Continuous Improvement as Competitive Advantage

Let's talk about what's keeping you up at night.

If you could change anything about your business, would you, and what would it be?

Oh, wait. You can change anything about your business. It's your business. Political rhetoric notwithstanding, you don't need to wait for the government to do something for you. Or to you.


Think about all the things you could do differently in your business that would increase your profits.


Think about all the changes you could make to your customers' experience, resulting in more and better referrals. Would that increase your profits? Think about all the changes you could make to your teams' effectiveness, resulting in more and happier customers. Would that increase your profits?

But change is hard. Oh, it's not hard to talk about change. Think about how hard it is - how long it takes - to break a bad habit. (Forever?) Or to replace a bad habit with a good habit? (21 days, so say the behaviorist experts.) It's not hard to tell someone else to change. But think about how long you've been trying to get ____ (someone)___ to do __(something)__ differently.

The kind of change that's going to make a difference to your bottom line has to be a special kind of change. It has to be positive change that makes it easier for your customers to do business with you and easier for your team to do the right thing for the customer. When you and your team are always looking for that kind of change, that's continuous improvement, and it gives you a competitive edge.

If you can see an opportunity and be able to line up your resources or change your strategies to be on the leading edge. If you can understand a threat for what it is and take action to avoid the common pitfalls. If you can make adjustments in your operations or your organization to maximize strengths and minimize weaknesses.  Doesn't this give you a tremendous advantage in the marketplace?

Being eager and willing to make changes does come with a caveat. Change for its own sake is not a productive strategy. Making too many changes that don't work or don't "stick" will chew up resources and demoralize your staff. So to ensure the right balance of continuous improvement and consistency, do some strategic thinking before you make any major change. Make sure that any change can pass this test:

• Is this change Strategic? Will it help you achieve one or more of your strategic goals - or at least move in the right direction?
• Can you and your team Implement this change? You want to be able to understand clearly what it will take - who is going to do what by when - and then what will need to happen next. If you can't see your way through the implementation, you should reconsider whether you want to start. (Really can't say this strongly enough. If your team feels they are always starting never to finish, they will give up trying.)
• Does the change Matter? Will making this change make a difference for the customer? For your team? If the outcome will be invisible, you will get no return on your investment.
• Will the outcome be Positive? Think through the costs, the consequences and the expected outcomes. If there's no real benefit then don't do it.
• Will the change Last? Will it "stick." Is this one of those things that people will look back on and say, "Hmmm, whatever happened with that?" If the outcome is going to become invisible, you should have saved the trouble.
• Does everyone involved have clear Expectations for the change process and the changed outcome? Of course there will be follow up required - did everyone do their job to get the change made and maintained. If you're thinking strategically about this change, you should be able to create a vision for all those involved. What will their experience be during and after the change? How will they benefit? What will be expected of them? What should they expect?

Continuous improvement is continuous change. In this context, change is good. It's not easy. but it should be simple.


So what will you change?


If a threat or weakness is forcing you to change. If a strength or opportunity is calling you to change. If you are constantly making changes that don’t help or don’t last. If your staff has trouble adapting to change. Or if you want help in putting positive changes into strategic perspective, we can help. Call me, or send an email. No Strings. No Charge.

Contingent Income Rising

Let's talk about what's keeping you up at night.

"Agency Compensation Expected to Rise in 2012: Ward Group"

Well, that's good news. No sleeplessness on account of that. Right? Right!

Unless, of course, you're counting on your contingent income to cover operating costs. It's been a couple of tough years and many agencies are reporting low or no growth. Without those profit sharing checks, profits would be down significantly instead of just a little. And there is a reason it's called "contingent" income. It depends on several factors -- some of which you control and some you don't. Catastrophic losses are not predictable. Premium volume and growth you can predict. And while you can't know exactly how your growth and volume will convert to contingent income, you can predict operating revenue and expense. Making sure the former covers the latter is critical when there are so many negative factors driving the economic forecast. It's enough to keep you restless if not outright sleepless.

In the study referenced above, reported in the Insurance Journal on line, there are also some potential trade-offs to go along with what are expected to be increases in agency compensation. Requirements for premium volume and growth are likely to increase for some of the companies in the study, as are loss caps. So, both the controllable and the uncontrollable may be more challenging to manage.  All the more reason to make sure your contingent income is only used for contingent outgo.

Forecasting and budgeting for the independent agent has become for challenging than ever. If you're not already doing contingent projections, you may want to start. It's a good way to look at your finances, regardless of the economy. Start with a baseline budget and project no change in income or expense. That probably means cutting back on some things just to stay even. Then create a second budget for growth, projecting realistic revenue increases based on realistic but aggressive sales projections. And, last, create a third budget projecting worst-case revenue projections and a worst-case expense budget. You can then look at what you will have to do to make each budget a reality and set your plans accordingly.

