Robert Kennedy College: Pareco Insurance Organizational Change Report

This report provides a comprehensive analysis of Pareco Insurance, a Cameroonian insurance company facing significant challenges. It begins with an industry overview, examining market regulations, key players, and demand determinants. The report then delves into a detailed assessment of Pareco Insurance, including external factors like PESTLE and Porter's Five Forces analyses, and internal factors such as SWOT and McKinsey 7-S frameworks. The analysis highlights issues such as declining market share, leadership changes, and internal inefficiencies. Finally, the report offers strategic recommendations to improve performance and redeem the company's reputation, focusing on organizational change and strategic planning. The report concludes with a discussion of the company's future prospects and the importance of visionary leadership in a dynamic business environment.

Robert Kennedy College
University of Cumbria
ID 1552914
Organizational Behavior
FORUM/Class ≠ 2126
Final Assessment
PARECO INSURANCE plc:
A Case for organizational Change
Start and End Date: (Jun 4, 2018 - Aug 26, 2018)
Supervisor
Prof. Benedicta Lusk
Table of contents
1

I-Introduction.……………………………………………………………..
………………………………………………………4
II-Industry overview and
analysis……………………………………………………………………………………..
II.1
Regulation………………………………………………………………………………………………………………
…….
II.2 Key
operators……………………………………………………………………………………………………………….
5
II.3
Management…………………………………………………………………………………………………………
………
II.4 Market
evolution………………………………………………………………………………………………………….
II.5 Industry demand determinants and profitability drivers…………………………………………..6
II.6 The outlook for strategic planning and strategic change…………………………………………..
II.7 Personal
challenges…………………………………………………………………………………………………….
III-Company assessment …..
……………………………………………………………………………………………..8
III.1 External
analysis…………………………………………………………………………………………………………
III.1.1
PESTLE…………………………………………………………………………………………………………………
……
III.1.2 Porter’s Five
Forces…………………………………………………………………………………………………9
III.2 Internal
analysis……………………………………………………………………………………………………….10
III.2.1 Pareco Insurance core
competence………………………………………………………………………
III.2.2 SWOT
analysis………………………………………………………………………………………………………..
III.2.3 McKinsey Extended 7-
S…………………………………………………………………………………………11
2

III.2.3.1 Hard
Triangle………………………………………………………………………………………………………
III.2.3.2 Soft
Square………………………………………………………………………………………………………….
IV-
Recommendations……………………………………………………………………………………………………
…13
V-
Conclusion………………………………………………………………………………………………………………
…….17
Bibliography……………………………………………………………………………………………………………
………….25
Appendix………………………………………………………………………………………………………………
…………….27
Abstract
Success in a changing environment cannot be sustained without a clear understanding of the
forces and processes that drive performance, without a visionary leadership. Pareco Insurance
is a clear example of a company which has been managed but not led.
Hopefully a sound assessment with the right tools can help taking stock of the situation and
clearing the path to an enduring success through a strategic change.
3

I-Introduction
“The business world is a fast-paced, uncontrollable environment. You have to be able to take
action and make your move based on what’s going on at the time.”
Mountaineer Alison Levine (2014)
Pareco Insurance plc is an insurance company headquartered in Douala, Cameroon. It’s a
result of a merging operation in 1999 between two companies, Chanas & Privat (1), founded
in 1953 by a French resident, Mrs Anne Legno (2), and SOCAR (3), a public insurance
company.
Cameroon is a Central African country of 475,000 km2 with a population of 23 million people
and a GDP/capita (4) of just $1446 (https://data.worldbank.org).
With an equity capital of $10,500,000, Pareco Insurance has currently on its payroll an aging
and poorly skilled workforce of 130 employees operating nationwide with main branches in
Douala, (economic capital), Yaounde (country capital), Bafoussam (third largest city).
Having had in its portfolio the largest public companies in most sectors (upstream oil, airlines,
oil refinery, sea transport), Chanas has dominated the local insurance market from its
creation to year 2014 when Mrs Anne Legno, was forced to resign from her position of
Chairman & CEO by the Chanas Board due to her advanced age-89.
As a result of that unprepared succession, the company has entered since then into a period
of turbulence that has resulted in the loss of roughly half of its market share three years later
and a seriously damaged brand:
4

