TOTAL QUALITY MANAGEMENT IN INSURANCE

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TRAINING REPORT ON

TOTAL QUALITY MANAGEMENT IN INSURANCE

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CERTIFICATE

This is to certify that XYZ, a student of XYZ College, has prepared his Training Report entitled “TOTAL QUALITY MANAGEMENT IN INSURANCE” at “India First Life Insurance”, under my guidance. He has fulfilled all requirements leading to award of the degree of BBA (Industry Integrated). This report is the record of bonafide training undertaken by him and no part of it has been submitted to any other University or Educational Institution for award of any other degree/diploma/fellowship or similar titles or prizes.

I wish him all success in life.

XYZ Lecturer

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STUDENTS DECLARATION I hereby declare that the training report conducted at India First Life Insurance NSP, Pitampura, New Delhi Under the guidance of Submitted in partial fulfillment of the requirement for the Degree of MASTER OF BUSINESS ADMINISTRATION (Industry Integrated) To XYZ UNIVERSITY Is my original work and the same has not been submitted For the award of any degree/diploma/fellowship Or other similar titles or prizes.

Place: Date:

XYZ

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5 ACKNOWLEDGEMENTS I have learnt so many things throughout this project work. I faced many problems related to all the fields and I know that I solve most of the problems at the end of the project.

After completing the project I acquired invaluable experience and knowledge which would be helpful through my career. But all this would not have been possible without guidance and support.

I would like to convey my heartiest gratitude to my project guide XYZ who gave me the inspiration about my project .As a project guide he has given me very meaningful, tips especially in research part of the project, which really enriched my project.

Last but not least, I would like to thank all my friends and faculty members for their support, advice and encouragement.

XYZ Roll No. XYZ

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EXECUTIVE SUMMARY

While Total Quality Management has proven to be an effective process for improving organizational functioning, its value can only be assured through a comprehensive and wellthoughtout implementation process. The purpose of this dissertation is to outline key aspects of implementation of largescale organizational change which may enable a practitioner to more thoughtfully and successfully implement TQM. First, the context will be set. TQM is, in fact, a largescale systems change, and guiding principles and considerations regarding this scale of change will be presented. Without attention to contextual factors, wellintended changes may not be adequately designed. As another aspect of context, the expectations and perceptions of employees (workers and managers) will be assessed, so that the implementation plan can address them.

Specifically, sources of resistance to change and ways of dealing with them will be discussed. This is important to allow a change agent to anticipate resistances and design for them, so that the process does not bog down or stall.

Next, a model of implementation will be presented, including a discussion of key principles. Visionary leadership will be offered as an overriding perspective for someone instituting TQM. In recent years the literature on change management and leadership has grown steadily, and applications based on research findings will be more likely to succeed. Use of tested principles will also enable the change agent to avoid reinventing the proverbial wheel. Implementation principles will be followed by a review of steps in managing the transition to the new system and ways of helping institutionalize the process as part of the organization's culture. This section, too, will be informed by current writing in transition management and institutionalization of change. Finally, some miscellaneous do's and don't' will be offered.

Members of any organization have stories to tell of the introduction of new programs, techniques, systems, or even, in current terminology, paradigms. Usually the employee, who can be anywhere from the line worker to the executive level, describes such an incident with a combination of cynicism and disappointment: some manager went to a conference or in some other way got a "great idea" (or did it based on threat or desperation such as an urgent need to cut costs) and came back to work to enthusiastically present it, usually mandating its implementation. The "program" probably raised people's expectations that this time things would improve, that management would listen to their ideas. Such a program usually is introduced with fanfare, plans are made, and things slowly return to normal.

The manager blames unresponsive employees, line workers blame executives interested only in looking good, and all complain about the resistant middle managers.

Unfortunately, the program itself is usually seen as worthless: "we tried team building (or organization development or quality circles or what have you) and it didn't work; neither will TQM". Planned change processes often work, if conceptualized and

7 implemented properly; but, unfortunately, every organization is different, and the processes are often adopted "off the shelf" "the 'appliance model of organizational change': buy a complete program, like a 'quality circle package,' from a dealer, plug it in, and hope that it runs by itself" (Kanter, 1983, 249). Alternatively, especially in the underfunded public and notforprofit sectors, partial applications are tried, and in spite of management and employee commitment do not bear fruit. This chapter will focus on ways of preventing some of these disappointments.

In summary, the purpose here is to review principles of effective planned change implementation and suggest specific TQM applications in insurance. Several assumptions are proposed: 1. TQM is a viable and effective planned change method, when properly installed; 2. Not all organizations are appropriate or ready for TQM; 3. preconditions (appropriateness, readiness) for successful TQM can sometimes be created; and 4. Leadership commitment to a largescale, longterm, cultural change is necessary. While problems in adapting TQM in government and social service organizations have been identified, TQM can be useful in such organizations if properly modified.

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SL.NO.

TOPIC

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CERTIFICATE……………………………………

2.

ACKNOWLEDGEMENT…………………………

3.

EXECUTIVE SUMMARY……………………….

4.

TABLE OF CONTENTS…………………………

5.

CHAPTER 1 : INTRODUCTION TO TQM……..

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DEFINITION……………………………………..

7.

EVOLUTION OF QUALITY MANAGEMENT…

8.

PRINCIPLES OF TQM…………………………...

9.

BENEFITS OF TQM……………………………..

10.

TQM AS A LARGE SCALE…………………….

11.

DEMING APPROACH TO TQM………………..

12.

JURAN APPROACH TO TQM…………………..

13.

CROSBY APPROACH TO TQM………………..

14.

FEIGENBAUN’S APP. TO TQM………………..

15.

ISHIKAWA APP. TO TQM……………………...

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CHAPTER 2 : PEOPLE EXPECTATION AND PERCEPTION……………………

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PEOPLE EXPECTATIONS……………………..

18.

SOURCES OF RESISTANCES…………………

19.

DEALING WITH RESISTANCE………………

20.

A FORCE FIELD ANALYSIS………………….

21.

IMPLEMENT PRICNCIPLES & PROCESS…..

22.

CURRENT REALITY & PRE CONDITIONS…

23.

VISIONARY LEADERSHIP……………………

24.

STEPS IN MANAGING THE TRANSITION….

25.

INSTITUTIONALIZATION OF TQM………....

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QUALITY CONTROL LEVEL…………………

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CHAPTER 3: PROBLEM SOLVING TECHNIQUES………………..

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PROBLEM SOLVING PROCESS……………..

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TQM TOOLS…………………………………..

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PARETO CHARTS…………………………...

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SCATTER PLOTS……………………………

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CONTROL CHARTS…………………………………

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FLOW CHARTS………………………………………

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CAUSE AND EFFECT DIAGRAM………………….

35.

HISTOGRAM…………………………………………

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CHECKSHEETS……………………………………...

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NEW MANAGEMENT PLANNING TOOLS………

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CHAPTER 4 : CONTINUES IMP, ISO & Q. P……...

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PDCA…………………………………………………

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BENCHMARKING…………………………………..

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SIX SIGMA…………………………………………...

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ISO CERT AND

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QUALITY PLANNING………………………………

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QUALITY AUDITS………………………………….

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QUALITY CIRCLES…………………………………

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CHAPTER 5: APPLICATION OF TQM

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IN INSURANCE……………………

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CHAPTER 6: RESEARCH ANALYSIS…………….

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RECOMMENDATIONS…………………………….

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CONCLUSION………………………………………

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BIBLIOGRAPHY…………………………………….

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DEFINITION : TOTAL QUALITY MANAGEMENT

As defined by the International Organization for Standardization (ISO): "TQM is a management approach for an organization, centered on quality, based on the participation of all its members and aiming at long-term success through customer satisfaction, and benefits to all members of the organization and to society."

When used together as a phrase, the three words in this expression have the following meanings: •

Total: Involving the entire organization, supply chain, and/or product life cycle

•

Quality: With its usual definitions, with all its complexities.

•

Management: The system of managing with steps like Plan, Organize, Control, Lead, Staff, provisioning and organizing.

TOTAL QUALITY MANAGEMENT IS DEFINED AS, “A PREDICTABLE DEGREE OF UNIFORMITY AND DEPENDABILITY AT LOW COST AND SUITED TO THE MARKET”.

------ DEMING EXPLANATION

12 TQM requires that the company maintain this quality standard in all aspects of its business. This requires ensuring that things are done right the first time and that defects and waste are eliminated from operations. One major aim is to reduce variation from every process so that greater consistency of effort is obtained.

Evolution of Quality Management  INSPECTION : Salvage, sorting, grading, blending, corrective actions, identify sources of non-conformance.  QUALITY CONTROL : Develop quality manual, process performance data, self-inspection, product testing, basic quality planning, use of basic statistics, paperwork control.  QUALITY ASSURANCE : Quality systems development, advanced quality planning, comprehensive quality manuals, use of quality costs, involvement of non-production operations, failure mode and effects analysis, SPC.  TQM : Policy deployment, involve supplier & customers, involve all operations, process

management,

involvement.

Evolution of Quality Era

performance

measurement,

teamwork,

employee

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Evolution TQM

TQC &CWQC TQC SQC Inspection Foreman Craftsman

Years 1900

1920

1940

1960

1980

EVOLUTION OF QUALITY : MEANS AND FOCUS

1990

2000

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1975 1980

1985

1990

Productivity

Quality

Quality Circle Quality of Work life

1995

2000

Total Quality

TQC/TQM

Employee Involvement Self Self Directed Directed/Managed Teams Teams Employees Empowerment

Operation

Customers

Innovations

BASIC PRINCIPLES OF TOTAL QUALITY MANAGEMENT

Approach

Management Led

Scope

Company Wide

Scale Philosophy

Everyone is responsible for Quality Prevention not Detection

Standard

Right First Time

Control

Cost of Quality

Theme

On going Improvement

15 BENEFITS OF TOTAL QUALITY MANAGEMENT Here are some of the advantages of Total Quality Management: Increase in :  System efficiency  Morale of workmen  Customer satisfaction Decrease in :  Complaints  Costs  Production time

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TQM as Large Scale Systems Change TQM is at first glance seen primarily as a change in an organization's technology its way of doing work. In the human services, this means the way clients are processed the service delivery methods applied to them and ancillary organizational processes such as paperwork, procurement processes, and other procedures. But TQM is also a change in an organization's culture its norms, values, and belief systems about how organizations function. And finally, it is a change in an organization's political system: decision making processes and power bases. For substantive change to occur, changes in these three dimensions must be aligned: TQM as a technological change will not be successful unless cultural and political dimensions are attended to as well (Tichey, 1983).

Many (e.g., Hyde, 1992; Chaudron, 1992) have noted that TQM results in a radical change in the culture and the way of work in an organization. A fundamental factor is leadership, including philosophy, style, and behavior. These must be congruent as they are presented by a leader. Many socalled enlightened leaders of today espouse a participative style which is not, in fact, practiced to any appreciable degree. Any manager serious about embarking on a culture change such as TQM should reflect seriously on how she or he feels and behaves regarding these factors. For many managers, a personal program of leadership development (e.g., Bennis, 1989) may be a prerequisite to effective functioning as an internal change agent advocating TQM. Other key considerations have to do with alignment among various organizational systems (Chaudron, 1992; Hyde, 1992). For example, human resource systems, including job design, selection processes, compensation and rewards, performance appraisal, and training and development must align with and support the new TQM culture. Less obvious but no less important will be changes required in other systems.

Information systems will need to be redesigned to measure and track new things such as service quality. Financial management processes may also need attention through the realignment of budgeting and resource allocation systems. Organizational structure and design will be different under TQM: layers of management may be reduced and organizational roles will certainly change. In particular, middle management and first line supervisors will be operating in new ways. Instead of acting as monitors, ordergivers, and agents of control they will serve as boundary managers, coordinators, and leaders who assist line workers in getting their jobs done. To deal with fears of layoffs, all employees should be assured that no one will lose employment as a result of TQM changes: jobs may change, perhaps radically, but no one will be laid off. Hyde (1992) has recommended that we "disperse and transform, not replace, midlevel managers."

This no layoff principle has been a common one in joint labormanagement change processes such as quality of working life projects for many years.

Another systems consideration is that TQM should evolve from the organization's strategic plan and be based on stakeholder expectations. This type of planning and stance

17 regarding environmental relations is receiving more attention but still is not common in the human services. As will be discussed below, TQM is often proposed based on environmental conditions such as the need to cut costs or demands for increased responsiveness to stakeholders. A manager may also adopt TQM as a way of being seen at the proverbial cutting edge, because it is currently popular. This is not a good motivation to use TQM and will be likely to lead to a cosmetic or superficial application, resulting in failure and disappointment. TQM should be purposeoriented: it should be used because an organization's leaders feel a need to make the organization more effective. It should be driven by results and not be seen as an end in itself. If TQM is introduced without consideration of real organizational needs and conditions, it will be met by skepticism on the part of both managers and workers. We will now move to a discussion of the ways in which people may react to TQM. DEMING’S APPROACH TO TQM The theoretical essence of the Deming approach to TQM concerns the creation of an organizational system that fosters cooperation and learning for facilitating the implementation of process management practices, which, in turn, leads to continuous improvement of processes, products, and services as well as to employee fulfillment, both of which are critical to customer satisfaction, and ultimately, to firm survival (Anderson et al., 1994a). Deming (1986) stressed the responsibilities of top management to take the lead in changing processes and systems. Leadership plays in ensuring the success of quality management, because it is the top management’s responsibility to create and communicate a vision to move the firm toward continuous improvement. Top management is responsible for most quality problems; it should give employees clear standards for what is considered acceptable work, and provide the methods to achieve it.

These methods include an appropriate working environment and climate for work-free of faultfinding, blame or fear.

