"Killing Me Softly" vs "Cruel to be Kind"

As strange as it may seem, these two popular 70's songs epitomize agency management and particularly, producer management.

As a group, agency owners have to be among the nicest people in the world. One reason I've stayed in this industry for so long is that I enjoy spending time with agency owners. They are intelligent. They are great communicators. They are incredibly nice. And because they are incredibly nice, many agency owners are softly killing their producers and even their own agencies.

In a typical agency, everyone knows management does not want confrontation. Everyone knows the owner just wants everyone to get along. Everyone knows management just wants the producers to be self-motivated and produce. Everyone knows few consequences exist for producers who don't produce. Everyone knows few consequences exist for employees who do not come to work on time and/or leave early. Everyone knows there's no consequence when employees don't meet deadlines. In other words, everyone knows that no one is held accountable.

Without accountability, every organization dies. It is the flaw of communism. It is the flaw of many political organizations and political theories. These concepts are based on the assumption that accountability is unnecessary because everyone will be self motivated to do a great job. It is absolutely no different than the flaw that is a fundamental aspect of many insurance agencies and it is the counterpart of what got many agency owners to where they are today—they are extremely nice people. And it is what makes the situation so much harder to resolve.

Because being nice and hospitable is great for making sales and even attracting people to the agency, it is a fantastic trait. However, when hospitality is not balanced by a willingness to deal with conflict and hold people accountable, the benefits of being nice will eventually be outweighed by the negative effects of not addressing conflict. When rates are going up and the economy is booming, no one gets too concerned. In today's market though, everyone is concerned. But still, most agency owners are not yet concerned enough to institute accountability. The result is many agencies are being killed softly.

To counteract the effect of Roberta Flack's "Killing Me Softly," I recommend Nick Lowe's "Cruel to Be Kind. " Relative to producers, a great piece of advice the best managed agencies keep to themselves is the need to be cruel to be kind. In other words, if you leave producers and sometimes even staff to their own ways, you will not get the performance you need. Forcing accountability can seem cruel because accountability is often not welcomed with open arms. Don't confuse accountability with truly cruel management, however. I've known managers that literally threw objects, made people cry just to make them cry, created stress just to maintain total power, and even falsify employee records to get them fired. That is cruel. It is not cruel though to hold employees and producers accountable when they do not do the job they are paid to do.

Many times, in fact, by holding employees accountable, they will develop their skills in ways they never thought possible. Few people work as hard as they can if someone is not pushing them and holding them accountable. Accountability can help people try things they were scared of trying without accountability such as calling on larger accounts, more complex accounts or even simply calling on more accounts. Accountability helps people grow. Sometimes they grow in different directions. I've witnessed many people discover insurance is not for them. They go on to much more rewarding careers in other industries.

Many agency owners may be vehemently disagreeing because they personally didn't need anyone holding them accountable and yet they have achieved great success. They are fortunate people to be so self-motivated, but it is not realistic to expect the same of every producer in their shop.

Many agency owners may also be thinking this is "babysitting" or "micro managing," and I can understand this misconception of holding people accountable. Holding people accountable, though, has absolutely nothing to do with babysitting or micro managing. It has everything to do with establishing a person's job, the method in which the job will be done, when it will be done, and the rewards and consequences for doing or not doing the job. This is not babysitting. Nor is it micro managing. It is responsible management.

This type of management is scarce in this industry. For example, in over 90 percent of agencies, producers only have an incentive to produce more. They have no consequences for not producing. Sure, they might make less, but not always. A lot of agencies pay producers something regardless of what they produce. And even if they do make less for selling less, that is simply an outcome. It is not a consequence. A consequence is a penalty and humans have an extremely different reaction to penalties. Studies have shown that people place a higher significance on the prospect of losing something than they do on gaining something.

