CINCO - (A): Challenging Traditions and Charting Reform, (B): Turf Wars

The road to reform in China is paved with detours and dangerous curves. Among the hazards are the traditional values that thrived under state run rule, but which now serve to slow progress. Looking at the case of CINCO, one of China’s oldest and largest insurers, Sarah Meegan and Professor Steven White show how the best intentions can be stymied by intractable cultural norms and varying players with vastly different goals.

by Steven White, Sarah Meegan
Last Updated: 23 Jul 2013

China’s entry to the World Trade Organization in 2001 marked a new chapter in the country’s economic history. Leading up to its entry, China began a series of reforms aimed at opening its markets. But the shift from public to private, with the backdrop of over 50 years of Communist rule, has not been easy. A case in point is CINCO, one of China’s oldest and largest insurance companies.

Steven White, Professor of Asian Business, and Sarah Meegan, Research Fellow, delve into reform efforts at CINCO and reveal a common scenario: a near monopolistic company whose employees tend to be former military officers or friends of managers and whose compensation is based on longevity not production. With little or no incentive to change, how will the company survive in the face of new foreign competition?

General manager of CINCO’s Guangzhou branch, Hong Wei, asks this question as he looks at the hurdles facing his efforts at reform. He understands that many employees see change as a threat to their daily lives. They do not see that the company’s poor reputation in customer service and its complacency will become a problem in the face of foreign competition. One way to address this concern is to recruit new, younger employees who are eager to perform. But how can he attract young talent when pay is linked to years of service and not productivity?

While fighting the personnel battle on one front, Hong must also engage in a battle of organization and productivity. In an effort to improve efficiency, he implements new cost and account management systems. Profitability now becomes the prime appraisal mechanism for branch managers. But as the authors point out, a variety of different stakeholders with varying needs and concerns turn a seemingly appropriate reform effort into a trouble spot.

First, the reform prompts internal conflict as competition heats up between branches. (In one case a branch “steals” a dissatisfied customer from another branch.) Then conflicts arise between departments within individual branches. Now judged on the number of clients it brings in, the marketing team, for example, works aggressively to recruit new clients, often looking away if the client is a poor insurance risk. The accounting and loss compensation department, on the other hand, concerned about keeping costs in check, begins to mete out higher awards to preferred customers and lower or none to the rest.

With this situation as a backdrop, the authors ask students to look at the different stakeholders and help Hong determine how to create a system that can deliver consistent customer service, rebuild relationships with customers, and rebuild the company’s reputation before foreign competition begins tugging at its market share.


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