SECTION 1 INTRODUCTION

1.1 INTRODUCTION

RHB Bank Berhad (also known as the Rashid Hussein Bank) is a bank based in

Kuala Lumpur Malaysia. It specializes in commercial banking, corporate and

investment banking and international banking services. The bank was formed after a

merger between Kwong Yik Bank and DCB Bank (Development and Commercial

Bank, also formerly known as D&C Bank), on July 1, 1997, and Sime Bank and

Bank Utama later. On March 9, 2007, the Employees Provident Fund (EPF) gained

control of the bank, after winning a bid against EON Capital and a Kuwait Finance

House -led consortium.

RHB Bank specialises in consumer banking with other entities like RHB

Islamic Bank, Delta Finance to its name. RHB Bank is a commercial bank focusing

on industrial and commercial lending in Singapore, despite it being a fully qualified

bank.

Other products includes debit MasterCard i-Cash and i-Connect along with SenQ

debit MasterCard electronic.

1.2 PROBLEM STATEMENT & RESEARCH QUESTION

Over the course of working at RHB Bank for 2 years, the sales performance level

of the branches regarding to life insurance products has often received the

attention of various parties inside and outside the organization. Up to the present

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 time, there has not been a scientific study undertaken to identify whether the job

evaluation effective or otherwise.

Therefore, there are 3 research questions which will be the guide through the

whole study which is:

a. What is the sales performance level of the branches of RHB Bank regard of

life insurance product?

b. What are the factors that contribute to the level?

c. What are the solutions that can be recommended to increase the level?

1.3 OBJECTIVES OF STUDY

Based on the three research question represented above, here are the three objective

of study that needs to be achieved during the study which is:

a. To measure the sales performance of the branches of RHB Bank with regard

of life insurance product.

b. To analyze the factors that contributes to the sales performance level of the

branches of RHB Bank with regard to life insurance product.

c. To recommend solution to the bank to increase the sales performance level of

the branches of RHB Bank with regard to life insurance product.

1.4 SCOPE OF STUDY

The scope of this study encompasses 10 people from the management, namely three

senior managers, five managers and two officers, as well as 200 support staff in three

departments, which are the administration department, marketing department and

finance department.

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1.5 CONSTRAINTS OF STUDY

Constraints of study refer to the problems faced by researcher in completing his

study. Usually, students face the problem of acquiring materials, or obtaining

confidential data that the company’s management refuses to divulge. There may also

be parties or groups that refuse to cooperate or be interviewed.

The time factor is also a constraint since a researcher is not given enough

time to perfect his study. In this regard, students may write several constraints such

as following:

Among the constraints that are faced in this study are

a. The factor of inaccessible information- there are information that are

inaccessible to this study because the management of the RHB Bank is

not willing to cooperate and divulge confidential information on the bank

profitability to outside parties.

b. The factor of certain parties refusing to cooperate- there are several

workers who are not willing to cooperate for the success of this study

with the reason that they are busy or that they fear that the company’s

management will look askance at their comments.

c. The time factor- since this study is to be completed on only three months,

The project paper may be lacking in some aspects. However, in general

The conclusion obtained in this study is true and applicable to the

workplace and organization in question.

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1.6 SIGNIFICANCE OF STUDY

a. For the RHB Bank managements- the study will help the company in

improving the sales performance of life insurance product , thus increasing its

competitive edge in the market segment.

b. For the workers of RHB Bank- the study will help the workers to identify the

problem

Related to the sales performance of life insurance product through feedback

from the customers, thus increasing their motivation and productivity.

c. To government- the study can help the government in introducing policies

and regulations that could further increase the effectiveness of the life

insurance products to remain competitive

1.7 TERMINOLOGY OF STUDY

Here are the lists of important term that are used in project papers. Each term needs

to be defined and arranged in alphabetical order.

1. Employees – a group of workers in organization

2. HRM – Human Resource Management

3. Life insurance – is a policy contract between the policy owner and the insurer.

4. Researcher – somebody who perform research

5. SHRM – Strategic Human Resource Management

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1.8 STRUCTURE OF STUDY

Here is the structure of study, which is mirrored in the structure of the project paper.

Therefore, it should also comprise of at least five main sections, namely:

Section 1: Introduction

Section 2: Background of Study

Section 3: Method of Study

Section 4: Analysis of Study

Section 5: Recommendation and Conclusion

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 SECTION 2 BACKGROUND OF STUDY

2.1 BACKGROUND OF RHB BANK BHD

The RHB Banking Group is currently the fourth largest fully integrated financial

service group in Malaysia. Our core businesses are streamlined into seven Strategic

Business Groups (SBGs):

 Retail Banking

 Business Banking

 Group Transaction Banking

 Corporate & Investment Banking

 Islamic Banking

 Global Financing Banking

 Group Treasury

Our businesses are offered through our main subsidiaries - RHB Bank Bhd and

RHB Investment Bank Bhd, which are wholly owned by RHB Capital, and RHB

Insurance Bhd, which is 79.5% owned by RHB Capital.

