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 / Winter 2004 / Issue 37(originally published by Booz & Company)


The Lean, Green Service Machine

The same strategy could be easily employed in a service organization. To illustrate, a major health insurance company found itself facing mounting claims-processing costs, with adjudication of these claims taking up more than 10 percent of total administrative expenses. An internal investigation found that highly customized manual processing was being used for the lion’s share of claims. There were few processes and automated systems to treat claims differently on the basis of their complexity.

To address this, the insurer is setting up a two-tiered claims system, in which the vast majority of paperwork — primarily routine reimbursements — will be handled by an automated system. Incoming claims will be verified for member and provider eligibility, and if no anomalies indicating an out-of-the-ordinary claim are detected, the document will go to payment quickly with virtually no human intervention. A second channel will process exceptions — claims that require careful scrutiny by highly trained claims examiners before payments can be issued. This new TBS approach could result in nearly 75 percent of claims being handled without human intervention in the next few years. And the cost savings for the insurer could top 20 percent of annual claims-processing expenses.

Frontline Power
As a company’s operational processes improve — that is, as these processes become focused on quality and speed, are segmented by customer value and needs, and are differentiated by routine versus complex systems — less management oversight throughout the organization is required. In effect, finely tuned, streamlined, and highly sophisticated operations provide a strong set of tools and a systemic foundation for employees to make more of their own decisions; they offer principles by which to operate instead of rigid rules on which to base choices. And such operations free workers from focusing solely on basic transactions, allowing them to give more personal attention to customers (so they can have a more direct impact on increasing revenue).

In the manufacturing environment, employee empowerment usually translates into self-governing teams whose performances can be measured by both output and quality. These workers often have the ability to stop the production line if quality issues arise, or make reasonably sized capital investments if they can demonstrate the payback in terms of speed and performance. Workers also tend to have their bonus compensation linked to these measures.

For those involved in service activities, these principles are embodied in decision making that favors “satisfying the customer.” As an example, in the Ritz-Carlton Hotel Company chain, front-desk staffs have their own monthly discretionary budget for settling billing disputes and have the authority to provide such perks as room upgrades and complimentary food on a case-by-case basis. And when a guest has a problem, employees are required to break away from their regular duties and immediately address the issue.

As with manufacturing companies, service organizations should reward with higher compensation those employees who make the types of decisions that lead to improvements in organizational performance.

Empowerment brings a new risk, however. Well-intentioned but destructive tinkering by middle management can eat away at hard-won process and business-model improvement gains, leaving the company no better off than it was initially. For instance, it is easy to see how a hotel chain’s regional managers, enamored of the idea of using computers for curbside check in, might give out PDAs with customer information to increase its service staff’s ability to interact with guests. But this new level of service infrastructure, requiring maintenance, training, and staffing, could actually distract employees from their primary task of giving top-flight customer support.

To avoid creeping complexity, it’s important for companies to adopt policies that require group approval and appropriate notification before an employee can introduce systems that go beyond the businesses’ operating philosophy. With such governance mechanisms in place, authority and responsibility can safely be introduced at lower levels of the organization.

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