Business Unit Level Research Articles

The Emergence of Cross-Border Insurance Groups within Europe with Centralised Risk Management

This paper analyses the degree of internationalisation of insurance business. Using a novel data set of 25 large EU insurance groups, we find that the insurance industry has a strong international orientation. About 55 percent of the business of these large insurance groups is conducted abroad. The cross-border activities are predominantly within Europe (30–35 percent) and less so in the rest of the world (20–25 percent). Next, this paper examines the impact of internationalisation on the organisational structure. We find a clear trend towards centralising risk and capital management activities within large insurance groups, though insurance remains at the same time a local business. Applying the hub and spoke model, we identify which functions are executed at the centre (hub) and which functions are performed at the level of the local business units (spokes).

Organizational Search and Market Orientation

Market orientation has evolved into a key construct in the marketing and strategy literature. While much progress has been made in empirical research, the concept lacks a coherent theoretical underpinning. This paper contributes to existing marketing research by proposing a theoretical foundation for market orientation, based on organizational search models drawn from the behavioral theory of the firm. We draw on the NK model and the aspiration-level model to de-velop testable propositions that substantiate and extend prior market orientation research. Our results provide new insight into organizational characteristics and consequences of responsive and proactive marketing behaviors, as well as the allocation of attention towards customers and competitors. Finally, we argue that the temporal sequencing of proactive and responsive ap-proaches, on a business unit level, and portfolio management, on the corporate level, might hold the key to superior performance.

How payment factories improve liquidity management through centralised control and visibility

Simply put, a payment factory is a critical element in a company's cash management and liquidity strategy. Many corporations manage payables processes, payments and banking relationships at the subsidiary or business unit level. While this method offers flexibility, it can also result in increased transaction costs, poor visibility, higher cost of ownership, increased fraud and the lack of standardisation as each locality supports a fragmented view of cash. Driven by tighter regulations and the need for better cash management, corporations are more focused on expanding insight into their cash positions and forecasts. Payment factories allow organisations to realise company-wide centralisation of payment processing connectivity with local subsidiaries, allowing payment capture and processing, account statement retrieval and reconciliation within a single centralised solution.

Integrating Roadmapping into Technical Planning

OVERVIEW:Developing a roadmap within a single product line or a single autonomous business unit is relatively straightforward. A substantial body of literature exists on the process of generating roadmaps at the product, group or business-unit level. However, additional factors need to be considered when extending roadmapping to an integrated view of several highly autonomous business units. The customer base, the rate of product turnover, and the planning horizon will vary across business units. The architecture of the integrated roadmaps and the model for supporting the process should fit the structure and organization of the company. Additional issues also can be anticipated in areas including the scope of roadmapping, the level of detail in the roadmaps, the security of the roadmap information, and the use of a standard taxonomy to integrate information from diverse organizations.

Complex Incremental Product Innovation in Established Service Firms: A Micro Institutional Perspective

Many product innovation studies have described key determinants that should lead to successful incremental product innovation. Despite numerous studies suggesting how incremental product innovation should be successfully undertaken, many firms still struggle with this type of innovation. In this paper, we use an institutional perspective to investigate why established firms in the financial services industry struggle with their complex incremental product innovation efforts. We argue that although the impact of micro institutional forces is often overlooked in innovation studies, these forces matter for innovation success. Our study complements the existing innovation literature and provides an additional explanation why incremental product innovation is highly complex and suffers from several liabilities in established firms. Using qualitative data from the Dutch financial services sector collected over the period 1997—2002, the paper illustrates how micro institutional forces at the business unit level affect complex incremental product innovation and how the interaction of these forces delivers their impact.

Organizing IT to promote agility

Agility at the individual business unit and organizational levels presents a challenge for many information system (IS) departments. Business unit agility demands the ability to sense and respond to changes in local competitive environments, whereas organizational agility demands the ability to sense broader market opportunities and respond with changes that are organization-wide. The former requires experimentation and customization of system designs, while the latter demands uniformity and standardization. Although flexible and customizable software might assist organizations in adapting systems to meet these challenges simultaneously, coordination across multiple business units also demands effective organization and governance of system design and development. This paper presents a longitudinal case study of an insurance company that was effective at sensing and responding to changes in the environment at the business unit level, but less effective at sensing and responding at the organizational level. Using the platform logic as a theoretical lens, we analyze this case and offer insights into how multi-unit organizations can manage system design at the organizational and business unit levels, thereby supporting agility through the development of effective organizing and governance mechanisms. Our analysis outlines relational and integration mechanisms and explains how these arrangements helped the organization to attain greater enterprise agility and support its overall strategy.