Deming (1986) also emphasized the importance of identification and measurement of customer requirements, creation of supplier partnership, use of functional teams to identify and solve quality problems, enhancement of employee skills, participation of employees, and pursuit of continuous improvement. Anderson et al. (1994a) developed a theory of quality management underlying the Deming management method. They proposed that: The effectiveness of the Deming management method arises from leadership efforts toward the simultaneous creation of a cooperative and learning organization to facilitate the implementation of process-management practices, which, when implemented, support customer satisfaction and organizational survival through sustained employee fulfillment and continuous improvement of processes, products, and services.

The means to improve quality lie in the ability to control and manage systems and processes properly, and in the role of management responsibilities in achieving this.

Deming (1986) advocated methodological practices, including the use of specific tools and statistical methods in the design, management, and improvement of process, which

18 aim to reduce the inevitable variation that occurs from “common causes” and “special causes” in production.

“Common causes” of variations are systemic and are shared by many operators, machines, or products. They include poor product design, non-conforming incoming materials, and poor working conditions. These are the responsibilities of management.

“Special causes” relate to the lack of knowledge or skill, or poor performance. These are the responsibilities of employees.

Deming proposed 14 points as the principles of TQM (Deming, 1986), which are listed below: (1) Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.

(2) Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.

(3) Cease dependence on mass inspection to quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.

(4) End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.

(5) Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.

(6) Institute training on the job.

(7) Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.

(8) Drive out fear, so that people may work effectively for the company.

(9) Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.

(10) Eliminate slogans, exhortations, and targets for the workforce asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the workforce.

19 (11) (a) Eliminate work standards (quotas) on the factory floor. Substitute leadership. (b) Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.

(12) (a) Remove barriers that rob the hourly worker of his right to pride of workmanship.

The responsibility of supervisors must be changed from sheer numbers to quality. (b) Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective.

JURAN’S APPROACH TO TQM TQM is the system of activities directed at achieving delighted customers, empowered employees, higher revenues, and lower costs (Juran and Gryna, 1993). Juran believed that main quality problems are due to management rather than workers. The attainment of quality requires activities in all functions of a firm. Firm-wide assessment of quality, supplier quality management, using statistical methods, quality information system, and competitive benchmarking are essential to quality improvement. Juran’s approach is emphasis on team (QC circles and self-managing teams) and project work, which can promote quality improvement, improve communication between management and employees coordination, and improve coordination between employees. He also emphasized the importance of top management commitment and empowerment, participation, recognition and rewards.

According to Juran, it is very important to understand customer needs. This requirement applies to all involved in marketing, design, manufacture, and services. Identifying customer needs requires more vigorous analysis and understanding to ensure the product meets customers’ needs and is fit for its intended use, not just meeting product specifications.

Thus, market research is essential for identifying customers’ needs. In order to ensure design quality, he proposed the use of techniques including quality function deployment, experimental design, reliability engineering and concurrent engineering.

Juran considered quality management as three basic processes (Juran Trilogy): Quality control, quality improvement, and quality planning. In his view, the approach to managing for quality consists of: The sporadic problem is detected and acted upon by the process of quality control; The chronic problem requires a different process, namely, quality improvement; Such chronic problems are traceable to an inadequate quality planning process. Juran defined a universal sequence of activities for the three quality processes.

Juran defined four broad categories of quality costs, which can be used to evaluate the firm’s costs related to quality. Such information is valuable to quality improvement. The four Quality costs are listed as follows:

20 - Internal failure costs (scrap, rework, failure analysis, etc.), associated with defects foundprior to transfer of the product to the customer; - External failure costs (warranty charges, complaint adjustment, returned material, allowances, etc.), associated with defects found after product is shipped to the customer; - Appraisal costs (incoming, in-process, and final inspection and testing, product quality audits, maintaining accuracy of testing equipment, etc.), incurred in determining the degree of conformance to quality requirements; - Prevention costs (quality planning, new product review, quality audits, supplier quality evaluation, training, etc.), incurred in keeping failure and appraisal costs to a minimum.

CROSBY’S APPROACH TO TQM Crosby (1979) identified a number of important principles and practices for a successful quality improvement program, which include, for example, management participation, management responsibility for quality, employee recognition, education, reduction of the cost of quality (prevention costs, appraisal costs, and failure costs), emphasis on prevention rather than after-the-event inspection, doing things right the first time, and zero defects. Crosby claimed that mistakes are caused by two reasons: Lack of knowledge and lack of attention. Education and training can eliminate the first cause and a personal commitment to excellence (zero defects) and attention to detail will cure the second. Crosby also stressed the importance of management style to successful quality improvement. The key to quality improvement is to change the thinking of top managers-to get them not to accept mistakes and defects, as this would in turn reduce work expectations and standards in their jobs.

Understanding, commitment, and communication are all essential. Crosby presented the quality management maturity grid, which can be used by firms to evaluate their quality management maturity. The five stages are: Uncertainty, awakening, enlightenment, wisdom and certainty. These stages can be used to assess progress in a number of measurement categories such as management understanding and attitude, quality organization status, problem handling, cost of quality as percentage of sales, and summation of firm quality posture.

The quality management maturity grid and cost of quality measures are the main tools for managers to evaluate their quality status. Crosby offered a 14-step program that can guide firms in pursuing quality improvement.

These steps are listed as follows: (1) Management commitment: To make it clear where management stands on quality.

(2) Quality improvement team: To run the quality improvement program.

21 (3) Quality measurement: To provide a display of current and potential nonconformance problems in a manner that permits objective evaluation and corrective action.

(4) Cost of quality: To define the ingredients of the cost of quality, and explain its use as a management tool.

(5)Quality awareness: To provide a method of raising the personal concern felt by all personnel in the company toward the conformance of the product or service and the quality reputation of the company.

(6) Corrective action: To provide a systematic method of resolving forever the problems that are identical through previous action steps.

(7) Zero defects planning: To investigate the various activities that must be conducted in preparation for formally launching the Zero Defects program.

(8) Supervisor training: To define the type of training that supervisors need in order to actively carry out their part of the quality improvement program.

(9) Zero defects day: To create an event that will make all employees realize, through a personal experience, that there has been a change.

(10) Goal setting: To turn pledges and commitment into actions by encouraging individuals to establish improvement goals for themselves and their groups.

(11) Error causal removal: To give the individual employee a method of communicating to management the situation that makes it difficult for the employee to meet the pledge to improve.

(12) Recognition: To appreciate those who participate.

(13) Quality councils: To bring together the professional quality people for planned communication on a regular basis.

(14) Do it over again: To emphasize that the quality improvement program never ends.

FEIGENBAUM’S APPROACH TO TQM Feigenbaum (1991) defined TQM5 as: An effective system for integrating the qualitydevelopment, quality-maintenance, and quality-improvement efforts of the various groups in a firm so as to enable marketing, engineering, production, and service at the most economical levels which allow for full customer satisfaction. He claimed that effective quality management consists of four main stages, described as follows:  Setting quality standards;  Appraising conformance to these standards;

22  Acting when standards are not met;  Planning for improvement in these standards.

The quality chain, he argued, starts with the identification of all customers’ requirements and ends only when the product or service is delivered to the customer, who remains satisfied. Thus, all functional activities, such as marketing, design, purchasing, manufacturing, inspection, shipping, installation and service, etc., are involved in and influence the attainment of quality. Identifying customers’ requirements is a fundamental initial point for achieving quality. He claimed that effective TQM requires a high degree of effective functional integration among people, machines, and information, stressing a system approach to quality. A clearly defined total quality system is a powerful foundation for TQM. Total quality system is defined as follows: The agreed firm-wide operating work structure, documented in effective, integrated technical and managerial procedures, for guiding the coordinated actions of the people, the machines, and the information of the firm in the best and most practical ways to assure customer quality satisfaction and economical costs of quality.

Feigenbaum emphasized that efforts should be made toward the prevention of poor quality rather than detecting it after the event. He argued that quality is an integral part of the day-today work of the line, staff, and operatives of a firm. There are two factors affecting product quality: The technological-that is, machines, materials, and processes; and the human-that is, operators, foremen, and other firm personnel. Of these two factors, the human is of greater importance by far. Feigenbaum considered top management commitment, employee participation, supplier quality management, information system, evaluation, communication, use of quality costs, use of statistical technology to be an essential component of TQM. He argued that employees should be rewarded for their quality improvement suggestions, quality is everybody’s job. He stated that effective employee training and education should focus on the following three main aspects: Quality attitudes, quality knowledge, and quality skills.

ISHIKAWA’S APPROACH TO TQM Ishikawa (1985) argued that quality management extends beyond the product and encompasses after-sales service, the quality of management, the quality of individuals and the firm itself. He claimed that the success of a firm is highly dependent on treating quality improvement as a never-ending quest. A commitment to continuous improvement can ensure that people will never stop learning. He advocated employee participation as the key to the successful implementation of TQM. Quality circles, he believed, are an important vehicle to achieve this. Like all other gurus he emphasized the importance of education, stating that quality begins and ends with it. He has been

23 associated with the development and advocacy of universal education in the seven QC tools (Ishikawa, 1985).

These tools are listed below: - Pareto chart; - Cause and effect diagram (Ishikawa diagram); - Stratification chart; - Scatter diagram; - Check sheet; - Histogram; Control chart.

Ishikawa (1985) suggested that the assessment of customer requirements serves as a tool to foster cross-functional cooperation; selecting suppliers should be on the basis of quality rather than solely on price; cross-functional teams are effective ways for identifying and solving quality problems.

Ishikawa’s concept of TQM contains the following six fundamental principles: - Quality first-not short-term profits first; - Customer orientation-not producer orientation; - The next step is your customer-breaking down the barrier of sectionalism; - Using facts and data to make presentations-utilization of statistical methods; - Respect for humanity as a management philosophy, full participatory management; - Cross-functional management.

After the approaches to TQM of the five quality gurus have been reviewed, it has become evident that each has his own distinctive approach. Nevertheless, the principles and practices of TQM proposed by these quality gurus do provide the author with a better understanding of the concept of TQM. Their insights offer a solid foundation for conducting this study.Although their approaches to TQM are not totally the same, they do share some common points which are summarized as follows: (1) It is management’s responsibility to provide commitment, leadership, empowerment, encouragement, and the appropriate support to technical and human processes. It is top management’s responsibility to determine the environment and framework of operations within a firm. It is imperative that management foster the participation of the employees in quality improvement, and develops a quality culture by changing perception and attitudes toward quality.

(2) The strategy, policy, and firm-wide evaluation activities are emphasized.

(3) The importance of employee education and training is emphasized in changing employees’ beliefs, behavior, and attitudes; enhancing employees’ abilities in carrying out their duties.

24 (4) Employees should be recognized and rewarded for their quality improvement efforts.

(5) It is very important to control the processes and improve quality system and product design. The emphasis is on prevention of product defects, not inspection after the event.

(6) Quality is a systematic firm-wide activity from suppliers to customers. All functional activities, such as marketing, design, engineering, purchasing, manufacturing, inspection, shipping, accounting, installation and service, should be involved in quality improvement efforts.

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CHAPTER 2 : PEOPLE'S EXPECTATIONS AND PERCEPTIONS Many employees may see TQM as a fad, remembering past "fads" such as quality circles, management by objectives, and zerobased budgeting. As was noted above, TQM must be used not just as a fad or new program, but must be related to key organizational problems, needs, and outcomes. Fortunately, Martin (1993) has noted that TQM as a "managerial wave" has more in common with social work than have some past ones such as MBO or ZBB, and its adaptations may therefore be easier.

In another vein, workers may see management as only concerned about the product, not staff needs. Management initiatives focused on concerns such as budget or cost will not resonate with beleaguered line workers. Furthermore, staff may see quality as not needing attention: they may believe that their services are already excellent or that quality is a peripheral concern in these days of cutbacks and multi problem clients. For a child protective service worker, just getting through the day and perhaps mitigating the most severe cases of abuse may be all that one expects. Partly because of heavy service demands, and partly because of professional training of human service workers, which

27 places heavy value on direct service activities with clients, there may be a lack of interest on the part of many line workers in efficiency or even effectiveness and outcomes (Pruger & Miller, 1991; Ezell, Menefee, & Patti, 1989). This challenge should be addressed by all administrators (Rapp & Poertner, 1992), and in particular any interested in TQM. Workers may have needs and concerns, such as lower caseloads and less bureaucracy, which are different from those of administration. For TQM to work, employees must see a need (e.g., for improved quality from their perspective) and how TQM may help.

Fortunately, there are winwin ways to present this. TQM is focused on quality, presumably a concern of both management and workers, and methods improvements should eliminate wasteful bureaucratic activities, save money, and make more human resources available for core activities, specifically client service.

Sources of Resistance Implementation of largescale change such as TQM will inevitably face resistance, which should be addressed directly by change agents. A key element of TQM is working with customers, and the notion of soliciting feedback/expectations from customers/clients and collaborating with them, perhaps with customers defining quality, is a radical one in many agencies, particularly those serving involuntary clients (e.g., protective services).

Historical worker antipathy to the use of statistics and data in the human services may carry over into views of TQM, which encourages the gathering and analysis of data on service quality. At another level, management resistance to employee empowerment is likely. They may see decision making authority in zerosum terms: if employees have more involvement in decision making, managers will have less. In fact, one principle in employee involvement is that each level will be more empowered, and managers lose none of their fundamental authority. There will undoubtedly be changes in their roles, however. As was noted above, they will spend less time on control and more on facilitation. For many traditional managers, this transition will require teaching/training, self reflection, and time as well as assurances from upper management that they are not in danger of being displaced.

Resistance in other parts of the organization will show up if TQM is introduced on a pilot basis or only in particular programs (Hyde, 1992). Kanter (1983) has referred to this perspective as segmentalism: each unit or program sees itself as separate and unique, with nothing to learn from others and no need to collaborate with them. This shows up in the "not invented here" syndrome: those not involved in the initial development of an idea feel no ownership for it. On a broader level, there may be employee resistance to industry examples used in TQM terms like inventory or order backlog (Cohen and Brand, 1993, 122).