It's a curious aspect of the human condition that we prefer a death of a thousand cuts over acting cruel in order to actually be kind. This is especially true with the many agency owners whose natural inclination is to please anyone and everyone. For those agency owners, the future of your agency depends on whether you can overcome this tendency or at the least, acknowledge the issue and hire someone internally or externally to take the hard actions—not necessarily the hard decisions—for you. If you do, you'll be doing everyone a favor.

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A Look Back

If I've learned anything over the last few years, it's the fact that "quick fixes" are impossible when it comes to building a successful, long-term future. Our economy proves to that point. But it appears there are still a few things we "know" but do not want to "believe".

With the welcoming of 2011, I took some time to reflect on the past and in turn, prepare for my future. While doing so, I came across an article I wrote five years ago, and although I have written about these subjects many times through the years, I was still surprised by just how too true my predictions were. Here's an excerpt from the article:

"Significant growth in a mature market cost money and that expense is not as easily camouflaged as acquisition costs are. So the market can see a serial acquirer growing 15% annually with a 25% EBITDA versus a Toyota-like agency growing 9% annually with a 15% EBITDA. On the face of it, the serial acquirer is outperforming the other agency, but it is all in the accounting. In reality, the other agency is far superior to the serial acquirer because the serial acquirer's cost has been moved to the balance sheet.

"Because shareholders are focused on earnings per share and not the balance sheet, emphasis on EBITDA makes sense. It does not mean those expenses are not important though and promotes Ponzi-like actions because breaking the news to the market that your EBITDA is going to seriously decrease because your company is finally going to invest in organic growth would be very painful.

"Sooner or later, an agency/broker has to figure out how to sell new accounts. The United Auto Workers (UAW) recently noted the solution to GM's problems was not to layoff 25,000 people, but to build better cars so that GM would sell more cars. In the near term, the UAW's solution may not be feasible. In the long run, it is the only solution."

Maybe these companies didn't realize, or they just didn't want to believe, how these Ponzi schemes would actually turn out. Regardless, my suggestion to all business leaders is to consider present trends and data that may affect their business in the long-term.

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What does an agency owe its producers?

This is the softest market the property and casualty insurance industry has ever experienced. To thrive, agencies must eliminate waste, work harder, and work smarter.

Producer productivity is absolutely the key to thriving in this soft market. Producer productivity is not just producers selling enough—it is about selling enough efficiently. This means quality accounts. It means giving a work product to the staff that enables them to do their work efficiently or letting the staff collect the data for a cut of producer's compensation. It means good producer management.

Greater producer productivity begins with a production team that includes only producers. Too many agencies employ people with the title "Producer" who do not really produce.

If you want your agency to thrive in this market, answer the following question honestly: Are ALL your employees with the title Producer truly producers? Do not answer based on what you wish your producers did or what your producers should do. What true value does each producer bring to your agency? The biggest mistake agencies make every single day is paying and treating non-producing producers as true producers. The results are excessive payrolls, damaged morale, shattered productivity and lousy profits.

These non-producing producers likely bring some value. But they are not in the job that fits their particular skill set. Athletic teams do not pay second and third string players the same as first string players, so why should an agency pay producer wages to an employee whose title is Producer but who is really not a producer?

When agencies were flush, they could get away with this. They could and they did subsidize poor producers. Today, there is not enough extra revenue to continue subsidizing employees who are not completely pulling their weight. Management can push to get more and more out of them, but they are in the wrong job. It's like trying to squeeze blood from a turnip. They are often good people with other valuable attributes, so perhaps a more appropriate job at a more appropriate wage can be designed for them.

Agencies expend a considerable amount of time, money and energy trying to get non-producing producers to produce, so once an agency helps these people find a different position that fits their skill set better, more resources can be focused on people who can sell.

Once the production team consists entirely of true producers, what resources does an agency owe its true producers?

1. A good customer service representative (CSR) when the producer's production is sufficient to earn a CSR, but not before. By "good," I do not mean a CSR who will do the producer's work for him or her.

2. An agency owes established producers a fair wage for honest, good work. What is fair work? A true producer must generate at least $300,000 of self-produced commissions.

