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Case Study Guide

Notes: • Some decisions have more

leverage than others. • Decision-making need not be

sequential. • Strategy should drive your

decisions. • Beware of sub optimization

(e.g., focusing on one area and not paying attention to the whole).

• Forecasts are based upon previous year’s competitive information.

© Copyright 2017 PriSim Business War Games Inc.

• Analyze customer segment expectations

• Research competitors’ skills, service levels, and commissions

• Analyze customer sensitivities to price, expertise, and accessibility/services.

• View a position map. • Determine total customer demand and

growth rates • Evaluate customers, demand, cost, and

conversion efficiency by source • Determine revenues, profitability, and

customer satisfaction by segment • Analyze average lifetime value (LTV) of

customers

• Improve customer segment skills • Set service levels and advertising

emphasis by segment • Analyze loss ratios, awareness, new

and renew business levels by segment • Establish new and renew commissions • Advertise and promote the agency • Research production, lapse/cancel,

and gain ratios by product line

Decision Map

• Hire sales team members • Set time-blocks/ activities • Train to increase product knowledge • Increase cross-selling competency • Analyze utilization levels

• Set sourcing strategy by allocating Lead Generation effort between sources

• Improve sourcing competencies • Analyze lead generation time, pipeline

efficiency, and annual performance by source

• Proforma Income Statement • Proforma Balance Sheet • Proforma Cash Flow Statement

• Analyze forecasted performance by book of business, productivity, profitability, liquidity/ solvency, and customer satisfaction

• Issue or pay-off short term debt • Analyze agent compensation and distribute

profits to owners

Legend • Items in Black Font represent decisions that can be entered • Items in Blue Font are information to be analyzed

Competitive Analysis ►

Source Analysis ►

Analytics:

Customer Analysis ►

Financial

Management►

Source

Management►

Staffing & Sales Management►

Customer

Management►

Profitability Analysis ►

LTV Analysis ►

Income Statement ►

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Table of Contents – Case Study Guide

Welcome to the Agency Challenge!............................................................ 3

Objectives.................................................................................................... 4

What is a Simulation? ................................................................................. 4

Leading and Managing Your Business......................................................... 6

Business Areas in the Simulation ................................................................ 7

Customer Segmentation ............................................................................. 7

Customer Management .............................................................................. 8

Source Management ................................................................................. 10

Staffing & Sales Management ................................................................... 10

Financial Management ............................................................................. 12

Business Performance ............................................................................... 13

Analysis and Research Reports ................................................................. 13

Appendix: Situation Analysis ..................................................................... 15

© Copyright 2016, PriSim Business War Games Inc.

(888) 4-PRISIM Agency Challenge™ Case Study Guide

All Rights Reserved. No part of this book may be reproduced or transmitted in any form or by any means now known or invented, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system without written permission. For information about this product, please contact PriSim Business War Games Inc. at (888) 4-PRISIM.

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Welcome to the Agency Challenge!

Today is your lucky day! You have been selected to be part of the leadership team for an insurance agency in competition with several other teams. You and the rest of your management team will have sole control and responsibility for all business decision-making.

Over several simulated decision periods (each period representing one year) you will manage the entire business. Your mission is simple: improve your agency’s performance. You will make long-term (strategic) and short-term (tactical) decisions.

At the end of each round of play, you will receive feedback on your performance.

Only time will reveal which team will be most successful.

Best of luck!

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Objectives

Running an insurance agency is a complex undertaking. This simulation has been carefully designed to mirror many of the realities of the insurance industry. By challenging you with this task in a controlled environment, we will help you improve your business acumen and decision-making skills. Specifically, this exercise has been designed to help you:

Better understand the “whole picture” of an agency. By the end of this exercise, you should be thinking of the company as an integrated system of processes that produces an overall business result.

Enhance financial acumen (how an agency makes money).

Understand the importance of long-term market positioning, strategic thinking, business planning, and how to apply these principles to the management of the business.

See the longer-term value of customers and the importance of meeting/exceeding customers’ expectations.

