Case: ICMR 306-643-1
Governance and Control at AXA
As a global financial firm what organization issues did AXA face? The issues AXA faced were how to maintain control of a firm that had grown to be very large through numerous acquisitions and how to make a firm that derives revenue from differing locations execute or perform efficiently given the heterogeneous operating environments that were a result of that global reach. When deciding to change the governance arrangements, what issues were at stake? The issues that were at stake when changing governance arrangements were the handling of the increasing complexity of operations due to the company’s size and its geographical breadth as a result of growth by acquisitions over two decades. Then as a result of having grown so large in size, the other issue at stake was the degree to which the company’s operations should be centralized or decentralized. How were they addressed?
AXA addressed those issues by using what Claude Brunet described as “everything decentralized but strategy”. However rather than “everything”, the actual implementation really meant a balance between centralization and decentralization by trying to realize the advantages of each strategy whilst mitigating their disadvantages. AXA’s decentralization efforts worked well in allowing the each location the freedom to take control of certain elements of its operations so as to better adapt to its local conditions. Among the privileges local business units were allowed was the ability to do one’s own sales and marketing, underwriting and management of the company’s response to local regulatory issues. These privileges allowed each unit to tailor its services, products and distribution methods all while complying with local regulatory constraints. AXA also allowed each business unit to develop their own strategy. However, the strategy developed had to mesh with AXA group’s strategy as a whole. An example cited is that of AXA Japan which created its own three-year plan to increase the number of policies, retain clients and reduce expenses. Additionally, each unit could conduct its own risk management but business unit risk management performance had to meet the goals and objectives set by the group’s central risk management team. AXA’s centralization efforts really focused on using the company’s size to achieve cost savings. Two areas in which cost savings were realized were AXA’s procurement and technology functions. By centralizing AXA’s procurement, AXA was able to use its considerable size to negotiate for several of its expense categories like travel, desktop systems and software and telecommunications. AXA also extended the procurement concept to the payment of claims where e.g. in France, the company was able to negotiate a cost saving agreement with property/car repair networks. Procurement was coordinated by a centralized procurement department led by CPOs who reported to Alain Page-Lécuyer the SVP Group Procurement. AXA also centralized the provision of its technology services. Recognizing that as the company grew, the company realized that there was inefficient utilization of hardware that came with absorbing the IT systems of companies it acquired over time. To ameliorate this issue, AXA created a new subsidiary to service its technology needs and called it AXA Tech. AXA Tech reduced costs by reducing the number of mainframe hosting centres, email systems, print facilities and even external IT contractors. What real and substantive changes were made?
The real and substantive changes that were made were cost savings and to some degree, a diversification of revenues. As discussed previously, AXA Tech was able to reduce costs e.g. AXA realized a cumulative savings €160 million from 2001 to 2004/5 while centralizing procurement reduced telecommunications costs by 25%, professional services by 15% etc. In total AXA was able to save €1.3 billion between 2001 and 2004 due to its centralization...
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