USAA’s Premiums

download

USAA CASE ANALYSIS

Jennifer Young

MBA 617 Organizational Theory for Managers

March 4, 2016

Organizational Description

USAA is a financial services company formed in 1922 by 25 army officers who had difficulty obtaining insurance policies due to frequent moves and extended periods of travel.  Creating the company allowed them to reduce costs and obtain a policy that fit their needs.  Membership quickly grew and was expanded in 1924, 1973 and 1996.  Membership is currently open to all active duty, retired, honorably discharged, dependents, or widows of the Navy, Marine Corps, Air Force, National Guard, and Reserves (USAA, 2016)  (USAA, 2012).

The company has expanded based on the evolving needs of its members to six divisions including property and casualty insurance, life insurance and annuities, investment products, investment advice and services, banking, and customer service oriented shopping and discount assistance (USAA, 2016).  Their mission statement reflects their history and direction perfectly “USAA’s mission is to facilitate the financial security of its members, associates and their families by providing a full range of highly competitive financial products and services.  In so doing, we seek to be the provider of choice for the military community. (USAA, 2016)”

USAA’s main headquarters is located in a sprawling compound in San Antonio, Texas.  Supporting offices and financial centers are located in 11 additional states and two overseas locations.   These offices help increase the company’s visibility and supports their geographically diverse membership.  Partnered with a strong, technologically advanced online presence, USAA works to overcome any accessibility hurdles that their current and potential members may encounter.

The financial services industry is an extremely large, fast-growing industry that requires flexibility, innovation, adaption, and change.  According to the United States Bureau of Labor Statistics, the number of private industry members ranged from 473,246 to 478,715 between the 3rd quarter of 2014 and the 2nd quarter of 2015 (United States Department of Labor, 2016).  Successful companies must be able to develop new services based on the need of the customers, be efficient, and easily accessible.  Most importantly, a financial services vendor must be stable.  Customers will not trust a company if they do not consistently provide value, exemplary service, and consistently reduced costs (Claessens, 2009).

USAA’s most significant competitors include Geico, METLIFE, Inc., State Farm, Navy Federal Credit Union, Armed Services Mutual Benefit Association, Bank of America – Military Bank, The Allstate Corporation, and USI Insurance Services, LLC.  A number of these competitors began as a military focused-organization, but most have diversified their membership.  None of these competitors offer the full-range of services that USAA provides to their members.

USAA has a flat organizational complexity classification.  There are three managerial levels, seven distinct administrative support divisions, and three corporate divisions  (USAA, 2016).  The breadth of the organization indicates that tasks are highly specialized to provide enhanced services, yet the low number of managerial levels is defined as low vertical integration.  Front line workers are granted the ability to make decisions based on focused policy, strategy, and guidance through oversight and monitoring.

USAA has more than 27,000 employees throughout the United States and an 8% annual turnover rate.  The low turnover rate, high employee satisfaction, and staunch loyalty have been praised by various publications (USAA, 2016).  USAA recruits former military, dependents, and recent college graduates to build a workforce that supports the culture and values of the organization.  The benefits that USAA offers, to include school tuition, medical care, fitness resources, and flexible schedules, attracts an average of 56 applicants per opening (Great Place to Work Institute, 2016).  The company often promotes internally before recruiting externally demonstrating their value of employee knowledge, experience, innovation, and commitment (Fortune, 2015).

USAA is faced with limited financial resources due to private ownership, continued evolving technological requirements, fluctuations in regulations and the economy, and high competition.  The organization may be facing substantial hurdles in the near future.  In order for the company to remain successful, they need to identify the potential weaknesses, threats, and opportunities they will face and devise solutions that will help them remain viable, and capable of shifting to meet ever changing consumer needs.

USAA has continued to surprise customers, competition, and the founders with its growth and success.  I expect the company to continue to evolve to fit needs and devise surprising solutions that will keep it at the forefront of the financial services industry.  I believe that USAA will hone in on the things it does the best and excel in those areas by expanding offerings and shifting organizational structure to enhance communication and functionality.

Analysis

USAA’s current organizational complexity does not fit its structural configuration.  The organization strives to be efficient and effective.  They are good at analyzing situations and overcoming obstacles with innovation and technology.  These characteristics would align them with a type 4 organization, but their environment is a type 2.  While their configuration fits the type 2 classification, their organizational complexity is a type 3.  In order to become a truly effective organization, one poised for continued success, they need to determine who they are and what their strategic goals should be.  Due to the high competition in the financial services industry, USAA should strive to become a type 4 organization.