Understand and prepare for changes in the competition and in the marketplace.

Discuss and apply best practices with peers and business partners.

By design, this challenge will help you to think strategically and tactically about the insurance business. The team that best analyzes the marketplace, their competitors, their internal operations, and makes the best decisions will outperform the other teams.

What is a Simulation?

Simulations are computer-based models of business processes and dynamics. The information used to design this simulation was taken from real-world agencies. We use this information to create the foundations for the strategic, financial, and operational relationships that you observe on the computer screens and in your reports.

When we built this simulation, we did our best to incorporate the important dynamics of the insurance marketplace; however, simulations are only representations of real organizations operating within a marketplace. Although this simulation has been based upon the dynamics of an actual insurance business, we cannot account for all business dynamics. We limit the scope

Customer

Satisfaction

Business

Performance

Customer Analysis & Mgt.

Financial Mgt.

Staffing & Sales Mgt.

Sourcing Mgt.

Training & Compensation

Marketing

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of the dynamics, and thus your decisions, to focus your time and thoughts on issues that are critical to your development as an effective business decision-maker.

Why use a Simulation?

Simulations are very useful learning tools for many reasons including the following:

You can learn more because you are engaged in the learning process.

Engagement means more than simply listening to someone talk to you about topics such as strategy, financial statements, and core competencies. True engagement involves listening, debating, analyzing, and actively applying the subject matter. Studies have found that when people engage in this manner, information-retention jumps from 20% to nearly 80%. The wisdom required in today’s business world cannot be developed only through traditional teaching methods; it must be gained through experience.

The consequences of taking risks are reduced.

Because you are making decisions that may be new to you, you are bound to require some practice. When you are put into the realistic business environment provided by the simulation, you can practice those decisions and gain on-the-job experience without the risks and implications of making those decisions in the real world.

You immediately see the results of your actions.

In addition to the opportunity to see business interrelationships you might not normally be exposed to, you also quickly see the effects of your decisions. You have the opportunity to play out your decisions, or to alter them based upon new information that you receive.

See the big picture.

The broad range of business dynamics encountered in a simulation will increase your business acumen. You will be better prepared to apply the lessons learned from the simulation, and to improve your performance, when you return to the real world and make real business decisions.

Why Simulate?

• Engaged Learning

• Risk-Free

• Instantaneous Results

• See the Big Picture vs.

“All genuine knowledge exists in direct experience.”

Mao Tse-tung

“I hear and I forget. I see and I remember. I do and I

understand.”

Confucius

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Leading and Managing Your Business

To begin the exercise, you will lead and manage an insurance business that has had its share of problems. The agency was run with no real direction or focus – and it shows in its current poor performance!

Your challenge is to manage and improve the business for several decision-rounds (each round representing one year). During each round, you will:

Assess the company’s strengths, weaknesses, and current and past performance.

Analyze opportunities and threats in the external market.

Benchmark against competitors.

Set direction and strategy.

Execute your strategy.

Each round will last between one and three hours. After you perform a “Final Save” at the end of a round, the Instructor will collect and process decisions from all the teams in the marketplace. The results of your decisions will be given to you for analysis through a variety of reports. Prior to beginning the next round, the Instructor and all teams will discuss the competitive results. Teams will then return to their team-rooms to make another set of decisions for the next period.

This is a “zero-sum game” in which customers choose the company with the best value proposition as perceived by that customer. If your company wins the business, you can be sure that another company has lost the business. The management team that runs the “best” company over the simulated years of competition wins!

The Process

Break up into separate management teams

At the end of each round

receive feedback on performance

1 Round = 1 Year

Winner at end of several years!

Each team runs a separate Agency

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Business Areas in the Simulation

The primary business areas of the agency you are managing are shown on the opening “Banner” screen of the simulation. You can access any of the areas within the software in any order from the Banner screen. But be aware – making decisions in one area of the business will likely impact many other areas of the business!

