Lean in Services

Lean in Services Professor Peter Hines

Setting the Context… Major Insurance player in Global market with Offices in over 20 countries Total turnover of approx £1.2 billion worldwide UK & Ireland accounted for £145m approx. Looking to grow the business to £200m by 2006 All UK & Ireland business done via brokers - £15.5m commission in 2002 Profitable but flat sales growth Lean in Services 2 © Professor Peter Hines, 2009

Lean Business System Shared Vision Common Goals Cr os T t s- ea en oy y pl lic Fu ms m De Po nc tio Value na l Stream Management Su Inte pp gr To oc n ol ess Pr Lea ly a t i it C on -K ha in Extended Enterprise Tools aligned to need Lean in Services 3 © Professor Peter Hines, 2009

Issues The Business Cockpit Strategic Programmes Key Strategic Issues December anuary February March April J May June July August Se ID 233007142128041118250108152201081522290512192603101724310714212805121926020916233006 • Recruitment 1 • Exchange rate 4 • I.T. System • New Facility 12 19 Emerging Issues 28 • Far East economic slowdown 38 • New competitor • September 11th events Progress v Milestones and Forecasts to Completion Measures & Targets Financials DIVISIONAL/REGIONAL/MARKET SECTOR FINANCIAL SUMMARY THE BASE CASE Historic Results In constant 1999 values 1997 1998 1999 2000 2001 2002 Annualised Actual Forecast Plan Plan Plan RATIOS #DIV/0! Sales Growth (%) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Operating Profit Growth (%) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Gross Profit/Sales (%) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Operating Profit/Sales (%) #DIV/0! #DIV/0! #DIV/0! #DIV/0! Cust Perc. Sales Lead Time #DIV/0! #DIV/0! #DIV/0! #DIV/0! Operating Profit/Employee Sales/Employee #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Capex/Depreciation #DIV/0! #DIV/0! #DIV/0! #DIV/0! PROFIT AND LOSS Sales Gross Profit General Overhead 0 0 Trading Profit 0 0 0 0 Other Income Exceptional Items 0 0 Operating Profit 0 0 0 0 CASH FLOW Operating Profit Depreciation Capital Expenditure Working Capital O.E.E. Cost Emp Sat 0 0 Other Net Operating Cash Flow 0 0 0 0 Lean in Services 4 © Professor Peter Hines, 2009

Set Objectives 2002 2003 2004 2005 2006 2007 Sales £132 £144m £155m £171m £200m credit Ins £130m £140m £147m £155m £165m receivables Mgmt £2m £4m £8m £16m £32m Profit 0% 6% 10% 15% 15% Lean in Services 5 © Professor Peter Hines, 2009

Rank Value Criteria Insureco Your Expectations Our Competitors Your best Other Supplier Better Same Worse Better Same Worse Better Same Worse than as than than as than than as than Quality Decision 1 Quick Decision 4 Price 2 Cover 3 Support 5 Lean in Services 6 © Professor Peter Hines, 2009

Competitive Environment Factor Issue? Significance Short Significance Long Term? Term? Products Products are not differentiated Compete on price Constrains growth for our customers Little Innovation Competitors New Players Stops ability to increase price Competition hits critical Changing main competitors Consuming new business mass/market share Opportunity to lead Brokers Dominated by two players who Quoting Nett – transparency Redefine distribution channels do not add value Reduced distribution costs Brokers become competitors Lost business and devalue our product Substitutes Self Insurance – don’t’ buy it Lost business and inability to Shrinking market and potentially Credit Information increase price – walk away invalidates the market Need for repositioning as a broader offer Lean in Services 7 © Professor Peter Hines, 2009

Internal Environment Strengths Weaknesses Knowledge and expertise of people – systems, Skill sets around buyer underwriting process, country risk, Operating Model Geographical coverage Too many people in the comfort zone Pay and conditions. Flexi time Integrated IT systems Pay structure inflexible. Multi national proposition Systems are inflexible Centres of expertise. Centres of expertise. Insolvency and recovery expertise Lack of one culture Depth and breadth of product range Group shackles? Good relationship with existing customers Play by the rules too often Lack of team working of this team Re-insurance Opportunities Threats Market is looking for an efficient producer. Re-insurance – pull out of market. Weak competitors New competitors New owners? More sophisticated customers. Weak Brokers. Self imposed constraints. Direct distribution Global economic situation. Quoting Net Trade sector activities. Cross unit alignment Group leverage on sales. Lean in Services 8 © Professor Peter Hines, 2009

