Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Just-In-Time and Lean Enterprise | Knowledge
Management | Service Industry Accounting
The purpose of this article is to describe how lean production principles were used by a life insurance company to increase productivity and reduce waste, and to explain how these concepts can be applied to other service organizations. The company is Jefferson Pilot Financial, a full-service life insurance and annuities company.
The managers of Jefferson Pilot Financial recognized that an insurance policy follows a series of steps or processes, much like a product, from initial application, to underwriting, or risk assessment, to policy issuance, and that lean production concepts could be applied to these steps to reduce processing time, rework, idle time and other waste in the system. To do this the company developed a "model cell" that represented a microcosm of its entire system. This cell was developed around the concept of continuous flow processing to minimize the buildup of work in process. Later, the knowledge gained from the model cell was applied to the entire company and produced some impressive results provided at the end of this summary.
How to Apply Lean Production Concepts to A Service Organization
Seven lean production design practices were applied to redesign the work flow as follows.
1. Linked processes were placed near one another. Under the old system, work was organized by function in separate departments. This created delays in transferring applications to other areas that performed other functions. These functional silos were eliminated, e.g., receivers were relocated next to sorters.
2. Procedures were Standardized. For example, prior to the application of lean concepts, workers had been allowed to chose their own systems for storing files. New or substitute employees had difficulty finding files that had been stored in various ways such as by policy number, by date received, and alphabetically. The new system required all files be stored alphabetically and in the same drawer at each work area.
3. Loop-backs were eliminated. Some processes involved returning work to a previous step for further processing. This caused confusion and idle time in some steps. For example, to solve a loop-back problem in receiving, the receiving team was split into two parts so that one group of workers received applications while another group assembled policies. This reduced delays and waste by eliminating the confusion about what employees should be doing and when they should do it.
4. Set a common tempo or pace. Work flow was smoothed by applying the concept of "takt" time. Takt time refers to pacing work based on customer demand. The business established a takt time of six minutes per application or ten applications per hour and challenged employees to make improvements to reduce the time required.
5. Work loads were balanced. The old policy of allocating applications alphabetically was replaced by sequential allocation so that every team received the same number of applications. This reduced unnecessary delays in the system.
6. Complexity was segregated. Tasks were separated into groups based on the level of difficulty. Each group has a different performance goal. For example, two groups were developed for applications. One group handled cases where a physician's statement was required, while another group handled less time consuming cases that did not require a physician's statement. This reduced the turnaround time for the simpler cases by 80%.
7. Performance results were posted. Hourly productivity rates and expectations were displayed on large white boards for all employees to see. These boards became rallying points and encouraged employees to improve the system. The measurements used for the various processes are provided in the table below adapted from an illustration on page 126.
| Process Step | Metric | Purpose of Metric |
| Input | Applications input per employee per hour. | Individual performance. |
| Applications input by the staff per hour. | Unit performance. | |
| Underwriting support | Number of follow-up calls for medical tests and records per week. | Performance of unit supplying medical tests and records. |
| Phone calls answered per day. | Unit performance. | |
| Underwriting | Number of new cases, follow-ups, or approvals per week. | Individual performance. |
| Frequency of physician statements ordered from doctors. | Cost management (a cost is associated with each physicians statement). | |
| Percentage of cases issued, declined, or rated. | Individual performance. | |
| Policy issuance | Policies issued per person per hour. | Individual performance. |
| Policies issued by the entire issue staff per hour. | Unit performance. |
Other lean concepts applied by Jefferson Pilot Financial included stating performance and productivity measurements from the customer's perspective and linking the measurements or metrics for the lower levels to the measurements for upper level managers. Another concept was related to achieving cost effective investments. The idea is to apply lean production concepts before automating a process, i.e., don't automate something that you should not be doing in the first place. The idea is reinforced by the saying "don't pave the cow path".
The application of the lean production concepts to this service organization produced the following results.
| Achievement Metric | Result |
| APS* turnaround time (Receipt of application to issuance of policy) | Reduced by 70% |
| Non-APS turnaround | Reduced by 84% |
| Total labor cost for all applications | Reduced by 26% |
| Reissues due to errors | Reduced by 40% |
* APS are policies requiring an attending physician's statement.
Although lean production is usually viewed from the manufacturing perspective, many of the concepts and tools were originally developed in service organizations (e.g., the visual system used by supermarkets to replenish shelves) and can be effectively applied to service organizations. The Jefferson Pilot Financial case provides considerable support for the argument that lean production concepts can be beneficial to any organization, and it provides an approach others can use to become lean, more productive and subsequently more competitive.
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Related summaries:
Davenport, T. H. and J. Glaser. 2002. Just-in-time delivery comes to knowledge management. Harvard Business Review (July): 107-111. (Summary).
Goodson, R. E. 2002. Read a plant - fast. Harvard Business Review (May): 105-113. (How the rapid plant assessment (RPA) process can tell you if a factory is truly lean in as little as 30 minutes. The process includes two tools: The RPA rating sheet includes 11 categories for assessing leanness, and the RPA questionnaire includes 20 yes or no questions). (Summary).
Martin, J. R. Not dated. Lean concepts and terms. Management And Accounting Web. Lean Concepts and Terms Summary
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Spear, S. and H. K. Bowen. 1999. Decoding the DNA of the Toyota production system. Harvard Business Review (September-October): 97-106. (Summary).
Spear, S. J. 2004. Learning to lead at Toyota. Harvard Business Review (May): 78-86. (Summary).
Staats, B. R. and D. M. Upton. 2011. Lean knowledge work: The "Toyota" principles can also be effective in operations involving judgment and expertise. Harvard Business Review (October): 100-110. (Summary).
Womack, J. P. and D. T. Jones. 1994. From lean production to the lean enterprise. Harvard Business Review (March-April): 93-103. (Summary).
Womack, J. P. and D. T. Jones. 1996. Beyond Toyota: How to root out waste and pursue perfection. Harvard Business Review (September-October): 140-144, 146, 148-152, 154, 156, 158. (Summary).