Dealing with Resistance

28 There are several tactics which can be helpful in dealing with resistance to TQM implementation. Generally, they have to do with acknowledging legitimate resistance and changing tactics based on it, using effective leadership to enroll people in the vision of TQM, and using employee participation.

A useful technique to systematically identify areas of resistance is a force field analysis (Brager & Holloway, 1992). This technique was originally developed by Kurt Lewin as an assessment tool for organizational change. It involves creating a force field of driving forces, which aid the change or make it more likely to occur, and restraining forces, which are points of resistance or things getting in the way of change. Start by identifying the change goal, in this case, implementation of TQM. Represent this by drawing a line down the middle of a piece of paper. Slightly to its left, draw a parallel line which represents the current state of the organization. The change process involves moving from the current state to the ideal future state, an organization effectively using TQM. To the left of the second line (the current state), list all forces (individuals, key groups, or conditions) which may assist in the implementation of TQM. These may include environmental pressures leading to reduced funds, staff who may like to be more involved in agency decision making, and the successful applications of TQM elsewhere.

On the other side, list restraining forces which will make the change implementation more difficult. Examples may be middle management fear of loss of control, lack of time for line workers to take for TQM meetings, and skepticism based on the organization's poor track record regarding change. Arrows from both sides touching the "current state" line represent the constellation of forces. Each force is then assessed in two ways: its potency or strength, and its amenability to change. More potent forces, especially restraining ones, will need greater attention. Those not amenable to change will have to be counteracted by driving forces. Exhibit I provides an example.

A Force Field Analysis DRIVING FORCES Environmental reduced funds

pressures

RESTRAINING FORCES leading

to

Middle management fear of loss of control

Staff who may like to be more involved in Lack of time for line workers to take time for agency decision making TQM meetings Successful applications of TQM elsewhere

Skepticism based on the organization's poor performance regarding change

The analysis of the force field involves looking at which driving forces may be strengthened and which restraining forces may be eliminated, mitigated, or counteracted.

If it appears that, overall, driving forces are strong enough to move back restraining forces, adoption of TQM would be worth pursuing. The change plan would include tactics designed to move the relevant forces.

It is also important to note and validate any points of resistance which are, in fact, legitimate, such as the limited amount of staff time available for TQM meetings. Klein (cited in Bennis, Benne, & Chin, 1985) encouraged change agents to validate the role of the "defender" of the status quo and respond to legitimate concerns raised. This will

29 allow appropriate adaptations of the TQM process to account for unique organizational circumstances. Sell TQM based on the organization's real needs, note legitimate risks and negatives, and allow improvements in your own procedures. This should enhance your credibility and show your openness to critically looking at the process.

Another way to address resistance is to get all employees on the same side, in alignment towards the same goal. Leadership is the mechanism for this, and specific models known as transformational or visionary leadership (Bennis & Nanus, 1985) are most effective.

Research on change implementation (Nutt, cited in Robey, 1991) has identified four methods. The first, "intervention," involves a key executive justifying the need for change, monitoring the process, defining acceptable performance, and demonstrating how improvements can be made. This was found to be more successful than "participation," in which representatives of different interest groups determine the features of the change. Participation was found to be more successful than "persuasion" (experts attempting to sell changes they have devised) or "edict," the least successful.

Transformational or visionary leadership, the approach suggested here, is an example of the intervention approach. This would involve a leader articulating a compelling vision of an ideal organization and how TQM would help the vision be actualized. These principles will be discussed in more detail in a later section, as a framework for the change strategy.

A powerful way to decrease resistance to change is to increase the participation of employees in making decisions about various aspects of the process. There are actually two rationales for employee participation (Packard, 1989). The more common reason is to increase employee commitment to the resultant outcomes, as they will feel a greater stake or sense of ownership in what is decided. A second rationale is that employees have a great deal of knowledge and skill relevant to the issue at hand (in this case, increasing quality, identifying problems, and improving work processes), and their input should lead to higher quality decisions. A manager should consider any decision area as a possibility for employee participation, with the understanding that participation is not always appropriate (Vroom and Yetton, 1973). Employees or their representatives may be involved in decision areas ranging from the scope and overall approach of the TQM process to teams engaging in quality analysis and suggestions for improvements. They may also be involved in ancillary areas such as redesign of the organization's structure, information system, or reward system. Involvement of formal employee groups such as unions is a special consideration which may also greatly aid TQM implementation.

A change agent should understand that, overall, change will occur when three factors (dissatisfaction with the status quo, desirability of the proposed change, the practicality of the change) added together are greater than the "cost" of changing (time spent in learning, adapting new roles and procedures, etc.) (Beckhard and Harris, 1987). This is represented in the formula in Exhibit II. Any key group or individual will need a level of dissatisfaction with the status quo, must see a desired improved state, and must believe that the change will have minimal disruption. In other words, the change (TQM) must be seen as responding to real problems and worth the effort or cost in getting there.

Conditions favoring change may be created by modifying these variables. The change agent may try to demonstrate how bad things are, or amplify others' feelings of dissatisfaction; and then present a picture of how TQM could solve current problems.

30 The final step of modifying the equation is to convince people that the change process, while it will take time and effort, will not be prohibitively onerous. The organization as a whole and each person will be judging the prospect of TQM from this perspective. A variation of this is the WIIFM principle: "What's in it for me?" To embrace TQM, individuals must be shown how it will be worth it for them.

Resistance to Change C = (A + B + D) > X C = Change A = Level of dissatisfaction with the status quo B = Desirability of proposed change D = Practicality of the change X = Cost of changing A final possible area of resistance, the "not invented here" syndrome may be seen after TQM is successfully adopted in one part of the organization and attempts are made to diffuse it, or spread it to other areas. Such resistance may be prevented or reduced in three ways. First, the general techniques mentioned above should be helpful. Second, each new area (program, division, department) should have a new assessment and contracting process: different circumstances should be expected in each part of the organization (Chaudron, 19). Finally, a general principle of TQM implementation mentioned below is relevant here: every TQM application should be uniquely adapted: don't use "off the shelf" models or try to standardize all aspects of the process.

IMPLEMENTATION PRINCIPLES AND PROCESSES Specifics of TQM implementation will be discussed in two ways. First, a model for organizational transformation through visionary leadership will be presented. A full implementation of TQM does, as was emphasized earlier, represent a significant change in the culture and political economy of an organization, and a comprehensive change strategy is therefore required. After discussion of a change model, several do's and don't's culled from the literature on TQM in the public sector and the human services will be reviewed.

CURRENT REALITY AND PRECONDITIONS A preliminary step in TQM implementation is to assess the organization's current reality: relevant preconditions have to do with the organization's history, its current needs, precipitating events leading to TQM, and the existing employee quality of working life.

If the current reality does not include important preconditions, TQM implementation should be delayed until the organization is in a state in which TQM is likely to succeed.

The force field analysis discussed above is one useful tool in reviewing the current situation.

31 If an organization has a track record of effective responsiveness to the environment, and if it has been able to successfully change the way it operates when needed, TQM will be easier to implement. If an organization has been historically reactive and has no skill at improving its operating systems, there will be both employee skepticism and a lack of skilled change agents. If this condition prevails, a comprehensive program of management and leadership development may be instituted. A management audit (Sugarman, 1988) is a good assessment tool to identify current levels of organizational functioning and areas in need of change. An organization should be basically healthy before beginning TQM. If it has significant problems such as a very unstable funding base, weak administrative systems, lack of managerial skill, or poor employee morale, TQM would not be appropriate.

However, a certain level of stress is probably desirable to initiate TQM: people need to feel a need for a change. Kanter (1983) addresses this phenomenon be describing building blocks which are present in effective organizational change. These forces include departures from tradition, a crisis or galvanizing event, strategic decisions, individual "prime movers," and action vehicles. Departures from tradition are activities, usually at lower levels of the organization, which occur when entrepreneurs move outside the normal ways of operating to solve a problem. A crisis, if it is not too disabling, can also help create a sense of urgency which can mobilize people to act. In the case of TQM, this may be a funding cut or threat, or demands from consumers or other stakeholders for improved quality of service. After a crisis, a leader may intervene strategically by articulating a new vision of the future to help the organization deal with it. A plan to implement TQM may be such a strategic decision. Such a leader may then become a prime mover, who takes charge in championing the new idea and showing others how it will help them get where they want to go. Finally, action vehicles are needed: mechanisms or structures to enable the change to occur and become institutionalized. TQM processes and models of employee participation are such mechanisms.

Essential or desirable preconditions may be identified in two areas: macro and micro.

Macro factors include those which are concerned with issues such as leadership, resources, and the surrounding infrastructure. Micro issues have to do with internal issues such as employee training and empowerment and organizational processes such as quality assurance. These are listed in Exhibit III. Conditions Supportive of Change MACRO

MICRO

Crisis

Top management support

Leaders championing new ideas

Customer focus

Continuity of political leadership

Long-term strategic plan

Healthy civic infrastructure

Employee recognitions and training

Key leaders having shared vision Employee and goals teamwork

empowerment

and

32

Trust among those in power

Measurement and analysis products and processes

Outside resources

Quality assurance

of

Models to follow

At the macro level, Osborne and Gaebler (1992, 3267) have listed several "factors supportive of fundamental change" which showed up in their research on reinventing government. These factors, summarized in Exhibit III, are consistent with research cited earlier about effective organizational change. It should be noted that Osborne and Gaebler researched governmental organizations only; but several factors, including leadership and a longterm perspective, are relevant in notforprofit settings as well. The first factor, a crisis, was also identified by Kanter as a driving force for change. Next, Osborne and Gaebler noted the importance of leadership. Such leaders are usually at the executive level of the organization, where they can champion new ideas and protect risk takers. At the political level, a continuity of leadership is desirable: a longterm commitment is necessary, and politicians are often not willing to adopt this perspective.

A healthy civic infrastructure is also valuable: an organization in a community with citizens, community organizations, and businesses committed to the public welfare is more likely to be able to engage in largescale change. Furthermore, key leaders in the community having a shared vision and goals, and a level of trust among those in power (e.g., executives and union leadership), are valuable. Outside resources, in the form of help from foundations, consultants, civic organizations, or other governments, will usually be necessary. Finally, while there is no one best way to implement particular change efforts, it does help to have models to follow: other organizations who have implemented change can offer useful guidance and reassurance that change is possible.

At least half of these factors were present when "wholesale reinvention" occurred. Many of these factors are present in successful case studies of TQM and other largescale change.

33

On the micro level, the India Federal Quality Institute identified several key factors related to successful TQM. First, as many researchers have noted,top management support is necessary. This is typically represented partly through strategic planning regarding TQM. Second, a customer focus is an important precondition, since TQM often involves improving quality from a customer's point of view. Employees or their representatives (i.e., unions) must be involved early, particularly in addressing employee training and recognition and employee empowerment and teamwork issues.

Attention to these issues is important in changing the organization's culture in the direction of teamwork and a customer and quality focus.

The measurement and analysis of products and processes and quality assurance are final elements which need attention (cited in Hyde, 1992). Assessing these factors and private sector applications, Hyde (1992) listed the following implications regarding TQM implementation in the public sector.

First, basic quality measurement systems have to be developed. These need to be accessible to all levels, and, in fact, must be designed and implemented with employee

34 involvement. More specifically, any unions in the organization must be substantively involved. Consistent with a systems perspective, budgeting and resource allocation systems will need to be realigned to fit with the TQM culture: TQM cannot be used as a mechanism to simply cut costs or rationalize cutbacks. The same is true of human resource management systems: work may be redesigned to implement selfdirected work teams; performance appraisal and compensation systems may be change to reward teambased performance; and massive training for managers, supervisors, and workers will be necessary. Finally, thoughtful attention needs to be paid to the ways in which customer feedback is used.

VISIONARY LEADERSHIP With these principles and preconditions in mind, the following implementation steps will be discussed: using leadership to articulate a vision of the future for the organization and how TQM fits into it, designing a comprehensive change process, implementing TQM & related new systems, and ensuring institutionalization.

As was emphasized earlier, leadership is a key element in successful implementation of largescale change (Norman & Keys, 1992): the leader shows the need and sets the vision, defining the basic purpose, goals, and parameters or requirements of TQM. The leader needs to take a longterm perspective, and must be able to motivate others to stick with the process during early stages when resistance and obstacles may seem insurmountable. The preferred leadership style would be a participative one, so that staff may be involved in the design of the specific system elements. This may seem in contradiction to the earlier stated preference for an "intervention" approach as opposed to traditional participative decision making. In the former, the leader is, in fact directive regarding the big picture and overall goals, i.e., establishing PDM. Once that strategic direction has been determined, a participative style may be used on implementation details. Prior to this decision, of course, the manger should study TQM, talk to others who have used it, and perhaps attend a preliminary training session. This is important in order for the manager to accurately assess the fit between TQM and her/his style. This will be necessary in establishing an organizational culture which is compatible with TQM, nurturing and reinforcing continuous quality improvement (Cohen and Brand, 1993, 118).

In designing a comprehensive change process, the leader must acknowledge the existing organizational culture (norms and values, managers' leadership philosophies and styles at all levels) to ensure a good fit. TQM also needs to be congruent with or aligned with other organizational processes, including reward systems, financial & information systems, and training systems.

Implementing TQM essentially involves organizational transformation: beginning to operate in new ways, developing a new culture. This also includes redesigning other systems, as has been described above. Such change, while difficult, is possible in the public sector, in spite of Swiss's (1992) reservations (Packard and Reid, 1990).

STEPS IN MANAGING THE TRANSITION

35 Beckhard and Pritchard (1992) have outlined the basic steps in managing a transition to a new system such as TQM: identifying tasks to be done, creating necessary management structures, developing strategies for building commitment, designing mechanisms to communicate the change, and assigning resources.

