Business Administration and Management (BAM) th Vol. 1(4), pp. 123-131, March 29 2011 www.primejournal.

org/BAM

Full Length Research

Effects of employee perception of planned change strategy of selected firms in the Kenyan insurance industry: A case of Madison insurance and co-operative insurance companies
1

Awino Zachary Bolo* and 2Ndegwa Mercy Ruguru

1

School of Business, University of Nairobi. Nairobi-Kenya 2 Kenya Methodist University, Nairobi -Kenya
Accepted 13th March, 2011

The study examines the employees perception of strategic change in the Madison Insurance Company and Co-operative Insurance Company in Kenya. The objective of the study was to identify whether employee perception affects the success of strategic change management, the objective guided the entire research. The research was carried out through a case study design. The units of study were Madison and Co-operative Insurance Companies. The two companies were selected for purposes of comparison and to eliminate biasness. The population consisted of Madison Insurance Co. (K) Ltd and st Co-operative Insurance Company employees as at 31 December 2008, from which a sample of 60 was selected. The data collection instrument was a 5 level likert- type scale questionnaire administered to the respondents; analysis using the SPSS and Excel statistical software was carried out after which inferences were drawn from the feedback. Out of the sixty (60) respondents, fifty-six (56) were able to participate in the study by returning the completed questionnaire. The findings of the study are presented and discussed in line with the objective. Keywords: Employee perception, Planned change strategy, Kenyan Insurance Industry, Strategic change INTRODUCTION The Insurance industry in Kenya The Insurance Industry in Kenya falls under the financial sector. Specifically the Insurance Regulatory Authority governs the industry through the Ministry of Finance. The legislation governing the insurance industry is the Insurance Act Cap 487 Laws of Kenya, Part xv section 150 stipulating that only registered brokers, agents, risk managers, loss assessors, loss adjusters, surveyors and claims letting agents are allowed to carry on insurance business (GoK, 2005). Insurance companies in Kenya formed an association known as Association of Kenya Insurers (AKI) in 1987. It was formed as a consultative and advisory body. Its membership is open to any insurance firm duly registered under the Insurance Act and the Companies Act cap 486 Laws of Kenya to transact business in Kenya. The associations main objective is to promote adherence to prudent business practices by members and to create awareness among the general public with a view of accelerating the growth of the insurance business in Kenya. The current membership in AKI consists of 15 composite companies, 21 general business companies and 7 life companies (AKI, 2007). The insurance industry in Kenya has been going through turbulent times in the last ten years. This is because the industry is extremely dependent on the performance and outlook of other sectors in the economy and is heavily affected by any changes in the remote environment. According to Nelson Kuria the chairman of AKI in his foreword (AKI, Insurance Industry Annual

*Corresponding author email: zstra2009@gmail.com

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report, 2007), the political crises experienced in the first quarter of 2008 had adverse effects on the insurance industry. Other factors like the increased fuel pump prices, increased cost of living; increased competition for the few available customers, advancement in technology, government regulation and customers changing needs have heavily affected the insurance industry. Over a very short time span, the organizations and their employees have experienced or are experiencing substantial changes in what they do and how they do it. The industry generally has been faced with turbulent and rapid changing external conditions that are translated into complex, chaotic, multifaceted, fluid, and interlinked stream of initiatives affecting work, organizational design, resource allocation, systems and procedures in a continuous attempt to improve performance. According to Burnes (2004), the magnitude, speed, unpredictability, and impact of change in the external environment are greater than ever before. Local markets are becoming global markets; protected markets are being opened up to fierce competition and as a result, organizations both private and public, large and small, including those in the insurance industry have suddenly felt the pressure to improve on their products and services, and the efficiency and effectiveness with which they are offered to meet world standards and customers expectations. Madison Insurance Company Kenya Limited According to Madison Human Resources journal (2005), Madison Insurance Company Kenya limited (MICK) is a registered company under the Insurance Act and was incorporated under Kenyan Laws in 1987 after a successful merger between Crusader Plc 1974 and Kenya Commercial Insurance Corporation. The company mission statement is To lead in innovative insurance services, that create and protect wealth for all our stake holders and to practice good corporate governance Madison Audited Accounts (2007). This mission statement was formulated in 2007 after a strategic change management program. The company values are, Integrity, teamwork, service, initiative, innovation and professionalism Madison Audited Accounts (20rer07). According to Madison insurance website (2008), Madison insurance is one of the 15 composite insurance companies in Kenya. It offers a wide-range of products in both life and general business. Life insurance products include; Term assurance, Group deposit administration, Group creditor insurance, Group Multi benefit Insurance, Madison individual pension plan, Madison school fees policy, Madison 2000 plus policy, Mortgage protection policy, Flex loan, Whole life, Smart investor, Lala Salama, Family Income Fund, Group Investment policy and Gain Plus policy. General insurance products include; Fire, Motor private and Motor Commercial, Domestic package, Golfers insurance, Fidelity guarantee, Professional indemnity for doctors, Personal accident, Group personal

