Deming's Deadly Diseases: Obstacles To Avoid So Deming's 14 Points Will Work for You
John Pryor | October 1, 2009
The 14 points of Dr. W. Edwards Deming "constitute a theory of management," according to the good doctor. He has asserted that application of these 14 points will transform any company's style of management and leadership.
Dr. Deming was quick to say that only what he characterized as "deadly diseases" stand in the way of the all-important transformation needed by management, in general, and, as I assert, insurance organizations' management and leadership, in particular.
Here are the seven deadly diseases Dr. Deming defined.
- Lack of constancy of purpose. This means to plan product and service that will have a market and keep the company in business—and provide jobs.
- Emphasis on short-term profits. Short-term thinking—the opposite of constancy of purpose to stay in business—fed by fear of an unfriendly takeover as well as by push from bankers and owners for dividends.
- Evaluation of performance. This includes merit rating or annual performance reviews.
- Mobility of management. Job hopping.
- Management by use only of visible figures. With little or no consideration of figures that are unknown or unknowable.
- Excessive medical costs. Dr. Deming first wrote this in 1982. Yet it's still a high profile issue today, as is evident to all.
- Excessive costs of liability. Swelled by lawyers who work on contingency fees. (Tort reform has been introduced in some states to address #6, as of this writing, but only in California, Texas, and Mississippi.)
Lack of Constancy of Purpose
The first of the seven, a "lack of constancy of purpose," is an expansion of two of Deming's 14 points.
- #1: Create constancy of purpose for improvement of product and service; and
- #5: Improve constantly and forever the system of production and service.
My sense is that most insurance organizations are doing a much better job today in terms of their long-term strategic planning, even though the insurance industry has been criticized over the years for being slow to adopt new technologies. This seems to be changing in some quarters, but not all. Technology was initially adopted to lower operating costs. Now, in addition to reducing costs, it's seen as an opportunity to improve processes and systems—and to enhance customer service.
When you review the mission, vision, and values statements of organizations in the insurance industry, it's clear that the opportunity for constancy of purpose is in place. However, the question is: Do insurance organizations sometimes stray from their purpose as stated in their corporate mission statement?
Here are a few examples of insurance company mission statements.
- To be the premier provider of targeted specialized insurance products …
- We are dedicated to providing excellent underwriting and loss control advice up front, and to ensure superior customer service through the life of the policy …
- To provide our policyholders with as near perfect protection, as near perfect service as is humanly possible and to do so at the lowest possible cost.
- … to provide the best claim service in the industry.
Interestingly, here is a noninsurance mission statement.
At Microsoft, we work to help people and businesses throughout the world realize their full potential. This is our mission. Everything we do reflects this mission and the values that make it possible.
That latter mission statement represents a very interesting contrast in "customer focus," in my humble opinion. But that's a topic for another day. The issue here is for insurance organizations not to stray away from their mission, however it may be stated.
We all know only too well what can happen when an insurance company takes its operations well beyond its mission and vision, into new financial products well beyond the realm of property-casualty insurance. Most of us hadn't even heard of "credit default swaps" until the financial markets' bubble had burst! Even the largest insurer in the world can be fatally damaged by such transgressions.
On the other hand, insurers are indeed innovating within the scope of their mission and vision. One important outcome of long-term strategic planning is innovation. What? The stogy, old insurance industry can actually be innovative? Of course it can, and we see examples of it year in and year out, especially in the IT arena.
We also see it in the creation of new products as new risks emerge. Whether it's employment practices liability or fiduciary liability or yet-to-come responses to emerging risks or even the broader notion of enterprise risk management, strategic planning based on constancy of purpose will set the proper direction for any organization for the future.
One example is an insurer that has achieved a single and comprehensive view of its customers by connecting several otherwise separate databases in an entirely seamless manner. This innovation not only enhances the experience of customers, it also significantly reduces processing errors. Still other insurers have innovated (within the scope of their mission statement) in facilitating the reporting and tracking (even by customers) of their claims processes.
My own agency—way back in the 1980s—created a capability for quoting and policy writing of personal lines at the point of sale. We did so though a direct IT connection with an insurer who treated us as a branch office within their proprietary computer system. As primitive as systems were at that time, it worked! People came into the office for a quote, and walked out with a policy. No binder needed. No waiting for the underwriter to respond with their inevitable (and usually valid) questions. The total number of steps in the insurance sale and production processes was dramatically reduced. Cycle time was reduced from weeks to minutes.
The insurer loved it, but only after our "experiment" with them was proven to work and only once those of us at the agency level were trusted by those as the insurer level. Obviously, the insurer "gave us the pen" so underwriting decisions could be made by front-line CSRs as they met with personal insurance customers.
The insurer's treatment of us within their system as a branch office also gave us the opportunity to treat each of our CSRs as "producers" (which they are, of course) by assigning each a producer code. With this capability came our ability to monitor each individual CSR's new premium production and renewal retention rates as well as cross-selling outcomes—not to mention individual loss ratios for each of CSRs' "book of business."
Lessons Learned
This is what Dr. Deming is telling us.
- Put organizational resources into (1) research and (2) staff education (professional development).
- Constantly review individual processes within company systems—with a focus on the customer (whether internal or external). The customer is defined as whoever receives the output of a process. So a customer can be either the ultimate consumer or a key person within the organization itself.
More specifically:
- Do you see process mapping taking place in your company?
- Do you know what a "control chart" is?
- Do you know how to differentiate "common cause variation" from "special cause variation" in your organization's processes?
- Do you know how to chart the Pareto Rule and effectively deal with such data?
- Have you ever heard of Lean Six Sigma?
If you responded "no" to one or more of these questions, you may want to take a serious look at the Institutes' (Insurance Institute of America) course in Quality Management (AIS-25), It's based on the principles advanced by Deming, Joseph Juran, and our own industry's (then ITT/Hartford) Phil Crosby. Some very progressive insurance organizations have required senior managers to take this single-semester course, and then, once all are "on board," make it a professional development requirement for all staff, including front-line staff.
Constancy of purpose will be one outcome of this fresh look at how systems are created and processes continuously improved and, therefore, customer experiences enhanced. It's also the essence of Harvard Business School's Robert Kaplan and David Norton's Balanced Score Card. This is a board-level tool in which an organization's long-term strategic goals—as well as its shorter-term operational objectives—are each clearly aligned with its mission, vision, and values—all on a single page! This tool helps any organization achieve its "constancy of purpose."
The BSC also includes the following "drivers" of financial outcomes.
- Customer focus
- Process improvement
- Professional development of staff
These drivers of financial results can be tracked over time and supplemented with a "dashboard" of operational charts—but that's a story for another article in this series. Stay tuned.
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