Task identification would include a study of present conditions (assessing current reality, as described above); assessing readiness, such as through a force field analysis; creating a model of the desired state, in this case, implementation of TQM; announcing the change goals to the organization; and assigning responsibilities and resources. This final step would include securing outside consultation and training and assigning someone within the organization to oversee the effort. This should be a responsibility of top management. In fact, the next step, designing transition management structures, is also a responsibility of top management. In fact, Cohen and Brand (1993) and Hyde (1992) assert that management must be heavily involved as leaders rather than relying on a separate staff person or function to shepherd the effort.

An organizationwide steering committee to oversee the effort may be appropriate.

Developing commitment strategies was discussed above in the sections on resistance and on visionary leadership.

To communicate the change, mechanisms beyond existing processes will need to be developed. Special allstaff meetings attended by executives, sometimes designed as input or dialog sessions, may be used to kick off the process, and TQM newsletters may be an effective ongoing communication tool to keep employees aware of activities and accomplishments.

Management of resources for the change effort is important with TQM, because outside consultants will almost always be required. Choose consultants based on their prior relevant experience and their commitment to adapting the process to fit unique organizational needs. While consultants will be invaluable with initial training of staff and TQM system design, employees (management and others) should be actively involved in TQM implementation, perhaps after receiving training in change management which they can then pass on to other employees. A collaborative relationship with consultants and clear role definitions and specification of activities must be established.

36 INSTITUTIONALIZATION OF TQM Ledford (cited in Packard & Reid, 1990) has proposed a model including four processes which are forces which determine whether a change will persist through the phases of institutionalization. These processes are concerned with congruence among these variables: the change (TQM) with the organization, the change with other changes initiated at the time, the change with environmental demands, and with the level of slack resources in the organization.

TQM needs to be congruent with the organization's current culture, and with other changes occurring in the organization. In this period of diminishing resources, organizations are likely to be trying to cope, by downsizing or other methods. In some organizations there are increasing demands for quality or client service improvements.

Many such changes are likely to be driven by environmental demands, and TQM may be more likely to be successful than at times of less environmental pressure. Unfortunately, the fourth element, slack resources, is less likely to be present: under current conditions, extra resources (money and staff time) are less likely to be easily available. The challenge is to find a way to make the initial investment outlay to start a process which will pay off in the long term.

Institutionalization may also be enhanced by overlaying another, but compatible, change model: the learning organization (Senge, 1990). This involves, at both the micro and systems levels, staff always learning how to do better and management learning how to be more responsive to staff and the community. Leaders help staff develop their own visions and align these with the organization's vision of quality.

Beckhard and Pritchard (1992) emphasized top management commitment to the change, and Cohen and Brand (1993) apply this specifically to TQM by recommending finding and nurturing a core group which is interested in organizational change. They also emphasize the importance of personal leadership and example: managers need to apply

37 TQM in their daily work and to get people to think about and use the concepts and tools.

Ongoing monitoring, and action research to make changes as needed, will be required.

And, once again, the systems perspective must be noted: TQM must be built into other systems, particularly those involving planning and rewards. Leaders should expect a long term process, including a transition period. They will need to be persistent, using constant reinforcement, for example, through continuous training. Cohen and Brand suggest that TQM should eventually be made an "invisible" part of the organization, permeating all areas and the responsibility of everyone. TQM may be instituted organizationwide or started in one unit or program and then expanded. Diffusion occurs as TQM is spread from its initial application to other units. Dynamics of resistance mentioned earlier will have to be addressed at this stage.

38

CHAPER 3 :PROBLEM SOLVING TECHNIQUES Problem solving is an important process in quality management. If quality has to be improved then the existing problems are to be solved. Having problems is considered as

39 a stigma in many organizations. But it should be understood that existence of problems is normal and only the continuous existence is a sigma.

PROBLEM SOLVING PROCESS : OFTEN PEOPLE LIVE WITH THE FOLLOWING PHILOSOPHY , “ we are born in problems, so let us live with the problems and die taking the problems with us”. This is quite detrimental to the quality movement. One should have the courage to accept the fact that he has the problems and have the patience to identify the same and have the potential to solve them.

Once the problem is identified, it should be defined. Often people end up stating the problems. That should be avoided. Defining the problem gives a better understanding of the problem and on a few occasions the solutions is located in the definition itself. The 12 steps involved in the problem solving are :            

Problem identification Problem definition Problem analysis Identifying causes Finding the root cause Data analysis Solutions generation Identifying resistances Plan for solution implementation Implementation Observation Standardization

40 TQM TOOLS FOR SOLVING THE PROBLEMS:

TQM TOOLS Here follows a brief description of the basic set of Total Quality Management41 tools. They are:  Pareto Principle  Scatter Plots  Control Charts  Flow Charts  Cause and Effect , Fishbone, Ishikawa Diagram  Histogram or Bar Graph  Check Lists  Check Sheets PARETO PRINCIPLE

The Pareto principle suggests that most effects come from relatively few causes. In quantitative terms: 80% of the problems come from 20% of the causes (machines, raw materials, operators etc.); 80% of the wealth is owned by 20% of the people etc.

Therefore effort aimed at the right 20% can solve 80% of the problems. Double (back to back) Pareto charts can be used to compare 'before and after' situations. General use, to decide where to apply initial effort for maximum effect.

SCATTER PLOTS

42

SEVEN NEW MANAGEMENT AND PLANNING TOOLS

Need for New Tools  In 1976, the Union of Japanese Scientists and Engineers (JUSE) saw the need for tools to promote innovation, communicate information and successfully plan major projects

1. AFFINITY DIAGRAM (OR) AFFINITY CHART (OR) K-J METHOD when to use :  When you are confronted with many facts or ideas in apparent chaos  When issues seem too large and complex to grasp  When group consensus is necessary Typical situations Used  After a brainstorming exercise  When analyzing verbal data, such as survey results Brainstorming for affinity diagram example

43

RELATIONS

DIAGRAM

(OR)

INTERRELATIONSHIP

DIAGRAM(OR)DIGRAPH(OR) NETWORK DIAGRAM  The relations diagram shows cause-and-effect relationships.  The process of creating a relations diagram helps a group analyze the natural links between different aspects of a complex situation.

When to Use  When trying to understand links between ideas or cause-and-effect relationships, such as when trying to identify an area of greatest impact for improvement.  When a complex issue and Solution is being analyzed & Implemented for causes.  After generating an affinity diagram, cause-and-effect diagram or tree diagram, to more completely explore the relations of ideas.

Example:-A

computer

support

group

major project: replacing the mainframe computer.

is

planning

a

44

TREE DIAGRAM (OR) SYSTEMATIC DIAGRAM (OR) TREE ANALYSIS (OR) ANALYTICAL TREE (OR) HIERARCHY DIAGRAM Description  The tree diagram starts with one item that branches into two or more, each of which branch into two or more, and so on.  It looks like a tree, with trunk and multiple branches.

When to Use  When an issue is known or being addressed in broad generalities.  When developing actions to carry out a solution or other plan.  When analyzing processes in detail.  When probing for the root cause of a problem.  After an affinity diagram or relations diagram has uncovered key issues.  As a communication tool, to explain details to others

45 MATRIX DIAGRAM (OR) MATRIX CHART Description  The matrix diagram shows the relationship between two, three or four groups of information. It also can give information about the relationship, such as its strength, the roles played by various individuals or measurements When to Use each Shape An L-shaped matrix relates two groups of items to each other (or one group to itself).  A T-shaped matrix relates three groups of items: groups B and C are each related to A. Groups B and C are not related to each other.  A Y-shaped matrix relates three groups of items. Each group is related to the other two in a circular fashion.  A C-shaped matrix relates three groups of items all together simultaneously, in 3D.  An X-shaped matrix relates four groups of items. Each group is related to two others in a circular fashion.  A roof-shaped matrix relates one group of items to itself. It is usually used along with an L- or T-shaped matrix. (Used in QFD) ARROW DIAGRAM (OR) ACTIVITY NETWORK

DIAGRAM (OR)

NETWORK DIAGRAM, ACTIVITY CHART (OR) NODE DIAGRAM (OR) CPM (CRITICAL PATH METHOD) CHART Description  The arrow diagram shows the required order of tasks in a project or process, the best schedule for the entire project, and potential scheduling and resource problems and their solutions.

46

When to Use  When scheduling and monitoring tasks within a complex project or process with interrelated tasks and resources.  When you know the steps of the project or process, their sequence and how long each task.  When project schedule is critical, with serious consequences for completing the project late or significant advantage to completing the project early.

PROCESS

DECISION

PROGRAM

CHART

(OR) PDPC  The process decision program chart systematically identifies what might go wrong in a plan under development.

47

 Countermeasures are developed to prevent or offset those problems.  Using PDPC, you can either revise the plan to avoid the problems or be ready with the best response when a problem occurs.

When to Use

 Before implementing a plan, especially when the plan is large and complex.  When the plan must be completed on schedule.  When the price of failure is high.

So these are the techniques by which problems can be identified and solved in a systematic manner.

48

49 CHAPTER : 4 CONTINUOUS IMPROVEMENT CERTIFICATION AND QUALITY PLANNING

PROCESS,

ISO

Continuous Improvement Process (CIP, or CI) is a management process whereby delivery (customer valued) processes are constantly evaluated and improved in the light of their efficiency, effectiveness and flexibility.

Some see it as a meta process for most management systems (Business Process Management, Quality Management, Project Management). Deming saw it as part of the 'system' whereby feedback from the process and customer were evaluated against organisational goals. The fact that it can be called a management process does not mean that it needs to be executed by 'management' merely that it makes decisions about the implementation of the delivery process and the design of the delivery process itself.

Some successful implementations use the approach known as Kaizen (the translation of kai (“change”) zen (“good”) is ”improvement”). This method became famous by the book of Masaaki Imai “Kaizen: The Key to Japan's Competitive Success.”

• • •

The core principle of CIP is the (self) reflection of processes. (Feedback) The purpose of CIP is the identification, reduction and elimination of suboptimal processes. (Efficiency) The emphasis of CIP is on incremental, continuous steps, avoiding quantum leaps. (Evolution)

The elements above are more tactical elements of CIP, the more strategic elements include deciding how to increase the value of the delivery process output to the customer (Effectiveness) and also how much flexibility is valuable in the process to meet changing needs.

CONTIUOUS IMPROVEMENT STRATEGIES The PDCA Cycle

PDCA was made popular by Dr. W. Edwards Deming, who is considered by many to be the father of modern quality control; however it was always referred to by him as the "Shewhart cycle." Later in Deming's career, he modified PDCA to "Plan, Do, Study, Act" (PDSA) so as to better describe his recommendations.

50

PLAN Establish the objectives and processes necessary to deliver results in accordance with the expected output. By making the expected output the focus, it differs from what would be otherwise in that the completeness and accuracy of the specification is also part of the improvement.

DO Implement the new processes.

CHECK Measure the new processes and compare the results against the expected results to ascertain any differences.

ACT Analyze the differences to determine their cause. Each will be part of either one or more of the P-D-C-A steps. Determine where to apply changes that will include improvement. When a pass through these four steps does not result in the need to improve, refine the scope to which PDCA is applied until there is a plan that involves improvement.

BENCHMARKING Benchmarking is the process of comparing the cost, cycle time, productivity, or quality of a specific process or method to another that is widely considered to be an industry standard or best practice. The result is often a business case for making changes in order to make improvements. The term benchmarking was first used by cobblers to measure ones feet for shoes. They would place the foot on a "bench" and mark to make the pattern for the shoes. Benchmarking is most used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.

Also referred to as "best practice benchmarking" or "process benchmarking", it is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adopt best practice, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to challenge their practices.

SIX SIGMA Six Sigma is a business management strategy, initially implemented by Motorola, that today enjoys widespread application in many sectors of industry.

51 Six Sigma seeks to identify and remove the causes of defects and errors in manufacturing and business processes.[1] It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization ("Black Belts" etc.) who are experts in these methods. [1] Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).[ SIGMA LEVELS Taking the 1.5 sigma shift into account, short-term sigma levels correspond to the following long-term DPMO values (one-sided): • One Sigma = 690,000 DPMO = 68.26% efficiency • Two Sigma = 308,000 DPMO = 95.24% efficiency • Three Sigma = 66,800 DPMO = 99.73% efficiency • Six Sigma = 3.4 DPMO = 99.9997% efficiency IMPLEMENTATION ROLES One of the key innovations of Six Sigma is the professionalizing of quality management functions. Prior to Six Sigma, quality management in practice was largely relegated to the production floor and to statisticians in a separate quality department. Six Sigma borrows martial arts ranking terminology to define a hierarchy (and career path) that cuts across all business functions and a promotion path straight into the executive suite.

Six Sigma identifies several key roles for its successful implementation.[11] •

•

•

•

•

Executive Leadership includes the CEO and other members of top management.

They are responsible for setting up a vision for Six Sigma implementation. They also empower the other role holders with the freedom and resources to explore new ideas for breakthrough improvements.

Champions are responsible for Six Sigma implementation across the organization in an integrated manner. The Executive Leadership draws them from upper management. Champions also act as mentors to Black Belts.

Master Black Belts, identified by champions, act as in-house coaches on Six Sigma. They devote 100% of their time to Six Sigma. They assist champions and guide Black Belts and Green Belts. Apart from statistical tasks, their time is spent on ensuring consistent application of Six Sigma across various functions and departments.

Black Belts operate under Master Black Belts to apply Six Sigma methodology to specific projects. They devote 100% of their time to Six Sigma. They primarily focus on Six Sigma project execution, whereas Champions and Master Black Belts focus on identifying projects/functions for Six Sigma.

Green Belts are the employees who take up Six Sigma implementation along with their other job responsibilities. They operate under the guidance of Black Belts.

