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Organisational Strategy of Friends Provident: A Report
Introduction :
Friends Provident is a leading UK financial services group and a member of the FTSE100 Index. Friends Provident has three core businesses:
The UK Life and Pensions business markets a range of life protection, income protection, pensions and investment products for individual customers and corporate clients in the UK.
The International Life and Pensions business operates in Europe, Asia, and the Middle East, and incorporates the Luxemburg based company Lombard International who specialise in providing life assurance based estate planning solutions.
The Asset Management business - F&C Asset Management plc - manages funds and markets a wide range of investment products both to personal and institutional customers.
History:
The Friends' Provident Institution was founded in 1832 to provide life assurance for members of the Society of Friends, commonly known as Quakers. In 1915 it was incorporated as a mutual life assurance office by Act of Parliament. Following the acquisition of the Century Insurance Company Ltd, it moved its head office from Bradford to London. In 1958 it opened purpose-built Head Office in Dorking which is its principal office even today.
It changed its name to Friend’s Provident Life Office having become a specialist Life and Pensions organisation after the sale of general insurance business in 1974. It then merged with UK Provident in 1986.
In 1990 Friends Provident International was launched, marking its entry into the offshore market. It also became the founding partner of the new Eureko alliance of European Insurance providers. Its financial planning service First Call was launched in 1992.
In the 1990s a number of acquisitions and sell offs were made. In 1993 it acquired NM UK Group, strengthening its market position in retail financial services. Its general insurance company, Preferred Direct, was sold to Eagle Star in line with its strategy to focus on life & pensions and asset management in 1997. In 1998 it acquired the London & Manchester Group which strengthened its position in the strategically important group pensions market. Also the acquisition of Ivory & Slime enabled its asset management company to list on the London Stock Exchange.
In 2001 following its demutualization, Friends Provident plc was listed on the London Stock Exchange. It was also admitted to the FTSE 100 Index of leading companies and the FTSE4Good Index.
Acquisition of Royal & SunAlliance International Financial Services in 2002 made Friends Provident one of the largest players in the offshore market. Funds under management were doubled through the acquisition of Royal & SunAlliance Investment Management and the asset management company became one of the top ten UK active fund managers. Name of the asset management company was also changed from Friends Ivory & Sime to ISIS Asset Management plc.
In 2004, ISIS Asset Management and F&C Asset Management plc merged to become one of the top five asset managers in the UK with 118 billion pounds of funds under management. Friends Provident owns 51% in F&C. In the same year the Friends Provident Foundation, a grant-making charity established as part of the floatation of Friends Provident plc, was launched formally.
Lombard International Assurance SA was acquired in 2005. Lombard is a pan-European life assurance company providing wealth management and estate planning solutions to high net worth clients in Europe, Asia and Mexico.
Organisation Structure:
As we already know, Friends Provident is a UK based company, having operations in UK and International markets. In order to enable effective control, Friends Provident has adopted multidivisional structure.
All its activities are monitored by the Head Office in Wiltshire. The head office formulates the strategies and finalises the budgets for the whole group. At the same time each division is responsible for it own activities. The day to day activities of each division are the responsibility of the division head.
This structure enables Friends Provident to concentrate on its business areas, individually. The measurement of each division’s performance is facilitated by this organisation structure. Each division, with the authority of the Head Office, acquires or divest units with ease. Company find it easy to take quick decision making which is the need of growing competitive environment. Beside, senior managers find it easier to form and review strategies under this structure. However, the company also keep in mind that there is no confusion in the locus of responsibility and ensures that conflicts between divisions do not arise.
On the contrary, this structure involves heavy costs as it requires separate infrastructure and personnel for each division. However, at the same time such structure may increase complexity in co-operation amongst the divisions. Therefore, FP can continue its current structure, provided it keeps the above factors in mind.
Management Structure:
Friends Provident exercises control over its three businesses through a common Board of Directors. A group of 10 members constitutes the Board. The board is responsible for, formulating strategies for the group as a whole and reviewing the same every year; finalising the budgets for the group; and taking decisions on material issues such as acquisition, sale, capital expenditure etc.
To ensure effective control over the company’s functioning, six different committees have been formed by the management. Each committee comprises of atleast one or more board members.
