CASE ASSIGNMENT CASE 4.2: ADDISON INSURANCE CONSULTING (Ingram 112)

Background

Global Positioning

Addison Insurance Consulting (AIC) is a 30-year-old company that specializes in providing small businesses with supplemental insurance benefits that arent covered with normal insurance plans. AIC focuses on small businesses with 20 or fewer employees such as machine shops, law firms, account firms, and small restaurants. AIC has three sales representatives serving the Cincinnati, Ohio metropolitan market.

Joe Morgan, AICs founder and current president, was the companys first salesperson. When the company grew to the point that Morgan had a hard time serving all of his accounts, he added Tom Foster as a sales representative. Morgan gave Foster 15 of his existing accounts and instructed him to go after potential customers not yet in contact with AIC. A few years later, Karen Seaver was hired as a sales representative and added in much the same fashion. Seaver was not quite as experienced as Foster, so Morgan and Foster turned over 20 accounts to Seaver, 10 each. She also was instructed to add new customers not already doing business with AIC. Both Karen Seaver and Tom Foster report directly to Joe Morgan. Of AICs total sales volume, Joe Morgan accounted for approximately 60 percent. The remaining 40 percent was split evenly between Seaver and Foster. Seaver and Foster are paid a percentage of AICs billings to their clients.

Current Situation

Morgan is planning to retire in another year as a sales producer. In this so-called semi-retirement Morgan plans to continue as sales manager and president. Morgan has decided to bring in his son Tony as his replacement. Tony has no prior sales experience, so he will learn the business over the next three months, then step full-time into a sales role. Joe Morgan is gathering information that will help him decide how to design AICs territories after he gives up his sales responsibilities. He is not comfortable turning over all of his accounts to his son, Tony. Although he is hard working, Tony is inexperienced in the insurance consulting industry. A recent graduate of Xavier University in Cincinnati and a double major in Finance and Accounting, Tony has a goal of becoming president of AIC, then expanding company operations into other markets.

Morgan has been contemplating the sales performance of Seaver and Foster. Both had been solid, dependable performers over the years, but Foster had recently slowed down a bit. While his sales volume compared favorably to Seavers, Foster was selling in a higher potential sales territory. Further, he had a five-year head start on Seaver in developing new accounts, yet Seaver had brought in almost as much new business as Foster during the past year. Morgan had talked to Foster about the lack of sales growth in his territory but only heard excuses about why his sales had leveled off (i.e., slow economy). Foster promised to try harder to bring in new business. Morgan suspected that Foster was comfortable with his earnings and simply did not want to work much harder, even if he could make more money.

After several weeks of analysis, Joe Morgan finally had a rough draft of a new territory design policy that would go into effect at the start of the next new quarter. The key points of the new policy are:

Half of Joe Morgans accounts will be split between Tom Foster and Karen Seaver. Joe Morgans remaining accounts will be assigned to Tony Morgan.

After one year, sales territories will be redesigned so that the three territories will be comparable in terms of workload and sales potential.

For the current year, AIC salespeople will continue to earn a commission based on AIC billings to their clients.

After the sales territories are redesigned in a year, the commission rate for existing clients will be reduced, and a higher commission rate will be implemented for new accounts added within the past year.

Joe Morgan distributed the draft plan to Karen, Tom, and Tony. Both Karen and Tom questioned the idea of assigning half of Joes accounts to Tony. Tom came right to the point, saying, Look, Joe, hes your son and he will do just fine with some seasoning. But I think he ought to start with a smaller group of accounts. Hell learn the business a lot faster if he has to build it by adding his own accounts.

Karen and Tom were also concerned that they would have some of Joes former accounts for a year, and then lose them to Tony. Tony remained neutral on these issues, and voiced neither support nor opposition to the draft plan.

Questions

- What are the implications for Karen Seaver and Tom Foster if the draft plan is implemented?

- What are the implications for AICs customers if the draft plan is implemented?

- What are the pros and cons of Morgans draft plan?

- What changes and additions would you make to the draft plan?