Benefit Investment Agency Assignment
Benefit Investment Agency
Hugh Macarthur is worried. He has been CEO of the Benefit Investment Agency for 23 years, and feels that he has never been faced with such a series of complex, interconnected decisions before in all that time. As he leans back in his leather armchair, sips his steaming morning coffee and gazes out from his thirteenth floor office window, the unopened consultant’s report lying on the broad mahogany desk, he wonders what he should do. How is he going to manage the required transformation effectively?
Benefit Investment Agency (BIA) is an old government department. It was originally established back in the late 1940s to provide financial advice for public servants, and for those who opted to invest in superannuation, it managed their funds. However, it grew its areas of interest as an organisation, and by the mid 1970s was well established in the areas of superannuation (planning and management), insurance (especially life insurance), financial planning, and related services, all for state government employees and retirees from the Public Service. Since then, the only changes that have occurred have largely been driven by changes to policy enacted by State and Federal Governments. For example, in the late 1980s, about when Hugh joined the organisation as a senior manager, the State Government legislated to allow BIA to become a profit-making, government owned enterprise. This particular change may have changed the legal structures and operations of BIA, but made hardly any impact on BIA as there was no requirement that they made substantial profits, and losses were underwritten by the State Government. However, State Governments in recent years have become less tolerant of this arrangement, and one of the key messages Hugh was given by the previous State Government was that losses would no longer be tolerated, and that the Government was looking to BIA to swell its revenues.
BIA was further impacts made to Superannuation Legislation by various Federal Governments, notably the Keating and Howard Governments who had, among other reforms, imposed much stricter regulatory requirements on all superannuation providers, thus dramatically increasing the demands and costs of compliance involved. Now, much to the consternation of many within BIA, the State Government has said that in the next few years, BIA is going to be fully privatised, and thus required to complete in the extremely competitive financial services marketplace if it wishes to survive.
When Hugh joined BIA it already felt like an old, conservative organisation, not one that readily embraced innovation and change. Hugh acknowledges that perhaps more could have been done to change things, but he also rather likes some of the old-fashioned ways of BIA. Indeed, one of the reasons BIA has been successful is its reputation for outstanding customer service. Retirees and state government employees, particularly over-50s employees, are welcome to drop into BIA offices for advice, are encouraged to make themselves a cup of tea or coffee, and then are welcome to chat to their customer service staff for as long as it takes to solve their problems or allay their concerns. Hugh has noted that sometimes these meetings go on for 2-3 hours, and his Deputy is convinced some of the customers come in for a good chat because they are lonely rather than because they need financial advice! However, customer satisfaction surveys are extremely good, and hence Hugh has been reluctant to encourage his front line staff to take a more “efficient” view of customer service. At Industry meetings however, he has sometimes been stung by the jokes of other financial service sector organisations, who tell legends about BIA notorious ‘over-servicing’ of its customers. He also suspects there are jokes about the lack of innovation at BIA.
Hugh organised a meeting with some of his senior managers a few weeks ago, at which he specifically asked them to comment on their excellent service to their customer. Was the BIA way (endless amounts of time with any customer, very caring environment, no concerns whatsoever with the cost of benefit of providing such a service) sustainable in a modern world, especially when BIA was fully privatised? Hugh’s CFO had presented data which showed conclusively that while their customer satisfaction and retention rates were outstanding, their servicing costs and hence the fees they charged were well above industry benchmarks. The conclusion at that meeting had been that it would not be, but the question that had still not been answered was “What constitutes good customer in the superannuation business service in a competitive market place?” Hugh continued to muse about what it would mean to BIA to be competing against all the larger, more efficient and very experienced players in this market who had had years of experience in the private sector. Furthermore, his customer base, public servants, would now be given a free choice to invest their superannuation funds in any providers they wanted, so he realised their fee structures (and hence their costs!) would have to become competitive in this market place. Their financial worries were ever present. Not only was he worried about costs, but increasing regulation were driving compliance costs up as governments sought to provide more financial safety and responsibility for those investing their superannuation. But worst of all, his IT Manager (Fred) was taking every possible opportunity to plea for action to be taken regarding some of their core systems.