Audit and Compliance Committee provides the Board with independent assurance on the group’s financial reporting processes, internal controls and adherence to polices and controls. Nomination Committee leads the process, and makes recommendations to the board, for all new board appointment. It ensures a formal, rigorous and transparent procedure, the aim of which is to ensure that the appointments are appropriate to the needs of the group and the balance of the board. Remuneration Committee recommends to the board, the board policy with respect to the remuneration of senior executive and executive director’s, so as linking rewards to corporate and individual performances. The With Profit Committee carries out an independent judgement to assess the compliance of the company with its published principles and practices of financial management (PPFM) and verify how, any competing or conflicting rights and interests of policy holders and shareholders have been addressed. The main role of the Investment Committee is to propose and review the investment decision for the group as a whole. Group Risk Committee focuses on evaluating the risk involved in various ventures of the group.
Corporate Governance:
The corporate Governance practices, followed by FP, are in adherence with the combined code of corporate Governance. FP governs itself with the help of a common Board of Directors and different committees. In addition it also places considerable importance on communicating with shareholders and responding to them on wide range of issues. The company has strong internal control mechanism. It seeks to take appropriate and managed risk in order to make superior returns to its shareholders and customers. The group’s governance structure for risk management is based on three lines of defence. The primary accountability for managing risk lies with the business units. The second line of defence is provided by the independent group risk function. The third line of defence is provided by internal audit. But company needs to make more focus on corporate responsibilities while carrying out its business processes.
Social Responsibility:
FP operates in the Life Assurance Industry which is important from both economic and social perspective, contributing to the generation of wealth and the well being of the society. The company has started many stewardship ethical funds and is gaining more attention in market because of its socially responsible activities. Funds arising from its stewardship range of products are invested only in the companies that have been screened by an independent committee of reference, to ensure that they benefit the world and its people and keep their negative impact low. It is a major step towards its focus on social responsibilities.
The company has also adopted ‘Responsible Engagement Overlay’, reo®, in April 2000 and made it. Through reo®, FP encourages companies to be more responsible with regards to social, ethical and environmental issues, which it believe can contribute towards business success and therefore the value of the companies share.
It has also come up with five year programmes for addressing social and environmental issues in their supply chain. Suppliers are required to obtain certificates to prove that their products are environment friendly.
In order to save energy and electricity, FP has gone to the extent of installing automatic computerised building management system which monitors and controls heating and lighting in its offices. Moreover, to control emissions from the company cars, it has upgraded its video conferencing facilities, and have prompted it to all staff to reduce inter office travel. Thus we can say that FP has never turned its back on social responsibility and has always tried to do things which would benefit the society.
Marketing Strategy:
The group's main activities are providing retail financial services, mainly long-term insurance business and asset management. The products can be broadly classified as follows:
PROTECTION:
• Life cover
• Critical Illness cover
• Life and Earlier Critical Illness cover
• Income Protection cover
• House person's cover
• Unemployment cover
SAVINGS & INVESTMENTS
• Friends Online ISA(Individual Savings Account)
• Investment Portfolio Bonds
• Income Distribution Bonds
• Versatile Investment Plan
PENSIONS
• Stakeholder pension plan
• Pension for workers
• Pension for non-workers
• Pension for children
Recently, the company has started offering 19 new funds which are as follows:
• Friends Provident UK Special Situations
• F&C Global Real Estate Property
• Aegon Sterling Corporate Bond
• Aegon Ethical Corporate Bond
• Aegon Ethical Equity
• Credit Suisse Multi Manager Ethical
• Credit Suisse Multi Manager Constellation
• Credit Suisse Multi Manager Cautious Managed
• Fidelity Multi Manager Special Situations
• Merrill Lynch Special Situations
• M&G Recovery
• Artemis Global Growth
• Invesco Perpetual Monthly Income Plus
• JPM Cautious Total Return
• JPM Natural Resources
• Morley Sustainable Future European Growth
• Morley Property Trust
• New Star Tri Star
• Schroder S&P Cautious Managed Distribution.
It is one of the top10 companies in UK for Life & Pensions. With 8.8%, protection is the highest margin product of this company. They mainly focus on those segments in UK market which can provide sustained profit growth. Internationally, Friends Provident is one of the top5 offshore life companies, with cross borders market operation. It is one of the largest asset managers in Europe with focus on new business in higher margin areas. Asset Management offers its products both to personal and institutional customers.
