Tag Archives: senior management

What to Learn From an Executive Chef

Howard Karp, a chef at the Waldorf Astoria and instructor at the California Culinary Academy who cooked for four U.S. presidents, once told me the secret of cooking: “It’s all in the technique. There are no shortcuts.”

Exquisite food comes from a highly trained, coordinated and cohesive kitchen operation that involves culinary skills such as slicing, dicing, searing and sautéing. Chef Karp added: “One must also understand the chemistry of cooking.”dwdwdw He explained that the order and manner in which all the ingredients are “introduced to one another” makes all the difference.

Watching him cook a five-course dinner for a small group of us was like watching an artist paint a masterpiece. I never followed a recipe card again.

In my world, risks are a common ingredient and need to be handled just as expertly as the fish, meat and other ingredients that Chef Karp works him magic on. The risks to business ventures include:

  1. Damage to reputation/brand
  2. Economic slowdown/slow recovery
  3. Regulatory/legislative changes
  4. Increasing competition
  5. Failure to attract top talent
  6. Failure to meet customer needs
  7. Business interruption
  8. Third-party liability
  9. Cybercrime/viruses
  10. Property damage

Some organizational risk management programs I’ve seen follow a recipe of sorts that seems to have been passed down from one risk manager to another — but only good wines and spirits improve with age.

Clearly, the prevention of accidents (workforce, property, fleet, customer, etc.) establishes the basis for sustained profitability. So, boards demand that senior management have robust involvement in the organization’s enterprise risk management (ERM) efforts. Risk management departments cannot operate outside the business flow and related decision-making processes. Management silos have no place here. Decisions about risk must be driven across all operational aspects of the organization in a consolidated, standardized fashion to build trust and meaningful partnerships with operations.

But the traditional corporate approach to reducing risks is one clever safety campaign after another. Risk management staff, especially those in workers’ comp, obsess on frequency and severity — cutting the number of claims and reducing reserves and settling claims. Risks are “managed” by things like: compliance enforcement; personal protective equipment (PPE); signs; and those safety contests. Risk management operations are often buried in finance, HR or legal departments.

But these loss controls, from my experience, are no match to the potential losses that may occur under a bureaucratic, disliked supervisor.

Senior management must raise its game and focus on the strategic components of risk, such as: alternative risk financing, market economics, reputational risks and human capital. In turn, management needs to know the true costs in each business unit. Relevant risk factors may be buried in a ream of statistics, but corporate executives need to know if their risk management program is making an impact. How is information collected, managed and disseminated? Are your analytics predictive?

After 38 years of directing risk management, I believe that organizations must embrace what some friends and colleagues are calling a culture of safety (COS). This is the pièce de résistance.

COS involves using embedded risk management teams in each business unit to send signals up and down the corporate ladder that loss control is much more than a motto or simple list of steps to take. COS requires developing loss-control programs that are a product of the DNA of a specific organization. COS builds strong, binding partnerships among business units that allow the development of a platform for data analytics, volatility analysis, forecasting and reporting that allow for continual improvement through ERM/Six Sigma. COS has demonstrated significant savings, in the tens of millions of dollars a year at a single company.

There are five essential stages to a viable culture of safety:

  1. Awareness, repositioning of responsibility and analytics
  2. Cultural sustainability through behavioral economics
  3. Behavioral change through positive observations
  4. Combined service, safety and engagement measures
  5. Extended service, safety and engagement measures to the community

An organization should have a vision to assess knowledge, skills and abilities and work with HR to train employees to bring about new levels of expectations. Old safety methodologies focused on inspectors; audit and regulatory-based decisions; checklists and processes; task completions; and frequency-based decisions. COS, on the other hand, is behaviorally focused using coaches, trainers and outside consultants who partner with teams of employees who are already technically proficient and operational savvy. In addition, key performance indicators (KPIs) can help shape behaviors.

To deploy a viable COS, companies should consider using qualified outside experts as a diagnostic tool to identify and quantify risks using meaningful analytics. Companies need to know how they stack up against the competition. This type of analysis by reputable firms can provide practical insights for senior management and lead to the building blocks for a fine-tuned corporate risk strategy and an enhanced culture of safety.

One such consulting firm, Operant Solutions, inspired me to write this article with stories on risk management successes it presented at the RIMS Western Regional Conference in Lake Tahoe recently. (If you’re interested in getting a copy of the presentation, you can contact Sue Antonoplos at 650-336-3144.)

I am inspired by the words of Julia Child: “Cooking well doesn’t mean cooking fancy.”

What Is the Business of Workers’ Comp?

At the risk of alienating most people within the workers’ comp world, here’s how things look from my desk:

Most workers’ comp executives – C-suite residents included – do not understand the business they are in. They think they are in the insurance business – and they are not. They are in the medical and disability management business, with medical listed first in order of priority.