K$ 2014 2015 2016 2017
Market share % 16 11 9 9
Source: Industry Corporation ASAC Report 2017
A new CEO appointed last December 2017 has been requested by the Chairman of the Board
to find out the way to improve company performance and redeem its reputation.
Early this year, the National Hydrocarbons Company (NHC) (5) has acquired 75% of the
46,000 company shares. Pareco is now under Government control.
II-Industry overview and analysis
II.1 Regulation
The insurance market is regulated in Cameroon by the CIMA (6) Treaty signed in 1989 in
Yaounde by the representatives of the fourteen Francophone African countries so that the
rules be the same in all those countries for and the companies assessed on the same basis.
Two major branches are operated: life insurance and other insurance products covering all the
other risks representing respectively 15% and 85% of the current total demand.
The market penetration is still too low, at roughly 3%, according to the Industry Corporation
(ASAC) (7) which collects all the industry data and issues a yearly report.
II.2 Key operators
Twenty-eight companies are sharing the business out of which only eight are offering life
insurance products.
Only considered here are the other insurance products as Pareco is not yet offering life
insurance products.
The top 5 brands account for 60% of the total proceeds at end 2017 as shown below:
Market
shares %
2012 2013 2014 2015 2016 2017
PARECO 21 17 16 11 9 9
SAAR 13 15 15 14 14 14
AXA 10 10 11 15 16 13
ALLIANZ 9 8 9 10 10 13
ACTIVA 13 13 13 13 13 12
Cumul
Top 5
66 64 65 62 63 60
Source: ASAC Report 2017
The smaller players are gaining ground.
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II.3 Management
The average industry managers/total staff ratio has improved between 2012 and 2016 as
shown by the figures below:
2012 2013 2014 2015 2016
Total staff 1348 1348 1348 1321 1261
Number
of managers
351 351 351 461 448
Ratio
managers/total
staff %
26 26 26 35 36
Source: ASAC Report 2016
This ratio for Pareco Insurance is far lower as it is just 25% at end 2017.
II.4 Market evolution
The demand is consistently increasing year on year:
K$ 2012 2013 2014 2015 2016 2017
Total
proceeds
196,880 213,790 209,110 233,330 234,634 253,038
Source: ASAC Report 2017
II.5 Industry demand determinants and profitability drivers
The market product mix is highlighted in Exhibit1.
The main demand driving factors are: Government policy, risk awareness, urbanization,
education, disposable income, knowledge of the companies’ offerings, attitudes towards
health, insurance companies’ commercial networks, and so forth. The Government policy is
instrumental. The car insurance is the number one product just because it is mandatory.
Health insurance is number two as here as well, companies operating in Cameroon are bound
by the law to take care of their employees’ health. Given the low level of the GDP/capita and
hence of the disposable income, few individuals have the means to contract health insurance.
Ranking third is the insurance against fire and other liabilities: risk awareness is demonstrated
by managers of industries and service companies who have to protect their assets and ensure
business continuity.
It is however likely in years to come as people will be more risk-aware due to a better
education and with a higher disposable income that more and more individuals will contract
health insurance and this will significantly drive the market revenue.
As the country economy is expected to be boosted in the near future with more oil and gas
discoveries, a new deep sea port in Kribi*, the relaunching of the national airlines company
Camair-Co, so is transport in general (road, sea and air).
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A stronger enforcement of the regulation in the insurance market can reasonably be
anticipated as a dot-mover for both revenue and profitability.
Brokers who actually control 60% of the insurance business are gaining more and more power
and most of the largest customers have their dedicated broker through which they contract
insurance. Pareco management has so far neglected to get close to them.
Banks are also influential drivers of demand as bank customers requesting a loan have to
provide a life insurance contract. Insurance companies often partner with banks. Pareco
unlike most of its major competitors has so far failed to do so.
Other sources of revenue are rentals from real estate and interests generated by financial
placements.
II.6 The outlook for strategic planning and strategic change
Since the start of its activities nineteen years ago, Pareco Insurance management, lacking a
compelling purpose, has ignored strategic planning. Year after year, budgets have been
elaborated assuming that nothing could disrupt the business environment. Business as usual
has been the rule. A too high turnover at the CEO positions (four from 2014 to 2017) has
significantly hampered Pareco’s reputation and taken employee commitment to the
organization at its lowest level ever.
The company’s market share is 9% at end 2017 down from 21% five years ago. Pareco
management has not initiated any reactive nor proactive relevant action to inverse this trend
that could become fatal to the company. One explanation is probably the three hats worn by
Mrs Anne Legno as Chairman, Ceo and second most important shareholder. Another could be
the composition of the Board based on friendship. A third one is certainly the poorly skilled
top Managers who have failed to ring noisily the alarm bell.
Performance quarterly reviews are not integrated in Pareco business management. Good or
bad news are only known when the financial statements of a given year are issued three to
six months later in the new year. No corrective action can be taken during the year.
Having dominated the insurance market for so long, Pareco managers are still considering
competitors without any respect, having no fear to loose at any foreseeable time their
important state customers which are accounting for 75% of Pareco’s revenue. They are not
aware that this is a weakness as at the same time Pareco is perceived by a majority of small
but numerous customers (taxis, moto-taxis who are in number the most important constituent
of the market customer base) as an elite company.
In the other hand, they are giving no importance to two essential elements: systems and
skills. Until now, a majority of Pareco staff lack of basic IT skills. The available computer
system is not operational making impossible to run the company on the basis of reliable
numbers in real time.
In the same time, competitors are taking advantage of Pareco’s weaknesses, they are
becoming more professional and more aggressive and strengthening their relationships with
brokers.
II.7 Personal challenges
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The new appointed CEO ows his Board membership to his close relationships with Mrs Anne
Legno that he has replaced in Pareco Board.
The new majority shareholder, NHC, is not in good terms with Mrs Anne Legno who has sued
NHC for the non-payment of her leave fees.
In order to carry out successfully what is expected from him-organizational change-the CEO
will need to keep the Board on board (Chairman, other Directors) and to build a very good
relationship with his management team taking into account NHC interests. He will also need
to be as available as possible for meetings, training sessions and staff hiring.
As recommended with regard to adaptive challenges by Harvard Professor Linda A. Hill (1995)
the CEO will have “to engage people in confronting the challenge, adjusting their values,
changing perspectives, and learning new habits.”
His leadership will first be emotional as technically he is fit for the job.
III- Company assessment
“Change before you have to”
Jack Welch (n.d.)
III.1 External analysis
III.1.1 PESTLE
Political factors
 Political stability threatened by a developing civil war (9)
 Presidential election planned for October 2018
 Djihadist Group Boko Haram (10) activities in the Far North Region
Economic factors
 Economic growth forecast: 5% for 2018
 Inflation : 2%
 Interest rate: 14%
 GDP/capita: $1446 , World Bank (2018), GDP per capita (current US$). Available at:
https://data.worldbank.org (Accessed: 27th July 2018).
 Currency CFA=$0.0018
 Devaluation: rumors are on air
 Minimum monthly wage still too low at $67.86
Social factors
 Unemployment higher than 50%
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 Population: 49.9% male, 50.1% female, 57.2 % urban, median age 18.4 years
 Population growth: 2.6%/year
 Literacy rate: 75%
Technological factors
 Digitalization
 Development of cloud systems
 Decreasing prices of IT products
 Expanding internet and telecommunications networks
 Invading social networks (Facebook, Whatsapp, Messenger, Twitter, and so on)
Legal factors
 Mandatory equity capital set by regulator CIMA at minimum $8,929,530 as from end
2019.
 Pareco Insurance, no longer a private company, now under Government control.
Environmental factors
 August 5, 1998 law forbidding soil and water pollution has been enforced
III.1.2 Porter’s Five Forces
Threat of new entrants: Moderate
 The main barrier to entry is the mandatory equity capital that most of the international
players can easily overcome.
 The number of competitors remains at 17 at end 2017 up from 16 the previous year
though three new entrants are accounted for. Two companies have been registered
out of business.
Threat of substitutes : Low
The CIMA market is strongly regulated. Its disruption by an innovative product is unlikely.
Bargaining power of buyers: High
Customers are more and more exercising a pressure on prices as competition intensifies.
When some are claiming retro-commissions, others only deal through preferred brokers of
their choice.
Bargaining power of suppliers: High
As mentioned earlier, the brokers, among which some international players (GRAS SAVOYE,
ASCOMA, AFRIK ASSUR), have control on the market and account for 60% of the insurance
business at end 2017. As they pay contract fees to end customers off their own revenue, the
latter are more and more reluctant to enter into direct deals with insurance companies.
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Intensity of competitive rivalry: High
 Among the top 5 brands, Pareco Insurance is the only one not offering life insurance
products;
 Pareco Insurance is also the only top 5 competitor not being international;
 Retro-commissions are directly paid to end customers by some companies in violation
of law;
 Contrary to the rules, customers are offered term payments by some competitors;
 Fees paid to brokers vary from one company to another;
 Partnerships are developed with telecoms companies and banks.
III.2 Internal analysis
III.2.1 Pareco Insurance core competence
With NHC now as its majority shareholder, Pareco Insurance core advantage is its easy
access to large State companies and its ability to easily close deals with them;
III.2.2 SWOT analysis
Strengths
 Equity capital higher than the minimum
set by regulator
 Strong balance sheet with owners’
equity exceeding $30 million
 NHC as a majority shareholder
 High commitment of Board Directors
Weaknesses
 No partnership with any bank
 Weak ties with brokers
 No life insurance offerings
 Poor customer service
 Aging and poorly skilled staff
 Poor information management system
 Weak internal control procedures
 No vision clearly stated, no shared core
values
 No team spirit
 Too low managers to total staff ratio
Opportunities
 Insurance market poised for growth
 Potential to diversify offerings with life
insurance products
 Brokers and banks open to partnerships
 Potential partnership with an
international player
Threats
 Potential intensification of the
developing civil war
 Currency devaluation
 Customers more sensitive to price
 Brokers expanding their hold on the
market
10

