Loma335 TXTPDF 19 m1

Operational Excellence for
Insurance Professionals
Online Course
Module 1
Portal with
Course Enrollment.
See inside for details.
Operational Excellence for Insurance
Professionals
ONLINE COURSE PORTAL

The LOMA 335 Course Portal, available online at www.loma.org via your “Upcoming
Learning” page, includes numerous multimedia features designed to reinforce and
enhance your learning experience and help you prepare for the exam. Among these
features are this text in an interactive e-book format, the Test Preparation Guide’s
popular interactive Practice Questions and Sample Exam with answer feedback, and
the “Top 10 Tough Topics” review of the most challenging topics in the course. If you
are not already using the online Course Portal but would like access to the many
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provided in your Enrollment Confirmation e-mail, or call 1-800-ASK-LOMA or email
education@loma.orgfor assistance.
LOMA (Life Office Management Association, Inc.) is an international association

founded in 1924. LOMA is committed to a business partnership with the worldwide
members in the insurance and financial services industry to improve their
management and operations through quality employee development, research,
information sharing, and related products and services. Among LOMA’s activities is the
sponsorship of several self-study education programs leading to professional
designations, including the Fellow, Life Management Institute (FLMI) program. For
more information on all of LOMA’s education programs, please visit www.loma.org.
Statement of Purpose: LOMA Educational Programs Testing and Designations.
Examinations described in the LOMA Education and Training Catalog are designed
solely to measure whether students have successfully completed the relevant
assigned curriculum, and the attainment of the FLMI and other LOMA designations
indicates only that all examinations in the given curriculum have been successfully
completed. In no way shall a student’s completion of a given LOMA course or
attainment of the FLMI or other LOMA designation be construed to mean that LOMA in
any way certifies that student’s competence, training, or ability to perform any given
task. LOMA’s examinations are to be used solely for general educational purposes, and
no other use of the examinations or programs is authorized or intended by LOMA.
Furthermore, it is in no way the intention of the LOMA staff to describe the standard of
appropriate conduct in any field of the insurance and financial services industry, and
LOMA expressly repudiates any attempt to so use the curriculum and examinations.
Any such assessment of student competence or industry standards of conduct should
instead be based on independent professional inquiry and the advice of competent
professional counsel.
Operational Excellence for Insurance

Professionals
LOMA Education and Training

Atlanta, Georgia
www.loma.org
Information in this text may have changed or been updated since its publication
date. For current updates, visit www.loma.org.
LOMA 335 Project Team

The LOMA 335 Operational Excellence for Insurance Professionals course is the result
of the dedicated efforts of a project team of LOMA staff members and consultants who
were responsible for writing and editing the text’s content; developing study materials
to accompany the textbook; and overseeing the production of the text and the Course
Portal.
Project Managers: Jennifer W. Herrod, FLMI, PCS, AIAA, PAHM, ARA, AIRC
Gene Stone, FLMI, ACS, CLU
Workflow Coordinator: Shawn Cuthbert
Authors: Jo Ann S. Appleton, FLMI, ASRI, PCS, ALHC, HIA

Courtney M. Eiland, FLMI, ASRI, AIRC, ACS
Manuscript Editor: Sandra C. Fowler, MFA, FLMI, ACS
Examinations Editor: Yanhua Xun, Ph.D., FLMI, FFSI, AIAA, ARA, AAPA, ASRI,
PCS
Permissions: Nicole C. Horner, ALMI, ACS
Copy Editor: Robert D. Land, FLMI, ACS
E-book Developer: Amy Stailey, ACS, ALMI
Lead Graphic Designer: Marlene McAuley
Cover Designer: Amy Stailey, ACS, ALMI
Infographic Designer: James Avery Wilhelm, ACS, ALMI
Publication Kelly M. Korb, FLMI, ALHC, AIAA, AIRC, PAHM
Distribution:
Copyright © 2019 LL Global, Inc. All rights reserved.
Last published on: June 2021
This text, or any part thereof, may not be reproduced or transmitted in any form or by
any means, electronic or mechanical, including photocopying, recording, storage in an
information retrieval system, or otherwise, without the prior written permission of the
publisher.
While a great deal of care has been taken to provide accurate, current, and
authoritative information in regard to the subject matter covered in this book, the
ideas, suggestions, general principles, conclusions, and any other information
presented here are for general educational purposes only. This text is sold with the
understanding that it is neither designed nor intended to provide the reader with legal,
accounting, investment, marketing, or any other types of professional business
management advice. If legal advice or other expert assistance is required, the services
of a competent professional should be sought.
This text contains a number of examples and hypothetical scenarios. The names,
characters, organizations, and events in these examples and scenarios are fictional.
Any resemblance to any actual persons, living or dead, or actual organizations or
events is entirely coincidental.
ISBN978-1-57974-467-0
Operational Excellence for Insurance Professionals Preface | PREF.1
Preface
Operational Excellence for Insurance Professionals provides information about how an
insurance company operates and describes the different techniques and tools
companies use for decision-making. The text uses examples from fictional companies
to demonstrate various operational scenarios. This text is comprised of three
modules:
Module 1: People and Purpose (Chapters 1–3)
Module 2: Business Processes (Chapters 4–6)
Module 3: Decision Making (Chapters 7–10)
Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Acknowledgments
Operational Excellence for Insurance Professionals is the result of the combined efforts of
industry experts who served on a text development panel and LOMA staff and
consultants. The LOMA 335 authors wish to express gratitude for the dedication,
knowledge, expertise, and guidance provided by all of these individuals throughout
the development of this course.
LOMA 335 Text Development Panel

On behalf of LOMA and its membership, we would like to thank all LOMA 335 text
reviewers and the companies that supported their efforts. Text reviewers are busy
industry professionals who actively support the educational needs of current and
future industry employees and generously volunteer their time and expertise to
review a text’s content. The LOMA 335 text development panel made substantive
contributions, commented on the developing chapters, provided suggestions for
additional content, submitted relevant research materials, and answered numerous
questions posed by LOMA staff. LOMA is responsible for the accuracy and clarity of the
text, and takes responsibility for any errors.
The following individuals devoted countless hours to reviewing LOMA 335 Operational
Excellence for Insurance Professionals:
David Arey, CLU, ChFC, FLMI, ACS, CEBS
Retirement Income Consultant
Carole Bellm, HIA, FLMI, ACS, GBA
Assistant Vice President, Group Underwriting, Group Reinsurance
RGA Life Insurance Company of Canada
Lynda Gerhart, PCH, AIAA, AIRC, HCAFA
Special Investigations Unit
CNO Financial
Adrian Guenther, FLMI, PCS, AAPA, AIAA, ARA, AIRC
Vice President, Contact Center
Lincoln Financial Group
Suzanne Isaac, FALU, FLMI, ACS, ARA
Underwriting Consultant, Large Case Team
Sun Life Financial

Delcho Ivanov, CPA, CGMA, CTP, FLMI
Director, Finance Transformation
MetLife
Virath Kem, FLMI, FSRI, ACS, AIRC, ARA
Product and Customer Insights Manager, Marketing
AIA Cambodia
Dalia Khoury, BAA
Vice President, Administration
Optimum Reassurance
Ed McCloskey, MBA, FLMI, ACS, ARA, PMP
Vice President, Project Portfolio Management
TAI
Luke C. McLaren, JD, MBA, CLU, CPCU, RHU, FLMI, FFSI, AAPA, ACS, AIAA, AIRC, ARA
SVP and Head Legal & Compliance
Elips Life Americas, a subsidiary of Swiss Re
John Miele, MBA, CPCU, CLU, ChFC, FLMI, FSRI, AMIM
Business Analyst
Guardian Life
Dr. Ajit Phanse, MCom, MBA, PhD
Assistant Vice President, Policyowner Services
Tata AIF Life Insurance Company Ltd.
Devin S. Ragwen, Hons BSc, FLMI, PCS
Director, Inside Sales
Sun Life Financial
Michael Ruff, MBA, PMP, ACP, APMC, CSM, FLMI, FLHC, AIRC, AAPA, AIAA, ARA, ACS
Project Manager, Marketing Enterprise
AAA Life Insurance Company
Raymond Shen, CFA, CPA, CGA, FLMI, ARA
Assistant Vice President, Financial Reporting and Investment & Fund Accounting
ivari
Michael J. Tunney, FLMI, ASRI, AFSI, ACS, ARA, AIRC
Assistant Vice President and Chief Underwriter
GPM Life
In addition, the authors wish to thank the LOMA 335 course development team
members for all of their hard work. LOMA 335 is founded on the collaborative efforts
of a dedicated project team of LOMA staff members.
Finally, we extend a very special thank you to Jennifer W. Herrod, FLMI, PCS, AIAA,
PAHM, ARA, AIRC, AVP, Learning Content, who served as project manager and
provided guidance and support throughout the project; and Katherine C. Milligan,
FLMI, ACS, ALHC, Senior Vice President, Education and Training Division, who provided
leadership, guidance, resources, and support for this project.
Jo Ann S. Appleton, FLMI, ASRI, PCS, ALHC, HIA
Courtney Eiland, FLMI, ASRI, AIRC, ACS
Atlanta, Georgia
2019

Operational Excellence for Insurance Professionals Introduction | INTRO.1
Introduction
The purpose of LOMA 335 -- Operational Excellence for Insurance Professionals is to
present the business conditions and risks unique to the insurance industry and help
learners understand how to maximize value from company operations. Key topics
include aligning operations with corporate strategies, creating cultures of excellence,
managing business processes, and making decisions.
Enrollment in the course includes access to an online Course Portal, from which
learners access everything they need to study and prepare for the course
examination. The Course Portal organizes the assigned text material into convenient
Modules—chapter clusters that help to focus the learning process by breaking up the
course content into meaningful sections. In addition to the assigned study materials,
the Course Portal provides access to an array of blended learning resources, including
multimedia features designed to enhance the learning experience. The Course Portal
provides access to
Interactive e-book and PDF versions of the assigned text
An interactive version of the Test Preparation Guide’s Practice Questions and
Sample Exam with optional answer choice feedback
A library of animated videos to accompany the text
Recommended study plans to help you set goals and manage your learning
experience
Students enrolled in the version of the course that features self-proctored
modularized exams will also return to the Course Portal to take each end-of-
module exam.
Students preparing to take the examination for LOMA 335 will find that the assigned
study materials include many features designed to help learners more easily
understand the course content, organize their study, and prepare for the
examination. As we describe each of these features, we give you suggestions for
studying the material.
Learning Objectives. Each chapter lists the chapter’s learning objectives to help
you focus your studies. Before reading each chapter, review these learning
objectives. Then, as you read the chapter, look for material that will help you meet

the learning objectives. The interactive Test Preparation Guide’s Practice

Questions and Sample Exam questions (accessible from the Course Portal) are
linked to the learning objectives to give you an idea of how the learning objective
might be measured on an examination, as well as to help you assess your mastery
of the learning objectives.
Chapter Outline. Each chapter contains an outline of the chapter. Review this
outline to gain an overview of the major topics that will be covered; then scan
through the chapter to become familiar with how the information is presented. By
looking at the headings, you can gain a preview of how various subjects in each
chapter relate to each other.
Figures and videos. We include many static figures and animated videos
throughout the text to illustrate and bring a real world perspective to the text’s
discussion of selected topics. Information contained in these figures and videos
may be tested on the examination for the course.
Glossary and Key Terms. This text defines key terms that apply to the text
material and, where appropriate, reviews key terms previously presented in LOMA
courses. Each key term is highlighted with bold italic type when the term is defined
and is included in a list of key terms at the end of each chapter. All key terms and
their definitions appear in the text’s comprehensive glossary as well. As you read
each chapter, pay special attention to the key terms.
Using the Test Preparation Guide

LOMA’s Test Preparation Guide for LOMA 335 (TPG) is assigned study material for this
course. It contains Practice Questions organized by chapter and a full-scale Sample
Exam. The interactive TPG, accessible from the Course Portal, incudes answer-choice
explanations for all Practice Questions and Sample Exam questions. The TPG is
designed to help you learn the course content and prepare for the examination. Used
along with the assigned text, the TPG will help you master the course material. Studies
indicate that students who use LOMA TPGs consistently perform significantly
better on LOMA examinations than students who do not use TPGs.
Using the Latest Study Materials

LOMA may periodically revise the assigned study materials for this course. To ensure
that you are studying from the correct materials, check the current assignment in the
course’s description at http://learning.loma.org or on the Course Portal. This is
especially important if you are studying from a printed version of the text, as it may
not reflect the latest changes.

LOMA maintains a list of text corrections on our website. Before beginning your
studies, be sure to review the Text Corrections for this course to learn about
important updates or corrections to the assigned study materials. The Text
Corrections list is available at:
https://www.loma.org/siteassets/pdfs/reference/textcorrections.pdf

Operational Excellence for Insurance Professionals Table of Contents | CONT.1
Contents
Preface .................................................................................................... PREF.1

Introduction......................................................................................... INTRO.1
Module 1: People and Purpose (Chapters 1 – 3)
Chapter 1: The Insurance Company and Operations Management .... 1.1

Objectives ...................................................................................................... .......1.2
Outline ............................................................................................................ .......1.3
Insurance Company Operations .................................................................... ......1.4
Stakeholders ................................................................................................. 1.4
Operations Management .............................................................................. 1.6
Functions of Operational Employees ............................................................ 1.8
The Value Chain ............................................................................................ .......1.12
Enterprise Risk Management (ERM) ............................................................ .......1.17
The ERM Process ....................................................................................... 1.18
ERM Evaluation .......................................................................................... 1.20
The Changing Operating Environment ........................................................ .......1.22
Technology and Operations ........................................................................ 1.23
New Market Competitors ............................................................................ 1.25
Insurance Fraud and Cybersecurity ............................................................ 1.27
The Workforce ............................................................................................ 1.28
Regulatory Uncertainty ............................................................................... 1.30
Economic Environment ............................................................................... 1.31
Key Terms ...................................................................................................... .......1.33
Practice Questions ........................................................................................ .......1.34
Chapter 2: Aligning Operations with Corporate Strategies ......... ....... 2.1

Objectives ...................................................................................................... .......2.2
Outline ............................................................................................................ .......2.3
The Four Functions of Management ............................................................. ......2.5
Strategic Management .................................................................................. 2.5
Operations Management .............................................................................. 2.8
Control Systems ...................................................................................................2.11
Performance Standards................................................................................2.13
Steering Controls ........................................................................................ 2.13
Concurrent Controls .................................................................................... 2.14
Feedback Controls ...................................................................................... 2.16
A Strategically Aligned Company ................................................................ ......2.18
The Potential for Misalignment.................................................................... 2.19
The Strategic Alignment Matrix ................................................................... 2.20

Correcting Misalignment ............................................................................. 2.22
The Environment of Strategy ....................................................................... ......2.25
The Market .................................................................................................. 2.25
Market Share .............................................................................................. 2.27
Industry Competitiveness ............................................................................ 2.28
Innovation Strategy...............................................................................................2.33
Key Terms....... ............................................................................................... .......2.35
Practice Questions ........................................................................................ .......2.37
Chapter 3: Creating a Culture of Excellence......................................... 3.1

Objectives...................................................................................................... ..3.2
Outline ........................................................................................................... ..3.3
Effective Leaders ............................................................................................ 3.5
Trust ............................................................................................................. 3.5
Power............................................................................................................ 3.7
Behavior Modification .................................................................................... 3.9
Influence Tactics ........................................................................................... 3.9
Eight Practices of Effective Leaders.............................................................3.11
Managing Antecedents and Consequences.................................................3.12
Motivation Theories ...................................................................................... 3.16
Self-Determination Theory .......................................................................... 3.17
Expectancy Theory ..................................................................................... 3.18
Motivating Through Evaluation and Compensation .................................. 3.21
Performance Evaluation.............................................................................. 3.21
Compensation............................................................................................. 3.25
Motivating Through Job Design .................................................................. 3.32
Approaches to Job Design .......................................................................... 3.33
Nontraditional Work Arrangements ............................................................. 3.34
Group Dynamics ........................................................................................... 3.37
Cohesiveness ............................................................................................. 3.37
Group Development .................................................................................... 3.39
Organizational Values .................................................................................. 3.42
Employee Engagement............................................................................... 3.42
The Work Environment ............................................................................... 3.44
Key Terms ..................................................................................................... 3.47
Practice Questions ....................................................................................... 3.50

Module 2: Business Processes (Chapters 4 – 6)
Chapter 4: Business Process Excellence ............................................. 4.1

Objectives........................................................................................................ 4.2
Outline ............................................................................................................. 4.3
Process Basics ............................................................................................... 4.7
Steps of Process Improvement.....................................................................4.10
Defining a Process........................................................................................4.10
Process Mapping..........................................................................................4.11
Process Analysis and Control ..................................................................... 4.14
Methods of Process Improvement .............................................................. 4.22
Process Review .......................................................................................... 4.29
Business Process Reengineering ............................................................... 4.32
Process Automation ..................................................................................... 4.35
Cybersecurity .............................................................................................. 4.35
Integrated Business Process Management ................................................ 4.37
Artificial Intelligence .................................................................................... 4.38
Key Terms........................................................................................................4.41
Practice Questions.........................................................................................4.44
Chapter 5: Project Management............................................................. 5.1

Objectives........................................................................................................ 5.2
Outline ............................................................................................................. 5.3
Project Management Basics .......................................................................... 5.6
Characteristics of a Project ........................................................................... 5.6
The Project Manager’s Role ......................................................................... 5.7
The Project Lifecycle......................................................................................5.11
Project Initiation............................................................................................5.12
Project Planning .......................................................................................... 5.21
Project Execution ........................................................................................ 5.43
Project Closure ........................................................................................... 5.49
Project Portfolio Management ..................................................................... .....5.53
Key Terms........................................................................................................5.55
Practice Questions.........................................................................................5.58
Chapter 6: Quality Management ............................................................6.1

Objectives........................................................................................................ .....6.2
Outline ............................................................................................................. .....6.3
Quality Management Basics .......................................................................... .....6.4
What Is Quality? ........................................................................................... 6.4
Quality Management Principles .................................................................... 6.5
The Quality Control Cycle .............................................................................. ...6.10
Quality Planning............................................................................................6.11
Quality Monitoring ....................................................................................... 6.16
Quality Analysis .......................................................................................... 6.23
Quality Improvement ................................................................................... 6.30
Quality Management Approaches ............................................................... .....6.32
Beyond Quality.............................................................................................. .....6.35
Key Terms.............................................................................................................6.37
Practice Questions...............................................................................................6.39
Module 3: Decision Making (Chapters 7 – 10)
Chapter 7: The Decision-Making Process ............................................7.1

Objectives........................................................................................................ .....7.2
Outline ............................................................................................................. .....7.3
Organizational Effects on Decision Making ................................................. .....7.5
The ABCDs of Decision Making .................................................................... .....7.9
Ad Hoc Decisions ......................................................................................... 7.9
Big-Bet Decisions..........................................................................................7.10
Cross-Cutting Decisions................................................................................7.11
Delegated Decisions.....................................................................................7.11
The Decision-Making Process........................................................................ ....7.13
Framing the Decision Correctly ................................................................... 7.16
Evaluating Decision Alternatives ................................................................. 7.17
Dealing with Conflict ................................................................................... 7.18
Analysis Paralysis ....................................................................................... 7.20
Choosing a Decision Alternative ................................................................. 7.21
Decision Implementation and Feedback ..................................................... 7.25
Key Terms ........................................................................................................ ....7.27
Practice Questions .......................................................................................... ....7.28
Chapter 8: Analysis and Modeling ........................................................8.1

Objectives........................................................................................................ .....8.2
Outline ............................................................................................................. .....8.3
Statistical Analysis ......................................................................................... .....8.5
Descriptive Statistics ..................................................................................... 8.5
Inferential Statistics ..................................................................................... 8.17
Modeling ........................................................................................................ .....8.29
Decision Alternatives and States of Nature ................................................. 8.29
Forecasting Models..................................................................................... 8.34
Casual Models..............................................................................................8.39
Financial Models...........................................................................................8.40
Limitations................................................................................................... 8.46
Key Terms ....................................................................................................... ...8.49
Practice Questions ......................................................................................... ...8.52
Chapter 9: Data for Decision Making ....................................................9.1

Objectives........................................................................................................ .....9.2
Outline ............................................................................................................. .....9.3
Data Acquisition ............................................................................................. .....9.6
Quantitative Research ............................................................................. .....9.6
Qualitative Research..................................................................................... 9.7
Data Storage................................................................................................. 9.8
Data Quality..................................................................................................9.10
Data Analytics ............................................................................................... .....9.14
Descriptive Analytics ................................................................................... 9.15
Predictive Analytics ..................................................................................... 9.17
Prescriptive Analytics .................................................................................. 9.18
Data Visualization ......................................................................................... .....9.23
Tables ......................................................................................................... 9.24
Charts ......................................................................................................... 9.25
Infographics ................................................................................................ 9.31
Using the Data............................................................................................... .....9.34
Key Terms ....................................................................................................... ...9.35
Practice Questions ......................................................................................... ...9.37
Chapter 10: Innovation and Innovative Thinking ...............................10.1

Objectives........................................................................................................ ...10.2
Outline ............................................................................................................. ...10.3
Understanding Innovation ........................................................................... .....10.5
Business Objectives ................................................................................... 10.5
Level of Novelty .......................................................................................... 10.6
The Innovative Thinking Process ................................................................ ....10.11
Execution of Innovation ...................................................................................10.18
Model S—Small Projects ...........................................................................10.18
Model R—Repeatable Projects ..................................................................10.18
Model C—Custom Projects........................................................................10.18
Innovation Biases and Constraints .................................................................10.21
Cognitive Biases ........................................................................................10.21
Constraints.................................................................................................10.22
Innovation Management ...................................................................................10.24
Conclusion..........................................................................................................10.31
Key Terms...........................................................................................................10.32
Practice Questions .......................................................................................... ..10.33
Figure and Video Descriptions..............................................................DESC.1

Endnotes...................................................................................................END.1
Glossary................................................................................................ GLOSS.1
Answers Key............................................................................................. KEY.1



Ch 1: The Insurance Company and
Operational Excellence for Insurance Professionals Operations Management | 1.1
Chapter 1
The Insurance Company and
Operations Management

Objectives
After studying this chapter, you should be able to
1 A Describe the stakeholders in an insurance company and how the primary
tenets of operations management apply to insurance operations
1 B Distinguish between primary and support operations and describe the
broad functions of operations employees
1 C Describe transactional work and knowledge workers and explain how
intellectual capital benefits a company
1 D Describe the elements in a value chain and explain how value chains are
used in operations management
1 E Define enterprise risk management (ERM) and explain the ERM process
1 F Describe changes in the insurance company operating environment and
strategies that insurers are implementing in response to these changes

Outline
Insurance Company Operations
Stakeholders
Functions of Operational Employees
The Value Chain
Enterprise Risk Management (ERM)
The ERM Process
ERM Evaluation
The Changing Operating Environment
Technology and Operations
New Market Competitors
Insurance Fraud and Cybersecurity
The Workforce
Regulatory Uncertainty
Economic Environment
The decisions insurers make relating to people, processes, and technology determine
whether an insurance company will operate profitably over the long term. Operations
management concerns managerial efforts to ensure that the products and services a
company provides to customers meet stated quality standards, are timely, and are
delivered profitably at the lowest reasonable cost to the company. Operational
excellence requires that companies continuously monitor, improve, and innovate
operations in order to be successful. This text describes key issues in operations
management and provides tools to aid in decision making.


