"Best" practices: The elusive benefit
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www.pwc.com/us/insurance “Best” practices: The elusive benefit
Table of contents “Best” Practices: The elusive benefit .................................................................................................................................. 1 What’s the problem with best practices? ........................................................................................................................... 1 What the insurance industry thinks .................................................................................................................................. 2 Our observations .................................................................................................................................................................5 What’s worked and what hasn’t ..........................................................................................................................................5 Pros and cons .......................................................................................................................................................................7 Success factors .................................................................................................................................................................... 8 What should companies do differently? ............................................................................................................................ 9 Red flags .............................................................................................................................................................................10 Common pitfalls to be avoided ......................................................................................................................................... 11 What we’ve concluded ....................................................................................................................................................... 12 PwC
“Best” Practices: The elusive benefit
Many companies are constantly on the lookout for ways to improve their strategy and operations in order to gain a
competitive advantage and become more profitable. In order to achieve these goals, they often attempt to apply
“best” practices that other companies have used and/or industry observers advocate.
However, there are a number of concepts that can fall under the rubric of best practices, not all necessarily clear.
Some might think of market-place practices, while others will point to internal practices. Sometimes best practices
are associated with specific performance metrics and benchmarks, and at other times serve as a catch-all term for
capability improvement initiatives. The term is even a reference to accredited management standards such as ISO
9000.
Given this legion of contexts, we find the term “best practices” to be problematic, largely because “best” (which is to
say – better than all the rest) is difficult to prove. The use of the term begs for evidence to support the assertion.
Accordingly, because “best” usually is subjective, we view its connotation as really “directionally better” according
to whatever criteria the evaluator chooses.
What’s the problem with best practices?
Best practices can help companies gain a competitive advantage. However, the opposite is often true. There are
various reasons for this, but in our experience, we have observed three major problems with implementing what a
company perceives to be best practices.
First, the benefits are elusive. They are often difficult to measure, with no baseline or true comparison, and
the costs to implement them are often excessive and misunderstood. This often means there are significant
implementation costs and effort with few tangible results.
Second, best practices exist in the rear view mirror. By the time you have adopted them, business conditions
and the practices effective for implementing them will have changed.
Third, once adopted, these practices can be very difficult to change. The organization has invested emotion,
credibility, time and money, and it’s very difficult to abandon a practice even if it doesn’t work or needs to
adapt.
There is a new speed of doing business that has changed customer expectations, and requires businesses to perform
in unprecedented ways. As companies at the forefront of their respective industries introduce changes to products
and services in increasingly short timeframes, lagging companies that are tied down by practices that have
historically delivered systems and process improvements in the context of large, massively interdependent and
controlled ecosystems struggle to compete. Therefore, best practices for project management, development, and
testing will need to change and some are already obsolete and serve only as obstacles to adaptation and innovation.
Traditional information technology and business roles will need redefinition as jobs require the knowledge and
skills of both. Companies will need to adopt new practices which enable the brokering of services, assembling of
solutions, and enable immediately responsive research, adoption and governance.
In addition to needing to accelerate go-to-market delivery – social, demographic, technological, economic,
environmental and political trends place insurers under significant pressure to make growth and efficiency gains.
This translates into ambitious strategic plans. As companies translate strategy into action, management teams pull
on the levers available to them. They may change the operating model, improve capabilities, cut expenses or shift
investments to better adhere to business strategy. However, these levers are sticky and resistant to change.
Management teams find it difficult to obtain funding to invest in transforming their operating, customer
PwC 1experience, and service models. It also is difficult to change embedded job descriptions, role definitions,
organizational design, short-and-long-term objectives or the nature of the annual budgeting process. And, after
finally investing time and money in select best practices, rather than take a step back and consider alternative
scenarios, companies too often double-down and apply an even-more stringent application of the best practices
that wind up appearing less than promising. The end result is typically an organization that is frustrated by its
inability to successfully tackle its most important strategic goals.
Faced with a need for growth and value add, companies often choose an overly ambitious approach
to adopting best practices.
