What's the score? By using a distribution profit & loss statement, companies can ensure their management teams are using the same rules to keep score.

Imagine playing on a very competitive sports team where everyone plays aggressively, but by different rules and keeps score in different ways. Welcome to the life insurance distribution business: a "game" in which company-teams compete aggressively to realize and sustain profitable growth at the expense of other companies in a mature industry. Against this backdrop, executives and investors--the "team owners"--are losing patience with mediocre financial returns and middling-to-negative growth in new business.

Only with a clear understanding of what the game is and how the score win be kept can the management team determine how to play to win. We believe that the solution includes a distribution profit & loss or income statement, with a bottom line that's well understood by the entire management team and reflects the fundamental economics of the distribution business.

The P&L becomes the rule book providing management with commonly shared and understood definitions and measures of success, reporting disciplines, analytic and decision-making tools and performance management processes essential to produce value in distribution. Because the P&L incorporates all distribution revenue (distribution allowance priced in the products being sold) and expenses, it provides management with a business view of the life insurance distribution business rather than merely a top-line sales view.

It reinforces the importance of an entrepreneurial business orientation and enhances the economic discipline that management needs to succeed in the distribution business. The P&L helps management align all of the elements necessary to win: financial, product management, marketing, sales management and producer capabilities and interests.

In most companies, the management team has at least three parts: financial, marketing, and field sales management. Each tends to have distinct and somewhat parochial notions and measures of success, which tend not to be shared or understood with the other parts of the management team. Actuaries and the chief financial officer deal with return on equity, new business profitability, pricing integrity, ratings, growth and productivity. On the chief marketing officer's plate are sales, competitive products, satisfied field organization and expense budgets. Field sales management is concerned with sales, compensation, competitive products, marketing support and service.

The management team is far more likely to integrate its efforts effectively by establishing a common P&L and baking it into business planning, budgeting, compensation and performance management.

For example, in pricing a new product, a shared P&L can enable financial, marketing and sales management to understand the tradeoffs necessary to balance product competitiveness with field manager and producer compensation. The shared P&L illustrates that it's a zero-sum game, so effective collaboration among different parts of the management team is vital.

Recent Tillinghast surveys of chief executive officers and CFOs confirm executives' frustration with the lack of alignment in current approaches and reinforce the benefits of an integrated, P&L-based approach to business and performance management. When asked to identify obstacles to meeting their companies' business challenges, CFOs responded:

* Difficulties integrating cross-functional or cross-business effects/resources (33%);

* Ineffective decision-making processes (23%); and

* Inadequate control of distribution channels (23%).

CFOs' top response to overcoming these obstacles was "improving financial discipline." In a similar Tillinghast survey, life insurance CEOs identified the same frustrations, along with "resistant culture." Such concerns are symptomatic of a management team whose efforts are hot adequately aligned.

For most companies, the P&L framework is a significant change in approach requiring considerable adaptation by most on the management team. These changes--along with the roles, performance measures and expectations necessary to support them--can be revolutionary. Implementing a P&L-based approach will require discipline, patience and, above all, sustained and committed leadership to overcome old habits and to more team members outside their comfort zones.

A company can distinguish itself from its competition by ensuring that all on the management team are, in fact, playing the same game. By establishing a consistent, integrated approach to business and performance management, a company is far more likely to win the "life insurance game."

Richard K. Berrry, a Best's Review columnist, is a principal of Tillinghast-Towers Perrin in New York. He can be reached at [e-mail].