Competitors of Friends Provident
Product Companies
Protection TESCO, Norwich Union, Standard Life
Savings & Investments HSBC, Barclays, UBS, Merrill Lynch
Pensions Halifax, Standard Life, Virgin
Inheritance Barclays, Financial IQ Group, Will Drafters
There are 100’s of competitors of Friends Provident for each product. But, it has been able to maintain its position in top10, because of their excellent marketing strategy. It delivers excellent customer services, strong relationship with key distributors and high quality training for their employees. It diversifies their business to improve returns, targeting markets where it can achieve a leading position. As a group, their strategy is to increase shareholders value.
Financial Strategy: (Aris)
Industrial Relations:
With more than 2.5 million customers, the group employs nearly 5,000 staff in its three core businesses: UK Life & Pensions, International Life & Pensions and Asset Management.
Friends Provident has been included in the top 50 best companies in the UK for being a great place to work in 2003 at no.32 in the list published in Financial Times and at no. 24 of the UK companies list for 2004. This has been announced on the basis of survey by the Great Place to Work Institute in UK, who after extensive research and using audit tools of Trust Index ( Credibility, Respect , and Faith of employees) and Cultural Audit (Pride and Camaraderi) in organization, on the quality of the three interconnected relationships that existed among employees themselves, with the company and with the management, that made the organization a Great place to work, in the current competitive global environment.
As a result of proper training, staff turnover fell from almost 22 to 16.5 per cent, while sickness absences went down from 7.42 to 4.43 per cent. The company has been able to attract a more diverse workforce and recruit inexperienced people because of its new training. The proportion of customer calls answered within 20 seconds has risen from 72 to 78 per cent.
Friends Provident, along with all the specialties and having very good rating in UK, is under some change process to cope with the new challenges and the market circumstances. Since last two years, decisions of redundancy of staff and introduction of new salary pension schemes have created an atmosphere of lack of camaraderie among employees. This clearly shows that the company has an implicit policy of reducing costs at the expense of employees. This is in contrast to the company's vision to lead the industry and capture new markets by providing excellence in service and hugely increased sales, which depends on staff efficiency exceeding all previous expectations and performance. To cope with the increasing needs of market capture in the future, along with other aspects to be given attention to, employee satisfaction at the workplace is of immense importance.
Hard working staffs are being told simultaneously to accept worse pensions while not meriting pay rises that even keep up with the cost of living.
External Influence- PEST Analysis
Now let’s focus on external/macro-environmental factors influencing FP’s organisational strategies and policies. The PEST analysis is a way of auditing the external influences that have impacted on the organisation or policy in the past and how they might do so in future. External influences can be categorised into four main types:
Political factors: Government regulations and supportive policies playing a major role in the success of FP’s strategies. In January 2006 FSA took control of regulating the UK insurance industry. The changing regulatory environment can have a major impact on the insurance industry. In past company is already been penalised for breaching the PIA rules and SIB principles and FSA rules and principles, thus company is needed to be more cautious in complying with the regulations. UK government is also planning to introduce a full blown operational and financial review of plc.’s and which may result in sharing of commercial confidential information and will give investors more power. These changes can turnout to be unfavourable to the company, if effective planning is not undertaken on time. However, government has also provided various tax benefits on individual protection and pension schemes which came up as a great support to growing insurance industry.
Economic factors: The insurance industry in UK is an important contributor to the economy, a major employer and a significant source of overseas earnings. The popularity of insurance as a savings vehicle as well as its valuable protection role gives the UK a per capita long-term insurance expenditure of £1,800, second only to Switzerland. Due to the formation of European Union friends provident is able to gain access to other EU member countries. The UK insurance industry is expected to face more competitions because of the consolidation of UK and European players. The margins are expected to decrease and volumes are expected to rise. Thus, FP need to be cost focus and should take advantage of scale of business.
Social Factors: Around the globe customers are becoming more conscious and focusing more on ethical buying. Thus, the companies with sound ethical reputation are strongly favoured above their less reputable counterparts. Thus, FP’s ethical and stewardship funds are expected to show more positive signs towards company’s future growth. Consumers are becoming more loyal towards the company and strengthening its customer base. FP has started focusing on its corporate and social responsibilities to gaining trust of its stakeholders.