The four primary categories of decisions made in the simulation are:

Customer Management

Source Management

Staffing & Sales Management

Financial Management

Customer Segmentation

Achieving business success requires that you have a deep understanding of your marketplace and your customers. Customers in the simulated marketplace are concerned about the same things as insurance customers in the real world; that is, they have specific requirements and/or expectations regarding the solutions they seek.

Not all groups of customers have the same expectations, however. Different customer groups have unique requirements with respect to the product and non-product features they deem to be important. For example, in the automotive industry, luxury car buyers tend to be more sensitive to styling and quality attributes of the product than to the price of the car. In your marketplace, insurance customers also have unique needs.

Market segmentation has already been completed for you in the simulated marketplace (you can view this segmentation in the Position Map on the Customer Analysis screen). Your

Make Decisions Regarding:

• Staffing & Sales Management⁻ Hire, train and direct activities

• Source Management⁻ Manage Centers of Influence, generate and convert new business leads

• Customer Management⁻ Marketing, targeting, training, set service levels, and reward Sales Team Members

• Financial Management⁻ Monitor performance

Market Focus/Segmentation

Firms that segment their markets often generate higher returns than those that do not

Mass Market Approach

Segmented Market

Approach

• Two or more segments• Product differences exist• Product differences appeal differently to

market segments• Differences make better use of firm

capabilities and are more profitable

•No segments•No essential product differences•Too expensive to satisfy all

Recognition of market segments

Recognition of need differences

Recognition of market mix

Source: Portable MBA

“Dividing the total market for the product into homogeneous groups on the basis of needs, characteristics, or behavior (resulting in a) group of consumers who will respond in a similar way to a given marketing mix.”

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challenge is to determine which segments you will target. This is one of the key strategic questions you will need to address with your team very early in the competition. Recognize that it takes time to build awareness with any of the customer segments in the marketplace.

First Question! Who are our customers?

• 9 different types of customers (customer “segments”)

• Each segment differs in:⁻ Price Sensitivity

⁻ Market Size/Demand

⁻ Accessibility and Service Expectations

⁻ Expertise and Skills Expectations

Use a Position Map (Perceptual Map) to

Visualize the Marketplace

Customer Management

There are 9 separate customer segments purchasing products in the marketplace. Based upon the strategic direction of your agency, you will choose the customer types on which to focus your marketing efforts. In addition, you will structure and build your internal operations to mirror the needs and wants of your chosen customer segments.

The 9 customer segments can choose to purchase 3 distinct products from your agency:

Product A (e.g., Auto Insurance)

Product B (e.g., Home Insurance)

Product C (e.g., Life Insurance)

Once you identify the key customer segments you wish to pursue, you will make a series of decisions regarding your Customer Training efforts, Service Levels, Team Member Sales Incentives, and the focus of your Advertising efforts. These decisions include:

Customer Training: you can focus effort and resources into training your Sales Team Members to better serve specific customer segments. You will be able to see an estimate of your end-of-year competency with each customer segment (scale 1-10 where 10 represents the highest competency).

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Service Levels: as you build your overall capability to service customers (set on the Staffing and Sales Management screen), you can adjust your service level by customer segment up to your maximum capability (scale 1-10). Note that your Service Levels cannot be higher than the Servicing Existing Accounts competency you’ve developed on the Staffing & Sales Management screen.

Average Commissions/Sales Incentives: you set the average commissions paid by your Agency to your Sales Team Members (some Team Members may get more and some may get less). The commissions you pay will drive the number of new policies and renewals. Pay attention to the commissions that your competitors pay to their Sales Team Members – differences in commissions can make a big difference in driving volumes (and in the turnover of your Sales Team Members).

Advertising Emphasis: as you increase the emphasis on a given customer segment, you allocate more marketing dollars and overall marketing effort to that segment. This emphasis will drive your Awareness level within that segment; customers can’t buy from you if they don’t know about you. In addition, the amount of time you allocate to Lead Generation on the Staffing and Sales Management screen will impact your company’s Awareness level.