 Skilled talents available in number
 State companies’ business:
enforcement of entry barriers based on
NHC majority shareholding
 Staff severance allowed at an
acceptable cost by the law
 Commercial network not yet saturated
III.2.3 McKinsey Expanded 7-S
This assessment tool helps by providing an “helicopter view” of the whole organization in
terms of a dynamic relationship” among some key elements to ensure that the latter are
whether or not aligned:
III.2.3.1 Hard Triangle
The hard triangle, coined as such by Richard T. Pascale and Anthony G. Athos (), is made up
of elements which are conceptual and quantifiable.
 Strategy
“Strategy has to do with choosing among alternative paths for translating Superordinate
Goals into action in ways that create a competitive advantage.”
Jack Weber (1997)
Pareco has no strategy formally stated meaning no structural direction towards securing a
competitive advantage and a sustainable performance is clearly stated.
 Structure
Pareco Insurance displays a functional structure that seems overpopulated with 130 people
compared to an average of 70 staff for the other top 5 companies.
The model is mechanistic with a centralized authority. The chain of command is clear from top
to bottom and the span of control is narrow with 3-6 people reporting to a manager. Most of
the problems escalate to the top management and the resulting bureaucracy hinders the
customer experience. Communication is poor throughout the structure.
 Systems
“..Successful information systems are a critical component of a successful business. But an
information system is not just computers; a successful information system consists of the
correct technologies, tools, methodologies, processes, and people. If any of these are missing,
the information system is incomplete.”
Michael J. Savoie (2016)
In Pareco’s information systems, methodologies, processes and people are missing.
Consequently, data are not turn into information that management needs in order to
accurately take action.
11

