The Harvard Business Review ar.
4. The Harvard Business Review article “Deep Change: How Operational Innovation Can Transform Your Company” contains the following example of operational innovation at Progressive Insurance. Instead of taking between 7 and 10 days to process an insurance claim, the company’s new target was 9 hours. Assume that the average time to process a claim used to be 8.5 days, and assume that through operational innovation the company has reduced the average time down to 1 day.
Given that Progressive processes 10,000 claims/day, and assuming that the company incurs a cost of $28 per day on each claim that is “in-process,” how much money did Progressive save (per day) because of the reduced claims processing time? (Hint: Every day Progressive incurs a cost of $28 per claim “in-process.”)