OPPORTUNITIES :
- Insurance deregulation in many countries
- By the late 1980s, deregulation was opening the industry to banks and other financial and nonfinancial institutions.
- Cuts in Government sponsored pension and social security schemes were leading many people to question their ability to depend on such programs for their retirement security. Many people intend to switch their fund to buy insurancee
- Government tax incentives for long-term insurance-backed long-term savings. Tax shelter will influence the people’s decision making.
- Worldwide demographic trend towards an aging population creating new insurance market opportunities
THREATS :
- Deregulation in many countries
After deregulation, more insurance companies will enter into the market with low entry barrier. The buyer’s power is greater than supplier’s power.
- Change in distribution channel.
The ability of the Internet is to provide increasingly sophisticated consumers with direct access to insurance products. Online service has a greater influence on the loyalty of customers.
-
Shorten Product Life Cycle.
Innovation and differentiation in the design of insurance products has become
critical in highly integrated information technology industry. The product life cycle
will be shortening to meet the targeted consumer needs. (P515)
- Encountering challenge of risk management, quality service
With adapting rapidly changing technologies, companies were putting at risk the
knowledge and competence of employees at using current and future.
CONCLUSION
Knowledge Management or learning organization cannot be built overnight. It is a product of carefully cultivates attitudes, commitments and management processes that are accrued steadily over time. It is the responsibility of the management and leadership to create an environment of knowledge and technology. Because next millennium is going to be a millennium of knowledge.
To remain competitive – may even be survive – businesses will have to convert themselves into organizations of knowledgeable specialists. “Power comes not from knowledge kept, but from knowledge shared”. And value of the knowledge lies in its usage.
It is imperative to provide a workplace for people to think, imagine, innovate and create new solutions and methods. These new additions will add more value to the knowledge Management database.
Therefore, to survive and compete in global market, organizations need to develop knowledge and intelligence on all the competitive forces of the value-chain. Knowledge Management is a symphony of ideas, thoughts, insights, processes, strategies, structures, and best practices – and that is the mantra for competing and winning in the 21st century.
Recommendation
After evaluating the SWOT analysis and the tendency in the future, we will recommend Scandia reintegrate the company because Scandia has many small divisions and the managers do not have enough training and sufficient information about their departments. It made their company lost money. Scandia should assemble all of the managers and give them the professional trainings and let them to communicate to each other. Regarding this kind of conference, they can understand what other department do and performance.
Skandia has many more strengths than weaknesses, while the opportunities seem to be in balance with the treats. Carendi clearly foresaw where the insurance industry at the time was headed and had been preparing for it since the mid 80s. This is precisely what contributed to the 10 years of consecutive success of Skandia. The SWOT points out that Carendi strengthened the company in many ways and prepared for upcoming challenges.
As for the treats, we conclude that many of them can be opportunities too. Therefore AFS should pursue the so-called W-O strategies; overcome the weaknesses to further exploit the opportunities at hand. Deregulation was a double-edged sword: it both opened up the market and increased competition at the same time. Likewise, the increased awareness of the customer (due to the Internet) is both an opportunity and a possible threat for AFS.Therefore, AFS should continue the search for lower labor cost to ensure its survival since labor cost makes up a large portion of the overall cost. As for online competition, where people do not have to meet, we recommend Carendi builds a skilled labor force in a low-wage country (like many of computer manufacturers moved their customer services to India, for example).
Questions
1. How has Jan Carendi been able to grow AFS from a marginal division of Skandia in the 1980s into a powerhouse of it growth and profitability by the mid-1990s.
Jan Casendi has been able to grow Skandia’s Assurance and Financial Services(AFS), once a small Stockholm-based insurance and financial services company to be a powerhouse of the growth and profitability by refining the nature of the business, restructure it around alliances, and the most important key success is the managing of the “Intellectual Capital” which means making the knowledge widely and readily usable throughout the organization so that it generates business value in such areas as investment management, identifying and serving customer needs and developing valuable employees.