That statement is bound to lead more than a few readers to conclude I’m the one who doesn’t know what I’m doing. For those willing to hear me out, press on – for the rest, see you in bankruptcy court.

Twenty-five years ago, the health insurance business was dominated by indemnity insurers and Blues plans; big insurers like Aetna, Travelers, Great West Life, Met Life and Connecticut General and smaller ones including Liberty Life, Home Life, Jefferson Pilot, Time and UnionMutual. Where are those indemnity insurers today?

With the exception of Aetna, none is in the business; the only reason Aetna survived is it took over USHealthcare, or, more accurately, USHealthcare took over Aetna. The Blues that became HMO-driven flourished, as did the then-tiny HMOs – Kaiser, UnitedHealthcare, Coventry. Why were these provider-centric models successful while the insurers were not? Simple: The health plans understood they were in the business of providing affordable medical care to members, while insurers thought they were in the business of protecting insureds from the financial consequences of ill health.

The parallels between the old indemnity insurers and most of today’s workers’ comp insurers are frightening. Senior management misunderstands their core deliverable; they think it is providing financial protection from industrial accidents, when in reality it is preventing losses and delivering quality medical care designed to return injured workers to maximum function.

That lack of understanding is no surprise, as most of the senior folks in top positions grew up in an industry where medical was a small piece of the claims dollar. Medical costs were considered a line item on a claim file or number on a loss run, and not “manageable” – not driven by process, outcomes, quality.

Think I’m wrong?

Then why is the industry focused almost entirely on buying medical care through huge discount-based networks populated by every doc capable of fogging a mirror (and some who can’t)? Even with those huge networks, why is network penetration barely above 60% nationally? Why has adoption of outcome-based networks been a dismal failure? Why do so few workers’ comp payers employ expert medical directors, and, among those who do, why don’t those payers give those medical directors real authority? Why do non-medical people approve drugs, hospitalizations, surgeries, often overriding medical experts who know more and better?

Because senior management does not understand that success in their business is based on delivering high-quality medical care to injured workers.

At some point, some smart investor is going to figure this out, buy a book of business and a great third-party administrator (TPA) for several hundred million dollars, install management who understand this business is medically driven and proceed to make a very healthy profit. Alas, the current execs who don’t get it will be retired long before their companies crater, leaving their mess behind for someone else to clean up.

Thought Leader in Action: At Walmart

How do you manage risk when your company is the biggest employer in the U.S. other than the federal government? Very carefully — and very well, if you’re K. Max Koonce II, the senior director of risk management at Walmart, until recently, when he took a senior position at Sedgwick. You do that partly by taking advantage of an extraordinary amount of data to identify potential problems, to use outcomes analysis to greatly shrink the number of litigation firms you use, to be highly selective about doctors used for workers’ comp and even to set up a full-sized, in-house third party administrator.

But let’s begin at the beginning:

Koonce was born in Mississippi, but his family moved to Bentonville, AR, where he has lived most of his life with his wife and family. He attended Harding University, a private liberal arts university located in Searcy, AR, where he graduated with a BBA in economics. Thinking that economics was not as challenging a career as what he aspired to, Koonce attended the University of Arkansas William Bowen School of Law to obtain his J.D.

He was immediately hired by Walmart upon his graduation in the ’90s and was given the responsibility to set up Walmart’s internal legal defense system for the roughly 30,000 Walmart employees at the time. He and his in-house team of legal aides handled all of Walmart’s workers’ comp and ultimately much of its liability claims. The program worked so well that the governor of Arkansas appointed Koonce as an administrative law judge for the state workers’ comp commission in 1997, with Walmart’s blessing. With Koonce’s departure, Walmart eliminated the internal legal program and transferred its litigation to outside legal firms.

koonce
K. Max Koonce II

By January 2000, Koonce was appointed by the governor to the Arkansas Court of Appeals. With a vacancy in the State’s Supreme Court, Koonce ran for State Supreme Court in a partisan election. During the campaign, he shared fond memories of attending all kinds of civic events, fundraisers and county fairs around the state. When he failed to get elected, Walmart brought him back to head its risk management program that same year. The program grew dramatically with his return.

Apart from the U.S. government, Walmart is the largest employer in North America. Nearly 20 million people shop at Walmart every day, and 90% of the U.S. population lives within 15 minutes of a Walmart. If Walmart were a country, it would be the 26th-largest economy in the world. Walmart manages 11,500 retail units in 28 countries; generates $482 billion in annual sales; and has 2.2 million employees (1.4 million associates in the U.S.). Koonce exclaimed that there was no other retail company to benchmark to, so his risk management department had to make up its own risk benchmarks. Interestingly, with a tightly managed work culture and such huge numbers to work with, Walmart’s risk management statistical and actuarial claim calculations have proven to be consistently accurate for many years.