Like any company, an insurance company operates with strategic levels of
management and operational levels of management. Strategic management focuses
on fulfilling the company’s mission, achieving corporate growth, and competing
effectively in chosen markets. Strategic management also provides direction for
operational activities. Operations are the activities any company undertakes to
produce goods and services. Operations management focuses on carrying out the
day-to-day business activities within the parameters established by strategic
management. The operational level is responsible, to a great degree, for how
successful the insurance company will be in satisfying its stakeholders because, in
these areas of the companies, insurers process applications, answer phone calls, and
pay claims.
The stakeholders in an insurance company include

A. People who buy the insurer’s products
B. People who are owners of the company
C. People who work for the company
D. The regulators of the company
E. A company’s suppliers, vendors, and business partners
Stakeholders
A stakeholder is any party to an organization that has an interest in how the company
conducts its business. Stakeholders can be external or internal to an organization.
They affect and can be affected by the organization’s decisions and include customers,
owners, employees, governments, suppliers, vendors, and partners. Figure 1.1
identifies the primary insurance company stakeholders and describes what each
stakeholder typically wants in its relationship with the company.
Figure 1.1 Insurance Company Stakeholders
Figure 1-1 Description
Management, at both the strategic and operational levels, is continually evaluating

decisions against the requirements of stakeholders, balancing the needs and desires
of one group with those of another group, as well as the overall costs to the company.
An opportunity cost is a benefit that the decision maker forfeits or gives up in
choosing one alternative over another. Every decision involves opportunity costs. For
example, when budgeting, a decision to spend money on a new technology results in
the company having less money to spend in other areas. Even a decision to do
nothing involves forfeiting whatever value might have resulted from making a change
from the status quo. The challenge for management is to make decisions that are
within legal, ethical, and financial limits while maximizing stakeholders’ value and
minimizing costs to the company.
Quality, timeliness, and cost control are the primary tenets of general operations
management. However, service companies apply these concepts differently than do
manufacturing companies. A manufacturing company transforms raw materials into a
finished product that customers want or need and are willing to buy. In such a
company, profits are very product-centered and depend on the costs of the raw
materials needed to manufacture the products, the timeliness of the company’s
production and shipping methods, and the quality and innovation inherent in the
finished product.
Insurers create profits through the sale of intangible products and services.
Insurance products consist of an insurer’s contractual financial commitments as well
as services such as claim payments, interest payments, and expert and friendly
customer assistance. The elements of quality, timeliness, and cost control apply more
to the operations supporting these intangible insurance products than to the actual
product. Figure 1.2 shows insurance company operations categorized as either
primary or support operations. Note that company operations may be categorized
differently but these are typical categories. Primary and support operations both
contribute to the overall success and profitability of the insurance company.

Figure 1.2 Insurance Company Operations
If any operational area within a company is experiencing problems with timeliness,

cost control, or quality, other operational areas are likely to suffer.

EXAMPLE
The information/technology department incorrectly designs a compliance
feature into the system for a new product. New product sales suffer when the
product’s rollout is delayed.
The legal department is slow to approve the contract for a new product idea.
New product sales suffer when a competitor enters the market first with a
similar product.
Insurance company profits are the result of

Innovative and desired products and services that satisfy customer needs
Risk minimization
Sound investment strategies
Operational efficiencies in the creation, sale, and maintenance of products and
services
Operational excellence in insurance companies results when companies maximize
productivity by optimizing operations and reducing company expenses, while
improving customer satisfaction and service quality.
Functions of Operational Employees

The operational employees of an insurance company generally carry out one of
several broad functions:
New business acquisition functions. Employees perform duties that assist in
initiating and closing a sale.
Administrative or technical functions. Employees perform duties that
support a company’s operational areas. Employees may provide support for an
operational area in which they work or other operational areas. Employees are
unlikely to interact directly with a company’s external customers.

EXAMPLES
The accounting/payroll function processes compensation payments for all
employees within a company.
The compliance function maintains licensing and compliance records for
sales professionals.
Service functions. Employees perform duties directly for a company’s external

customers either in real-time interactions or through transaction-based mail or
email interactions.
EXAMPLES
The policy administration function explains policy riders and endorsements
to a policyowner.
The claims administration function pays an insurance policy claim.
Managerial functions. Employees supervise other staff members and provide

guidance for a particular area of operations.

EXAMPLE
A product development director leads a cross-departmental team of
insurance professionals to create a new retirement annuity.
Traditionally, insurance company operations involved a large amount of

transactional work—routine and repetitive tasks with little flexibility in how processes
are completed. Insurers have now automated many transactional tasks in
underwriting, claims processing, and customer service. Automation is the operation
of a process, system, or piece of equipment without human intervention. Automation
allows insurance companies to create jobs that make better use of workers’ talents
and knowledge. Knowledge workersare employees who can interpret information
within a specific, yet broad domain; use skills and knowledge to define problems; and
identify alternative solutions to problems. Companies that effectively employ
knowledge workers can earn a competitive edge in the marketplace as these workers
tend to be self-managing and continuously innovating. Intellectual capital is the sum
of all employee knowledge that a company can use to drive profits as well as other
proprietary information that a company owns. Companies that emphasize training
and education for workers contribute to the development of the company’s
intellectual capital and add value to the company.
A company’s stakeholders can be external or internal to the organization.

A. True
B. False

A company’s decision to do nothing still involves an opportunity cost.

A. True
B. False
Quality, timeliness, and cost control, the primary tenets of general

operations management, do not apply in insurance operations
management.
A. True
B. False
Knowledge workers primarily engage in transactional work.

A. True
B. False

The Value Chain

You can better understand the relationship between operational activities and
stakeholder value by looking at a value chain. In his book Competitive Advantage,
Michael Porter introduced the concept of a value chain —a set of activities that a
company carries out to create stakeholder value. According to Porter, a company
exists to generate value for customers and profits for owners. How well a company
carries out value chain activities determines costs and affects profits. Porter’s model
consists of three main parts: resource inputs, transformative processes, and outputs.
Figure 1.3 applies Porter’s model to the insurance industry.
Figure 1.3 Porter’s Model and Insurance

Resource inputs are any elements used to create a product or service. For
insurance, these inputs include receipts such as monetary investments from owners
and revenues from customers; labor and knowledge from employees; and
information, data, and technology. Transformative processes transform inputs into
outputs for customers. A process is a series of ongoing operations, work activities, or
tasks ordered in a definite sequence and directed toward achieving an end result. For
example, the activities involved in the claims process have the end result of fulfilling an
insurer’s contractual promises to an insurance policy customer. Outputs are the
desired results of a transformative process and can include satisfied customers,
satisfied employees, goodwill, profits, and investment growth. The three elements of
resource inputs, transformative processes, and outputs can be used to analyze a
company’s operations. Figure 1.4 presents a simplified value chain diagram for
insurance claims processing.

Figure 1.4 Value Chain for Claims Processing

A value chain allows a company to analyze each link in the chain and determine
which processes or activities are adding value to a customer and which processes
might be improved or eliminated. As resources pass through each link in the value
chain, the resources accrue added value from the transformative processes the
company applies to the resources. Value chain activities are those that a company
considers as directly impacting customers. Note that companies vary in which
functions they classify as value-adding.
The more value a company creates, the more profitable the company is likely to
be. Analyzing a value chain allows management to look for links between activities and
functions and to design ways to improve efficiency and customer value. A value chain
is also helpful for analyzing the interrelationships between company functions. For
example, insurance companies know that there is a direct link between the quality of
customer service and sales and distribution. An investment in technology that
personalizes customer service activities in ways that please customers will likely result
in increased or retained business and add value to the company.
According to Porter’s value chain model, monetary investments from

insurance company owners and revenues from insurance customers
would be classified as
A. Inputs
B. Transformative processes
C. Outputs

An operational area that an insurer would likely consider a value-adding

function is
A. Human resources
B. Accounting
C. Sales and distribution

Enterprise Risk Management (ERM)

Insurance company operations are subject to a host of external and internal risks.
Investment risks, regulatory risks, fraud risks, and cybersecurity risks are just a few of
the external risks with potential to create significant financial and nonfinancial losses
for insurance companies.
EXAMPLE
External Risk
The EndiFirst Insurance Company is subject to investment risk—the risk that the
overall market for stocks or bonds will decline in value, negatively affecting its
investments in stocks and bonds. EndiFirst uses the investment strategies of asset
allocation and diversification to help minimize investment risks.
Companies are also subject to internal risk. Operational risk is the potential for
financial losses resulting from inadequate or failed processes and controls, people, or
systems.

EXAMPLE
Operational Risk
The EndiFirst Insurance Company is considering outsourcing some of its
underwriting process to a third-party vendor. The vendor offers the latest
technology for processing, but EndiFirst is weighing various risks associated with
outsourcing this process. Among the questions raised:
—Will the vendor’s systems and business practices adequately protect the
confidentiality and security of customer data?
—Will the vendor adhere to EndiFirst’s underwriting policies regarding the
products being sold?
With limited control over the outsourced underwriting process, EndiFirst might be
financially responsible for data breaches and for higher than anticipated mortality
costs. Poor service quality also could damage EndiFirst’s reputation with
customers and ultimately sales. EndiFirst measures the potential for these risks
against the benefits of outsourcing the process.
Companies cannot eliminate risks but they can create systems for identifying and
managing risks. Enterprise risk management (ERM) is a system that identifies and
quantifies risks from both potential threats and potential opportunities and manages
risks in a coordinated approach that supports an organization’s strategic objectives.
When operating in an environment of decreased profit margins and increased
stakeholder scrutiny, the need for identifying and reducing risk is perhaps greater
than ever.
The ERM Process

The ERM process consists of analysis, forecasting, and modeling of various external
and internal risks so that management can create company strategies for avoiding or
mitigating the risk’s impact. In this chapter, we briefly describe risk analysis. In a later
chapter, we present forecasting and modeling and describe how the information
results might be used in ERM.

Insurance companies have many tools for identifying financial risk. For example,
insurers can conduct mathematical analysis to identify the sensitivity of the company’s
cash flows or stock value against risk factors such as interest rate or currency
fluctuations. How do companies identify operational risk?
INSIGHT
Analysis of Operational Risk
Operational risk is harder to identify and quantify than financial risk. Insurers
often ask each functional area to identify its top three to five operational risks
and then assess those risks using the following questions:
• What are the causes of the risk?

• What are the consequences and financial impact of the risk?
• Is there a short-term or long-term time-frame?
• Is there a correlation with other risks: will one risk trigger another risk
or will the risk be a hedge to another risk?
• Are there current mitigation risk strategies?
• What does historical data or expert opinion say about the risk’s impact
on the organization?
Source: Jerry Miccolis, “Enterprise Risk Management in the Financial Services

Industry: Still a Long Way to Go,” International Risk Management Institute.
https://www.irmi.com/articles/expert-commentary/enterprise-risk-
management-in-the-financial-xservices-industry-still-a-long-way-to- go (13
September 2017).
ERM analysis determines which risks are manageable with current organizational
strategies and processes, and which ones fall outside current methods. The outliers
are often new or emerging risks that have the most uncertainty associated with them.
To determine strategies for handling these risks, companies often engage in modeling
scenarios in various conditions of uncertainty. Chapter 8 describes modeling in
greater detail.

EXAMPLE
Modeling a Risk
The EndiFirst Insurance Company is reviewing its readiness for the
implementation of new tax policies in the United States. EndiFirst models the
following scenarios:
—10% chance of the current tax system remaining unchanged
—40% chance of new regulations changing tax rates for companies only
—50% chance of new regulations changing tax rates for individuals as well as
companies
EndiFirst analyzes each scenario to better understand its exposure and to
determine a course of action for the company should that option materialize.
The result of the modeling process may suggest that the company implement any
number of new strategies; including investing in a new technology, discontinuing a
marketing plan, or hiring someone with specialized expertise to monitor or manage
the risk.
ERM Evaluation
ERM assists a company in planning and determining which risks are critical.
Companies evaluate potential strategies for handling risks by evaluating the effects on
company stakeholders of different strategies. Although the impact of a risk on the
company’s customers is of primary importance, ERM evaluation must also consider
other stakeholders’ interests. Stakeholders often have common interests but
sometimes their interests can be in conflict with each other.
For example, the policyowners (customers) of an insurance company are primarily
interested in the company’s solvency over the long term. Their interests suggest that
an insurer maintain high levels of capital and reserves to ensure solvency regardless
of what risks might occur in the future. Owners of stock life insurance companies,
however, are interested in profits and growth. They want to maintain the minimum
required reserves and invest excess capital for higher returns. In this example of

conflicting interests, management must balance the risk of insolvency with the need
for investment returns. ERM attempts to quantify the risks in such decisions by using
modeling to identify alternatives with the greatest value and lowest risk potential.
Once modeling is complete, management selects the optimum strategy or
combination of strategies.
For insurance companies in the business of managing other people’s risks, ERM
would seem to be a logical process for all companies to follow. Surprisingly, a recent
survey found that only 46 percent consider the interaction of risk sources from the
financial and operational sides of the enterprise when assessing and measuring risk.
However, the percentage of insurers utilizing ERM is likely to increase as insurers face
potential disruptions in the insurance business.
Financial risk is harder to identify and quantify than operational risk.

A. True
B. False
Enterprise risk management (ERM) assists a company in identifying

critical risks so that management can plan strategies for avoiding or
minimizing the risk.
A. True
B. False

The Changing Operating Environment

According to Pricewaterhouse Coopers’s 20 CEO Report in early 2017, the insurance
industry is potentially exposed to the most disruption of any industry. Figure 1.5
graphically displays a portion of the results from the report indicating the likelihood of
disruption from over-regulation, changing consumer behavior, technological change,
and new market entrants in selected industries.
Figure 1.5 Level of Concern about Insurance Industry Disruption

Technology is the driving force behind much of the disruption in the insurance
industry. Technology has opened the door for new market competitors to enter and
created new opportunities for fraud. Other forces, such as a changing workforce,
regulatory uncertainty, and the continued low-interest-rate environment are adding
complexity to an already challenging operating environment.
Technology and Operations

Insurers are analyzing every aspect of their value chains to see how they might use
new technologies to realign operations and deliver greater customer value. Artificial
intelligence (AI) is the area of computer science that emphasizes the development of
intelligent machines that work, “learn,” and react like humans. Figure 1.6 illustrates
potential capabilities of AI.

Figure 1.6 Artificial Intelligence System

The goal of AI is to go beyond automation and design processes for activities that
previously required human intelligence. For example, a chatbox is a system that uses
AI and spoken language or text to answer the most commonly asked customer
questions. When companies use AI, workers can focus their efforts more effectively on
less routine activities. Insurers also use AI to gain new insights into customers and
their behaviors that can lead to improved customer service, claims processing, and
underwriting operations.
The most common operational problem insurers face in connection with
technological change is whether to modify or replace the extensive and expensive
technology already in place in established companies. Legacy systems are older
computer systems or applications that perform essential functions and are costly to
replace or redesign. In addition to the financial costs of changing systems, established
companies have company cultures associated with these systems and established
operational processes that are often difficult to change.
Technology can create efficiencies in operations and drive increased market share
and company growth. However, a company must have a coordinated technology and
data strategy for operations to achieve the maximum return on investment.
New Market Competitors

Insurance companies typically build operating strategies on past success. New
competitors are not held to this status quo because they have no past experience.
New market competitors may be able to establish a different type of insurance
business model that will disrupt the insurance business in the future. For example,
LIMRA research shows that the Internet is close to surpassing financial professionals
as the most valuable source of information when researching annuities and
insurance. What if Google or Amazon, with their Internet platforms and vast
knowledge of consumers, entered the insurance market and began selectively
targeting insurance prospects with the lowest risk potential? Would traditional
insurers be able to compete?
Vijay Govindarajan, Dartmouth College professor, suggests that companies need
to focus more on the future of their industry and less on the past. His three-box
solution, shown in Figure 1.7, recognizes the competing challenges insurers face in
innovating for the future while running a high-performing business.

Figure 1.7 The Three-Box Solution
Source: Adapted from Vijay Govindarajan, “The Three-Box Solution: A Strategy for
Leading Innovation,” Boston, MA: Harvard Business School Publishing, 2016. Used with
permission.

Successful companies often focus on Box 1 because their success comes from
optimizing what they are currently doing. Govindarajan cautions that such companies
need to manage their present business for profitability but always be looking to the
future. To ensure continued success, Govindarajan recommends that companies let
go of attitudes and assumptions that might fuel current business but interfere with
future innovation. Box 2 requires companies to discontinue activities or even lines of
business that might be successful today but are unlikely to be successful in the future
because some aspect of the environment is changing. Box 2 requires difficult and
often painful decisions. Box 3 is where a company’s future lies. Focusing the
company’s attention on new ideas and innovations allows companies to create new
products and business models that take advantage of new or emerging technologies.
Box 3 represents how a company remains relevant in the future.
Insurance Fraud and Cybersecurity

The Coalition Against Insurance Fraud estimates that insurers suffer losses of $80
billion each year from fraud across all lines of insurance. Although a certain amount of
insurance fraud has always existed, it is currently increasing as criminals employ
technology for fraudulent activities. Hacking is the process of using a computer and
technology to gain unauthorized access to another system’s data. Hardly a day goes
by without a company reporting that its computer systems have been hacked and that
the personal information of untold numbers of people is at risk. Criminals can use
stolen Social Security numbers and other personal information, such as date of birth,
for a variety of illegal purposes. Recently the insurance industry has seen an increase
in the incidence of unauthorized insurance policy loans and annuity contract
withdrawals.
As a result, fraud detection and prevention in life insurance company operations
are increasingly important. Cybersecurity encompasses all of the efforts a company
takes to protect its computer systems and networks from criminal activity.
Traditionally, cybersecurity involved protecting an insurer’s internal systems and
networks from criminal activity. Today, however, as companies partner with third
parties to satisfy various business needs, a customer’s information may be spread
across multiple external business entities with vulnerabilities that are completely
outside the insurance company’s control. An effective cybersecurity program must
determine the path along which a customer’s information flows for each transaction,
and then identify areas of risk and ways to reduce or eliminate that risk.

EXAMPLES
Using Technology to Identify Fraud
The EndiFirst Insurance Company uses data analytics to identify life insurance
policies submitted without an accompanying initial premium, which is a red flag
for an unauthorized policy.
EndiFirst also is utilizing Endpoint Detection and Response (EDR) technology to
detect, investigate, and respond swiftly to suspicious activities and issues at
network sites.
Companies are also implementing more sophisticated authentication measures

for verifying a policy or contract owner’s identity before processing a policy loan or
annuity withdrawal. Effective cybersecurity programs and fraud prevention systems
build customer trust and add value to the company.
The Workforce
Workforce demographics have changed, as illustrated in Figure 1.8, and these changes
present challenges for operations management.

Figure 1.8 Workforce Demographics
Source: Richard Fry, Pew Research Center, “Millennials Are the Largest Generation in
the U.S. Labor Force,” 11 April 2018, http://www.pewresearch.org/fact-
tank/2018/04/11/millennials-largest-generation-us-labor-force/
The Millennial population (those people born from the early 1980s until 2000) has
now surpassed the baby boomer population (those people born from 1946 until 1964)
as the largest living population segment. Millennials, as a whole, have been slow to
adopt many of the markers commonly associated with baby boomer adulthood, such

as permanent employment, home ownership, or marriage. This demographic trend

has effects outside of the workforce in that such characteristics are often associated
with insurance ownership. The Great Recession, with its high unemployment and
subsequent modest job recovery, is often viewed as contributing to this trend.
Millennials are active participants in the gig economy. A gig economy is an
environment in which an on-demand labor force is utilized to fill temporary or short-
term jobs, and there is no formal employer-employee relationship between the
independent worker and the employer. Independent workers do not usually qualify for
regular wages or employer-provided benefits. However, independent workers do have
flexibility in managing their work/life balance and career. According to MBO Partners, a
management service for independent contractors, “By the year 2027, 58 percent of
Americans will be classified as independent workers or will have worked as an
independent worker at some point in their careers.” Independent workers range in job
skills from unskilled laborers to highly skilled contractors.
Insurance companies use independent workers to tap into specialized skills or for
temporary, short-term job needs. A challenge for operations management is how to
effectively hire, recruit, and manage a multigenerational and blended workforce of full-
time, part-time, and independent workers to best maximize productivity and remain in
compliance with worker protection regulations. Other challenges include leading and
managing diverse work teams when workers regularly cycle into and out of the work
team, and instilling in temporary or part-time workers the company’s brand image,
corporate values, and culture.
Regulatory Uncertainty
Well-designed regulations are beneficial to customers and to market participants.
Some regulations create opportunities for the insurance industry. For example, the
passage of the Employee Retirement Income Security Act of 1974 created individual
retirement accounts (IRAs).
Yet regulation also has the potential to disrupt insurance operations. For example,
in 2015, the Department of Labor’s now abandoned fiduciary rule addressed the
potential for conflicts of interest in commission-based compensation structures by
requiring financial professionals who provide retirement investment advice to follow
specific steps designed to enhance transparency. In response, some companies
changed their operations and compensation structures, while others completely
exited certain distribution channels or discontinued some products. Experts believe
that this rule was a factor in the decline of variable annuity sales by 21% from 2015
to 2016. As the political environment remains volatile, regulatory uncertainty will
continue. Operations management must be vigilant in monitoring the current

regulatory environment and it must also be prepared to change rapidly to comply
with new regulations.
Economic Environment
Life insurance companies collect premium income and hold some of this money as
reserves to pay benefits when they come due. Insurers invest the money they hold in
excess of reserves. However, they must invest funds cautiously to ensure that they will
have the funds available should benefit payments be greater than expected. As a
result, insurers invest conservatively, with a significant amount invested in interest-
bearing bonds such as U.S. Treasury bonds. Since the Great Recession in 2008, bond
interest rates have been at historic lows. For example, in April 2017, Treasury bonds
were trading at 2.28 percent.
What does this mean for an insurer’s operations? Insurers sold products during
the 1970s, 1980s, and even 1990s with a pricing structure that assumed a much higher
interest rate for investment income than was actually earned. With investment income
lower than anticipated, insurers need to operate more efficiently and less expensively
in order to remain profitable.
A computer system that can perform tasks normally requiring human

intelligence is
A. A legacy system
B. Artificial intelligence

Authentication measures for verifying a life insurance policyowner’s

identity are necessary to prevent
A. Hacking
B. Fraudulent policy loans
Managing the workforce of today is challenging because the workforce

contains full-time, part-time, and independent workers.
A. True
B. False
Conclusion
Chapter 1 provides an introduction to operations management and describes some of
the greatest challenges facing insurance company operations. Employees at all levels
of an insurance company play a role in facing these challenges. Later chapters provide
information and techniques to assist employees in this process.

Key Terms
operations management
operations
stakeholder
opportunity cost
transactional work
automation
knowledge workers
intellectual capital
value chain
process
operational risk
enterprise risk management (ERM)
artificial intelligence (AI)
chatbox
legacy systems
hacking
cybersecurity
gig economy

LEARNING OBJECTIVES &

PRACTICE QUESTIONS Chapter One
Learning Objective: 1A. Describe the stakeholders in an insurance company and how the primary
tenets of operations management apply to insurance operations.
1. Insurance company stakeholders include

A. Owners
B. Vendors
C. Governments
(1) A, B, and C
(2) A and B only
(3) A and C only
(4) B and C only
(5) A only
Learning Objective: 1B. Distinguish between primary and support operations and describe the
broad functions of operations employees.
2. Insurance company operations can be categorized as primary operations or support operations. Select
the answer choice that correctly identifies an example of primary operations and an example of
support operations.
Primary operations Support operations
(1) underwriting sales and distribution
(2) customer retention accounting
(3) internal control product development and implementation
(4) human resources information technology
Learning Objective: 1C. Describe transactional work and knowledge workers and explain how
intellectual capital benefits a company.
3. The following statement(s) can correctly be made about transactional work and knowledge workers:
A. Transactional work often allows a great deal of flexibility in how processes are completed.
B. Knowledge workers tend to be self-managing and continuously innovating.
(1) Both A and B
(2) A only
(3) B only
(4) Neither A nor B

Learning Objective: 1D. Describe the elements in a value chain and explain how value chains are
used in operations management.
4. The value chain, proposed by Michael Porter, refers to a set of activities that a company carries out
to create stakeholder value. This model consists of three main parts: resource inputs, transformative
processes, and outputs. Examples of outputs for insurance companies generally include
(1) goodwill
(2) claim processing
(3) technology
(4) investment management
Learning Objective: 1E. Define enterprise risk management (ERM) and explain the ERM process.
5. Insurance company operations are subject to a host of internal and external risks. The potential for
financial losses resulting from inadequate or failed company processes and controls is known as
(1) regulatory risk, which is a type of internal risk
(2) regulatory risk, which is a type of external risk
(3) operational risk, which is a type of internal risk
(4) operational risk, which is a type of external risk
Learning Objective: 1F. Describe changes in the insurance company operating environment and
strategies that insurers are implementing in response to these changes.
6. The following statements are about the changing operating environment for insurers. Three
statements are true, and one statement is false. Select the answer choice containing the FALSE
statement.
(1) Insurers are analyzing every aspect of their value chains to see how they might use new
technologies to realign operations and deliver greater customer value.
(2) The most common operational problem insurers face in connection with technological change
is whether to modify or replace legacy systems.
(3) The goal of artificial intelligence (AI) is to automate transactional tasks that normally require
human intervention.
(4) Fraud detection and prevention in life insurance company operations are increasingly
important.
7. The following statements are about new market competitors, the changing workforce, regulations,
and the economic environment, which impact insurance operations management. Select the answer
containing the correct statement.
(1) According to the three-box solution proposed by Vijay Govindarajan, a Dartmouth College
professor, Box 1 requires companies to discontinue activities or even lines of business that
might be successful today but are unlikely to be successful in the future.
(2) Millennials are active participants in the gig economy.
(3) Although the political environment remains volatile, regulatory uncertainty is likely to go
away.
(4) Because future investment income is likely to be much higher than anticipated, insurers will
more easily be able to manage benefit payments.