New Business and Retention: as you make decisions in the software, the number of new households is shown as well as your customer retention. NOTE: Retention levels shown in the simulation are based on policies, not customers/households. (household retention is referred to as “defection” rate)

Agency Marketing This Year: the budget that you set for marketing efforts impacts the awareness that you generate in the marketplace. However, be aware of diminishing returns and the tradeoff between the cost of the marketing and the awareness generated.

Book Statistics: production ratios are given by the 3 product types. The Gain Ratio is calculated as Production Ratio less Lapse/Cancel Ratio.

Loss Ratios: the Loss Ratio is an indication of the level of claims activity for your insureds (i.e., claim payments made by the carrier to policy holders). Your company can help lower losses in several ways: train Sales Team Members for better segment competencies; have Sales Team Members spend more time communicating and coordinating with regional management so that they can better place risk; and/or offer higher levels of value-added services (which reduce risk).

NOTE: The distinction between customers versus policies is key: one customer/household can have multiple policies (e.g., one household might have 2 Auto policies, 1 Home policy, and 2 Life policies).

Customer Profitability

An analysis of the profitability of each customer segment will show both revenue volumes in commissions as well as each segment’s profitability. Specific measures that can be analyzed include:

Revenue levels.

Compensation expenses.

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Contribution profit from (“contributed”) each customer segment in total.

Average premium and profit per customer/household.

Total premium and customer satisfaction level as measured by the Customer Satisfaction Index score (CSI).

Source Management

“Sources” provide your agency with new business leads (prospects). Examples include: Direct Mail, the Internet, Customer Referrals, Centers of Influence, etc. Information is provided regarding your overall competency in working with each Source, the percentage of prospects in each Source you are ”penetrating” (i.e., 100% penetration indicates you’ve contacted all available customers at least once), and your efficiency in converting leads from each Source into actual written policies.

You can make two types of decisions on the Source Management screen:

Source Training and Development: focusing efforts to increase your Sales Team Members’ competencies in working with the Source.

Lead Generation Allocation: allocating the percent of Sales Team Members’ time spent working with each Source. You set the overall amount of Lead Generation time on the Staffing and Time Management screen, and then allocate that time here on the Source Management screen.

Staffing & Sales Management

Staffing and Sales Management aligns the agency’s workforce directly to its business strategy and objectives. Your agency is made up of people, and their commitment and skills ultimately determine the success or failure of your business. A critical responsibility in leading and managing a business is recruiting and retaining the right people. In addition, you must direct your staff to perform specific activities and you must train them so that gaps in competencies are filled.

You can manage several elements of your workforce on the Staffing and Sales Management screen including:

Hiring and Attrition

As you consider adjusting your staffing levels, you must decide whether you hire inexperienced versus experienced Sales Team Members. Your hiring decisions include:

New Hires: inexperienced Team Members are widely available; however they must be trained before they are fully productive. It takes about 3 months to select and bring in a New Hire.

Experienced Hires: availability of these candidates is limited, competitive, and more expensive; however they may provide capabilities that you require more quickly than

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building them internally. It takes about 6 months to select, negotiate and bring in an Experienced Hire.

In managing the size of your workforce, recognize that you may also make the decision to terminate Team Members. Terminations are immediate and will occur at the beginning of the current year.

NOTE: If you decide to hire experienced candidates, be sure to look at the Experienced Candidates Report to analyze relative skills (this option may be available – ask your Instructor). In addition, be aware that experienced candidates do NOT come with a book of business.

Service Team Members: the number of Service Team Members at your agency will be automatically adjusted by the number of Sales Team Members you hire and by the service levels that you offer to your customers.

Managing Attrition: anticipated turnover, or attrition, is shown in both number of FTEs (see explanation of the term “FTE” below) and in percent-attrition. Your turnover will be impacted by Sales Team Member utilization, the training your company offers, and the Team Member Sales Incentive you pay (see Customer Management).

NOTE: Turnover will occur at the end of the decision period (i.e., Sales Team Members will not walk out on you in the middle of the year).