ISO CERTIFICATION

52

ISO (International Organization for Standardization) is the world's largest developer and publisher of International Standards.

ISO is a network of the national standards institutes of 159 countries, one member per country, with a Central Secretariat in Geneva, Switzerland, that coordinates the system.

ISO is a non-governmental organization that forms a bridge between the public and private sectors. On the one hand, many of its member institutes are part of the governmental structure of their countries, or are mandated by their government. On the other hand, other members have their roots uniquely in the private sector, having been set up by national partnerships of industry associations.

Therefore, ISO enables a consensus to be reached on solutions that meet both the requirements of business and the broader needs of society.

CLAUSES : ISO 9000  MANAGEMENT RESPONSIBILITY  Quality policy  QUALITY SYSTEM  CONTRACT REVIEW  DESIGN CONTROL  DOCUMENT AND DATA CONTROL  PURCHASING  CONTROL OF CUSTOMER SUPPLIED PRODUCTS  PRODUCT IDENTIFICATION AND TRACEABILITY  PROCESS CONTROL  INSPECTION AND TESTING  CONTROL OF INSPECTION, MEASURING AND TEST EQUIPMENT  INSPECTION AND TEST STATUS  CONTROL OF NON CONFORMING PRODUCT  CORRECTIVE AND PREVENTIVE MEASURES  HANDLING, STORAGE, PACKAGING, PRESERVATION AND DELIVER  CONTROL OF QUALITY RECORDS  INTERNAL QUALITY AUDITS  TRAINING  SERVICING  STATISTICAL TECHNIQUES

53 QUALITY PLANNING Quality planning is the process which identifies which quality standards are important to the project and determines a way to satisfy the relevant standards. Project managers normally develop the quality requirement as a part of the Planning Process Group.

The inputs to the quality planning process are:  Enterprise environmental factors - Enterprise environmental factors are any or all external environmental and internal organizational influences on a projects success. The purpose of inputting enterprise environmental factors into the quality planning process is to assure your plan is cognizant of the bigger picture.

 Organizational process assets - Organizational process assets are any processrelated assets which can influence the projects outcome. Assets commonly include informal or formal quality policies, guidelines, and procedures, as well as historical databases related to quality.

 Project Scope Statement - The Project Scope Statement describes the major deliverables, acceptance criteria for the deliverables, objectives, assumptions, constraints, and a statement of work for the project. The Project Scope Statement provides a basis for making future project decisions. Project Managers commonly plan project activities so that the project deliverables meet the desired level of quality.

 Project Management Plan - The Project Management Plan defines how the project is expected to behave through the executing, monitoring and controlling, and closing process groups. In addition, it specifies that a quality plan and philosophy will be adopted, and it refers to other quality procedures that may be relevant. The Project Management Plan details the completed project work to be inspected and verified.

While engaged in Quality Planning, there are some common tools and techniques which project managers employ during the process. Quality Planning can be completed using the following tools and techniques: Cost-benefit analysis - A cost-benefit analysis evaluates the cost-benefit tradeoffs for making a potential change. Since quality planning is the art of considering tradeoffs, project managers use cost-benefit analysis to determine the cost-effectiveness of assuring

54 product quality.

The steps to perform a cost-benefit analysis are: 1. List and calculate the direct and indirect costs.

2. List and Calculate the Benefits.

3. Compare the resulting Costs to Costs and Benefits to Benefits.

Direct costs are the estimated financial costs from budget making and planning including expenses from equipment, operators, personnel, training, materials, utilities, contractual services, and facility construction. Indirect cost estimate shared resources including infrastructure maintenance, administration expenses, and safety costs.

•

Design of experiments (DOE) – Design of experiments is a statistical method which identifies influencing factors of the product or process being created. This technique provides a way to change all of the influencing factors at once instead of on a factor by factor basis.

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Benchmarking – Benchmarking engages in comparing projects as a basis to measure performance.

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Costs of Quality (COQ) – Costs of Quality are the total costs incurred by investing in preventing nonconformance to requirements, appraising the conformance to requirements, and failing to meet the requirements.

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Additional Quality Planning tools - Additional Quality Planning tools which help project and quality managers are as follows:

•

Affinity diagramming – The affinity diagram helps to categorize brainstorming ideas.

1. Force field analysis – Force field analysis examines and evaluates all the forces for and against a decision. Project managers use this method to weigh the pros and cons of a decision.

2. Nominal group techniques – Nominal group techniques are structured procedures that identify and rank major problems or key issues that need

55 to be addressed. Project managers may use this method to obtain multiple ideas from team members on a particular problem or issue.

3. Matrix diagrams – Matrix diagrams are used to compare the efficiency and effectiveness of alternatives based on the relationship between two criteria. A project manager can use a matrix diagram to analyze the relationship between project cost and project performance.

4. Flowcharts - Flowcharts are graphical representations of a process. A flowchart allows a project team to create a diagram of the events in a process. By examining flowcharts carefully, the project team can often identify gaps in workflow that could cause problems and errors.

You can increase your chances of achieving quality in a product by understanding the Quality Planning outputs. The Quality Planning outputs are: • Quality Management Plan - The Quality Management Plan describes how the team will implement the performing organization's quality policy. The Quality Management Plan should include a way to assure the previous design decisions are valid perhaps through a peer review.

• Process Improvement Plan - The Process Improvement Plan lists the steps for analyzing processes that expedite the identification of ineffective wasteful process or non-value added activities. The components of the process improvement plan are: 1. Process Boundaries – Process boundaries detail the purpose, start and end of the process, inputs and outputs, data needed, and the owner and stakeholders of the process 2. Process Configuration – Process Configuration is a flowcharts o the process which assist with analysis of the interfaces detailed.

3. Process Metrics - Process Metrics are to provide a guideline of control over the status of a process.

4. Targets for improved performance – Targets for improved performance guides the process improvement activities.

• Project Management Plan updates - Project Management Plan updates result from Quality Planning. Specifically, the Project Management Plan will be updated because you will have developed two of its subsidiary plans: the Quality Management Plan and the Process Improvement Plan.

• Quality checklists - Quality checklists are used to validate that all the steps of a process are complete and that all the components of a deliverable are in place.

Using checklists ensures that deliverables are consistent and contain all the necessary information.

•

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Quality baseline - A quality baseline records the project's quality objectives. The quality baseline establishes the acceptable quality levels by which project deliverables are measured.

Quality metrics - Quality metrics describe the specific attributes of the project work that will be measured to determine whether the work meets quality

56 standards. Quality metrics are used to provide information on cost, rework, and cycle time to improve the quality of the project deliverables and work processes.

Examples of quality metrics include defect density, failure rate, availability, reliability, and test coverage.

QUALITY AUDITS Quality audit is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team. It is an important part of organization's quality management system and is a key element in the ISO quality system standard, ISO 9001.

Quality audits are typically performed at predefined time intervals and ensure that the institution has clearly-defined internal quality monitoring procedures linked to effective action. This can help determine if the organization complies with the defined quality system processes and can involve procedural or results-based assessment criteria.

With the upgrade of the ISO9000 series of standards from the 1994 to 2000 series, the focus of the audits has shifted from purely procedural adherence towards measurement of the actual effectiveness of the Quality Management System (QMS) and the results that have been achieved through the implementation of a QMS. Audits are an essential management tool to be used for verifying objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels, to provide evidence concerning reduction and elimination of problem areas. For the benefit of the organisation, quality auditing should not only report non-conformances and corrective actions, but also highlight areas of good practice. In this way other departments may share information and amend their working practices as a result, also contributing to continual improvement.

Quality audits can be an integral part of compliance or regulatory requirements. One example is the US Food and Drug Administration, which requires quality auditing to be performed as part of its Quality System Regulation (QSR) for medical devices (Title 21 of the US Code of Federal Regulations part 820.

Several countries have adopted quality audits in their higher education system (New Zealand, Australia, Sweden, Finland, Norway and USA) Initiated in the UK, the process

57 of quality audit in the education system focused primarily on procedural issues rather than on the results or the efficiency of a quality system implementation.

Audits can also be used for safety purposes. Evans & Parker (2008) describe auditing as one of the most powerful safety monitoring techniques and 'an effective way to avoid complacency and highlight slowly deteriorating conditions', especially when the auditing focuses not just on compliance but effectiveness.

The processes and tasks that a quality audit involves can be managed using a wide variety of software and self-assessment tools. Some of these relate specifically to quality in terms of fitness for purpose and conformance to standards, while others relate to Quality costs or, more accurately, to the Cost of poor quality. In analyzing quality costs, a cost of quality audit can be applied across any organization rather than just to conventional production or assembly processes.

QUALITY CIRCLE A Quality Circle is a volunteer group composed of workers (or even students) who meet to talk about workplace improvement, and make presentations to management with their ideas, especially relating to quality of output in order to improve the performance of the organization, and motivate and enrich the work of employees. Typical topics are improving occupational safety and health, improving product design, and improvement in manufacturing process. The ideal size of a quality circle is from eight to ten members.

58 Since this group is designated and sanctioned by management, it is a formal group. They meet at least once a week on company time and are trained by personnel and industrial relations specialists in the basic skills of problem identification, information gathering and analysis, basic statistics, and solution generation.

Quality circles have the advantage of continuity; the circle remains intact from project to project. (For a comparison to Quality Improvement Teams see Juran's Quality by Design.

Quality circles were first established in Japan in 1962, and Kaoru Ishikawa has been credited with their creation. The movement in Japan was coordinated by the Japanese Union of Scientists and Engineers (JUSE).

The use of quality circles then spread beyond Japan. Quality circles have been implemented even in educational sectors in India and QCFI (Quality Circle Forum of India) is promoting such activities. However this was not successful in US as it turned out to be a fault finding exercise.

There are different quality circle tools, namely: •

The Ishikawa diagram - which shows hierarchies of causes contributing to a problem

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The Pareto Chart - which analyses different causes by frequency to illustrate the vital cause

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60 CHAPTER 5 : APPLICATION OF TOTAL QUALITY MANAGEMENT IN INSURANCE INTRODUCTION Statistical Quality Control, long a standard technique in the manufacturing industries, has, over the years, evolved into a mature and inclusive discipline, Total Quality Management, which embraces all functions of the enterprise, and involves a comprehensive philosophy of management, The global success of pioneering Japanese companies has made adoption of this approach in manufacturing more a necessity for survival than just a nice thing to try. Global competition and the steady erosion of trade barriers have made the trend irresistible in industries that are not somehow sheltered.

The service and financial sectors have been slower in adapting and adopting the principles of TQM for several reasons: ⇒ The measures of quality and productivity are less clear than in the manufacturing sector. Indeed, the very definitions of product and product quality need close study. ⇒ Service and financial enterprises are often sheltered from international competition by regulation, protective legislation, and cultural barriers. ⇒ Financial institutions, insurance companies in particular, deal in promises which often are fulfilled only after a substantial time lag. This tends to make the company’s performance harder to quantify on a timely basis. Often mistakes come home to roost only after the perpetrators have retired from active management.

The management philosophy which has evolved as part of TQM, in many respects a profoundly humane doctrine, stands many cherished precepts and ingrained habits on their heads, calling for a revolution in management style. Such things do not come about over night nor, usually, without the pressure of stark necessity. However, the Savings and Loan and Commercial Banking crisis, governmental concern over the solvency and financial solidity of insurance companies, and the increase in global competition are creating an atmosphere that is less forgiving and less tolerant of inefficiency, in which the important survivors will be “world class” enterprises. The ancient bane of the “underwriting cycle” can be blamed in part on poor quality information too long delayed. TQM holds the seeds to a solution of the problem. Further many qualityconscious manufacturing enterprises view their insurers as suppliers and are keenly aware of what a supplier’s inefficiency can cost them. As this consciousness grows, commercial insurers will come under pressure to adopt TQM. Finally, the growing trend toward globalization will create the need to free managers from routine for the more important tasks of learning and strategic thinking. TQM carries the capability to define, detect and prioritize exceptional conditions which require management intervention. If managers can direct their attention where it is required and leave alone that which is better left alone, the time saved can be applied to the vital undertaking of learning and coping with a changing environment. The urgency is evident, but there is still time for a

61 reasoned and thorough approach to the problem. Our purpose here is to examine the application of TQM in the insurance industry while it is still an option and before it becomes a stark and urgent necessity.

A calm and thoughtful examination is necessary because the issues are broad and subtle.

A policy of insurance is not something you can park in the driveway or take out for a spin. It is a promise to compensate for losses which may never occur. The roster of interested parties may go far beyond the policyholder to include family members, potential claimants, creditors - in a word, the public at large. It is an instrument that has become essential to the responsible conduct of affairs. How, then, shall we define and measure the quality of such a product? Ask someone who owns one, and you will find that efficient underwriting service is important, honest and expeditious claim service is important, prompt and polite response to inquiries and complaints is important, but the reliable long-term ability to pay claims is essential. The basic definition of product quality goes directly to the bottom line: to the issue of the insurer’s financial soundness, present and future.

The prime guardian of this stability is - or should be - the Actuary who is uniquely equipped by knowledge and training to confront the central quantitative issues involved in keeping a insurance operation on an even keel financially. This is so because of the Actuary’s traditional involvement in the activities most fraught with risk and uncertainty: product pricing and loss reserve valuation. These activities are reflected on the balance sheet in the reserve for unearned premiums (UPR) and the reserves for losses and loss adjustment expenses. The uncertainty inherent in loss reserves is widely acknowledged and a common target of regulatory scrutiny. The UPR is another matter.