Technological Factors: FP has invested a large amount in technological advancement which turned out to be very fruitful to the company. The technological advancement and e-commerce also made it possible for the company to sell its products outside its domestic territories (UK). Technology is widely regarded as market leading and has also resulted in substantial reduction in its unit cost. The technological advancement has assisted FP to promptly tackle changing market demands.
SWOT Analysis:
The aim of SWOT analysis is to identify the extent to which the current strengths and weaknesses of FP are relevant to and capable of dealing with the threats or capitalising on the opportunities in its business environment.
Strengths: Friends Provident has always focused on growing through acquiring other companies in the similar business line. This helped it to save time building up a setup for every expansion. FP has also been persistent on the use of new technology in all its divisions. This gives it an edge over its competitors and also protects it from any threats arising from new entrants. It has always developed and pioneered new investment schemes in order to attract more and more investments in its funds. It also came up with successful innovative systems such as the Stakeholders pension system. One of the most important strengths of FP is its commitment towards quality. It has received accreditations under the raising standard quality mark scheme. In order to maintain its technological edge, FP is soon entering into UK Wrap market wherein all wealth management services will be provided under a single online platform.
Weaknesses: FP’s persistence on having a technological edge may bring huge risk for the company. Every year company is investing million’s of pounds on technology. The amount is so huge that a single unsuccessful technology will brings huge capital loss to the company. Similar is the case with innovations. The innovation and technological edge comes at a cost. FP’s internal control mechanism needs to be more strengthened. Recently in 2003, FP is been penalised for one of its employee’s contravention of a requirement imposed upon him by law. Even though, the company has entered in the International market like other EU countries, Asia and the Middle East, it has not been able to make its presence felt.
Opportunities: The forming of the European Union gave FP an opportunity to enter new markets of EU member countries. FP also realised that a part of the society was unable to invest its funds as they were not allowed to do so due to their religious beliefs. In order to enable this section of the society, especially in the Middle East, to invest their funds, FP linked itself to the HSBC’ Amanah Global Equity Index fund.
Threats: The biggest threats for FP are from its competitors like Prudential’s, standard Life, Aviva etc. The increase in competition is resulting in decrease in margins and greater employee turnovers. Regulatory policies are becoming stricter and companies are needed to make more disclosures. The VAT rules are becoming more complex for insurance companies. Foreign policies and individual tax laws also indirectly have a major impact on its business. Increase in e-commerce frauds is also creating a challenge for the company.
Current and future strategies and Conclusion
In past years Friends Provident (FP) has shown a growing momentum in its business. Business in the UK and International market, both are showing excellent growth. Company has gained 13.1% share in U.K. group pension market and approx 8 % share in U.K. individual protection market, but still company is a small player in U.K. single premium investment and, individual pension market.
Company’s international business is also increasing with a fast pace. In first nine months of year 2006 Friends Provident International (FPI) has shown a 31% growth and there was 68% rise in business of Lombard International.
Strategies for international market included exploring new profitable business areas like Middle East and Asia, market development and product differentiation. Company is opening more international offices and intends to explore untapped market of huge potential and higher margin. FP is also considering launching of its pension products in German market. It aims to use its UK expertise in exploring foreign markets.
Strategies for domestic market includes, increase of its market share; product development, like SIIP, Wrap, ISA. It is also focusing on reengineering the business processes in certain segments and developing them further, which is resulting in rise in its market share. Key of the success of the company is its technology advancement, customer relationship, excellent service. Technology has also created a barrier for new players to enter. Company has also started focusing on other profitable business opportunities. Incorporation of Lombard International is a step towards providing life assurance based estate planning solutions.
Company is also looking forward to become a profitable player in emerging wrap market in U.K. This is a sign that, company is now focusing more on its domestic market i.e. UK. UK Wrap market is emerging and FP wants to take benefit of being the initial players. It means, FP will now provide other diversified services like wealth management, tax planning and risk analysis. However, here also strategy of the company remains the same i.e. pricing selectively to grow volume profitably and attract high quality business.
In coming years, company is expecting recession in insurance market, thus entrance in wrap market- asset management business can turn out to be fruitful for the company. But at the same time there is a risk of loss of its investment of £15-20m, if wrap platform failed. There is also a high threat of entrance of key players of foreign wrap market.
However there are also certain related businesses areas which the company needs to explore, like wide after retirement market.