Ansoff Matrix – Where will we grow? Existing Products /New Consumers New Products /New Consumers • Trade sector alignment – efficiencies • SME product •Specialist capacity issues £20m in Years 1- 4 £6m in Year 2-4 Existing Consumers /Existing Products. Existing Consumers / New Products • New business replaces lost business • SME product • MRA income • trade finance • Price increases • Integrated recovery fee. • Additionality. • Specialist capacity issues £0m in Year 1- 4 £9m in Year 2-4 £5m replace lost business Lean in Services 9 © Professor Peter Hines, 2009

The Implications of these choices! Existing Products /New Markets New Products /New Markets Acquisition Process Sales k r is h ig H Existing Markets / New Products Existing Markets /Existing Products NPI Order Fulfillment NPD Process Supply Chain Lean in Services 10 © Professor Peter Hines, 2009

A Culture ready for Change? Create Constancy Drive of Purpose Performance Take an Define Integrated Constraints Approach Encourage Keep it Innovation Simple Care for Adapt to People Circumstances Lean in Services 11 © Professor Peter Hines, 2009

Strategic Direction Statement We will: Grow the Credit Insurance business to £200m by 2006, delivering 15% return on sales. by: • Delivering outstanding service at reasonable prices and delivering greater retention. • Delivering significant growth from new sales • developing integrated and aligned new offerings and then taking them to new markets. • achieving greater trade sector alignment • Creating a culture of innovation and performance within our business. in order to: Turn the UK business into a leading performer within Insureco, securing its future and the future of our people Lean in Services 12 © Professor Peter Hines, 2009

Our Critical Success Factors The ability to…. • manage the relationship with the wider group successfully • understand, achieve and proactively manage customers expectations • operate joined up, cost effective processes • agree a common goal, through supportive culture and trust in our people. • spot and convert growth opportunities in sales in current and new markets • innovate in new offerings. • identify and respond to changes in market conditions • deliver the right number of appropriately skilled, motivated people. Lean in Services 13 © Professor Peter Hines, 2009

Determine the Measures Set Critical Success Factor Measure Got one? STRATEGIC ISSUE manage the relationship with the wider business successfully Customer Perception N understand, achieve and proactively manage customers index. expectations Speed Y Quality N Profit Y operate joined up, cost effective processes Claims ratio. Y Cost ratio Y Culture index N agree a common goal, through supportive culture and trust in our people. Customer retention Y spot and convert growth opportunities in sales in current % sales from new N and new markets markets % sales from current Y markets Portfolio value Y % sales from new N innovate in new offerings offerings Speed to Market N STRATEGIC ISSUE identify and respond to changes in market conditions People satisfaction N deliver the right number of appropriately skilled, motivated index people. Skills index N Lean in Services 14 © Professor Peter Hines, 2009

Lean Business System Shared Vision Common Goals Cr os T t s- ea en oy y pl lic Fu ms m De Po nc tio Value na l Stream Management Su Inte pp gr To oc n ol ess Pr Lea ly a t i it C on -K ha in Extended Enterprise Tools aligned to need Lean in Services 15 © Professor Peter Hines, 2009

Lean Sales Order Fulfilment Process Insureco

Strategic Direction Statement We will: Grow the Credit Insurance business to £200m by 2006, delivering 15% return on sales. by: • Delivering outstanding service at reasonable prices and delivering greater retention. • Delivering significant growth from new sales • developing integrated and aligned new offerings and then taking them to new markets. • achieving greater trade sector alignment • Creating a culture of innovation and performance within our business. in order to: Turn the UK business into a leading performer within Insureco, securing its future and the future of our people Lean in Services 17 © Professor Peter Hines, 2009

The Current State See the wall charts Lean in Services 18 © Professor Peter Hines, 2009

Current State Summary Time Line (days) Resource (man-days) Min Max Min Max Typical (BUS) 1 18 0.1 0.4 Typical (JUMP) 7.25 65 0.2 17.7 Worst case (BUS) 33 199 3.6 27.2 Worst case (JUMP) 40 281 3.6 27.4 Lean in Services 19 © Professor Peter Hines, 2009