accident, Workmen compensation, Burglary, Employers liability, Money insurance and Medical insurance. Madison insurance has its head-office in Upper Hill Nairobi and a distribution network of 15 branches across the country. As at December 2008, Madison Insurance had 141 employees and 400 agents countrywide. Madison insurance change program Madison insurance being in the insurance industry is faced with very rapid changes. In order to remain competitive, good strategies are continuously formulated. However the organization was facing many challenges in strategy implementation and this started to slowly affect the company performance. The firm started loosing market share and profits were dipping. Market share for the organization dropped from 10% in the year 2000 to 7.3 % in 2006. The management therefore had to quickly come up with an effective way to reverse this situation by identifying some of the reasons that led to poor strategy implementation. One of the strategies that management came up with was the introduction of a planned change program in conjunction with an external change agent. The objectives of the change program were to change organization culture by creating awareness of current attitudes and working towards changing these attitudes; improving staff motivation, encouraging participation of staff in strategy implementation; empowering staff and enhancing a sense of responsibility and accountability in improving Madison; identification of improvement areas, creation of a strategy supportive culture, process reengineering, customer focus, improving communication and enhancement of team work and synergy. Some of the aspects that were changed during the change program include the Vision, the mission statement, company core values, the company Logo and the company slogan. Further the necessity for change was established and change teams created to enhance a strategy supportive culture and inter departmental synergy. The Co-operative Insurance Company of Kenya Limited (CIC) The Co-operative Insurance Company of Kenya Limited (CIC Insurance) was established in 1978 and was formerly known as Co-operative Insurance Services Limited (CIS). The idea of introducing co-operative insurance in Kenya was conceived in the 1960s by the Kenya National Federation of Co-operatives (KNFC). An insurance agency was started in 1972 with a few societies and a minimal premium income. In 1975, The Co-operative Insurance Society of Kenya was registered under the Co-operative Societies Act to offer insurance Services to Co-operatives. For legal reasons it was converted to a Company, CIS, which began business in December 1978. In 1999, the Company name was changed to The Cooperative Insurance Company of Kenya Limited (CIC).

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The name change was part of the Companys market repositioning strategy. CIC is the Companys registered trademark. The Company underwrites both Life and General classes of insurance and offers its services to both the Co-operative Movement and the general public. The co-operative movement in Kenya wholly owns the company. Co-operative insurance change program In its first strategic plan (1999-2003) it was pointed out that CIC strong market share in the cooperative sector was under threat from competitors who continued to make in-roads into the sector. Further, it was noted that CIC s operating environment was fast changing which necessitated that the company acquire an internal capacity for proactive planning by setting performance standards and putting in place a mechanism for continuous monitoring and evaluation. The 1999-2003 strategic plan was an attempt by the company to be proactive in its performance management and be in control of its activities. The successful implementation of this plan saw CIC grow and expand tremendously. The 2004-2008 strategic plan was developed with one of its thematic concerns being to transform the organization to accommodate the fast and vast growth of CIC and adapt to the changing operating environment. The Cooperative Insurance Company of Kenya Ltd adopted a planned strategic change program in order to be responsive to the changing business environment. Theoretical development Bennet (1999) considers perception as a process in which one interprets sensory inputs such as sight, sound, smell or feelings. Two people may physically see the same thing but they may have their own individual interpretation of what it is. Perception is closely linked with the individual and the human factor. The human factor in organization has been a subject of debate for some time now. Its origin can be traced back to the early works of Elton Mayo. According to Cole (2002), Elton Mayos study addressed the issue of the worker in the work place rather than the work itself. Further, Abraham Maslow demonstrated that the hierarchy of needs could influence behavior in an organization. At any one time it is the unfulfilled needs of an individual that act as motivators. According to Cole (2002), an individual behavior is formed on the perception of what they consider to be the reality. According to Njoroge (2004), this theory stresses the importance of perception in the motivation process. It argues the case for the view that individuals act on the basis of how they perceive situations. According to Cole (2003), individual effort and productivity is determined by the perception of the situation. According to Cameron and Green (2007), individual change is at the heart of everything that is achieved in an

