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Management Control System Case Assignment Name : Muhammad Kamil 12/341277/PEK/17366 Class : International Class, Batch 60 Chapter 11 Case

11-3. CUP Corporation Case Overview CUP was one of the largest insurance firms based in Europe. They enjoyed growth rate of more than 25% each year for almost past 10 years. They sold various forms of insurance in order to broaden the type of the insurance into health, life, casualty, property, and automotive areas. However, the growth was flat instead of the planned 3 percent by 1996 and 1997. The declining growth rate resulted from several issues, economic climate, higher taxes and social welfare levies, increasing competition, extensive satisfaction of the basic demand for insurance in Germany. In 1996, the number of customer canceling contracts compared to the total amount of contracts, called lapse rate, reached DM 900M which is 10% of total premium revenue. They are having customer loyalty problem that has to be solved. One of the issue here is the establishment of CCC (Customer Care Center). This CCC enables the company to provide customer with one telephone number that will answer all of customer questions due to their contract. They need to professionally train people who could effectively answer a variety of questions and increase the service dramatically. The final objective would be to reduce the lapse rate. The lapse rate problem for CUP was summarized by the image of leaking bucket, new customers would flow into the bucket while at the same time many leaked out through big holes. Instead of focusing on the lapse rate, the problem was restated as a customer loyalty problem that cut across product lines and was considered a corporate problem. Analysis and Discussion CUP decided to create a Customer Care Center to stem defection of customers resulting in part from dissatisfaction with the firms service. The working hour of CCC is 24 hours a day and 7 days per week. CCCs main idea was to provide private customers with one telephone number to be used for all their questions and problems and for all types of insurance offered by CUP. The center design was ready and specified the following goals: 1. CUPs private customers would have one and only on telephone number for all their questions and problems.

2. The center would open 24 hours per day and 7 days per week. 3. CUP would benefit from a reduction in the lapse rate. 4. Become a service leader in the insurance industry and increase the number of customers with multiple policies. After the CCC was running within one year, Derrick as the competent manager wanted to ensure the success of the CCC and getting the measures right. To achieve those goals, the measurement of CCC should be using balanced scorecard systems, which was not only focusing on one indicator but also sets of them. They were perspective of financial, customer, internal business process, and learning and growth. FINANCIAL: Since the growth for insurance industry in German was decreasing , CUP had higher growth than the other company in the insurance industry over the last couple of years. The objective of the company was to increasing growth in income premium, using measurement by the revenue growth, and targeted to get at least 25% like they ever got this remarkable growth before. Fortunately, CUP had maintained its high growth while the growth of other insurance industry had leveled off. CUSTOMER: CUP suffered from high lapse rates, high number of customers signed more than one contracts, paid high commission, and increasing number of customer complaints or cancellation. Another problem was that customers tended to looked at the firm as a whole, not as a product line with whom they had contract with. Therefore CCC was created to provide customer with telephone number and professionally trained people who could effectively answer several questions so that CUP can satisfy what consumer needs and eliminate customer loyalty problem. Accordingly, their targets were reducing to 11% for the lapse rate, all of the complaint getting accomplished, and all of the product lines being offered to the customers. INTERNAL BUSINESS PROCESS: Internal business process of the CUP had objective to shorten the process to give service better for customers. The measurement used was using average time for customers to be served, and the target was to get 90% of inquiry could handle by CCC in first telephone call. In fact, unfortunately that CUPs internal business processes were not good enough. It could be seen in ways of slow responding time to customer, bureaucratically manner, and too little information available for the customers. Therefore, CUP created CCC with the process and technology that could support the needs of the customers. it was expected that CCC could make internal business process get more improvement for CUP.

LEARNING AND GROWTH: CUP Corporation had objectives to improving the employees skills and increasing their ability to handle new topics about customers inquiry. The measurements used were the number of employees competency to handle the calls, and also new topics complaint by the customers can be solved. Company had targets which were that CCC could answer general inquiry about product lines, and can answered spesific inquiry about new topics. CUP had insufficient training personnel and less specialized person based on learning and growth perspective. So those incapable people could not give service and information which customers need. Conclusion CCC can be used to overcome the problems between CUP and its customers. CCC help the customers when they could not reach their agent with contact CUP directly through CCC. CCC can give information what customers need so that finally could decrease the lapse rate. There are some Key success factors of CCC: 1. Concerning to the customers The firm as a whole, proactively picked and targeted the most profitable group, and learn more about the customers. At the same, it also defended its existing customer base through becoming sensitive to early signals of defection, monitoring carefully trigger events, and trying to recover lost contracts. 2. Efficiency in terms of information processing Provide customers with one telephone number and professionally trained people who could effectively answer a variety of questions. managers problem of lack critical mass. 3. CCC as profit center outside companys organizational structure This would make it possible to sign more flexible employment contract and have no relationship with operational division in the company, CCC could increase its performance effectively. Recommendation Balanced scorecard can be used as coherent and comprehensive measurement system for CUP Corporation and CCC. By balanced scorecard analysis, most of the problems coming from the customer and internal business processes perspective is understood. CCC has founded to overcome those problems. It also could coverage the senior