A case study from the below article
What are some of the challenges Jenkins faces in her new position? As an advisor to Jenkins, what would you suggest? What are her options? How would you describe the corporate culture in Company A? Company B? The new division? What is the key problem here? What do you think the team members are feeling? What about employees not in the new division? Who is a more effective leader, Varga or Shoemaker? As an advisor to Jenkins, what would you suggest? What are her options? What effect does societal culture have on organizational culture?
In the emerging markets of Eastern Europe, the increasing wealth of large populations has resulted in a higher demand for insurance products. According to a report p repared by Baur, Birkmaier, and Rüstmann (2001) to the United Nations, insurance has three role s in economic development: risk transfer, infor mational, and a capital markets role. A develope d insurance industry promotes economic gro wth by encouraging domestic production, innovation and trade. Considering the need of infrastru cture investments such as power plants, airport s, railways etc. in emerging economies, risk transfe r is a crucial element in attracting foreign investments. Insurance facilitates the flow of i nformation in an economy by helping compani es to assess risk and return profiles. Finally, insur ance companies are long-term institutional inve stors. They collect premiums and invest in capital markets (Heineman Jr, & Davis, 2011). Despite the necessity of a strong insurance industry, insurance penetration, which is measured by the share of the inc ome spent on insurance, in Central and Eastern Europe is significantly lower than in West ern Europe. Premiums as a percentage of GDP account for only 1.7% in non-life business. This is almost half of the average level in Western Europe (Statistics C. E. A., 2011). In this context, Skipper ( 1997) summarizes the benefits of liberalization of the insurance industry in emerging markets as follows: Foreign insurance companies increase the efficiency of local insurance markets by providing superior customer service, introducing new products and technology and bringing managerial know-how. Moreover, due to their international operations and strong financial structures, f oreign insurers possess superior risk diversification capabilities. BACKGROUND—TWO COM PANIES FROM DIFFERENT WORLDS Company A is a U.S. based insurance company with a heritage spanning more than 40 years. Ranked among the top 20 insurance companies in the world, Company A has chosen to concentrate its business activitie s in North America, Europe and Asia, which tog ether make up the largest share of the global ins urance market. Company A provides auto, hom e, boat, non-life and life coverage to over 22 million customers around the world. They distribute their services through a range of channels incl uding brokers, IFAs (International Franchise Association), intermediaries, affinity partners and the Internet, as well as various wholly or partially-owned companies. Company A operates successful partnerships in Belgium, UK, Luxe mbourg, Italy, Portugal, Turkey, China, Malaysia, India and Thailand and has subsidiaries in F rance, Germany, Hong Kong and UK. It is the market leader in four countries for individual life and employee benefits, as well as a leading non -life player, and in two countries it has a strong presence as the second largest player in private c ar insurance. Company A’s unique and innovative multi-distribution capability enables them to deliver products face-to-face, by phone, over the Internet and via SMS technology. Com pany A is extremely flexible in aligning th eir business activities with their partners' general insurance strategies. Thus, they offer end-to-end white label capabilities in product develo pment, marketing, campaign management, sales, fulfillment and claims. In this respect, they are very successful in providing a seamless integration with partner brands. Company A has high sta ndards of customer service. Their successful customer-focused strategy is founded on aligning activities to how customers want to buy insurance to meet individual needs. They are comm itted to delivering high quality products at competitive costs An acquisition of l eadership, Page 2 Journal of Business Cases and Applications and to respond quickly and pro-a ctively. As a corporate policy, Company A valu es accountability, honesty and trans parency. It employs more than 20,000 people a nd last year they posted a gross inflow of $ 35.5 billion, and a net profit of $ 440 million. The ins urance activities had a solvency ratio of 195%. Company B is a major insurance provider in an Eastern Europe country. Previously it was an SOE (state owned enterp rise), with less than 300 employees. They have no expertise in cooperating with an international company. The products that they offer are limited to compulsory car insurance and ho use insurance. Company B enjoys a market share of well above 60%, making them a perfect can didate for acquisition. Last year, Company A pr oposed an acquisition of Company B. The negotiations proceeded very quickly and the transaction was completed in six months. Comp any A’s motivation to acquire Company B was to gain market access in a country in which they did not have operations, to benefit from local market knowledge/contacts, and utilize th e highly skilled human resources of Company B. Company B, on the other hand, gains access to the new technologies (Company A built a computerized insurance system to be used in t he local market), superior management skills, and financial resources of an international company. A NEW DIVISION Sally Jenkins has been ch osen to oversee Eastern European operations, having successfully led Company A’s in tegration into Belgium, running the division for five years. She has been challenged with creating a new Travel Insurance division. With her han ds full trying to inject Company A’s customer-focused corporate culture into a resistant Eastern European employee base, she has chosen t wo men to assist her in taking advantage of the virtually non-existent travel insurance market. The new division would be a great asset, to both the company and her career. Lajos Varga is a Hungarian who previously led Company B, having been with them for more than 30 years. She has also hired Phil Shoemaker to co-lead the team, an American with 10 years of insur ance experience with Company A; he is fairly young and impressed Jenkins with his know ledge and charisma. She allowed both men to c hoose twenty people each to fill out the rest of the division. She then arranged a cross-cultural training course for the new division. Such traini ng looks at one specific culture/country and covers areas such as values, morals, ethics, business p ractices, etiquette, and protocol. The aim of such training is to better equip participants with the key skills that will help in building successful business relationships. Jenkins was confident th at she had chosen the two best men for the job, b oth well-liked and experienced with excellent p erformance records. She decided to allow them free reign on assembling the new division. Sh oemaker took to the new challenge with enthusiasm, though Varga gave some resistance, com plaining that a man of his experience did not n eed help. Jenkins set up weekly me etings to monitor the progress of the new division development. In the first two meetings, she not iced tension between the two men and contradi ctory progress reports. She set up individual m eetings with them; Shoemaker complained of Varga’s tendency to make independent decisions w ithout consulting him or anyone. Varga complained of Shoemaker’s insistence on wasting time with many team meetings. Next, she interviewed the rest of the team members; she qu ickly noticed two distinct camps—those that V arga had hired completely supported him (all E astern Europeans from Company B), and those that Shoemaker An acquisition of l eadership, Page 3 Journal of Business Cases and Applications brought on completely supported him (all Americans from Company A). Each g roup claimed that his/her leader was doing wel l, but was hampered by the inability of the other to lead. In her interviews, Jenkin s quickly put together a picture of each of the tw o men, as well as their employees. Varga is a m an used to running things his own way. His lea dership style is quite autonomous, Varga being individualistic and independent by nature. Like many Eastern Europeans, he is quite assertive, though doesn’t stress planning and performance in his leadership; he has never seen a need to do so. Further, those team members he b rought with him praise his style of leadership. Sh oemaker, on the other hand, takes a more participative and team-oriented approach to decision making. He often engages in planning and p reaches investment in the future. As well, he encourages and rewards his employees for excellence and performance improvements. His team members describe Shoemaker as an excel lent and effective leader. Based on their differing p ersonalities and leadership styles, Jenkins notices that the travel division also has two distinct personalities. Both camps have cohered to their leader, cooperating well with their peers, though not at all with their foreign co-workers. However employee morale is quickly sinking. She is hearing whispers of emplo yees looking for new jobs; both inside and outsid e the new division. Productivity is at a standstill in the new division, and has taken a sharp decrease in other key areas as well. Jenkins’ boss has put pressure on her to get the division up and running, as already two months have passed. Jenkins’ fut ure with the company and the success of the new Eastern European operations are now at stake.