The mission of this intellectual capital is to identify and improve the visibility of intangible and non-material items, to capture and package these items for transfer to users, to cultivate and develop these items through training and knowledge networking, and to capitalize and economize on these items through rapid recycling of knowledge and increase commercialization. As the company strive to increase worker knowledge and to develop culture that breed innovation, they are creating advances in e learning or computer and Internet-based training methods that reach throughout the organization.
2. What are the strength and weakness of the AFS business model? Has Carendi created a source of sustainable advantage? Explain your position.
The AFS business models consists of three major concepts – the federative organization, intellectual capital measurement, and manage employees as volunteers. The purpose is to create a flexible and dynamic capability and to create different internal organization framework, new performance metrics, and different ways of managing people.
Strengths of the AFS business model
- A strategic competence center:
If a local company begins to develop particular capabilities in a vital function or activity, other units can learn from that company and avoid making the same mistakes.
- Global area network (GAN)
It is a that (a) is composed of different interconnected computer networks and (b) covers an unlimited geographical area. With GAN, electronic mail and document and files can be shared and traveled within AFS offices. Moreover, GAN can be served as a conduit for core business applications and provide an electronic venue for the exchange of ideas and experiences.
IC (Intellectual capital) can be described as a company’s intangible resources and can be assessed as the difference between its market value and its book value. IC encompasses employees as well as customers, business relationships, organizational structures and power of renewal in organizations. We think that human intellectual is a very important asset of a company. With a clear and reliable measurement of intellectual capital, employees or shareholders can understand this company better.
It is a new economics model and new economics taxonomy. It provides a more balanced and overall picture of operations – a balance between the past (financial focus), the present (customer focus, process focus and human focus) and the future (renewal and development focus). This new measurement model can track the company’s performance more objective.
- Manage employees as volunteers
The managing philosophy is to believe that individuals have the responsibility to develop their own capabilities, and the company has the responsibility not to waste them. As a result, employees can volunteer to be on one of the numerous
teams that were constantly being assembled in AFS, even if they were in areas outside their own expertise.
Weaknesses of the AFS business model
Because each local company can be designated as a strategic competence center and the designation is not permanent; therefore, the company needs to spend lots
of time training its employees when the competence center changes its functions.
There might be a high turnover ratio when the job functions are changed because employees may not like their new functions or feel difficult to learn these new functions.
During the transition, employees may make more mistakes because they are not familiar with their new duties. This might influence the company’s normal operation.
Because there is no formal structural linkage to connect the federation of national units in which AFS’s expertise resided, the company must work hard to create connections that encourage information and knowledge sharing across units. If the communication is not good enough, the company’s policies are not able to execute easily.
From our point of view, we think Carendi has created a source of sustainable advantage because we think the numbers can talk – over this time, AFS’s sales of private long-term saving and insurance products had grown 45% per year and accounted for almost 50% of Skandia’s gross premium revenues. With the new business model, the company is more flexible when designing new products or establishing overseas units. The company has a philosophy of delegation and learning by mistakes put a high premium on recruiting excellent people. If the company trusts the employees, they can have better performance because the company will not interfere a lot. Therefore, we think Carendi has created a source of sustainable advantage.
3. What do you think of Carendi’s organizational concept of “specialists in collaboration” and his “prototype” management model of transferable business processes?
- Specialists in collaboration:
The reason Carendi had the idea of “specialists in collaboration” was because the fast turnover of the company’s best in-house funds managers. These managers often left for higher pay elsewhere. It also experienced similar turnover problems with a sales force of dedicated agents. To stem the outflow of talent, the company decided to externalize both the fund management and sales functions. The selected local retailers (independent brokers and banks), who were well known to the market, and entered into cooperative alliances with them for customer networking and distribution.