Walmart’s risk management department has grown over the years to more than 40 risk management support personnel. Walmart divides its risk portfolio by working with two competing insurance brokers. Koonce said he had an incredibly talented and dedicated team of risk management professionals working at headquarters in Bentonville. “The analytics and metrics achieved by my experts,” he said, “were as good as any in the insurance industry.” He said that no relevant risk factors in Walmart’s operation went unnoticed.

Walmart’s workers’ comp program is designed to include specific doctors and medical facilities to ensure consistent care of any injured workers. Walmart manages detailed feedback from all of its employees to continue to fine tune its workers’ comp program. Koonce stated that risk management has always been a part of the Walmart culture, going back to its founding by Sam Walton in 1962; Walton wanted to help individuals and communities save money while ensuring that the company’s operations adhere to ethical decision making, good communication and responsiveness to employees and stakeholder.

Using an “outcomes-based” approach to litigation management, Walmart’s team relies on claims data analysis and metrics to choose, evaluate and consolidate the number of workers’ comp attorney firms. Max notes: “This approach forms tighter relations with a smaller number of lawyers to create a ‘one team’ approach to litigation.” In California alone, for example, the mega-retailer reduced the number of legal defense firms from more than 20 to three. The outcomes-based litigation strategy relies on a multivariate analysis using Walmart’s own claims data. Metrics are used to benchmark attorney performance and align specific lawyers with cases depending on claim facts and knowledge about an attorney’s unique skills and experience. At Walmart, claims examiners generally choose specific defense attorneys to maintain a continuing team relationship.

Besides retail store risks, Walmart also manages the largest private trucking firm in the U.S. and delivers more prescriptions than any other retailer. Asked if he had experienced any highly unusual claims during his tenure at Walmart, Koonce said that Walmart is all about awareness, control and consistency and that claims were nearly always within an expected parameter (i.e. slip-and-fall claims) and not horrific, as some employers experience. Each store location, including Sam’s Clubs, have conscientious safety response teams that sweep the stores periodically during their shifts and respond immediately to any safety hazards like floor spills.

A unique feature of Walmart is its subsidiary, a third party claims administrator (TPA) called Claims Management Inc. (CMI), at which Koonce served as president. Located in nearby Rogers, AR, CMI administers the casualty claims, including workers’ compensation, for all Walmart stores. Although most companies with national operations use insurer claims administrators (for non-self-insured operations), or multiple regional TPAs, Walmart’s CMI operation is a sizable TPA of its own with 600 employees. As Koonce explains, “CMI provides the claims oversight the company feels is desirable to maintain good control, communication and consistency.”

Unlike most national companies, Walmart has been able to maintain a highly efficient and focused risk management program through a tight-knit organization consisting of mostly local or regional employees who live and work in Benton County, AR (pop. 242, 321). Most of Walmart’s managers have been employees who have worked their way up the corporate ladder. Sam Walton once said: “We’re all working together; that’s the secret.”

Koonce left Walmart in September to serve as senior VP of client services for Sedgwick Claims Management Services. He was succeeded by Janice Van Allen, director of risk management at Walmart, who started as a store department manager in 1992. Koonce said he’s doing what he loves most at Sedgwick — helping risk managers achieve success with their internal programs.

Tips for Bringing Kids Into Your Business

Is your son or daughter your successor? What are some things you and they can do to make this a successful succession? Mistakes to avoid when trying to make your son or daughter your successor? Mistakes they should avoid?

As a succession coach who advises multi-­generational family businesses on how to bring in the next generation, and as a business professional whose daughter has been working with her for nearly 10 years, I can offer a few tips that I have found to be helpful:

  1. While your children are attending high school or completing college, provide work experiences during the summer that allow your children to try out different departments and tasks, working with different managers (best never for you personally).
  2. Develop a family business employment and expectations policy defining requirements for education, professional experience and behavioral and performance expectations. If you are thinking ahead, introduce this to them when they are in high school or college to help give them a sense of how they need to prepare, what they should be studying and what it will take if they are considering a career in the family enterprise. This will create a road map so that your children have an opportunity to succeed.
  3. Before designing a job description or entering into any kind of discussion regarding potential employment in the family enterprise, make sure you spend some time in thoughtful discussion together investigating each other’s vision for the future. You may think you know what your children want to be “when they grow up,” but you may be surprised when you actually inquire.
  4. It can be helpful to engage an experienced coach to conduct the interview, using a personality styles tool (like PDP, DISC or Meyers Briggs) to help frame the conversation related to their natural strengths. Many times, I have found kids feeling like they are being squeezed into their parents’ shoes, and it’s not a good fit. If Dad started the business, is a natural at sales, relationship-building and strategic thinking, and Son is a thoughtful, reserved communicator who is very process- and detail-oriented, I can promise you, it will be a difficult path for the Son to ever live up to his father’s and the company’s expectations. Additionally, he will be miserable.
  5. Once you have identified the ideal career path that excites and suits your son/daughter, bring in your senior management team and discuss what you would like to do with them. Enroll the team in creating the right on-boarding process, job placement and develop agreements for how you expect your children to be managed and mentored. Also, how you will support your managers so they can hold your daughter or son accountable without fear of repercussion.
  6. Lastly, establish a family council to share information with all your children, not just the one or two who are currently showing interest. Let all your children know that there are many ways to participate with the family enterprise. Some may want to be community cheerleaders, helping in events and philanthropic activities, while others may dream of managing a division or eventually becoming your successor. You can achieve succession in a multitude of ways. You don’t have to always create a King of the Mountain, where your children have to vie to take your position upon your retirement.