What's often missing is clarity on the best practices that are most relevant to the business. Implementing new best
practices is about choosing the capabilities that add value to the business and fit the company’s culture. There can
be no value without adoption.
Companies naturally want to be competitive in the market, and many seek inspiration outside their own industry in
their search for the best-of-the-best. They tend to reach broadly, embracing a great number of potential best
practices. Conversely, other companies narrowly benchmark themselves against only their peers. Following either
extreme often results in missed opportunity for real improvement. Lastly, if implementation occurs in siloes, then
best practices tend to compete with one another and increase complexity and overhead.
Although the benefits from deftly applied best practices can be real and demonstrable, but they often are more
elusive than anticipated and can result in frictional costs, impasses, noise in the system and ultimately few concrete
benefits to the bottom line. Moreover, implementation costs can be high but may not be visible until the cost of
adoption or compliance becomes evident throughout the organization. Finally, benefits may elude adoption,
specification, measurement, and capture.
In order to avoid these pitfalls, we recommend considering the following to ease the adoption of new practices into
the culture and thereby alleviate the change management burden.
Proportional New practices don’t enjoy any special odds that inflate the value for investment. They need to
investment offer benefits in proportion to the investment of effort.
The need to Too many restrictive rules or too much guidance hampers top performers. The workforce needs
breathe to see new practices solving known problems or enhancing their efforts to achieve a known
objective rather than policing bad behavior.
Going native New practices need to attach and adhere to something that’s already present and valued within
the corporate culture.
What the insurance industry thinks
PwC recently surveyed insurance executives, including CIOs, CTOs, heads of operations, CFOs, chief actuaries,
heads of audit, PMO leaders, and chief marketing officers, about best practices. We asked them about what has
yielded value, as well as any problems in the hope others may avoid them.
PwC 2North America
Smaller
Global
Larger
Property & Casualty
Multi-Line
Life & Wealth
Brokerage
Dark red, red, pink and light pink simply denote line-of-business distinctions. Grey denotes no interviews were
included.
Here’s a synopsis of the questions we asked
What do you mean by best practices?
What drives your investment in best practices?
What have the benefits been? The side effects?
What would you do differently?
What do you mean by best practices? Our discussions with industry executives invited their definition and
perspective on what “best practices” means to them.
Three broad domains emerged:
Practice domain Definition How they work (or don’t)
Engineering Practices that target efficiency and When diligently adopted and applied, engineering
effectiveness. Examples include practices work well. However, LEAN, layer-trimming,
business processes and unnecessary work elimination, and visual management
management like LEAN and Six techniques often require a cultural change, intensive
Sigma; organizational engineering change management, commitment to capture benefits
such as spans of control and de- and often take longer than expected to implement. Sub-
layering; and management optimization is a possibility because of regulatory
techniques such as visual demands on the financial services industry and
management and management by because many environments are semi-automated with
objectives (MBO). work-arounds, lack of information support, and
splintered service models.
PwC 3Practice domain Definition How they work (or don’t)
Market Leading Competitive positioning practices The expectation that market leading practices actually
that come from market research or exist is often mistaken. (1) With rapidly changing
outreach and are adapted for markets and customers, and (2) long-lead-times to
company use. These practices are implement operating model changes, the business
often derived from benchmarking model is not stable enough for companies to a) identify
and peer comparisons. target best-practices and (b) validate that they will
actually fit their specific situations.
Controlling Practices that drive consistent and Controlling practices, especially in the wake of
predictable results. These might Sarbanes-Oxley, can have unintended consequences
include instituting controls or akin to arterial clog. Controls are relatively easy and
common processes for inexpensive to mandate, yet the costs of compliance
procurement, development, or and the way strict controls can slow down and make
project management, but could decision-making heavily risk-averse can put companies
extend to almost any function. at a competitive disadvantage.
What drives your company’s investment in best practices? Efforts to implement best practices are
primarily driven by the following:
Strategic alignment
The company needs to chart a new course. In order to do so, it needs to realign its operating model and resources.