Sales Activities/Time-Blocks

You will need to assign your Sales Team Members a specific number of days per month (based on an 18-day work-month) in which they engage in specific activities such as:

New Business Lead Generation: time spent contacting prospective customers. As you allocate more time in Lead Generation, your Sales Team Members can spend more time generating prospects through the various lead sources. If you change the Lead Generation days per month, or if you change the number of Sales Team Members, be sure to re-examine your sourcing decisions as the amount of time you’ve allocated to Lead Generation at the sources will have changed.

New Business Lead Conversion: time spent working with leads to fully understand their needs and to explain how your solution is superior to other offers.

Servicing Existing Accounts: time spent answering calls and checking-in with existing customers in all segments. This level will be automatically assigned based on the number of existing accounts and the service levels you offer your customers. To set levels for specific customer segments, go to the Customer Management screen.

What the Heck is an FTE?

• A Full-Time Equivalent

• Example 1:⁻ You employ 1 full-time Sales Team

Member and have a another Sales Team Member working 30 hours per week.

⁻ That equates to 1.75 FTEs in terms of Sales Team Members. (1 full-time, plus 1 at 75% time)

• Example 2:⁻ You employ 1 full-time Sales Team

Member and have 2 other Sales Team Members who work half-time. That equates to 2 FTEs. (1 full-time, plus 2 at 50% time)

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Renewing Business/Cross-Sell: time specifically allocated to retaining existing customers and offering them additional coverages. NOTE: If renewals are low, and each Sales Team Member is spending significant time in the “Renewing Business” time-block, consider looking elsewhere for a solution. For example: perhaps your company doesn’t have enough Sales Team Members on staff for all the customers that are renewing, or maybe your current service levels are below market expectations and customers are unhappy.

Regional Coordination/Communication: time spent meeting with and communicating with your regional management regarding claims and underwriting, and to improve your understanding of the company’s products, services, and processes. This can improve your new business conversion rate and your retention rate.

Administration and Development: unassigned time spent on administrative and training activities – some time on these activities is value-added for the business, up to a reasonable level. A minimum of 5% is required.

Total Utilization: Sales Team Members will work greater than 100% utilization – if they’re making good money, they’ll help you make good money. However, if you work them too hard turnover will increase. 100% utilization is defined as 18 days of work per month (which takes into account vacation, holidays, sick days, and weekends).

Training and Competency Development

You will be able to build competency levels and skills in specific sales activities, cross-selling, and in product lines. Improved skills in cross-selling can help increase your overall policies per household.

Keep in mind that the amount of effort you spend on competency building comes at a cost (which you can analyze on the Training and Development line item on your Income Statement) and that Sales Team Members must spend that time in training as opposed to selling. There are many benefits to training your staff including higher effectiveness with customers, higher closing ratios (calls to written policies), and lowered attrition levels.

In addition, while competency development occurs in the year in which you invest in it, the full benefit does not come until the end of the year.

Financial Management

Finance and Accounting are often referred to as the “language of business”. As a leader and as a manager, it is very important to be comfortable with this language. Financial results provide key information to stakeholders both inside and outside your company regarding the performance of the agency. Your financial strategy will be critical to your success

On the Financial Management screen you can:

Analyze Financial Performance: by debt level, book of business, productivity, profitability, liquidity, and customer satisfaction.

Make Distributions: you can choose to distribute some or all of the excess profits that you’ve retained in the business out to the Agent. If you choose to do that, you’ll be given a

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certificate for that amount of money – hang onto it as you may be able to use those distributions to purchase exciting prizes during the course…!

Bonus: Bonuses are paid out in the year after they are earned. Bonus amounts are determined by:

Life (Product C) applications closed.

Number of Property and Casualty (Auto and Home/Products A&B) policies in force.

Quality of Auto and Home policies, defined as the Loss Ratio for the two products.