While we're on the subject of projections and budgets,  if you're having trouble making ends meet, be sure you distinguish between revenue problems and expense problems. Whether your income projections are positive or negative, if you haven't already addressed your expense problems, the time to do it is now.

How many ways are there to measure profitability? At least four. Check out our Models of Profitability.  And if you would like some objective third party help with projections and budgets, call or email and let's have a conversation.

And if the expected rise in agency compensation predicted for 2012 is great news for you, is there something else keeping you up at night?

Soft Market or Soft Economy

Let's talk about what's keeping you up at night.

"MarketScout: P&C Rates Rise for Second Straight Month in December"

"Marsh: The Two Speed Insurance Market"

"Moody's: Measured Rate Increases to Continue, but No Hard Market"

"Berkley: Market is Hardening; Good Companies Can Seize Opportunities"

"Best: 2012 Insurer Market a Mixed Bag"

Is the soft market finally turning? 

If you've been watching the industry press for the last couple of months, you may be optimistically confused.  Most sources seem to see signs of price increases, but the extent of the shift and the timing are uncertain, at best. Selected classes and lines of business look better than others. So when you ask, "Is the soft market finally going to give way to a hard market?" the answer is going to be, "It depends."

But, so what? What will that mean for your customer? What will it mean for your business?

Regardless of how the market shifts – hard or soft – your success depends on the effectiveness of your sales organization, your skill, your expertise, your value-add, your competitive advantage. And if your competitive advantage isn’t clear, a market shift won’t help you attract more customers and retain the ones you have.

Competition is the new normal. If you’ve successfully grown your business over the last few years then you’ve had to sell through the soft market, around the soft market, in spite of the soft market.

Regardless of how high prices go, for your customer, it's still about finding the best protection for the best price. Since the consumer has learned so well to shop for the lowest price, you’ll work hard to try to keep the cost down in order to retain the business.  And if the cost of insurance goes up faster than the state of the economy, the trade-off for the insurance buyer may be coverage.

When the insurance company describes their pricing structure and willingness to underwrite in terms of "fear and greed," as in the Berkley article, it's easy to see why the typical insurance buyer doesn't understand why his price soars or drops regardless of whether there have been claims or not.

You have to understand where the market is. You have to be able to offer cost-effective insurance coverage to protect your customers from financial loss. And you have to be able to bring appropriate customers for the carriers you represent. You can’t control the insurance market any more than you can control the economy.

So what if the market is getting harder? Will you be sleeping better because of it, or in spite of it?

Momentum Matters

Saturday we watched the Marshall University Thundering Herd get beat in overtime by West Virginia. I'm not the football aficionado in the family but even I got caught up in the emotion of this game where the underdog (Marshall) led by 15 points until the last seven minutes of the fourth quarter. The announcers made much of the history of the Marshall team and the "100-year rivalry" with West Virginia. You may remember the 2006 movie "We Are Marshall" about the tragic loss of the entire Marshall team in a 1970 plane crash. But the reality is that no one really expected anything but a win for West Virginia.


What struck me as I watched the game turn around was how dramatically the momentum changed. The Mountaineers quarterback did a great job rallying his team in the fourth quarter but what seemed even more important to the outcome was the fact that the Herd got defensively timid. By the time the regulation clock ran out, Marshall had allowed the West Virginia to score twice and then couldn't score in overtime.


But this isn't just about football. What happened to Marshall happens in business, too. It's very easy to lose momentum - and it's not so easy to get it back. Getting your team on a winning streak takes work. Keeping your team pumped up and scoring takes constant attention. And if there's a shift in the marketplace and the competition appears to gain the momentum, what are you doing to get it back? Well, for certain, that's not the time to get defensive. It's just the time to get back on offense. Those businesses that are struggling to maintain momentum in this economy are the ones who are not playing offense. Now is definitely the time to keep your eye on the ball.


With the uncertainty about future revenue, I've seen a number of businesses pull back on their marketing efforts in an attempt to save money. This may be just the wrong thing to do if you want to maintain the momentum. And successful businesses are taking advantage of the defensiveness of their competition to gain momentum.


Are you playing offense or defense? And how's it working for you?

Change Management and Sales

An insurance agency is a sales business. Sure there is definitely a service component but nothing happens until somebody sells something. If you're feeling the economic pinch, and we all are, then sales - to new customers and to existing customers - is more important than ever. If you're not doing something to improve sales effectiveness then you are going to struggle to make it to the other side of this market.