Moreover, there are no performance appraisal, no compensation systems, no training and
development processes, no executive succession plan.
As they are, the Pareco’s systems do not have the potential to enhance the organizational
performance.
III.2.3.2 Soft Square
The “soft” elements are, by contrast, “more qualitative and difficult to quantify or measure”
according to Richard T. Pascale and Anthony G. Athos (1981).
 Superordinate Goals
Big Hairy Audacious Goals (BHAGs) (10) as coined by Jim Collins and Jerry Porras (1981) in
their best-seller, Built to Last: Successful Habits of Visionary Companies (New York: Harper
Collins, 1994) engage people, are tangible, energizing, highly focused-they are clear and
compelling and serve as a unifying focal point of effort and often creating immense team
spirit.”
No BHAG has been identified in the way Pareco business is run.
 Shared values
Professor Jack Weber (1997) defines “Shared values as including both a firm’s “core values”
and its “core purpose”. Collins and Porras add that “core values are those essential and
enduring guiding principles and tenets that don’t require external justification, and that the
company would keep even if business circumstances change”.
Collin and Porras (1981) add that “a core purpose does not change, but inspires change” and
assert that “it is like a guiding star on the horizon-forever pursued but never reached”.
The Pareco management has shown no evidence of any set of core values nor of any core
purpose.
 Skills
Skills refer in this model to “a set of skills that the organization has been able to synthesize
into something that sets the firm apart; something the company is known to do well”.
Pareco is recognized throughout industry to be good at reimbursing health expenses on due
time and at delivering guarantees either for bank customers or importers.
However, Pareco has yet to improve its customer service. Pareco has failed to develop the
skills of its aging staff in dealing with these stakeholders consequently hindering the brand
potential to entice customers.
 Staff
This element refers to people.
As previously mentioned, the Pareco staff is aging and insufficiently trained to deal with
modern IT systems.
The trend from 2012 to 2017 of training & development fees does not show any consistency:
12