It is relevance, not just innovation, that matters to customers, says Ed Zore, president and CEO of Northwestern Mutual, the 150-year-old insurer that is consistently ranked by Fortune magazine as the most admired company in life and health insurance and is the US market share leader for total individual life insurance premiums. For Northwestern Mutual, staying relevant to customers means watching the right dashboard gauges, including the one that shows “persistency”—the percentage of customers who stay with the company year after year. 

So what’s wrong with focusing on innovation?

There’s obviously nothing wrong with innovation. Innovation is great as long as it improves your ability to provide value to the customer, but too often it doesn’t. In technology industries, you have to come up with a new gizmo every month. I heard a 50-minute speech in which a CEO must have used the term “innovation” 35 times. And I’m sitting there trying to figure out what he means. I don’t have a clue. He’s not talking about making the stuff work. He’s not talking about making it useful.

Don’t innovate just for the sake of being innovative. Stay relevant. That’s the name of the game, no matter what industry you’re in. Being relevant means lowering costs, improving customer service or generating business. An innovation doesn’t make sense if it can’t do that.

How do you know whether you’re staying relevant?

We have several ways of measuring relevancy. One is results. You can see if you’re relevant by how you’re performing. Your results tell you if you understand the business. Our company is exceptionally good at managing the fundamentals: long-term investments. Low expenses. Careful underwriting. We believe that one of our obligations as a mutual company is to provide as much value as we can to our policy owners. That’s one reason we’re so proud of how greatly our dividend payout exceeds even our closest competitors’. We’ve also stayed relevant by adding new products and services that are consistent with our initial value proposition. But, of course, any company can benefit from looking at its results and the value it provides customers.

Another measure is: Are we gaining or losing ground? If we’re gaining on the competition, we’re moving in the right direction. If we weren’t growing, we’d probably be decaying, because we wouldn’t be able to keep good people. Our numbers show we’re doing well.

We also gauge relevance by listening to our customers and to our 7,500 financial reps. Our reps are our eyes and ears in meeting with clients, assessing client needs and implementing our financial-security value proposition. They let us know what’s working and what’s not. We have committees of reps—for investment products, long-term care products, life insurance, disability insurance—zillions of committees of reps that give us focused feedback, not just random sales reports, and we take their input very seriously. And persistency is a number we religiously track—it’s the rate at which customers stay with the company from year to year. Right now it’s 96.5 percent and it keeps creeping up. Alongside that, we measure the level of complaints per unit of sale and per rep. That not only saves us money, but it also provides us with information we can use to keep improving customer service.

What’s the best way for a company to stay on top of its game?

To stay relevant, you’ve got to keep increasing the value you deliver to customers. Here’s one example: several years ago, we figured out how to restructure policies to create more value for policy owners, and we gave it to them retroactively at no increase in premium. Nobody else did that. We did it a couple of times—we do it with all our products today. We’re adding some features to a long-term care policy and we plan to add them retroactively to all the policies out there. We’ll go to our policy owners and say, “Look, we just made this better for you.” It’s good for the customer and it’s good for the field force that sells the policies, because they don’t have to apologize.

Our goal is to have customers for 40 to 50 years and to be around to pay their claims and help them achieve financial security. We want to make sure we’re here when they need us. General Motors would love it if everybody came back and bought a GM car, and how do you do that? By making sure there’s substance under the chrome, not just flashier chrome.

Thomas A. Stewart is the editor in chief and managing director of Harvard Business Review.

Want more from Lean Six Sigma?

To help fund innovation and roll out a promising new product line, a multibillion-dollar consumer products manufacturer we’ll call ConsumerCo urgently needed to increase capacity at two of its plants and reduce overall operating costs.

Northwestern Mutual’s Ed Zore on staying relevant to customers

It is relevance, not just innovation, that matters to customers, says Ed Zore, president and CEO of Northwestern Mutual, the 150-year-old insurer that is consistently ranked by Fortune magazine as the most admired company in life and health insurance and is the US market share leader for total individual life insurance premiums.

Clear copy

James Henderson, the Asia-Pacific managing director for printer channel operations of Fuji Xerox Co. Ltd., is fascinated with working with the company as it continues to develop products for today’s consumers.

Winning: What makes a lousy leader?

Q: What is lousy leadership?
Goran Milic, Zagreb, Croatia

A: Now, why would you ask that question? Certainly not because you want to be a lousy leader yourself!

