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.
(2) 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. 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.