Driving performance

Countless articles discuss the role of the CFO and how having the right one can create value. But today, I wanted to focus on something specific - driving performance within the insurance industry.

“What gets measured gets done”

I have heard and used this phrase countless times, it is critical to set objectives and measure them. Setting and monitoring performance metrics and objectives at the top of the organisation is a start, however there are several issues I have encountered, some of which are:

• The metrics/objectives are set with no reference to a robust plan (too easy or, more often, impossible to achieve)
• The metrics are not aligned with the business strategy and objectives (measuring for outcome ‘A’ whilst wanting outcome ‘B’)
• There are too many metrics (difficult to know which are more 'key' than others)
• The metrics are largely not in the control of executive management (i.e. they rely on external factors, such as interest rates or natural events)
• The metrics are not considering the seasonality/annual cycles of the business
• The metrics are contradictory
• The same metrics are disseminated throughout the organisation (every division and geography is measured in the same way, whether relevant to them or not)
• These metrics are the only ones management and the Boards focus on

There is an immense amount of information which needs to be digested by Boards and their Chairmen to allow them to be effective in their roles. Performance-related metrics form part of a much broader governance agenda which also includes key risk indicators, compliance and much more. In my experience the focus on the performance of the business at the Boardroom has reduced over time, as space had to be created for agendas of growing importance, such as regulatory compliance. To ask the Board to critically evaluate and supervise the selection of metrics is impractical.

“One size fits all?”

Therefore, aim for simplicity - what could be better than complete consistency? Many organisations like the idea of consistency of metrics across all its layers and business units. This sometimes works but more often it does not. (I think the best example of this was seeing loss ratios similarly applied across Life and non-Life businesses!) In a situation where the business models, risk factors, business maturity are consistent, having consistent metrics makes sense. However this is rarely the case. In most of my engagements, not only do the business models differ across the business, but the level of business maturity is also different across geographies, with some geographies being in a ‘start up’/business development mode and others in a ‘cash cow’ mode. The expectations for these business units will be different and the ‘one size fits all’ approach will likely hurt both businesses.

“The devil (and the angel) is in the detail”

I have advocated for a ‘translation’ of group-level objectives and metrics to local business plans which themselves led to a different set of metrics and relative importance at the local level which local management and Boards focus on. Whilst this approach may appear ‘chaotic’, it has given me the confidence of achieving the business objectives at the group/regional level because the sum of the parts add up to the right outcome and, more importantly, the businesses feel that they are aiming for something relevant to them and not for what they deem to be a less relevant top-down business metric/target.

Translating strategy to organisational objectives and ultimately to metrics or “key performance indicators” requires a deep understanding of the business, its business divisions and geographies and how the numbers behave. It also requires a deep understanding of the risk environment and risk appetite of the business at each of its major geographies and business divisions, how capital is deployed and the risks it is exposed to in each case. To optimise business performance requires every part of the business recognising its role in achieving the objectives which may lead to different parts of the business having different targets and metrics which, when put together, can achieve the overall business objective.

“Rome wasn’t built in a day”

I don’t know that there is an organisation out there which is not striving to be better than what it is today. However, fewer are successful and even fewer are set for sustainable success, ‘firing on all cylinders’ (to use another phrase one of my good old CEOs used to say). Truly understanding business performance and linking metrics to strategic objectives (and setting reward policies and practices based on these) is a fundamental building block to securing a sustainable future.

"If you don't take a step forward, you're always in the same place"

Where do you see your organisation relative to the above and how do you progress from here? A good, honest assessment would be a start, followed by incremental changes to business practices to get to a point where every part of the business knows what is expected from them and are incentivised to deliver it. A detailed business plan is a fundamental building block: without a credible plan, it will not be possible to set the right metrics.

If you are a Chairman, Board member or in senior management, I hope some of the above resonates with you and that you have found this helpful. I would love to hear your comments and discuss how this applies to your organisation.