For years BIA had run much of its core business on their Superannuation Administration System (SAS). SAS was a mainframe application that had been developed in house years ago, had been upgraded and modified on countless occasions, and as their old cobol programmers retired, had become increasingly difficult to maintain and operate over the years. About 10 years ago, then IKT Manager at the time had decided to outsource SAS to a vendor in Western Australia called Alcatraz Solutions, and now BIA was totally dependent on Alcatraz as they no longer had people internally who knew anything about this application. Hugh shuddered as he remembered the last round of government changes – that had needed more than a year and over $1 million before SAS became compliant with new compliance requirements. Increasingly Fred felt that Alcatraz was gouging BIA as they well knew that BIA was totally reliant on their support. With more changes signalled by the Rudd Government, and privatisation on the near horizon, Hugh realised that SAS was a dinosaur, and frankly, a threat to the company. Even he realised that BIA could not continue in this way. Hugh had a meeting planned for a fortnight’s time with his senior executive team….they had some very tough decisions to take. Hugh started to take notes on the issues he saw.
· His front office people thought they were doing a fantastic job, but was their service level sustainable in a competitive environment?
· His back office staff (especially the superannuation processors) had a public service mentality and culture, and were slow and inefficient, very reluctant to change or embrace new technologies
· He had few adequately skilled IT staff remaining internally, yet he was sure that the unopened consultant’s report on his desk would recommend dramatic changes in that area.
· The outsourcing deal with Alcatraz was clearly now becoming a constraint and cost on the business, with Alcatraz staff getting fed up dealing with this old system, and charging high
rates for changes
· Substantial investment in IT would be required to meet some of their challenges, but what?
And how would they resource such investment?
He had also had discussions with the Manager of Operations, who was clearly of the view that further outsourcing was required. He was talking about entering into a Business Process Outsourcing deal with one of a number of BPO vendors, arguing that they would replace BIA people and old IT with their people, an efficient business process, and new IT, and remote processing.
Time to read the report from Amalgam, the consultants Hugh had commissioned to investigate all the problems of BIA and make recommendations. Your group are all consultants from Amalgam and wrote the report after extensive work with staff at BIA. How are you going to advise the company?
No requirement to make profits
BIA for 40 years operated as a government owned organisation, who provided financial advice for public servants including old government employees and retirees. The organisation operated to manage funds and invest super for their members. Changes in legislation allowed BIA to become a profit-making government owned enterprise. This however, did not make any huge impact on the company because there was no requirement for them to make substantial profits and to make matters worse, the losses were worn by the State Government.
Excellent Customer service levels deemed to be non-sustainable in a competitive environment.
BIA are believed to ‘over-service’ their customers.
They welcome retirees and state government employees to drop-in for advice with the customer service staff. It is noticed that these meetings can go on for 2-3 hours as some of the customers drop in for a good chat because they are lonely more than a need for financial advice. In such setups, the cost of providing such a service was quite high resulting in fees being charged at high rates which were well above industry benchmark.
Privatisation of BIA and increasing regulations
The privatisation of BIA would require them to be competitive in the financial service sector if it wished to survive. Further to this, the customer base, public servants would be given a free choice to invest their superannuation funds in other private sector providers they wanted. As a result, BIA would have to have a very competitive fee structure. Increasing regulations were forcing their compliance costs to rise. The government wanted the organisation to provide more financial safety and responsibility for their customers, who were investing their superannuation. Privatisation will urge progress in the company through competition. When BIA is privatised it will give up its government security and will be forced to accommodate the market by catering better services or products in order to endure and succeed.
Back-office staff hesitant to embrace changes.
The back-office staff at BIA had a public service mentality and culture, were slow and inefficient, hesitant to change and unable to grasp new technologies. They prefer to stick to the ‘old-fashioned’ ways.