In change management, pain is your friend. People rarely get excited about a 3-5 year strategy. They do get excited about the pain they feel. In fact, if strategy does not deal with organizational pain points, what good is it? (In that case, they might think YOU are the pain point!)
Resolving pain points offers:
Resolving pain points offers:
- Solutions to problems
- Quick payback
- Momentum
- Confidence in leadership
- Tangible proof the strategy is working
- Feedback to keep strategy relevant
Additionally, relating pain points to strategy:
- Communicates strategic intent to stakeholders
- Enables executives to create a mandate around emotional themes
- Builds the organizational discipline for solving other problems
- Makes it easier to sell traditionally unpopular tactics such as performance measurement to associates, when they see the information is used to help them
- Induces stakeholders to lay aside private agendas to support a common solution, rather than playing politics and risk being blamed for failure
One of the problems with introducing the Balanced Scorecard, Activity Based Costing, and Six Sigma is gaining acceptance for what may be perceived as a time consuming and onerous process having uncertain and long-range results. This article presents a four step approach for converting pain to participation. It describes how this approach saved one company millions of dollars, preserved 81 jobs, improved customer satisfaction, and left in place a structure for continuous improvement.
Audiences who will particularly benefit from this document include:
- Those struggling to win cultural support for performance measurement and management
- Companies creating an Office of Strategy and Project Management, who want it to be more than an “analytical think tank” or overwhelmed with a pile of unrelated projects
- Change managers seeking relief from organizational pain points, who do not have the luxury of deploying a 2-5 year formal approach
The Case of MAC Risk Management
The concept of relating strategy to organizational pain points can be illustrated by the case of MAC Risk Management. MAC is a wholly owned claims administrator for MollyAnna, the captive insurance company for Ahold. Ahold is a Fortune 500 company and among the world’s largest grocery retailers. Annually, MAC handles roughly 20,000 Auto, General Liability and Workers’ Comp claims representing outstanding reserves of approximately $600 million. Typical of the commercial insurance industry, experience has shown that roughly 5% of claims will represent 50% of loss reserves.
In early 2005 Ahold’s U.S. operating companies (MAC’s customers) were so dissatisfied with MAC’s customer service that they approached Ahold’s senior management, advocating that MAC should be shut down and claims handling outsourced to a third party administrator (TPA).
The circumstances leading up to this request were that Ahold USA had grown rapidly, acquiring several new grocery chains. MAC had previously managed insurance claims for only one chain. After the acquisitions they were made responsible for six. MAC simply did not have the resources, processes, systems or expertise to scale upwards to meet the new demands.
Nick Parillo, Ahold’s new Senior VP of Global Risk championed the position that MAC could be brought up to speed. His belief was that the fundamental vision for using MAC as a shared services center was sound: By owning the “cradle to grave” claims handling process, there were opportunities to not only mitigate losses, but use learning to prevent claims from occurring in the first place. Despite 100% of MAC’s customers voting to eliminate MAC, Ahold’s senior management decided that Parillo’s commitment to the vision deserved a chance.
In June of 2005 Ahold brought in Navigator Consulting Services (http://www.navigatorteam.com/) to help with the transformation. Navigator had a reputation for solving immediate pain points in a self-funding way, while leaving in place the skills and structure for continuous improvement. They had particular expertise with business process reengineering (BPR) in the shared services environment.
Believing that an environment of visibility and accountability is necessary to bring out the best in people or an organization, Navigator recommended implementing Activity Based Costing. ABC traces the flows of resources through an organization, from the Operating Statement, to the various departments, to the activities those departments perform, to the products or service those activities are performed upon, and to who ultimately consume them.
While all parties might disagree on the best solution, if they could agree on a way of keeping score, then facts would prevail over emotion and the best solution would emerge. One at a time, the problems could be eliminated.
Additionally, by using ABC to bill customers for services, customers are rewarded for collaborating to find efficiencies. Under an allocation system of billing (which, like many shared services centers, MAC used), there are no incentives to limit demand for services while at the same time complaining about the cost and quality of those services.