In this new alliance-based configuration, AFS would need to redefine its role as the linkage between the distribution and investment functions. It would add value by packaging long-term savings products for brokers and their clients, and by bring wholesale distribution to brand name money managers. Actually, I think it’s a trend. The financial institution specialists should think of themselves more as “specialists in collaboration”. When I worked in ABN AMRO Bank in Taiwan, the main product that the bank sold to its customers was mutual fund. Every customer had his own account officer. When the customers needed suggestions or information in purchasing mutual funds, they could ask their own account officers. However, the account officers seldom gave the customers their own opinions. Instead, they got the related mutual fund information from an investment center outside the bank. This investment center has all kinds of financial specialists and can give the bank required investment information. If the bank does not have this investment center, the bank may also experience a similar turnover problem because the best account officers may leave for higher pay.
- Prototype management model:
The reason AFS developed this prototype was because the U.K. software system was inflexible and inappropriate in a market with a different set of consumer needs and regulatory requirements. In other words, this system can only be used in U.K. and not applicable in other countries with different regulatory requirements. This is very harmful to a company when it wants to expand its market because the system will become a barrier.
Let me take American Express Taiwan Branch for example. In Taiwan, the system AE uses is the same as its headquarters’ so does the mainframe. Of course, the promotions or activities that Taiwan branch has are not always the same as its headquarters. Every time when it has this kind of promotions, the Taiwan branch must prepare a functional spec. to add some extra programs in the system. As you can imagine, this process is time-consuming because before any new programs can be launched, people must test it first. As a result, they lost many opportunities to make money. The system AE uses is quite inflexible. Besides, Taiwan branch has no rights to revise any system programs.
Of course, in the beginning, we have to spend lots of time and money in R & D for the new flexible system. People may question is it worthy to devote that much efforts? Let me use an accounting concept to explain this. When we calculate the break-even, first we must separate fixed costs from variable costs. The R & D costs for the new system are fixed costs. It is related to the operating leverage. Operating leverage is the extent to which a firm’s operations employ fixed operating costs. The greater the proportion of fixed cots used to produce a product, the greater the degree of operating leverage. The greater the degree of operating leverage, the greater the change in operating income relative to a small fluctuation in sales volume. Therefore, the prototype management model of transferable business processes is important to this company.
4. How would you evaluate AFS’s concept of intellectual capital? What are the benefits and risks?
We think AFS’s concept of intellectual capital is something that will stay for a long time and may also be used in other industries. Service industries’ priority is, of course, to provide service. Unlike the product-oriented industries, it is much more difficult to measure the quality of service-oriented product. Carendi saw the importance of having a measuring method for intellectual capital, therefore created one, which had helped him spotted things that a traditional measuring method would never spotted; hence, he was able to make improvement on them. For example, his Business Navigator, clearly points out places where improvements are needed.
The benefits of the concept of the intellectual capital are clearly the capability to measure operational performance where traditional measurements are unable. As for the risks, we do not see any risk attached to it at this moment.
5. What changes should Carendi be contemplating for AFS’s strategic, organizational and managerial model in the future? What are the implications of the generation-x studies?
In recent years, Internet is popular everywhere gradually. Using it to do everything is normally and necessarily for people. The other important reason is the increasing of competitors is visible. How should Scandia make them more competitive? Scandia should develop and update their online system and provide the information carefully and regularly, and have a good relationship with their customers. Although using computer to buy the insurance will reduce the time and efforts of face to face between customers and staff, specific services also cannot eliminate. The company can utilize most of the capital to install a perfect technology system, and spend part of the capital to support their basic human resource. Offering a delicate plan to their customers and illumine what is the different between Scandia and other competitors.
Regarding to the generation-x studies, we can understand the customers will be choosy what they buy and they are not blind. The company will innovate and update their products and make them to please and more appropriate for each customers because not only the customers’ taste is various but also the lifestyle is changing very fast. Therefore the products will be flexibility.