organization. Once the individuals have the motivation to do something different, the whole world begins to change. Employees are complex beings. Their interest may not necessarily coincide with that of an organization. This is because human beings act on the basis of perception. According to Njoroge (2003), perception in an organization is crucial to researchers as employees are the driving force behind the success of an organization. There is need for managers to be aware of the perceptual difference between themselves and that of the employees, which may give rise to organizational conflict. Newstrom (2007), avers that people look at the world and see things differently. Even when presented with the same object two people may view it in two different ways. The view of their objective environment is filtered by perception, which is the unique way in which each person sees, organizes or interprets things. Nganga (2004) argues that Perception is influenced by intelligence, personality, expectation and interest. According to Njoroge (2003), attitudes and perceptions are developed over time and can change as new information and experiences are acquired. Bennet (1999) argues the case for managers to understand the process of perception in order to ensure employees and managers perceive the organizations objectives in a similar manner, appreciate workers grievances and complaints from their point of view and to improve communication between managers and their subordinate by interpreting things the same way. In todays economy, employees are a critical asset in ensuring an organization has a competitive edge in the market place. An appreciation of what would affect their current and future performance is therefore of great concern to decision makers. Unlike other resources in a firm, employees have to be motivated to be effective and efficient in their work. Njoroge (2003) therefore argues that managers need to be interested not only with the physical presence of the employee in the work place but more importantly their emotional presence. Policies and structures must also be able to generate commitment and enhance individual and group performance. A critical factor that can greatly influence performance in that respect is how they perceive various initiatives, that management introduce in an effort to enhance the competitiveness of an organization. A critical initiative being undertaken by management today is strategic change management, aimed at making implementation of firms business strategies more effective. Cummings and Worley (2005)explains that employee perception influences employee involvement in strategic change management. Employee involvement always leads to a higher rate of success in the implementation of strategic change management coupled with higher productivity. According to Cummings and Worley (2005), there is a growing body of research, which has found a

04 Bolo and Ruguru

consistent relationship between employee involvement with such measures as productivity, financial performance, customer satisfaction and labor hours. Employee perception can be seen to affect most of the other factors influencing change management. Employee perception will lead to either resistance or acceptance of change. It also determines the level of teamwork, the type of corporate culture that will be created, and how allocated resources will be utilized as well as the success of the organizational leadership. Burnes (2004), defines change as departure from the past or radical alteration of the status quo. According to Newstrom (2007), change is any alteration occurring in the work environment that affects the way in which employees must act. These changes may be planned or unplanned, catastrophic or evolutionary, positive or negative, strong or weak, slow or rapid and stimulated either internally or externally. Regardless of its source, nature, origin, pace, or strength, change can have profound effects on its recipient. Newstrom (2007) demonstrates some changes come from within the organization, but many more come from the external environment. Government passes laws and the organizations must comply. New advancements in technology arise and organizations must incorporate the changes. Competitors introduce new products, and the firm must respond. Customers, labor unions, communities and others initiate changes exerting pressure on the firm. With all these interactions, dynamic environment that require many, continuous and frequent changes is now the norm. Jones (2007) indicates organizational change is the process by which organizations move from their current state to some desired future state to increase their effectiveness. Change may be planned or emergent (unplanned). According to Marrow (1969), as quoted by Burnes (2004), planned change is a term that was first coined by Kurt Lewin to distinguish change that was consciously embarked upon and planned by an organization, as averse to types of change that might have come about by accident, by impulse or that might be forced on an organization. The goal of planned change is to find new or improved ways of using resources and capabilities in order to increase an organizations ability to create value for its stakeholders. Even a thriving organization may need to change the way it uses its resources so that it can improve productivity, develop new products or find new markets. Burnes (2004) argues that change has always been a feature of organizational life, though many argue that the frequency and magnitude of change are greater now than ever before. According to Slocum and Hellrieger (2007), organizations that are well positioned to change will prosper, but those that ignore change will flounder. There is an almost infinite variety of pressures of change facing organizations today, the most significant being globalization of markets, spread of information