In this situation, the company finds itself asking:
Do our efforts match our vision of the future target operating model?
Is there a business plan to lend clarity to the vision?
Is there IT architecture that makes the future state vision more specific?
Do we have a plan or roadmap to achieve the target operating model?
Have we aligned the investments we’re making in our project portfolio to our strategy and roadmap?
Capability uplift
The company needs to implement change more effectively. In order to better determine the capabilities it needs, it
may ask:
What are current internal and external services?
Do they have defined inputs and outputs?
Are there corresponding service levels? Who chose them?
Where will new or revised standards add value?
Where will controls improve quality, eliminate waste or reduce risk?
PwC 4Expense control
The company is not getting its money’s worth from its operating model, the projects in which it invests, and/or
expenses are simply too high in general. When this is the case, the company will be asking the following questions:
Are our expense levels right?
Are we spending in the right places and on the right things?
Are our expense reduction efforts targeting short term gain or improving the operating model?
How can we best manage expenses? Through the annual budget cycle? Through organization design? Lean?
Our observations
Best practices tend to be selected and defined in isolation. Once they have a mandate, individual business and
functional areas, centers of excellence and shared services often tend to implement new practices without giving
sufficient consideration to downstream implications, costs or issues. New best practices come with costs, and when
they are supposed to result in higher service levels, they may come with higher-than-average costs.
Accordingly, the application of new practices requires balance and compromise. They may reduce expenses in part
of the organization but may increase frictional costs and place an extra burden on people, process and technology
elsewhere.
A common problem is that many companies attempt to implement too many new practices in too many places.
Most organizations’ ability to adapt to change is limited and change tends to be undermanaged, especially when
new best practices are required by new control-mandates.
Many companies also tend to overestimate the opportunities that standardization offers. We have seen some
companies try to standardize everything and inevitably encounter challenges they had not anticipated. New best
practices need to be capable of changing and evolving over time, as well as being able to adaptable to local
differences and requirements.
Lastly, many companies fail to conduct a cost/benefit analysis when instituting new best practice mandates. If a
best practice is central to the business strategy’s success, then frictional costs are an acceptable risk. However,
excessive application of best practice improvements can waste resources (e.g., a need for excess staff to perform the
work, complex policies & procedures, standardization for its own sake, and demands for “unnatural acts of
cooperation” which hinder the business’ ability to respond to changes in the marketplace).
What’s worked and what hasn’t
The following case studies are examples of companies that faced a specific strategic imperative or operational
concern and successfully implemented highly-focused best-practices:
Best practice success stories
Mid-Size US Organization redesign and LEAN
Life Insurer The company was lagging behind its competitors and was slow to move. Management
undertook a comprehensive program to institutionalize organizational discipline and selected
engineering-practices. The company implemented a top to bottom de-layering and span of
control cleanup. Staffing models were designed for every function and throughput was modeled.
The most visible change was a management-style change deploying visual management
techniques at all levels of the organization. The result has been a significant alignment of
objectives and resultant savings and service improvements.
Large Global Alignment of the IT & operations investment portfolio
PwC 5Best practice success stories
Multi-Line The company was under tremendous pressure to rationalize its operating model and improve its
Carrier economics. It concluded that, among other things, the IT and operations portfolio investments
were misaligned. The company undertook a multi-year transformation to gradually shift
investments in the portfolio from local to global initiatives, from business to divisional initiatives,
and to significantly reduce the number of projects while maintaining consistent investment levels.
The projects were aligned with the company’s strategy and vision, and a roadmap guided
prioritization. A cross-divisional governance counsel considered both local and corporate needs
to affect a balanced result.
Large Domestic Building an appreciation for IT value
Multi-Line Company executives were uncomfortable with the seeming lack of business alignment with IT
Carrier spend and overall IT spending levels. As a result, the company embarked on a multi-year
program to build trust and transparency and better align IT costs to business needs. All IT costs
were segmented and change-drivers identified. Decision rights for each driver were clarified,
assigned, and matched to the annual planning processes. A change management program was
executed to train both IT and business partners to engage in full-disclosure and transparently
make decisions. The result was improved trust and spending levels that matched strategic
objectives.
