Teaching Notes for the Case Study Insurance Broker Network (InBroNet): Selecting Partners, Evaluating Practices in: Sydow, Schüßler, Müller-Seitz (2016): Managing Inter-Organizational Relations. Debates and Cases. Palgrave Macmillan. A. Synopsis This case is on a network of small and medium-sized firms situated in the financial services industry that serves industrial clients. Narrating the process from the founding of the network in the early 1990s until today it highlights the role of two network management practices: selection of partners and evaluation of the partner s contribution to the development of the network. In addition, the case offers the possibility to apply a two-dimensional network typology and to distinguish between individual and collective actors. Time required in class: min. 30, max. 60 B. Goals 1. Understand interfirm networks in general and networks of small and medium-sized firms in particular from a process perspective that focuses on managerial practices and highlights strategic choices of management as well as serendipity. 2. Understand the role of selection and evaluation as two often interrelated network management practices. 3. Offer the possibility to classify the constellation in the case as a particular type of inter-organizational or, more precisely, interfirm network. C. Case Study Questions and Possible Answers 1. What are the reasons for setting up an insurance broker network like InBroNet? Why did Lisa not join the network of the insurer AlexCo instead? The major reason for setting up InBroNet was strategic: maintaining or even regaining control over expertise to assess risks and to consult on risk management issues and, thereby to stay an independent, real insurance broker. This reason, however, is not spelled out in the case directly, although the regular exchange of expert knowledge is mentioned, but so are the development of new products and services as well as more efficient and effective processes and some joint marketing efforts. Despite these many motives, the real trigger of the formation of the network was the event, organized by AlexCo to form its network of insurance brokers in the industrial lines business with the help of information technology. Lisa, as others, decided not to join AlexCo s network because she was afraid of being unable to maintain or regain control over expertise and becoming even more dependent on one particular insurer. This would exactly undermine the strategic independence that distinguishes insurance brokers from general/multiple agents. 2. Please try to describe the structure of InBroNet by differentiating individual and collective actors. Do you know of any network typologies you could draw on to characterize InBroNet? Such a typology would make it easier for Lisa (and the others) to communicate about InBroNet, for instance when talking on the phone to a network consultant, i.e. a person or firm that is experienced in managing and developing an inter-organizational network. 1
InBroNet is a network consisting of a number of small and medium-sized industrial insurance brokers; the largest employing about 60 people at the time of forming the network. Regarding coordination and control, this is a fairly heterarchical network of formally equal members. This is expressed best in the quarterly meetings (incl. the most important pre-christmas meeting) in which the brokers coordinate their activities on equal terms. In practice, however, some of the brokers are more influential with regard to network coordination (and development) than others. For instance, H&H is not only the youngest but also the only academic. More importantly, she is connected to another network of brokers active in the private lines business from which she imports new ideas or practices. Heterarchical coordination and more or less stable membership, together with the fact that the network members can visit each other within one hour s travel, makes InBroNet what is sometimes called a regional network (in contrast to a strategic network, for instance). 3. How does InBroNet select members? Which selection criteria were used in the case of InBroNet and why? Which other criteria could or should have been used? Would you as a network consultant have given Lisa, Fred and the others the advice to implement a more formal procedure for partner selection? After the initial formation of the network by seven brokers, the members agreed on rather slow and continued growth of network membership (e.g. not more than one member every two years). More importantly, they adhered to qualitative selection criteria right from the initial formation of InBroNet: complementary competences; willingness to participate in network development; and most importantly: being a real insurance broker, symbolized by membership in one particular broker association. Other criteria could have been: organizational age and growth potential; innovativeness with regard to products, services and/or processes; trusted relationships. A more formal procedure for selecting partners may become useful in the future when InBroNet continues to grow in terms of network membership. 4. Why did the brokers return to, as it seems, a less-differentiated and less formalized approach of evaluating the network or, more precisely, the contributions of the member firms to the common goal? What are the benefits and drawbacks of a holistic, less formalized evaluation practice as opposed to an analytical practice? Implicitly at least, the InBroNet members started to reflexively monitor the performance of the members, more precisely: their contribution to the development of the network, right from the beginning. Later, they even introduced a formal evaluation procedure which was at first of a more analytic nature but later abandoned in favour of a more holistic evaluation approach. Whatever the procedure, the members again at least implicitly during their meeting before Christmas agreed to continue to work together, i.e. they in a way re-selected the members. In one case, a member was even de-selected from the network. The major reason why the brokers returned to a more holistic evaluation approach was a lack of satisfaction with the analytical approach s ability to capture the real contributions of the individual members towards developing InBroNet. The benefits of such a holistic approach are its flexibility and subjectivity. Potential drawbacks are a greater arbitrariness and lack of transparency in the procedure. These drawbacks, however, can be compensated for when the evaluations are explained to the others and openly discussed. Without explanation and justification in open discussions this kind of quite dramatic intervention may do more harm than good to the development of the network. In most cases, it may be less risky to focus the formal evaluation, if needed at all, on more specific practices or aspects of the relationships in the 2