Our Islamic Banking Unit, RHB ISLAMIC Bank Bhd, is wholly owned by

RHB Bank, while our asset management and unit trust businesses are held under

RHB Investment Management Sdn Bhd, a wholly owned subsidiary of RHB

Investment Bank.

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2.2 RETAIL BANKING

Retail Banking serves the needs of retail customers. Our forte is "packaged"

products, such as Insurance, Wealth Management, Hire Purchase, Cards and

Unsecured Loans as well as Secured Loans such as mortgages for individuals.

2.3 CORPORATE INVESTMENT BANKING

The CIB Strategic Business Unit offers the full range of corporate and investment

banking products and services, serving mostly the middle market and large

enterprises across selected industries.

2.4 ISLAMIC BANKING

It’s all started on March 1st 2005, RHB Banking Group officially received the

license for its Islamic Banking subsidiary - RHB Islamic - making it the first

commercial banking group in Malaysia to have its full-fledged Islamic Bank.

That year, Bank Negara Malaysia's Governor, Tan Sri Dr. Zeti Akhtar Aziz

officially handed over the Islamic Bank's operating license to RHB Banking Group.

Now, RHB Islamic offers a range of consumer and business banking financial

solutions that are Shariah-based. Our services are available at our RHB Islamic

branches, as well as all RHB Bank branches. These include over180 branches and

more than 500 ATM's throughout the nation, with the added convenience of Phone

and Online Banking.

As an alternative financial services provider to conventional banking, we are

committed to provide our customers with a professional and rewarding banking

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experience. With the past as our guide and your future success as our focus, we aim

to be your trusted provider of Islamic financial solutions.

2.5 INTERNATIONAL

RHB Capital's offshore businesses, particularly its commercial banking operations in

Singapore, Thailand, Brunei and Vietnam, as well as its non-Ringgit based funding

operations in Labuan, are collectively grouped under this SBU.

It is our aspiration to deliver superior customer experiences and shareholder

value and therefore be recognised and respected as one of the top financial service

groups in Asean.

The Group hopes to achieve these aspirations by helping its customers to

succeed and satisfying all their financial needs as a one-stop centre, simplifying

banking for the convenience of all.

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 SECTION 3 METHOD OF STUDY

3.1 DEFINING METHOD OF STUDY

After writing the introduction and background of study, researcher then has to

explain the method utilized in the study. In every research or study that is conducted,

the method applied is very important to determine the validity of study.

For example, if a researcher wishes to study the quality of the consumer

service in an organization, he should first explain how he obtained the information

that depicts the quality of customer service, whether it is satisfactory or not.

3.1.1 TYPES OF RESEARCH OR STUDY

Up to the present time, thousand of researches or studies have been conducted

throughout the world. In the marketing field for an instance, we can classify these

researches into several types, namely:

a. Research on price, where the researchers conducted based on analysis of cost,

demand, profit are classified under a similar type.

b. Research on distribution, which encompasses the researches that identify the

number and location of warehouse, and the types of wholesalers involved.

c. Other types of research including promotion, consumer behaviour, product,

and also business, economic and corporate search.

3.1.2 CHOOSING A SPECIFIC STUDY

There are many types of studies and researches that can be undertaken, but the

success or failure of a research depends on the suitability of the topic chosen.

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 Each research or study requires a huge amount of time and money. Thus, the

researcher may not able to conduct all studies pertaining to various issues at one

time.

A study is not only confined to students of higher learning, but also

undertaken in various fields of life. For instance, studies that are continuously

conducted by companies to improve their competitiveness in the marketplace.

Most researches undertaken upon instruction from the management, thus the

type of study chosen depends on the needs of the management at certain times.

The management will request that the researcher undertake a study or

research when its firm faces a problem such as when the sales of the firm decline and

the management do not concur the action that is to be taken. In this case, the

researchers will need to conduct a study using the right method but within the

budget allocated within the study.

To enable a decision to be made, the management may instruct the

researchers to study the ways a product is used by consumers in order to determine if

the product requires any modification. The researchers will then propose suggestion

based on the information garnered in the study.

Researchers may face specific problem that cannot be resolved using research

methods available. For instance, a research may not be able to show the amount of

expenditure that should be spent for advertising in order to raise one percent of sales.

In this case, the researchers will suggest that their study should be focused on the

impact of a use of specific medium.

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 Researchers should also take the initiative to suggest several studies to the

management so that they may offer the information when it is required by the

management.

The reason is should the management require certain information

immediately, it will be impossible for the researchers to provide it if no research has

been done yet.

In addition, a research or study that is conducted on an ongoing basis

possesses high value since the collected information can be used in the future to help

the management make decisions.

3.1.3 ISSUES RELATED TO RESEARCH

Although undertaking a research or study requires serious effort, considerable time

and high cost, it is continuously conducted by various parties, such as companies,

governments, universities, even students of higher learning required to undertake

research in order to pass a program.