Working with my daughter, watching her grow, keeping it real has been a great joy. I always, ALWAYS keep the most cherished element of our relationship in mind: She is my daughter. I wish her life to be happy, healthy and fulfilled. If that can happen while she’s working with me, it’s icing on the cake.

Why Pilot Projects Can Be Catastrophic

Many companies think they are staying nimble during product innovation by setting up pilot projects to validate concepts before they’re rolled out at scale. But pilots aren’t the answer, either, at least not on their own.

Once something gets anointed as a “pilot,” it’s no longer an option—it’s the destination. There are typically no graceful ways to kill a pilot, and even course corrections are too hard to make. Systems such as software have all been done at the production level, with the assumption that the pilot will work and will need to be quickly rolled out at scale. Changes are seen as a sign of defeat, and digging into production code can be complicated.

Besides, problems at the pilot stage often get hidden. A pilot is very public, and some senior people have a strong interest in success, so they may work behind the scenes and use their connections to make it successful.

I once watched a client be all over a pilot in a single state, so thoroughly covering the pilot with senior-management attention that the client learned little before initiating a national roll-out. The executives knew what they were doing, but they couldn’t help themselves. They were so invested in the success of the pilot.

The solution is to rephrase the issue. There needs to be less planning and more testing. The only way to accomplish that is to defer the pilot stage and stay in the prototyping phase much longer than most companies do.

The difference between a prototype and a pilot is that there’s no possibility or expectation that a prototype will turn into the final version of the product or service. Prototypes are just tests to explore key questions, such as whether the technology will work, whether the product concept will meet customer needs or whether customers will prefer it over the competitive alternatives.

The early prototypes should be all chewing gum and baling wire. They shouldn’t have hardened processes or the people required to go live. Yet they should provide real insight that informs further development. Each stage of prototyping should minimize costs and maximize flexibility. To borrow a term from computer programming, new products and services should be explored using “late binding”; they should take final form as late as possible, based on the most up-to-date learnings that can be generated.

Pixar has made a religion of prototyping through what the company calls “story reels.” The company doesn’t just write a script; it creates storyboards that provide a sort of comic-book version of a prospective movie, then adds dialogue and music. The story reels cost almost nothing, compared with the fully animated versions of Pixar’s movies, yet provide a great sense of how a story will flow and allow for problems to be spotted. The story reels can also be changed easily.

Here’s a fascinating video in which the creators of Toy Story describe their storyboarding process:

https://www.youtube.com/watch?v=QOeaC8kcxH0#action=share

Every regular review of progress on the prototypes should begin with a demo, much like what Pixar does with its storyboards. My old friend Gordon Bell, who designed the first minicomputer while at Digital Equipment, likes to say that “one demo is worth a thousand pages of a business plan,” and that notion applies to every stage of prototyping. It’s easy to get lost in talk of value propositions, competencies and market segments. A demo makes an idea tangible in a way that no business plan ever will.

At Charles Schwab, in the lead-in to the company’s great, early successes with the Internet, executives talked about a hamster on a wheel. Schwab would test potential services by having people working behind the scenes answering questions, looking up information, and so on, running just as fast as their little (metaphorical) legs could go. Anything that didn’t work or didn’t resonate with customers was easily set aside. Only once Schwab had a sense of what customers truly wanted would it start building the capabilities into software.

Prototypes and demos are part of what has made Apple products so successful. Steve Jobs always used prototypes of products to drive his thinking. For example, early in the process of figuring out the right screen size for the iPad, Jobs had Jonathan Ive make 20 models in slightly varying sizes. These were laid out on a table in Ive’s design studio, and the two men and their fellow designers would play with the models. “That’s how we nailed what the screen size was,” Ive told Walter Isaacson in his biography of Jobs.

Admittedly, it helps when you have a genius like Jobs playing with the devices, but even he couldn’t envision everything. He needed many alternatives of something tangible. As Isaacson quoted him as saying, “You have to show me some stuff, and I’ll know it when I see it.”

If Steve Jobs thought it was critical to prototype, shouldn’t you?