network than on general aspects like the climate within the whole network or its effect on the profitability of the member firms. D. Advanced Case Study Questions and Possible Answers 5. In what respects is the selection of partners a recurrent process? Which theories or debates on partner selection could a network consultant draw on to explain and justify alternative recommendations for a procedure and criteria for partner selection? In order to really capture the process of network development with the help of management practices, it is useful to conceive selection as a recurrent process that includes, apart from section practices also implicit and explicit re-selection and de-selection practices. Network consultants could draw on a broad range of theories to explain and justify their recommendations. These include more conventional economic theories, including transaction cost economics, principal agency theory and the resource based view, but also more processual approaches such as structuration theory, neo-institutionalism and the relational view. 6. Which theories or debates on network evaluation could a network consultant refer to explain and justify his or her recommendations? Network consultants, as well as network managers, could use the same theories to explain and justify their recommendations with respect to evaluation practices and procedures. 7. In which respects could selection and/or evaluation practices support/undermine the development of inter-organizational trust? Most importantly, one may argue that selection as well as evaluation practices can both support and undermine the development of inter-organizational trust, that is, trust between firms or other types of organizations that is, of course, initiated and sustained by individual actors like Lisa and Fred as boundary spanners (Adams, 1980) but attributed in the end to the organization or the network as a social system. Examples for supporting as well as undermining practices should be given. Finally, it is important to acknowledge that the practices are at least as, if not much more, relevant for trust-building and -destroying processes than the formal network governance. 3
E. Teaching Plan Time Content Options 0-10 Based upon reading of the relevant text we recommend clarifying critical concepts (like regional network, network selection and evaluation) first and recapping the major story of the case second. For the purpose of the latter, we think it is a good idea to elaborate together with the students on the actors that are mentioned in the text. In the end, it would be nice to come up with a list of major individual actors (Lisa, Fred, but also many others acting on behalf of the broker firms), organizational actors (all the eleven brokers, the insurance companies, the trade association, etc.; see Figure 2) as a first type of collective actors; and the interfirm networks (most obviously: InBroNet) as a second type of collective actors. 11-15 Apart from InBroNet two other networks deserve to be mentioned as collective actors: (1) the network of insurance broker who are involved in the private lines business and for which H&H acts as a bridge (see, once again, Figure 2) and (2) the network of insurance brokers in the industrial lines business which AlexCo wanted to set up using advanced information technology. One might even say that without this (failed) networking initiative, InBroNet may never have been formed. 16-30 (-45 or - 60 ) The major share of the time should be spent with the four basic case study questions. These could be (1) either prepared by the students before meeting in class and collected and then discussed by the instructor in front of the class (min. 15 ). Alternatively, (2) the questions could be discussed in small groups within class. Depending upon the size of the whole group, several groups could discuss and answer either all the case study questions or a selec- 4 As a next step, further introductory case-related questions like the following may be asked: (1) What is interesting about the case? (2) Why can the business of insurance brokers active in the industrial lines business be described as knowledgeintensive? (3) Why is it of strategic importance for real insurance brokers to control expert knowledge independent of the expertise of insurers? (4) Which major changes did occur in the network? The danger, however is, that students already foreclose issues that are addressed in more detail by the case study questions. Supplement the four basic case study questions with the three advanced questions. However, in this case students should be somewhat familiar with at least a couple of theories. Ideally they would be able to contrast the views of conventional economic theories like
tion of them (e.g. two for each group). The period of group work should lead to presentation and discussion of the results. With regard to this second alternative, groups may either specialize in one or two (2a) or deal with all four questions (2b). We recommend choosing the optimal alternative in face of time available. The alternatives (2a) and (2b) require a minimum of 25 and 45 respectively. transaction cost economics or principal agency theory with more processual approaches like structuration theory or neoinstitutionalism that take the social embeddedness of action into account. F. Sketch for Board Plan Board 1: Actors and Background Individual actors Collective actors - organizations - networks? What do we need to know about the business of insurance brokers? Typology of Interorganizational Networks Board 2: Case Study Questions Recap: What have we learnt about Selection practices Evaluation practices Why focusing on such network management practices? Debates relevant for understanding selection and evaluation practices? G. Background Information 1. Network Typology Being situated in the financial service industry, the case obviously deals not with an industrial network but a service network. Instead of this or other simple, one-dimensional typologies the case can be used to apply a somewhat more sophisticated two-dimensional typology that highlights dimensions which are essential for distinguishing inter-organizational networks in general and interfirm networks in particular. This two-dimensional typology describes such inter-organizational networks first with respect to their governance as either hierarchical or heterarchical (Hedlund, 1986). Regarding the quasi-hierarchical character of such networks it is worth mentioning that, despite all the discussion about the nature of such networks, consensus has been reached that the coordination of inter-organizational networks, in sharp difference to organizations (incl. corporate groups), cannot be based upon hierarchical but only quasi-hierarchical authority. Furthermore, one could mention that hierarchy as much as heterarchy are ideal types (Max Weber), i.e. they cannot be found in reality. In practice, inter-organizational networks are always more or less based upon quasi-hierarchical forms of coordination, depending not least on the strategic leadership of the network (cf. Müller-Seitz, 2012). 5