Business Performance

Good business decision-making requires periodic analysis of the financial impact of decisions. You will have access to proforma financial reports including a Profit and Loss Statement, Balance Sheet, and Cash Flow Statement.

Proforma Financials

At any point during the decision round, you can access your company’s Proforma financials showing forecasted performance. Remember, these are proformas based on last year’s competitive positioning; your company’s actual performance at the end of any round may be quite different than your Proforma depending upon market conditions and competitors’ strategic and tactical moves during the round. Remember also that “tweaking” the various levers and decisions within the software will not maximize your performance – strategic, well-aligned decision-making are what create successful outcomes!

Customer Lifetime Value

Lifetime values are provided to give you an idea of the average potential value of your customers.

Analysis and Research Reports

Several analysis and research reports are available to you as background in making your decisions:

Customer analysis

Source analysis

Competitive analysis

Customer Analysis

The Customer Analysis screen will help you to better understand the relative needs and wants of each customer segment. Note that there are 5 niche segments referred to individually as Niche 1-5. We have given these niche customers generic names specifically to make the point that it’s not the name of the segment that matters but the segment’s “care-abouts” or sensitivities.

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Sensitivities in price, reputation, segment experience/expertise, and accessibility/service are shown for each customer segment. Success with a segment is driven by how well your business decisions align with their care-abouts. NOTE: Accessibility represents how easy it is for a customer to contact the agency to ask questions, make appointments, obtain guidance and advice, etc.

Demand is given for each customer segment in total customers/households (both new organic customers and customers leaving other carriers and agencies) and in premiums and policies by the 3 product types. In addition, the segment’s projected growth rate is provided; this number represents only organic growth of new customers, not customers switching carriers or agencies.

A Position Map is also shown plotting each customer segment by price sensitivity and value (non-price) sensitivity and showing demand in either units or in premium dollars.

Source Analysis

Several volume and effectiveness metrics can be viewed by Source, or “Centers of Influence”:

Cost per Contact showing what it costs your company to contact each customer by source.

Source Demand by New Households Available, which will help you estimate potential demand for your products and the source of that demand.

Expected Conversion Rates, by Appointments to Calls ratio and Written to Appointments, which measure the expected effectiveness of your conversion efforts.

A bar chart showing the expected number of new customers available in each customer segment from each source.

NOTE: The “Unknown” source represents leads that come to the agency from an unknown source, not from one of the specific sources tracked.

Competitive Analysis

In business planning, knowing your own strengths and weaknesses provides only a portion of the answer. You also need to have an understanding of the strengths and weaknesses of your competitors so you can out-maneuver them. For each company in the competition, and by market expectations, you can view several key statistics by product line and by customer segment as of the end of the previous round of competition.

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Appendix: Situation Analysis

Prior to making decisions for your company, it would be wise to perform an “As-Is” situation analysis to increase your understanding of your business and the market it serves.

Once you have completed the “As-Is” analysis, you will be in a better position to define your long-term objectives for the company (the “To-Be”) and to identify the gaps that exist and that must be corrected to achieve your objectives.

When performing a situation analysis for your business, it will be necessary for you to walk through each of the screens of the simulation. At the end of this activity, your team should have a greater understanding of your company and the marketplace. Feel free to document the results of your analysis in a format that your team has agreed upon (i.e., a SWOT matrix might be useful; a brief description follows).

SWOT Analysis

The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT framework is commonly used as part of an organization’s planning activities. SWOT is used to identify key elements in:

An organization’s capabilities (an internal assessment). What are the things that the organization does well? What are the things the organization does not do well? These are the organization’s strengths and weaknesses.

An organization’s environment (an external assessment). What are the conditions in the external environment that favor the organization’s strengths? What are the unfavorable conditions in the external environment that are unrelated to existing strengths? These are the environmental opportunities and threats.

“To-Be”Objectives & Goals

“As-Is”Strengths,

Weaknesses, Opportunities, Threats

Defining the “As-Is” with SWOT

Opportunities Threats

Strengths WeaknessesInternal

Assessment

External Assessment

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