One way to address the rising costs of benefits is to borrow a page from the manufacturing sector and apply what are known there as Lean strategies to benefit programs.
In order to stay competitive, companies are looking for ways to streamline and squeeze every last dollar out of operations. Many businesses are now looking to the back office as the last bastion of cost savings. This mentality has driven many HR departments to look to their benefit providers to find ways to offer solutions for less. They focus on finding cheaper benefit rates, and are pressuring their carriers to deliver. Yet research shows that when it comes to benefits, only 20 per cent or less of a company’s premium is related to administrative costs. The other 80 per cent is found in claim costs. Businesses that focus on reducing the 20 percent will likely only see initial savings up front. And these will only be short-lived and ultimately unsustainable.
To genuinely address the issue of rising benefit costs, employers should focus on claims. One way to do this is to borrow a page from the manufacturing sector and apply what are known there as "Lean" strategies to benefit programs.
Ask anyone in manufacturing about the concept of Lean and they’ll tell you that it is the obsessive and relentless pursuit of waste elimination – from production, customer relations, product design, the supply chain and the shop floor. A Lean company is one that seeks out and eliminates any action that does not add value to the process. The ultimate aim of Lean is to provide a better product with less effort, resulting in greater customer satisfaction. It is an intense, detailed process that involves penetrating assessments, extensive research and analysis, and ongoing training.
The results of Lean initiatives speak for themselves. Overhead costs in a Lean factory can be reduced by up to 30 per cent, sales can double and profits can sometimes increase up to four times. Lean manufacturing is so successful that at least two thirds of North American manufacturers are using some form of Lean in their processes.
Can Lean be applied to other business activities? Could it be applied, for example, to your benefits regime?
Yes it can.
At a time when most companies have already gone Lean, bringing those principles to HR will not only improve the process, but will bring the back office in line with the overall company goals and objectives.
Like Lean manufacturing, Lean benefits focus on the elimination of waste in all areas- employee relations, plan design, supplier networks, failure costs and plan administration. Doing so will result in less administrative effort while producing a more targeted benefits program and greater overall employee satisfaction.
The Lean Benefits Approach is a process, just like Lean manufacturing, and involves several stages, including:
Assessing current processes – The first set of Lean principles involves the organization gathering data and statistics to get the clearest possible picture of its current processes. For Lean benefits, HR managers should determine how employees are using their benefits, as well as how the current program stacks up against leading industry benchmarks.
Understanding employee desires – The first rule of business is ‘know the customer’. Ask employees what they want and understand how they are using the program. Know the company’s employee demographics and determine if the current plan is flexible enough to meet the multiple and changing needs of employees.
Develop an Integrated Benefit Strategy – The benefits plan must reflect the company’s overall corporate goals and strategies. This is uniquely targeted to your organization’s needs and wants, and benefits are just a supporting pillar of your company’s overall goals and strategies.
Develop a cost empowerment idea – This is an initial step in the Lean benefits process. Companies at this stage create an initial project that will ultimately empower employees and put them in control of some aspect of their benefits spending. Recent research in the benefits industry has found that plans that achieve this are more effective at controlling costs.
Build a team – Just like Lean manufacturing plans, Lean benefits do not happen overnight. Going Lean is a long, detailed process that requires a senior management champion and a strong Lean leadership team. Also, any factory manager will tell you that Lean is a process that never ends, so employees and management must be committed to ongoing, continuous improvement.
Implement the plan – Once the Lean benefits plan is completed, the next stage is implementation. Again, this will be an ongoing, long-term process.
Continually refine the Lean approach – Lean is never static; it is a dynamic process that evolves as the nature and demographics of the company evolve. In order to truly be a Lean benefits company, an organization must constantly analyze and update processes, improving those that work and eliminating those that do not.
It’s not easy being Lean. It requires long-term commitment, ongoing training and continuous improvement. But companies that make the effort will reap the rewards, and like in manufacturing, the advantages of Lean can be significant. Companies that implement Lean will see their benefits costs fall in relation to other companies; last year we saw Lean benefits programs save seven clients a total of $1.2 million. Going Lean is superior to other strategies. It is worth the investment.
Ron Hansell is the president of BHH Benefits and creator of The Integrated Benefit Strategy and The Lean Benefits Process. Ron can be reached through the BHH Benefits Web site at www.bhhbenefits.com.