A Case Study Approach to Exploring the Relationship between Human Resources Management and Firm Performance

Research in the field of Strategic Human Resource Management (SRHM) has been especially wide and fruitful for the last two decades. Most of the work, however, has long been relied on cross-sectional studies and single respondent survey (SRSM) techniques. Models produced so far hence do not discuss the impact of people management practices over individuals and the relations among employee's outcomes and business unit or corporate results. The present paper presents a quantitative case study of a large financial services organization and explores the possible links among HR and individual and business unit levels of performance. Though being highly exploratory, the study raises a set of issues that might challenge some of the SHRM well-established statements such as the assumption of a direct, linear relationship between HR practices and business results, or the use of financial ratios as suitable indicators of the efficiency of people management practices.

Relative Performance Evaluation in Management Control

Economic theory predicts that performance evaluation gains meaning and accuracy if the performance is compared to peers, as described by Relative Performance Evaluation theory (or: RPE). RPE can be deployed as a means for standard-setting based on peer group performance, by incorporating the performance of a reference group of agents in the compensation plan. Nonetheless, research on RPE suggests that peer comparison is not often a part of the performance evaluation, at least at the CEO level. This research proposal argues that RPE needs also to be studied at lower echelons. Amongst business unit-managers, we believe, RPE can make a significant contribution to opportunism-mitigation. By externally determining the performance standards, targets are less easily influenced by the managers whose compensation depends on them. This extends the interpretation of RPE, a phenomenon that has been analysed primarily from the perspective of efficient risk sharing and informativeness. Building on the literature on RPE, the objective of this research proposal is to study the incidence and form of relative performance evaluation at the business unit level, and to explore contingencies that are associated with empirical (non)-existence of RPE. Extant RPE models do not consider the influence of contingency factors on RPE's applicability or desirability. This proposal presents a preliminary contingency model which aims to further our understanding of RPE. An additional contribution of this study derives from its direct, survey based approach, as opposed to the mostly indirect, public data based prior research. This allows for a deeper examination of RPE in practice, yielding stronger tests.

Winning Businesses in Product Development: The Critical Success Factors

OVERVIEW:2007 is Research-Technology Management's 50th year of publication. To mark the occasion, each issue reprints one of RTM's six most frequently referenced articles. The articles were identified by N. Thongpapanl and Jonathan D. Linton in their 2004 study of technology innovation management journals, a citation-based study in which RTM ranked third out of 25 specialty journals in that field (see RTM, May–June 2004, pp. 5–6). The benchmarking study reprinted here was originally published in 1996 and has been updated with its author's reflections. Their study of 161 business units uncovered the key drivers of new product performance at the business unit level. Ten different performance measures were gauged, including percentage of sales by new products, profitability and success rate. The ten gauges were reduced to two key performance dimensions—profitability and impact—which defined the “performance map.” Nine possible drivers—including strategy, process, organizational design, and climate for innovation—were investigated, and four key drivers of performance were identified; namely, a high-quality new product process, the new product strategy for the business unit, resource availability, and R&D spending levels. Merely having a formal new product process had no impact.

