Measuring success: to effectively manage sales, insurers first must be able to measure their success.

Insurers generally have not developed and implemented appropriate performance measures to align individual of unit behavior with the strategy and objectives of the corporation, in other words, the bottom line. Such profit-focused measures would be primarily quantitative in nature and would lend themselves to automated performance tracking. This in turn would allow management by exception--managing only when there is an indication of the need to manage--thereby freeing up management resources to develop better plans, products, services and market approaches for their companies.

Typically insurers have employed performance measures for individuals and units in sales that are primarily subjective in nature and not directly linked to the specific business purpose and goals of the enterprise. By their very nature, these measures require interpretation to determine if they indicate a problem that management must address or successful performance that should be emulated. As a result, sales managers spend more time monitoring and interpreting performance measures than planning and managing, line employees are driven to do things that are at odds with objectives and corporate resources are wasted.

To resolve this situation, carriers must do several things: align sales performance measures with corporate goals and strategies; utilize systems capabilities to monitor, evaluate and report on performance deviations; and move to a "management by exception" business control approach.

To align measures with corporate objectives, insurers must replace nonquantifiable measures with objective quantifiable measures. Evaluations such as "good" or "strong" do not reflect contribution to profitability, sales growth of cost reduction consistently across the organization. Measures such as "premium/dollar of commission," "retention level" and "profit margin" are clear in what they measure, and to what they contribute. Further, comparing performance across producers and production units is easier.

The set of measures developed must clearly relate to the cost/benefit relationship driving corporate objectives. Measures of increases in sales must be matched against the increased costs in obtaining the additional sales, where the goal is profitability, for example.

Insurers moving to such a performance measurement approach should initially look to readily available and reliable data and keep the number of measures low. Focusing on clear linkages to corporate goals and strategies should help in keeping the list of measures short and simple.

Most carriers already have systems in place that are capable of supporting the performance measures suggested here. Typically the data required already resides ha existing systems and the quantifiable nature of the data lends itself to easy manipulation and storage. Where the systems in place are not capable of supporting improved performance measurement tracking, acquiring or developing such capability is usually not difficult. The key is to know what measures are truly needed.

The more difficult problem to overcome for most carriers is bringing about the cultural and procedural changes necessary to create a "management by exception" operating environment. This typically includes redefining sales management roles and responsibilities, as well as compensation and reward systems. Managers, including senior sales management, may need to be retrained on how to manage. Their focus would have to shift from becoming immersed in the day-to-day sales processes and bureaucracy of the underlying business to planning, forecasting and evaluating broader market opportunities and the various approaches to capturing them. The involvement of senior sales management with process management would be reduced to dealing with exceptional cases, both good and bad. The good exceptions would warrant consideration for emulation elsewhere and the bad exceptions would require corrective actions. Managers would have to rely on automated tracking and red flagging of performance exceptions significant enough to warrant their involvement. Critically important to such an approach is the role of management ha periodically revising the performance measures and benchmarks of the sales organization to align with the corporation's goals and strategies. This facilitates appropriate red flagging of issues requiring management attention.

The benefits of improving sales performance measurement and tracking systems are significant. Better alignment of sales performance measures with corporate objectives provides employees with a better understanding of their contribution to company success. The automating of performance tracking makes managers more efficient by allowing them to redirect their activities to higher value efforts such as developing better plans for the company.

Gregory J. Hoeg, a Best's Review columnist, is vice president, corporate strategic planning, American Reinsurance Co. He can be reached at [e-mail].