Oxford (PRWEB UK) 14 July 2014
From the National Health Service and other public services, to social enterprises and professional service firms, modern organisations increasingly have to deal with fundamental conflicts of purpose on a daily basis. How to ensure high-quality patient care while managing costs in a harsh economic climate; how to serve the client’s needs while also maximising income for your own firm and respecting professional ethics; how to make a positive social impact while making sufficient funds to sustain your enterprise. These are just some of the challenges facing ‘hybrid’ organisations which have more than one purpose and face competing demands on their operations. Such tensions are increasingly the norm, rather than the exception in today’s economy.
Despite this being a particularly modern challenge, one of the world’s oldest financial institutions, Lloyd’s of London, can shed much light on how to balance competing demands - and derive superior performance from it, argue Dr Michael Smets from Saïd Business School, University of Oxford, and Professor Paula Jarzabkowski of Cass Business School, City University London, in a new paper. Smets, Jarzabkowski and their co-authors argue that reinsurance underwriters are required to balance their need to generate profits and increase market share for their own companies with the ability to operate as a valued member of the tight-knit social community of Lloyd’s of London with all its tradition, gossip, and ‘gentleman’s agreements’. Identifying too closely with either purpose can be damaging: to focus only on short-term profits will destroy relationships with brokers (meaning ultimately that they will not bring business to the underwriter), but conducting a business purely on the basis of doing favours for friends is not financially sound. In order to avoid this, underwriters have adopted a model to balance these competing demands.
“Underwriters have loyalties both to the companies that employ them – which expect hard-nosed analysis and commercial sense -- and also to the Lloyd’s community, which expects collegiality and mutual support” says Smets. "They are constantly weighing up, for example, whether their company should take a financial hit in order to preserve a long-term relationship with a broker or even a competitor, or whether they should insist on their price. In so doing, they are transforming the ‘either-or’ relationship between the seemingly incompatible demands of the market and the community into a ‘both-and’ situation in which they become both more successful competitors and more valued members of the community. Our study suggests that their skilful balancing act relies on three mechanisms –segmenting, bridging, and demarcating – which stop them from excessively concentrating on a single demand to the neglect of the other, and allow them to benefit from their complementarity as well as the conflicts between them.”
To deal with the competing demands of the community and the market, underwriters do different types of work in different places. Analysis and profit-oriented ‘market’ work takes place in the office. ‘Community’ work, such as meeting brokers and having lunch with competitors (who are also friends) takes place at Lloyd’s. Protecting work from scrutiny by those imposing a competing set of demands reduces conflict between stakeholder groups and allows underwriters to “wear different hats” at different times. In the same way, law and accountancy firms often need professionals to do some of their work on clients’ premises, but, in order to guard against the dangers of being “captured” by their clients, they should always build in a requirement to spend a certain amount of time in the office to re-engage with their professional community and its ethical commitments.
Bridging is the process of connecting these segmented practices. For example, an underwriter might re-assess an office-based analysis in the light of gossip heard in Lloyd’s. Or he might explain his commercial reasoning to a broker in order to preserve his relationships. Either way, the underwriter connects outputs from segmented work practices in the context of a specific situation. In doing so, he decides whether to prioritize his commitments to his company or the community, again, in the context of this specific situation. Importantly, while underwriters’ individual bridging allows them to prioritize different demands on a case-by-case basis, this flexibility also poses the risk of “slippage” when underwriters consistently over-prioritize one set of demands and gradually lose sight of the other. In the wider corporate world, lack of protection against such slippage has been at the heart of several recent corporate scandals.
Demarcating provides such protection against slippage. It ensures that where there is flexibility to prioritize different demands as the situation requires it, overall balance between competing demands is maintained. In Lloyd’s, risk reviews, for example, ensure that underwriters have to justify their decisions and prove that they have not given too much weight either to community input or market demands. Inappropriate conduct will, at the very least, be sanctioned with either cynicism or ridicule, a powerful corrective in a close-knit community like Lloyd’s. This sort of review mechanism is also provided by an independent, diverse Board which can challenge the actions of the executive in social enterprises and, indeed, commercial organisations, from different perspectives. “Where individuals know they will inevitably be held accountable for their actions by stakeholders representing different demands, they are much more likely to factor in the full spectrum in their original decisions”, says Smets.