It can only be because you’re checking your instincts about someone you know. Maybe even the person who signs your paycheck.

Maintaining thresholds of performance

For some readers, the new rules of market leadership will be intuitively appealing. To others, they will raise stubborn questions. How can a company offer the best value proposition in the market (read: give its products and services away), and still make more money?

Notes to a tragedy

In the next few weeks we shall witness a torrent of sorrow and regret, as any such horrific loss of life should provoke. But, clearly, the story is unfinished, despite the seeming finality of Benazir Bhutto’s murder.

Authorities pressed doctors to stay mum on Bhutto’s death

RAWALPINDI, Pakistan—Pakistani authorities have pressured the medical personnel who tried to save Benazir Bhutto’s life to remain silent about what happened in her final hour and have removed records of her treatment from the facility, according to doctors.

Lending a hand

At the fringe of Makati’s bustling business center stands the head office of Makati Finance Corp. (MFC), a consumer-finance company that has established a stronghold in the industry for over 40 years.

Winning: A year of pushing hot buttons

About this time last year, we received an e-mail from a reader who asked if we believed America’s competitive success was linked to its relative lack of corruption.

INVESTOR BRIEFING

WATER is still flooding the basement of a shopping mall in the Philippines’ central business district after an explosion in October. At least nine died and more than a dozen businesses were kicked out from their glass-walled shops now wrapped with white-painted boards.

REDUCING POWER COSTS

The government of the Philippines plans to use state funds to address high power rates. Acknowledging it must do something about the rising cost of energy, the government announced that it intends to use more of the state’s gas royalties, National Power Corp. (Napocor) profits and Wholesale Electricity Spot Market (WESM) fees to reduce electricity charges.

RISING GDP

The Philippines’ robust economy continues to perform well, achieving a GDP growth of 6.6 percent in the third quarter of this year.

Brotherly love

Brother International Philippines believes competition makes business more exciting. And the company thinks there is still a space for one more player in the document-printing market in the country that can provide an alternative.

Winning: Breaking Through Bureaucracy

Q: How do you break through the bureaucracy that damages so many organizations? James Moss-Solomon, Bridgetown, Barbados                 

A: Damages? How about deadens?

PLAYING ALONG

TO many children, Elmo, the much-loved furry red monster from Sesame Street, is more than just a plaything. To children ages two to five years old, Elmo is a trusty playmate—a friend to lug around the playground; one who won’t complain when hugged, pinched or smothered with kisses. For parents, Elmo even makes a good teacher.

TOY TEST 2007

The holidays are just about here, and the toys are piling up in stores, waiting for you to make your list. Of course, even if your wish does come true, you have to hope for the best: That really great-sounding toy might be a piece of junk.

CONSUMER CONFIDENTIAL

This should be the time of year when Santa’s wholesale elves in the toy district in downtown Los Angeles are busy delivering cheap, Chinese-made playthings to consumers and retailers.

Lumads in the new world

It was a minifair compared with the grand bacchanalia that is the Kadayawan Festival that Davao City has come to be known for.

Mission: global customs service

Del Castillo: From what I have gathered, Commissioner Morales is a self-made man in this career; he supported himself through college while working at the Bureau of Customs as a utility man.

No run of the mill success

Management is a practical discipline measured by financial returns and competitive position. But it is easy to forget that success in business ultimately comes from a commitment to personal values. When you look at Metrobank today, the tendency is to focus on its results, its size and its position. It is easy to overlook the elements that shaped its character.

Winning: Private equity’s very public problems

Q: Why are so many private-equity deals blowing up? Alan Engle, Great Neck, New York                 

A: The short answer is that the world has changed (read: the US sub-prime-mortgage mess has erupted). A lot of companies that were once hell-bent on acquiring hot new properties suddenly want out of deals that are starting to look too cold for comfort.

A Queen Stumbles

HIS eyes stared upward as he started with that familiar tuneful articulation about Iloilo at the peak of its grandeur. A few minutes later, his voice turned wobbly as he recounted how the province slipped from prominence. “So we lost our label being the country’s Queen City of the South.”

Teacher’s pet

WHY am I passionate about Vietnam? Because Vietnam has proven to the world that it is possible to simultaneously achieve robust and sustained economic growth with equitable income distribution. 