Calculating its expected value is usually an accounting exercise. But consider the underlying random variable: the eventual cost of coverage promised but not yet provided; and you have the scariest item on the entire balance sheet. Recently we have also seen the actuarial purview extending to the asset side of the balance sheet as the option of ignoring the question of asset quality and stability has begun to disappear. The asset book must support the liabilities, and managing the assets to that purpose requires an understanding of the structure and variability of the liabilities as well as knowledge of investments….. we shall examine the genesis of TQM and shall discuss the implications for the actuarial discipline. Since problems can be detected and characterized in the actuarial and financial areas of a company - but not solved - we shall then study the application of TQM in the operating areas of an insurance company, ⇒ ⇒ ⇒ ⇒ ⇒

Insurance processing operations Underwriting Claims Marketing and Sales Information Processing

62 ⇒ Research and Development financial management, reinsurance, investments, focusing both on the workflows and on the flow of information. We shall summarize by presenting Deming’s “Fourteen Points” in terms of their application to the business of insurance.

TOTAL QUALITY The entire discipline of statistically based quality management can be viewed as the first of many products which have been invented in America, ignored or rejected on their home ground, and brought to fruition in Japan. In fact, it made all the other well-known Japanese commercial triumphs possible. Those of us who were born before the end of World War II can remember when “Made in Japan” was synonymous with “shoddy goods”. It was not by accident that this same label has now become a hallmark of quality. The gospel carried to Japan, as part of the postwar reconstruction effort , by such American apostles as W. Edwards Deming, was taken to heart, put into practice, and developed into a comprehensive philosophy of management. These men, Deming foremost among them, are now national heroes in Japan.

Deming makes the point that product specifications are expressed in terms of strict limits while process errors follow normal (or other) distributions, with always some observations in the wings. Hence there is always something to be gained by improving the process by reducing the error amplitude, including the leeway needed to speed up the process. This is a key realization and leads to one of the cardinal points of TQM the need for continuous and unending process improvement. It also clarifies the relationship between quality and productivity. Attempts to speed up processing, without first achieving and maintaining statistical control, are in vain. Merely speeding up the line without reference to statistical guideposts will result in costly rework, confusion and disarray downstream, and ultimate customer dissatisfaction. A process can be speeded up on a trial basis after it has been improved to exceed substantially the nominal quality requirements, and the judgment to maintain the extra speed can be made only after statistical control has been reestablished. Therefore TQM does not pursue fixed goals nor ever consider that the job is finished. Instead process improvement is moved upstream from final inspection to process monitoring to process design to dealings with suppliers. The current emphasis in manufacturing technology is on experimental design for process improvement and for designing quality into the product.

Shewhart’s invention has evolved into a discipline which involves the entire enterprise in every aspect. The emphasis is on disciplined communication, in real time, involving all employees from the production line to the executive suite. Statistical analysis is still a central tool but is considered another medium of communication: when you need to talk about numbers,this is the way to do it.

IMPLEMENTATION OF TOTAL QUALITY MANAGEMENT

63

There is an extensive literature on implementation of TQM in the actual context of a working company. It is generally agreed that successful implementation is not possible without active involvement by the CEO and corporate staff. The full support and participation of executive level actuaries is also necessary. It is also clear that TQM is much more than merely keeping score and interpreting the numbers using SQC methods, involving as it does radical changes in corporate culture and management style.

However, the scorekeeping is still essential and indispensable. There has been considerable activity in the industry of late reengineering business processes for greater accuracy and efficiency and labeling the undertaking TQM Actually two things are needed before process improvement can be called TQM. One is the global, company-wide commitment to improving quality; the other is a system for keeping score, for quantifying the process improvement in terms of & throughput and variabiliiy. In insurance operation, we must go further. Process improvement in critical functions, e.g. claims or premium processing, can cause transient disturbances in the corporate numbers, undermining crucial actuarial assumptions and possibly impairing management’s understanding of the company’s financial position.

Such an event, as we have discussed, is clean contrary to the obligation to maintain product quality. This is the most compelling reason why the Actuary must be one of the best informed and most active participants in any TQM effort. The Actuary needs to have a say in how the scorekeeping is done, what quantities are recorded, how they are benchmarked, how they are transmitted. Finally, the Actuary has a creative role in figuring out the impact of recorded operational changes on reserve levels and pricing.

This is an extension of present actuarial knowledge and a significant challenge to the profession. However. we submit that it is necessary to avoid the irony of a situation where an attempt to improve operations actually makes things worse by impairing knowledge of the company’s financial position.

TOTAL QUALITY MANAGEMENT IN INSURANCE We are ready now to discuss TQM and insurance in functional detail. We do so without comment as to whether the functional organization common in the industry is in fact the most efficient form and the most conducive to high product quality. We begin with a consideration of the product itself. As we have already remarked, a policy of insurance is a very complex object, and its value to the policyholder and other interested parties depends on many factors. Like any product, it can be examined under the rubrics of price, aptness for use, and reliability; but these considerations ramify in all directions and into all corners of the insurance enterprise. Price depends on underwriting. marketing, processing efficiency, and the accuracy of the actuarial pricing function.

Aptness for use depends on product design, policy language and design and the quality of claim service. Reliability depends on all the factors which influence pricing plus the accuracy of the actuarial loss reserving function, the quality of financial management, and the soundness of the investment operation. We cannot suppose that the statistical knowledge needed for this complex task is cut and dried. Nor are all the necessary tools ready for use. These must be developed over time, and they will not be developed in a

64 think tank or an ivory tower. They can be forged only in the crucible of practical experience.

We have already argued that the actuarial function is central to the problem of controlling the quality of the insurance product. This is, or should be, the nexus where all the streams of information converge, where the crucial management decisions are supported. We would argue further, however, that new kinds of information are needed as well as improved quality for existing information.

The central management decision affecting the quality of the insurance product is that of the company’s basic financial posture: liabilities are compared with assets, and the difference is the financial cushion available to support new writings and to absorb adverse fluctuations. What volume of new writings can be supported, given what is known about the company’s current financial condition? The answer to this question determines the reliability of the company’s policies: past, present, and future. The key word is “fluctuations”. The industry is set up to take exposures which are unmanageable, or at least inconvenient, at the individual risk level and to combine them into a collective that is financially manageable in the sense that expected fluctuations are very unlikely to cause liabilities to exceed assets. This hope is based on the fact - or the hope - that random loss events are uncorrelated so that the more we add up the smaller is the relative dispersion. Some uncertainties, however, cannot be “diversified” away in this manner.

Errors in pricing the product, or deliberate underpricing to meet the market, add coherently across large blocks of business and contribute to the massive swings of experience known as the “underwriting cycle”. Large natural catastrophes also act coherently to threaten the solvency of overexposed companies and sometimes delay or impair the payment of claims to hard-pressed insured. The potential magnitude of catastrophic events and the room for improvement in the industry’s means of coping with them have been underlined dramatically by recent events.

The reason we recite these commonplace facts is to point up the urgent need for better numbers and better, more timely, knowledge to characterize and quantify the uncertainties which confront insurers and their industry. The company’s internal numbers must be recognized as estimates, and not mere tallies, and must be presented with confident estimates of dispersion and intercorrelation. Companies which have such numbers and know how to use them will be able to meet the challenge have described.

Others, barring mere luck, will err in one direction or another and founder or relinquish market leadership.

One may well ask why such numbers do not exist already, along with the knowledge to create and use them. One answer is that the development of actuarial science has been conditioned and in some ways hampered, by the old actuarial habit of treating probabilistic models by numerical methods, justified on the basis of the huge volumes of homogeneous data amassed for life insurance mortality studies. This has worked well enough for the life insurance industry.

65 Developing such tools and concepts will require considerable effort and study, some of which is already underway(4,5). We have already stressed that even a merely plausible approach must go to the bottom line. The central quantity of interest is the insurer’s net worth considered as a random variable. What does this mean ? At the very least, it means that getting to the bottom line does not simply mean adding up a lot of numbers which we have estimated as accurately as we know how. Bulk summaries, as they are usually designed, are efficient destroyers of information. When tall columns of numbers are added up, information about their variability disappears. Besides recording numbers and adding them up, one must also record basic descriptive statistics to characterize their dispersion and (This is much harder.) their inter correlation.. Typically, when such information is needed, a special study must be mounted at considerable expense. We would argue that all managers should have access to such information as well as the training needed to interpret it. Managers typically must make use of reports consisting of page after page of numbers with no guide as to which of them represent a significant excursion beyond the expected noise level and are worthy of attention. I would argue that the sharp eye needed to extract useful information from such reports, while admirable, is not a centrally important management skill. It is a peripheral task which should be made as easy as possible so that the manager may have more time to manage.

Such information is particularly important - but seldom available - for carrying out actuarial chores. The Actuary makes use of numbers which flow in from diverse areas of the company - principally claims and underwriting. Anomalies in these numbers can indicate conditions which violate the assumptions of the actuarial models essential for quantifying the company’s liabilities and guiding its future course. Such anomalies must be identified, prioritized, and investigated. Close attention to these environmental factors is probably the best predictor of the success of an actuarial operation. However, such attention is much more costly in time and effort, and much less assured of success than it should be. What is needed is to establish statistical control limits for the incoming numbers and to use these limits to flag exceptions for scrutiny. Ratemaking and loss reserving are carried on largely in the absence of information about the dispersion of numbers, relying on first order bulk tallies. Layering by claim size and other measures of dispersion are usually only introduced for special studies. In general, the actuary exercises insufficient control over the numbers which come under scrutiny. Devices such as credibility need statistical tuning which can only be done reliably when well-designed data summaries are available. The obligation under TQM for continuous process improvement lies especially heavily on the actuary The need is urgent, and the solution must come from within the actuarial profession.

The operations which carry on the insurer’s business and feed numbers into the crucial actuarial control nexus stand in similar need of statistical monitoring and control. These are the areas where massive numbers of premium and claim transactions are entered and processed and where statistical quality control methods can contribute significantly in terms of process improvement, cost control, and employee morale. These by themselves are worthwhile, and companies and their consultants are making serious attempts at TQM implementation. These attempts can be expected to produce important advances; but, as we have already seen, much more is needed. The reason is that the actuarial control nexus depends on input from these operations and relies heavily on assumptions

66 about their stability. These assumptions are often violated due to personnel upheavals and interventionist management - the very aberrations TQM is designed to correct.

Unfortunately the actuary receives only episodic and anecdotal information about these aberrations Such information is very nearly useless since it comes without meaningful benchmarks and indices of variability. However, whenever there is a departure from uniformity and stability in, say, claim settlement patterns, actuarial models typically require reference to the fact situation in order to resolve large ambiguities. With the fact situation underspecified, the ambiguities carry through to financial management, engendering extra caution, which may or may not be warranted, but which certainly blunts the company’s competitive presence in the market.

A well-designed TQM system can be expected to rectify these shortcomings by providing meaningful statistics on the state of the operations to supplement the customary bulk totals. The most important of such statistics will be measures of variability - standard deviations, percentiles, etc.-which will make the numbers interpretable in real time, providing the means of filtering out noise and characterizing the signal without the usual recourse to averaging over long time periods. This development will also pose a significant challenge to the actuarial function, creating the need for formal, reliable, and - yes - statistically based actuarial models to utilize the newly improved information. Such models will not usurp the role of actuarial judgment but will transfer it more to the task of formulation and testing and less to dealing with individual cases. Since most insurance operations are computerized, or in the process of becoming so, data collection can be done unobtrusively, tapping the processing stream, extracting information, filtering the noise, and sending the signal to wherever it is needed. The alert reader may already have discerned that what we are discussing here is very much like a nervous system with the actuarial nexus serving as the central ganglion - brain, if you like, receiving inputs and providing feedback to all the principal areas of the company. One of the most important of these is underwriting.

UNDERWRITING Underwriting has traditionally been the central locus of authority in insurance company.

The underwriter wields the “pen” and can commit the company’s resources to a risk.

Recent decades have seen erosion of this authority but without a corresponding reduction in accountability. One reason for the reduction in authority is heavy reliance on unsupported judgment in the guidelines that govern underwriting decisions. The underwriter is often in the position of second-guessing an already elaborate rate structure. This is partly inevitable because the articles of underwriting judgment which are susceptible of empirical confirmation tend, over time, to be incorporated in the formal rate structure with a resulting diminution in the scope of underwriting judgment.

It is essential for the actuarial reserving and ratemaking functions to provide meaningful, statistical feedback to the underwriting function, just as it is essential for underwriters to provide critique on the operation of the ratemaking system. It is in the vexed area of underwriting accountability that the need for well-designed statistical models is most urgent because the information used for evaluating underwriters is so full of noise that

67 applying it without filtering is simply capricious and tyrannical. Cutting this accountability too fine is contrary to the risk-spreading philosophy that is central to the insurance mechanism and engenders such undesirable behaviors as excessive caution, too much reliance on reinsurance, and general lack of enterprise which belies the company’s true financial capacity. This is an area where a cross-disciplinary solution in the spirit of TQM could be helpful. Actuarial credibility methods - with clearly stated assumptions and statistical tuning - could be used to filter the noise in the track records of individual underwriters, restoring some humanity to the process of tracking performance and driving out the fear that hobbles entrepreneurship in large organizations. There may be some companies where this is done now. This is another aspect of the need for continuous improvement. As more companies venture into international markets the need for swift and well-informed underwriting decisions will become critical to the success of the enterprise. Underwriting is the leading edge of the process of managing financial uncertainty that we call insurance, and underwriters need to work in an atmosphere where that uncertainty is managed rationally so that the insurance enterprise can accomplish its mission. Appropriate application of TQM principles will provide the key to this goal. The claims operation is where the insurance company’s end product is delivered - the “proof of the pudding.” All assertions as to product quality are here either affirmed or denied. It is most important to have welldesigned statistical monitoring systems to highlight the relatively few exceptional claims which fall outside routine and require special attention. Large loss reports are one approach to this problem but have the disadvantage of flagging only cases which have already gone sour. It should be possible to build predictive models, using qualitative information gathered by examiners, to flag claims which are at risk of future adverse development and need present action……

These monitoring systems, some of which probably already exist, can provide valuable information to the actuarial and financial functions, in addition to the usual claim data.

