Behind the Eight Ball

When was the last time you witnessed  a transformation? Although our industry uses the term religiously these days, I am skeptical that most people have really contemplated what it means or how to make it happen.

I believe the insurance industry is filled with flawed legacy strategies and misunderstood terms. Phrases such as trusted advisor, value-added services and great service sound wonderful, but they are often used more for effect. Now let’s add the word transformation to that list of misused words.

I have heard this term countless times in recent years as leaders say they are going to take their firm through a dramatic transformation to deal with the “new world” and ensure they are the survivors and winners in the future. Sounds great. But when I ask leaders what they are actually doing to transform their business, their responses often don’t make sense or amount to nothing more than another basic, tactical strategy.

That does not surprise me. Transformation is a concept that’s hard to verbalize and even more difficult to enact. In my experience, with the exception of just a few firms, almost all companies I know fail at their attempt to transform.

DEFINING MOMENT

What exactly does transformation mean? The dictionary isn’t much help. Webster’s defines it as “an act, process, or instance of transforming or being transformed.” Another definition is even more cryptic: “the operation of changing (as by rotation or mapping) one configuration or expression into another in accordance with a mathematical rule.” Huh? No wonder people struggle to explain it to me.

Wikipedia defines business transformation as “a key executive management initiative that attempts to align an organization’s initiatives relating to people, process and technology more closely with its business strategy and vision. The initiative aims to support and help innovate new business strategies and to meet long-term objectives.” Now we’re getting somewhere.

Business transformation, according to Wikipedia, “is achieved through efforts from alignment of the areas of people, process and technology towards an outcome-based end state such as…50% increased revenue or 25% improved customer satisfaction.” Given the long-running soft market, weakened economy, pending healthcare reform and other headwinds that impact the insurance industry, I can understand why transformation is so difficult to achieve.

However, I believe the transformation of a business is very possible. Given the economic forces facing the industry, and my belief that such forces will grow stronger over the next decade, I predict that many firms will not survive if they do not transform their business model and current strategies. Talk to anyone involved in the healthcare business. They would agree.

WHAT WENT WRONG?

To understand transformation, we need to examine the reasons why most leaders and firms fail when they attempt it. Without understanding the pitfalls, it is impossible to implement the strategies to successfully transform your firm.

I have seen too many firms fail, resulting in frustration, disappointment, employee turnover, burnout and lack of future direction. For these firms, you can see some very common characteristics leading to their failure.

Read the work of John Kotter, who is universally recognized as a leader—if not the leading thinker—in the area of change management and transformation. His book, Leading Change (Harvard Business Review Press, 1996), is still one of the must-read books for any executive who wants to lead transformation efforts.

Let’s agree on one thing first: Change is not easy. Nobody really likes it, and it always creates some pain and uncertainties. However, by avoiding eight big mistakes, transformation can be accomplished with minimal pain.

Complacency — Transformation will never work when an organization and its leaders have allowed complacency to build. A sense of urgency must be established by the leadership team and instilled in employees. Generally, leaders underestimate how difficult it is to get people out of their comfort zones, so they don’t instill urgency.

Furthermore, many leaders worry more about the potential downside of transformation, such as creating an atmosphere of defensiveness, low morale or anxiety among employees. A perfect insurance example is an agency owner who is afraid to change the compensation model out of fear of how the producers will react. While I understand this fear, I also know that it is ridiculous. If your fear to change is driven by what your producers might do, may I suggest that you might not be the leader your firm needs.
A final thought on complacency: If you don’t create a sense of urgency, employees will never make the sacrifices that are going to be needed to be successful in transformation.

No Coalition — Transformation cannot be accomplished if the only person who believes in the vision is the CEO. Successful transformation requires that you build a powerful guiding coalition of key people throughout your organization to drive the transformation process. Please note that I did not say you need every key person or leader. In reality, not all of your people will initially agree on the vision. I have seen this firsthand with numerous clients. Often there are multiple shareholders, and people are at various stages of their careers, so getting everyone on the same page is like herding cats. Don’t worry about getting them all onboard at first; just start by building a powerful coalition.

Lack of Vision — This may sound elementary, but many firms fail at transformation because they cannot articulate the actual vision. Without a clearly stated vision to guide decision making, employees will get lost in debating and fighting for unimportant tactical turf. This will create conflict, hurt morale and waste time and energy. A clearly articulated vision of where you are heading will help you make the necessary decisions. If the action item, whether strategic or tactical, does not support the vision, it should not be up for discussion. Move on.

Without vision, I have seen many firms go down paths that are confusing, creating time-consuming projects that go in the wrong direction—or nowhere at all.

Under-communicating — Transformation will never be successful unless employees are willing to make short-term sacrifices. However, by nature, people will not make sacrifices, even if they are unhappy with the status quo, unless they think the potential benefits of change are attractive and unless they believe transformation is possible. Therefore, you need the ability to continually communicate the vision and strategy. Point out the wins, no matter how small.

Obstacles — Employees may embrace a new vision but can feel disempowered by huge obstacles in their paths. Sometimes the obstacles are perceived but not real. In that case, you need to be able to show and convince them that the barriers do not exist. Other times, the obstacles are real. In our industry, I often cite the examples of two totally flawed strategies in use at many firms: organizational structure and compensation. Poor organizational structure can ruin any chance of transformation before it even begins. Flawed compensation systems can force people—primarily producers—to choose between the new vision and their self-interests. This point should be familiar to many of you.

Minimizing Wins — Real transformation does not happen overnight. The process is hard and time-consuming, and you can risk losing momentum if there are no short-term goals to meet and celebrate. Creating short-term wins is different than hoping for short-term wins. Leaders who successfully transform their firms find ways to show clear performance improvements, whether those be new sales activity, increased customer retention or other measurable objectives. These wins then need to be supported and reinforced with employee recognition, promotions and financial incentives.

Premature Victory — You can learn a lesson from George W. Bush: Don’t declare victory too soon. Celebrating a win is great, but suggesting the transformation is mostly complete before the changes sink down deeply into the culture of your firm can destroy and tear apart the advances you have made. Done properly, transformation takes years. While you might feel you have won the war, realize that many of the wins that result in changes are still new and fragile and subject to regression into the past.

Surface Change — Transformation is only complete when processes that support the vision become “the way we do things around here.” Until behaviors are grafted into social norms and shared values, they are always at risk of regressing to pre-change efforts. When I use the terms “social norms” and “shared values,” I am talking about culture. I have written about what culture looks like and how critical it is to every organization. It is essential that the result of a successful transformation is that it becomes the foundation of your corporate culture.

These mistakes would not matter in a stable, less competitive world. But in our current environment, the insurance industry itself is going through a transformation. The industry, like many others, is no longer stable and isolated from the deep changes happening in the world. Stability is no longer the norm, and I don’t know anybody who expects stability to return. I believe firms that do not transform will not survive over the long term.

The consequences of making mistakes? According to Kotter:

• New strategies aren’t implemented well
• Acquisitions don’t achieve expected synergies
• Reengineering takes too long and costs too much
• Downsizing doesn’t control costs
• Quality improvements don’t deliver expected results.

That sounds like many failed transformations in the insurance industry. But the eight mistakes are not inevitable. With a true understanding of what is needed in transformation, they can be avoided—or at least greatly mitigated.