Modeling of Balanced Scorecard in Life Insurance Company

Ashif J. Tadvi (PGDIE, NITIE, Mumbai)Rakesh D. Raut (Research Fellow, NITIE, Mumbai)

AbstractAs companies around the world transform themselves for competition that is based on information, their ability to exploit intangible assets has become far more decisive than their ability to invest in and manage physical assets. This paper develops a Balanced Scorecard (BSC) for Sales executive working in India insurance company that measures and evaluates their day-to-day business operations from following four perspectives: finance, customer, internal business process, and learning and growth. This model of Balanced Scorecard (BSC) for insurance sales Executive is completely new concept, which is based on the observation and traditional practical approach in typical sales department of any insurance company. Considering the nature of this business, looking at one set of numbers is not enough in life insurance. To arrive at a holistic view on how well a sales executive is doing, you need to consider performance across multiple parameters. This balanced card will be the foundation for the Area Manager of Sales department to evaluate and measuring the performance of sales executive in balanced way and proposes the balanced performance measuring system to map and analyze. While suggesting balanced scorecard, different insurance sales performance metrics have been reviewed and distributed into four perspectives. This helps managers to evaluate sales executive performance in a much-balanced way from all angles of business.

The Methodology adopted for developing this model is quite straight in manner that implementation of final balanced scorecard in sales department with no major changes in organization structure.Area manager defines the vision and mission of their sales department, according to the departments’ goal sales executive should align their strategies and come with their own vision and mission for specific period over which his performance can be map and analyze. Thereafter identifying the sales model of the sales department which is generally practice in Indian Insurance Company. Through general observation found that Strategic/Consultative Selling Model is practice in India. The description of Strategic/Consultative Selling Model in literature that is generally practice in India sales department. Identifying the key performance indicator and key result indicator that truly evaluate performance of sales executive. Then categories the indicator based on perspective from which the balanced scorecard matrix will be developed.

Main TextDay to day entry of foreign player in India life insurance sector put considerable pressure on the sales department. Even the life insurance companies are in intense competition. By the 1980s, many executives were convinced that traditional measures of financial performance didn’t let them manage effectively and wanted to replace them with operational measures. Arguing that executives should track both financial and operational metrics, Robert Kaplan and David Norton suggested four sets of parameters.First, how do customers see your company? Find out by measuring lead times, quality, performance and service, and costs. Second, what must your company excel at? Determine the processes and competencies that are most critical, and specify measures, such as cycle time, quality, employee skills, and productivity, to track them. Third, can your company continue to improve and create value? Monitor your ability to launch new products, create more value for customers, and improve operating efficiencies. Fourth, how has your company done by its shareholders? Measure cash flow, quarterly sales growth, operating income by division, and increased market share by segment and return on equity (HBR).What you measure is what you get. Senior executives understand that their organization’s measurement system strongly affects the behavior of managers and employees. Executives also understand that traditional financial accounting measures like return on investment and earnings per share can give misleading signals for continuous improvement and innovation—activities today’s competitive

environment demands. The traditional financial performance measures worked well for the industrial era, but they are out of step with the skills and competencies companies are trying to master today.The increasing competition on the market place and the changes in the environment requires constant improvements within the organizations. Constant improvements are necessary in order for companies to maintain their competing strength and edge, and thereby guarantee their continuous survival. Need for Research: Balanced scorecard is applied in many of industries of around the world and in India whether it is a banking, manufacturing, supply chain, etc but still it’s not used in Indian Life insurance sector. Particularly not for any sales executive of sales department, because of different nature of life insurance product and its sales cycle. The problem related with the sales executive in Indian context is that performance measures are solely based on premium (financial measures). Which gives only one aspect of its performance, hence to fairly judge or evaluate the performance of sales executive and to increase the overall profitability of business balanced scorecard approach can be used

MethodologyTraditionally, in sales department of Life insurance company the method used for the evaluation of sales executive is to rank the executive based on the financial data such as premium collected in weekly, monthly or yearly. The model which is used today in sales department is consultative sales model, based on this only we’ll apply balanced scorecard in this industry. This approach will help us in evaluating the performance of sales executive. As the purpose of this paper is to evaluate the use of the BSC paper can be characterized as being descriptive. A descriptive paper involves that the investigated subject is being described without answering the question “why”. In order to investigate what success factors may exist when employing the BSC tool interviews can been performed at region offices within the branch of sales and these offices have been compared to region offices that are non-BSC users.

To design the balanced scorecard in the sales department following methodology is adopted. Identifying the objectives of sales departments Strategic Initiatives for sales Department Identifying the Key Success Factors for the Strategic Initiatives Understanding the Processes Leading to Internal & External Customer Satisfaction Identifying Technology that Supports the Initiatives Identifying the Departmental Culture required for Achievement of the Strategic Initiatives Identifying Motivation Plan for the Initiatives Identifying Human Resource Development Needs for the Initiatives Developing KPI's that support the Initiatives Developing the Balanced Scorecard Validating the KPI's and Scorecard Scorecard Implementation Strategy Overcoming resistance to KPI and scorecard implementation

Motivation

Nilsson (2005) argues that the control system’s most important assignment is to get the employees motivated to perform the actions that are of interest for the organization. In this sense, motivation (our ninth success factor) can be defined as the degree to which employees are engaged in a particular behaviour. Some authors such as Olve et al. (1997) point out that the BSC model concretizes the company’s long-term direction and vision into the daily activities. For the reason that the scorecard is broken down into different parts of activities the control of the business is adapted in a way that locally is understood as more relevant than earlier models. This increases the understanding and motivation, which, in turn, leads to higher propensity to change as well as stronger forces to carry through the strategies.

Fig: The Balanced Scorecard automates and centralizes the issuance and tracking of objectives, targets, measures and initiatives. (Source: learn.com)

Conclusion Many companies adopted early balanced-scorecard concepts to improve their performance measurement systems. They achieved tangible but narrow results. Adopting those concepts provided clarification, consensus, and focus on the desired improvements in performance. More recently, we have seen companies expand their use of the balanced scorecard, employing it as the foundation of an integrated and iterative strategic management system. Companies are using the scorecard to clarify and update strategy, communicate strategy throughout the company, align unit and individual goals with the strategy, link strategic objectives to long-term targets and annual budgets, identify and align strategic initiatives, and conduct periodic performance reviews to learn about and improve strategy.The concept BSC interesting as sales executive could now work from a new dimension, that is, it made it easier for them to follow up the results from different ratios.Organization’s values benchmarking in their concept they found it easier to compare the different regions and local offices to one another as well as comparing itself to other businesses within the same branch of industry. It was all about competing against the best businesses on the market place, and the BSC tool was one way of structuring the benchmarking process as to how and in what ways the company should compete.

The sales executive as well as the organizations strategy could be seen in all four perspectives of the BSC. As such, the BSC gave a clear structure on how to implement the strategies. What is more, the BSC was also considered as a “modern” management control system that many businesses implemented. Before the employment of the BSC took place, made use of many other control reports where they only concentrated on the financial ratios such as premium collected within specified period. Organization continually strives to increase its effectiveness within different processes.

References

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