Developing human resources key risk indicators – Know Your Staff (KYS) practices

Human resources (HR) management is a research area that has attracted significant interest over the past decade. In spite of this, little consensus has been reached as to what are the essential ingredients for the effective management of the human factor. The challenge, which is undertaken in this paper, is to provide a comprehensive analysis of the contribution of the HR unit in improving upon personnel management throughout the organization. The paper proposes a well thought out approach to the effective management of staff, which is based on the principle and practice of “Know Your Staff” (KYS). The framework establishes three levels of information acquisition and handling for each member of the bank’s workforce: the HR unit, the operating business unit and the immediate supervisor. The first level covers the employee’s official employment and medical records, and the remaining two levels cover a wide range of performance-based data. The data can be used to build a better understanding of the HR environment at the business unit level and to develop HR key risk indicators to be able to predict employee behavior and conduct, and thus improve upon organizational effectiveness. However, the practice, which is advocated in this document, is not intended to change or otherwise modify any law, regulation, procedures, or collective bargaining agreement that govern the collection and/or safekeeping of staff records at the bank. The paper is spread over six sections: Section 1, the “Introduction”, highlights the importance of the human factor in the production and delivery process of a service, and introduces the fundamentals of people risks; Section 2 introduces current practices in the collection and management of HR data, and rationalizes the need for an alternative approach to staff records management; Section 3 brings to the forefront the real challenges facing human resources professionals as a result of the dynamic changes that the financial sector has had to cope with in recent years; Section 4 presents the KYS framework turning the attention to the type of HR data that needs to be collected, and the structure and location of each component of the personnel records; Section 5 brings a new dimension to existing HR practices: the administration and management of staff records calling for the need for careful guidelines for access, maintenance, transfer, audit and disposal of staff records; Section 6 closes the paper by highlighting the risk of doing nothing.

Strategic supply management: The relationship between supply management practices, strategic orientation and their impact on organisational performance

A theoretical model is presented for conceptualising the relationship between the management of supply, strategic orientation at the business-unit level and their proposed link with firm performance. The shortcomings of existing approaches in accounting for the wide variety of purchasing practices in a comprehensive supply management framework are discussed as well their alignment with strategic orientation. The paper concludes by presenting a model and propositions concerning firm-level supply management, strategic orientation and firm performance.

The influence of organizational identification on organizational knowledge management (KM)

Information technology (IT) outsourcing vendor organizations contain isolated business units whose creation and sustenance greatly facilitate business operations. But they also introduce important challenges for organizational knowledge management (KM). In this paper, based on 7 months of intensive field-work at India Inc., a leading Indian IT firm, we looked at how members’ identification with two organizations, their own and their client organization, influences their compliance with an organizational KM initiative. The findings show that members have difficulties in complying with the expectations of the organizational KM initiative owing to a stronger identification with their client organizations. At the same time, they comply readily with KM initiatives at the business unit level. The findings show that KM managers at India Inc. use the help of middle level managers in the business units in their efforts to improve members’ compliance with organizational KM. Theoretical and managerial implications of the study are discussed.

The future of strategy is leadership

Abstract This key note address examines the future of strategic management theory and practice. Specifically, the speech proposes that six “strategic leadership” tasks will take priority: dual strategies; putting vision and mission ahead of strategy; fit between market opportunity, leadership purpose and firm resources; strategy as the hinge between the changing external world and internal company resources; competition between entire business system; and delegation of strategy making to managers below corporate and business unit levels.

Differences in the Use, Training, and Effect on Careers of Technology Between Independent and Chain Foodservice Managers

This exploratory study utilizing survey methodology is concerned with the use by restaurant managers in the United States of technology systems at the operations business unit level and specifically compared manager experience levels with self-reported work time dedicated to technology, types of applications utilized at work, and the adequacy of their technology training. Respondents were also asked to self-rate technology proficiency and possible effect on career of technical experience/proficiency. While controlling for restaurant type, the questions posed in this study revealed differences among respondents with different experience levels, their use of technology, and their perceptions of how the use of technology has affected their careers.

A Graphic Tour of Success and Failure in Corporate Renewal

The question of what makes a turnaround or corporate renewal effort successful is addressed in this article. Long-term comparisons of Ford and GM versus Toyota and Nissan, Apple versus Koss, FMC versus Danaher and ITW, Target and Wal-Mart versus Federated and J.C. Penney and others are examined with 19 years of performance graphics. Industry snapshots of select players in retail, autos, and manufacturing help make the key point: Executing significant change at the business unit and corporate level to maintain the proper balance between growth and profitability is one of the keys to survival and renewal regardless of industry. Maintaining this balance and creating wealth by outperforming the S&amp;P500 Index over 10 or more years is very difficult. This article provides an insightful graphic review of relative corporate performance that should serve as a guide for corporate CEOs and directors in search of continuous renewal and value creation. <b>TOPICS:</b>Private equity, portfolio construction, financial crises and financial market history, technical analysis

The future of strategy is leadership

This key note address examines the future of strategic management theory and practice. Specifically, the speech proposes that six “strategic leadership” tasks will take priority: dual strategies; putting vision and mission ahead of strategy; fit between market opportunity, leadership purpose and firm resources; strategy as the hinge between the changing external world and internal company resources; competition between entire business system; and delegation of strategy making to managers below corporate and business unit levels.