Ch 2: Aligning Operations with Corporate
Operational Excellence for Insurance Professionals Strategies | 2.1
Chapter 2
Aligning Operations with Corporate
Strategies

Objectives
2 A Describe the role of the corporate mission, goals, and strategies in the
management cycle
2 B Distinguish between the strategic management cycle and the operational
management cycle
2 C Describe steering, concurrent, and feedback control systems and their
role in maintaining a strategically aligned company
2 D Describe the benefits of strategic alignment, the potential for
misalignment, and how to correct misalignment
2 E Describe a market and explain how insurers use market share and
industry competitiveness in evaluating markets
2 F Distinguish between incremental and breakthrough innovation strategies
and explain why both are important to insurers

Outline
The Four Functions of Management
Strategic Management
Control Systems
Performance Standards
Steering Controls
Concurrent Controls
Feedback Controls
A Strategically Aligned Company
The Potential for Misalignment
The Strategic Alignment Matrix
Correcting Misalignment
The Environment of Strategy
The Market
Market Share
Industry Competitiveness
Innovation Strategy
Operations management is responsible for ensuring that day-to-day organizational

activities align with company plans. To do this, operations management must have
clear guidance from strategic management and successfully conduct the four
functions of management.

Stacy Dominick is the chief accounting officer for the EndiFirst Life
Insurance Company, and Tom Ward is the claims manager. Do you think
Ms. Dominick or Mr. Ward spends more time on the directing function of
management?
A. Ms. Dominick
B. Mr. Ward

The Four Functions of Management

All levels of management, whether strategic or operational, engage in the four functions
of management. Watch Video 2.1, which identifies these four functions.
Video 2.1 The Management Cycle

Sorry, it appears your system either does not support video playback or cannot play the MP4
format provided. Go to the online course portal to view the video.
Video 2-1 Transcript
Together these activities constitute a continuous repeating management cycle.

Management makes a plan to achieve a goal. Allocates human, physical, and financial
resources in ways that will best achieve planned goals. Oversees or supervises the
work, which includes leading and mentoring employees. Ensures that organizational
processes, assigned resources, and outcomes conform to plans and to applicable
regulatory requirements. Takes actions to adjust the process and/or the plan to
reflect any mismatches discovered during the implementation process.
Strategic Management
A company’s strategic management, or top levels of corporate management,
evaluates the company’s mission and business goals in order to formulate plans for
the business. The mission of an insurance company is to satisfy customer needs for
managing risk. Each insurer attempts to satisfy customer needs in its own unique way.
Some focus on customer service or low cost. Others create unique products for
specialized needs. The corporate mission is how the company will satisfy customer
needs and is expressed in the company’s mission statement—a statement of a
company’s fundamental purpose or reason for existence.
EndiFirst Mission Statement

The EndiFirst Insurance Company provides customers with peace of mind by
providing affordable and easy-to-purchase insurance products.

The board of directors (BOD) is a group of individuals elected by the company’s

owners that serves as the company’s primary governing body. As such, the BOD plays
an essential role in creating the mission statement and in the strategic management
cycle. The BOD attempts to ensure that corporate decisions serve the best interests of
the company’s stakeholders by reviewing strategic plans and the expenditures that
support these efforts, with close attention paid to risk management and risk
mitigation. The most effective BODs are very active in strategic planning.
Planning
Planning at the strategic level requires knowledge about the environment in which the
company operates. Management creates strategic plans in accordance with economic,
political, and legal considerations in the company’s external environment. Strategic
management must also consider the competitive environment in which the company
operates. All of a company’s strategic planning efforts should support the corporate
mission.
The broad planning targets a company attempts to achieve in support of the
corporate mission are corporate goals, or corporate objectives.
EndiFirst Corporate Goal

To offer, underwrite, and issue simple, affordable life and property/casualty
insurance products on a digital sales platform by the year 20XX.
A corporate strategy is a long-term plan that a company intends to use to achieve

its goals in the present and future. Corporate strategies usually relate to the market in
which the company is operating, or in which it plans to operate in the future.
EndiFirst Corporate Strategies-

- Purchase the most robust and cost-effective digital platform by end of business
year
- Have digital platform operational by 20XX
- Design simplified, actuarially sound insurance products for launch by 20XX

Strategic management bases corporate goals and strategies on a company’s

desired competitive position, resources and capabilities, and current and predicted
environmental conditions. A competitive advantage is any aspect of a company—
such as cost structure, distribution network, or customer support—that allows the
company to generate greater sales or retain more customers than its competitors do.
Corporate strategies seek to create or capitalize on competitive advantages.
EndiFirst Competitive Advantage

EndiFirst was one of the first insurance companies to provide online information
and online policy service options to customers. Thus, EndiFirst sees its experience
in digital as an opportunity to become the leader in providing low-cost insurance
products through a digital sales platform.
Corporate strategies usually extend at least three to five years into the future.
Long-term plans, however, are always subject to change as circumstances in a
company’s environment change. For example, EndiFirst taking longer than anticipated
to research and purchase the technology it needs would delay the accomplishment of
other strategies.
Business strategies are action plans for a line of business, such as a product line,
business unit, or strategic business unit (SBU). In insurance companies, a product line
might consist of individual life insurance and annuities or property and casualty
insurance. Business strategies must carefully align to support corporate strategies.
EndiFirst Business Strategy

EndiFirst will first create its digital sales platform for its property and casualty line
of business. Then EndiFirst will expand into its life insurance line as it gains
experience with insurance sales on a digital platform.

Organizing and Directing

Strategic management determines the organizational structure of the company and
allocates total resources to organizational areas according to corporate priorities,
with more resources going to higher priorities.
EndiFirst Budget Priorities

EndiFirst’s senior management plans to invest 10% of the corporate budget for
each of the next three years in new technology and staff, signaling the company’s
commitment to the digital strategy.
Strategies often succeed or fail based on the commitment of management to a

strategy. Without senior leadership’s commitment and financial support, even the
best strategies can fail. Strategic management leads the company by setting the tone
for operational managers to follow and by shaping the corporate culture within which
employees work.
Controlling
Controls at the strategic level tend to be broadly based guidelines and policies for the
organization as a whole or for major organizational subunits such as an SBU or a
product line department. For example, the corporate budget acts as a control as it
sets the total limit for what operations can spend. Lower levels of management
determine day-to-day operations within these strategic guidelines and policies.
Operations management must fully understand the company’s mission, goals, plans,
and strategies to keep operations functioning correctly within the overall strategic
framework. The four functions of management apply somewhat differently at the
operations level than at the strategic level, as follows:
Planning
Planning has a much narrower focus at the operational level. An operational strategy
is a general action plan for day-to-day activities that must occur within a budget
dictated by the company’s strategic plans. Operational strategies often extend for only
one or two years into the future.
EndiFirst Operational Planning

EndiFirst’s digital strategy requires that new simplified insurance products be
ready for implementation by 20XX. EndiFirst’s Product Development Unit develops
an 18-month plan that outlines the operational steps necessary to create these
new products.
Strategic management reviews operational plans and works with operational

managers to finalize plans and ensure that these plans are in line with corporate-level
planning.
Organizing
Organizing at the operational level consists of creating processes, scheduling
activities, staffing activities, and allocating budgeted resources. In a typical
organization, operational managers do not have authority to exceed the established
budget. Operational managers use tactics for organizing operational work. A tactic is
an action designed to support an operational strategy. A tactic describes the specifics
of a plan, such as which staff member will take a certain action by a specific time.
EndiFirst Tactics
- Tactic 1: Product development manager will hire a new digital unit manager to
head a digital product development unit by October 1, 20XX.
- Tactic 2: Digital unit manager will have initial draft of a digital product
development plan ready by December 1, 20XX for product development manager
to review and finalize by January 1, 20XX.
- Tactic 3: Digital unit manager will schedule weekly meetings with the digital unit
so that everyone can report on goals and accomplishments and make
adjustments as necessary to keep the digital product development plan on track.
Directing and Controlling

Directing and controlling the work of operational employees fills the majority of an
operations manager’s time and typically requires that the manager have functional
expertise in the area of operations supervised.
Functional Expertise
John Downing, the new manager for the digital project development unit, has
worked in product development for 20 years. Most recently he worked with a
technology company, and EndiFirst hired him because of his knowledge of digital
systems and ability to problem solve. When Mr. Downing provides guidance to his
team members or reviews a team member’s work, his opinions and
recommendations are highly respected and easily accepted because of his
functional expertise.
The management of Time Insurance has issued the following statement:

“Time will assist people in creating a comfortable secure retirement with
innovative annuity products.” This statement best describes a
A. Corporate goal
B. Corporate strategy
C. Mission statement
A general plan for day-to-day activities that must occur within a stated
budget is an example of
A. An operational strategy
B. A tactic

Control Systems
Strategic and operational managers use control systems to keep company activities
aligned with corporate goals and strategies and moving in the right direction. A
company uses a system of steering controls, concurrent controls, and feedback
controls to achieve these objectives. Figure 2.1 provides some examples of controls.
Figure 2.1 Control Systems

Feedback controls focus on the past and as such are reactive controls. Concurrent
controls focus on the present. Steering controls are proactive controls designed to
guide future activities. Note that whether a control is a feedback, concurrent, or
steering control often depends on how it is used. For example, a budget can be a
steering control for planning, a concurrent control for day-to-day operations, and a
feedback control once a budget cycle is completed.

goals for an activity that are specific, measurable, and relevant. A performance
standardis an established level of performance to which a company or an individual
compares actual performance. When a performance standard for a process or activity
is critical to a company’s success, it is a key performance indicator (KPI). Chapter 4
explains how companies identify and carefully monitor KPIs. Performance standards
may be objective or subjective. The more subjective the performance standard, the
more difficult it is to measure performance, and ultimately improve performance.
EXAMPLE
Subjective vs. Objective Performance Standards
EndiFirst requires an annual performance evaluation for each employee.
Some employees are assessed on objective quantifiable goals, e.g., answers X
number of calls per day, processes X number of applications without errors per day.
Managers of these employees can measure an employee’s performance and
recommend specific ways to improve performance.
Other employees are evaluated on the quality or innovation inherent in their
work, which is more subjective. Nonetheless, managers of these employees must
determine quantifiable goals for evaluating an employee’s work. A quantifiable
measurement for this type of work might be to submit two innovation ideas to the
innovation steering committee quarterly, to provide biweekly control reports by the stated
deadline, or to receive positive feedback from peers or industry stakeholders who deal
directly with the employee.
Steering Controls
Steering controls proactively communicate expectations and try to prevent problems
from occurring. Steering controls provide performance guidance to all levels of a
company. At the corporate level, a code of conduct—a formal statement of a
company’s core values and its expectations for how its employees should behave in
the course of business—is an example of a steering control. The budget is also a
steering control in that it sets priorities and constraints for a company’s future
operations.
EXAMPLE
EndiFirst’s Code of Conduct
EndiFirst’s Code of Conduct describes employee behaviors that represent a
conflict of interest and provides specific examples. A conflict of interest exists
when the interests or actions of one entity, such as an employee, are
incompatible with the interests or actions of a related entity, such as an employer.
Example of Prohibited Behavior: An employee shall not accept gifts from vendors or
suppliers unless such a gift has a value of less than $20.
Potential Conflict of Interest: A valuable gift might encourage an employee to treat a
supplier or vendor as a preferred partner even if the services or products provided by the
supplier or vendor are not favorable to the company.
By educating employees about conflicts of interest, and providing specific
examples of prohibited behaviors, employees are better able to avoid such
conflicts.
Many companies require annual code of conduct reviews; some require
employees to complete a conflict-of-interest questionnaire each year.
At the operational level, procedures are steering controls. A procedure is a set of

instructions for following a series of steps in a regular, definite order to accomplish a
process. A performance standard is a steering control that establishes the expected
level of performance for an operational unit or an individual. For an individual
employee, a job description provides a description of the duties, responsibilities, and
accountabilities for a job. All of these examples of steering controls are intended to
prevent errors in operations from occurring.
Concurrent Controls
Concurrent controls continuously monitor a company’s activities and systems as they
are being performed to ensure that an activity is meeting established performance
standards or complying with established procedures.

EXAMPLES
Concurrent Control
A manager in an insurer’s customer contact center listens to real-time
conversations and provides feedback to an employee as the conversation takes
place.
An underwriting manager, or more experienced underwriter, reviews and helps a
new underwriter correct a case before it is sent for approval.
Real-time customer call statistics are monitored to determine appropriate staffing
levels for call volume.
An operations manager reviews expenses quarterly against the budget to ensure
that her department remains within the budget’s guidelines.
An exception report is a report generated automatically by a company’s systems

when results deviate from an established standard. As a concurrent control, the
report indicates whether an operation is within an acceptable performance range
while the operation is being conducted.
EXAMPLE
Concurrent Exception Report
A claims processing system processes and automatically pays certain claims
according to rules relating to such things as claim amount and contestability.
Exceptions to the system’s rules are flagged for human review.
A customer service system triggers an alert when a service representative
exceeds a maximum time limit with a customer so that a manager can offer
assistance to the service representative in handling the call.

Feedback Controls
Feedback is using information about past operations to change future operations.
Feedback controls compare actual performance or output with established standards
at the end of a measurement period.
EXAMPLE
Feedback Control
The Fine Life Insurance Company has established a goal of decreasing the number
of customer complaints by 10% from the previous year. Fine logs customer
complaints into a central repository at the end of each day. The complaints are
analyzed the next day to rectify any identified problems or to make improvements
as needed to related processes.
Management by exception is a feedback control that requires a manager to

investigate performance that falls outside an established, acceptable performance
range. For example, if Fine Life determines that the majority of customer service
complaints relate to only two customer service representatives, the manager would
review the work of those representatives, and help them improve their work
processes. Alternatively, if department operations exceed budget guidelines, the
exceptions are investigated to improve future planning.
The primary disadvantage associated with feedback controls is that, because they
take place at the end of a process or evaluation period, inefficiencies in performance
often continue for some time before corrections or improvements are made. Still, for
ongoing operations, feedback controls are a primary way to assess and continually
improve productivity.

The ABC Life Insurance Company has various operational controls that
can be classified as steering controls, concurrent controls, or feedback
controls. When ABC Life uses management by exception techniques to
identify unacceptable performance at the end of an evaluation period, it
is using a type of
A. Steering control
B. Concurrent control
C. Feedback control

A Strategically Aligned Company

In successful companies, strategic plans align with organizational resources and
operational activities in ways that clearly support the company’s mission and move
the company in a coordinated manner toward common goals.
A company’s most senior management, working with the company’s board of
directors, maintains ultimate responsibility for this company alignment. Corporate
governanceis the responsibility and authority of a company’s board of directors to
direct senior management to fulfill its mission on behalf of the company’s
stakeholders in a legal and fiscally responsible manner. Figure 2.2 presents a
framework of questions that are considered in creating and maintaining a strategically
aligned company.
Figure 2.2 Organizational Alignment Framework

The Potential for Misalignment

Unfortunately, strategic plans and operational activities do not always move in the
same well-defined direction. Misalignment is particularly common in large companies
with complex organizational structures and many specialized and often geographically
dispersed operational units. What are the possible reasons for that misalignment?
Senior management might not view the entire organization as an
interconnected value chain but as distinct business units, each with its own
value chain. As a result, management misses opportunities for efficiencies and
coordination in company operations.
Operational managers, with a narrower planning focus, sometimes focus on
short-term results to the detriment of long-term strategies.

Operational employees operate in silos—operational units that act in isolation
from other operating units—and often do not understand how their jobs relate
to different operational units or how strategic goals relate to their jobs.
How does a company know if strategic plans and operational activities are
misaligned?
Missed financial projections. When operational units do not have clear
direction, some units may operate in ways that are counterproductive to
company goals and revenue streams. Duplicated efforts in multiple operating
units increase expenses. Confusion about which operating unit is doing what
often causes missed deadlines and delays and a decline in customer
satisfaction.
Erosion of employee morale and increased turnover. The chaos and
confusion of misalignment takes its toll on employees, causing morale to
decline. Declining morale often leads to lower productivity and increased
employee turnover.
The Strategic Alignment Matrix

A strategic alignment matrix can be helpful in determining whether the company’s
organizational purpose actually aligns with the company’s strategy, and whether the
company’s strategy aligns with organizational capabilities. A company’s organizational
capabilities are the extent and quality of its financial, human, and technology
resources. Figure 2.3 shows that, at the best companies, purpose, strategy, and
capabilities are in sync.

Figure 2.3 Strategic Alignment Matrix
Source: Jonathon Trevor and Barry Varcoe, “A Simple Way to Test Your Company’s
Alignment,” Harvard Business Review, 16 May 2017, https://hbr.org/2016/05/a-simple-
way-to-test-your-companys-strategic-alignment (9 November 2017).
The four types of companies shown in the matrix include

Best companies. Successful companies have a purpose that effectively
addresses customer needs and market conditions, and this purpose aligns with
corporate strategy and organizational capabilities. Successful companies
translate strategic plans into viable strategies for guiding operational planning.
In such companies, employees understand the company’s purpose and share a
set of core values that go beyond a job description.
Companies with the best of intentions. Sometimes a company’s purpose and
strategy align but the company is incapable of implementing its strategy. The
company may lack the needed human or financial resources, or the company’s
organizational structure may cause dysfunction during implementation. For
example, siloed operating units often have competing values and practices that

inadvertently sabotage corporate strategy.

Companies going nowhere. Some companies have the organizational
capabilities to support their strategy but a lack of alignment in purpose and
strategy. For example, a company may have talented and committed
employees, and abundant financial resources, but without a coherent strategy
and purpose, the company will flounder as it squanders market opportunities.
Failing companies. Finally, some companies maintain strategies that do not
align with the organization’s purpose or organizational capabilities. Without
significant changes to strategy and the organization, these companies will
eventually cease to exist.
Correcting Misalignment
Correcting misalignment often requires that company leaders make tough choices
about the company’s purpose, people, and processes, which can involve significant
organizational and operational changes. Management uses questions like those
outlined in Figure 2.2 to identify the areas that require change. Strategic management
then creates plans designed to accomplish those changes and communicates the
plans to employees.
Organizational realignment often breaks down when communicating these
changes to employees. Unless employees understand the importance of the change
strategies and believe the strategies will work to accomplish a stated goal that is
beneficial to the company and to employees, company morale will suffer. Strong
leadership and honest communication are necessary, as are policies that reward
desired behaviors. Later chapters delve more deeply into the leadership, company
culture, and changing business processes that are required to keep a company
aligned or correct misalignment.

EXAMPLE
Realignment
The Fine Life Insurance Company’s mission is to provide insurance products with
the highest level of quality service at affordable prices. Initially, the goal of quality
customer service was clear in company strategies. However, as time passed, the
company instituted many strategies designed for operational efficiencies. Over
time, the decisions made to improve operational efficiency negatively affected the
quality of service. To realign its purpose and its strategies, Fine Life Insurance had
to refocus its processes on how to provide quality service. Among the actions
taken during realignment were
—Determining customers’ wants and needs
—Hiring additional employees
—Retraining existing employees
—Providing employees with meaningful rewards for providing quality service
—Implementing new automated processes that provide customization of services
to customer needs
Corporate governance is the responsibility and authority of a company’s

operations management to fulfill its responsibilities within corporate
strategy.
A. True
B. False

Missed financial projections and low employee morale are often

indications of a misaligned organization.
A. True
B. False

The Environment of Strategy

Changing demographics, economics, and technology as well as new competitors
require constant reassessment of a company’s mission and competitive position in
order to maintain alignment. If environmental conditions change, the company’s
mission may no longer be relevant. Recall that Blockbuster was once the leader in the
movie rental business. However, Blockbuster’s business model was disrupted when
Netflix entered the market. Instead of requiring customers to come to a store to rent a
movie, Netflix made movie rental more convenient by mailing the movie to the
customer’s home and then later by providing movies directly to customers through
the internet. Blockbuster’s failure to recognize this disruption and to adapt its
business model to the changed environment for movie rentals contributed to its
eventual bankruptcy.
Environmental conditions can cause a competitive advantage to weaken or
completely disappear. For example, when life insurers distributed insurance only
through personal sales, a company with a large number of career agents had a
competitive advantage in the insurance market. Now that other methods of
distribution are more common, having a large sales force is no longer as much of a
competitive advantage as it once was. Effective management continually evaluates
corporate strategies in relation to the company’s mission and to conditions in the
market in which the company operates, and adjusts the company’s mission, corporate
goals, and strategies as needed.
The Market
A market is a physical or virtual area in which buyers and sellers of a particular good
or service interact to exchange resources. The insurance market in which insurance
companies operate varies widely. The market may be the world, a country, a
geographic region within a country, or a city. Very large insurance companies may
consider their relevant markets to be most of the countries in the world. Smaller
insurance companies might only compete in regional markets within one country.
Some companies may compete only in one state or region. Companies determine the
market or markets in which they wish to participate based on how well they can
compete in a given market given certain favorable market and product characteristics,
which are illustrated in Figure 2.4.

Figure 2.4 Favorable Market Characteristics

Market Share
A company’s competitive success is often measured in terms of market share—the
percentage of an industry or market’s total sales that is earned by a particular
company over a specified time period. Market share is calculated as
Company’s sales over a designated
period
= Market Share
Total sales in company’s industry
over same designated period
Market leadership refers to a company’s position relative to its competitors in
terms of market share percentage. The company with the greatest percentage market
share is the industry leader.

It is very easy for market leaders, like Insurer A, to focus on current customers and
successful operations—what we referred to as Box 1 operations in Chapter 1. However,
successful companies also need to consider the unsatisfied needs of customers and
noncustomers (Box 3 activities) in order to create future opportunities that will allow
the company to remain profitable over the long term. Consider that Blockbuster’s
customers did not know they wanted the convenience of not leaving home to rent a
movie until presented with that option. As some insurance products become easier to
buy online, the potential for disruption in the insurance market from nontraditional
competitors grows ever greater. Insurers must be willing to disrupt their own
insurance business models in order to remain relevant.
Industry Competitiveness
The level of competition within an industry can influence strategic decisions about
whether to enter a new market or remain in a market. Companies can use a
concentration ratio, which measures the sum of the percentage market shares of the
top companies in the industry to determine industry competitiveness. , Typically, the
percentage market shares for the top three or four companies in an industry are used
to calculate the ratio. The higher the concentration ratio, the less competitive the
industry. The concentration ratio for the insurance industry using the four top
insurers shown in the previous example is as follows:
29% of total industry premiums written

+ 8% of total industry premiums written
60% Concentration Ratio for Life/Annuities Industry
Conclusion: The top four insurance companies controlled 60% of the insurance
industry market last year.
When the concentration ratio is between 50 percent and 80 percent, an industry

has medium levels of competitiveness. Economists categorize this level of competition
as monopolistic competition—a market with many sellers, similar products and
services, a reliance on advertising, and some barriers to entry. In monopolistic
competition, companies want to differentiate their products and services from those
of others by creating a customer perception of non-price differences through

advertising and other marketing efforts. The insurance industry has traditionally had
monopolistic competition. When the concentration ratio rises above 80 percent but
remains below 100 percent, the market is categorized as an oligopoly—a market with
few sellers of similar products or services, vigorous advertising, and many barriers to
entry for new sellers. As in monopolistic competition, companies would prefer not to
get into a price war with other companies and so they seek to create non-price
differences between their products and services and those of other companies
through advertising and marketing. If one company or a group of related companies
has 100 percent of the market share, then the industry is categorized as a monopoly—
a market in which one firm, or a group of firms acting together, controls the
production and distribution of a product. Advertising and marketing are not as
important to a monopoly because of the lack of competition. Figure 2.5 summarizes
these levels of competition.

Figure 2.5 Market Competition

Barriers to entry are obstacles to a new seller’s entry into a market. In the
insurance industry, regulations present a barrier to entry. For example, insurers are
subject to licensing requirements, reserve requirements, and many other regulations.
Advertising is a way for sellers in conditions of monopolistic competition or oligopoly
to create a perception of differences between sellers, services, or products when price
competition is limited. In the insurance industry, customers often have difficulty
understanding price differences, and regulations limit the degree to which insurers
can compete on price and product differentiation.
Market share can be calculated by dividing total industry sales over a

designated period by a company’s sales in the same designated period.
A. True
B. False
The Fine Insurance Company is considering distributing its products in a

new market. Select all of the market characteristics that would make the
market attractive or favorable to Fine.
A. Few sellers
B. Many potential customers
C. Low costs to acquire customers
D. Easy customer access


Innovation Strategy
In a challenging operating environment, insurers may find it hard to anticipate and
plan for the future. However, preparing for the future is a prerequisite for future
success. As a result, more and more companies are incorporating innovation into
their corporate goals and creating corporate strategies for innovation. Many
companies are also creating vision statements. A vision statementis a declaration of
where a company would like to be in the future. Whereas the mission statement
pertains to where a company is now, a vision statement is more like a guidepost for
future operations. Vision statements are most useful in motivating employees to
embrace a common concept for the company’s future.
EndiFirst Vision Statement

The EndiFirst Insurance Company wants to create financial products and wellness
programs that help people enjoy a better quality of life.
Unlike EndiFirst’s mission statement, which focuses on insurance products, this
vision statement doesn’t say how EndiFirst will help people enjoy a better quality
of life. In the future, EndiFirst might accomplish this goal through health
insurance, life insurance, property/casualty insurance, or even no insurance. For
example, EndiFirst might offer weight loss programs or wearable technologies
that promote healthier lifestyles and a better quality of life. By leaving open “how”
a company will get to a particular future, the vision statement promotes
innovation.
Innovation goals and strategies focus on different types of innovation.