Introduction :
Friends Provident is a leading UK financial services group and a member of the FTSE100 Index. Friends Provident has three core businesses:
The UK Life and Pensions business markets a range of life protection, income protection, pensions and investment products for individual customers and corporate clients in the UK.
The International Life and Pensions business operates in Europe, Asia, and the Middle East, and incorporates the Luxemburg based company Lombard International who specialise in providing life assurance based estate planning solutions.
The Asset Management business - F&C Asset Management plc - manages funds and markets a wide range of investment products both to personal and institutional customers.
History:
The Friends' Provident Institution was founded in 1832 to provide life assurance for members of the Society of Friends, commonly known as Quakers. In 1915 it was incorporated as a mutual life assurance office by Act of Parliament. Following the acquisition of the Century Insurance Company Ltd, it moved its head office from Bradford to London. In 1958 it opened purpose-built Head Office in Dorking which is its principal office even today.
It changed its name to Friend’s Provident Life Office having become a specialist Life and Pensions organisation after the sale of general insurance business in 1974. It then merged with UK Provident in 1986.
In 1990 Friends Provident International was launched, marking its entry into the offshore market. It also became the founding partner of the new Eureko alliance of European Insurance providers. Its financial planning service First Call was launched in 1992.
In the 1990s a number of acquisitions and sell offs were made. In 1993 it acquired NM UK Group, strengthening its market position in retail financial services. Its general insurance company, Preferred Direct, was sold to Eagle Star in line with its strategy to focus on life & pensions and asset management in 1997. In 1998 it acquired the London & Manchester Group which strengthened its position in the strategically important group pensions market. Also the acquisition of Ivory & Slime enabled its asset management company to list on the London Stock Exchange.
In 2001 following its demutualization, Friends Provident plc was listed on the London Stock Exchange. It was also admitted to the FTSE 100 Index of leading companies and the FTSE4Good Index.
Acquisition of Royal & SunAlliance International Financial Services in 2002 made Friends Provident one of the largest players in the offshore market. Funds under management were doubled through the acquisition of Royal & SunAlliance Investment Management and the asset management company became one of the top ten UK active fund managers. Name of the asset management company was also changed from Friends Ivory & Sime to ISIS Asset Management plc.
In 2004, ISIS Asset Management and F&C Asset Management plc merged to become one of the top five asset managers in the UK with 118 billion pounds of funds under management. Friends Provident owns 51% in F&C. In the same year the Friends Provident Foundation, a grant-making charity established as part of the floatation of Friends Provident plc, was launched formally.
Lombard International Assurance SA was acquired in 2005. Lombard is a pan-European life assurance company providing wealth management and estate planning solutions to high net worth clients in Europe, Asia and Mexico.
Organisation Structure:
As we already know, Friends Provident is a UK based company, having operations in UK and International markets. In order to enable effective control, Friends Provident has adopted multidivisional structure.
All its activities are monitored by the Head Office in Wiltshire. The head office formulates the strategies and finalises the budgets for the whole group. At the same time each division is responsible for it own activities. The day to day activities of each division are the responsibility of the division head.
This structure enables Friends Provident to concentrate on its business areas, individually. The measurement of each division’s performance is facilitated by this organisation structure. Each division, with the authority of the Head Office, acquires or divest units with ease. Company find it easy to take quick decision making which is the need of growing competitive environment. Beside, senior managers find it easier to form and review strategies under this structure. However, the company also keep in mind that there is no confusion in the locus of responsibility and ensures that conflicts between divisions do not arise.
On the contrary, this structure involves heavy costs as it requires separate infrastructure and personnel for each division. However, at the same time such structure may increase complexity in co-operation amongst the divisions. Therefore, FP can continue its current structure, provided it keeps the above factors in mind.
Management Structure:
Friends Provident exercises control over its three businesses through a common Board of Directors. A group of 10 members constitutes the Board. The board is responsible for, formulating strategies for the group as a whole and reviewing the same every year; finalising the budgets for the group; and taking decisions on material issues such as acquisition, sale, capital expenditure etc.
To ensure effective control over the company’s functioning, six different committees have been formed by the management. Each committee comprises of atleast one or more board members.
