INS/047

IBS Center for Management Research

The Importance of HR Planning in an Insurance Organization

This case was written by D.G.Prasad, under the direction of H.K.Singhal, IBS Center for Management Research. It was
compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either
effective or ineffective handling of a management situation.

 2003, IBS Center for Management Research. All rights reserved.

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 INS/047

The Importance of HR Planning

in an Insurance Organization
Ram Narayan (Narayan) began his career as a management trainee in a private organization. His
special interest in studying human behavior and his background in psychology often made him
analyze the emotional reactions and behavioral patterns of people around him. It was his ambition
to become a human resource consultant in a reputed company. Therefore, after his graduation, he
took a diploma course in human resource management.
However, when he came across an opportunity to enter the insurance industry, he joined an
insurance company as a junior manager. Later on, he worked in different capacities in the HR
department of four other insurance companies before working as the human resource manager for
LMH Insurance Company. Within a short time, he gained considerable reputation at LMH. Some
crucial decisions he had taken related to employee compensation and reward systems in the
company paid off rich dividends in due course of time. He was hence considered a key member in
the organization.
As part of the human resource policy, Narayan wanted to develop a lean structure for the
organization. LMH was in an expansion mode during those days. Narayan felt that having a lean
organizational structure during the expansion period would help the company become more
flexible in adapting to change. He believed that a fast growing organization should have a limited
number of personnel. But Narayan was against employee retrenchment and layoffs. His policies
worked well, and he became an instant success with both the employer and employees in the
organization.
Over the years, however, the business environment changed and the organization expanded in size
because of diversification. Narayan, therefore, advised the top management at LMH to change its
HR policy and develop a strategic human resource plan that would take care of the future needs of
the organization. However, the top management ignored his advice and continued with the existing
HR policy since this involved lesser costs.
The consequences did not favor the company in the last three years. The company had to struggle
to maintain its existence in the business during the last three years. One of the basic reasons was
that the organizational structure was too lean. The company's HR policy actually led to a shortage
of manpower.
The company's eagerness to increase its profits rapidly made the management decide to make a
temporary arrangement of recruiting people on an emergency basis and provide them with fast-
track training.
Owing to space constraints, the company was forced to move to a bigger office, and its monthly
expenses and cash requirements increased. The top management decided that things could improve
only if the company sold more policies and expanded its client base. It pushed its employees to
work for extra hours, often with no overtime allowance. Due to such pressure on the employees,
their productivity declined.

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 The Importance of HR Planning in an Insurance Organization

There were other problems, too. When the company came up with an innovative product, there
was always the threat of big players following its course by releasing a similar product. In
addition, such competition added to the burden on the already overstressed personnel and other
resources. The situation deteriorated fast as people started to quit in droves. Those who stayed felt
insecure. Total confusion prevailed in the entire organization and the employees started losing
confidence in the management.
A meeting was convened to resolve the problem. Ram Narayan too, attended the meeting. He
brooded over the problems. While talking about the changes required to solve these problems, he
advised the top management to formulate a strategic HR plan. For the time being, he suggested
tactical human resource planning. He convinced the management that once the present problems
are solved, the company would have to implement the strategic HR plan.

QUESTIONS FOR DISCUSSION:

1. Describe the HR problems that LMH Insurance Company faced. What were the reasons for
these problems? Could the company have avoided these problems? If so, then how?
2. Under the present circumstances, Ram Narayan emphasized the need for tactical human
resource planning. What is tactical human resource planning? How will it benefit LMH
Insurance Company?

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