Features of the Current State Customers information comes in to many possible locations. Lots of delays Lots of reworking information – key information not available when required. Don’t talk to each other across departments Authorisation based on value, not on risk – causing significant delays We have 77,500 applications for £5k or less (26%) • 64% are for SME customers Lean in Services 20 © Professor Peter Hines, 2009

Features of the Current State Customer doesn’t follow rules and neither do we! Risk averse at the moment – automatic underwriting not being applied. Using the wrong measures and targets – driving departmental behaviour. Cross-country targets and standards / criteria are different. Currently employing 1 FTE person just to input applications Lean in Services 21 © Professor Peter Hines, 2009

Analysing the Map Major Wastes / Issues Root causes Opportunities Process Cultural Process Cultural Multiple points of entry. Some No overall People don’t Enforce a single Educate get delayed and some may get single point of like saying point of entry internal staff entry for “NO” to for customers and customers lost causing delays and lost customers. customers. that do not use to help to build applications (10% of applications the on-line relationships. don’t use the on-line system) * system. Ensure that all possible customers use the system on all possible occasions. Lean in Services 22 © Professor Peter Hines, 2009

Future State Summary Time Line (days) Resource (man-days) Min Max Min Max Typical (BUS) 1 2 0.0 0.1 Typical (JUMP) 2 2 0.1 0.2 Worst case (BUS) 18.67 99.25 1.7 6.5 Worst case (JUMP) 19.67 100.25 1.7 6.5 Lean in Services 23 © Professor Peter Hines, 2009

The Benefits Time Line Resource Current Future Current Future Bus Typical 9.5 1.5 0.3 0.1 Average of Average of Worst Case 72% reduction59.0 116.0 15.4 5.0 69% reduction Jump Typical 36.1 2.0 9.0 0.2 Worst Case 160.5 60.0 15.5 5.0 Lean in Services 24 © Professor Peter Hines, 2009

Lean Sales Acquisition Process Insureco

Strategic Direction Statement We will: Grow the Credit Insurance business to £200m by by: 2006, delivering 15% return on sales. • Delivering outstanding service at reasonable prices and delivering greater retention. • Delivering significant growth from new sales • developing integrated and aligned new offerings and then taking them to new markets. • achieving greater trade sector alignment • Creating a culture of innovation and performance within our business. in order to: Turn the UK business into a leading performer within Insureco, securing its future and the future of our people Lean in Services 26 © Professor Peter Hines, 2009

The Plan… We had already completed mapping work within the UK division and had identified major savings within their Order Fulfilment process Having improved the speed & quality of their existing offering to existing customers, they then needed to turn their attention to growing new business The plan was to map their current Sales Acquisition Process and look at designing an improved process at no additional cost to the business The longer term objective was to combine their two business streams into a single flexible process Lean in Services 27 © Professor Peter Hines, 2009

REFCLA Goes Into Working Tray – Receiving Information Phases Participants/Stakeholders Time Line Resources Standards/Criteria RS CST AM IF CUST BUYER Min Max * ALLRS All REFCLA into Policy Breach info W/F Tray available Pol Decision Before it is looked at 1 1 min 10 days query 10 day print?! • All info either + or – +2-3 days +2-3 days +2-3 days + 1-2 days +1day • Info available online, Take Meeting in system n Meeting Meeting Meeting Meeting 1 15-25 mins Decision • Within Authorities • Within TPE levels Y Ring sub Customer 1 21-26 Decision Taken Y Ring Customer Meeting for further Info 70% of cases we have enough info to underwrite on Current state Four Fields map for further info Ring Buyer? Meeting with Buyer Y Info can be provided Info to CST Info to CST Info to Y CST Info to CST Info to U/W Analyse Info 5-10 mins Decision Taken 2-3 days Y Issue: Cancellation of CLA why would Decision Confirmation U/W? Taken of Decision 3-13 days 26-36 mins Future State – REFCLA goes into Workflow Tray & Receiving Information Phases Participants/Stakeholders Time Resources Standards Line Risk Services Account Mngr Customer Buyer 0 • Automatic allocation (to Invo. U/W) RECLA into Policy • Within Authorities Tray Breach • Within TPE levels • Mandate to enable U/W’s to divulge Look at Case 6-16 mins customer name (our insured) when & Analyse contacting buyer for information • Customer & Buyer details are correct on the system • Buyer/UW contact encouraged to help Meeting for Meeting 10 mins build relationships for portfolio control Take N Info for info (Feasibility of someone else sourcing info Decision? for UW – work already completed not Y practical in this context) • Process in place to capture up to date info for active buyers • AU Future state map Credit Limit Decision Issued Info is provide N – Principles & practicalities agreed Across group - “What if” examined to ensure max % Y (‘X’) automatically underwritten • Main speed of service target =no REFCLA in any tray older than X days • Fully utilise credit check facility Info to (review threshold of £10K? & price Underwriter differential between credit check & credit limit) • Group wide agreed priority progress Analyse 5-10 mins in place Info • Authority thresholds are value at risk & lay with nominated individuals rather than committee Take Decision? • Interface system errors resolved N within 24hrs Y • Small limits thresholds reviewed • Reduce amount of paper sent to Credit Limit imaging Credit Limit Decision • Quality measure to be defined Lean in Services Decision Issued Letter 1 21-36mins 28 © Professor Peter Hines, 2009