This is because a research or study is very useful in stimulating innovation,

increasing the competitive advantage of a company or organization, and solving a

myriad of problems in society and in the marketplace. However, in any research

conducted, it depends on the researcher whether the research should be theoretical or

practical.

Some researchers only interested to know what is happening, what has

happened and what will happen in the future and this interest is theoretical in nature.

Other researchers are interested to obtain knowledge that can help them solve real

life problems and this is practical in nature.

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 Even though some information appears theoretical, it may content knowledge

that can help research that is practical in nature. Therefore, studies that are theoretical

have their merits and benefits too.

Normally it is difficult for a researcher to determine the accuracy of any

information. This is because some information maybe not be useful to one

researcher, but useful to another researcher. Thus, often a firm will derive useful data

by referring to collected information (secondary data) garnered by other researchers.

There are also firms that collect data without any specific purpose because it

intends to use them in the future. For example, most researches or studies involve a

simple analysis of sales by breaking up total sales based on certain criteria such as

the locality or outlet of the sales.

This analysis is conducted without any specific purpose since it merely

compares sales by outlet or locality. However, a specific decision (for instance,

number of sales person that needs to be employed according to outlet) can be

determined by the collection of this information.

Another example is when researcher conduct a study to determine the number

of people who received the message of an advertisement, and collected information

can be used in the future to determine the amount of money that need to be spent in

an advertising campaign.

Thus, many studies undertaken can help future decision making even if the

studies are not conducted to achieve specific decisions.

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3.1.4 PROBLEMS IN SEARCH

Even though a research or study helps management in the decision making process, it

also has some attendant problems. The problems of researches or studies can be

divided into four, namely:

Problem of accuracy of the information

In actual fact, not all studies conducted by researchers are able to give accurate

information to the management. This is due to the fact that in conducting the study,

the researches may choose respondents who are not suitable for the research.

It may also due to the questions in the questionnaire which are not clear or difficult

and not well understand by the respondents. Thus, the feedback collected by the

researchers is inaccurate.

Problems of research costs

Most researches or studies require high cost. This is due to the fact that every

research conducted involves the cost to print the questionnaires, the cost of paying

the field workers, the cost of analyzing the collected data from the respondents and

the cost that must be borne if the research or study fails to provide relevant and

important information to the management.

If the expenditure used in a research or study is used for other purposes such as for

advertising, improving product quality, or expanding the distribution channels, it

may give a more lucrative return to the firm.

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Problem of human error

Problems of human error are results of human carelessness or due to the emotional

partiality of a researcher or interviewer. This may happen if the person paid to do the

study has not received any training or does not have any experience in the field. It

may also happen if the feedback given by the respondents is not true since they may

answer based on what they think is correct answer and not based on their feelings.

Problem of time

Every research or study conducted takes up a considerable amount of time. This is

because it involves the process of identifying the research problem, designing the

methodology of study that will be used, formulating the questions in the

questionnaire, collecting and analysing data, and presenting the outputs of the

research or study to the management for their business decision making.

All these steps take up a lot of time and after the research is completed, the

problem under study may be resolved or new problems may be identified since there

are various variables and trends that change with the passage of time.

In a relation to the problems discussed above, there are mistakes in research

which ought to be avoided by the researcher, such as following:

1.Errors in research

For every step in research, any error made will cause the wrong or inaccurate

information given to the management. Therefore, it is very crucial to alleviate errors

in research. Errors in research can be divided into two types, namely sampling error

and non-sampling error.

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2. Sampling error

Most samples found in studies involve people, product or units of study. The

management will make a conclusion regarding the whole population based on the

sample that is collected from the population. Since a sample is used to represent a

population, there exist a difference between sample value and the actual value of the

population and this difference is called a sampling error.

3. Non-sampling error

This concept encompasses all aspects of the research process where carelessness and

deceit occurs. Therefore, we need to know several matters pertaining to this, namely

(1) the types of non-sampling errors that may happen, (2) the effects of these errors

on the outcome of the research, and (3) steps that can be taken to reduce these errors.

3.1.5 THE FUTURE OF RESEARCH

There are many experts who believe that area of research will undergo major changes

in the future. They believe that the development of technology in information

processing will increase the accuracy and application of information to the point

where managers will no longer be required to undertake traditional research.

For instance, new technology will enable managers to identify the

characteristics of consumers who buy their products or services and which will

enable these managers to divide their markets into smaller segments using

demographic database.

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 However, there are other experts who state that new technologies will co-

exist with traditional research and that both complement each other. In conclusion,

technology has a deep impact on research and research methodologies will change

when new technologies come into existence.

3.2 TYPES OF DATA

Usually there are two types of data that can be collected in a study. These two types

of data are primary and secondary data. Primary data refers to the data that are non –

existent and that has to be collected by researchers using research instruments such

as survey forms, interview forms, observation form, etc.

Secondary data refers to existing data which the researcher may use, such as

company records in relation to the issue under study, data and information in the

library and government departments, and the likes.