Breakthrough innovationis innovation that can change a company’s business model.
Incremental innovation is innovation to enhance operations and profitability.
Insurance companies have long been adept at incremental innovation. This year’s
improved version of last year’s product is an example of an incremental innovation. To
prepare for potential disruptions in the operating environment, however, corporate
innovation strategies must also include plans for breakthrough innovation.
Breakthrough innovation might involve investing in financial technology companies to
gain access to new technologies or exploring different ways to distribute products.
For operations management, incremental innovations to enhance current

processes and the profitability of the core business are the primary focus. When the
core business is operating profitably, a company’s strategic management can better
explore and fund breakthrough innovation initiatives. Incremental innovation requires
that management understand how business processes connect to the company’s
customers, mission, employees, and corporate culture. Incremental innovation thrives
in strategically aligned organizations because all efforts—planning, organizing,
directing, and controlling—have a common purpose and goals. When all employees,
from the bottom to the top of the organization chart, are fully committed to making
the business better, incremental innovations occur naturally. Chapter 10 describes
how companies incorporate innovation into their operations.
Of the two types of innovation, the type of innovation underwriting

management is more likely focused on is
A. Breakthrough innovation
B. Incremental innovation

Key Terms
mission statement
board of directors (BOD)
corporate goals
corporate strategy
competitive advantage
business strategies
operational strategy
tactic
performance standard
key performance indicator (KPI)
steering controls
code of conduct
conflict of interest
procedure
job description
concurrent controls
exception report
feedback controls
management by exception
corporate governance
silos
market
substitute products
market share
market leadership

concentration ratio
monopolistic competition
oligopoly
monopoly
barriers to entry
vision statement
breakthrough innovation
incremental innovation


PRACTICE QUESTIONS Chapter Two
Learning Objective: 2A. Describe the role of the corporate mission, goals, and strategies in the
management cycle.
1. The following statements are about the role of the corporate mission, corporate goals, and corporate
strategies. Three statements are true, and one statement is false. Select the answer choice containing
the FALSE statement.
(1) A company’s mission statement states the company’s fundamental purpose or reason for
existence.
(2) Corporate goals are the broad planning targets a company attempts to achieve in support of the
corporate mission.
(3) Corporate strategies usually relate to the market in which the company is operating, or in which
it plans to operate in the future.
(4) Corporate strategies usually extend for only one or two years into the future.
Learning Objective: 2B. Distinguish between the strategic management cycle and the operational
management cycle.
2. All levels of management, whether strategic or operational, include four functions of management:
planning, organizing, directing, and controlling. Compared to planning at the strategic level,
planning at the operational level has a much (narrower / wider) focus. An operations manager
spends the majority of his time (planning and organizing / directing and controlling) the work of
his subordinates.
(1) narrower / planning and organizing
(2) narrower / directing and controlling
(3) wider / planning and organizing
(4) wider / directing and controlling
Learning Objective: 2C. Describe steering, concurrent, and feedback control systems and their
role in maintaining a strategically aligned company.
3. A company uses a system of steering controls, concurrent controls, and feedback controls to achieve
corporate goals. With regard to the control system, it is correct to say that steering controls
(1) are used to communicate a company’s performance expectations
(2) indicate whether activities being performed are meeting established performance standards
(3) take place at the end of a measurement period
(4) use information about past operations to change future operations

Learning Objective: 2D. Describe the benefits of strategic alignment, the potential for
misalignment, and how to correct misalignment.
4. Maintaining strategic alignment is a primary concern for a company’s management. One aspect of
this effort is corporate governance, which is primarily the responsibility of a company’s (board of
directors / operational managers). Misalignment can occur when operational employees operate in
(silos / barriers to entry), which refer to operational units that act in isolation from other operational
units.
(1) board of directors / silos
(2) board of directors / barriers to entry
(3) operational managers / silos
(4) operational managers / barriers to entry
5. A strategic alignment matrix can be helpful in determining whether a company’s organizational

purpose actually aligns with the company’s strategy. In their strategic alignment matrix, Jonathon
Trevor and Barry Varcoe described four types of companies: best companies, companies with the
best of intentions, companies going nowhere, and failing companies. According to this matrix, a
company with the best of intentions is best defined as a company that
(1) has a purpose that effectively addresses customer needs and market conditions, and this
purpose aligns with corporate strategy and organizational capabilities
(2) has the organizational capabilities to support the company strategy but a lack of alignment in
purpose and strategy
(3) has alignment between the company’s purpose and strategy, but that cannot implement its
strategy
(4) maintains strategies that do not align with the organization’s purpose or organizational
capabilities
Learning Objective: 2E. Describe a market and explain how insurers use market share and
industry competitiveness in evaluating markets.
6. Companies determine the market or markets in which they wish to participate based on how well
they can compete in a given market given certain favorable market and product characteristics. In
general, a market presents a favorable market characteristic when
(1) the market has many substitute products
(2) the market has few sellers
(3) a company has no flexibility in product pricing
(4) consumers have no urgent need for a company’s products

7. In one insurance market, the following insurance companies hold 85% of the total industry premiums
written:
 Company A: 30% of total premiums written
 Company B: 25% of total premiums written
 Company C: 17% of total premiums written
 Company D: 13% of total premiums written
In this market, the concentration ratio for the top three companies is equal to
(1) 55%, which indicates monopolistic competition
(2) 55%, which indicates oligopolistic competition
(3) 72%, which indicates monopolistic competition
(4) 72%, which indicates oligopolistic competition
8. Economists often describe several levels of competition in a market, including monopolistic

competition, oligopoly, and monopoly. One characteristic of an oligopoly is that
(1) one firm controls the production and distribution of a product
(2) the market contains a large number of sellers
(3) advertising is seldom used
(4) new sellers face significant barriers to entry
Learning Objective: 2F. Distinguish between incremental and breakthrough innovation strategies
and explain why both are important to insurers.
9. Innovation goals and strategies focus on different types of innovation. Innovation that can change a
company’s business model is (breakthrough / incremental) innovation. For operations
management, (breakthrough / incremental) innovations are the primary focus.
(1) breakthrough / breakthrough
(2) breakthrough / incremental
(3) incremental / breakthrough
(4) incremental / incremental


Operational Excellence for Insurance Professionals Ch 3: Creating a Culture of Excellence | 3.1
Chapter 3
Creating a Culture of Excellence

Objectives
3 A Explain the importance of trust in effective leadership and ways that
leaders build trust and use power in the workplace
3 B Describe the types of influence tactics leaders use in the workplace
3 C Describe how individuals can modify their own behavior and that of
others by using the eight practices of effective leaders and managing
antecedents and consequences in the workplace
3 D Explain self-determination theory and expectancy theory and describe
the role of motivation in work performance
3 E Describe the performance evaluation process, its role in motivating
employees, and problems often encountered during performance
evaluation
3 F Identify different types of compensation and explain how companies link
performance evaluation to compensation systems to motivate employees
3 G Describe the dimensions of a job and approaches to job design and work
arrangements that companies use to motivate employees
3 H Describe workgroups, the characteristics of cohesive groups, and the
group development process
3 I Describe the benefits of employee engagement and how companies can
enhance employee engagement
3 J Explain the role of organizational values in encouraging trust, respect, and
openness in the workplace and ways that companies can discourage bullying
and sexual harassment

Outline
Effective Leaders
Trust
Power
Behavior Modification
Influence Tactics
Eight Practices of Effective Leaders
Managing Antecedents and Consequences
Motivation Theories
Self-Determination Theory
Expectancy Theory
Motivating Through Evaluation and Compensation
Performance Evaluation
Compensation
Motivating Through Job Design
Approaches to Job Design
Nontraditional Work Arrangements
Group Dynamics
Cohesiveness
Group Development
Organizational Values
Employee Engagement
The Work Environment
Ultimately, people are responsible for carrying out corporate strategies and
operational tasks. As a result, an insurance company needs effective leaders who can

create a corporate culture that aligns with corporate strategies and motivates
employees. A corporate culture comprises the attitudes, values, perceptions, beliefs,
and experiences shared by a company’s employees and instilled in new employees
when they join the company. The corporate culture can promote or discourage
certain behaviors in the workplace and directly influence the success or failure of
corporate strategies. For example, if the company culture encourages putting the
customer first, employees will be motivated to support corporate strategies that
emphasize innovative ways to improve the customer experience. On the other hand, if
the company culture focuses primarily on cost savings or avoiding failure, employees
likely won’t spend time developing innovative customer-centric strategies.
How can an insurance company create a culture that aligns with corporate
strategies? The company needs effective leaders who motivate employees, maximize
the productivity of groups, and create a healthy work environment that engages
employees.
Kartik Alamos is a customer service manager at EndiFirst Life. Mr. Alamos

positively influences the people who work for him by constructively
evaluating their work and being an inspiring role model in his behaviors.
What type of leadership do you think Mr. Alamos displays?
A. Formal leadership
B. Informal leadership
C. Both formal and informal leadership

Effective Leaders
A leader is a person who influences other people toward the achievement of a vision
or set of goals. Leadership in a company may be formal or informal. Formal
leadership refers to a person’s ability to influence the behavior of others through the
authority conveyed on that person by the company. Authority is the right to direct
others. For example, a manager has the formal authority to evaluate employees’ work
and use financial and nonfinancial means to direct employee behavior. Informal
leadership is the ability to influence the behavior of others by means other than the
formal authority that an organization has conferred. For example, an informal leader
may influence the behavior of others by being an inspiring role model for positive
workplace behaviors. Managers may be both formal and informal leaders.
Nonmanagers can act as informal leaders within a company and can be influential in
creating the corporate culture. We focus in this text, though, primarily on formal
leaders in management positions.
Trust
Management research has determined that trust is an essential characteristic that
effective leaders display. Trust refers to a belief in the integrity, character, or ability of
others. Integrity means that an individual acts in ways that are consistent with their
beliefs. Character refers to an individual’s care and support for other people. Ability
refers to an individual’s possession of the technical skills or knowledge to get a job
done.
When trust is present in a management/employee relationship, employees are
more productive. As a recent study found, “For 93% of employees, trust in their direct
boss is essential to staying satisfied at work, and over half of employees surveyed say
if they aren’t satisfied at work, they can’t put forth their best effort.” When trust is
present in a manager/employee relationship, employees are more likely to
Innovate. Employees are more willing to innovate because they trust their
managers won’t punish them for failures that might come from taking risks.
Share information. Employees are more willing to present differing opinions or
unpleasant facts because they do not fear negative repercussions.
Work well in groups. Employees who feel supported by their managers are

more likely to extend trust to others with whom they are working within a
group.
Results from a 2016 survey on trust in leadership in the United States show that 55
percent of employees do not trust senior leadership. When trust in leadership is
lacking, employees are less confident in management decisions and less passionately
engaged in their work. As a result, organizations experience higher levels of employee
dissatisfaction and employee turnover, and lower overall performance. The good
news is that managers can take steps to build trust with employees. They can
Align behaviors with values. Managers whose behaviors align with personal or
organizational values earn employee trust. For example, if teamwork is an
important organizational value, a manager needs to model collaborative
behaviors for employees personally and set up department processes that
promote employee teamwork.
Keep commitments. Managers who keep their promises to employees build
trust over time. Managers who say what they will do, and then do what they said
they were going to do, prove to employees that they are trustworthy.
Be honest. Managers who are honest with employees build trust. When
information is positive, managers find it easy to be honest, but being honest
about negative information tends to be more difficult. Employees, however, do
not like surprises about the organization or their work, and would prefer to
hear unpleasant news from a manager rather than through the company
grapevine.
Communicate. Communication involves asking questions, listening to answers,
and then following up with actions that prove that communication took place.
The relationship between a manager and an employee is only as good as the
communication that exists between the two. Trustworthy managers
communicate regularly with employees.
Be supportive. Managers who see employees as people first understand that
personal lives matter and that what is going on at home impacts job
performance. Managers build trust when they provide support to employees
during rough times and celebrate with employees during good times.
Give credit but take blame. An employee’s failure is most often the failure of
management. A failing employee may lack some needed training, guidance, or
resources. Managers who take the blame for failures but give appropriate credit
and rewards when employees succeed build trust with employees.

Power
Leaders have various types of power. Management literature recognizes five bases of
power in an organization: legitimate, reward, coercive, expert, and referent. The first
three types of power are formal powers associated with an individual’s position within
an organization. The last two types of power come from qualities inherent in an
individual and are types of personal power. Figure 3.1 describes these types of power.
Figure 3.1 Types of Power

Legitimate power correlates to organizational position. For example, a supervisor

has legitimate power over direct reporting employees, and a divisional manager has
legitimate power over the supervisor. Thus, the divisional manager has more
legitimate power than does the supervisor because of her position. Reward power
typically flows from legitimate power in that those with legitimate power can usually
give pay raises, promotions, and special recognition. Like reward power, coercive
power is associated with legitimate power in that a manager has the authority to
institute disciplinary actions when an employee’s performance is not adequate.
Referent power can result from a person’s own qualities that inspire loyalty and
respect, or from that person’s connections to another. For example, having a close
relationship with the company’s president might give a person referent power. Expert
power and referent power tend to be most effective within a collaborative work
environment. Referent power, however, takes time to develop and so is not as useful
when a company has high employee turnover. The use of coercive power tends to
result in decreased employee satisfaction with the organization.
When trust in leadership is lacking, employees are less productive.

A. True
B. False
The type of leadership power that exists because a person has earned
the loyalty, respect, and admiration of others is known as
A. Legitimate power
B. Reward power
C. Expert power
D. Referent power

Behavior Modification
Behavior modification refers to techniques used to encourage desirable behavior and
discourage undesirable behavior. According to behavior modification theory,
individuals can learn to become effective leaders by modifying their own behaviors.
Effective leaders can also use techniques, such as influence tactics and rewards, to
influence or modify the behaviors of others.
Influence Tactics
Effective leaders develop certain tactics for influencing others to act in specified ways,
and such leaders also recognize that certain tactics work better in some situations
than others. Nine commonly used influence tactics are shown below.

Tactic Method of Influence Effectiveness

Rational Uses logic, reason, education, or a Effective for influencing all
persuasion detailed plan to convince others organizational levels including
that a certain point of view is best upper management,
subordinates, and peers
Consultation Asks for input or participation in Most effective for influencing
order to gain acceptance subordinates and peers
Coalition Enlists the aid or support of others Most effective for influencing
tactics in getting someone to agree on a peers who are susceptible to
common goal peer pressure
Inspirational Targets the emotions, values, or Most effective for influencing
appeals ideals of others to gain support for subordinates
an alternative
Ingratiating Uses flattery, praise, or humble Most effective for influencing
tactics behavior to gain acceptance subordinates and peers
Personal Uses friendship or loyalty to gain Most effective for influencing
appeals acceptance peers
Legitimacy Uses the authority of a position, Most effective for influencing
rules, or laws to obtain compliance subordinates and peers
with a request
Exchange Uses the rule of reciprocation: Most effective for influencing
tactics something is given with the subordinates and peers
expectation that something will be
received in return
Pressure Uses intimidation, demands, or Most effective for influencing
tactics threats to achieve compliance subordinates
Overall, the most effective influence tactics tend to be rational persuasion and
consultation. Pressure tactics are rarely appropriate in the workplace unless other
methods of influencing an employee’s behavior have failed. For example, a manager
may need to threaten termination of employment if other methods of influence have
not changed an employee’s actions.
Any of these tactics may influence others to accept or agree to what a leader
wants in the short term. However, rational persuasion and consultation are the best
tactics for motivating others and gaining acceptance or agreement over the long term.

Management theorist Peter F. Drucker studied effective leaders and found
considerable variation in their personalities, values, strengths, and weaknesses. What
they all had in common, he found, was that they followed eight behavioral practices.
Watch Video 3.1 to learn about the practices of effective leaders.
Video 3.1 Eight Practices of Effective Leaders

Drucker suggests that organizations need effective leaders at every level of an

organization to be successful. Thus, all employees regardless of their organizational
level can benefit from developing effective leadership practices. For example, an
employee who does not host group meetings still has meetings with other individuals.
Taking control of time and running productive meetings are important leadership
skills.
Taking Control of Time

Effective leaders are good time managers because they know that the supply of time is
finite and perishable. Each day has only 24 hours in it, and one cannot save
yesterday’s time to use today. Yet many people squander this irreplaceable resource,
often unintentionally. The only way to determine how time is being spent is to keep a
log of real-time activities. After keeping an accurate log for two to four weeks, most
people find that they actually spend a large amount of time doing nonproductive,
time-wasting activities. Once people identify these time-wasting activities, they can
determine whether the activity can be
Eliminated because it isn’t needed
Delegated to someone who can do the activity as well or better
Another valuable exercise is to look at all activities, not just the ones identified as
time-wasting activities, with an eye for efficiency. People often do some activities or
work tasks in the way they were taught without ever questioning why. By reexamining

the desired result, people often find a more efficient way to achieve it.
Running Productive Meetings

People who analyze their time usually find that they spend a lot of it in meetings. Some
meetings are necessary; many others are not. For example, it may be more efficient to
send out an email update than to gather everyone for an update meeting. Effective
leaders eliminate unnecessary meetings that waste their own time and the time of
others. Even necessary meetings are time wasters when not run efficiently. Drucker
suggests that productive meetings have the following characteristics:
A purpose: Productive meetings have a purpose that is determined before the
meeting and end as soon as the purpose is accomplished. An agenda should be
created with set time frames for each topic. The leader needs to keep the group
on time and task. Meetings should not be general chat sessions unless the
stated purpose of the meeting is to explore opinions and brainstorm.
An opportunity for advanced preparation: If participants in a meeting are
expected to comment about information, attendees should receive that
information for review prior to the meeting.
The presence of all required attendees: If a key decision maker or required
expert is unable to attend a meeting, the meeting should be canceled and
rescheduled to a time when all required attendees are available.
Communication of decisions made and next steps: After a meeting,
attendees should receive a summary of the meeting. The summary should
include decisions made, who is responsible for what follow-up activities, and
relevant deadlines for assigned activities. Attendees can then notify the leader if
they need clarification. A summary of the meeting promotes clear
communication among meeting attendees and directs activities to the
completion of goals.
Managing Antecedents and Consequences

The workplace is in some ways ideally suited to behavior modification techniques
because a company can control many aspects of an employee’s work environment.
Behavior modification in the workplace generally seeks to manage the antecedents or
consequences of employee behaviors.

An antecedent is an environmental cue that prompts a person to act in a particular

manner. In the workplace, an antecedent can be something that hinders or assists an
employee in the efforts to perform one’s job effectively.
EXAMPLE
Customer Service Examples
Antecedent that prompts negative behavior: A computer system that freezes
periodically causes employees to complain to customers about the slow system,
which negatively affects the quality of customer service.
Antecedent that prompts positive behavior: A checklist of frequently asked
questions about a variable annuity product assists employees in answering
customer questions quickly and correctly.
Antecedents come first; behavior follows. Identifying and removing performance

barriers and proactively providing performance guidance are necessary to creating
effective antecedents that promote productive employee behaviors.
Consequences
Behavioral theory shows that people tend to repeat behaviors that have favorable
consequences and avoid behaviors that have unfavorable consequences. Four
strategies for managing the consequences of behavior are positive reinforcement,
negative reinforcement, extinction, and punishment.
Positive reinforcement is the process of encouraging a specific behavior by
immediately following it with a consequence that the individual finds pleasing or
positive.
Tina Snow’s manager asked her to make a presentation during a group meeting.
Tina had never spoken in front of a group of people, and she felt anxious and
uncertain about doing the presentation. However, she did the presentation, and
her manager praised her for her good work. Tina felt proud of her presentation
and decided she would like to do more in the future.

Negative reinforcement is the process of encouraging a specific behavior by

immediately withdrawing or terminating something that an individual finds
unpleasant or negative.
Assume that before Tina made her presentation to the group, she asked her
manager to assign the presentation to someone else. The manager asked why,
and Tina said she felt anxious about standing in front of the group and being the
center of attention. The manager suggested that Tina create slides for her
presentation so that the slides and not Tina would be the focus. Tina felt
immediate relief from her anxiety, knowing that she could do the presentation
without having to be the focus of the group’s attention. She was suddenly
motivated to work hard on her presentation.
Punishment is the process of discouraging a specific behavior by immediately

presenting an undesirable consequence or removing something desirable.
Assume that when Tina asked her manager to assign the presentation to
someone else, her manager threatened to take away her quarterly performance
bonus. In this case, Tina managed to do a presentation (she overcame her anxiety
about the presentation) but she was not motivated to do her best work.
Extinction is the process of discouraging a specific behavior by ignoring it.
Assume that Tina emailed her manager to ask that she assign the presentation to
someone else, and that the manager never responded to her emails. Eventually,
after getting no response, Tina accepted her fate and did the presentation but she
was not motivated to do her best work.
Negative reinforcement and punishment seem similar but they are not. In these
examples, Tina’s manager used negative reinforcement when she realized that Tina’s
unwillingness to do the presentation was due to her anxiety about standing in front of
the group. By removing the unpleasant aspect of the situation that was causing Tina’s
anxiety, Tina’s manager used negative reinforcement appropriately. People often use

negative reinforcement inappropriately without realizing it. For example, an employee

who finds a task boring may complain about the task to his manager until the
manager reassigns the task to another employee. The complaining employee is then
encouraged in the future to complain about other tasks he does not enjoy doing.
Punishment, on the other hand, requires applying something unpleasant to
influence behavior. In Tina’s case, her punishment would have been no quarterly
bonus if she did not do the presentation. Acting to avoid something negative typically
results in less than optimal performance.
Of these strategies, positive reinforcement, such as praise and recognition, tends
to be the most effective in ongoing behavior management. Studies show that praise
and recognition from superiors are highly effective ways of boosting morale and
productivity. In addition, the timing of behavioral consequences is important.
Continuous reinforcement is the process of either encouraging or discouraging every
instance of a specific behavior. In contrast, intermittent reinforcement is the process
of encouraging or discouraging some, rather than all, instances of a specific behavior.
Continuous reinforcement is often required when employees are learning new
behaviors. Once behaviors are learned, intermittent reinforcement is adequate.
EXAMPLE
Continuous and Intermittent Reinforcement
A supervisor in an underwriting department is training a new underwriter to use
the new business processing system. The supervisor initially uses continuous
reinforcement to praise or correct the employee’s behavior each time he
completes an application correctly. Once the employee appears to understand
the system, the supervisor uses intermittent reinforcement to ensure that the
correct behavior continues.

Motivation Theories
Motivation theory helps leaders understand that not everyone is motivated in the
same way. Motivation is the force that gives purpose and direction to an individual’s
behavior and can be classified as either intrinsic or extrinsic.
Intrinsic motivation is a force that causes an individual to initiate an activity for
its own sake, because the activity is satisfying to the individual. Intrinsic rewards
are positive outcomes that are self-granted and internally experienced. For
example, employees may feel a sense of accomplishment and increased self-
esteem while learning a new skill or mastering a challenging assignment.
Extrinsic motivation is a force that causes an individual to pursue an activity to
obtain an external goal. Extrinsic rewards are positive outcomes that other
people or organizations grant to an individual. Money, employee benefits,
promotions, or praise are examples of extrinsic rewards in the workplace.
Engaging in behavior to avoid a negative outcome, such as coming to work so
that you do not lose your job, is also an example of being motivated by an
extrinsic reward.
Examples of intrinsic and extrinsic rewards are shown in Figure 3.2.