3. An agency with a good reputation.

4. A good IT system.

5. New producers deserve good training and mentoring. This is not only fair, but it is also smart producer management.

That's it. Agencies do not owe their producers anything else. They do not owe their producers an expense account, a car or even a lead list. These items can arguably make producers more successful, but that does not mean they are owed these perks.

And these items are truly perks. What would happen if these perks increased as a producer's book increased? When an agency increases producers' perks as their books increase, the agency is focusing its biggest resources on its most important assets, which makes a lot of sense. Agency expenses would decline if managed well because the value of the perks need not increase at the same rate as sales. If these perks are limited to reasonably sized books, these expenses are minimized.

These are all aspects of good producer management and a benefit of good producer management is that morale increases for all but the less successful producers because employees see a fair capitalistic system. An entitlement environment is eliminated which also improves morale. Management of the agency is easier because when producers gripe, the best answer is, "produce more." It creates a more competitive environment, pushing each producer to greater success.

In visiting dozens and dozens of agencies, I have rarely seen these practices. Those few that do practice good producer management achieve much greater success than those that do not. Many agencies forget that fair must eventually be based on results. The effort to be fair to all based on good faith effort is simply misguided. It's not easy to make hard decisions. However, it's easier than having a problem and knowing that you are doing nothing about it every single day of the year.

Doing it right attracts high quality people that thrive in a fair capitalistic system. Doing it right enables your agency to thrive. Do you want your agency to thrive?

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Do you really want an honest opinion?

The Wall Street Journal (July 19, 2010) had a fascinating article regarding the troubles at Boeing and their new 787 aircraft. The article stated, "In its quest to get the beleaguered 787 Dreamliner program back on track...Boeing has turned to an unlikely source: engineering icons from its past. " The article noted that the direct communication used by these very experienced engineers ruffled some feathers because they required that every component and every product actually had to work and they had to work well. Egos are at risk when someone suggests a person's work is inadequate.

When a company or an agency begins protecting egos first and producing quality products and services second, the firm's future is doomed.

Similar to Boeing's situation, I have found that facts can be very damaging to egos in agencies. It's always interesting to me how so many people get upset at facts. Facts are like rocks. Facts are inanimate objects without a conscience and without an agenda. Yet, many people become furious when presented with facts that do not support or, even worse, contradict their desired beliefs. They rationalize every which way possible trying to show their desired imaginary world is right and the facts are wrong.

It's hard to argue with people who desire to live in an imaginary world. Some of the happiest people live in imaginary worlds. Some even thought they were successful because they were able to borrow ever larger sums of money without any more income. Some politicians even believed they could write a health care law that is contradictory to itself, other laws and common sense while providing everyone with better health care and costing the populace less money. No amount of facts are strong enough to break through their imaginary world.

The trouble is that sometimes even agency owners' identities are too tightly entwined in their imaginary world. To accept facts about their agency means letting go of whom they think they are. If anyone has ever gone through the process of letting go of an illusion, it is painful. Once through the pain and once re-built again on a much stronger foundation called reality, it is like being reborn. Life becomes so much easier because when a person has to protect a fragile ego and when a person is deeply insecure, the focus is only on surviving. The focus is not on thriving—and thriving is a whole lot more fun!

So the next time you feel the hairs on the back of your neck going up because someone is challenging your beliefs, think about what they are really saying. Do their facts support their point? Are you willing to listen to someone that really wants to make your agency work like a well-tuned machine? Or are you going to get your back up like some of the younger staff at Boeing?

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NOTE:  The information provided in this newsletter is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

Burand & Associates, LLC is an advocate of agencies which constructively manage and improve their contingency contracts by learning how to negotiate and use their contingency contracts more effectively.  We maintain that agents can achieve considerably better results without ever taking actions that are detrimental or disadvantageous to the insureds. We have never and would not ever recommend an agent or agency implement a policy or otherwise advocate increasing its contingency income ahead of the insureds' interests.

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