Strategy and execution in information intensive organizations is hard to handle because the nature of these businesses is abstract. Information is a slippery quantity at the best of times. If only the insurance industry had the hard characteristics of manufacturing industry: visible raw materials and measurable transformation processes. We might then be able to apply some of the wisdom used to reinvent traditional businesses for the modern competitive world.
In fact, insurance businesses are not so very different from factories. Manufacturing industry has much to teach us, especially in the area of “batch and flow”. In their classic work on "Lean Thinking" the application of Japanese “lean” techniques to American firms, authors James P Womack and Daniel T Jones describe how altering production processes to single-piece flow improves profitability, productivity, flexibility and time to market for companies large and small.
Insurance looks like a classic batch industry. Carriers are white-collar factories organized into specialized departments where trained staff process materials in a kind of production line. Workflow techniques make the manufacturing analogy explicit. Internal systems act as a conveyor belt, shifting work from station to station.
From the perspective of Womack and Jones, insurance is also characterized by the most visible inefficiencies of the traditional batch approach: re-handling and holding. In batch manufacturing systems, parts or assemblies are frequently moved, stored, retrieved and reworked. Much of a product's period of creation is in fact spent sitting waiting. The same applies to the product design process. Insurance shares these characteristics, with policies or claims spending much of their time in storage or transit and with much staff and partner time dedicated to querying the current status of items.
Batch manufacturing takes its cue from the supposed scale economics of heavy machinery. If it takes several shifts to reconfigure a machine tool, then it makes sense to produce a large number of items between changeovers. However, the “lean thinking” movement in manufacturing targets faster turnaround of machine changes, reduced inventory and smaller, more frequent, deliveries.
I believe that modern practice in our industry similarly takes its cue from habits – or beliefs – connected with our own heavy machinery: the computer and the communications network. It may be that we adhere to batch working methods because we haven't realized that our machine tools are much more flexible than we think.
Here's the hint: If you know COBOL, you'll appreciate that the bread-and-butter of the earliest business information systems was MOVEing data items in and out of storage. And if you can imagine a world before ubiquitous computing, you'll quickly conjure up a vision of file folders being pushed around in trolleys, dropped in in-trays and stacked on shelves.
If you could control every single aspect of a piece of business from inception to completion, then there would be no reason to delay that piece of business. It would occur in real time. You might, for example, design an insurance product for a client, sell it and underwrite it in one continuous action. The reason you don't do this is most likely because you don't own all the pieces of the jigsaw or because you are set up with barriers that block such flows. ACORD Standards allow data to Move and the business to Flow.
The above excerpt is from my new book to be released in 2008.