3.2.1 PRIMARY DATA

Primary data is pure data not taken from any readily available sources but collected

by the researcher himself via methods such as surveys or observing a sample

respondents who recording, analysing, interpreting and presenting facts in the form

of reports.

The collected data is called raw data, and cannot be used in analysis unless

they are processed, using certain evaluation or counting system. The processed data

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are used as the platform for the researcher to make an analysis and reach important

conclusions.

Primary data have their own advantages and disadvantages, namely:

The disadvantages of primary data are:

a. They require high cost since the task of collecting such information requires

payment.

Usually primary data are collected via field works, where group of field

workers are paid to go and meet the targeted groups. Other costs include

printing the survey forms and the likes.

b. They require a lot of time since the activities incolved in collecting primary

data are complex, difficult and them consuming. For example, some activities

of collecting primary data take up a year since the group of respondents is

slow to give their feedback.

Indeed, from the total targeted group of people who are expected to fill in the

survey forms, only 20 to 40 percent of them will return those forms.

Likewise, the targeted party may be busy with work and an appointment can

only be made after contacting him or her countless time.

c. In certain circumstances, primary data are difficult to collect since the

targeted group, namely the respondents are not accessible. Some of them may

not be in the office, thus it si difficult to meet up with them. Some are not

accessible due to gaps in communication or education, namely uneducated

people may not able to give meaningful responses.

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For instance, if a study is made on the poor, perhaps their response may not

be very meaningful since their level of understanding and thinking may be

very low.

Their advantages are:

a. They are very accurate since the researcher has designed the question in

the research instrument with the objectives and scope of study in mind.

Usually the researcher will only prepare the questions after doing the

literature review or the background of the study, and this helps him to

know the framework of the study well, thus aiding him from deviating

from the scope and objectives of the study.

A researcher may also use instruments that have been used by

previous researchers or combined several used by researchers before him.

Employing previously used instruments is not wrong, in fact it helps

expedite the research work.

However, a researcher has to be careful since previously used

instruments were employed in different scope and environment, and thus

need to be adapted to the present search.

b. The information is current and obsolete

When a researcher does a field work using his own research instrument,

certainly the data collected are current and not or has not yet become

obsolete. For instance, if a study is on product quality such as Proton, the

quality of proton cars previously and now are surely not the same.

By doing research and collecting primary data, the researcher may be

able to understand why Proton of late experienced deteriation in the

quality of its cars.

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 Primary data are more accurate compare to secondary data. A more

detailed data can be obtained since the researcher himself is collecting the

data.

If the data or information required cannot be obtained from other

sources (secondary data) the researcher will have to collect and use

primary data.

Usually, the method used to collect primary data is clearly explained.

Thus, the accuracy and reliability of the data can be as curtained.

3.2.2 SECONDARY DATA

When primary data are collected, processed, printed and distributed, they become

secondary data to other users. In other words, secondary data are data that are

distributed and used by those other than the collector himself.

These data are obtained from records of data that have been collected by other

researchers in the government, private sector or other agencies.

Secondary data can also be used to attain the objectives of a study. Secondary

data are prepared by researchers in previous time, and they have certain advantages

and disadvantages that need to be taken consideration in a study. Among the

advantages are:

a. They are easily obtained

Since secondary data are usually collected at regular intervals of time, for

instance the disciplinary record of workers in an organization, the researcher

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 will access to a large and meaningful data base to be used as the basis for his

study.

For secondary data in company, a student who works in the company

certainly can request for the Human Resource Department to allow him

access to the collected secondary data.

b. They are cheap/ low cost

Secondary data are already collected and thus the researcher need not spend

money to collect them. The only cost that he may possibly incur is for access

to the data since the party that keeps the data such as advertising agents or

government departments change certain fees for the use of the data.

However, generally the cost of paying for secondary data is much

cheaper than the cost of paying the services of a group to collect and process

primary data.

c. Secondary data are readily available. In addition to financial cost, time and

effort is also saved.

However, there are serious shortcomings in the use of secondary data, namely:

a. They are obsolete

Secondary data were collected in the past and become less accurate with

the passage of time. This is because many changes take place over time,

causing the old information to become unsuitable to be used. For

example, the taste of Malaysian in the 1970s cannot be used in a study of

Malaysian tastes in the present time.

b. They do not fit in with the present scope of study

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 Usually, secondary data are not suited to the scope of study currently

undertaken. For instance, there maybe secondary data on the taste of

Malaysians five years ago, but if the current study is on the taste of

bumiputera citizens, those secondary data may be too generic in nature.

c. A researcher who employs secondary data may not know if the collecting

methods of those data are done correctly or otherwise. Unlike primary

data were the researcher is involved in the process of collecting and

processing the data, secondary data has already been compiled and it is

not possible for the researcher to know whether the process of collecting

and processing the data, or even the data themselves, are correct or

otherwise.

Secondary data can be classified into two, namely internal secondary data,

and external secondary data. Internal secondary data are obtain within the

organization where the research is conducted while external secondary data are

collected from external sources.

