Literature Review on "Strategic Management Practices and Bahamian Culture Using Hofstede's Cultural Dimensions"

Literature Review 13 pages (5122 words) Sources: 25

[EXCERPT] . . . .

Strategic Management Practices and Bahamian Culture

Bahamian Insurance Industry: Background

The Bahamian insurance industry is divided into two main braches: one domestic, one captive and each operate without regard to the other, overseen by their own act of Parliament (Oxford, 2009). Within this field, around 100 companies are engaged in business, the bulk of them working as brokers, with just a few working as underwriters, working closely together when they do (Oxford, 2009). There appears to be a system of checks in place: agents aren't able to underwrite, and companies cannot engage in sales pitches to prospective customers directly (Oxford, 2009). The Office of the Registrar of Insurance Companies (ORIC) which is looked after by the Ministry of Finance regulates the entire insurance arena and is largely expected to inspect, license and oversee the companies, agents, brokers and sellers that make up this industry (Oxford, 2009). Oric has made it clear that it would like to raise the local industry's standards of corporate governance, internal controls and professionalism and move from a prescriptive, rule-based approach, to a more risk-based advisory approach" (Oxford, 2009).

The industry has indeed experienced rocky times in the last few decades, with nearly every election in the Bahamas entailing promises of politicians to help reform the insurance industry (Craton & Saunders, 1998). In 1981, the Bahamas engaged in an elaborate wooing process to get multinational insurance company back to doing business with them, targeting mostly captive insurance companies as a means of growth and warding off competition from other banking centers in the Caribbean (Craton & Saunders, 1998).

One of the main ways that ORIC has sought to accomplish such a goal is via an overhaul of 1969's Domestic Insurance Act, which nearly all professionals of the field regard as out-dated, mostly inapplicable and not responsive enough to the evolved financial instruments of the modern era (Oxford, 2009). While the draft of this act was created in 2005, approval of the act was met with many delays as a result of arguments arising from agents and underwriters.

Captive insurance refers to "firms that insure and reinsure the risks of subsidiaries and affiliated units through a company established for that purpose in the Bahamas. Despite its well-established position as an international centre for banking and finance, the country is still home to a limited share of the international captive insurance market" (Oxford, 2009). Essentially, expert panels and overseers of the field at large believe there is much to be gained if the local sector bolsters its share in an expanding global market and is pushing and developing new legislation which will assist in allowing such objectives to be achieved (Oxford, 2009). The captive insurance sector is truly rapidly evolving.

On the other hand, one could make that argument about the industry as a whole. New investment vehicles have debuted in the last few years, and as generally unknown creatures, many players in the field were unsure of the proper risk management techniques.

Strategic Management Practice

Thus far in time, the insurance industry in the Bahamas has been characterized by creating and revising legislation which will specifically spur the captive insurance arena of the industry at large. This is a classic tactic of strategic management to spur growth internally (Harrison & St. John, 2009). Bahamian insurance offers potential American and foreign clients a higher level of asset protection: "…the degree of asset protection is obviously higher when the policy is provided by an insurance company outside the U.S. And where the assets are also held offshore" (Whelehan, 2002, p. 427). One could argue that the Bahamian insurance industry has worked hard to advertise that asset to potential clients, giving the impression of being able to offer increased asset management.

The insurance industry of the Bahamas truly engaged in a strategic management plan which worked hard to please the customer and to make themselves look as attractive as possible. This is representative of yet another classic tactic within strategic management practices as it is one which is focused on customer needs and viewpoints (Kozami, 2002). For instance, "segregated accounts" were offered in the event that an individual wanted to protect their assets in a manner that was separate from the insurance company at large in the event that the insurance company was liquidated, these assets would not be subjected to the scrutiny and demands of creditors (Whelehan, 2002). Furthermore, insurance companies in the Bahamas simply have a greater degree of investment flexibility: by engaging in offshore insurance an American can have access to a wider range of investment opportunities which essentially creates a bolstered amount of cash-flow benefits, which should be attractive to any potential client (Whelehan, 2002).

Another branch of Bahamian strategic management plan was in the focus on, development of, and promotion of captive insurance plans. This is an example of the Bahamas carefully scrutinizing their strengths and determining that captive insurance plans represent one of them, and making a decision to mobilize and properly calibrate this strength (Teece, 2009). The benefits of setting up a "captive" were promoted strongly, and these benefits represented much of where the strategic management plan hinged. For example, massive cost reductions exist when one sets up a captive because one is no longer paying commissions which contribute to the profits of the insurer (Whelehan, 2002). This is also a more attractive form of insurance for medical groups and Bahamian insurance groups were certain to promote this logic. As a result of the fact that many business have to buy insurance at market-rate when their risk profile is reduced: "By using its own insurer, a business can control its exposure by use of deductibles and reinsurance such that it can cover itself more effectively at less cost" (Whelehan, 2002, p.428). This statement clearly demonstrates why such an arrangement would be more attractive to medical groups. One must not forget that captive insurance companies are essentially just insuring the risks of another company which manifests in simpler claims records which makes them better candidates for reinsurance.

Finally, Bahamian insurance companies were aware that they offered prospective clients a means of profit center diversification, making them attractive investments for companies oversees who wanted to gain profits outside of their jurisdiction in an arena that was distinctive from their general type of business (Whelehan, 2002). Bahamian insurance companies were aware of the tendency of human nature to seek out "something different" and to dabble with investing money in areas outside of one's standard line of work. Strategically, captive insurance companies, which make up a huge part of Bahamas' budget, knew that they could not only offer potential customers their mass of other benefits, but the enchanting thrill of being something different for many business professionals. Moreover, as a result of the fact that captives have so many benefits and so much popularity, strategically, a range of other captives were created, such as association captives, medical captives, credit life captive among many others.

However, strategic management within a changing environment is not without its limitations. The book, "Understanding Strategic Management" by Anthony Henry highlights how all forms of analysis within an organic environment have their limitations as a result of the fact that the environment is forever changing. Furthermore the industry players may be too focused within their boundaries, or some strengths may also be viewed as weaknesses (Henry, 2008). Likewise, in the book "Government and Business" by Trehan and Trehan highlights common limitations of strategic management in that it can bring rigidity to an organization, and can have problems reacting to a fast, changing external environment. "The external environment in which business operates is very dynamic, complex and it changes very fast. By the time, the strategy is formulated and implemented the environmental components might have changed, thereby rendering the strategy ineffective" (Tehran & Tehran, 2009. p.34). Thus, strategic management can't always keep up with the lightning fast speed of the surrounding world.

Bahamian culture

Hofstede views culture as "the collective programming of the mind that distinguishes one group or category of people from another... The 'mind stands for the head, heart, and hands -- that is, for thinking, feeling, and acting with consequences for beliefs attitudes and skills" (Hofstede, 2001). Hofstede believes that culture is a system of values and generally those values are manifested by behavior by a collective group of individuals (2001). On the other hand, British anthropologist Edward Tylor defined culture as "that complex whole which includes knowledge, belief, morals, law, custom, and any other capabilities and habits acquired by man as a member of society. More recently culture has been defined as 'a mental map which guides us in our relations to our surroundings and to other people' (Downs 1971: 35), and perhaps most succinctly as 'the way of life of a people' (Hatch: 1985:178)" (Ferraro, 2008, p. 28).

Despite all of these somewhat different definitions and viewpoints of culture, one can surmise that culture is directly related to the values and behavior of a group of people, and it's… READ MORE

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