“The problem of working with two or more conflicting sets of demands is not confined to Lloyd’s,” says Smets. “Workers in the NHS, for example, are constantly having to balance their desire to provide care to all patients with the need to work within a budget. In social enterprises, the conflict is between fulfilling the social purpose of the business and making a profit. And professionals such as lawyers, accountants, and consultants are always having to balance the needs of clients with the needs of their own organisations and the public. It can be too easy, to identify too strongly with one set of demands, to the detriment of the other.
“While the practices identified in our study of Lloyd’s can be found in various forms in other organisations, they are often employed unconsciously and inconsistently – and therefore likely to be ineffective. We would urge leaders in all sectors to develop a more nuanced understanding of the nature of conflicting purposes within their organisations, and to support a more deliberate application of our model, empowering their staff to more effectively balance the competing demands they may be facing.”
For further information, or to speak to Dr Smets, please contact the press office:
Clare Fisher, Head of Public Relations, Saïd Business School
Mobile: +44 (0) 7912 771090; Tel: 01865 288968
Josie Powell, Press Officer, Saïd Business School
Mobile +44 (0)7711 387215, Tel: +44 (0) 1865 288403
To speak to Professor Jarzabkowski please contact:
Miranda Thomas, PR Manager, Cass Business School
miranda(dot)thomas(dot)1(at)city(dot)ac(dot)uk 020 7040 5274
Notes to editors
1 About the paper
Smets, M., Jarzabkowski, P., Spee, A. P., & Burke, G. 2014. Reinsurance trading in Lloyd's of London: Balancing conflicting-yet-complementary logics in practice. Academy of Management Journal, doi: 10.5465/amj.2012.0638
2 About Saïd Business School
Saïd Business School at the University of Oxford blends the best of new and old. We are a vibrant and innovative business school, but yet deeply embedded in an 800 year old world-class university. We create programmes and ideas that have global impact. We educate people for successful business careers, and as a community seek to tackle world-scale problems. We deliver cutting-edge programmes and ground-breaking research that transform individuals, organisations, business practice, and society. We seek to be a world-class business school community, embedded in a world-class University, tackling world-scale problems.
In the Financial Times European Business School ranking (Dec 2013) Saïd is ranked 12th. It is ranked 14th worldwide in the FT’s combined ranking of Executive Education programmes (May 2014) and 23rd in the world in the FT ranking of MBA programmes (Jan 2014). The MBA is ranked 5th in Businessweek’s full time MBA ranking outside the USA (Nov 2012) and is ranked 5th among the top non-US Business Schools by Forbes magazine (Sep 2013). The Executive MBA is ranked 23rd worldwide in the FT’s ranking of EMBAs (Oct 2013). The Oxford MSc in Financial Economics is ranked 7th in the world in the FT ranking of Masters in Finance programmes (Jun 2014). In the UK university league tables it is ranked first of all UK universities for undergraduate business and management in The Guardian (Jun 2013) and has ranked first in nine of the last ten years in The Times (Sept 2013). For more information, see http://www.sbs.ox.ac.uk/
3 About Cass Business School
Cass Business School, which is part of City University London, delivers innovative, relevant and forward-looking education, consultancy and research.
Cass is located in the heart of one of the world’s leading financial centres. It has strong links to both the City of London and its corporate, financial and professional service firms, as well as to the thriving entrepreneurial hub of Tech City – located close to the School.
Cass’s MBA, specialist Masters and undergraduate degrees have a global reputation for excellence, and the School supports nearly 100 PhD students.
Cass offers one of the widest portfolios of specialist Masters programmes in Europe. It also has the largest faculties of Finance and Actuarial Science and Insurance in the region.
As examples of recent independent rankings of our research, Cass is ranked number 3 in Europe for its finance research, number 2 in Europe and number 11 in the world for banking research, and number 1 in Europe and number 2 in the world for actuarial science research.
Cass is a place where students, academics, industry experts, business leaders and policy makers can enrich each other's thinking. http://www.cass.city.ac.uk @Cassinthenews