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    Operational Innovation is a Competitive Weapon at Progressive Insurance

    Progressive Insurance, an automobile insurer that started business in 1937, had approximately $ 1.3 billion in sales in 1991. By 2004 it had more than $ 11 billion in sales, and by 2007 was ranked 159 in the Fortune 500 list with $ 14 billion in sales covering 10 million policies in force. How did it accomplish this amazing growth rate in a 100- year- old industry that traditionally does not experience that sort of growth? You might think that Progressive diversified into new businesses, or that it sought sales in global markets through aggressive marketing campaigns or low prices that undercut profit margins. None of these tactics is the secret. In fact, profit margins are quite healthy. So, how did Progressive do it?

    The answer is simple but the implementation was challenging: offer low prices and better service through operational innovation. That is, provide more value to customers by dramatically changing the way work is done. Operational innovation means designing entirely new processes to do the work. For example, Progressive reinvented claims processing to lower costs and increase customer satisfaction and retention. Progressive's agency-dedicated Web site, ForAgentsOnly. com ( FAO), lets agents quickly, easily, and securely access payments; view policy, billing, and claims information; and send quote information directly to customers via e- mail. Customers are encouraged to go online to perform routine tasks such as address changes or simple billing inquiries. In addition, Immediate Response Claims Handling allows a claimant to now reach a Progressive representative by phone 24 hours a day. The representative immediately sends a claims adjuster to inspect the damaged vehicle. The adjuster drives to the vehicle accident site in a mobile claims van, examines the vehicle, prepares an onsite estimate of damage, and if possible, writes a check on the spot. It now takes only 9 hours to complete the cycle, compared with 7- 10 days before the changes were made.

    The operational innovations to the processes in the customer relationship- order fulfillment supply chain for claims processing produced several benefits. First, claimants received faster service with less hassle, which helped retain them as customers. Second, the shortened cycle time significantly reduced costs. The costs of storing a damaged vehicle and pro-viding a rental car can often wipe out the expected underwriting profit for a six- month policy. This cost becomes significant when you realize that the company processes more than 10,000 claims a day. Third, the new supply chain design requires fewer people for handling the claim, which reduces operational costs. Finally, the operational innovations improved Progressive's ability to detect fraud by arriving on the accident scene quickly and helped to reduce payouts because claimants often accept less money if the payout is quick and hassle free. Progressive Insurance found a way to differentiate itself in a low- growth industry without compromising profitability, and it accomplished that feat with operational innovation.


    1. Analyze the case study.
    2. Using APA-style writing format, provide a written summary of the case study indicating what operations management techniques were used. Also recommend a technique that was not used and describe its potential impact on the outcome.

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    Solution Preview

    The case study is a clear example of the importance of business process reengineering which Progressive pursued to bring the desired transformation in the organization. The steps taken by the organization to reengineer or restructure its existing processes by adopting modern technology tools ...

    Solution Summary

    Operational Innovation is a Competitive Weapon at Progressive Insurance