Environment

            The insurance industry is classified as a varied environment, but USAA’s expansion into other financial service areas has increased its competition and market volatility.  The environment should be reclassified as turbulent and USAA needs to prepare itself for increased competition.  They must be prepared to implement changes at a fast pace in order to respond to changes in the industry.  They need to enhance their marketing, quality of products, product offerings, and efficiency in customer service.  USAA clings tightly to the military link and has been successful, but this historical attachment may limit them in the future.

Configuration

            USAA currently has a functional organization where tasks are specialized to increase the efficiency of completion.  Employees are grouped based on their skills and each division handles a very different portion of the business.  When customers call, if they have more than one concern, they are often transferred between multiple departments in order to get their questions answered and business completed.  This decreases customer satisfaction, increases the amount of time it takes to service customers, and leads to higher labor costs.  Changing the organizational configuration could increase customer satisfaction, reduce labor costs, and increase efficiency and effectiveness.

Organizational Complexity

            USAA has a flat organizational complexity.  Based on the needs of the organization, this complexity classification does not serve the company well.  Communication within the company is based on policy and strategy, but the company should be focused on specific task operations which are the profit generating components of the business.  This means that only one department can do each specific task and customer demands cannot be handled simultaneously.  It makes the company both inefficient and ineffective.

Recommendation 1

            USAA needs to shift their organizational structure to a matrix organization.  In this new structure, the executive vice president would be in charge of all product service units.  The presidents for each subunit would report directly to the CEO.  The administrative vice presidents would work with each unit simultaneously ensuring required resources for continued operation.  This new structure would allow USAA to meet multiple demands from customers with one single point of contact.  This structure would also allow the employees to develop and diversify their skills in order to be flexible to changing demands in the industry.

            This new configuration would alter the complexity classification of USAA.  The reduced number of middle managers would allow information to be more easily exchanged.  Faster communication would mean more time is available to focus on specific value tasks.  The company could focus on breaking down tasks to an elementary level and the cross training of employees would mean that multiple employees could do related work at the same time reducing overall labor costs and necessary oversight from supervisors.

Recommendation 2

            USAA has only reached 10.7 million customers out of a potential market of 60 million (Jeffrey, 2015) (Nordman, 2013).  The question is, why is the company not reaching those other 49.7 million potential clients?  Currently USAA has distinct marketing materials for each unit of their business.  Marketing campaigns are not integrated and they are focused more on the peripheral services as opposed to the traditional insurance business where USAA excels in both customer satisfaction, value, and historical experience.

Marketing needs to work closely with a team comprised of individuals from all service units.  Their primary goal should be to reach individuals who need their unique insurance programs.  Once members are acquired, the marketing campaign can be evolved to include the other services.  USAA should examine marketing venues to find the ones that work best for their customers.  Commercials are an expensive and widely overlooked marketing choice.  Marketing through social media campaigns, search engines, and print publications should be evaluated to ensure that the appropriate venues are being used to reach their unique target market.

Recommendation 3

            USAA has become so diversified that they have switched their focus to financial services rather than insurance.  Insurance is where they have the most experience, success, and highest ratings in customer service satisfaction.  This service unit has the highest number of active members out of all other units.  USAA needs to maximize their services in this area to maintain current customers and be more attractive to potential customers.

            USAA strives to be on the technological forefront.  In the insurance industry it is important that the company be able to quickly, and accurately, gather information about claims.  They need to process claims quickly, and attend to the needs of their customers.  Improving their mobile app to allow for more detailed imaging, faster uploads to the company database, quicker review by claims adjustors, immediate electronic payment to USAA customer banking accounts, and arrangements with rental vehicle providers to deliver temporary transportation would all improve the customer service experience.

            While these changes to the current claims process would incur additional costs at the beginning, the enhanced customer service will build loyalty and attract customers away from competitors.  Once customers are integrated into the USAA family, it is much easier to convince them to diversify into USAA’s other financial services offerings.  Membership will increase and new premiums will offset costs incurred during the transitioning of the claims processes.

Implementation

The recommendation that I would provide the highest endorsement to is recommendation number 2.  USAA’s private status limits their financial opportunities.  The only way they can increase their net income is to increase the number of clients or raise fees.  Raising fees will only cause current clients to switch companies for lower rates.  Since they have a targeted market, they need to work extremely hard to make sure they are the vendor of choice.  A commitment from management, coupled with a cross-functional team that is knowledgeable about all aspects of the insurance business will insure that the marketing focus is placed on insurance and the appropriate marketing venues are being utilized.

In order to implement this new marketing strategy, the chief executive officer must meet with the executive council and review financials and membership ratios from the last several years.  The forecast for membership growth and profitability should be examined and compared with previous forecasts versus actual performance.  Examining these numbers will demonstrate the importance of increasing profitability and its link to membership growth.  Once these metrics have been examined, there should be buy-in from the executive council.