Audit and Compliance Committee provides the Board with independent assurance on the group’s financial reporting processes, internal controls and adherence to polices and controls. Nomination Committee leads the process, and makes recommendations to the board, for all new board appointment. It ensures a formal, rigorous and transparent procedure, the aim of which is to ensure that the appointments are appropriate to the needs of the group and the balance of the board. Remuneration Committee recommends to the board, the board policy with respect to the remuneration of senior executive and executive director’s, so as linking rewards to corporate and individual performances. The With Profit Committee carries out an independent judgement to assess the compliance of the company with its published principles and practices of financial management (PPFM) and verify how, any competing or conflicting rights and interests of policy holders and shareholders have been addressed. The main role of the Investment Committee is to propose and review the investment decision for the group as a whole. Group Risk Committee focuses on evaluating the risk involved in various ventures of the group.
Corporate Governance:
The corporate Governance practices, followed by FP, are in adherence with the combined code of corporate Governance. FP governs itself with the help of a common Board of Directors and different committees. In addition it also places considerable importance on communicating with shareholders and responding to them on wide range of issues. The company has strong internal control mechanism. It seeks to take appropriate and managed risk in order to make superior returns to its shareholders and customers. The group’s governance structure for risk management is based on three lines of defence. The primary accountability for managing risk lies with the business units. The second line of defence is provided by the independent group risk function. The third line of defence is provided by internal audit. But company needs to make more focus on corporate responsibilities while carrying out its business processes.
Social Responsibility:
FP operates in the Life Assurance Industry which is important from both economic and social perspective, contributing to the generation of wealth and the well being of the society. The company has started many stewardship ethical funds and is gaining more attention in market because of its socially responsible activities. Funds arising from its stewardship range of products are invested only in the companies that have been screened by an independent committee of reference, to ensure that they benefit the world and its people and keep their negative impact low. It is a major step towards its focus on social responsibilities.
The company has also adopted ‘Responsible Engagement Overlay’, reo®, in April 2000 and made it. Through reo®, FP encourages companies to be more responsible with regards to social, ethical and environmental issues, which it believe can contribute towards business success and therefore the value of the companies share.
It has also come up with five year programmes for addressing social and environmental issues in their supply chain. Suppliers are required to obtain certificates to prove that their products are environment friendly.
In order to save energy and electricity, FP has gone to the extent of installing automatic computerised building management system which monitors and controls heating and lighting in its offices. Moreover, to control emissions from the company cars, it has upgraded its video conferencing facilities, and have prompted it to all staff to reduce inter office travel. Thus we can say that FP has never turned its back on social responsibility and has always tried to do things which would benefit the society.
Marketing Strategy:
The group's main activities are providing retail financial services, mainly long-term insurance business and asset management. The products can be broadly classified as follows:
PROTECTION:
• Life cover
• Critical Illness cover
• Life and Earlier Critical Illness cover
• Income Protection cover
• House person's cover
• Unemployment cover
SAVINGS & INVESTMENTS
• Friends Online ISA(Individual Savings Account)
• Investment Portfolio Bonds
• Income Distribution Bonds
• Versatile Investment Plan
PENSIONS
• Stakeholder pension plan
• Pension for workers
• Pension for non-workers
• Pension for children
Recently, the company has started offering 19 new funds which are as follows:
• Friends Provident UK Special Situations
• F&C Global Real Estate Property
• Aegon Sterling Corporate Bond
• Aegon Ethical Corporate Bond
• Aegon Ethical Equity
• Credit Suisse Multi Manager Ethical
• Credit Suisse Multi Manager Constellation
• Credit Suisse Multi Manager Cautious Managed
• Fidelity Multi Manager Special Situations
• Merrill Lynch Special Situations
• M&G Recovery
• Artemis Global Growth
• Invesco Perpetual Monthly Income Plus
• JPM Cautious Total Return
• JPM Natural Resources
• Morley Sustainable Future European Growth
• Morley Property Trust
• New Star Tri Star
• Schroder S&P Cautious Managed Distribution.
It is one of the top10 companies in UK for Life & Pensions. With 8.8%, protection is the highest margin product of this company. They mainly focus on those segments in UK market which can provide sustained profit growth. Internationally, Friends Provident is one of the top5 offshore life companies, with cross borders market operation. It is one of the largest asset managers in Europe with focus on new business in higher margin areas. Asset Management offers its products both to personal and institutional customers.
