Prudential UK Responds to New Competitors

Case Type: business competition/competitive response.
Consulting Firm: Booz Allen Hamilton (BAH) 1st round job interview.
Industry Coverage: Insurance: Life & Health.

Case Interview Questions #00085: Your client Prudential plc (NYSE: PUK, LSE: PRU) is a global financial services and insurance company headquartered in London, United Kingdom. This case concerns Prudential’s UK division which has around 7 million customers and is one of the largest life insurance companies in the UK.

The CEO of Prudential UK has hired you because it is facing two issues. New legislation will require all insurance companies in UK to disclose their cost structure and management fees to the public. Secondly, new, smaller competitors have emerged that sell directly to the end users. These smaller companies are able to underprice your client and they have steadily gained market share. How would you advise Prudential to respond these two issues?

Possible Answers:

Candidate: I would first want to know how this client Prudential UK competed in the market place. Does the client offer a differentiated insurance product for which it is able to sell at a premium price, or does the client sell insurance product that must sell at the market price?

If the CEO of the company is concerned enough to call in a consulting company, then the new competitors have taken enough market share to be considered dangerous. Therefore, I would want to examine the cost structure of the client.

Interviewer: How would you do that?

Candidate: I would start by mapping out the processes involved with writing a policy, beginning with a phone call or a letter that requested a policy to be written, and continuing with order entry, policy writing, credit approval, final construction of the physical product, and mailing or faxing the document to the customer for approval.

I would attempt to calculate capacity utilization for all the functional areas. If utilizations were too high in some departments and too low in others, I would look at training people in the less utilized areas to do be able to do the work in the higher utilized areas. If too many or all departments were underutilized, I would look at staff cuts and/or consolidating different functional areas. Perhaps some work that formerly justified its own department has become automated and no longer justifies employing specialists to perform the work.

I would also look at how much time it took for the request to make it through the system. Perhaps the hand-offs between departments are not smooth. Maybe documents sit in an out box for a day or two before being passed on to the next department.

Interviewer: OK, that sounds good. This client also ran an in-house data center that was largely constructed in the 60s and 70s. The client was concerned that this might be a large cost that justified attention.

Candidate: I would first try to measure the percentage of overall costs for which the data center was responsible. If this was a large percentage relative to other cost centers, then I would want to investigate this sooner rather than later. Let’s assume that it is a large expense and deserves some attention. I would look at a few possible solutions.

The system has been around for a long time. Perhaps additional capabilities have been added over time. If some parts of the system are not compatible with other parts, or if there are redundancies in the system, I might suggest eliminating the redundancies and ensuring that all parts of the system were able to share the same data.

I would also investigate whether new technology was available that could be used to replace the legacy system. The cost of a new system might be justified when balanced against the maintenance costs of the old system. Additionally, if the new system could speed up response time or reduce errors, then these benefits should be factored in to the equation.

Finally I would look at outsourcing the entire data center.

Interviewer: How would you go about that?

Candidate: I would use cost/benefit analysis. I would attempt to measure the cost savings from eliminating the data center. These would include salaries, the energy costs associated with running the system, and the overhead cost of the space that the data system occupied. I would measure these against the price to be paid for outsourcing the data center.

Interviewer: Good, let’s stop there. There is no right answer of course, but for this particular project we did end up eliminating several departments and cutting jobs. We also looked at best practices in the industry to help us in determining these reductions. Additionally, we suggested outsourcing the data center, but there was strong resistance to this by the individual who ran the data center. He was able to defeat the proposal and we ended up patching up the old system and expected this to be a short- term (2-3 year) solution.

Note: The interviewer mentioned the he did not expect me to know about best practices. I responded that I was aware of best practices and that I should have mentioned it. In general, the case discussion lasted for perhaps 20-25 min. of the 45 min. interview.