have we heard, “It’s all about business cycles and I’ll just wait for everything to go back to how it was”. You don’t have to ask who said that. We all have.

And that brings me neatly to the topic of power positions.

If you’ve been looking for new ways to develop your business or to stop your revenue from making a beeline to your competitor’s wallet, forget all the sure-fire marketing techniques you’re exhorted to try every day. Feng Shui has all the answers.

Now that I’ve ensured that only the truly committed or lightly employed will read on, here goes.

The concept of power positions derives from Feng Shui – the practice of studying one’s position within one’s surroundings. The Power Position is the position with the greatest power – essentially anywhere where you can see everything and have nothing happen behind you. I can just hear you exclaim, “Hey! I have my back to the wall every day!”

This posting is for you.

Two shifts in the traditional power positions in the insurer/contractor continuum have taken place in the recent past (for me, that’s anything from 1995 onwards). Be fair to yourself and think about the questions posed below. Be true to this forum and respond in writing.

First, the ownership of vendor relationships has moved upstream from adjusters. Teams of supply chain professionals guide the relationship; sometimes remotely if dealing with a particularly irascible contractor, at other times right in your face (as in, “We’ve been tracking your average costs for residential fire claims and you’re in 6^th place behind companies A, B, C, D, and E. Can you explain this?”). Yes, you’ve blown your entertainment marketing budget on the wrong person! So, what’s the secret to developing successful partnerships?

Secondly, insurers are taking control of claim costs away from contractors. Thanks to the miracle of complex prognostication by way of the instant analysis afforded by estimating software, insurers know what everything should really cost. Sorta. The trouble is, no one thought of getting to know your business objectives a bit better. Maybe companies A, B, C, D, and E are skimping on quality while you’re driving excellence. So, how do you offer Rolls Royce service at Hyundai prices? Should you?

Progress and change have always been part of the game. And if you look at that business cycle very carefully, you’ll see it’s really a spiral. Which way are you going?