Figure 3.2 Intrinsic and Extrinsic Rewards
Self-Determination Theory
The effects of intrinsic and extrinsic rewards can be seen in self-determination theory
(SDT)—a motivation theory that proposes that people have three basic psychological
needs. First, they have a need for competence—they want to know that they are
effective in dealing with their environment. Second, people need relatedness—close,
affectionate relationships with others. Finally, people need autonomy—to feel in
control of their lives.
SDT suggests that there are two types of motivation. Autonomous motivation
arises primarily from intrinsic rewards affiliated with needs for competence,
relatedness, and autonomy. For example, some employees take on extra
responsibilities to learn something new because they enjoy the challenge of gaining a
competency or want to form new relationships. When autonomous motivation is
involved, a person is highly motivated to engage in an activity. Controlled motivation
primarily involves extrinsic rewards. For example, when employees take on additional
tasks because they do not want to lose their jobs or they seek a promotion, controlled
motivation is involved. People are rarely motivated by only one type of motivation.
Expectancy Theory
Another motivation theory, expectancy theory, states that the strength of an
individual’s tendency to act in a certain way depends on the individual’s expectation
that the act will be followed by a given outcome, and by the attractiveness of that
outcome to the individual. Expectancy theory suggests that an individual’s motivation
depends on effort, performance, and reward. Watch Video 3.2 to learn about
expectancy theory.
Video 3.2 Three Components of Expectancy Theory

The effort component requires that employees have the skills and knowledge
necessary for performance. Leaders provide training and guidance to ensure that
employees feel confident in their abilities. Ensuring that employees have the right
resources, such as accurate information or efficient computer systems, to do their
jobs is also important.
The performance component requires that employees believe their effort will result
in a reward. Clear performance requirements and understandable performance
measurements are needed. Employees must trust that the process for assessment is
fair and that a good job will result in the promised reward.
Finally, the reward must be important to the employee. Rewards need to
incorporate extrinsic and intrinsic elements when possible to motivate high
performance. Pay and benefits—examples of extrinsic rewards—do affect motivation
in that people who are not paid adequately feel less motivated to perform at high
levels. However, studies show that pay and benefits do not significantly enhance
performance once employees achieve a certain minimum level of pay and benefits. For
such employees, incorporating elements into a job that promote feelings of
competency, relatedness, and autonomy often do enhance employee performance.
For example, a company might see performance improve when employees are
encouraged to spend an hour each week with coworkers on a special project of their
own choosing or provide access to training and education programs that will improve
competencies.

Note that if any of these three components is lacking, an employee is less

motivated to perform.
Tanique Rowell, a technology manager at EndiFirst, wants to gain his

employees’ acceptance for changing the department’s structure. Mr.
Rowell worries that without using the right tactics, motivation will suffer
over the long term. The best tactics Mr. Rowell could use for influencing
employee behavior over the long term are likely [choose all that apply]
A. Rational tactics
B. Consultation tactics
C. Exchange tactics
D. Pressure tactics
In behavioral theory, the process of discouraging a specific behavior by

ignoring it is known as negative reinforcement.
A. True
B. False
Self-determination theory (SDT) states that the strength of an individual’s

tendency to act in a certain way depends on the individual’s expectation
that the act will be followed by a given outcome, and by the
attractiveness of that outcome to the individual.
A. True
B. False


Motivating Through Evaluation and

Compensation
Performance evaluation is identified as a control tool in Chapter 2 because it helps
operations management ensure that employee performance aligns with goals and
strategies. In a typical performance evaluation process, employee goals are set at the
beginning of the appraisal period—a type of steering control. During the evaluation
period, the evaluator and employee meet to review progress toward these goals—a
type of concurrent control. Then, at the end of the year, the evaluator conducts a
formal appraisal—a type of feedback control. Performance evaluation is necessary for
management to make decisions about compensation, promotions, transfers, and
terminations.
Performance Evaluation
Performance evaluation also plays a role in motivating employees if done correctly.
During a performance evaluation, a manager should
Establish clear goals and expectations for employee performance
Provide feedback to employees about their performance
Identify performance areas in which employees excel
Identify employee training and development needs
Determine the distribution of rewards, such as pay increases or bonuses
Goal-setting theory states that employees are motivated by challenging yet
attainable goals, along with appropriate feedback to mark progress toward those
goals. In addition, employees who participate in the process of setting goals typically
feel more positive about their goals. Management by objectives (MBO)is a
performance evaluation technique in which the employee and supervisor work
together to (1) set clear and attainable goals for the appraisal period and (2) develop a
plan for achieving those goals. When the individual’s objectives clearly support
strategic organizational objectives, MBO helps keep the organization aligned.

Aligning Strategic Objectives with Individual Objectives

EndiFirst has a strategic objective to raise the level of customer service from
average to excellent in the coming year. The customer service manager meets
with his employees to discuss excellent customer service and to establish
customer service goals.
—Should the goal be to have no customer complaints? Or all positive customer
reviews?
—Should the goal be to have fewer than 1% customer complaints or 95% positive
customer reviews?
Once the group agrees about appropriate goals for achieving excellent customer
service, the manager implements a plan for the next appraisal period.
Ideally, each employee meets with a supervisor regularly during the evaluation
period to assess the employee’s progress in achieving goals and to determine if the
employee needs any assistance in order to meet the goals. With the rapid pace of
change in business today, goals themselves may also change during the evaluation
period. At the end of the evaluation period, typically annually, the employee and
supervisor evaluate the employee’s overall success in meeting established goals and
set goals for the next evaluation period.
For MBO to be effective, goals must be specific and measurable so that employees
know what they must do. A well-managed MBO program also provides employees with
objective, results-oriented feedback that can aid employee development. A problem
with MBO is that an effective MBO program is time-consuming for the supervisor to
manage.
How frequently an employee receives performance feedback during the evaluation
period depends on the employee. For example, new employees may benefit from daily
or weekly feedback, whereas more experienced employees may only need monthly or
even less frequent feedback. Regardless of the frequency, regular interactions
between a supervisor and employee promote communication, build trust, and
provide a supervisor with an opportunity to provide ongoing positive reinforcement.
In general, an employee should not hear positive or negative performance-related
information for the first time at an annual performance review.
For employees who are experiencing difficulties with one or more aspects of their
job, or who want to develop new skills, a supervisor may use coaching. Coachingis a
process in which a supervisor works with an employee to improve performance on the
job. Coaching is typically short-term, focusing on new job skills or on improving
competency in a job skill. Once that skill is learned, the coaching ends. When effective,
coaching motivates employees to improve performance in a current job.
Mentoring is a process for developing employee talent over the long term. For
example, a more experienced individual—the mentor—serves as a teacher for an
employee in a current job and develops the employee for future jobs. Mentoring
relationships can be formal or informal. Formal mentoring is a mentoring arrangement
officially endorsed by the organization. Informal mentoring refers to a mentoring
arrangement that develops outside of official channels. For example, a senior
employee may begin informally mentoring a new employee on his own. Informal
arrangements tend to be more effective than formal ones. In an effective mentoring
relationship, the employee feels free to openly discuss job challenges and future plans
in a nonthreatening environment. As you might expect, the mentor is usually not the
employee’s immediate supervisor. When effective, mentoring helps an employee’s
career advancement and increases the employee’s commitment to the organization.
Evaluator Bias in Performance Evaluation

Performance evaluations can be an effective tool for improving performance and
motivating employees. Unfortunately, a survey of human resource professionals
found that only 2 percent gave their organizations an “A” for effectively managing
performance reviews. Several of the problems with performance evaluation center on
the people responsible for assessing employee performance. Perceptions about
average or exceptional employee performance and about what motivates employees
to work harder vary widely. Cognitive bias is a general term used to describe biases in
the human mind that are difficult to eliminate and that lead to inaccurate judgments.
One challenge in combating cognitive biases is that most people are not aware of
them or their susceptibility to them. People who learn about common cognitive biases
can take measures to ensure that they are less likely to succumb to one or more of
them. Important biases in performance evaluation include recency error, similarity
error, hiring-manager bias, the halo effect, and negativity bias.
Recency error. The evaluator places more emphasis on recent events and
minimizes, or even ignores, events that occurred further in the past. When
performance evaluations are conducted annually and employees do not receive
ongoing performance feedback, recency error can be significant.
Similarity error. An evaluator gives higher ratings to employees who seem

similar in some way to the evaluator. For example, employees who have the
same opinions or who have a lot in common with the evaluator receive higher
ratings than other employees.
Hiring-manager bias. An evaluator gives higher ratings to an employee she
directly hired. The evaluator may feel that the employee’s performance reflects
on her performance.
Halo effect. An evaluator tends to evaluate someone who is excellent in one
area of performance as excellent in all areas of evaluation. It also refers to the
tendency to give someone a poor evaluation across all areas because of one
unfavorable trait or behavior.
Negativity bias. An evaluator tends to pay more attention and give more
weight to negative than positive examples of an employee’s work. For example,
a manager might remember that an employee is frequently late for work but
doesn’t remember all the times he worked late.
The MBO approach to performance evaluation can combat many of these forms of
biases. Setting clear employee goals that are linked to measurable outcomes can help
avoid similarity error, hiring-manager bias, the halo effect, and negativity bias. Recency
error can be minimized by meeting regularly during the evaluation period with
employees and noting examples of good and bad performance during these meetings.
Although not appropriate for all positions, a 360-degree review can help avoid
bias. In a 360-degree review, opinions about an employee’s performance are solicited
from several sources, such as the employee, peers, subordinates, and customers.
When multiple ratings are combined, the overall results are much more likely to be
accurate. The downside to this approach is that it can be even more time-consuming
than MBO.
Employee Bias in Performance Evaluation

Managers also need to be aware of cognitive biases that occur in the minds of the
people being evaluated. Two important examples of these types of cognitive biases
are fundamental attribution error and above-average error.
Fundamental attribution error. This error is the tendency to take credit for
success but assign blame to others for failure—also known as the self-serving
bias.
Above-average error. With this tendency, we see ourselves as above average in
everything we do, when, in reality, we are likely average or below average in

some areas.
When evaluators and employees talk openly and honestly about performance
expectations and results during the evaluation period and during the actual
evaluation, these types of bias can often be avoided.
Compensation
Compensation is the total monetary amount of benefits provided by an employer to
an employee in return for work performed as required. Compensation includes an
employee’s pay as well as the value of vacations, bonuses, insurance, and any other
employer-provided benefit, such as free parking or lunches. A compensation package
of pay and benefits is necessary to attract and retain the most qualified and talented
employees and to maintain or increase the level of employee performance. To develop
an attractive compensation package, insurance companies first determine what other
insurers and companies in other industries are providing to their employees.
Economic conditions also greatly affect the rewards a company can offer. For example,
a company is more likely to offer a more generous total compensation package in a
prosperous economy.
Because every employee is different, and expectancy theory suggests that rewards
must be important to an employee to be motivating, companies typically offer
employees options in compensation plans. Employee needs will vary based on age,
marital status, a spouse’s benefit status, and the number and age of dependents.
Figure 3.3 shows the top five overall benefit priorities from an employer and employee
perspective.

Figure 3.3 Top Five Benefit Priorities in 2018
Source: Deb Dupont, “A Matter of Opinion: Employer and Employee Perceptions of

Benefits Priorities and Strategies,” LIMRA Research Reports, 18 January 2018.
While employers and employees may be in agreement about the top benefit

priorities, the importance of other benefit offerings is less clear. A flexible benefits plan
is a benefit plan that allows each employee to select the benefits package that best
satisfies current needs. For example, a company may provide a set of core benefits
such as health insurance, life insurance, and vacation while allowing employees to
choose from among other benefits, such as paid parental leave or disability insurance.
Figure 3.4 illustrates what percentage of different age groups rank paid parental leave
or disability insurance as a top-five benefit.

Figure 3.4 Benefit Priorities by Age in 2018
Source: Deb Dupont, “A Matter of Opinion: Employer and Employee Perceptions of

Benefits Priorities and Strategies,” LIMRA Research Reports, 18 January 2018.

For proper motivation, employees also need to be able to perceive that the
rewards a company provides are commensurate with the work done and are
administered fairly. To this end, companies link employee pay to performance through
a number of approaches, as shown in this chart.
Types of Compensation
Merit-based compensation ties employee pay to individual employee performance
in an effort to reward higher-performing employees with greater rewards. A merit-
based plan can only be as good as the performance appraisal system used to assess
performance. Any flaws in the performance appraisal system, such as rater bias, will
undermine the effectiveness of the merit-based system.
Performance-based compensation ties employee pay to a company-wide goal such
as profits or sales, or perhaps a nonfinancial goal such as improved customer
service levels. Companies sometimes use performance-based compensation in
conjunction with merit-based compensation so that a portion of an employee’s
compensation is merit-based and a portion is performance-based.
Skills-based pay may reward employees for developing and improving job skills. For
example, after attaining a certification or a specified level of proficiency, an
employee’s pay is automatically increased.
A sales commission is an amount of money, usually a percentage of the sale

amount, paid to someone for selling a product or service. Sales commissions can be
effective motivators because payment is directly related to job performance.
A spot bonus is a one-time payment made to an employee immediately after the
employee performs in an exceptional way on the job or achieves a level of
proficiency. Evidence suggests that a spot bonus can be effective in reinforcing a
specific behavior or level of performance.
In a peer recognition program, coworkers can nominate another worker for a small
bonus because of exceptional behavior. Coworkers may be better able to recognize
exceptional behavior when it happens than a supervisor who is more removed from
the work.

The amount of time and effort companies spend in developing and maintaining a
performance evaluation and compensation program is extensive. Developing
performance measurements that tie employee performance to merit-based
compensation is a lengthy process that requires determining skills and competencies
for jobs across an organization. Furthermore, even the best-developed evaluation and
compensation programs won’t be effective if managers are not trained to
communicate to each employee what superior performance looks like and the value of
the employees’ overall contribution to the organization. Nonetheless, studies of
motivation suggest that the best way for employers to motivate employees through
compensation is with a transparent and understandable program that links
compensation to performance.
Janelle Finley is doing a performance evaluation of one of her employees.

Although the employee doesn’t always work collaboratively with her
coworkers, Ms. Finley rates the employee as excellent on collaboration
because the employee is excellent in the quality of her individual work. In
this situation, Ms. Finley is likely subject to an evaluator bias known as
A. Recency error
B. Similarity error
C. The halo effect
D. Fundamental attribution error
Jonny Brown recently attained an education designation and received

$500. Mr. Brown’s compensation is a type of
A. Skills-based pay
B. Spot bonus
C. Sales commission
D. Merit-based compensation


Motivating Through Job Design

Job design offers opportunities for incorporating motivating elements into a job. Job
design is simply the way in which the elements of a job are organized. Researchers
Hackman and Oldham proposed a job characteristics model that describes five core
job dimensions, as shown in the following chart.
Five Core Job Dimensions

Skill variety. The degree to which a job requires a variety of different activities,
allowing the worker to use different skills and talents. For example, the job of an
assembly-line worker who drills a hole and inserts a screw in each car coming down
the line has low skill variety. The job of a knowledge worker, such as a claims
investigator, has high skill variety.
Task identity. The degree to which a job requires the completion of a whole and
identifiable piece of work. The assembly-line job also has low task identity in that the
worker never completes an entire car. When a knowledge worker has overall
authority and responsibility for an entire project, the job has high task identity.
Task significance. The degree to which a job affects the lives of other people. Task
significance is sometimes difficult to assess. For example, the assembly-line worker
thought her job had low task significance until she realized that incorrectly inserting
the screw would compromise the safety of the car and all the passengers riding in it.
Autonomy. The degree to which a job allows a worker freedom, independence, and
discretion in scheduling the work and in determining how to carry it out.
Collaboration and innovative ideas tend to increase along with increased autonomy
in knowledge jobs.
Feedback. The degree to which carrying out job activities leads to direct and clear
information about performance. The motivating potential for feedback varies
depending on whether the feedback is positive or negative, the manner in which the
feedback is provided, and if the person is ready to receive the feedback.
According to the job characteristics model, the presence or lack of these five core
job dimensions can affect employee motivation in positive or negative ways. Research

has shown that not all workers desire or are motivated by all five characteristics. The
challenge for management is to match employees to jobs with suitable core job
dimensions. Millennials, in general, tend to value autonomy more than older baby
boomers. In addition, employees’ needs for various core job dimensions change
during a career. For example, a new employee who needs guidance is not motivated
by high levels of autonomy when starting a job. Note also that these features are not
necessarily objective. For example, our assembly-line worker found higher task
significance in her job once she realized the importance of her work to the car’s safety.
Thus, a manager might potentially increase the motivating aspects of routine jobs by
tying a job’s importance to a larger objective or mission that might not be evident to
the employee. For example, a claims representative might not understand the
importance of reviewing beneficiary signatures with the signatures on claims until the
manager explains how claim fraud negatively effects beneficiaries receiving their
benefits promptly and the company’s financial performance.
Approaches to Job Design

Employers often attempt to organize work activities so that they are more suitable to
employees. Three common approaches to job design are job rotation, job
enlargement, and job enrichment.
One of the earliest approaches to job design was job rotation—a process in which
employees are periodically shifted from one task to another task with similar skill
requirements. Job rotation is appropriate for routine tasks in which shifting
employees relieves the monotony of doing one repetitive task or alleviates the stress
of certain work-related duties.
EXAMPLE
Answering calls from upset or irate customers is very stressful. Rotating
employees who handle these types of calls to other less stressful tasks for part of
the day helps minimize employee stress.
Job rotation allows a company to address unpredictable worker demand by

shifting workers to areas where current demand is greatest. Job rotation is also an
effective way for employees to acquire new skills, and companies sometimes use job
rotation to train new employees. For example, management training programs

frequently rotate management trainees through all areas of a company.

Job enlargement is the process of creating a new job by combining two or more
specialized tasks to add more variety. The enlarged job requires that the employee be
more knowledgeable about a broader set of tasks, and sometimes for the completion
of a whole and identifiable piece of work. Thus, job enlargement has the potential to
increase the skill and task dimensions of a job. For example, a new business
representative may be given the authority to enter life insurance application
information and review insurability of the applicant up to a certain amount limit.
Job enrichment is the process of redesigning a job to allow workers more control
over how they perform their work tasks. When workers have greater authority and
responsibility for the completion of their work, they often can eliminate unnecessary
tasks and become more efficient and effective. For example, employees who are
responsible for reaching out to the owners of lapsed policies may have their jobs
enriched when they are given authority within specified guidelines to reinstate policies
according to the policyowner’s needs for such things as a waiver of interest on
overdue premiums or a waiver of medical tests.
Nontraditional Work Arrangements

Companies sometimes use nontraditional work arrangements to satisfy employee
needs for autonomy by allowing employees to decide when and/or where they will do
their work.
Flextime is an approach in which employees must work a certain number of
hours per week but have discretion in deciding when they will work. For
example, employees may be required to work between the core hours of 10
a.m. and 2 p.m. each day but can decide when they will work their other four
hours. Some employees may want to start work early, while others like working
later into the night. Some companies allow employees the flexibility of working a
compressed workweek in which an employee works 40 or more hours in fewer
than five days. For example, an employee could work four 10-hour days.
Flextime is particularly attractive to employees trying to balance childcare or
eldercare responsibilities with work, or who can shorten their commute time by
coming to work earlier or later than normal business hours.
Telecommuting is an approach in which employees work remotely, away from
the office. High-speed internet access and technological advances have made it
possible for millions of employees to work from home or a remote office, and
experts estimate the number of remote workers will increase in the coming

years. Telecommuting is particularly attractive to employees with long

commutes and to younger employees who value flexibility in how they work.
Employers also can benefit from lower overhead costs and improved morale
and productivity. Dozens of studies indicate that telecommuting can boost
productivity, job performance, and job satisfaction. A 2017 survey found that
more than half of insurers, across carrier types and size, reported positive
realized benefits from enabling employees to work remotely. However, not all
employees have the skills and traits needed to succeed in a virtual work
environment, and communication, collaboration, and performance feedback
suffer if not managed effectively. Identifying people who are suited to work
remotely and training managers of virtual employees can help insurers get the
most from this work option. Watch Video 3.3 to learn about the characteristics
needed for remote work and how best to identify and train remote workers.
Job sharing is a work arrangement that allows two or more individuals to split
one job. Job sharing arrangements vary widely. Sometimes employees share a
job by working alternative days, or one employee may work in the morning and
the other in the afternoon.
A permanent part-time work arrangement is one in which an employee works
less than the number of hours that would be considered full-time employment.
Video 3.3 Remote Workers


The job characteristics model describes five core job dimensions. A job
that requires the completion of a whole and identifiable piece of work
would rate high on the dimension of
A. Skill variety
B. Task identity
C. Task significance
Job enlargement is a job design technique often used when work tasks
are stressful.
A. True
B. False

Group Dynamics
Effective work groups outperform individuals because they include a greater diversity
of opinions, which typically results in higher-quality decisions. For this reason,
insurance operations utilize a variety of groups to accomplish work objectives. For
example, an insurer might form a task force or an ad hoc committee on a temporary
basis to solve an identified problem. Alternatively, in an effort to become more
customer-centric or decrease a product’s time-to-market, an insurer might create an
ongoing, cross-functional, self-directed work team that has the authority to make
decisions and perform certain activities. As a result, understanding how groups and
teams function in the workplace and how to motivate work group behavior is
important.
In general, people have a need for belonging that can be satisfied by participating
in groups. A group consists of two or more people who interact while sharing a
common identity and purpose. Informal groups are a collection of people who come
together primarily for friendship or social reasons. Formal groups are a collection of
people who come together to do productive work. Sometimes informal and formal
groups overlap in that coworkers may also be friends who socialize outside of work.
However, our focus is on formal groups and how to motivate and increase
effectiveness in work groups.
Cohesiveness
Cohesiveness is the degree to which group members work together to accomplish the
group’s purpose. More cohesive work groups are more effective and productive.
Certain group characteristics tend to increase the cohesiveness of the group, as
shown in Figure 3.5.

Figure 3.5 Group Cohesiveness
Size. Smaller groups are more cohesive than larger groups. The larger the
group, the less connected members are to each other and often to the group’s
purpose. However, a larger group may be necessary to gather functional

expertise or gain differing viewpoints. A group of seven to 15 participants is

ideal for coordinating tasks or solving problems.
Clear and agreed-upon goals. Groups with specific goals or directives are more
cohesive because everyone is working for the same purpose. A group without
clear and understood goals has no direction, and group members must make
decisions about what they think is right, often with very differing opinions about
the direction for the group.
Active participation by group members. Group members in cohesive groups
are encouraged to give opinions, share ideas, and participate fully in the group’s
activities, which leads to increased innovation and productivity. Increasing the
time that group members spend interacting with each other and allowing team
members to work in physical spaces designed for collaboration and
socialization are ways to increase group participation.
Rewards. When membership in a group confers a certain status or prestige on
group members, this recognition often encourages group cohesiveness. When
group members receive financial incentives based on the group’s collective
performance, rather than individual performance, cohesiveness is encouraged.
Conversely, characteristics of a group that detract from the group’s cohesiveness
include (1) unreasonable time demands or other requirements for individual group
members, (2) group members who do not accept or do not understand the group’s
goals, (3) group members who feel that other group members do not value their
participation, or (4) group members who act in disruptive or abusive ways.
Group Development
Experts suggest that groups go through distinct stages of development.
Forming stage. Group members come together but are unsure about the
group’s purpose, structure, and leadership. At this stage, members are
cautious, avoiding conflict and controversy as they get to know each other and
begin the process of developing group norms. Norms are general standards of
behavior that dictate how people should behave in a given situation. Developing
an understanding of the group’s purpose and outlining general group rules are
important outcomes for this stage.
Storming stage. The next stage is marked by conflict as group members strive
to identify a leader and establish responsibilities. The more dominant group
members emerge as leaders. Other group members develop a general feel for

their role in the group. A role is a socially determined way of behaving in a

specific situation. Group members have a basic understanding of the group’s
task but an increased need for clarification about everything, such as who is
responsible for what. The identified leaders must provide clarification and
attempt to resolve any hidden disagreements and personality conflicts so that
the group can move on to the next stage. Not all groups are able to move past
the storming stage.
Norming stage. Resolving conflicts and disagreements results in a feeling of
cohesiveness and a “we” mentality during the norming stage. Members
recognize and acknowledge the talents, skills, and experience each member
brings to the group, and any lingering differences of opinion are likely resolved
in the spirit of cooperation. During this stage, group members determine how
to achieve the group’s goal, and it is here that the group is most subject to a
problem known as groupthink. Groupthink is a phenomenon in which group
members stress conformity and unanimity to the point where alternative
courses of action are ignored, which results in inferior decisions and group
outcomes. Leaders who encourage opposing viewpoints and view some degree
of conflict as a sign of a healthy group can minimize groupthink.
Performing stage. The group’s activities reach a conclusion during this stage.
With group norms and plans in place, leaders focus on motivating group
members to achieve the group’s common goal. For ongoing permanent work
groups, this stage is the final stage that continues indefinitely.
Adjourning stage. Groups that are not permanent are disbanded during the
adjourning stage. Skills or lessons learned from the group can be applied in
future groups.
Management can facilitate successful work group development by (1) purposefully
picking team members based on needed skills and knowledge, (2) acting as a resource
without directing group activities, (3) empowering team members with authority and
responsibility, and (4) allowing for flexibility in team roles.
As stated, group decisions are often of a higher quality than individual decisions. In
addition, group decisions are more likely to be accepted than those made by
individuals. However, groups take more time to reach decisions and can waste time if
they get stuck in the storming stage; in addition, group decisions subject to
groupthink can result in less-than-optimal decisions.

