Engineering Inspection & Insurance Co. (EIIC) is a small but highly successful company that offers machinery and boiler inspection and insurance services. After years of above-average growth and profits, both are retreating toward the industry average, policy delivery times are excessive, and employee morale is low. There is increasing concern that the companys current strategy and organization are no longer working. The problem appears to be that, while the company initially was organized to provide inspection and insurance services for complex equipment, most of its premium revenue in 1991 comes from relatively simple, low-premium objects for which inspection probably is unnecessary. Reconciling the conflicting demands of these two types of businesses with the companys existing structure and value system is the essential issue. Teaching Purpose: To illustrate the basic operations strategy framework in the context of a service company, and to engage students in a discussion of the advantages and disadvantages of different methods for refocusing operations.
Boiler and pressure vessel specialists in codes, standards and certification globally.
HSB Global Standards offers a wide range of inspection services for owners and fabricators of boilers, pressure vessels, nuclear components, and process and power plants. Established in 1866, we provided engineering services to users of steam powered equipment. Today, HSB Global Standards has grown to be a worldwide leader in the interpretation and application of boiler and pressure vessel codes, standards, directives and customer specifications. With local representation and jurisdictional experience, HSB Global Standards provides inspection and certification mandated by the ASME Codes and regulators globally.
With more than 400 engineers, inspectors and auditors around the world and 140-plus years of engineering experience, HSB Global Standards is highly qualified to help you meet local and international code requirements worldwide.
Hartford Steam Boiler (U.S.) provides equipment breakdown coverage through a network of brokers and agents and also through other insurance companies who partner with HSB and who include equipment breakdown as a value added element of their insurance products for commercial lines and personal lines customers.
Equipment breakdown insurance, also known as ???boiler and machinery,??? covers physical and financial damage that results from an accidental equipment breakdown to a range of equipment, machinery and technology. Standard property coverages typically exclude perils of mechanical and electrical breakdown. Equipment breakdown coverage was originally designed for business and industry. In recent years, HSB has extended the product concept to the farm owners and home owners markets.
The company also provides a range of other specialty insurance products including insurance for identity recovery, data compromise, employment practices liability and miscellaneous professional liability that it designs and distributes through other insurance companies in reinsurance service agreements.
Hartford Steam Boiler employs over 1,200 engineers, inspectors and technicians, approximately 50 percent of its total workforce. The company uses its engineering knowledge and technical skills to help customers understand risk, reduce the potential for loss and speed business recovery if they do experience loss.
EIIC??™s Business Strategy
EIIC relies on its engineering inspection activities as basis for its insurance policies. It ensures that the services offered by the engineering department are thorough, well-supervised and efficient. To ensure the superiority of its inspection, EIIC has developed an elaborate evaluation scheme, creating several levels of office or position in the engineering department to check and validate inspection reports. Field inspectors do not directly submit inspection findings to the chief inspector instead they approach the supervisory inspectors first. Also in the effort to provide customers and the company an above average inspection, EIIC employs experienced, highly trained ???practical??™ engineers and licensed boiler machinery inspectors.
In gaining new customers, EIIC employs special agents in each branch tasked to deal with independent agents who in turn have direct communication with the clients or the insureds.
EIIC closely manages and directs the overall business undertakings from the top or the head/home office.
Short term and Long-term solutions
In order to prevent profits from spiraling downward, EIIC needs to speed up the writing and submission of insurance policies. This implies shortening the time allotted for each stage in the process-from inspection to underwriting. Although the competitive edge of EIIC lies on its inspection service, it can cut down on the number of inspections conducted especially on the smaller policies, preferring to concentrate instead on the larger ones. In other words, inspectors need not inspect every property or industry equipment only those that really needs or demands inspection. Inspectors, by implication, should be given enough free rein to decide which to inspect and not to inspect without excessive control and intervention from the home office.
Another short-term solution to speeding up the formulation and completion of insurance policies is to flatten out the hierarchy removing unnecessary levels in the organizational structure. If not, just reduce the evaluative functions of certain positions. For instance, instead of requiring the field inspectors to report to the supervisory inspectors, they can submit inspection findings to the chief inspector directly. There is also the drastic measure of taking down the position of supervisory inspector. This downsizing action paves the way for faster decision making.
Aside from quicker completion of insurance policies, EIIC can increase profitability back to competitive level by simultaneously increasing the accounts through the influx of more customers. The tradition of EIIC is to hire independent agents in attracting new clients-this manner of gaining more contracts can be augmented through direct sales. EIIC can employ salespeople to sell its product directly to potential customers without the delaying action of agents.
For longer staying benefits and long-lasting success, EIIC needs to create a culture of people empowerment. This is the more permanent solution to the high turnover rate among the employees. It is about time that EIIC changes its focus from its competitive edge (i.e. inspection service) to its invaluable asset-the people. In order to foster a culture that is centered on the human factor of production, there is a need to overhaul the current management values. EIIC needs to adopt the following assumptions: (a) people have worth and that (b.) they are capable of making independent, smart, reasonable decisions. Underwriters at EIIC, for instance, must be allowed to make choices and decisions on their own without unnecessary regulations from the head office. Part of empowerment is decentralization-letting the staff from the lower ranks take on more meaningful and relevant responsibilities and duties. Higher compensation packages should also be extended not only to the engineers but to the rest of the employees from the five functional areas (agency, engineering, underwriting, finance and legal).
Another long-term solution is the restructuring of the organizational design. Removal of certain positions is needed, making the organizational structure cleaner and more efficient. There is also a need to redefine functions and relationships between managerial levels. The branch managers at EIIC, for instance, should be allowed to participate in the inspection activities of the engineering department instead of the chief inspector solely shouldering the responsibility. Furthermore, the chief inspector need not report to Roger Cutler, the Vice President for Engineering only the branch manager should communicate with the home office being the branch representative to avoid duplicity. Also, in changing the organizational structure, the top officials of EIIC need to regulate less, loosening its grasp over the components of the business. It should encourage dialogue, better coordination and planning between and among the functional areas. Also, reporting relationships should be lessened to save time and effort.