One of the keys to the effectiveness of any sales organization is total commitment. Every one of your employees needs to be on the sales team. Are they? Is "sales" a department or a state of mind in your agency. If not the latter, then cultural change may be in order. And what does that require? Well, more sales of course.

"The key to successful leadership today is influence, not authority." As much as I would have hated it as a line manager in corporate America, this quote by Kenneth Blanchard says it all. Of course, if you're the business owner you have the authority. But that's not how you get the best from your organization. You have to sell it. My friend Marsh Egan said it very well in this article on "The Convincing Side of Change."

Employees are customers, too. If you don't think so, remember back to the recruiting and hiring process. You (or someone in your organization) spent a good deal of effort selling that prospective employee on the benefits of working for your business. Just as you don't stop selling to customers, if you want buy-in and commitment to new ideas, you can't stop selling to employees.

It never ceases to amaze me that some of the very best sales people in the world, don't use those skills where they would do the most good. Right in their own businesses.

Accountability and Hiring and Firing

Building and maintaining a business where everyone owns their own job takes discipline. An agency owner told me he had recently terminated two employees. Not because he was cutting back but because he needed to upgrade his staff. These two individuals just wouldn't follow procedure. They weren't bad employees. They just couldn't sign on to doing things only one way - the agency way. "I tolerated it for too long," he told me. "And I realized last week that if I was ever going to have an organization where people were truly accountable to do things the right way, then I had to do something different. It wasn't easy but it needed to be done."

So now he's recruiting to fill two jobs. For the job market, it's a wash. For his agency - short term - there is some big expense. Hiring and training take time. For the long term, however, it could mean higher productivity and better performance. So, better profit. Higher return on investment. For the economy, it's a win.

Apparently this strategic thinking agency owner isn't alone. Check out this article in the National Underwriter: "Insurance Hiring Continues Despite Poor Economy, Says Expert."

If you're looking for help to make a touch decision about a marginally performing employee, the bad economy might be a blessing for your business. One of the good things about a bad economy or a soft market is that it forces us to be more disciplined.

Measures of Success

Is your business successful? How do you measure success? In this economy - in this market - how do you feel about your business results? Are you "satisfied?"

We hear:

"Revenues are down.
"Rate continues to be low."

"I'm losing accounts because they are going out of business."

"Revenue per account is down."

So does that mean your business is "in trouble?" Last year you had a successful insurance agency. How did you measure success? By that measure, are you still successful? If you answer, "No," then why? What has changed? Maybe nothing has changed. And maybe that's the problem.

There is no question that some businesses will fail - are failing - in the current environment. Many of those business owners would have said to me less than a year ago, "If it ain't broke, don't fix it." Well, there's "broke." And then there's blase. Business as usual is a business killer if the only measure of success is this year's profit.

That said, what do we do about it? Start by looking at how you measure success. Operating profit, how well operating revenue (without contingent income) covers operating expense is a critical indicator - much more reliable than pre-tax profit. Also take a look at the percentage of fixed vs. variable expense. During periods when income is down, do expenses stay high? If so, it becomes even more important to maintain tight expense control even when times are good.

Two other solid indicators of performance are 'hit ratio' and account retention.

Hit ratio measures sales effectiveness - the number of sales made to the total number of sales opportunities. And when you look at this one, be sure to compare your total opportunities to prior years. If you're not going after as many new accounts, you may see a false positive here, i.e., hits will be measured against a smaller base.

Account retention tells you how many customers you retain. It's a little more difficult to measure than revenue persistency, which is what we usually refer to as "retention," but is a better measure of service effectiveness. If revenue per account is down, it's more important than ever to keep the customers you have.

Everyone is feeling the effects of economic downturn. And the lingering soft market. Businesses that are not "in trouble" are the ones that measure their success consistently and critically - regardless of the economy or the market cycle.

The Revenue Paradox

If you haven't seen the Insurance Journal article Bad Economy Not Impacting Essential Insurance Coverages it's worth looking at if only as a bit of encouraging news amid all the bad.

The results of this survey shouldn't be surprising - and I'll bet a similar survey of businesses would produce similar results. It highlights what I call the "Revenue Paradox." You must be willing to reduce revenue to retain accounts. And, in fact, you must expend resources to reduce revenue to retain accounts. Ouch!

Managing expenses is more important than ever. There just isn't any room for waste. We're working on tools to help with expense review and reduction as well as a rolling cash flow tool to highlight critical issues before they get to be disastrous.

The good news continues to be, if you manage your business well in tough times, as things get better, you have a distinct advantage over companies that think business as usual is good enough.