Mid-size Life & Business driven architecture and roadmap
Annuity Carrier The company had many incompatible legacy platforms and lacked a clear vision on how to
improve the operating model. Acknowledging real-world constraints, management articulated a
business vision in terms of the capabilities they needed to create their ideal future state. A
flexible roadmap for change that identified key initiatives and their interdependencies helped the
company adjust priorities as it made progress on implementing management’s vision.
Global Multi- Accountability focus
Line Carrier The company had created a control structure that had slowed decision making to the point of
competitive disadvantage. Forward progress was hindered by over-matrixed decision-making,
excessive controls and reporting. The company decided to reengineer its control structure to
establish stronger accountability by aligning responsibility, resources and authority. Decision-
making for funding of investments in the operating model tied into P/L and committed benefits
were tied directly into to the annual plan. The result was the elimination of hierarchical non-
value-added approvals and a clear focus on benefits that could result from thoughtful IT and
operations investments.
On the other hand, some of the executives we talked to described how best practices turned out to be anything but.
The following are a few noteworthy examples.
Best practices: Too much of a good thing
CoE In the course of expanding best practice initiatives, the company had designated numerous new
Proliferation centers of excellence (CoEs) to promote best-practices and standardization. However the
company did not grant the CoEs a clear mission or authority, nor did it put enough thought into
identifying and assigning to the CoEs the right resources. As a result, the best talent was not in
the CoEs, the businesses soon saw no value in the CoE effort and the company wound up
shutting down the CoEs.
PwC 6Best practices: Too much of a good thing
Decline of the In pursuit of on-time, on-budget, on-scope project delivery, the company recruited and certified
Project project managers and then assigned most of them to non-production activities. The project
Manager managers were put in the wrong roles and became box checkers rather than problem solvers.
Managers no-longer managed. The result was ineffective project delivery, a culture of
management unaccountability as calendars filled with meetings and stop-light reports, and no
clear path to creating solutions and resolving problems.
Tyranny of the In pursuit of higher returns from project investments, the company set hurdle and return rates for
Cost Benefit approval of investment projects. These required hard benefits and short-term returns. While the
Analysis process succeeded in weeding out low-yielding fixes, it also halted most strategic efforts. The
company could not meet hurdle rates on major core-infrastructure or foundational initiatives. This
resulted in poor alignment of the investment portfolio with strategic objectives, as well as stalled
programs.
Pros and cons
Our discussions with executives covered a number of practices which had carried benefits for some and failed for
others.
Best practice Positive results: It was the best of times… Negative results: It was the worst of times…
Annual Budget Predictable results. The planning process is rigid and discourages
Process new ideas.
Business Improved project ROI. Irrational roadmaps and portfolio of
Cases investments.
There is enhanced portfolio prioritization and Decision criteria become overly financial and
understanding of the financial impact of IT threshold based. Business cases require early
strategies and roadmaps on business returns so virtually all transformational and
strategies. Projects with little tangible near- or foundational investments disappear from the
long-term benefit are eliminated from the spending plan.
portfolio or significantly improved.
Centers of Standardization drives economies of skill and Lack of authority, resources, and the right
Excellence scale. talent.
Customer Customer-centricity. Analysis paralysis stalls proof of concept and
Experience implementation.
Customer demographics and segmentation Customer complaints are translated into an
drive build-out of digital strategy that benefits expensive build-out of unutilized customer
customers throughout their interaction with the portal capabilities.
company.
Distribution Distribution data helps match local resources Distribution data analysis does not take into
Management with local demographics and addresses local account market differences, thereby resulting
competitive issues. in over-concentration in prime-target areas.
Distribution Unlock market opportunity. Numbers fail to reflect local nuances.
Metrics
Expense P/L Savings. Upgrades are postponed and ultimately the
Management backlog of “technical debt” needs repayment.
Innovation Rapid product introduction. Constant testing stalls progress.