Competitors of Friends Provident
Product Companies
Protection TESCO, Norwich Union, Standard Life
Savings & Investments HSBC, Barclays, UBS, Merrill Lynch
Pensions Halifax, Standard Life, Virgin
Inheritance Barclays, Financial IQ Group, Will Drafters
There are 100’s of competitors of Friends Provident for each product. But, it has been able to maintain its position in top10, because of their excellent marketing strategy. It delivers excellent customer services, strong relationship with key distributors and high quality training for their employees. It diversifies their business to improve returns, targeting markets where it can achieve a leading position. As a group, their strategy is to increase shareholders value.
Financial Strategy: (Aris)
Industrial Relations:
With more than 2.5 million customers, the group employs nearly 5,000 staff in its three core businesses: UK Life & Pensions, International Life & Pensions and Asset Management.
Friends Provident has been included in the top 50 best companies in the UK for being a great place to work in 2003 at no.32 in the list published in Financial Times and at no. 24 of the UK companies list for 2004. This has been announced on the basis of survey by the Great Place to Work Institute in UK, who after extensive research and using audit tools of Trust Index ( Credibility, Respect , and Faith of employees) and Cultural Audit (Pride and Camaraderi) in organization, on the quality of the three interconnected relationships that existed among employees themselves, with the company and with the management, that made the organization a Great place to work, in the current competitive global environment.
As a result of proper training, staff turnover fell from almost 22 to 16.5 per cent, while sickness absences went down from 7.42 to 4.43 per cent. The company has been able to attract a more diverse workforce and recruit inexperienced people because of its new training. The proportion of customer calls answered within 20 seconds has risen from 72 to 78 per cent.
Friends Provident, along with all the specialties and having very good rating in UK, is under some change process to cope with the new challenges and the market circumstances. Since last two years, decisions of redundancy of staff and introduction of new salary pension schemes have created an atmosphere of lack of camaraderie among employees. This clearly shows that the company has an implicit policy of reducing costs at the expense of employees. This is in contrast to the company's vision to lead the industry and capture new markets by providing excellence in service and hugely increased sales, which depends on staff efficiency exceeding all previous expectations and performance. To cope with the increasing needs of market capture in the future, along with other aspects to be given attention to, employee satisfaction at the workplace is of immense importance.
Hard working staffs are being told simultaneously to accept worse pensions while not meriting pay rises that even keep up with the cost of living.
External Influence- PEST Analysis
Now let’s focus on external/macro-environmental factors influencing FP’s organisational strategies and policies. The PEST analysis is a way of auditing the external influences that have impacted on the organisation or policy in the past and how they might do so in future. External influences can be categorised into four main types:
Political factors: Government regulations and supportive policies playing a major role in the success of FP’s strategies. In January 2006 FSA took control of regulating the UK insurance industry. The changing regulatory environment can have a major impact on the insurance industry. In past company is already been penalised for breaching the PIA rules and SIB principles and FSA rules and principles, thus company is needed to be more cautious in complying with the regulations. UK government is also planning to introduce a full blown operational and financial review of plc.’s and which may result in sharing of commercial confidential information and will give investors more power. These changes can turnout to be unfavourable to the company, if effective planning is not undertaken on time. However, government has also provided various tax benefits on individual protection and pension schemes which came up as a great support to growing insurance industry.
Economic factors: The insurance industry in UK is an important contributor to the economy, a major employer and a significant source of overseas earnings. The popularity of insurance as a savings vehicle as well as its valuable protection role gives the UK a per capita long-term insurance expenditure of £1,800, second only to Switzerland. Due to the formation of European Union friends provident is able to gain access to other EU member countries. The UK insurance industry is expected to face more competitions because of the consolidation of UK and European players. The margins are expected to decrease and volumes are expected to rise. Thus, FP need to be cost focus and should take advantage of scale of business.
Social Factors: Around the globe customers are becoming more conscious and focusing more on ethical buying. Thus, the companies with sound ethical reputation are strongly favoured above their less reputable counterparts. Thus, FP’s ethical and stewardship funds are expected to show more positive signs towards company’s future growth. Consumers are becoming more loyal towards the company and strengthening its customer base. FP has started focusing on its corporate and social responsibilities to gaining trust of its stakeholders.