Specific benefits of ABC included:
- Target and prioritize improvements
- Create incentives for customers to pursue efficiencies by using ABC to bill for services
- Create an environment of visibility and accountability
- Develop tools for performance management linking finance, marketing and operations
- Accelerate decision making
- Benchmark and measure of the effect of business decisions
- Gain a comprehensive view of the flow of resources through the business
Data alone was not enough. The power of information is in its ability to influence behavior which meant strategy needed to be converted to operational execution. To link performance measurement with performance management, Navigator applied Balanced Scorecard theory to:
- Create a governance structure commissioned and empowered to implement change
- Analyze problems and define solutions
- Facilitate discussions among the management team as to how they would work together, taking individual objectives and aligning the organization around a shared vision
- Align the moving parts while monitoring their effectiveness
- Create an Office of Project Management
- Communicate strategy to the rest of the organization
Between June, 2005 and December, 2007:
- ABC was implemented
- A comprehensive performance measurement system was developed
- A “Quality Council” governance structure was formed with customers to implement collaborative solutions across organizational lines
- Skills assessment and training programs were put in place
- Controls were placed around key vendors and processes
- Positions for a Project Manager and a Business Analyst were created
- A major customer, who was sold, was divested seamlessly
Through leadership, tough decisions, hard conversations, and boundless humility and courage by many key individual within MAC, the company was not only saved but transformed. By the end of 2007, improvements include:
- Customers’ premiums are being lowered
- Medical bill payment and 1st reporting of claims are being outsourced, representing $2-$3 million in annual savings
- Claims handlers now spend 95% of their time handling claims, vs. 78% in 2005
- More than 7,000 old claims have been closed
- Reserves have been reduced by more than $20 million
- Workers Comp’ loss statistics are down by $5 to $10 million , despite 15% annual medical inflation
- The cost of researching unpaid medical bills is down more than $350,000 annually and 96% of medical bills are now paid in less than 60 days
- Customers are being billed using ABC, rewarding efficiency
- Business requirements for a technology migration have been defined and a new system will be deployed by mid-2009
- Additionally, with the goal of lowering premiums another 2-5%, Parillo is championing a Six Sigma study of the entire claims handling process. In this study MAC will partner with vendors and customers to identify and proactively manage the 5% of Ahold’s claims that represent 50% of their losses.
In every business transformation initiative there is at least one person who will say something like, “Yeah, I can see how that might have worked for them, but we are unique. If you really understood our situation you would see why that won’t work here …”
Yes, you are unique, just like everybody else.
Successful business transformation requires three things. Without them, it will be difficult, if not impossible to generate the guiding coalition and broad based support that is necessary for lasting change. These critical elements are:
- The Burning Platform: What is the threat that, if not addressed immediately and by all stakeholders, then all parties will lose?
- The Shared Vision: It’s not enough to run in panic from the burning platform. The company must run TO something better. What is so important and beneficial that people are willing to lay aside their individual agendas in support of the larger goal?
- The Executive Mandate: The senior executive must send a clear message that participation and 100% support is demanded, and anything less will have consequences.The power of a strong executive mandate cannot be underestimated. Reorganizing MAC’s management team was a direct result of their resistance to change, and lack of execution skills.
In truth, situations are unique. To get people’s support, they too must have wrestled with the problems. They must feel as if they have contributed and been heard. They must have confidence that the management team has the execution skills to lead the organization away from the burning platform to the shared vision. That is why, when developing and downloading strategy, it must be made relevant.
The tools and exercises below are designed for facilitating this “guided discovery.” At MAC, the approach was informal at first, facilitated by the Navigator Consulting Group. As the discipline for change firmed up and the new management structure was put in place, the process was formalized and made part of the management culture.
A Balanced Scorecard View of Business Transformation
A Balanced Scorecard strategy map for transforming MAC is shown below. Back in 2005 MAC and its’ customers had little time or receptiveness to hearing about the Balanced Scorecard, or Activity Based Costing. They were not interested in what things might look like in 3-5 years. Each strategy element had to be related to one or more pain points to gain participation and acceptance. That pain became the driving force for change.
