Lloyd's of London

The rate of change is going up, and not just in a linear sense. That has huge implications
for corporations. They have to be able to handle these large changes. And increasingly
they have to be able to handle continuous change, not just episodic change. If the
important project starts taking up additional time, leaders with a sense of urgency know to
get low-priority stuff off their calendars.

Richard Ward will never forget his first day as CEO of Lloyd's of London, the venerable
specialty insurance market that brings together underwriters and brokers to insure
everything from investment banks to the World Trade Center. Ward knew he would have
to confront many challenges as CEO of Lloyd’s. The centuries-old organization had a great
reputation and track record for insuring and paying out for some of the world's most
extraordinary risks. But its claims processing was still stuck, in a sense, in the 17th
century. “I joined Lloyd’s that had not really changed its working practices or business
practices and responded to technology in the past 320 years,” Ward says.

Processing claims was still a mostly hands-on, shoe-leather procedure. A broker would
walk into Lloyd’s underwriting room in London some 5,000 people go in and out of this
room every day and present documentation to one of Lloyd’s underwriters, also known as
members. The underwriter would then make comments on the documents, give it back to
the broker, and the broker would then physically take it to a loss adjuster and a lawyer.
Because of the complexity of what Lloyd’s members insure, the documentation could be
massive, for example, years of maintenance and engineering reports on a multimillion
dollar oil rig. Its claims procedures produced so much paper that until recently, Lloyd's was
transporting about four tons of paper every day from London to Kent, some 50 miles away,
to be stored store in its back-office processing center.
Ward knew an efficient electronic claims-processing procedure, which he began
implementing in early 2007, was long overdue. But getting members to change their long-
entrenched ways wasn't going to be easy. The system worked well it just didn't process
claims as quickly as it might have. Many members, Ward recalls, didn't "want to change
their very traditional business practices."

To get started, Ward sought out those members who were dissatisfied with the status quo.
Together they worked out a system that would allow the electronic processing of claims
that were held in a central repository. There lawyers, loss adjusters, and even claimants
could check on the documentation and the claims. The group set stretch targets for
getting the new system adopted. By the end of 2007 they hoped Lloyd’s would be
processing 90% of its claims electronically. By getting internal movers on board early,
Ward was able to get about 30% of claims processed electronically by early 2007. After
that, though, the adoption rate stalled. “We started to plateau,” Ward says. “That's not
unusual in a change program.” So he switched gears, developing a “naming and praising”
exercise in which he made a list of the top 10 performers in terms of using the new
system. It worked: The day he released the first list, he got about 45 complaints from
people who weren't on it. “The numbers improved 15% literally overnight,” Ward recalls.
“It had quite a dramatic impact.” In addition to carrots, Ward used sticks, too. Those who
were slow to use the high-tech system were asked to invest more capital to cover their
underwriting risks. He describes this punitive lever with characteristic politesse: “If you
don't process claims electronically,” he remembers telling members, “I’m afraid we’re
going to ask you to keep more capital in the market because of your own inefficiencies.”

Finally, he launched a communication campaign that made him visit the CEOs of all the
member companies. He knew that becoming personally involved and explaining the
benefits to hesitant member company leaders would help him meet his goals. They had to
know it would “assist them in their business rather than be a threat to them,” Ward says.
“It required a lot of legwork on my part. It required a lot of speeches, a lot of high-profile
visits.” Ward went out and looked for people and there are always some who knew there
was a real problem that had to be dealt with. He worked initially with them. That's a big
plus, but he still didn't use them enough to create urgency among a broader group of
people.

Next, he goes on to do what everybody’s been taught to do in a change-management

program, which is to get his team to come up with a plan and then execute on it. He
suffered from what we see all the time: the change program goes well for a while and then
it stalls. To Ward’s credit, instead of just getting frustrated and yelling at people, he
immediately tried to get creative and come up with a way to get the program out of the
stall. He came up with the “name and praise” exercise and the vast communication
campaign.
After initial successes, urgency tends to drop even among the people who feel it at the
beginning. Communication efforts can keep pumping that up. Ward was able to use his
communication campaign to push his adoption rate even higher, and eventually to beyond
90% of claims processed using the new high-tech system. That's really quite
extraordinary.

The kind of problem Ward faced is going to become more and more common. The vast
majority of leaders don’t handle this well. The beginning of the change process always has
to do with getting a sense of urgency up high, and managers do not feel the urgency,
even smart and sophisticated executives. These leaders don't see the complacency, either
because it's just around the door and people don't tell them about it or because they see a
lot of frantic activity.
Questions
1. Explain how this case relates to Transformational Leadership principles
[1000 words]
2. Clearly discuss application of Transformational Leadership from
a. The Bennis and Nanus (1985) model [1000
words]
b. The Kouzes and Posner (2002) model [1000
words]
3. What are the various types of change an organization can adopt? What kind
of change was adopted at Lloyd’s? Justify.
[1000 words]
4. Explain Kotter’s Change Management model related to Lloyd.
[1000 words]