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Skyline Business School |
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Skyline Business School |
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Issue:2
The Lean Service Machine
At the end of 1990s Jefferson Pilot Financial, an U.S. service company was searching for
new ways to grow in a fiercely competitive business. The top managers of Jefferson Pilot
Financial (JPF) recognized that the company needed to differentiate itself in the eyes of
the customers, the independent life-insurance advisers who sell and service policies.
Accordingly in 2000, it instituted a Premier Partners program, which targeted the several
hundred high-performing advisers who were delivering the lion's share of JPF's revenues.
After an in-depth analysis of the operations of its New Business unit, JPF unearthed
considerable variation in the quality of existing services. For example, processing of
policy applications took too long. Because of errors 10% of all applications had to be
reworked. There was also a significant cost-per- application differential between JPF's
two primary locations: Greensboro, North Carolina (headquarters), and Concord, New
Hampshire. It was clear that management could significantly increase revenue by improving
operations.
Inspired their counterparts in U.S. manufacturing 30 years ago, JPF adopted the practices
and tools of "lean production", a term introduced by James Womack, Daniel Jones,
and Daniel Roos in their 1990 book, The Machine That Changed the World, to describe the
production system pioneered by Toyota. In late 2000, on the advice of a consulting firm,
JPF appointed a five-person "lean team" to reengineer the New Business
operations according the principles of lean production.
Building the Model Cell
Implementation of lean production prescribes adoption of the "model cell"
rollout, in which a company sets up, in one area of its business, a fully functioning
microcosm of its entire process. Lean production is built around the concept of
continuous-flow processing a departure from traditional production systems, in which large
batches are processed at each step and are passed along only after an entire batch has
been processed. At any given time, most of a batch in a traditional system is sitting
waiting to be processed - in other words, it is costly excess inventory. And errors cannot
be caught easily as they occur on a large scale.
Placing Linked Processes Near One Another
It is a principle of lean production that all the steps in a process should be located
close to one another. It saves time in jobs like file transfers and creates a feeling of
being an integrated whole among employees.
Standardizing Procedures
Although it restricts freedom in managing but it makes it easier for substitutes to fill
in. it also enables supervisors to easily ascertain levels of pending jobs.
Eliminating Loop-Backs
A loop back, in which work returns to a previous step for further processing, typically
creates delays. In JPF the applications after being processed returned to the receivers to
be sorted and sent t advisors. To eliminate this loop back the receivers were split into
half, half receiving and rest assembling.
Setting a Common Tempo
Workflow smoothed with the help of the concept of "takt" time. It refers to
pacing work according to customer demand. Each work element is timed and a baseline time
is set. Employees are challenged to create shorter baseline timings.
Balancing Loads
Under the old system JPF followed a alphabetical distribution channel for applications
i.e. an application of a customer named Burns would be given to the A-C tem even if others
were idle. This was replaced by a sequential distribution, which ensured balanced workload
of employees and reduced delays.
Segregating Complexity
This refers to clustering of tasks of similar levels of difficulty into separate groups.
Thus the model cell eventually divided into twp groups, one handling cases that did not
require a physician statement and other handling those that did. This led to a fall in the
turnaround time for cases not requiring a doctor's statement by 80%.
Posting Performance Results
Following one of lean manufacturing's best practices, JPF displayed the cell's hourly
productivity rates along with the company's expectations. Even though it made some people
uneasy eventually it became rallying points for celebrating successes and encouraging the
team to set new performance records.
Setting Performance Goals
Practitioners of lean production follow an important principle: they always measure
performance and productivity forms the customer's perspective. Among the metrics JPF found
needed to be changed was processing time. The company traditionally measured the time from
when an application arrived at the new - business processing center to when the approved
policy was bound and printed. JPF switched to measuring the gap between when the
application is mailed to the company and when the adviser receives it.
Rolling Out the New System
Buoyed by its successes, the lean team proposed a six month rollout of lean production to
the rest of New Business operations. The company undertook the essential work of
documenting the procedures and standard operations that were by now in place at the model
cell so that they could be transferred to the new work cells. The lean team also
identified other JPF operations that could benefit from the new system, based on each
operations significance to advisers, the magnitude of the new system's impact, and the
units strategic importance.
Convincing the skeptics
Everyone in the company needed to understand why the new process design was necessary and
that it would require continual adjustment as the business environment changed and
additional improvement were sought. Despite its best efforts, the team did encounter some
resistance. Managers of various functional areas were especially skeptical. How could they
be sure this new approach wasn't just a disruptive flavor-of-the-month initiative that
would quickly come and go?
But as the rollouts advanced, performance improvements converted skeptics into true
believers.
The initiative has delivered impressive results. The company halved average time from
receipt of a Premier Partner application to issuance of a policy, reduced labor costs by
26%, and trimmed the rate of reissues due to errors by 40%. These outcomes contributed to
a remarkable 60% increase in new annualized life premiums in the company's core individual
life-insurance business in just two years. JPF managers saw that the aggressive goals were
achievable. Staff members realized they were capable of performing more cross functional
work within the cell environment, and they were won over by the white boards that gave
their contribution unprecedented visibility. They also liked the regular meetings with the
area management, which ensured they had a voice in the change process.
That is how Jefferson Pilot Financial with the help of lean production system was able to
improve performance during a very competitive period.
Reviewed from Harvard Business
Review-
by Prithish Ghosh , BBA, MAHE, Level 1
Comments and questions: info@skylinecollege.com
URL: http://www.skylinecollege.com
