Insurance Innovation—Balanced Scorecard
John Pryor | December 1, 2013
This article is based on an address by John Pryor to the All-Industry Day of the Golden Empire Chapter, Society of CPCU, held November 7, 2013. Here, he provides a tool to use to facilitate the innovation process in just about every kind of process or system.
In today's competitive insurance market, it's imperative to be innovative personally and within your division or departments, or with any nonprofit organization in which you may have a leadership role. There is a leadership tool you can use to generate lots of innovative ideas at the same time you're leading your unit, division, department, or other organization.
Tool for Innovative Thinking
The balanced scorecard works very effectively—especially in the creation of innovative products and services. It's used in all of the world today—in all kinds of organizations—large and small—private and public—for profit and not-for-profit. It was created by two Harvard Business School professors, Drs. Robert Kaplan and David Norton.
The first thing that's unique and innovative about it is that it's all on one page! But that's not the secret to its success. Such utter simplicity helps, but it's not the reason it works so well. The secret to its success is how it uses three principle elements of quality management:
- Customer focus
- Continuous improvement
- Professional development
Kaplan and Norton's research found that these three elements are what they refer to as the drivers of the fourth element—financial results and outcomes. If these three elements are implemented and executed effectively in a balanced manner, then strong financial results are almost ensured. However, if the three are seriously out of balance, financial results will likely be very disappointing. It's for this reason that Kaplan and Norton call this leadership tool a "balanced scorecard."
Most of us have an understandable—and very human—propensity to look first, if not exclusively, at the financial data of any organization or operation of which we're a part. According to Kaplan and Norton, that's wrong! We should first review the three drivers of financial outcomes. You'll want to be certain each of the three is in balance with the others and is on track to achieving its measurable targets. Then it's okay to look at financial results to see if they, too, are on track.
If you watched the November 2 episode of 60 Minutes on CBS, you saw an interview of Alabama University football coach, Nick Saban. He made an extraordinary statement—a statement virtually none of his coaching competitors understood. They no doubt thought Saban is crazy. What he said was, "We don't focus on winning."
What Saban, his coaches, and his players focus on is what it takes to have a winning season—clear focus on his players, continuous improvement of their on-the-field strategies, and education/training of all players, coaches, and others who make Alabama football so successful. After all, in the last 4 years—if they continue their direction this season—they will have won three national championships and four league championships. Just as we should focus on our drivers of financial outcomes, Saban is focusing on his team's drivers of winning.
Yet, the balanced scorecard is far more than these three elements. It includes—again all on a single page—your mission, vision, and values PLUS your long-term strategic goals.
The discipline this imposes on you is very important. First, it helps you align your mission, vision, and values with your strategic objectives. Then it aligns all of your annual objectives—the three quality elements—with your strategies, mission, vision, and values.
This kind of alignment is equally important, as you might imagine. You don't want to be chasing rabbits outside the scope of your mission statement. Also, the aligned yet separate long-term strategic goals and the shorter-term (usually annual) operational objectives are critical as well.
Keeping these separated helps governing boards avoid the destructive practice of micromanaging. This helps separate leadership from management. It helps separate strategies from tactics. Keeping these very different roles, functions, and duties separate and distinct—without overlapping in either direction—is critical to successful organizations.
Monitor and Track Progress
Because the balanced scorecard, as its name indicates, is also a scorecard, this tool helps you monitor and track progress—or lack thereof—from month to month or quarter to quarter.
It's usually accompanied with what we call a "dashboard"—just like the dashboard on your car. A dashboard helps you know what direction you're headed, how fast you're going, how much gas is in the tank, and other key indicators of navigating toward your goals—with course adjustments made wherever they may be needed.
The balanced scorecard also is usually supplemented by an action plan for each operational objective—a step-by-step (usually one-page) plan that shows WHO does WHAT by WHEN and for HOW MUCH. To avoid micromanaging, an action plan is usually drafted by the individual or team charged with its accomplishment. Before it's implemented, it would be approved by management (or governing board)—especially if any budget is needed.
Now let's review the balanced scorecard sample and template. You should be able to use this tool as an individual, as a team member, as part of a division in your company, or even as a department—well before it's ever used throughout an entire organization. In fact, it's usually best to pilot test any kind of new system or process on a small scale before it's ever implemented on a larger scale, as I suspect you already understand.
Conclusion
So, that's how insurance innovation can be created, and a tool to help you lead efforts to create more and more innovations in what you do each and every day. To learn more about innovation and quality management, I encourage you to consider registering for The Institutes' program in quality management called "Delivering Insurance Services—AIS–25." If you pass its national examination—and you're already a Chartered Property Casualty Underwriter (CPCU)—you'll earn the Associate in Insurance Services (AIS) professional designation to add to your CPCU. Believe me—it's life changing!
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