A work group with a high degree of cohesiveness is likely to have (choose

all that apply)
A. A large number of members
B. Clear and agreed-upon goals
C. Active participation by all group members
Groupthink typically results in inferior group decisions and group

outcomes.
A. True
B. False

Organizational Values
An organization’s stated core values form the foundation for everything that takes
place in the workplace. When an organization’s values are not aligned with reward
systems and explicit work behaviors, employee morale and productivity suffer. In
extreme situations, companies may also be subject to financial or legal risk.
EXAMPLE
Misaligned Values and Work Behaviors
The Hankerville Manufacturing Company states that integrity is a core
organizational value. However, Melvin Thompson, who works in customer service,
is encouraged by his supervisor to handle customer problems with evasive
excuses rather than honesty and transparency. Mr. Thompson feels
uncomfortable engaging in these behaviors and views the Hankerville Company as
hypocritical for promoting integrity with words but not actions. Mr. Thompson is
currently looking for another job.
To ensure alignment, companies must proactively identify a company’s core

values, create and share meanings for those values with employees, and implement
policies that support those core values. Ongoing monitoring of operations to ensure
they align with values is also critical.
Employee Engagement
Employee engagement refers to an individual’s involvement with, satisfaction with,
and enthusiasm for the work she does. A highly engaged employee goes above and
beyond what a job requires on a regular basis. Organizations with higher-than-average
levels of employee engagement have higher levels of customer satisfaction, are more
productive, have higher profits, and experience lower turnover than do companies
with less engaged employees.

Research shows that employees are more engaged in their jobs when their own
values align with organizational values. For example, a person who is intellectually
curious and who values continual learning is highly engaged when his company sets a
high priority on employee development with continual learning and development
opportunities.
How can companies increase employee engagement? Asking current and former
employees about what a company is doing right is a good start.
EXAMPLES
Positive Statements
“I love my job because my manager cares about me as a person. She listens to me
and is always trying to help me grow and learn.”
“My coworkers are fantastic. They are all smart, hard-working people with diverse
backgrounds.”
Leaders can summarize positive statements into common values and create an
employee value proposition. An employee value proposition (EVP) is a formal statement
of what sets a company apart from other companies and identifies what employees
value most about working for the company. The EVP explains why employees would
want to join and stay with a company. Is it great coworkers, interesting work
assignments, wonderful leaders, or career opportunities?
An EVP allows a company to clarify what aspects of a job make employees happy
and then work on creating or improving those aspects in the larger work environment.
Common employee values include
A clear and compelling direction for the company
Open and honest communications among all levels of the company
Career growth and development opportunities
Appropriate pay and rewards
A balance between work and personal life
In tight job markets and with prospective job applicants increasingly using online
reviews to investigate prospective employers, investing in what makes employees
happy makes good business sense. However, establishing organizational values that
incorporate employees’ common values makes even better sense. When a business
does good things for its employees because the company truly believes its employees
are its most valuable resource, the employees are more likely to be engaged in their
work and do good things for customers and the business.
The Work Environment

Companies have a legal responsibility to provide employees with a safe and healthy
workplace. However, workplace policies and management practices that go beyond
what is legally required reflect a company’s commitment to core values such as
integrity, honesty, and teamwork. A workplace culture with group norms that
encourage trust, respect, and openness motivates employees, fosters innovation, and
helps prevent negative employee behaviors such as bullying and sexual harassment
from occurring.
Workplace bullying is the tendency of individuals or groups to covertly or overtly
use aggressive or unreasonable behavior against a coworker or subordinate that is
threatening, humiliating, or intimidating. The bullying may be verbal, psychological, or
physical. A bully may withhold needed information, purposely provide incorrect
information, or take credit for the work of others.
Another negative workplace behavior is sexual harassment. A general definition
for sexual harassment is any unwelcome sexual attention or conduct that creates an
offensive or intimidating work environment. Sexual harassment includes, but is not
limited to, offensive gestures, joking, and language. Sexual harassment has and
continues to be a significant problem in the workplace. With high-profile examples of
sexual misconduct occurring in almost every industry today, insurers are more aware
than ever of the costly risks and reputational damage that can come from allowing
sexual harassment to continue in the workplace.
Company training programs can help employees identify bullying or sexual
harassment and explain how employees can report violations. Training can also raise
awareness of the role bystanders play in creating a safe work environment. Bystanders
are employees who see or suspect bullying or harassment but are not victims
themselves.

EXAMPLE
Bystander Recognizing Harassment
Danny Channing overheard a male coworker telling a female coworker about his
date the night before. Danny knew this was not the first time Mark had cornered
Martha in such a way because she had mentioned to Danny that Mark’s behavior
made her uncomfortable. As the only female on their work team, Martha wanted
to be treated like one of the guys, but she felt uneasy sometimes with Mark’s
choice of topics. Danny quickly picked up an envelope on his desk and wrote their
manager’s name on the envelope. “Hey, Martha,” Danny said. “I’m expecting a call.
You mind running this over to Doug’s office for me?” Martha smiled thankfully at
Danny as she took the envelope and left. Once she was gone, Danny said casually
to Mark. “Hey, did you notice Martha seemed uncomfortable? Maybe the
workplace isn’t the best place to talk about such personal stuff.” Mark seemed
genuinely surprised and nodded in agreement.
Bystanders should try to diffuse an uncomfortable situation without drawing

direct attention to themselves. In our example, Danny got Martha away from an
uncomfortable situation without Mark realizing what Danny was doing. Interrupting a
conversation with a question for the offender or creating an excuse for the victim to
leave are ways to diffuse such situations. Bystanders should never confront an
offender openly if it would put the bystander at risk. In our example, Danny and Mark
worked closely together on a team, so Danny felt comfortable talking with Mark about
his behavior in a nonthreatening way.
In situations where a bystander suspects something might have happened but is
uncertain, the bystander can talk to the victim privately. For example, assume that
Martha had not told Danny about Mark’s behavior but Danny suspected Martha was
uncomfortable. In such a situation, he could say to Martha, “I notice Mark keeps talking
to you about personal stuff. Are you okay with that?” Often victims are uncertain if
they are overreacting to a situation. Having a bystander affirm that the situation is
questionable may be all the victim needs to speak up to a supervisor about offensive
actions.
Traditional training focuses on what employees should not do in the workplace.
Training that focuses on what employees should do is also helpful in creating a positive
work environment. For example, training in how to give and receive constructive
criticism or how to listen to others can foster respect and promote teamwork.
Organizations with higher-than-average levels of employee engagement

have higher levels of customer satisfaction.
A. True
B. False
An employee who purposely provides a coworker with incorrect

information is engaged in workplace bullying.
A. True
B. False

Key Terms
corporate culture
leader
formal leadership
authority
informal leadership
trust
legitimate power
reward power
coercive power
expert power
referent power
positive reinforcement
negative reinforcement
punishment
extinction
continuous reinforcement
intermittent reinforcement
motivation
intrinsic motivation
extrinsic motivation
self-determination theory (SDT)
autonomous motivation
controlled motivation
expectancy theory
goal-setting theory

management by objectives (MBO)

coaching
mentoring
cognitive bias
360-degree review
compensation
merit-based compensation
performance-based compensation
skills-based pay
sales commission
spot bonus
peer recognition program
job design
job rotation
job enlargement
job enrichment
flextime
telecommuting
job sharing
permanent part-time work arrangement
group
cohesiveness
norms
role
groupthink
employee engagement
employee value proposition (EVP)
workplace bullying
sexual harassment



PRACTICE QUESTIONS Chapter Three
Learning Objective: 3A. Explain the importance of trust in effective leadership and ways that
leaders build trust and use power in the workplace.
1. The following statement(s) can correctly be made about the corporate culture and the leadership
roles within organizations:
A. The corporate culture can promote or discourage certain behaviors in the workplace and directly
influence the success or failure of corporate strategies.
B. Generally, informal leadership refers to a person’s ability to influence the behavior of others
through the authority conveyed on the person by the company.
(1) Both A and B
(2) A only
(3) B only
(4) Neither A nor B
2. Trust refers to a belief in the integrity, character, or ability of others. Within this definition, ability
means that an individual
(1) acts in ways that are consistent with his beliefs
(2) cares about and supports other people
(3) possesses the technical skills or knowledge to get a job done
(4) possesses the force that gives purpose and direction to his behavior
3. Consider the types of organizational power exercised by the following individuals:

 Linda Andre influences the behavior of her employees because they respect and admire her,
and also because they desire her approval.
 John Davenport uses threats and various types of punishment to maintain power over his
subordinates.
Select the response that correctly identifies the types of power that Ms. Andre and Mr. Davenport
possess based on these descriptions.
Ms. Andre Mr. Davenport
(1) referent power expert power
(2) referent power coercive power
(3) reward power expert power
(4) reward power coercive power

Learning Objective: 3B. Describe the types of influence tactics leaders use in the workplace.
4. When Eric Sack wanted to persuade his manager to change a departmental policy, Mr. Sack used
ingratiating tactics in an attempt to influence his manager’s decision. This information indicates that
Mr. Sack most likely tried to influence his manager by
(1) targeting his manager’s emotions, values, or ideals
(2) presenting a detailed plan and logical information to convince the manager
(3) offering to complete extra work in return for his manager’s compliance with his request
(4) using flattery, praise, or humbling behavior
• • • • • •
Use the following information to answer questions 5 and 6.
Diane Chen is a contact center manager at the Magnolia Insurance Company. Consider the following
situations with regard to Ms. Chen’s use of behavior-modification strategies:
 Situation 1—Ms. Chen praised an employee for making no errors in a given batch of
transactions.
 Situation 2—Ms. Chen ignored an employee’s continuous complaining about the rudeness of
customers calling the company’s call center.
Learning Objective: 3C. Describe how individuals can modify their own behavior and that of
others by using the eight practices of effective leaders and managing antecedents and
consequences in the workplace.
5. Behavior modification generally seeks to manage the antecedents or consequences of employee

behavior. With regard to these situations, it is correct to say that Ms. Chen acted to manage
antecedents in
(1) both Situation 1 and Situation 2
(2) Situation 1 only
(3) Situation 2 only
(4) neither Situation 1 nor Situation 2
6. With regard to the strategy of behavior modification Ms. Chen used in each situation and whether it
was used to encourage or discourage a behavior, it is correct to say that Ms. Chen used
(1) negative reinforcement in Situation 1 to encourage a specific behavior
(2) positive reinforcement in Situation 1 to discourage a specific behavior
(3) extinction in Situation 2 to discourage a specific behavior
(4) punishment in Situation 2 to discourage a specific behavior
• • • • • •

Learning Objective: 3D. Explain self-determination theory and expectancy theory and describe
the role of motivation in work performance.
7. Self-determination theory (SDT) is a motivation theory that describes the effects of intrinsic rewards
and extrinsic rewards. SDT also classifies motivation as autonomous motivation or controlled
motivation. According to SDT, autonomous motivation arises primarily from (intrinsic rewards /
extrinsic rewards). When autonomous motivation is involved, a person typically (is / is not) highly
motivated.
(1) intrinsic rewards / is
(2) intrinsic rewards / is not
(3) extrinsic rewards / is
(4) extrinsic rewards / is not
8. The following statements are about expectancy theory. Three statements are true, and one statement
is false. Select the answer choice containing the FALSE statement.
(1) Expectancy theory states that the strength of an individual’s tendency to act in a certain way
depends on the individual’s expectancy that the act will be followed by a given outcome.
(2) According to expectancy theory, an individual must believe that his effort will result in a
reward.
(3) According to expectancy theory, employees must have the skills and knowledge necessary for
performance.
(4) Expectancy theory states that the reward does not have to be important to the individual.
Learning Objective: 3E. Describe the performance evaluation process, its role in motivating
employees, and problems often encountered during performance evaluation.
9. The following statement(s) can correctly be made about the performance evaluation methods known
as a 360-degree review and management by objectives (MBO):
A. Although not appropriate for all positions, a 360-degree review can help avoid bias.
B. One advantage of a 360-degree review is that it significantly reduces the amount of time that
companies spend on performance evaluation.
C. One disadvantage of MBO is that supervisors meet with their employees only once per year—
when they communicate the results of the performance evaluation.
D. For MBO to be effective, goals must be specific and measurable so that employees know what
they must do.
(1) A, B, C, and D
(2) A and B only
(3) A and D only
(4) B and C only
(5) D only

10. Mentoring is a process for developing employee talent over the long term. Mentoring relationships
can be formal or informal. In general, (formal / informal) arrangements tend to be more effective. In
effective mentoring relationships, the mentor usually (is / is not) the employee’s immediate
supervisor.
(1) formal / is
(2) formal / is not
(3) informal / is
(4) informal / is not
11. Sandra Tiller, a manager, feels that punctuality is very important and considers punctual employees
to be efficient and hardworking. One of Ms. Tiller’s subordinates, Pam Senter, is at her desk on time
every morning and always arrives early for meetings. As a result, Ms. Tiller gave Ms. Senter an
excellent performance review, even though Ms. Senter’s performance was not excellent in some
other areas. Ms. Tiller’s tendency to think that Ms. Senter’s overall performance is excellent because
of her excellence in one area of evaluation demonstrates a cognitive bias known as
(1) recency error
(2) similarity error
(3) the halo effect
(4) the fundamental attribution error
Learning Objective: 3F. Identify different types of compensation and explain how companies link
performance evaluation to compensation systems to motivate employees.
12. The Azalea Company adopted a performance-based compensation system. Azalea’s primary goal in
designing this system most likely was to link employee compensation to
(1) each employee’s attainment of a specified level of proficiency in certain skills
(2) the amount of sales an employee makes
(3) the achievement of a company-wide goal such as profits or sales
(4) a specific example of an employee’s exceptional performance or accomplishment
Learning Objective: 3G. Describe the dimensions of a job and approaches to job design and work
arrangements that companies use to motivate employees.
13. For this question, select the answer choice containing the terms that correctly complete the blanks
labeled A and B in the paragraph below.
Researchers Hackman and Oldham proposed a job characteristics model that describes five core
dimensions of work: skill variety, task identity, task significance, autonomy, and feedback. The core
dimension known as A is the degree to which a job requires the completion of a whole and
identifiable piece of work. The core dimension known as B is the degree to which carrying
out job activities leads to direct and clear information about an employee’s performance.
A B
(1) skill variety task significance
(2) task identity feedback
(3) task significance autonomy
(4) autonomy task identity

14. The following statement(s) can correctly be made about job design and motivation:
A. Job rotation is appropriate for routine tasks in which shifting employees relieves the monotony of
doing one repetitive task.
B. Job enlargement typically results in jobs that have only one specialized task at which the
employee excels.
C. Job enrichment is the process of redesigning a job by decreasing workers’ control over how they
perform their work tasks.
(1) A, B, and C
(2) A and B only
(3) B and C only
(4) A only
Learning Objective: 3H. Describe workgroups, the characteristics of cohesive groups, and the
group development process.
15. Effectiveness and productivity is generally higher in cohesive groups. One way for a manager to
increase group cohesiveness is to
(1) give financial incentives based on individual performance rather than group performance
(2) increase the size of the group
(3) decrease the amount of time that group spends together
(4) set specific goals or directives for the group
16. Experts suggest that groups go through distinct stages of development: the forming stage, the
norming stage, the storming stage, the performing stage, and the adjourning stage. (Not all / All)
groups are able to move past the storming stage. In the (norming stage / storming stage), a group is
most subject to groupthink.
(1) Not all / norming stage
(2) Not all / storming stage
(3) All / norming stage
(4) All / storming stage
Learning Objective: 3I. Describe the benefits of employee engagement and how companies can
enhance employee engagement.
17. The following statement(s) can correctly be made about employee engagement:
A. Research shows that employees are more engaged in their jobs when their own values align with
organizational values.
B. An employee value proposition (EVP) allows a company to clarify what aspects of a job make
employees happy and then work on creating or improving those aspects.
(1) Both A and B
(2) A only
(3) B only
(4) Neither A nor B

Learning Objective: 3J. Explain the role of organizational values in encouraging trust, respect, and
openness in the workplace and ways that companies can discourage bullying and sexual
harassment.
18. The followings statements are about workplace bullying and sexual harassment. Three statements are
true, and one statement is false. Select the answer choice containing the FALSE statement.
(1) Taking credit for the work of others is not considered to be workplace bullying.
(2) Sexual harassment includes, but is not limited to, offensive gestures, joking, and language.
(3) Bystanders should try to diffuse an uncomfortable situation without drawing direct attention to
themselves.
(4) In situations where a bystander suspects something might have happened but is uncertain, the
bystander can talk to the victim privately.



Operational Excellence for Insurance Professionals Figure and Video Descriptions | DESC.1
Figure and Video Descriptions

Figure 1.1
Insurance Company Stakeholders
The question “What do stakeholders want?” is located in a circle with five boxes
going around the circle. Each box identifies a primary insurance company
stakeholder and its wants as follows:
Box 1. Customers want
Reputable company
Financial stability
Responsive to insurance needs
Affordable, competitive products
Prompt service and payments
Box 2. Governments want
Regulatory compliance with solvency and market conduct rules and
regulations.
Box 3. Employees want
Engaging work
Opportunities for growth
Financial and nonfinancial rewards
Box 4. Owners want
Reputable company
Predictable, positive investments returns
Long-term growth and profitability
Box 5. Suppliers, Vendors, and Partners want

Trustworthy and dependable business partners

Long-term relationships
Figure 1.2
A drawing of a column illustrates how certain insurance company operations
support other company operations. A list of primary insurance company
operations sits on top of the column and a list of insurance company support
operations are located on the column.
Primary operations on the top of the column are: (1) product development &
implementation, (2) sales & distribution, (3) underwriting, (4) policy issue & new
business, (5) policy administration, (6) customer service, (7) customer retention,
and (8) claims.
Support operations located on the column are: (1) marketing research, (2)
information technology, (3) human resources, (4) accounting/auditing, (4) internal
control, (5) other general administration.
Figure 1.3
Porter’s Model and Insurance
A picture of an arrow with three sections provides a simplified value chain model
for an insurance company’s operations. From top to bottom, the top section of
the arrow is resource inputs. Middle section is transformative processes. Bottom
section of the arrow is outputs. Each section provides several bulleted examples.
First section: Resource Inputs
Owner investments
Customer revenues
Employee labor and expertise
Data
Technology
Middle section: Transformative Processes

Underwriting
Claims processing
Customer experience
Investment management
Last section: Outputs
Satisfied customers
Satisfied employees
Goodwill
Profits
Investment growth
Figure 1.4
Value Chain for Claims Processing
A picture of an arrow with three sections provides a simplified value chain model
for insurance claims operations. From top to bottom, the top section of the arrow
is resource inputs. Middle section is transformative processes. Bottom section of
the arrow is outputs. Each section provides several bulleted examples.
1. Resource Inputs
Employee labor
Data
Technology
2. Transformative Processes
Verify claims payable
Build customer satisfaction
Verify benefit amounts
Pay benefits to correct parties

3. Outputs
Benefit payments
Figure 1.5
Level of Concern about Insurance Industry
Disruption
A bar chart shows percentages that indicate the likelihood of disruption in the
insurance industry, banking and capital markets, and healthcare industry from
over-regulation, changing consumer behavior, technological change, and new
market entrants.
Over- Changing Speed of New

regulation consumer technological Market
behavior change Entrants
Insurance 67% 42% 45% 22%
Industry
Banking and 60% 35% 22% 15%
capital markets
Healthcare 54% 21% 27% 16%
Figure 1.6
Artificial Intelligence System
A picture of a head has the term “Artificial Intelligence” in the middle. Five solid
lines come out from the head to identify capabilities of artificial intelligence
systems. Each line connects to a capability and a picture illustrating that
capability. Capabilities of artificial intelligence from left to right are: (1) recognizes
images with a picture of eyeglasses, (2) understands language with a picture of an

ear, (3) solves complex problems with a picture of a lightbulb, (4) creates
perspectives with a picture of a compass, and (5) learns and reasons with a
picture of a head processing information.
Figure 1.7
The Three-Box Solution
Three boxes are arranged around a three-pointed arrow to illustrate the
competing challenges insurers face innovating for the future while running a high-
performing business. First box is labeled “Present” and wording beside the box
says to “optimize current business.” Second box is labeled “Past” and wording
beside the box says to “forget the past.” Third box is labeled “Future” and wording
beside the box says to “create future.”
Figure 1.8
Workforce Demographics
A pie chart divides the 2017 U.S. Workforce by percentages into four demographic
categories: Boomers, Gen Xers, Millennials, and Others to illustrate that
Millennials are now the largest demographic group in the workforce.
Boomers Gen Xers Millennials Others

25% 33% 35% 7%
Figure 2.1
Control Systems
A wooden road sign has three sections that identify three types of controls and
whether the control is best suited for controlling past operations, current

operations, or future operations. The top section of the road sign is an arrow
pointing to the left and is labeled
1. The Past – Feedback Controls
Examples of feedback controls include
Audits
Budgets
Exception reports
Performance appraisals
Quality reports
The middle section of the road sign is labeled
2. You are Here – Concurrent Controls
Examples of concurrent controls include
Budgets
Real-time exception reports
Real-time monitoring
Mentoring
The bottom section of the road sign is an arrow pointing to the right and is
labeled
3. The Future – Steering Controls
Examples of steering controls include
Budgets
Codes of Conduct
Job Descriptions
Policies and Procedures
Figure 2.2
Organizational Alignment Framework
A framework for creating and maintaining a strategically aligned company is

presented in five boxes that are aligned vertically on the left-hand side. An arrow
points downward from the first box connecting it to the second box, and so on
until reaching the fifth box.
The top box is labeled: Corporate Mission. To the right of this box are the
following questions:
Why does our company exist?
Who are our customers?
What do our customers want?
Who are our competitors?
What advantages do we have over our competitors?
The second box is labeled Corporate Strategies. To the right of this box are the
How well do corporate strategies fulfill the corporate mission?
How do our corporate strategies take advantage of competitive advantages?
How might our corporate strategies adapt to new opportunities or perceived
threats?
How might corporate strategies affect employee satisfaction?
The third box is labeled: Resources. To the right of this box are the following
questions:
What financial, human, and technology resources are available to support the
delivery of corporate strategies?
How can management redeploy current resources for better support of
corporate strategies?
How can management obtain needed resources that are not available
internally?
How can management enhance employee satisfaction to better support
corporate strategies?
The fourth box is labeled: Business Processes. To the right of this box are the
How well are processes supporting the accomplishment of corporate
strategies?
How do we measure success?
How can we modify processes when circumstances or customer needs

change?
The last box is labeled: Control Systems. To the right of this box are the following
questions:
What outcomes are corporate strategies achieving?
How do outcomes compare to expectations outlined in the mission statement
and corporate strategies?
What areas are not meeting expectations?
How can the company improve operations to align better with corporate
strategies?
Figure 2.3
Strategic Alignment Matrix
A matrix with four sections illustrates that, at the best companies, purpose,
strategy, and capabilities align for effectiveness. The question “How aligned is your
long-term purpose?” is to the left of the matrix. The question “How aligned is your
strategy with your organizational capabilities?” is underneath the bottom of the
matrix.
The upper left quadrant of the matrix includes companies that have a long-
term purpose but do not have strategies or organizational capabilities aligned
with the purpose. These companies have the best of intentions but are
incapable of accomplishing those intentions.
The upper right quadrant includes companies that have a long-term purpose
that is aligned with strategies and organizational capabilities. Companies in
this quadrant have the very best chance of being successful.
The bottom left quadrant includes companies that do not have a long-term
purpose nor have they aligned strategy with organizational capabilities.
Companies in this quadrant are the least likely to survive.
The bottom right quadrant includes companies that have aligned strategy
with organizational capabilities but without a long-term purpose are going
nowhere.