Balanced Scorecard Strategy Map for MAC Risk Management
Some of the strategy elements above are green. Some are yellow. Some are white. The green ones were built out during the initial wave of the transformation between mid-2005 and mid-2007. They included deploying Activity Based Costing, developing a comprehensive reporting environment, and establishing a change management governance structure. These are in place, functioning, and are responsible for the progress noted earlier.
While these were being implemented, there was no discussion of Balanced Scorecards. MAC was not culturally ready. Rather, the focus was on pain points which included dissatisfaction with delays in the processing of medical bill payments, an unwieldy process for initial reporting of claims, frustration with information systems and customer service issues.
In late 2007, after the management team had been reorganized and some key leaders were brought in from the outside, the Balanced Scorecard was formally introduced as a tool for integrating the new executives. The gold strategy elements are now being built out by their respective owners.
The white and gold starbursts have been deemed the “Critical Strategy Elements.” They are a result of the pain point analysis discussed next. They are the emotional themes, connected by pain to the less visible but no less important strategy elements. These critical strategy elements could be held up in front of stakeholders to enroll their support and participation. They are the tips of the icebergs.
Pain Point Analysis Using the Balanced Scorecard
For companies introducing performance measurement and management, or who are struggling with issues of cultural adoption, the Pain Point exercises below will help them:
- Target and brainstorm solutions for immediate pain points
- Give process owners direction, and help them translate and transfer it
- Make strategy relevant
- Enroll the organization in continuous improvement
- Introduce and educate stakeholders on the Balanced Scorecard
Schedule a working session with the executive team. Assuming you are using the Balanced Scorecard, review it with them so they become familiar with the concepts. Next, using a skilled facilitator and the chart below, brainstorm the definitions, activities and pain points/objectives for each strategy element in your Balanced Scorecard Strategy Map.
Assign an owner to each strategy element. They can fill in the rest of the detail with their teams, which will serve as training for them. Do one chart for each strategy element.
Activity & Pain Point Inventory Chart
While the Pain Point Inventory is an important step, it need not take long. Spend 10-15 minutes with each strategy element. Many of the pain points repeat themselves from one strategy element to the next. This “crossover” will get the owners of the individual strategy elements communicating with each other.
Step #2: Consolidate Pain Points into Simple Themes that People Understand
The next step is to count how often the same pain point is mentioned, and which Strategy Elements they relate to.
Pain Point Consolidation Chart
Select the four to six most frequently mentioned pain points as your Critical Strategy Elements. In the case of MAC Risk Management, there were six. These became the starbursts on the Balanced Scorecard Strategy Map. The other strategy elements mattered, but they could “packaged, sold and delivered” to the organization in light of these six critical themes.
When presenting these critical strategy elements at MAC, an iceberg was used as a visual. The point was that to resolve “visible” pain, the underlying issues had to be addressed. These issues usually crossed organizational lines, which meant people would need to work together.
Step #3: “My Pain is Your Pain:” The START© Analysis for Developing Comprehensive Solutions
One of the greatest barriers to change is “silo thinking” and resistance to change from one silo to the next. Success often rides on team dynamics and generating a broad coalition of support. To accomplish this you have to lead people to discover what’s in it for them.
To get subject matter experts working together, the next step is to turn pain points into actionable solutions that will be supported across organizational lines. Of course, this is the Holy Grail of change management.
There is a thread of logic connecting strategy, customers, operations and IT, which can be remembered by the acronym START. It dovetails well with Balanced Scorecard theory.
- Strategic Intent – Where are you now? Where are you going? How?