The executive council should identify the individuals in their units that possess the most knowledge regarding their specific unit as well as service details that lead to successful retention and conversion of potential customers.  This working group would partner with marketing professional in the organization, and potential outside ad agencies, to develop new campaigns that target the insurance offerings and highlight USAA’s strategic advantages.

Once the membership starts to grow, the executive council can switch focus to improving customer service, costs, and capitalizing on technological innovations.  Obtaining clients, keeping the ones you have, and making people happy with excellent customer service will only improve USAA’s standing and success in the financial services industry.

References

Claessens, S. (2009). Competition in the Financial Sector: Overview of Competition Policies. Retrieved from International Monetary Fund: https://www.imf.org/external/pubs/ft/wp/2009/wp0945.pdf

Fortune. (2015). USAA. Retrieved from 100 Best Companies to Work For: http://fortune.com/best-companies/usaa-33/

Great Place to Work Institute. (2016). USAA. Retrieved from Great Place to Work: http://reviews.greatplacetowork.com/usaa

Jeffrey, T. P. (2015, September 8). 21,005,000 to 12,329,000: Government Employees Outnumber Manufacturing Employees 1.8 to 1. Retrieved from CNS News: http://cnsnews.com/news/article/terence-p-jeffrey/21955000-12329000-government-employees-outnumber-manufacturing

Nordman, D. (2013, March 25). USAA and Membership Growth. Retrieved from The Military Guide: http://the-military-guide.com/2013/03/25/usaa-and-membership-growth/

Schumer, B. &. (2010). Bloomberg/Schumer Financial Services Competitiveness Report Fact Sheet. Retrieved from Greg Wilson Consulting: http://gregwilsonconsulting.com/wp-content/uploads/2010/12/BloombergSchumerPressHandout.pdf

United States Department of Labor. (2016). Industries at a Glance. Retrieved from Bureau of Labor Statistics: http://www.bls.gov/iag/tgs/iag52.htm

USAA. (2012). Retrieved from Company Histories: http://www.company-histories.com/USAA-Company-History.html

USAA. (2014). We the Members – 2014 Report to Members. Retrieved from USAA: https://content.usaa.com/mcontent/static_assets/Media/report-to-member-2014.pdf?cacheid=1896096673_p

USAA. (2016). Awards and Rankings. Retrieved from USAA: https://www.usaa.com/inet/wc/about_usaa_corporate_overview_awards_and_rankings

USAA. (2016). Executive Council. Retrieved from USAA: https://www.usaa.com/inet/wc/about_usaa_corporate_governance_executive_council?akredirect=true

USAA. (2016). History. Retrieved from USAA: https://www.usaa.com/inet/pages/about_usaa_corporate_overview_history

USAA. (2016). Operating Companies. Retrieved from USAA: https://www.usaa.com/inet/pages/newsroom_factsheets_main

USAA. (2016). Our Mission and Values. Retrieved from USAA: https://www.usaajobs.com/about-usaa/mission-and-values.html

Appendix

Organizational Chart

 

USAA's Premiums

Money on the Mind

downloadThe Money on the Mind video was an eye opener for me.  The video features the work of two Berkeley researchers who were investigating the apparent link between wealth and unseemly behavior.  The authors noted a few interesting points.

  1. Individuals with a higher level of income tend to have a lower level of concern for others.
  2. Individuals with a higher level of income tend to have higher incidences of unseemly behavior.
  3. Individuals with a higher income are more likely to lie, endorse unethical behavior, and lack empathy in comparison to those with a moderate or low income level.

These results have been highly challenged by the research community due to the liberal nature of Berkeley and how the results disparage the wealthy and powerful.  Berkeley has fired back with a documented 30 studies and more than a thousand participants in which these results were duplicated.

The question I am faced with today is how does the content of the video relate to decision making within an organization?  I have pondered my response for a few days, discussed it with my spouse, and here is what I have decided.  The results of the study translate very specifically to decision making in the workplace.  As an individual takes on positions of increased responsibility and pay, they begin to act differently.  In my experience, the majority of these individuals begin to exhibit the same type of behavior that the Berkeley scientists documented during their study.  The individuals conduct themselves in ways that make others think they don’t care about them or will do, or say, whatever is necessary to get the job done.

These individuals often forget how they felt when they were on the front line, or that they did not get to the position of power themselves.  They forget that it wasn’t only their talent that allowed them to excel in their position.  When individuals behave like this, they tend to lose the loyalty and trust of their employees.  Employee performance diminishes, chances of unethical behavior increases, and generally the culture of the company spirals downward.

We know there is a problem, but can we do anything about it?  Knowing the facts is half the battle.  If individuals who possess wealth, power, and decision making ability read these studies and can truly place the magnifying glass in front of themselves they might be able to see how their own behavior has been modified by those status changes.  These individuals might be able to change their behavior to go against the grain of those around and before them.