Figure 2.4
Favorable Market Characteristics
A circle has the wording: “Favorable Markets Have…” in the middle of the page.
Arrows go out from this inner circle to connect with other circles identifying the
favorable market characteristics as follows:
Many potential customers
Few sellers
Low costs to acquire customers
Easy customer access
The possibility of repeat sales
Urgent need for a product
Easy product delivery
Few or no substitute products
Figure 2.5
Market Competition
The term “Monopoly” is centered over the picture of a one tall building with
characteristics in a bulleted list underneath as follows:
One seller or a small number of related sellers
Many barriers to entry
Advertising not important
Non-price competition not important
The term “Oligopoly” is centered over the picture of four tall buildings with
characteristics in a bulleted list underneath as follows:
Few sellers
Many barriers to entry
Advertising important
Non-price competition important

The term “Monopolistic Competition” is centered over the picture of eight tall
buildings with characteristics in a bulleted list underneath as follows:
Many sellers
Few barriers to entry
Advertising important
Non-price competition important
Video 2.1
The Management Cycle
Plan: Define Goals for the Future
Organize: Allocate Resources to Achieve Goals
Direct: Oversee Workers and Processes
Control: Ensure Results Align with Goals/Make Changes if Needed
Figure 3.1
Types of Power
The word “Power” is located in a circle with five boxes going around the circle.
Each box identifies a type of power with a brief description as follows:
Box 1. Legitimate Power: Results from superior position in the organizational
hierarchy
Box 2. Reward Power: Result from ability to allocate incentives based on
behaviors or performance
Box 3. Coercive Power: Results from ability to discipline others for poor
performance
Box 4: Expert Power: Results from skills, knowledge, or expertise
Box 5: Referent Power: Results from the loyalty, respect, or admiration of others
Figure 3.2
Intrinsic and Extrinsic Rewards
A box on the left-hand side has the word “Intrinsic Rewards” in it. Underneath the
box is an illustration of a head divided into two types of intrinsic rewards: sense of
accomplishment and self-esteem. On the right-hand side is a box with the word
“Extrinsic Rewards” in it. Underneath the box is an illustration of a head with
arrows pointing to the following extrinsic rewards located outside of the head:
money, praise, employee benefits, and promotions.
Figure 3.3
Top Five Benefit Priorities in 2018
A bar chart showing the top five overall benefit priorities from an employer and
employee perspective as follows:
Type of Benefit Employee Employer

Health care insurance 87% 90%
Retirement savings plan 86% 92%
Vacation 77% 78%
Life insurance 62% 58%
Disability insurance 47% 58%
Figure 3.4
Benefit Priorities by Age in 2018
A bar chart showing the value of paid parental leave and disability insurance to
three age demographics as follows:
Age Demographic Paid Parental Leave Disability Insurance

Age 20-39 40% 34%
Age 40-49 17% 49%
Age 50+ 11% 62%
Figure 3.5
Group Cohesiveness
An infographic to illustrate characteristics that can result in more or less cohesive
groups. A small blue circle in the middle is labeled “Group Cohesiveness.” Around
the blue circle is a light blue circle labeled “More Cohesive” that includes the
characteristics of cohesive groups: (1) small groups, (2) lots of group interaction,
(3) clear goals, and (4) groups rewards. Around the light blue circle is a green circle
that is labeled “Less Cohesive” that includes the characteristics of less cohesive
groups: (1) large groups, (2) no group interaction, (3) individual rewards, and (4)
no clear goals.
Video 3.1
1. Effective leaders ask, “What needs to be done?”
[A man appears on screen.]
Man: Expanding internationally would really open new markets.
[A woman appears on screen.]
Woman: We don’t have the resources.
Man: Let’s see what we can do to free up the resources.
2. Effective leaders ask, “What is right for the company?
Man: Personally, I’d like to expand internationally, but I guess it’s best to shore up
domestic operations first.
3. Effective leaders develop action plans based on top priorities.
[Man looks at a chart.]
Man: Hmmm. What should our first step be?
4. Effective leaders take responsibility for decisions
[Man talking to a group.]
Man: Senior management has developed a plan for domestic operations. I am
100% behind this plan.
5. Effective leaders communicate well with others.
[Man talking to woman.]
Man: Let’s plan on talking first thing every morning to make sure all of these
changes stay on track.
6. Effective leaders focus on opportunities rather than problems.
[Woman talking to man.]
Woman: Mid-west operations still have some issues.
Man: But I’m so excited that the west coast is doing better than anticipated.
7. Effective leaders run productive meetings.
[Man talking to woman.]
Man: Cancel the meeting. John can’t be there.
Woman: Right. It would be a waste of time without John.
8. Effective leaders think and say “we” rather than “I.”
[Man talking to a group.]
Man: We’ve come a long way since we started this initiative.
Video 3.2
Three Components of Expectancy Theory
1. Effort: Will effort result in performance?

[Woman appears on screen.]

Woman: Do I have the skills to do this job?
2. Performance: Will performance lead to outcome?
Woman: If I do this job, will I receive a bonus?
3. Reward: Is the outcome desirable?
Woman: Will the bonus pay for that trip I’ve been wanting to take?
Effort plus Performance plus Reward equals Motivation. Person is motivated to
perform.
Video 3.3
Remote Workers
Ina Allison, Ph.D.
Director, Assessment and Development Solutions
LOMA
A 2017 survey found that more than half of insurers across carrier types and size
reported positive realized benefits from enabling employees to work remotely.
Remote workers face unique challenges in that they do not have the same
resources available to them as in-office employees. For example, remote workers
may be required to trouble shoot their own technology problems. In addition,
remote workers can find it difficult to form supportive relationships with other
employees, and to collaborate on work projects. For these reasons, not every
person is a good fit for remote work. Remote workers need good organizational
skills, good communication skills, technological knowledge, and the ability to focus
in the presence of distractions in order to work successfully away from the office.
One of the most effective ways for employers to identify the people with the
needed skills, traits, and knowledge is to use validated assessment tools in the
hiring process. Assessment tests can help employers avoid hiring people who
would into be proficient at remote work because they require a great deal of
supervision or personal interaction. Assessment tests are also a great start in
determining the training needs of existing remote workers to improve their
productivity. Employers can incorporate low assessment scores into an
employee’s professional development plan. And, it’s not just remote workers who

need training and support. Managers must know how to keep remote workers
engaged, motivated, and accountable, and they may need assistance in
developing teleworking policies and procedures.
LOMA offers valid assessment tests including one that measures a person’s ability
to be successful in a virtual environment, focusing on the skills, preferences, and
attributes of people working remotely.

Operational Excellence for Insurance Professionals Endnotes | END.1
Endnotes
Chapter 1
1. “Intellectual Capital,” Investopedia, http://www.investopedia.com/ terms/ i/
intellectual_capital.asp#ixzz4tJvyzuEp (19 October 2017).
2. Kallenback and Sondergeld, “Disruption with a Capital ‘D.’”
3. “30-Year Treasury Rate: 39-Year Historical Chart,” Macrotrends,
http://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart (27
September 2017).
4. “Porter’s Value Chain, Understanding How Value Is Created Within Organizations,”
Mindtools, https://www.mindtools.com/ pages/ article/ newSTR_66.htm (8
September 2017).
5. Kay Rahardjo, “A Primer on Managing Operational Risk for Insurance Companies,”
Society of Actuaries 2014 Enterprise Risk Management Symposium, September 29–
October 1, 2014, Chicago, IL.
6. Jerry Miccolis, “Enterprise Risk Management in the Financial Services Industry: Still a
Long Way to Go,” International Risk Management Institute, https://www.irmi.com/
articles/ expert-commentary/ enterprise-risk-management-in-the-financial-services-
industry-still-a-long-way-to-go (13 September 2017).
7. Scott R. Kallenback and Eric Sondergeld, “Disruption with a Capital ‘D’” (Windsor, CT:
LL Global, Inc., © 2017). Used with permission; all rights reserved,
http://www.limra.com/ Research/ Abstracts/ PDF/ 2017/ 170825-04.pdf?
research_id=10737452562 (27 September 2017).
8. Ibid.
9. “By the Numbers: Fraud Statistics,” Coalition Against Insurance Fraud,
http://www.insurancefraud.org/ statistics.htm (25 September 2017).
10. Anthony Cilluffo and D’Vera Cohn, “10 Demographic Trends Shaping the U.S. and the
World in 2017,” Pew Research, http://www.pewresearch.org/ fact-tank/ 2017/ 04/ 27/
10-demographic-trends-shaping-the-u-s-and-the-world-in-2017/ (19 October 2017).
11. “Trending Topics: The Rise of the Blended Workforce,” CBS St. Louis, 3 March 2017,
http://stlouis.cbslocal.com/ 2017/ 03/ 03/ trending-topics-the-rise-of-the-blended-

workforce/ (10 August 2018).
Chapter 2
1. Joe D. Evans, “Symptoms of Corporate Strategy Misalignment,” Ezine, 26 April 2010,
http://ezinearticles.com/?Symptoms-of-Corporate-Strategy-
Misalignment&id=4138900 (13 November 2017).
2. Kevin Wilkins, “Trep Tip: Are You Netflix or Blockbuster? How a Clear Vision is Vital to
Innovation,” Silicon Bayou News, http://siliconbayounews.com/2016/03/29/trep-tip-
netflix-blockbuster-vision-vital-to-innovation/ (16 November 2017).
3. “Market Share,” Investopedia,
https://www.investopedia.com/terms/m/marketshare.asp (13 November 2017).
4. “Concentration Ratio,” Investopedia,
http://www.investopedia.com/terms/c/concentrationratio.asp#ixzz4xlxSUvpC(13
November 2017).
5. National Association of Insurance Commissioners, “NAIC Research and Actuarial
Department: Data at a Glance,” CIPR Newsletter, January 2014,
http://www.naic.org/cipr_newsletter_archive/vol10_data_glance.pdf (13 November
2017).
Chapter 3
1. Willis Towers Watson, “U.S. Employees Give Senior Leadership Low Marks, Willis
Towers Watson Research Reveals,” press release, 22 June 2017,
https://www.willistowerswatson.com/en/press/2017/06/us-employees-give-senior-
leadership-low-marks (8 December 2017).
2. J. Richard Hackman and Greg R. Oldham, Work Redesign (Reading, MA: Addison-
Wesley, 1980), 20.
3. Ron Clark, “Technology and the Workplace of Tomorrow,” Resource Magazine (June
2017): 14.
4. Bruce W. Tuckman and Mary Ann C. Jensen, “Stages of Small-Group Development
Revisited,” Group & Organizational Studies 2 (December 1977): 419–427.
5. Claire Cain Miller, “Sexual Harassment Training Doesn’t Work. But Some Things Do,”
New York Times, December 11, 2017,
https://www.nytimes.com/2017/12/11/upshot/sexual-harassment-workplace-
prevention-effective.html (17 January 2018).

6. Ultimate Software, “New National Study Conducted by Ultimate Software Reveals

Need for Greater Focus on Manager-Employee Relationships,” news release, 4
December 2017, https://www.ultimatesoftware.com/PR/Press-Release/New-
National-Study-Conducted-by-Ultimate-Software-Reveals-Need-for-Greater-Focus-
on-Manager-Employee-Relationships (6 December 2017).
7. John R. P. French and Bertram Raven, Studies in Social Power (Ann Arbor: University of
Michigan Press, 1959), 150–167.
8. Peter F. Drucker, The Effective Executive (New York: Harper Collins, 2006), xi–xxiii.
9. Ibid., 26, 35–36.
10. Richard M. Ryan and Edward L. Deci, “Self-Determination Theory and the Facilitation
of Intrinsic Motivation, Social Development, and Well-Being,” American Psychologist
55, no. 1 (January 2000): 68–78.
11. V. H. Vroom, Work and Motivation (New York: John Wiley & Sons, 1964), 238–242.
12. Edwin A. Locke and Gary P. Latham, Goal Setting: A Motivational Technique That Works!
(Englewood Cliffs, NJ: Prentice-Hall, 1984).
13. Society for Human Resource Management, “Effectiveness of Performance Appraisals
Gets Mixed Reviews from HR Professionals in New SHRM Survey,” news release, 21
October 2014, https://www.shrm.org/about-shrm/press-room/press-
releases/pages/2014-performance-management-news-release.aspx (4 January 2018).

Operational Excellence for Insurance Professionals Glossary | GLOSS.1
Glossary
360-degree review
A performance evaluation process in which opinions about an employee’s
performance are solicited from several sources, such as the employee, peers,
subordinates, and customers and then combined into one rating.
80-20 principle
A specific guideline which states that 20% of the components of a situation
account for 80% of the outcomes.
activity
Any part of a set of actions that generates work to accomplish a job, problem, or
assignment.
activity analysis
A report that documents the expected tasks and estimated time for completing a
given activity, based on observation of or interviews with an individual performing
the activity.
ad hoc decision
An infrequent decision that can be made quickly at an individual level because the
risks involved is relatively small.
agile management
An approach to business effectiveness focused on finding and seizing
opportunities to improve operations and processes.
AI
— artificial intelligence.
analysis paralysis
The process of spending excessive time and energy in gathering decision-making
information.

analytical thinking
The breaking down of a problem into separate manageable parts, and finding the
best workable solution.
arithmetic average model

A forecasting model that uses the arithmetic average of a series of values as the
forecast value for the next future period.
artificial intelligence
The area of computer science that emphasizes the development of intelligent
machines that work, learn, and react like humans.
attention bias
A consistent error in research outcomes that arises when people perform better
because they know they are being studied.
authentication requirements
Methods that enable companies to ensure that someone requesting or sending
information is who he or she claims to be.
authority
The right to direct others.
automation
The operation of a process, system, or piece of equipment without human
intervention.
autonomous motivation
Motivation arising primarily from intrinsic rewards affiliated with needs for
competence, relatedness, and autonomy.
balanced scorecard
A performance monitoring tool that displays a set of KPIs and compares the value
to performance standards.
balanced scorecard approach

A conceptual framework that relies on two types of graphic displays—balanced
scorecards and dashboards—to give decision makers actionable information

about the progress of operations.
bar chart
A graphical display of a frequency distribution.
barriers to entry
Obstacles, such as regulations, that impede a new seller’s entry into a market.
benchmark
A performance standard that a company aspires to achieve.
benchmarking
A formal program for measuring company performance results, identifying best
practices for the same performance areas, and emulating best practices for
company processes.
benchmarking study
A type of comparison study of expenses and other quantitative measures of
operational performance in which a company compares its performance with that
of its peers.
best payoff
In a payoff table, the highest possible value in each state of nature column.
big-bet decision
An infrequent, unfamiliar decision that can have a profound effect on a company’s
operations and future success.
big data
Large amounts of unprocessed information gathered from various sources, in
various formats, and at a rapid speed.
board of directors
group of individuals elected by the company’s owners that serves as the
company’s primary governing body.
BOD
See board of directors.

BPR
See business process reengineering. See Module 2, Chapter 4.
breakthrough innovation
A type of innovation that can change a company’s business model.
business case
A justification for a proposed project that highlights how a project’s benefits to the
company will outweigh its costs and risks.
business intelligence system

Software that includes tools for analyzing business conditions.
business process
An ongoing method or system for responding to customer needs.
business process management system

Software which supports business process management and business process
automation.
business process reengineering

A formal program for fundamentally redesigning business processes, structures,
and software with the goal of substantially improvement cost, quality, service
levels, and speed.
business strategies
Action plans for a line of business such as a product line, business unit, or
strategic business unit (SBU).
cascading report
An electronic report that brings together related data sets and offers distinctive
data views suitable for various user needs.
causal model
A forecasting model that uses historical data and other relevant variables as basis
for describing unknown future data points.
certainty

In decision making, a condition in which an expected outcome can be known based

on available information with little probability of a deviation from the expected
outcome.
chat box
A computer system that uses artificial intelligence and spoken language or text to
answer the most commonly asked customer questions.
child report
A detailed report that supports the master or summary report.
cloud
A virtual storage system that maintains digital data on multiple connected servers
owned and managed by a hosting company.
coaching
A process in which a supervisor works with an employee to improve performance
on the job.
code of conduct
A formal statement of a company’s values and its expectations for how its
employees should behave in the course of business.
coercive power
Power that results from a person’s ability to punish others because of behaviors
or performance.
cognitive bias
A general term used to describe biases in the human mind that are difficult to
eliminate and that lead to inaccurate judgments.
cohesiveness
The degree to which group members work together to accomplish the group’s
purpose.
compensation
The total monetary amount of benefits provided by an employer to an employee in
return for work performed as required, which can include an employee’s pay as
well as the value of vacations, bonuses, insurance, and any other benefit provided
by the employer such as free parking or lunches.
competitive advantage
Any aspect of a company—such as cost structure, distribution network, or
customer support—that allows the company to generate greater sales or retain
more customers than competitors
computational modeling
A form of modeling that uses the processing capabilities of IT to perform millions
of simulations at once.
concentration ratio
The sum of the percentage market shares of the top companies in the industry to
determine industry competitiveness.
concurrent controls
Organizational controls that continuously monitor a company’s activities and
systems as they are being performed to ensure that an activity is meeting
established performance standards.
conditional payoff table

A type of payoff table showing two or more states of nature.
confirmation bias
The human tendency to seek, interpret, and remember information that confirms
pre-existing beliefs.
conflict of interest
A situation that exists when the interests or actions of one entity, such as an
employee, are incompatible with the interests or actions of a related entity, such
as an employer.
consensus
An approach that requires all group members to understand and accept a
solution before jointly choosing the course of action.
continuous process improvement

An approach to process management that uses strategic initiatives to make
ongoing, incremental improvements in processes and technology.
continuous reinforcement
The process of either encouraging or discouraging every instance of a specific
behavior.
control chart
A chart showing a plot of data observations about a given process against a
measure of time.
controlled motivation
Motivation arising primarily from extrinsic rewards.
core team member

On a project team, a person or people assigned to perform a significant portion of
project activities.
corporate culture
The attitudes, values, perceptions, beliefs, and experiences shared by a company’s
employees and instilled in new employees when they join the company.
corporate goals
The broad planning targets a company attempts to achieve in support of the
corporate mission. Also known as corporate objectives.
corporate governance
The responsibility and authority of a company’s board of directors to direct the
organization to fulfill its mission on behalf of the company’s stakeholders in a legal
and fiscally responsible manner.
corporate strategy
A long-term plan that a company intends to use to achieve its goal in the present
and future.
correlation
A measure of whether, and how strongly, two values are related.
crashing
A method for getting a project back on schedule by assigning additional resources
to the project, thereby increasing the cost of the project. See Module 2, Chapter 5.

critical path
The most time-consuming chain of events in a network model.
cross-cutting decision
A familiar decision that can have broad organizational impact and requires
effective collaboration among many different parts of an organization. See Module
3, Chapter 7.
cross-functional team
A group of representatives from two or more work groups that perform related
business activities across organizational boundaries.
cultural bias
A consistent cognitive error resulting from the tendency to interpret and report
data in terms of the observer’s own culture.
customer journey
The path each customer travels with a company from beginning to end, including
every interaction across every point of contact.
cybersecurity
All of the efforts a company takes to protect its computer systems and networks
from criminal activity.
data
Unprocessed facts.
data acquisition
The tasks involved in obtaining and storing information relevant to the business
question.
data analytics
The practice of applying analytical techniques to large amounts of raw data in
order to draw conclusions and make business decisions.
data architecture
The method or methods by which authorized users can access and apply the
information stored in company databases.

data editing
A process for detecting and correcting inconsistencies, errors, and omissions in a
collection of data.
data mining
A process in which an analyst examines numerical data to uncover trends and
patterns.
data visualization
The use of illustrative graphics to convey an intuitive understanding of data.
decision
A choice about a future action.
decision alternatives
The options a decision maker considers before selecting a future course of action.
decision constraints
Practical limitations that affect the selection of decision alternatives. See Module 3,
Chapter 8.
decision criteria
The simple-to-understand rules a decision maker uses to evaluate decision
alternatives.
decision environment
The collection of information, alternatives, values, and preferences available to a
decision maker at the time of a decision.
degree of confidence
The likelihood that a calculated value accurately predicts the true value. See
Module 3, Chapter 8.
delegated decision
A familiar and frequent low risk decision.
dependent activities
Activities that cannot be started until other activities have been completed

because the outputs from one activity are required inputs for another activity. See
dependent variable
A variable that reacts to outside influences.
descriptive analytics
A type of data analytics that uses historical data to provide information about past
or current business conditions.
descriptive statistics
Statistics that summarize a population of data.
devils advocate
A person assigned to make a case against a decision-making team’s proposal. See
diffusion
The process by which an innovation spreads outside of its place of origin. See
disruptive change
A change that has the potential to influence how a business operates. See Module
3, Chapter 10.
DMADV
A five-step approach to solving a problem with the goal of creating a new business
process.
DMAIC
A five-step approach to solving a problem with the goal of improving an existing
business process.
dominant decision alternative

The decision alternative that consistently produces the best payoff for all states of
nature.
drill-down option

A selection within a cascading report that enables linking from a parent report
down to a child report.
drill-through option
A link that the user of a summary report can click to see a different level of detail of
the information.
drill-up option
A selection within a cascading report that enables linking from a child report up to
a parent report.
earned value
A monetary value assigned incrementally to all project steps, with the project
earning another increment of monetary value as more work is completed. See
earned value management

A technique for identifying discrepancies between performance and plans that
involves using monetary values to express performance feedback. See Module 2,
Chapter 5.
effectiveness
In process management, completing the activities necessary to achieve the
desired outcome. Often referred to as "Getting the right things done." See Module
2, Chapter 4.
efficiency
In process management, completing an activity with minimal waste of human or
financial resources. Often referred to as "Getting things done right." See Module 2,
Chapter 4.
ego bias
A memory distortion that leads an individual or group to recall information in a
self-serving manner.
employee engagement
An individual’s involvement with, satisfaction with, and enthusiasm for the work he
does.

employee value proposition

A formal statement of what sets a company apart from other companies and
identifies what employees value most about working for the company.
encryption
A method of securing information wherein a technology encodes collected data so
that only an authorized person possessing the required hardware and/or software
can decode that data.
enterprise project management office

A project management office that operates at the strategic level by assessing risk
and organizing resources in relation to the company mission. See Module 2,
Chapter 5.
enterprise risk management

A system that identifies and quantifies risks from both potential threats and
potential opportunities and manages risks in a coordinated approach that
supports an organization’s strategic objectives.
enterprise-wide reporting
The use of knowledge management systems and information updates across
operations such that employees have access to information relevant to their roles.
EPMO
— enterprise project management office.
ERM
See enterprise risk management.
estimates
An approximate value that represents an unknown.
EVM
See earned value management. See Module 2, Chapter 5.
EVP
See employee value proposition.

exception report
A report generated automatically by a company’s systems when results deviate
from an established standard.
expectancy theory
A motivation theory stating that the strength of an individual’s tendency to act in a
certain way depends on the individual’s expectation that the act will be followed by
a given outcome, and by the attractiveness of that outcome to the individual.
expected time
An estimate of the time needed to complete project activities.
expert power
Power that results from a person’s skills, knowledge, or expertise.
extinction
The process of discouraging a specific behavior by ignoring it.
extranet
A limited-access network that allows people within an organization, and select
external stakeholders, to access company information
extrinsic motivation
A force that causes an individual to pursue an activity to obtain an external goal.
fast tracking
A method for reducing the time required to complete a project wherein a project
manager revisits the network’s critical path to decide if any sequential activities
can be performed simultaneously.
feasibility
The degree to which company resources will be able to carry a project to
completion.
feedback controls
Organizational controls that compare actual performance or output with
established standards at the end of a measurement period.

financial modeling
A computer-based mathematical model that approximates the operation of real-
world financial processes.
firewall
A system component designed to prevent unauthorized access to a network. See
fishbone diagram
A graphical tool used for organizing potential causes for a problem and sorting the
causes into defined categories. Also called an Ishikawa diagram. See Module 2,
Chapter 6.
flextime
A work arrangement in which employees must work a certain number of hours per
week but have discretion in deciding when they will work.
float
The length of time an activity can be delayed without delaying the entire project.
Also known as slack time.
flow chart
A visualization method that shows the systematic progression of a series of
activities, using connecting lines and conventional symbols.
forecasting models
Mathematical constructs for projecting unknown or future outcomes using known
results or data.
formal leadership
The ability of a person to influence the behavior of others through the formal
authority conveyed on the person by the company.
frequency distribution
A set of data organized to show the number of times each outcome occurs. See
Gantt chart

A graphical scheduling tool that separates projects into critical activities and plots
starting and ending dates for each activity.
gig economy
An environment in which an on-demand labor force is utilized to fill temporary or
short-term jobs, and there is no formal employer-employee relationship between
the independent worker and the employer.
global boundaries
Boundaries such as regulations or corporate strategy that are outside the control
of an innovation project.
goal-setting theory
A motivation theory stating that employees are motivated by challenging yet
attainable goals, along with appropriate feedback to mark progress toward goals.
group
Two or more people who interact while sharing a common identity and purpose.
groupthink
A phenomenon in which group members stress conformity and unanimity to the
point where alternate courses of action are ignored which results in inferior
decisions and group outcomes.
hacking
The process of using a computer and technology to gain unauthorized access to
another system’s data.
handoff
A transfer of work from one work team member to another, typically across
organizational boundaries.
heat map
A data map in which different values for a given variable appear as different colors.
heuristics
General rules that allow people to make decisions quickly without gathering
extensive information.
hindsight bias
The tendency of decision makers to believe, after a decision is implemented and a
certain result occurs, that they knew a decision would result in that outcome
during the decision-making process.
incremental innovation
A type of innovation that enhances operations and profitability.
independent activities
Activities that can progress concurrently with no change to resource needs. See
independent variable
A variable that influences the behavior of another variable.
inferential statistics
Statistics that allow a decision maker to draw conclusions about a large population
based on the sample group.
infographic
A graphic representation designed to make information easy to understand and
patterns easy to identify.
informal leadership
The ability to influence the behavior of others by means other than the formal
authority conferred on the person by the organization.
information
A collection of data that is converted into a form that is meaningful or useful for
the accomplishment of some objective.
information technology
The use of computer systems to gather, record, manage, analyze, and transmit
company information.
innovation portfolio management