Internal Secondary Data

An organization that has an information system will collect and report directly all

useful internal data to overcome problems within the organization. By organizing the

types and categories of data needed on a continous basis, the firm ought to be able to

prepare internal data to be used by the research staff.

In short, the research team will be the main user of the system and will

influence the firm to collect internal data continuously. There is various information

collected in the Information System. However, the type of data required depends on

the type of research undertaken.

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 For example, for marketing research, if the information collated is analysed

based on product, consumer or place, one will be able to observe changes that take

place within a period of time. Standards can be set to evaluate different parts of a

marketing program.

For example, the decline in sales of a product maybe caused by a weak sales

force but by undertaking analysis of the commissions paid for the sale of the product,

it may reveal that the sales effort are not uniform or consistent since some products

may receive more commissions and other may receive less.

External Secondary Data

External data involves collecting secondary from sources outside the organization in

which the research takes place. These external sources involve printed publications

that include statistics from the public sector and private organizations. Sources of

external data can be divided into the following: government sources, trade bodies,

business organizations, and libraries.

Government sources

These sources encompass the variety of data collected by agencies, departments and

government ministries such as the Department Of Statistics, the Ministry of Trade

and Industries, the Ministry of Human Resource and other government departments

and ministries. In addition, they produce statistics and collect information which are

useful to business organizations.

If the information required is not in printed form, the researcher ought to

contact the department in question to obtain the information. For example, if a

manufacturer wishes to produce a baby product for the local market and wants to

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know the market potential on an annual basis, he may obtain the statistics related to

the expected number of childbirth from several sources such as the Ministry of

Health, the Registration Bureau or the Statistics Department.

Trade Associations and Business Organizations

Trade Associations have general information regarding the business that they

represent. Some associations offer specific services with regards to collecting

statistics to their members.

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3.3 METHOD USED IN THE STUDY

This research is using both primary and secondary data.

The scheduling of finishing this project paper is shown in the table below:

WEEK ACTIVITIES
1 (24.05.10) Start Section 1
2(31.05.10) Complete Section 1
3(7.06.10) Start Section 2 and prepare research instruments
4(14.06.10) Complete Section 2 and pre- test the research instruments
5(21.06.10) Start Section 3
6(28.06.10) Complete Section 3 and start field work
7(5.07.10) Continue with field work
8(12.07.10) Complete field work
9(19.07.10) Start Section 4
10(26.07.10) Complete Section 4 and start Section 5
11(2.08.10) Complete Section 5
12(1.09.10) Submisson of the project paper

SECTION 4 ANALYSIS OF STUDY

4.1 INTRODUCTION OF CASE STUDY

Life insurance, an industry which has been known for stability fostered by

government regulation, has been experiencing a great deal of turbulence from the

accelerating confluence of financial services such as banking, savings and loans,

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investment management, and insurance. For example, many major investment

houses are beginning to cross-license their brokers to sell insurance products to

clients. Indeed, the differentiation between different kinds of financial services

which was formalized in the Federal government's regulatory framework has been

eroding for some time. This has created a great deal of uncertainty about appropriate

strategies for firms in financial services, including life insurance companies. The old

sureties are gone, and it's unclear what will replace them.

The fact that many financial service firms are seeking growth through

acquisitions and mergers underscores the lack of confidence strategic thinkers in

financial services have in deciding how to grow by leveraging strategically valuable

organizational capabilities. In fact, in our field interviews with representative life

insurance firms, some individuals confided that they wondered if their firm had any

distinctive strategic capabilities. It's a pertinent question. Certainly, the persistent

finding of considerable overall inefficiency and of widespread variability in firm

efficiency in econometric studies of this industry does nothing to dispel the notion

that many life insurance firms could be managed more effectively.

The researcher field interviews also brought out a striking discrepancy of

opinion on a related subject. High level managers in a majority of the firms we

visited were quite certain that giving extra attention to human resource management

(HRM), particularly for back office personnel, would do little to enhance their firm's

competitive advantage. In these firms, HRM is a purely administrative function, not

a source of strategic leverage. However, top managers in a couple of the life

insurance firms we visited (which were high performers, incidentally) vehemently

insisted that managing their back office functions effectively was crucial to their

competitiveness. This strong divergence of opinions about the strategic importance

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of HRM in the same industry is not unusual, and it suggests that firms' human

resource management choices may be an underdeveloped source of strategic leverage

for life insurance firms. But what kinds of HRM practices are most effective from a

strategic point of view?

Fortunately, managers are not limited only to subjective impressions on this

subject. An expanding stream of academic research called Strategic Human

Resource Management (SHRM) is beginning to document the potential for HRM

systems to markedly improve organizational performance. These studies generally

suggest that empowering workers with more autonomy and participation, organizing

their work around cross-functionality and flexibility through such practices as job

rotation and autonomous work teams, and investing in employees' abilities through

intensive selection and training is related to greater organizational productivity.