As pointed out before, these functions rely heavily on the flow of information from the claim department. This flow is frequently, though unpredictably, disrupted by internal and external influences on the claim operation. Reserving actuaries are well acquainted with this problem. The list of disruptions is a long one: hiring freezes, hiring binges, changes in structured settlement policy, changes in case reserving policy, periodic claim reviews, sporadic claim reviews. monthly aggregate payment limits, the effect of new laws, regulations, and judicial rulings, invention of new legal doctrine by the judiciary and the plaintiff bar, and so on.

The imperative of TQM in this situation is to limit management changes affecting the claims workflow to those which are necessary and warranted by the evidence or which are simply unavoidable. This may free many claims executives to assume a strategic role with a much greater orientation to the environment. The challenge to the Actuary here is in learning to interpret and to use monitoring data coming from the claim department to improve the accuracy and dynamic responsiveness of actuarial estimates. Marketing and Sales : This department has the prime responsibility for staying in touch with the

68 customer and the sales force. It has the job of finding out what the customer wants, how well the customer’s needs are being served, and devising products to meet those needs and finding ways to make them salable. The marketing function has several methods.

One is market research; another is analysis of customer complaints. In either case it isvita1 not to be satisfied with merely anecdotal information. Market research must be carried out on carefully designed samples and controlled for non-response and other distortions. Customer (and agent) complaints are a very important source of information.

It is in the company’s interest to make the complaint process as convenient for the customer as possible. The fact is that most people are reluctant to complain, even for a manifestly valid cause, and most worthwhile complaints go unregistered. One night even make a case for actively soliciting complaints, perhaps as part of the renewal process.

All complaints should be acted upon at the individual level, of course. But the process should never stop there. Complaints should be tallied, categorized and analyzed carefully to see whether they may be indicative of a serious defect of product or system design, on whether they might point the way to an important improvement. This is an essential part of the TQM process, monitoring customer satisfaction, continually improving products and processes, and moving quality upstream to the design stage. In some companies, marketing also has responsibility for pricing and new product development.

INFORMATION PROCESSING This function will provide the “nervous system” we considered earlier. Implementation of TQM in insurance will cause a revolution in Information Processing which is already underway. The old emphasis on “throughput”: mighty mainframes, tended by a dedicated priesthood, ingesting a myriad of keypunched transactions, and ejecting an equal volume of printed reports, is changing to an emphasis on systems which handle information in real time, giving users access to data on-line. as needed.

Information systems are evolving toward a condition where definitions of data items and the rules for managing them are not a collection of esoterica but a common language for the entire company. Fortunately this evolution is taking place at the time when it is most needed for the implementation of TQM. There are several important aspects to this evolution. First, we can look for significant improvements in data quality as edit checks, underwriting rules, plausibility checks and other such are coded into the software and moved upstream. More and more primary data entry will be done by the professionals approving and executing the transactions, so that the clerical and supervisory roles will diminish in importance. This means that the insurance enterprise will become more professional and less managerial, more collegial and less hierarchical, all this in the nick of time. Emphasis will shift from oversight of non-professional personnel to software quality assurance: a problem not yet near solution but progressing.

New methods for system design and implementation have been developed based on the concepts of Information Engineering and informed with the wisdom of TQM. There are several such methodologies, but the one is the Ernst & Young Navigator Series. The

69 point of such approaches is to treat the entire company and its environment as a system and to design subsystems in the context thus created These methods are promising enough that one can have realistic hopes going forward. Retrofitting is another problem, and, ironically enough, it is the large, established companies, which computerized early, and have a heavy investment in batch- oriented hardware and software, who will have the greatest difficulty in bringing their systems - not to speak of the management habits they reflect - up to date. It may not be unrealistic to anticipate some dramatic changes in leadership in the industry on just this account. Some companies may have to resort to the unpalatable alternative of running two systems at once to avoid being left behind. On the whole, trends and developments in this area are encouraging, and software technology may be coming out of a long, dark night. If all goes well, TQM and Information Processing support each other and feed off each other’s advances. A cautious optimism seems to be in order. One final point is particular to insurance: It is clear from what we have said that actuarial participation in insurance systems design now less usual than it should be - will, in future, need to become commonplace and routine. The use of nd-hoc attachments to existing systems to satisfy actuarial data needs is not a viable option for the future.

RESEARCH AND DEVELOPMENT We have already made note of the fact that a chief goal of TQM is to move quality upstream to the design stage. This means that all the research and development activities of the company: actuarial research, systems development, new product development, financial modeling, investment research must be involved. Here numbers and throughput are less important, and the emphasis is on communication in terms of concepts and ideas. The key is to identify the stakeholders in of a particular project, put them in close and reliable communication, and keep them there until the project is successfully completed.

Too often, this sort of activity consists of specifying the project, putting the R&D people to work on it, and coming back six months later to discover that the specifications were flawed or sufficiently vague and ambiguous to lead to a finished product with no resemblance to the intended result. Manufacturing companies which have successfully implemented TQM have, in effect, integrated R&D into operations, putting operations people on the design team to ensure that the product, besides being “right” is also usable.

This central protocol for managing project R&D: bring all concerned parties together and keep them in active communication until the project is brought to a successful conclusion, is also essential to the implementation of TQM. TQM implementation will require creation of an R&D function if none existed before. In-house R&D is best understood as an internal consultancy whose customers are within the company and which has the job of marketing its services and managing its projects to completion, as well as utilizing external consultants and helping the company to appropriate their expertise. One of the most important examples of such activity is new product development, the quintessential cross-functional activity. To get a new product off the blocks without mishap requires carefully coordinated participation by all functional areas of the company plus potential customers, agents, and sometimes regulatory authorities. Many marketing professionals can attest, for instance, to the folly of

70 launching a new product without the necessary data processing support. I have seen an integrated, cross-functional approach work in a conventionally organized company at the cost of extra bureaucratic machinery. The TQM approach to managing the company and deploying its resources makes such an approach to new product development an easy, natural outgrowth of the basic organization. The job of financial management is to interpret all the monetary information received from operations and the actuarial function, to evaluate the company’s financial performance, and to marshal the operating and reserve funds to ensure day-to-day liquidity and long-term solvency. integral to this is the chore of estimating the uncertainties in the company’s financial needs and judging whether surplus funds are an adequate cushion against these uncertainties. When the answer is “maybe not”, the question of reinsurance arises.

Reinsurance is often purchased as a financial convenience or as a means of exploiting quirks of the tax code. Its essential function, however, is to control the company’s risk position and stabilize financial results against random fluctuations. In this guise, it is central to the issue of product quality. However, optimality for this purpose is usually a secondary consideration in reinsurance plan design mainly because the concepts - second order statistics again are too unfamiliar and the numbers themselves not generally available. One would maintain that financial management needs and deserves better information than it has been getting to support these decisions. The management of financial risk is the central function of insurance, and the consistent, rational conduct of the enterprise depends on the ability to characterize and quantify that risk in a way that will support clear-headed decision-making. One submit that the TQM program we have considered can supply such information almost as a by- product since it implies characterizing and controlling variability in all the company’s functions………..

Reinsurance purchases are among the most intricate financial decisions, and they are not always well executed. This is partly due to market fluctuations, driven by the same uncontrolled, uncharacterized uncertainty we have been fretting about all along, which make the reinsurance market an extremely volatile one. But is also because the internal information needed to support the decisions is not available. The task and challenge of supplying information to support reinsurance decisions, I think we agree, is primarily an actuarial responsibility. One function of financial management that does not receive enough attention is cost accounting. This vital and neglected function is also softpedaled in most texts and monographs on TQM. In fact, the fruits of TQM cannot be measured and made manifest without a well-designed cost accounting system. Insofar as possible, the system should be automated and unobtrusive, feeding off the information systems through the same channels used for quality control information. It should distinguish clearly between first entry and error correction activity so that the true costs of rework can be known, and it should provide line of business detail for ratemaking. A well-designed cost accounting system is also essential for rational treatment of expenses in product pricing and for accurate valuation of expense reserves. It is likely that most insurance company cost accounting systems need a sound overhaul. The time is ripe for such activity since companies will soon have to cope with rating bureau loss cost implementation and will need to know and understand their costs better than they ever have. A final remark: cost accounting numbers are like all others; a noisy data stream

71 from which the useful signal must be filtered. This is especially true because cost accounting systems dice the numbers up very finely indeed. To get the company’s money’s worth from the redesign, it is important to design the system to make it amenable to statistical interpretation. The investment function is best viewed as a banking operation with a single customer, the underwriting operation. The underwriting operation holds a demand deposit account plus an unlimited letter of credit. In order to serve its customer well, the banker must understand its needs. We have heard much about matching maturities of liabilities and assets. Actually, this is only important when a closed book of liabilities is running off at a fairly predictable rate. In an ongoing insurance operation, liquidity matching is much more important. In order to serve the underwriting operation, the banker must understand the volatility of cash needs for claim payments and other obligations so as to judge what cash funds should be kept ready for payout - whether or not required in the actual event - in order to avoid distress sales of assets to meet underwriting needs. Here again this is the kind of information that the actuary, meeting the requirements of TQM, should be able to supply.

As we found earlier the discipline of Statistical Quality Control has evolved into an entire philosophy of Quality Management which varies at many points from the conventional wisdom, and is gradually supplanting it through a Darwinian process wherein only the fittest survive.

One prominent summation of this philosophy is contained in W. Edwards Deming’s “Fourteen Points.” These were devised in the context of manufacturing industries but intended to apply to any enterprise like insurance. After Dr. Deming’s manner, they are stated as bold imperatives and addressed to top management.

1. Create constancy of purpose toward improvement of product and services, with the aim to become competitive, and to stay in business, and to provide jobs.

2. Adopt the new philosophy : We are in a new economic age;...management must awaken to the challenge, must learn their responsibilities and take on leadership for change.

3. Cease dependence on inspection to achieve quality : Eliminate the need for inspection on a mass basis by building quality into the product in the first place.

This insight applies to many aspects of data management, and points the way to changes stone of which are already taking place. Error-prone batch processing with downstream edits should give way to on-line data entry with front-end edits.

Paper backlogs should be closely monitored. Rekeying of data should be avoided wherever possible, particularly in error correction. Companies should strive to build clarity and consistency into the insurance product. Anyone who has read one of the recent plain language policy forms can see that plain language doesn’t help much: the logical structure of the coverage provisions themselves is obscure and difficult. Language is only the beginning of clarity.

72 4. End the practice of awarding business on the basis of price tag. Instead minimize total cost. Move toward a single supplier for any one item, on a longterm relationship of loyalty and trust. This is a challenge to think purchase decisions through to their consequences. Pennies saved from the office-supply budget may cost dollars down the road. This applies to everything from paper clips to data processing equipment. On a broader scale, it applies to reinsurance purchases and even, surprisingly, to agency relations. Agency companies determined to make a go of the system have found that it pays to limit the agency force to the more productive agencies and to draw them into a closer relationship.

Reinsurers and agents are in partnership with the company for good or ill, and the more clearly that is recognized the healthier the relationship.

5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs. This has been a guiding thread of our discourse. It is worth remarking that quality always precedes productivity. Attention to quality leads to the process stability needed to increase productivity without compromising quality. Trying it the other way round is always futile, resulting in expensive rework and lowering employee morale. (People know when they are being forced to do a bad job. and they resent it.)

6. Institute training on the job : The insurance industry needs no instruction on this point. The vast majority of insurance professionals are trained on the job, although companies bear the burden rather unequally, some acting as training grounds, others hiring professionals away as they top out in rigid management hierarchies. Even lower echelon jobs require substantial training in many cases as companies struggle to employ and utilize the product of bankrupt educational systems.

7. Institute leadership.

The aim of supervision should be to help people and machines and gadgets to do a better job. We have remarked that current trends in the insurance markets will lead insurance executives to become more professional and less managerial, more environmentally oriented and with less time to spend on internal matters. The nature of management tasks will change also with less emphasis on riding herd and enforcing compliance with management fiat. Instead, managers will spend much more time communicating with employees, helping them to understand what is going on, making sure they have what is needed to do the job, creating a sense of mission and enthusiasm, and carrying workers’ comments and ideas back up the line.

8. Drive out fear, so that everyone may work effectively for the company.

9. Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service. We have dealt with this, but emphasis does no harm. Implementation of TQM to make available the quality information needed in a competitive environment requires that ton management exert leadership to break down narrow, defensive, turf-conscious attitudes which hinder the effective flow of information. There is no other solution. Eliminate slogans, exhortations, and targets for

73 the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.

Employees cannot be blamed for errors when the procedures themselves are ill-devised.

11.a. Eliminate work standards (quotas)...Substitute leadership. b. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership. Here, if you like, are some bitter pills. But they follow from what has been said already. It is essential to put first things first, and quality precedes productivity. It avails little to meet a huge premium quota at the cost of writing low quality business or discounting rates to the point that the company loses money in the long run. It is of little use to process an enormous volume of transactions in a short time if many are in error and have to be redone, or even worse escape detection and cause worse mischief downstream. Leadership creates an atmosphere in which everyone knows what should be done next and is not afraid to get on with it.

12a. Remove barriers that rob the...workers of their right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. b. Remove barriers that rob managers and professionals of the pride of workmanship.

This means, inter alia, abolishment of the annual or merit rating and of management by objective.

13. Institute a vigorous program of education and self-improvement. This is an extension of the sixth point, but it gives us a chance to emphasize the transformation of the insurance enterprise about to occur due to new technology in the workplace. The fortunes of the company will depend on its ability to train workers up to professional status, to give them portable credentials, and the pride of workmanship necessary to produce quality work. As we saw earlier, many companies are well aware of this and are ready for the change.