An approach to managing all company innovation as part of one coordinated
portfolio so that risks and returns from multiple initiatives can be aligned with the

organization’s mission, vision, strategies, and resources. See Module 3, Chapter 10.
innovation steering committee

An executive-level committee that meets regularly to foster innovation and set
priorities for innovation initiatives.
innovative thinking
The process of solving problems by discovering, combining, and arranging
insights, ideas, and methods in new ways.
intellectual capital
The sum of all employee knowledge that a company can use to drive profits as well
as other proprietary information that a company owns.
intelligent underwriting system

A software that performs underwriting steps based on preprogrammed rules and
parses language to assess risk automatically.
intermittent reinforcement
The process of encouraging or discouraging some, rather than all, instances of a
specific behavior.
International Organization for Standardization

A global federation composed of representatives from standards-setting
organizations all over the world.
intranet
A private network accessible only to people within an organization. See Module 2,
Chapter 4.
intrinsic motivation
A force that causes an individual to initiate an activity for its own sake, because the
activity is satisfying to the individual.
intrusion detection software

Technology that monitors system traffic and alerts administrators to potential
security issues.
ISO 9000
A standardized collection of quality management fundamentals designed to help

companies meet customer needs and follow regulatory requirements related to
products and services.
IT
— information technology.
job description
A description of the duties, responsibilities, and accountabilities for a job.
job design
The way in which the elements of a job are organized.
job enlargement
An approach to job design in which a new job is created by combining two or more
specialized tasks to add more variety.
job enrichment
An approach to job design in which a job is redesigned to allow workers more
control over how they perform their work tasks.
job rotation
An approach to job design in which emloyees are periodically shifted from one
task to another task with similar skill requirements.
job sharing
A work arrangement that allows two or more individuals to split one job.
kaizen
A gradual and continuous approach to process improvement using a series of
modest changes and feedback from process team members.
key performance indicator

A performance standard for a process or activity that is critical to a company’s
success.
key process

One of several operational processes critical to meeting customer needs,

maintaining a competitive position, or implementing the corporate plan. See
knowledge workers
Employees who can interpret information within a specific, yet broad, domain; use
skills and knowledge to define problems; and identify alternative solutions to
problems.
KPI
See key performance indicator.
latest allowable date

The last date on which a given event can occur without causing a delay in the
entire project.
law of large numbers

A rule that states that, under normal circumstances, the more times a particular
event is observed, the more likely it is that the observations will approximate the
true probability of the event.
leader
A person who influences other people toward the achievement of a vision or set of
goals.
lean management
A continuous process improvement approach that emphasizes creating a value
stream of Lean processes with minimal waste.
Lean Six Sigma

A hybrid quality improvement method that combines Lean management principles
with Six Sigma management principles.
legacy systems
Older computer systems or applications that perform essential functions and are
costly to replace or redesign.
legitimate power
Power that occurs solely because of a person’s superior position over others in
the organizational hierarchy.
line diagram
A diagram used to show changes in data over time.
lower control limit

In a control chart, the lowest permissible value for an in-control observation. See
machine learning
A component of artificial intelligence that allows computers to identify patterns
within data without express instruction about where or how to find them.
machine learning
A component of artificial intelligence that allows computers to identify patterns
without being expressly told where or how to find them.
macro flow chart

A type of flow chart that shows a broad view of the progression of a series of
activities.
management by exception
A performance management technique requiring that a manager investigate
performance that falls outside an established, acceptable performance range.
management by objectives
A performance evaluation technique in which the employee and supervisor work
together to (1) set clear and attainable goals for the appraisal period and (2)
develop a plan for achieving those goals.
margin of error
A measure that indicates the likely range of inaccuracy of a given sample result
relative to a result based on the total population
market
A physical or virtual area in which buyers and sellers of a particular good or service
interact to exchange resources.

marketing innovation
The introduction of a new or significantly improved marketing method, product
design, product packaging, product placement, product promotion, or product
pricing structure.
market leadership
A company’s competitive position relative to its competitors in terms of market
share percentage.
market share
The percentage of an industry or market’s total sales that is earned by a particular
company over a specified time period.
MBO
See management by objectives.
mean
A measure of central tendency that identifies the numerical average of a series of
values.
measurement bias
A systematic error arising from the instruments used for data collection. See
measures of central tendency

Representative values that describe the values in the middle of a population. See
measures of dispersion
Representative values that describe the distribution of data around specified
central values.
median
A measure of central tendency that identifies the middle value in a set of values
arranged in numerical order.
mentoring
A process for developing employee talent over the long term.

merit-based compensation
A compensation plan that ties employee pay to individual employee performance
in an effort to reward higher performing employees with greater rewards.
milestone
An important interim goal for a project.
milestone schedule
A summary listing of major activities and key milestones. Sometimes referred to as
a master schedule.
mission statement
A statement of a company’s fundamental purpose or reason for existence.
mode
A measure of central tendency that identifies the value that appears most often in
a population.
model
An item or system that simulates something else.
monopolistic competition
A market with many sellers, similar products and services, a customer perception
of non-price differences between products and services, insignificant barriers to
entry for new sellers, and reliance on advertising.
monopoly
A market in which one firm, or a group of firms acting together, controls the
production and distribution of a product.
mortality study
A study of the longevity and ages at death of large groups of people See Module 3,
Chapter 9.
mortality tables
A visual tool that presents the number of deaths projected to occur within a given

group of people during a specified period of time.
most probable time

The amount of time that a given activity is most likely to require. See Module 2,
Chapter 5.
motivation
The force that gives purpose and direction to an individual’s behavior and can be
classified as either intrinsic or extrinsic.
negative reinforcement
The process of encouraging a specific behavior by immediately withdrawing or
terminating something that an individual finds unpleasant or negative.
network model
A visual representation of the activities in a process or project used to identify the
best use of resources. Sometimes referred to as a program evaluation and review
technique (PERT) network.
network path
A sequence of network activities from project inception to project end. See Module
2, Chapter 5.
NIGO rate
A measure of the percentage share of all incoming paperwork received with
incomplete documentation.
nonmedical underwriting
A process in which examination-based proof of medical insurability is not required
from a proposed insured.
nonrandom sampling
A sampling method that bases sample selection on specific, personally selected
criteria.
nonresponse bias
A type of sampling bias that occurs when some members of a sample are
inherently more likely to provide information than other members of that same
sample.
non-value-adding activity
Any activity that does not make the product or service more valuable to the
customer.
norms
The general standards of behavior that dictate how people should behave in a
given situation.
oligopoly
A market with few sellers, undifferentiated products or services, vigorous
advertising, and significant barriers to entry for new sellers.
operational risk
The potential for financial losses resulting from inadequate or failed processes
and controls, people, or systems.
operational strategy
A general action plan for activities that must occur within a budget dictated by the
company’s corporate plan.
operations
The activities any company undertakes to produce goods and services.
operations management
Managerial efforts to ensure that the products and services a company provides
to customers meet stated quality standards, are timely, and are delivered
profitably at the lowest reasonable cost to the company.
opportunity cost
A benefit that the decision maker forfeits or gives up in choosing one alternative
over another.
optimism bias
A tendency for innovators to form unrealistically positive expectations as to future
outcomes and to codify these expectations into plans and performance standards.

optimistic time
The shortest amount of time a given activity is likely to require. See Module 2,
Chapter 5.
organizational agility
An organization’s ability to adapt quickly to changes in the external environment.
organizational innovation
The introduction of a new or significantly improved organizational design in
business practices or workplace organization.
org chart
A hierarchically patterned array of boxes and lines depicting the formal lines of
authority, responsibility, and communication in an organization. See Module 2,
Chapter 5.
outlier
An extremely high or low value that is not representative of the other values in a
dataset.
parent report
A master or summary report.
Pareto chart
A bar chart that depicts how much each factor contributes to a specified defect,
with all sources arranged in descending order from left to right. See Module 2,
Chapter 6.
Pareto principle
A guideline which states that a small percentage of causes contributes to a large
percentage of the results.
payoff
The projected value of an outcome from a decision.
payoff analysis
A formal approach to decision making wherein each combination of a decision
alternative and a state of nature result in a potential payoff.

payoff table
A decision analysis tool that summarizes potential outcomes from a decision in a
tabular format.
PDCA cycle
See Plan-Do-Check-Act cycle. See Module 2, Chapter 6.
peer recognition program

A compensation plan in which coworkers can nominate another worker for a small
bonus because of exceptional behavior.
performance-based compensation
A compensation plan that ties employee pay to a company-wide goal such as
profits or sales, or perhaps a nonfinancial goal such as improved customer service
levels.
performance dashboard
A type of software that graphically displays the status of a company’s most
important performance measures.
performance standard
An established level of performance to which a company or an individual
compares actual performance.
permanent part-time work arrangement

A work arrangement in which an employee works less than the hours required for
full-time employment.
pessimistic time
The longest amount of the a given activity is likely to require. See Module 2,
Chapter 5.
pie chart
A graphical display that presents data in the shape of a circle divided into radial
sections.
Plan-Do-Check-Act cycle
A four-step control cycle technique for supporting quality improvement. See

PMI
— Project Management Institute.
PMO
See project management office. See Module 2, Chapter 5.
point estimate
An estimated result that is assigned a single value.
political bias
The tendency for innovators to turn a project into a competition and to try to
outdo one another in order to win.
population
A set of all items that share a specified characteristic.
positive reinforcement
The process of encouraging a specific behavior by immediately following it with a
consequence that the individual finds pleasing or positive.
PPM
See project portfolio management. See Module 2, Chapter 5.
predictive analytics
An analytical technique used to predict future events or customer behaviors and
anticipate conditions that are likely to cause negative consequences. See Module
3, Chapter 9.
prescriptive analytics
A type of proactive data analytics that uses data to suggest decision alternatives
and show the possible implications of each decision. See Module 3, Chapter 9.
prevention costs
Expenses for proactively limiting operational defects.
procedure

A set of instructions for following a series of steps in a regular, definite order to

accomplish a process.
process
A series of ongoing operations, work activities, or tasks ordered in a definite
sequence and directed toward achieving an end-result.
process analysis
A systemic evaluation of all aspects of a process to make the process faster, more
efficient, less expensive, and more focused on the customer. See Module 2,
Chapter 4.
process charter
A formal document that establishes the authority and accountability of a process
team.
process innovation
The introduction of a new or significantly improved production process or method
of delivery, including changes in techniques, equipment, or software. See Module
3, Chapter 10.
process management
A formal method of defining, documenting, evaluating, and improvement
resources and workflow so that processes better achieve the tasks they were
designed to accomplish.
process map
A graphical representation of a business process, typically using a recognized set
of graphical symbols.
product development team

A group that performs hands-on development of a new product.
product innovation
The introduction of a new product that is significantly different from existing
products in terms of its characteristics, materials, components, software,
functions, or intended uses.
project
A temporary, planned undertaking to achieve a specified result.
project baseline
A measurable starting point agreed upon by various stakeholders as performance
standards for a project.
project change
An acknowledged deviation from the original project plan.
project charter
A document that formally authorizes the project to take place and appoints a
project manager.
project closure authorization

An instrument used to document the formal closure of a project.
project constraints
Circumstances that place limitations on a project, and traditionally include scope,
time, and cost.
project cost budget

A type of budget that shows the expected operational costs of a project in its
entirety.
project deliverable
A measurable outcome from a project.
project lifecycle
The combination of all project phases, from project initiation to project closure.
project management
A framework for directing projects to completion that involves (1) setting project
goals, and (2) planning, monitoring, and controlling project tasks, resources, and
costs to meet those goals.
Project Management Institute

An organization that maintains a body of knowledge for the project management
community.

project management office

A unit with a permanent staff focused on project management activities. See
project manager
The person who oversees the project team.
project phase
A segment of the project lifecycle consisting of a set of related project activities.
project plan
A comprehensive, formally executed document used to guide a project through
closure.
project portfolio management

An approach to project management that consists of treating all company projects
as a portfolio and coordinating all projects with one another across the company.
In a project portfolio management approach, a committee analyzes a project for
both its intrinsic benefits to the organization and for its relative fit with the
organization’s existing resources, processes, and projects.
project schedule
A document that shows links between project elements, identifies dependencies,
and shows a sequence that satisfies time and other constraints.
project sponsor
Typically a company executive, the person who authorizes the project, provides
support and resources to the project, and communications project information up
the organizational chain of command.
project status
The project’s progress toward completion at a given point in time. See Module 2,
Chapter 5.
project team
The group of team members assigned to perform any portion of the project
activities.
punishment
The process of discouraging a specific behavior by immediately presenting an

undesirable consequence or removing something desirable.
QC
— quality circle.
qualitative research
Research that uses subjective data collection methods and produces data that is
difficult to summarize in numerical form.
quality analysis
Any type of research or investigation to understand an aspect of preventing
defects or meeting customer needs.
quality assurance
The activities a company undertakes to make certain the company delivers
satisfactory performance to customers.
quality circle
A problem-solving group of 5 to 10 employees who meet regularly to discuss
quality improvement, suggest ways to reduce costs, and present
recommendations to higher management.
quality management
The activities an organization conducts on an ongoing basis to plan, control,
measure, and improve its performance to ensure that its products or services
consistently meet or exceed customer expectations. Also called performance
management.
quantitative research
Research designed to generate easy-to-analyze numerical data.
random sampling
A technique in which each item of a population has a determinable chance, or
probability, of selection.
range
A measure of dispersion equal to the difference between the highest and lowest
values in a particular population.
range estimate
A result that includes possible values within specified limits.
RCA
— root-cause analysis.
referent power
Power that exists when a person can influence the behavior of others because of
others’ loyalty, respect, admiration, or a desire for that person’s approval.
response bias
A type of sampling bias that occurs when the way researchers word a question
distorts the answer.
reward power
Power that arises from a person’s ability to allocate incentives to others based on
behaviors or performance.
rework costs
The costs of correcting defective work.
role
A socially determined way of behaving in a specific situation.
root-cause analysis
A set of problem-solving methods and tools designed to determine the actual
causal factors that led to a particular incident or result.
rules engine
A software-based repository of key business process rules that can be consistently
applied in specified circumstances to produce the desired results.
salary survey
A type of comparison study in which employers share their compensation data
with an external researcher, who accumulates, analyzes, and presents the data to
study participants.
sales commission

An amount of money, usually a percentage of the sale amount, paid to someone

for selling a product or service.
sampling
A statistical technique used to examine a portion of a given group in order to
develop conclusions about the entire group.
sampling bias
An error in choosing participants that occurs when the method used to obtain
information from a sample results in a sample that is not representative of the
population being studied.
scatter diagram
A diagram used to check visually for a likely correlation between two variables.
schedule variance
The difference between the scheduled finish date for an activity and the actual
finish date.
scope creep
The practice of gradually modifying features of a project and its objectives without
formally addressing and negotiating changes with project stakeholders. Scope
creep can make it difficult to successfully complete a project as planned.
scope statement
A report that clearly states the limits on a project by specifying the project size,
resources, limitations, and deliverables.
scrum
A framework for managing the processes involved in software development. See
scrum master
A person who facilitates a scrum team by managing all of the business processes
required for software development.
SDT
See self-determination theory.

security token
A device used to generate a one-time-use code the user enters in order to gain
access to private company information.
selection bias
A type of sampling bias that occurs when the method of data collection
systematically excludes certain members of the sample.
self-determination theory
A motivation theory that proposes people have three basic psychological needs
for competence, relatedness, and autonomy.
semi-structured data
A type of data that includes a combination of structured and unstructured
elements.
sexual harassment
Any unwelcome sexual attention or conduct that creates an offensive or
intimidating work environment.
silo
Operational unit that operates in isolation from other operating units, not
understanding how their jobs relate to other operational units or how corporate
goals relate to their jobs.
simple moving average model

A forecasting model that uses the arithmetic mean of a specified number of the
most recent data values as the forecast value for the next period. See Module 3,
Chapter 8.
simple random sampling

A method of random sampling in which every member of the data population has
an equal chance of being included in the sample population.
simplicity bias
The tendency to believe that a complex outcome must have come from a complex
cause, and a complex outcome cannot have come from a simple cause. See

Six Sigma
A disciplined approach for defining, measuring, analyzing, improving, and
controlling quality by reducing process defects so that results fall within
established parameters.
size bias
A tendency to prefer large concepts instead of smaller ones.
skills-based pay
A compensation plan that rewards employees for developing and improving job
skills.
social acceptance bias

A consistent cognitive error based on a tendency for individuals to make socially
acceptable statements even when they feel something else. See Module 3, Chapter
8.
social media analytics

A descriptive analytics technique used to understand customers through activity
on blogs and social media networks.
specific boundaries
Boundaries that relate directly to an innovation project, such as the budget, time
available, or resources needed.
speech analytics
A descriptive analytics technique used to gain insight into customers’ attitudes
about a company by analyzing recorded speech.
spot bonus
A payment made to an employee immediately after the employee performs in an
exceptional way on the job or achieves a level of proficiency.
stakeholder
Any party that has an interest in how a company conducts its business.
standard deviation

A measure of dispersion calculated as the square root of the variance. In general,

the larger the standard deviation, the farther the values are from the mean.
standing committee
A permanent committee that company executives use as a continuing source of
advice.
stand-up meeting
A meeting during which employees stand up as they offer summaries about their
progress on an activity. The unintuitive feature of standing is intended to keep
meetings short. In some cases, these status checks don’t require standing or are
conducted virtually and still retain the name "stand-up meeting."
states of nature
Influences on the outcome of a decision that are not under the decision maker’s
control.
statistical analysis
The use of mathematical techniques for collecting, organizing, describing,
analyzing, and interpreting numerical data to support decisions.
statistical bias
A consistent or systemic error arising from a flaw in the research design. See
statistical validity
The degree to which an observed result can be relied upon and not attributed to
random error in sampling or measurement.
steering committee
A group of stakeholders with diverse company backgrounds who guide and
oversee the planning and implementation of a project.
steering controls
Organizational controls that proactively communicate expectations and try to
prevent problems from occurring.
stoplight indicators
Red, yellow (or amber), green, and sometimes blue symbols that indicate how
favorably the company’s actual performance compares with its performance

standards.
STP
See straight-through processing. See Module 2, Chapter 4.
straight-through processing
A fully automated process in which the steps in a specified transaction type are
conducted without human intervention.
stratified random sampling

A technique in which the user divides the population into segments, or strata, and
then selects a proportional number of items from each segment at random.
structured data
A type of data that exists in a fixed field within a record, data file, or spreadsheet;
allows for systemic organization; and is easy to enter, store, and analyze.
substitute products
Two or more products that customers can use to satisfy the same wants or needs.
systematic random sampling

A method of random sampling that involves selecting items from the population at
a uniform interval.
table
An orderly listing of data.
tactic
An action designed to support an operating strategy.
tasks
The smallest units in a process to undergo analysis.
telecommuting
A work arrangement in which employees work remotely away from the office.

ISO
— International Organization for Standardization.
A forecasting model that uses the data value(s) for the most recent period as the
forecast value(s) for the next future period.
time requirements budget

A type of budget that shows calendar units of time—days, weeks, or months—and
the expected amount of staff time required during each specified unit. See Module
2, Chapter 5.
time-series data
Information about a variable over successive periods.
time-series model
Forecast models that estimate unknown future values based on known, historical
data.
total quality management

A specific, process-oriented approach to quality management for creating an
organizational culture committed to continuous improvement.
TQM
— total quality management.
transactional work
Routine and repetitive tasks with little flexibility in how processes are completed.
trend analysis
A technique that involves forecasting the future movement of specified factors
based on observed historical patterns of change.
trust
A belief in the integrity, character, or ability of others.
unstructured data
A type of data that does not have a rigid pattern and can’t be organized

systematically.
upper control limit

In a control chart, the highest permissible value for an in-control observation. See
value-adding activity
Any activity that makes a product or service more valuable to the customer. See
value chain
A set of activities that a company carries out to create stakeholder value.
value stream
The continuous flow process of value creation.
variable
An item of data with a value that changes over time.
variance
A measure of dispersion calculated as the average squared distance between the
population mean and each individual item in a population.
variation
Changes from the norm that do not indicate a pattern of behavior. See Module 3,
Chapter 9.
virtual private network

A system that provides private access to authorized users who are not on location.
vision statement
A statement of where a company would like to be in the future.
WBS
See work breakdown structure. . See Module 2, Chapter 5.
weighted moving average time-series model

A forecasting model that assigns relative weights to data values used in a forecast
and finds the average of the values.
work breakdown structure

A graphical display of project elements that often includes an estimate of the labor
effort required for each project activity.
workplace bullying
The tendency of individuals or groups to covertly or overtly use aggressive or
unreasonable behavior against a coworker or subordinate that is threatening,
humiliating, or intimidating.

Operational Excellence for Insurance Professionals Answer Key | KEY.1
Answers To Practice Questions

Chapter 1
1. ............................................................... 1
2. ............................................................... 2
3. ............................................................... 3
4. ............................................................... 1
5. ............................................................... 3
6. ............................................................... 3
7. ............................................................... 2
Chapter 2
1. ............................................................... 4
2. ............................................................... 2
3. ............................................................... 1
4. ............................................................... 1
5. ............................................................... 3
6. ............................................................... 2
7. ............................................................... 3
8. ............................................................... 4
9. ............................................................... 2
Chapter 3
1. ............................................................... 2
2. ............................................................... 3
3. ............................................................... 2
4. ............................................................... 4
5. ............................................................... 4
6. ............................................................... 3
7. ............................................................... 1
8. ............................................................... 4
9. ............................................................... 3
10. ............................................................... 4
11. ............................................................... 3
12. ............................................................... 3
13. ............................................................... 2
14. ............................................................... 4
15. ............................................................... 4
16. ............................................................... 1
17. ............................................................... 1
18. ............................................................... 1

End of Module 1

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Operational Excellence for

ONLINE COURSE PORTAL

LOMA (Life Office Management Association, Inc.) is an international association

Operational Excellence for Insurance

LOMA Education and Training

LOMA 335 Project Team

Authors: Jo Ann S. Appleton, FLMI, ASRI, PCS, ALHC, HIA

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

LOMA 335 Text Development Panel

Sun Life Financial

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

the learning objectives. The interactive Test Preparation Guide’s Practice

Using the Test Preparation Guide

Using the Latest Study Materials

not reflect the latest changes.

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Preface .................................................................................................... PREF.1

Module 1: People and Purpose (Chapters 1 – 3)

Chapter 1: The Insurance Company and Operations Management .... 1.1

Chapter 2: Aligning Operations with Corporate Strategies ......... ....... 2.1

The Strategic Alignment Matrix ................................................................... 2.20

Chapter 3: Creating a Culture of Excellence......................................... 3.1

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Module 2: Business Processes (Chapters 4 – 6)

Chapter 4: Business Process Excellence ............................................. 4.1

Chapter 5: Project Management............................................................. 5.1

Chapter 6: Quality Management ............................................................6.1

Module 3: Decision Making (Chapters 7 – 10)

Chapter 7: The Decision-Making Process ............................................7.1

Chapter 8: Analysis and Modeling ........................................................8.1

Chapter 9: Data for Decision Making ....................................................9.1

Chapter 10: Innovation and Innovative Thinking ...............................10.1

Figure and Video Descriptions..............................................................DESC.1

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

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Insurance Company Operations

The stakeholders in an insurance company include

Figure 1.1 Insurance Company Stakeholders

Figure 1-1 Description

Management, at both the strategic and operational levels, is continually evaluating

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Figure 1.2 Insurance Company Operations

Figure 1-2 Description

If any operational area within a company is experiencing problems with timeliness,

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org

Insurance company profits are the result of

Functions of Operational Employees

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Service functions. Employees perform duties directly for a company’s external

Managerial functions. Employees supervise other staff members and provide

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Traditionally, insurance company operations involved a large amount of

A company’s stakeholders can be external or internal to the organization.

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A company’s decision to do nothing still involves an opportunity cost.

Quality, timeliness, and cost control, the primary tenets of general

Knowledge workers primarily engage in transactional work.

Copyright © 2019 LL Global, Inc. All rights reserved. www.loma.org