However, since these studies have been performed almost exclusively in heavy

manufacturing industry contexts, it's unclear how well their results apply to a service

industry like life insurance.

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4.2 HOW LIFE INSURANCE DIFFERS FROM HEAVY

MANUFACTURING

Work in life insurance differs greatly from heavy manufacturing. First, the

work is more likely to be white collar rather than physically demanding, since life

insurance products are made up of different combinations of interest rates, risk

protection, and payment schedules rather than physical goods. Second, services are

generally distinguished by a strong degree of customer participation, or co-

production, in generating the service being purchased in order to tailor it to

customers' needs. For example, determining the appropriate life insurance product

for a customer may require her to spend time actively evaluating a number of

different policy options with an agent in order to achieve a good fit to her risk

management needs. The requirement for customer participation can be partially

mitigated by using standardized products, but these tend to be products with lower

profit margins and more limited applicability. The third distinguishing characteristic

of services is that, unlike manufactured, physical goods, services cannot be

inventoried. Although the organizational capability to support a particular type of

service product may be in put in place for an extended time, service transactions are

created upon demand. For example, an individual's life insurance policy is only

created through an interaction between an employee and a customer.

These three attributes of service products, the fact that they are not physical

products, are co-produced with customers, and cannot be inventoried, challenge

concepts of efficiency associated with output per unit of input which are carried over

from manufacturing. One response to this condition in life insurance has been to

separate sales divisions, which work most closely with customers and therefore are

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more highly impacted by these three attributes of service products, from the rest of

the firm. The degree to which sales is integrated with the rest of the firm therefore

constitutes an organizational design question with significant strategic consequences.

These are usually confined to three different product distribution models. The

agency sales model most clearly separates sales from other insurance functions. In

the agency model, independent insurance agents handle the sales function for

multiple insurance firms, which supply the products and some product support. The

branch sales model works in much the same fashion, except that sales agents are

dedicated to the products of and employed by a single company. Even more closely

integrating the sales function with the rest of the firm, a few life insurance firms

utilize direct marketing through employees in call centers to reach their target

markets. These three product distribution systems can be viewed as stops on a

continuum of integration between sales and the rest of the insurance firm, starting

with the agency model, which is least integrated with the firm, to direct marketing,

which is much more tightly coupled to other parts of a life insurance firm.

It is suggest that insurance firm can attempt to concentrate the ebb and flow

of co-produced services in their sales divisions through their choices of product

distribution systems, allowing these firms to utilize more traditional notions of

productivity in "back office" functions (i.e., output/input) such as underwriting and

claims processing. However, while this approach may mitigate problems associated

with co-production for large portions of the firm, it cannot eliminate them altogether,

and the misalignments between the activities of sales divisions and of the firm's other

functions in this approach can create more inefficiencies than isolating co-production

within sales eliminates.

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 Another potential solution to the problems posed by service products is to

routinize service transactions by defining them in minute detail. To cite a couple of

common examples, this approach has been followed with great success by

McDonald's in fast food and by Marriott in luxury lodging. However, given the state

of uncertainty and rapid change in financial services, it's unclear how useful the

widespread application of this approach would be for life insurance firms. Because

this approach limits employees' flexibility in customizing service transactions to the

needs of customers, it's best suited to environments where work flows and the types

of work done are largely predictable a description which may not apply very well in

many life insurance functions.

An alternative approach that recognizes employees as strategically important

stakeholders in the organization has been suggested in the SHRM research noted

above. At the minimum, this approach requires that 1) strategic issues inform

choices about human resource (HR) practices; 2) cooperative relationships with

employees be developed and maintained; and 3) HR systems which encourage

employee flexibility, autonomy, skills development, and participation be put in place.

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4.3 LINKS TO STRATEGY IN LIFE INSURANCE HUMAN

RESOURCE SYSTEMS

A common facet of the strategic approach to HRM is the notion that HR

systems should be aligned with the requirements of organizational strategies,

supporting the objectives embodied in an intended strategy and enhancing its

implementation. This should magnify the performance impact of a strategic plan,

whether this effect is positive or negative. Therefore, the degree to which HR

practices are related to organizational strategies is often seen as an indicator of how

deeply management has adopted a strategic perspective toward managing its human

resources. Unfortunately, most of the life insurance firm the researcher talked to

confessed little understanding in how to adapt the HR systems to strategy. As a

result, the firms' HR systems were likely to be determined by piecemeal reactions to

other, less strategic factors, such as changes in employment law, and by firm or

industry custom, thus compromising the strategic coherence of their HR systems. In

other words, there generally seems to be little strategic rationale on the HR system

level for the sets of HR practices life insurance firm implement. This makes it more

likely that different HR practices in a firm can contradict and cancel each other out,

such as when employees are organized into teams but are only compensated as

individuals. In this example, the compensation scheme makes it much less likely that

employees in teams will work cooperatively.