The same is true for the second dimension of this typology that distinguishes interorganizational networks according the stability of network membership. Using this twodimensional typology InBroNet would qualify as fairly heterarchical network on the one hand with a membership between stable and dynamic on the other. Occasionally, such interorganizational networks are termed regional network (Sydow, 2005), in this case of small and medium-sized service firms, since these firms are not only all participating in the collective strategizing and organizing efforts of the network but are also situated in geographic proximity (in this case, about a maximum of a one-hour drive). 2. The Business Even before introducing/discussing this typological approach, it may be useful to clarify the business InBroNet is involved in. As mentioned, this network is part of the financial services industry, focussing in particular on brokering insurance policies to industrial clients. This business is often described as knowledge-intensive as the brokers do not simply broker the policies but work together with the clients on risk analyses and customize solutions for insuring the more often than not complex risks unearthed. To some extent, the brokers even act as risk consultants, i.e. advise the client for instance to invest in fire safety first before buying a respective fire protection police (they often do so, although, in some countries like Germany this should not be an official part of their business). In sharp difference to general agents who market policies on behalf of one insurer only, real insurance brokers like all the InBroNet members actually buy insurance protection on behalf of their customers. Although the latter brokers also deal with preferred partners on the part of insurers, banks, investment funds, etc. and enter with them cooperative, long-term relationships, they are keen on distinguishing themselves from general and, in particular, multiple agents ; the latter which, in contrast to the general agent, usually broker policies on behalf of more than one insurer. This strategy of differentiation and the positioning as real insurance brokers in this businessto-business market is complicated by the fact that, in many countries, this particular business is dominated by small and medium-sized enterprises. These typically lack resources and are thus confronted with the dilemma that, more often than not, they have to rely on the expertise of insurers when assessing a certain risk of a client. For, in contrast to the few global players (like Jauch and Hübener) in this market, these smaller broker firms cannot afford to employ independent risk experts. As real insurance brokers maintain long-term relationships not only with insurers but also with industrial clients, the interfirm networks doing business in this industry have been described as networked networks (Sydow et al., 1998). 3. Network Management Most importantly, the case can and should be used to explore two important tasks of network management: selecting network members and evaluating the network or its members. Both represent two out of four major tasks of network management distinguished by Sydow (2005) and explained in Chapter 1 (pp. 17-21; the others are: regulating the interaction in the network with the help of formal or informal rules and allocating tasks, responsibilities and resources among the network members). Selecting the right network members is extremely important, as it makes the management of the network a lot easier or more complicated. Therefore, one may consider this as the most important task of network management, although in reality practicing this task always depends upon the historical development of the network, the expertise of the managers, and other contingencies. Nevertheless, it is useful to reflect on this and the other practices of network management as recurrent activities. In the case of InBroNet the members were 6
selected not only once (i.e. at the time of the original formation of the network and the more or less continuous expansion), but also again and again at the last strategy meetings of the year held shortly before Christmas; at least implicitly when the brokers agreed to continue working together. To make the picture complete, the management practices of selection and re-selection were complemented by at least one case of de-selection, i.e. when one of the brokers admitted that he had only joined InBroNet to find another business that he could acquire for gaining access to its clients. Evaluating a network should, at least in principle, also be considered a more or less recurrent network management practice. Even if, as later in the InBroNet case, the brokers stop any formal evaluation, this may be considered as a conscious decision for (not-)evaluating the network, the effectiveness of the whole network, or the performance of network members. Other potential objects of evaluation are, by the way, the quality of the relations that tie the network members together or, as practiced in the case, the expected contributions of members to the development of the network. In the InBroNet case, this evaluation task was first not considered at all. Later on, due to feelings of unequal contributions to the development of the network, a more analytical approach was introduced. Later, this was turned into a more holistic approach, before the network evaluation was stopped and only a reflexive monitoring (Giddens, 1984) of actions and their conditions and consequences continued (see Sydow 2004 for further details, also on the case). References Adams, J.S. (1980). Interorganizational processes and organizational boundary activities. In: Research in Organizational Behavior, 2: 321-355. Giddens, A. (1984). The constitution of society. Cambridge: Polity Press. Hedlund, G. (1986). The hypermodern MNC A heterarchy? Human Resource Management, 25 (1): 9-36. Müller-Seitz, G. (2012). Leadership in interorganizational networks: A literature review and suggestions for future research. International Journal of Management Reviews, 14: 428-443. Sydow, J. (2004). Network development by means of network evaluation? Explorative insights from a case in the financial service industry. Human Relations, 57(2): 201-220. Sydow, J. (2005). Managing interfirm networks: Towards more reflexive network development? In. Theurl, T. (Ed.). Economics of Interfirm Networks. Tübingen: Mohr Siebeck, 217-236. Sydow, J., van Well, B. and Windeler, A. (1998). Networked networks: Financial services networks in the context of their industry. International Studies of Management & Organization, 27(4): 47-75. 7