What We Found… The business operated almost 100 % via brokers to whom they were paying commission of 15% direct to the brokers - £15.5m The brokers were not giving good value for money and were not accurately interpreting the VOC The conversion rate for enquiries was very low On the very odd occasion where they dealt with the customer direct, the level of conversion was very high – over 80% No cohesive marketing strategy to support the Sales Acquisition Process – hence low enquiry level The company were effectively order takers as opposed to order getters Lean in Services 31 © Professor Peter Hines, 2009

Current State Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Setting Market Making Selling Selling Direction Research Contact In On 100 % 50% 0 % y Enquiry Conversion Retention No teg rate rate rate Ma t ra current S rke 25% 8% 75% No tin g Lean in Services 32 © Professor Peter Hines, 2009

What We Did… We devised a new future state Sales Acquisition Process with the team which removed their sole reliance on brokers and enabled them to get a clear understanding of the Voice of the Customer We devised a new sales structure to help them achieve this We identified the skills required at each phase of the process We identified the need for measures & targets at each phase of the process The new process will enable major sales performance improvement at no additional cost to the business Lean in Services 33 © Professor Peter Hines, 2009

How the Future State Compared Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Setting Market Making Selling Selling Direction Research Contact In On 100 % 50% gy 0 te G ra % ot st Enquiry Conversion Retention a a pl ot rate rate rate an G current 25% 8% 75% Future 1 50% 50% 95% Lean in Services 34 © Professor Peter Hines, 2009

The Process Benefits Future Credit Insurance Current 1 Change Time Resource Time Resourc Time Resources Phases Days s Days Days es Days Days Days 1. Trade Sector Development 50 14 See 2 See 2 See 2 See 2 Per TS (per TS) ( 700) 2. Strategy - targeting 96 9 217 25.4 - 10.00% customers/sectors 0.72 % 3. Enquiry Received 1.2 0.09- See 4 See 4 See 4 See 4 (accepted/rejected) 0.12 Reg & Average of 5.25 91.5 35 0.65 -38% -88% SME Key Average of 50% 128 5.25 84 4.00 4. Enquiry accepted to closure Acct 40% reduction in -24% -38% Global reduction 7.9 180 84 4.00 -65% man hours -24% 44 1.15 Sales Closure 33 0.75 -25% -35% Min 5. Servicing Max speed 13.5 145 47 2.20 -68% -84% 145 13.5 59 3 -59% -78% 6.1 Renewal process (Reg & Min 91 0.5 30.40 0.40 - -10% SME) Max 121.5 1 47.8 0.80 0.67 -20% % 6.2 Renewal Process (key acct & 94 4.5 51 3 - - -0.33% global) 0.46 0.61 % % Lean in Services 35 © Professor Peter Hines, 2009

Business Benefits Summary Much improved levels of enquiry – from 25% to 50% Substantial conversion rate improvements – from 8% to 50% Much improved bottom line performance – (£15.5m Commission ) Major reduction in Customer waiting time identified – over 40% Dramatic reduction in man hours identified - over 50% Planned Sales growth being achieved - £145m to £200m by 2006 Lean in Services 36 © Professor Peter Hines, 2009

Further Information For further information please contact: Professor Peter Hines at: peterhines@hotmail.com See also at UniSA: 10 Day Lean Principles course 3 day Lean Leadership course LinkedIn site: Lean Enterprise Australia & New Zealand Lean in Services 37 © Professor Peter Hines, 2009

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Lean in Services

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