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4.4 DOWNSIZING AND FIRM EFFICIENCY IN LIFE INSURANCE

Downsizing and other types of dramatic strategic renewal initiatives, such as

restructuring, have swept Malaysian industry, in the last two decades. We define a

downsizing episode, also known as rightsizing or as a reduction in force (RIF), as a

layoff in which a group of employees has been asked to leave an organization, but

are not discharged "for cause." This includes groups of displaced employees even if

they were placed elsewhere in a related operation or in another subsidiary of the

same parent organization. The essential goal of downsizing is eliminating

employment positions within an organization. Consistent with the emerging

consensus among downsizing researchers, our data suggest that the choices firms

make in managing employees through a downsizing can be crucial to post-

downsizing organizational efficiency. In other words, downsizing is not inherently

effective or ineffective; the performance impact of a downsizing program depends

crucially on how it's carried out.

Each of the following questions was included in the life insurance downsizing

supplementary survey and was scored using five-point Likert measures of respondent

firms' levels of agreement (a 1 or 2 indicated disagreement, a 3 indicated neutrality,

and a 4 or 5 indicated agreement):

{ Our company prepared a systematic analysis of jobs months prior to the

downsizing.

{ Middle and lower level managers were involved in identifying which individuals

would be released.

{ We carefully trained managers in procedures for counseling remaining employees.

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{ The reasons for an employee's layoff or redeployment were carefully explained to

affected employees.

{ During the course of downsizing management increased the amount and openness

of communication with employees.

{ We were successful in preserving employees dignity during the downsizing

process.

{ We have increased our investment in training current employees since

downsizing.

{ We have undertaken efforts to increase remaining employees' sense of

employment security with our company.

{ We have undertaken efforts to increase employees' confidence in the

marketability of their skills.

I examined all of the downsizing index questions individually to see if a few

specific questions were driving these results. For voluntary turnover, firm which

had prepared a systematic analysis of jobs prior to downsizing, had undertaken

efforts to increase survivors' sense of employment security, and had attempted to

increase employees' confidence in the marketability of their skills were especially

likely to have lower turnover. This underscores the need to address survivors'

concerns about their post-downsizing futures as well as the need to go into

downsizing with a well-reasoned plan. If these needs are not met, those employees

with other labor market opportunities are likely to express their confidence in

management by "voting with their feet": leaving the firm for other opportunities.

Some of the individual index items also shed light on the results for the

rehiring of former employees as contractors or temps. Increased investment in

training survivors after downsizing and efforts to increase survivors' sense of

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employment security were both associated with more rehiring of former employees.

Perhaps this reflects a partitioning of the workforce into "core" employees who are

the focus of managerial investments which reduce turnover and increase productivity

while, at the same time, "peripheral" employees hold positions that are increasingly

reduced, de-skilled, or externalized. If this is true, then the puzzling finding that the

high index group, which more strongly rejected behavioral researchers’ prescriptions,

tells an important story: The firm may follow a losing course where they have

alienated their current employees, leading to higher turnover, and they are not willing

to hire independent contractors or temps to fill the gaps in employment.

Thus, the researcher have suggestive evidence that firm which, on average,

are less committed to the prescriptions of behavioral downsizing researchers for

keeping downsizing survivors happy may have created conditions which depress

future performance. Nevertheless, because these data are cross-sectional, predictions

are hazardous. It's possible, for example, that the increase in voluntary turnover is a

temporary post-downsizing phenomenon which has no real effects on long term

organizational performance. Also, the sample is too small to dispel serious caveats

about sample bias.

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4.5 RELATING HUMAN RESOURCE SYSTEMS TO FIRM

PERFORMANCE IN LIFE INSURANCE

Mark Huselid's Academy of Management Journal article (1995) has had one

of the strongest impacts of any empircal research paper in the growing SHRM

subfield. Huselid's influence came from offering credible evidence that HR can be

directly related to bottom-line organizational performance measures. Using

Huselid's analysis as a guide in constructing strategically valuable HR systems in our

life insurance data provides a plausible, previously tested framework for relating HR

systems in life insurance to organizational performance. Huselid measured thirteen

"high performance work practices" in a survey of senior human resource

professionals from 968 firms. These firms were a subset of the population of

Malaysian firms with more than 100 employees. Holding companies, foreign-owned

firms, and subsidiaries of larger firms were excluded from his sample. Huselid's

thirteen HR practices loaded onto two factors, one of which Huselid labeled

"employee skills and organizational structures" and the other labeled "employee

motivation." Huselid used these factors to argue that HR systems which

concurrently attempt to motivate employees to actively bend their skills toward

accomplishing organizational goals, to increase employee functionality by

magnifying workers' skills, and to utilize them more effectively are most likely to

enhance organizational performance. Since Huselid's HR systems factors received

significant support in the 1995 study, we tested whether this generic logic applies in

our life insurance data.