Technological Factors: FP has invested a large amount in technological advancement which turned out to be very fruitful to the company. The technological advancement and e-commerce also made it possible for the company to sell its products outside its domestic territories (UK). Technology is widely regarded as market leading and has also resulted in substantial reduction in its unit cost. The technological advancement has assisted FP to promptly tackle changing market demands.
SWOT Analysis:
The aim of SWOT analysis is to identify the extent to which the current strengths and weaknesses of FP are relevant to and capable of dealing with the threats or capitalising on the opportunities in its business environment.
Strengths: Friends Provident has always focused on growing through acquiring other companies in the similar business line. This helped it to save time building up a setup for every expansion. FP has also been persistent on the use of new technology in all its divisions. This gives it an edge over its competitors and also protects it from any threats arising from new entrants. It has always developed and pioneered new investment schemes in order to attract more and more investments in its funds. It also came up with successful innovative systems such as the Stakeholders pension system. One of the most important strengths of FP is its commitment towards quality. It has received accreditations under the raising standard quality mark scheme. In order to maintain its technological edge, FP is soon entering into UK Wrap market wherein all wealth management services will be provided under a single online platform.
Weaknesses: FP’s persistence on having a technological edge may bring huge risk for the company. Every year company is investing million’s of pounds on technology. The amount is so huge that a single unsuccessful technology will brings huge capital loss to the company. Similar is the case with innovations. The innovation and technological edge comes at a cost. FP’s internal control mechanism needs to be more strengthened. Recently in 2003, FP is been penalised for one of its employee’s contravention of a requirement imposed upon him by law. Even though, the company has entered in the International market like other EU countries, Asia and the Middle East, it has not been able to make its presence felt.
Opportunities: The forming of the European Union gave FP an opportunity to enter new markets of EU member countries. FP also realised that a part of the society was unable to invest its funds as they were not allowed to do so due to their religious beliefs. In order to enable this section of the society, especially in the Middle East, to invest their funds, FP linked itself to the HSBC’ Amanah Global Equity Index fund.
Threats: The biggest threats for FP are from its competitors like Prudential’s, standard Life, Aviva etc. The increase in competition is resulting in decrease in margins and greater employee turnovers. Regulatory policies are becoming stricter and companies are needed to make more disclosures. The VAT rules are becoming more complex for insurance companies. Foreign policies and individual tax laws also indirectly have a major impact on its business. Increase in e-commerce frauds is also creating a challenge for the company.
Current and future strategies and Conclusion
In past years Friends Provident (FP) has shown a growing momentum in its business. Business in the UK and International market, both are showing excellent growth. Company has gained 13.1% share in U.K. group pension market and approx 8 % share in U.K. individual protection market, but still company is a small player in U.K. single premium investment and, individual pension market.
Company’s international business is also increasing with a fast pace. In first nine months of year 2006 Friends Provident International (FPI) has shown a 31% growth and there was 68% rise in business of Lombard International.
Strategies for international market included exploring new profitable business areas like Middle East and Asia, market development and product differentiation. Company is opening more international offices and intends to explore untapped market of huge potential and higher margin. FP is also considering launching of its pension products in German market. It aims to use its UK expertise in exploring foreign markets.
Strategies for domestic market includes, increase of its market share; product development, like SIIP, Wrap, ISA. It is also focusing on reengineering the business processes in certain segments and developing them further, which is resulting in rise in its market share. Key of the success of the company is its technology advancement, customer relationship, excellent service. Technology has also created a barrier for new players to enter. Company has also started focusing on other profitable business opportunities. Incorporation of Lombard International is a step towards providing life assurance based estate planning solutions.
Company is also looking forward to become a profitable player in emerging wrap market in U.K. This is a sign that, company is now focusing more on its domestic market i.e. UK. UK Wrap market is emerging and FP wants to take benefit of being the initial players. It means, FP will now provide other diversified services like wealth management, tax planning and risk analysis. However, here also strategy of the company remains the same i.e. pricing selectively to grow volume profitably and attract high quality business.
In coming years, company is expecting recession in insurance market, thus entrance in wrap market- asset management business can turn out to be fruitful for the company. But at the same time there is a risk of loss of its investment of £15-20m, if wrap platform failed. There is also a high threat of entrance of key players of foreign wrap market.
However there are also certain related businesses areas which the company needs to explore, like wide after retirement market.