Is it possible for your people to hit their goals and yet still decrease your organization’s performance? You might be surprised at the answer. I’ve seen many organizations where individuals get so focused on executing their part of a process that they lose the forest for the trees. A recent experience with my insurance company demonstrates this.
I put in an accident claim to my insurance company. The damages to my car were around $3000. The blue book value of my car was $2800 (it’s an old car). Much to my surprise, the adjuster didn’t total the car. After taking my deductible and disqualifying several of the needed repairs, he determined that the insurance company was only liable for $1200. While I don’t know his exact goals, I would assume that one of them is minimizing claim payouts.
So what’s the problem? He did his job. He is keeping costs down. The problem was that his decisions and actions appeared to only try to optimize one part of the business. They didn’t take into the impact on the customer and his long term satisfaction and loyalty. But, that’s a softer measure anyway. Customers will always want as much as they can get from the insurance company. The adjuster can’t entirely be driven by trying to make them “happy”. However, from a cost perspective, it didn’t seem to take into account the total cost of the claim either. It only focused on the repair.
In addition to the repair, the policy also reimbursed for a car rental. The damage was extensive enough to put the car out of commission for six weeks. The company wound up paying about $1200 in rental fees alone.
During that six week period, two other things happened. First, people would ask me about the status of my car. Because some of the delay was due to interfaces between the insurance company and dealer, this became a six week infomercial on how bad my insurance company was. In fact, every conversation ended with the person asking, “What is the name of your insurance company?”
More importantly, as the repair dragged on, the pressure for the customer service department to provide some accommodations increased. In the end, they agreed to an additional $500 in repair reimbursements. Then, to try to smooth things over, they also reimbursed for the collision insurance on the rental which they normally don’t cover. That added another $200 to the claim. That customer service person was mostly likely being driven by her goals which involved trying to pacify the customer.
So, what did the insurance company get by having everyone “do their job”?
- They paid out $3100 for a claim that probably should have cost them $2300
- They generated six weeks of negative publicity
- They frustrated (and ultimately will lose) a customer who had been with them for 26 years.
The company lost big even though, on a discrete level, everyone appeared to execute their part of the process correctly.
As a leader your responsibility is to ensure that you are not optimizing a part of your business at the expense of the whole. Here are a few tips:
- Create shared goals that use aggregated measures (e.g. total cost of claim) between your people and people up and down the value chain.
- Hold regular reviews of cases/interactions/decisions and invite people from multiple departments. Let each department explain how decisions in one area impact the others.
- Educate your team on the process and financial drivers of your organization’s performance. Ensure that they understand how their decisions impact overall organizational performance.