When the researcher performed exploratory factor analysis and cluster

analysis on ten items, the researcher found that the items did not load together in the

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same pattern that Huselid reported. In fact, both analyses implied that the best

structure for these ten items was keep each one separate from the others. Moreover,

when the researcher forced the ten items to load together in the same pattern that

Huselid found, operationalizing his HR systems factors as two scales, the dismal

Cronbach alphas for these scales caused to abandon the attempt. Therefore, the

results report here utilize HR practices individually, rather than in aggregated

systems of HR practices. Given the strong arguments in SHRM for evaluating the

effects of HR practices systemically, this result in itself is quite interesting.

Huselid matched the data for HR practices and other important organizational

characteristics with financial accounting data available for these firms in the

Compact Disclosure data base. His HR factors were significant in regression models

predicting many of these organizational level financial outcomes in his study.

Similarly, it is matched the researcher survey data to the relative efficiency scores

utilized in analysis of these data, which were derived from formally reported

accounting measures of performance. The researcher added the HR practices to the

parsimonious performance model for these data.

For example, the use of formal performance appraisals is associated with

decreased organizational efficiency, but tying performance appraisals to merit

increases boosts efficiency. Assessing teamwork skills in performance appraisals

significantly raises efficiency, as does tying lower level employees’ compensation to

organizational performance. Surprisingly, two items which are designed to increase

employees' motivation and commitment to organizational goals, profit-sharing and

gain sharing, appear to significantly reduce organizational efficiency. Thus, the

results suggest that HR practices which target specific employees' behaviors in

performance appraisals and direct compensation are strongly related to increased

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efficiency, but that those which aim at distributing portions of organizational

financial rewards to employees are associated with reduced profitability. The latter

practices can be interpreted as a gift exchange between workers and management,

enhancing their relationship. It appears, then, that such relationship-oriented

compensation practices are not as effective in this context as using compensation and

appraisal which target more specific employee behaviors.

This implies that the ways in which individual workers' efforts are tied to

organizational outcomes in back office functions in life insurance firms should be

transparently specified and rewarded by management in its compensation and

performance appraisal systems. Types of compensation in which workers share in

organizational financial outcomes, such as gain sharing, and profit-sharing are

typically computed in arcane formulas which make their implications for employees'

day-to-day activities much less obvious. Perhaps the majority of the work done in

back office functions such as claims processing is fairly straightforward, making it

more likely that management can successfully specify the behaviors it requires. The

uncertainty about the future which plagues the industry may occur mostly at the

strategic level and in the sales function; back office functions may best be occupied

with efficiently implementing management's strategic decisions, rather than

encouraging employees to exercise discretionary effort and autonomy in order to

tailor their services to customers' needs. A corroborating piece of evidence in this

regard is the high importance many life insurance firms attach to speed, accuracy,

and predictability in their back office functions, as opposed to innovation.

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 SECTION 5

5.1 RECOMMENDATION AND CONCLUSION

All of this suggests that life insurance firms may be on the right track in

linking compensation and individual performance on the individual level for lower

level, back office employees, as noted in the first section of this chapter. However,

it's important that those linkages be informed by organizations' strategic goals, which

does not yet appear to be the case in life insurance. If life insurance firms are to

effectively implement their chosen strategies, those objectives which incentive pay

targets should be strategic as well as tactical in nature.

Reveals the potential pitfalls of not paying attention to strategic human

resource issues, particularly those concerning the firm's relationships with

employees, during a strategic change initiative such as downsizing. This is

somewhat contradicted by the third section of this chapter, which demonstrates the

potential for HR practices for back office functions in life insurance firms to enhance

organizational efficiency to the degree that they are tied to specific objectives and

behaviors. The more commitment-oriented HR practices for back office functions do

not have strong relationships with firm efficiency in life insurance. It may be that

commitment-based HRM is more useful in conditions where the requisite behaviors

are not easily specified by management, such as during times of strategic change and

renewal through downsizing, restructuring, and the like. If this is true, it's a mistake

to equate SHRM with commitment-based HRM in a universalistic, prescriptive

fashion. A truly strategic approach to HR system design would not only consider

how to support a firm's intended strategies, but also the stability and specificity of the

tasks required from employees and make reasoned choices about how the firm and its

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HRM will interactively react to and shape these contingencies. It may well be that,

as we discussed earlier, the opportunities for commitment-based HR systems

emphasizing flexibility to add value in service organizations are in those parts of the

firm where tasks are ambiguous and worker flexibility is required. The common

approach of SHRM researchers in treating HR systems as applying uniformly across

different parts of the firm probably needs to be modified.

Future research in services should examine the interaction between

commitment-based HR systems in discrete parts of firms, the degree of integration of

that function with the rest of the firm, and the degree to which some of the unique

challenges in services, such as co-production of products with customer

participation, are isolated within that unit. In life insurance, for example, this implies

that the opportunities for commitment-based HR to add value are probably in

marketing and sales rather than in back office functions, and that this could depend

on whether the distribution system is primarily exclusive, non-exclusive, or direct

marketing.

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 REFERENCES

1. www.rhb.com.my

2. http://en.wikipedia.org/wiki/_life_insurance

3. Lecture’s Note

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