Counsel
PwC 7Best practice Positive results: It was the best of times… Negative results: It was the worst of times…
Management Focused workforce. Sub-optimization resulting from inconsistent
by Objectives objectives.
Organizational Good resource deployment. Impedes changes to the operating model.
Design
Outsourcing Salary arbitrage. Inflexibility.
Policy Sound underwriting. Perception of poor service and impeded sales.
Application
Portfolio Process taps into business driven strategic There is strict adherence to annual budget
Management plans and multi-year IT roadmaps. Project guidelines for each function, which eliminates
funding matches the company’s long term opportunity for transforming the collective
vision. New practices methodically deliver new environment, as well as opportunities to jointly
capabilities. build shared capabilities.
Product New product introduction begins with an easy New product introduction has too many bells
Introduction sale and then facilitates opportunities to offer and whistles, which results in the need for
other products to the customer. hands-on sales, thereby eliminating the
opportunity for direct and simple sales.
Program and There is a calibrated, risk-adjusted project Standard project plans and templates treat all
Project planning framework and better project delivery projects as if they are alike, over-burdening
Planning (time, cost, risk-mitigation). some with unnecessary oversight and
overhead, and substantively under-estimating
the risk associated with others.
Project Transparency & risk management. Overhead & bureaucracy.
Management
(including Accountability and common approach. Check-the-box mentality and lack of problem-
PMO) solving.
Project Project management roles, skills, knowledge Project delivery capability deteriorates as
Professional and professionalism are well defined and domain knowledge and business judgment
Certifications appropriately linked to the kinds of projects become under-valued.
and programs undertaken.
Shared Establishment of shared services and Companies establish too many shared
Services appropriate funding models enable companies services. This increases overhead, especially
to rationalize overhead and staff costs, and when volume and the need for change do not
consider changes to their operating model. support the model.
Technology Predictability and enabling economies of scale. Lack of fit and impaired time-to-market.
Standardization
Success factors
We provided each executive we surveyed eight statements and asked them to rate how their implementation
reflected each statement on a scale from “never” to “always.”
We considered statements that executives answered “never,” “rarely” or “sometimes” to be weaker indicators of
success, and statements executives answered “most of the time” or “always” to be stronger indicators of success.
PwC 8The results were as follows:
Weaker Stronger
Indication Indication
We implement best practices to drive clear improvement objectives 50% 50%
We monitor or assess the effectiveness of best practices once they have 61% 39%
been institutionalized
We measure the costs of selected best practices against a baseline 56% 44%
We observe and measure the negative side effects of best practices as a 78% 22%
matter of course
When we choose a best practice, we target how good we want to be 39% 61%
When we implement a best practice, we support it with needed staffing 61% 39%
When we implement a best practices, we coordinate the impact across 61% 39%
departments
If a best practices is NOT working, we continuously improve it 50% 50%
What should companies do differently?
Many companies have the habit of relying on practices that are not appropriate for them and therefore fail to
effectively execute desired strategy. To help prevent these problems, we suggest using a success framework that
prioritizes and enhances company focus on improvement efforts. This framework should have the following six
characteristics:
Success Framework A Mechanism…..
1. Prioritization To identify what’s most important and to align implementation effort with strategy.
2. Proportion To confirm that the implementation effort is proportionate to the practice’s perceived value.
3. Readiness To assess organizational appetite and readiness.
4. Implementation To assign authority, accountability, responsibility, and appropriate resources.
5. Impact To track impact, including both intended and potentially unintended consequences.
6. Change To drive continuous improvement and to authorize a full-stop if warranted.
It is critical to first identify which best practices are worth the effort, through prioritization.
In principle, the laws of supply and demand apply. If funding levels do not promote desired capability levels, then
intervention will be necessary. In other words, the company should devote only enough funding and/or
intervention to reach the desired capability level. Funding should cover only where supply (capability) meets
demand (desired benefits).
Additionally, implementing leading practices can cost money, but there may or may not be tangible benefits or
related savings. The question to ask is, how good is good enough? Moreover, when the implementations of best
practices compete with each other for time and focus, there are frictional costs that further minimize expected
benefits. Being cognizant of frictional costs and avoiding them is critical to optimizing investment and benefit
realization.
