Decision-Making: Nine M Analysis

Introduction to Decision-Making Tools

• This section introduces tools used by senior management and business advisors to analyze the feasibility and effectiveness of business strategies.
• These tools are useful for developing ideas in both exam settings and real-world scenarios.
• They can aid in creating answer plans for case studies.

Nine M Analysis

• This helps an insurer understand its current position before making strategic decisions and identifies available resources and potential limitations.
• Considerations should be made for strengths, weaknesses, and the potential consequences of a proposed strategy, along with the significance of these consequences.

Manpower

• Encompasses human resource considerations, including the number of staff available, their expertise, staff morale, motivation, and adaptability.

Machinery

• Involves the complexity and capacity of the insurer's data systems.
• Considers the security and location of servers.
• Assesses the effectiveness of the insurer's website and its integration with aggregators.

Money

• Includes the insurer's solvency position, sources of capital, relationships with shareholders, and credit rating.

Materials

• Typically involves factors like supplier reliability and raw material costs, which are less relevant for general insurers but may include relationships with brokers and aggregator sites.

Markets

• An insurer should consider its market standing, market share, brand image, customer loyalty, goodwill, and relationships with brokers and reinsurers.
• This analysis primarily focuses on the company's internal resources and factors, rather than external market conditions.

Management

• Focus on skills, abilities, experience of senior management.
• Senior management should be composed of a balanced skill set.
• Considerations should be made for corporate governance as well as the culture of senior management.

Methods

• Focus on activities and processes used, for example pricing, reserving, and sales, as well as claims handling, and outsourcing activities.

Management Information Systems

• Requires an assessment of the quality and timeliness of reports, the cost of the system, reporting frequency, level of detail, and data quality and quantity.

Make Up

• Considers the company structure, culture, and compatibility with proposed strategies.

Feasibility Study

• It analyzes the strengths and weaknesses of a proposed strategy in order to assess prospects for success.
• Key areas: technical and system feasibility, legal, operational, economic, as well as schedule feasibility.

Factors to Consider in a Feasibility Study

• Technical and System Feasibility: Determines if the company has the technical expertise/capacity, and analyzes the hardware/software.
• Legal Feasibility: Determines if the proposal will comply with legal requirements.
• Operational Feasibility: Measures how well the proposal fits with the existing business and the processes already in use.
• Economic Feasibility: Cost/benefit analysis that includes identification and quantification of expected benefits, while also assessing financial risks.
• Schedule feasibility: A feasibility study will estimate the time it will take to implement a strategy and how reasonable the project timetable is.

When Not to Conduct a Feasibility Study

• When a decision to move forward with the project has already been made.
• No need for a study when it is already known the project is feasible because it is so small, or is not feasible at all.
• A feasibility is not needed when the idea is still in its infancy and the strategy is not clear enough yet to assess feasibility.

Product Lifecycle

• Examines the net revenue generated by a product line over time to inform investment decisions and analyze a company's product mix.
• Focus on spreading the product mix across different lifecycle phases to balance investment and decline.
• It is best to have multiple products in the development/introductory stages, as some make be released at differing times, if at all.

Development

• Involves product design, pricing, market research, staff training, and IT systems development.
• At this stage, the product has not yet been launched and net revenue is negative.

Introduction

• Product launch accompanied by initially low demand and potentially high costs.
• Pricing strategy can be used to encourage growth.
• Innovation results in low competition.

Growth

• Customer awareness of the product is well established; demand and competition from competitors increases.
• Marketing costs are likely to still be high in order to make the most of the growth opportunity.

Maturity

• Demand eventually reaches its limit and competition is high.
• The product lifecycle stage is probably the longest.
• Price becomes critical at competition.

Decline

• Decline is marked by falling sales and revenue.
• Accelerated by new alternative products.
• Requires revitalization, entering new markets, or launching new products.

The Boston Matrix

• A framework used to look at a company's product portfolio.
• Range of product types are measured from 'stars' to 'cash cows', hoping for no dogs or problem children.
• Star: rapid growth with high market share.
• Overtime a "star" can turn into a "cash cow" when market growth slows.
• Problem child: a product with a low market share in a rapidly growing market.
• Dog: firms have to look at various marketing strategies to avoid a "problem child" become a "dog".

Porter's Five Forces Model

• Identifies and analyses five competitive forces shaping market conditions.
• It identifies the market's strengths and weaknesses.
• Understands the strength of an insurer's current competitive position.
• Analyses the position it is considering moving into.

Supplier Power

• Concerns how easy it is for suppliers of insurance business to influence prices.
• Influenced by aggregator sites, uniqueness of product, and market participants in each distribution.
• It's also influenced by the supplier's strength and control.

Buyer Power

• Focuses on how easily customers can dictate rates and drive prices down
• It is driven by demand for the product and relative market size, how important each individual policyholder is, ease of switching insurers, and price transparency.

Competitive Rivalry

• The power in the market will be impacted by the insurer's capability versus direct competitors.
• Differences in quality and brand are key.

Threat of Substitution

• Affected by customers ability to find a different way of doing what it.
• The ease and availability of substitution weakens the insurer's position.

Threat of New Entry

• Factors affecting new threats include market capacity, costs of capital, economies of scale, capital requirements, riskiness of the industry, and the catastrophe experience.

PESTLE Analysis

• PESTLE analysis can help you determine how the performance and activities of an insurer will be affected by : political, economic, social, technological, legal, and environmental factors.
• Both upside and downside risks should be considered.
• Two advantages to using the PESTLE framework are ensuring a balanced coverage of broad issues and being a commonly-used tool amongst consultants and management.
• Often used with other analyses like SWOT.

SWOT Analysis

• It analyzes a business proposal's attractiveness under strengths, weaknesses, opportunities, and threats.
• Strengths and weaknesses identification will help to identify the internal factors that would be attractive.
• Opportunities and threats identification will help to identify the external factors that might impact the proposal.
• Strong relationships between strengths and opportunities would suggest to pursue an aggressive strategy.
• Strong interactions between weaknesses and threats could suggest corrective action.