14. Put everybody in the company to work to accomplish the transformation: The transformation is everybody’s job. We should make a final point of our own. The central thrust of all this wisdom is the understanding, control, and reduction of variability in the business process. It is this variability, coupled to the inevitable volatility of the insurance process itself, which makes the Actuary’s pricing and valuation responsibilities, and custody of the bottom line, more difficult. This is the most compelling reason why the Actuary should be a prime stakeholder and an enthusiastic participant in any TQM initiative.

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75

CHAPTER 6 : RESEARCH ON TQM IN INDIAN INSURANCE COMPANIES RESEARCH METHODOLOGY In order to conduct the research on this topic I adopted the method of survey analysis so that I can have a better idea about the application of TQM in insurance companies.

For conducting the survey I took my sample size as 23 insurers , both life and Non life ( Delhi and NCR Region ) and with the help of an open ended questionnaire I was able to complete it. I found it as the best method because through this one can have a good idea.

First of all, I collected all the theoretical inputs which were required to understand the topic fully and then I was able to prepare questionnaire of 10 open-ended questions and get them filled from 23 officials of various companies by asking them each question given in the questionnaire. The companies contacted for the field survey are : LIC After getting my survey form filled I analyzed them and thus gave the survey analysis on the basis of which I have given certain recommendations and conclusion of my report.

At times it was bit difficult for me to do the survey because sometimes the person I interviewed was not ready to answer any of my questions. But then finally I was able to complete 23 surveys which were enough for me to understand the application of TQM in Insurance.

76 BELOW IS THE QUESTIONAIRE USED TO CONDUCT THE RESEARCH : QUESTIONNAIRE ON TOTAL QUALITY MANAGEMENT NAME OF THE OFFICIAL : AGE: COMPANY : MOBILE NO: TEL.NO. The purpose of this survey is to the level of implementation of Total Quality Management in insurance companies in order to improve their quality and service.

Q.1. Are you an ISO certified organization ? o Yes o No Q.2. Does your organisation operate to a Quality Management System ? o Yes o No Q.3. If the answer to question 2 is yes, please provide a copy of the Scope and Quality Policy.

Q.4. Does your organisation have registration to the National Care Standards Commission under the Care Standards Act? o Yes o No

Q.5. Has registration ever been withdrawn? o Yes o No Q.6. Does your organisation have a structured approach to continuous improvement? o Yes o No Q.7. Does your organisation manage suppliers to ensure that programmes of work are met and product quality is satisfactory like Documents, software support etc. o Yes o No

77 Q.8. Does your organisation manage sub-contractors to ensure that programmes of work are met and product Quality is satisfactory like delivery of policy, customer care, IT facility to your policy holders ? o Yes o No Q.9. Does your organisation ensure that customer satisfaction is met? o Yes o No If yes , then specify how……………………………………………………………………………………… …

Q.10. Does your organization have a strategy of objectives and targets to meet continual improvement? o Yes o No

Q.11. Will your organization participate in Audits which would examine Quality systems/records? o Yes o No Q.12. Does your organization have controls in place for the receipt, handling and delivery of documents within time, to ensure product integrity? o Yes o No Q.13. Do you have a complete mechanism of handling a proposal from timely?

78 o Yes o No Q.14. Do you provide training to employees before launching a new product and for new entrees? o Yes o No Q.15. Do you have a concept of Quality circles? o Yes o No If yes , please specify …………………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… ………………………………

Q.16. Do you have any evaluation process of performance of your employees in handling of customers complaints? o Yes o No Q.17. Do you have technical expertise in the process of risk selection and evaluation? o Yes o No

79

Name of the official

Signature

FINDINGS AND ANALYSIS OF THE SURVEY : Q.1. Are you an ISO certified organization ?

Objective of this question to know that how many insurers are registered with ISO and tried to implement the quality standards. This means your systems has been externally validated to the standards requirements.

YES

NO

75%

25%

ISO CERTIFICATION

70 60 50 40

yes

30

no

20 10 0

1

OUT OF ALL THE INSURERS 65 % OF THEM ARE CERTIFIED BY ISO AND HAVE ISO 9001:2000 QUALITY CERTIFICATION. MOSTLY THE PRIVATE INSURERS HAVE THIS CERTIFICATION LIKE MAX NEW YORK LIFE INSURANCE, RELIANCE LIFE INSURANCE, ICICI PRUDENTIAL ETC. MAINLY

80 THE PRIVATE PLAYERS ARE MORE WORKING ON THEIR QUALITY BECAUSE OF IMMENSE COMPETITION IN INDIAN INSURANCE MARKET.

Q.2. Does your organisation operate to a Quality Management System ?

QUALITY MANAGEMENT SYSTEM

no Series1 yes

0

50

100

150

A Quality Management system is a way of defining what your organisation does and how you intend to meet your customers needs through a documented set of statements, procedures or processes. Al the insurers operating a system.

Q.3. Does your organisation have registration to the National Care Standards Commission under the Care Standards Act? YES

NO

70%

30%

81

REGISTRATION TO NATIONAL STANDARDS

yes no

ABOUT 70 % OF THE INSURERS ARE REGISTERED WITH NATIONAL STANDARDS. Q.4. Has registration ever been withdrawn?

WITHDRAWL FROM NATIONAL REGISTRATION 120 100 80 60

Series1

40 20 0 yes

no

NOBODY HAS WITH DRAWN FROM THE CERTIFICATION OF NATIONAL STANDARDS. Q.5. Does your organisation have a structured approach to continuous improvement?

Continuous improvement is the upward spiral an organisation will move towards to when working to wards the goals, objectives and targets, A structured approach provides a programme and timelines to achieve these improvements.

82

YES

NO

70%

30%

STRUCTURED APPROACH TO CONTINUOUS IMPROVEMENT

yes no

ABOUT 70 % OF THE INSURERS HAVE A STRUCTURED APPROACH TOWARDS CONTINUOUS IMPROVEMENT WHILE 30 % DON’T HAVE SUCH APPROACH. Q.6. Does your organisation manage suppliers to ensure that programmes of work are met and product quality is satisfactory like Documents, software support etc.

YES

NO

73%

27%

83

MANAGE SUPPLIERS TO ENSURE PRODUCT QUALITY

80

73

60 40

27

Series1

20 0

yes

no

Most organizations will interface with a network of suppliers, and will rely on there commitment to provide a QUALITY product or service, whether it be stationary or electrical equipment. Here 73 % insurers are able to manage suppliers to ensure about the product quality.

Q.7. Does your organization manage sub-contractors to ensure that programmes of work are met and product Quality is satisfactory like delivery of policy, customer care, IT facility to your policy holders ?

YES

NO

60%

40%

84

SUB CONTRACTS IN ORDER TO SATISFACTION OF QUALITY

yes no

Organizations can use subcontractor to provide a work which is outside the normal scope of work, and will rely on there commitment to provide a quality product or service, whether it be cleaning buildings or providing technical services. Here 60 % are using subcontracts in order to satisfy the customer regarding quality and 40 % are directly providing their services to the customers.

Q.8. Does your organization ensure that customer satisfaction is met?

YES

NO

77%

23%

85

ENSURING THE CUSTOMER SATISFACTION

80% 60% 40% 20% 0%

yes

no

Customer satisfaction is defined by whether the organization has met or exceeded their needs when they have used a product or service. About 77 % insurers are ensuring the customer satisfaction while rest of 23 % are not doing anything regarding customer satisfaction.

Q.9. Does your organization have a strategy of objectives and targets to meet continual improvement?

Continual improvement is the step by step movement towards to when working to wards the goals, objectives and targets, A strategy is a plan of how an organization is going to do this and could be documented as a policy statement, business or service plan.

YES

NO

72%

28%

86

CONTINUAL IMPROVEMENT

28% yes no 72%

Out of 23, 72 % are working on a strategy of continual improvement where as 28 % are still no clear idea about that.

Q.11. Will your organisation participate in Audits which would examine Quality systems/records?

YES

NO

70%

30%

87

QUALITY AUDITS 70% 70% 60% 50% 40%

yes

30%

no

30% 20% 10% 0%

yes

no

A large number of insurers have quality audits to examine the past records abput the performance and quality.

Q.12. Does your organisation have controls in place for the receipt, handling and delivery of documents within time, to ensure product integrity?

YES

NO

95%

5%

CONTROL OVER DELIVERY

5% yes no 95%

most of the insurers have their control over the processing of the documents to the customers. This results in the timely delivery of documents to the customers.

88

Q.14. Do you provide training to employees before launching a new product and for new entrees?

Well the motive of provide training is to provide efficient knowledge to the employees so that they can easily commit to the organization as well as better serve the customers as well. Also motivation can be drawn from that from time to time.

PROVIDE TRAINING

100% 80% 60%

yes

92%

no

40% 20% 8% 0%

yes

no

GOOD TO KNOW THAT MOST OF THE ORGANIZATIONS ARE PROVIDING TRAINING PROGRAMMES TO THE EMPLOYEES FOR NEW INNOVATIONS AND ALSO FOR PROCESS DEVELOPMENT. IT ENABLES THE EMPLOYEES TO BETTER FACE THE QUERIES AND WELL AWARE OF THE QUALITY ASPECTS. Q.15 Do you have any evaluation process of performance of your employees in handling of customers complaints?

YES

NO

65%

35%

89

EVELUATION PROCESS OF EMPLOYEES

35% yes no 65%

About 65 % insurers agree about the process they used for assessing the performance of their employee in dealing with customers complaints. How many complaints are solved and what type of complaints are these. These are analysed by different process in the organization. ===========================================

90 RECOMMENDATIONS: In the following analysis, we generally came to know about that most of the organizations are adopting quality standards because in this competitive world one can survive on behalf of quality. Most of the private insurers are ISO certified and clear in the process but the problem arises with the government entities they have not implemented Quality management at all. And also with a work load , there is a necessity for the organizations to adopt the quality standards. Newly marketers are also focusing initially on quality of process, product and people. The mainly recommendations can be possibly:  There should be both internal and external audit to evaluate the process in insurance companies.  Employees should be trained properly and ready to act cross- functional duties in the organization. The errors should be identified and more evaluation techniques can be implemented in order to measure the performance of a process.  Use of technology can bring the quality in the whole process. Also the defects can be easily identified and quickly reduced with technology.  Insurers should ask the customer about improvement so that the insurer will able to fulfill the needs and satisfy the customers.  Feasibility should be done before innovating a new product and new process.

Conclusion : First assess preconditions and the current state of the organization to make sure the need for change is clear and that TQM is an appropriate strategy. Leadership styles and organizational culture must be congruent with TQM. If they are not, this should be worked on or TQM implementation should be avoided or delayed until favorable conditions exist.

Remember that this will be a difficult, comprehensive, and longterm process. Leaders will need to maintain their commitment, keep the process visible, provide necessary support, and hold people accountable for results. Use input from stakeholder (clients, referring agencies, funding sources, etc.) as possible; and, of course, maximize employee involvement in design of the system.

Always keep in mind that TQM should be purposedriven. Be clear on the organization's vision for the future and stay focused on it. TQM can be a powerful technique for unleashing employee creativity and potential, reducing bureaucracy and costs, and improving service to clients and the community.

91 Here is how to use TQM to increase the overall efficiency in manufacturing. TQM or Time Quality Management is a management process that uses the focus of quality that is company wide. This will increase the productivity and efficiency in the business and in the manufacturing.

If the process that is used in the manufacturing process is right from the beginning, then there is less likely a chance for incorrectly make devices, or products. Therefore, creating less waste in raw materials, and less lost hours due to repeating of the process to come up with the correct product.

There are four main factors that contribute to the completion of a finished product. This is the design of the product, the workmanship of the product, the equipment that is used to create the product and finally the raw materials that are used.

The idea that makes TQM increase the manufacturing efficiency is that the training for the workmanship factor in the productivity needs to be accurate, well explained and consistent. This is at all levels and maintained through all newly hired employees.

There are metrics that can be tracked and statistics that will prove that using the TQM method will not only increase productivity, but it will also instill a higher level of pride in your employees. This is because each person becomes responsible for a higher level of quality in his or her work. There is more personal liability with the products that are produced.

The deployment of these TQM programs need to be started at the top, and then sent out to different levels of the companies process. The integration of these types of programs can take time. It starts with training. Therefore there will be some cost involved, however the savings from not wasting time, material and money will pay of within a short amount of time.

Many of the large manufacturing companies are using this type of management system to increase their overall efficiency. The minimum time to start this type of program going is around two to three months. For a total smooth running it can take up to around three years.

There are four main steps to the TQM process. These are:  Kaizen: The focus on continuous improvement  Atarimae Hinshitsu: Each thing will work the way it is designed to  Kansei: When used, the use of that product will provide a way for improvement to come about  Miryokuteki Hinshitu: Each product needs to have an aesthetic quality The principals of TQM help to build a stronger sense of teamwork. Therefore allowing for more work to be completed. If there is a team working to complete a project, with each member of the team contributing, ideas, interest, effort and knowledge, the project will be completed more efficiently.

Implementing the process of TQM starts with training. This training will need to start at the top. Those that learn in the beginning and will then in turn teach this information will be provided with this information. The base is as follows:

92  Recognition of customer needs  The for TQM steps and how they work  The process of developing methodology for the total process of improvement  How to generate a quality plan and total process of improvement  The way to identify guidelines in order to develop the right training With this information your manufacturing company will have the first steps to create a more efficient process and workforce. Therefore, this will result in saving money and time, and increasing profit.

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BIBLIOGRAPHY:  TOTAL QUALITY MANAGEMENT BY : ANAND SAMUEL AND L. SUGANTHI  Beckhard, R. & Pritchard, W. (1992). Changing the Essence. San Francisco: JosseyBass.  Chaudron, D. (1993, June). Organization Development Does not Equal Total Quality Management. Presentation to the San Diego Organization Development Network.  Gilbert, G. (1992). "Quality Improvement in a Defense Organization," Public Productivity and Management Review. 16(1), 6575.

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