- Targeted Customers & Services – Selling the right products to the right customers
- Aligned Processes – Delivery depends on the efficiency & effectiveness of process
- Reporting & Measurement – What you measure reflects your information requirements
- Technology – Your information requirements define your technology
START© analysis is powerful for:
- Linking finance, marketing and operational views (S, T, A of START), and using that to:
- Define high-level technology requirements
- Define high-level reporting requirements
- Turn pain points into actionable solutions (The A, R, T of START)
- Getting stakeholders to see issues from each others’ viewpoint
- Linking critical strategy elements to the rest of the balanced scorecard
- Enabling executives to download strategy into middle management, and to the front lines
For political reasons, it might be best if the facilitator takes a first cut at filling out the START© Pain Point Assessment Chart. When presenting it to the group, say something like, “The one thing I can tell you about this chart is that it is wrong. This is to get us started. Think of it as a target to shoot at.”
Repeat this exercise for each major pain point. While it may seem cumbersome, this is where key stakeholders wrestle with the issues. In the process they will define the burning platforms and the shared vision. Together, they can approach executive sponsors, requesting a mandate for their recommendations.
START©: The Bridge between Strategy, Operations & IT
On the top row, list a frequently occurring pain point (which may also be a critical strategy element) in the column (or columns) where it seems to fit best. Next, simply answer the questions in the left-most column. When filling out this chart, keep referring back to your Activity & Pain Point Inventory Charts. They are loaded with data provided by stakeholders that can be used for building business cases, motivating and enrolling stakeholders. In the process you are further refining your action planning, and educating stakeholders on the strategy.
Congratulations! You have gained consensus among senior management, middle management, customers, and subject matter experts by:
- Translating strategy into operational definitions targeted at specific pain points
- Channeling pain into actionable solutions
- Enrolling support across organizational lines
Activity & Pain Point Inventory Chart
To make the process continuous, each strategy element owner is responsible for maintaining their Activity & Pain Point Inventory Chart. The executive team should meet quarterly so that owners can update the group on developments. The entire process repeats itself.
Executing Solutions: Structure for Continuous Improvement
You have come far. But, agreeing there is a problem does not solve the problem. Agreeing there is pain does not remove the pain. There has to be a vehicle for implementing change. Otherwise, everything above is just talk.
While a deep dive is the subject of a different article, there are five core elements to continuous improvement. They are:
- Strategy – Setting a direction and identifying, scoping, prioritizing and resourcing initiatives sub-initiatives that will achieve the strategy
- Structure – Formal governance, performance measurement, active review of relevant reporting, project planning and team commissioning
- Execution – Project management and completion skills
- Endurance – Anchoring wins and driving further gains through governance and control
- Leadership – Casting the vision, delivering and enforcing the executive mandate
Think of Strategy, Structure, Execution and Endurance as the wheels on a car. Leadership is the driver. People’s participation is the fuel. Pain is a lubricant reducing cultural and political resistance!
These five elements are addressed in the workshop “Executing and Governing Continuous Improvement,” which is described in the Executive Workshops section at http://www.navigatorteam.com/ or http://www.georgehenderson.com/. This session will show you how to turn ideas into action in a self-funding way, while building out the organizational discipline for continuous improvement.
Summary: “What do you do with an iceberg?”
One of the hazards of offshore oil production in the North Atlantic is icebergs drifting into the production platforms. How do you dispose of a 200,000 ton iceberg that is as large as a 15 storey building?
One answer, I suppose, is that you don’t. You just hope it goes away on its own.
The solution that is actually used is to put a line around the iceberg and tow it far enough away to eliminate the hazard of collision.
The point is that problems do not go away by themselves. Neither can they be solved by defining them only in terms of what can be seen.
The tools in this article will help you use pain to rally support; getting below the tip of the iceberg to explore what is connected. They will help generate solutions, and get a line of support around the entire problem. They develop leaders, teaching them not only how to see, but how to work together.
In the process, the company leans how to address the threats and opportunities of today, as well as those unseen and perhaps unformed that lie beyond the horizon.
Parillo’s best estimate is that in the past 2.5 years the work done at MAC has already saved Ahold more than $35 million in lower reserves, reduced premiums, and operational efficiencies. Customers are happier and employee satisfaction is on the rise.
These improvements too, are just the tip of larger things. As the organizational discipline for problem solving matures, what was formerly pain will become even greater participation, and increased prosperity.
