In order to survive in the manufacturing world, companies must be able to build repeatable processes that create error-free products. Companies like General Electric, Motorola and Allied Signal have invested untold dollars creating teams of experts in a methodology called “Six Sigma.” General Electric claims that its experts have saved the company more than $10 billion in its first five years of implementation. Reports like this have helped to spread the methodology to thousands of other companies, including service organizations.
“Six Sigma is about process improvement and reduction in variation. You want to be able to create the same product time after time, regardless of the machines or personnel involved in the process. The lessons of Six Sigma apply just as well to insurance as they do to aircraft engine manufacturing,” says David Merker, account manager with The Graham Company and former General Electric Six Sigma Black Belt.
Smart Business talked with Merker about process improvement and Six Sigma methodology.
What is Six Sigma?
It sounds fancy, doesn’t it? Six Sigma is nothing more than a measure of quality that strives for near perfection. It is a disciplined, data-driven approach to eliminate defects and rework in any process. The goal is to reduce defects, or errors, to no more than six standard deviations from the mean. To put numbers to it, in order to achieve Six Sigma-level quality, a process will have no more than 3.4 defects per million.
What is a Six Sigma Master Black Belt?
I wish I could say that it meant I could beat people up with one hand tied behind my back; it’s actually just a title they give people who have been through the certification process and have used the methodology on actual process improvement projects. While I was at GE, in order to be certified as both a Black Belt and Master Black Belt, I had to complete 10 weeks of training, complete 20 projects and pass two exams. Master Black Belts are responsible for mentoring Black Belts and operationalizing GE’s strategic vision through the Six Sigma process.
How does this methodology apply to the insurance business?
It’s kind of surprising. When I started in the insurance business, I wasn’t sure what the connection would be. As I got into the processes, I started to see lots of similarities and opportunities. For example, one of the big products we produce is an insurance policy. We design the specifications, out-source the manufacturing process to an insurance company, check the product for quality, and then send it to the customer. Each step along the way is an area where an error could be made. If not done correctly, this process can be terribly inefficient. Our challenge is to make this process as streamlined and efficient as possible.
How do you improve the insurance policy production process?
The first step is to start with the right plans. Just as you would when you build a building or make a car, you need to have a good set of plans. They must be accurate, easy for the builders to understand and easy to repeat.
We have invested lots of time and energy in building our insurance policy plans, something we call coverage specifications. We have the ability to quickly tailor these to our clients’ industries and operations, and put them in a format with language that insurance company underwriters will understand.
Coverage specifications sound like a good start; what comes next?
As an insurance broker, we essentially out-source the manufacturing process. We don’t create the insurance policies we just submit our plans and ask the insurance companies to build them for us. Before we send the finished product to our customers, we have to check the policies to be sure they are correct. The more the insurance company understands what we are trying to achieve and the more we know about how each insurance company is able to build our product, the easier the process becomes. We are constantly updating our knowledge of insurance company policy forms and endorsements. In the end, this process comes down to comparing our plans, or coverage specifications, against the finished product the insurance policy. Our goal is to move this process to the point where our policies come back from the insurance company error free.
What are some of the keys to success in implementing process improvement?
The biggest key to success is having the support of upper management. If they don’t think it’s important, the initiative will fail. Next, I think it’s important to engage the right people in the process. If you don’t have buyin from the people who actually touch the process, it will be harder for you to get them to accept the changes proposed. The teams I’ve seen work the best are the ones that have representation from each key part of the process. Lastly, I think it’s important to pick smaller achievable projects to build momentum. It’s much easier to tackle a small job and get some quick success than to try to fix a huge process all at once. You’ve got to keep up the enthusiasm and optimism for the project to be successful in the long run.
DAVID MERKER is an account manager for The Graham Company. Reach him at (215) 701-5299 or email@example.com.