As currency changes matter: improving the control of profitability and productivity in manufacturing companies

Several models have been developed to measure profitability and its components in the business unit level. The contribution of these models has been the insight that productivity and price recovery are two distinct parameters of profitability. This paper proposes a new extended model, which is based on the American Productivity Center (APC) deflation approach, and is capable of managing three distinct components of profitability: productivity, price recovery and currency recovery. According to this model, it is important to know the causes of price recovery change. For example, fluctuations in products' sales and purchasing currencies could erode all the positive price recovery achieved. This model is applicable for the profitability control of a manufacturing unit and it could be the important trigger in the use of financial hedging in certain situations. At the end of this paper, we also present the hypothetical system dynamics simulation model that highlights the enormous impact which currency changes have on the profitability in the situation, where sales are generated through EUR and purchases are solely based on the US dollar. We are also able to incorporate different delays and inventories of a manufacturing unit into our simulation model.

Technological and organisational innovations: case study of Siemens (Australia)

This author adopts a multi-dimensional view of innovation that defines innovation broadly to include new products, new processes, new services (including new uses of established products, processes and services), new forms of organisation, new markets, and the development of new skills and human capital. The study explores key issues raised in the process of technological and organisational innovation through a case study of Siemens (Australia). While it has made significant achievements in technological innovation, Siemens faces many challenges in its ability to maintain its innovativeness. The key findings of the case study include: a narrow view of innovation which restricted innovation to technological inventions and innovations only; a lack of awareness and understanding of how innovation affects bottom line results; cultural barriers to innovation at both business unit and organisational levels. The paper concludes with a series of recommendations to address the challenges of innovation.

Premium growth, underwriting return and segment analysis

PurposeMany insurance companies vigorously pursue top‐line growth, even though it has the potential to develop unprofitably over time. The time lag (or tail) between when insurance is sold and when claims are paid generates risks unique to insurance companies. Furthermore, the insurance market is both mature and efficient (i.e. its level of competitive risk is very high), which means that profitable opportunities are both rare and untenable unless protected by competitive advantage. There is currently no practical measure available (of which the authors are aware) at the business unit level to evaluate insurance premium growth in the face of the industry's risks, impairing executives' ability to assess segment opportunities (and hazards), thus hampering strategic decision making. The purpose of this paper is to introduce a practical measure developed by the authors called Underwriting Return (UWR) which aims at helping to alleviate this situation.Design/methodology/approachThe paper introduces UWR which was developed during the course and scope of the authors' work in the insurance industry, and their research into applying value‐based management to that industry.FindingsThe paper finds that UWR is a practical measure that property and casualty executives can use at the business unit level to help quantify market segments to grow, hold, harvest and abandon.Originality/valueA variety of strategic analysis tools, such as the popular Boston Consulting Group matrix, are utilized today. In general, the application of such tools is hampered by an imprecision of measurement but each can add a level of insight to executives' resource allocation options. UWR can further aid insurance executives in strategic analysis by helping to quantify in which segments to compete, and which ones to abandon. The paper demonstrates the utility of the measure in an example based on an actual analysis.

Financial performance and the long-term link with HR practices, work climate and job stress

Using data front a large financial services organisation in the Netherlands, this article reports a longitudinal study at the business unit level. The study addresses the question of which longitudinal relations exist between survey data on perceived HR practices, work climate and job stress on the one hand, and prospective and retrospective financial performance on the other. Data from 223 business units were available for this study. Eight scales were selected from an employee survey answered by 18,142 respondents. These were aggregated to mean scores at the business unit level. Financial performance is operationalised by a yearly profits-to-costs ratio. Correcting for employee and business unit characteristics, the eight survey scales predict 22 per cent of the variance in business unit financial performance in the year after the survey.‘Co-operation between departments’ appears to be the most important predictor. Equally strong evidence was friund for a reverse causation sequence: business unit financial performance in the year before the survey was a significant predictor for four out of eight survey scales, especially for ‘co-operation between departments’ and ‘job security’. The results underline the importance of studying variance in HR and performance variables within large organisatiuns, and the possibilities of using employee surveys in this research context. Limitations and implications of the findings are discussed.