Putting imagination to work

SOON after World War II, from 1941 to 1945, the Philippines experienced a decade of unprecedented growth in the 1950s, with Manila—despite being the most devastated city during the climactic battle era—slowly regaining its vigor to once again become a center of industrial progress.

Five steps to building your personal leadership brand

You have a personal leadership brand. But do you have the right one?

A leadership brand conveys your identity and distinctiveness as a leader. If you have the wrong leadership brand for the position you have or the position you want, then your work is not having the impact it could.

What Health Consumers Want

Consumers of health care constitute a market that is as diverse as a market can be, yet the idea that companies might profit by segmenting customers to address their varied needs seems almost foreign to the health industry, despite the billions of dollars at stake.

How Bayan got its voice back

Bayan Telecommunications’ Tunde Fafunwa is very enthusiastic nowadays because the Lopez-controlled company has risen from its low point. And the source of his excitement is largely due to the recent introduction of Span, Bayan’s wireless landline service.

Winning: Managing shooting stars

Q: How far should I go to keep a star performer who has an offer to work at a competitor? Hymie Betesh, New York                 

A: Not as far as you’re probably considering, we imagine, given the panic that strikes most managers when a star threatens to shoot out the door.

Lighting the way

Dutch electronics and lighting giant Philips Electronics has been continuously doing business in the Philippines for the past 50 years.

In the name of the people

THIS time around, former Navy officer and neophyte Sen. Antonio Trillanes IV left no room for ambiguity.

In his 2003 debut at the Oakwood mutiny, then-Lt. Senior Grade Trillanes hemmed and hawed about his intentions.

Water Is Life

FOR corporate do-gooders, corporate social responsibility (CSR) is just the start. The new trend among large and well-established corporate organizations is to integrate sustainable-development programs—not just mere philanthropic activities—to their core businesses.

Give your team a challenge they can’t resist

It’s not easy pulling a group of diverse individuals together to work as a team. Barriers abound in the form of fierce territoriality, incentive systems that reward individual rather than collective achievement, and mistrust spawned by an acquisition, merger or major internal restructuring.

Improve your return on returns

Competitive pressures have forced many retailers and manufacturers to liberalize their returns policies in recent years and gladly accept for a refund just about anything customers regret having bought.

A staged solution to the catch-22

Companies launching two-sided platforms—businesses that connect two groups of users, as credit-card companies do—have often subsidized one group to get it to use the platform. This is a risky approach, because it requires a big upfront investment.

Ship shape

For an employee, a company-sponsored overseas trip could mean mostly fun, with, of course, some work in between. For a chief executive of a company, however, it would be the opposite, and most of the time the fun part takes place in between working or not at all.

Winning: Stay the course…especially if it’s a new one

Q: Sometimes companies need to change even when there is not a crisis forcing the issue. In such cases, how do you keep your people excited about a change initiative after its newness has worn off? Trevor Smith, Singapore

A: You have to stay excited yourself. And not just excited, but obsessed.

If I had a hammer

HASHIM squinted before pulling the trigger. Although the 19-year-old is used to holding Soviet-made AK-47 assault rifles in the deep jungles of Mindanao three years back, this particularly weapon was new to him.

Big failure, little dreams

CASTELLANA, Negros Occidental—It is already past noon and yet Edelyn Pineda is still lazing around Sitio Odiong here along with her little friends.

The Morning Meeting: Best-practice communication for executive teams

Does your company’s executive team struggle with chronic communication problems and a lack of shared accountability? Many times when my colleagues and I are called in to help out an organization, we find that these two core issues underlie their problems.

Lessons from the leaders of retail loss prevention

Preventing theft, damage and errors such as food spoilage has long been an unyielding and poorly understood problem for retailers. But a few companies stand out in their ability to limit losses, and if every retailer were as successful as they are, the sector could save billions of dollars annually—as much as $27 billion in the United States alone.

The Jock Correlation in business

WITH many sports headlines today trumpeting organizational and solvency issues with various teams and sports associations across the world, there is often an almost missionary zeal to bring to sports a more “business approach.”

Winning: Developing a successful succession plan

Q: What companies would you hold up as examples of succession planning done right? Robert Handfield, Raleigh, North Carolina 

A: It’s sad to say, but your question would be a heck of a lot easier to answer if you had asked for examples of succession planning done wrong. That trend is gaining such ground these days it’s alarming.