PwC 9Red flags
If there are capability shortcomings in areas of high practice interdependency, then you can expect that
efforts to improve capabilities will increase frictional costs.
Investments in engineering practices will typically have low interdependency and readily attainable
improvements.
The adaption and adoption of market-facing practices requires foresight, focus and alignment. There is a risk
that the market and capabilities the company needs will advance more quickly than the company’s ability to
apply a new practice.
Governance-type practice investments carry high frictional costs and therefore should be carefully scoped.
Because they are very difficult to remove once they are in place, companies should pilot governance practices
be wary of institutionalizing them before it is certain that they work.
The interaction between best-practices, particularly those that have an element of governance and control,
may be difficult to balance with the implementation effort. Companies should make a concerted effort to
identify the key interdependencies within the practice ecosystem. This includes monitoring frictional costs
and downstream effects, using a balanced scorecard, and helping to help right-size continuous improvement
efforts on an ongoing basis.
Professional hockey teams often train players in trios to practice all combinations of potential plays. The graphic
below highlights practice areas which have a profound impact on each other. Mapping practices in clusters as part
of the change plan should help identify cause and effect and uncover potential friction points and misalignment.
PwC 10 Cluster 1: Vision,Goals & Objectives, Targeted Capabilities
Cluster 2: Targeted Capabilities, Business & Technology Blueprints, Target Operating Model
Cluster 3: Target Operating Model, Organization Design, Roadmap for Change
Cluster 4: Roadmap for Change, Talent & Sourcing Strategy, Project Portfolio Strategy
Cluster 5: Project Portfolio Strategy, Annual Plan, Hiring & Resource Allocation
Common pitfalls to be avoided
The practice eco-system needs to be balanced:
– Mandate = resource (time, money and talent)
Save your powder for the most important things. Best practices are too resource-consumptive to waste on
areas that are already good enough to meet your objectives.
Beware of unfunded mandates. It’s easy to set the bar, but harder to coordinate the annual budgeting and
project approval processes that align resources with your strategies (including support for best practices).
Don’t try to implement too many best practices – this likely will cause implementation to lag or fail
altogether.
Question the assumption that standardization drives benefits. Be wary of governance and methodology
standardization overreach.
Honestly assess organizational readiness. You’ll have to ramp up efforts if the organization is unready,
unable and/or unwilling to implement change.
Be wary of too many CoEs and shared services. They carry overhead, and it’s difficult to staff them with the
appropriate talent.
PwC 11 Think twice about adopting market-based best practices. They may be out of date by the time you adopt
them.
Higher interdependency carries greater risk of unintended consequences.
What we’ve concluded
Best practices are about performing better and therefore adding strategic and operational value.
Accordingly, because of the highly subjective nature of “best,” we suggest the term “value added practice” (VAP)
instead. By putting value at the center of practice improvement efforts, a company can better plan and implement
new practices. Frameworks for investment and continuous improvement are key, especially at larger organizations
where budgets, controls and approvals tend to be complex.
Before embarking on a new best practices initiative, we recommend that a company perform a quick self-diagnosis.
Are you trying to implement a best practice for its own sake or are you clearly focusing on the value you hope to
realize? If you plan to invest in new capabilities without tying them to specific business objectives, then you should
step back and determine just how implementing new best practices will benefit the company.
Note: The authors would like to thank PwC colleagues Rick Barto, Kevin Caceres, Marie Carr, John Dixon, Paul
Frank, Punita Gandhi, Atanu Ghosh, Tom Kavanaugh, Anup Madampath, Mike Mariani, Sean Sell, and Eric
Trowbridge for their thoughtful contributions to this paper.
PwC 12To discuss this subject in more detail, please contact: Bruce Brodie Managing Director, Advisory Services +1 646 471 3311 bruce.brodie@us.pwc.com Paul Livak Director, Advisory Services +1 312 298 2889 paul.livak@us.pwc.com PwC 13
© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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