technology and computer networks and changes in the nature of workforce employed by organizations.
RESEARCH METHODOLOGY This research was carried out through a case study design. The units of study were Madison and Co-operative Insurance Companies. The two companies were selected instead of one for purposes of comparison and to eliminate any biasness. Further the Case study design of the two insurance companies rather than a general industry survey was chosen because it is more suited in gathering and organizing information on the issue of staff perception and analyzing it to seek for patterns and themes. The design is most appropriate in strategic management where detailed, in-depth analysis for the selected unit of study is often required. Case study research design provides very focused and valuable insights to phenomena that may otherwise be vaguely known or understood. Perceptions and attitudes take time to develop; therefore a case study offered the flexibility to dwell on the issue of staff perception with a reasonable degree of depth. The population in this case was the employees of Madison Insurance and Co-operative insurance as at 30th December 2008. The employees of Madison insurance are spread around the county at the Headquarters and in the 15 branches . The employees of Cooperative insurance are also spread over country at the Head office and in their thirteen branches. As at 30th December 2008 Madison Insurance had a total of 155 employees while Cooperative insurance had a total of 141employees. A representative sample of 30 employees from Madison Insurance and 30 employees from Cooperative insurance was chosen. These samples represent 20% of the total population and also meet the rule of the thumb requiring a minimum of 30 respondents and a minimum of 10% of the total population. Sample design The study used the existing human resource database for both organizations as at 31st December 2008 as the source list. To arrive at the sample the study used the stratified simple random method. The researcher classified all employees into different strata depending on their job titles and positions. A proportional number to the size of each stratum was then allocated. This ensured that the size of the sample from each stratum is proportional to the size of the strata. The following strata were identified and samples were selected as shown in table 1 and 2 respectively The study used Systematic sampling method to select data from each stratum. All the elements of each stratum were listed and every fourth member (or the nearest to the fourth member) was selected depending on the number of members in each stratum. The study used both primary and secondary data. The source of secondary data was, Madison Insurance financial statements and annual reports, Madison Insurance Human Resource manuals, Madison Insurance website, Cooperative insurance website, Cooperative insurance financial statements and annual reports, the (AKI) insurance Industry reports, and the AKI website. The primary data was collected through a questionnaire. The Questionnaire had close-ended questions based on a five level summated scale (or Likert-type Scales) The questionnaire consisted of a number of statements, which were used to express either a favorable or unfavorable attitude towards the given object to which the respondent was asked to react. The respondents indicated their agreement or disagreement with each statement in the questionnaire. Each response was given a numerical score, indicating its favorableness or un-favorableness. The score were then totaled to measure the respondents attitude. This data collection method was used effectively by Njoroge (2003) in his study of clients perception of customer service in the insurance industry in Kenya. The questionnaires were sent to the selected respondenst

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Table 1: Madison Insurance sample

Strata Senior Managers (Head office) Regional and Branch Managers Assistant and Deputy managers Supervisors Insurance Officers Secretaries/Personal assistants Branch clerk/ Customer service officers Subordinate staff TOTAL
Table 2: Co-operative insurance sample

Population 11 12 9 7 84 4 27 1 155

Computation of stratified sample 30(11/155) 30(12/155) 30(9/155) 30(7/155) 30(84/155) 30(4/155) 30(27/155) 1(1/155)

Sample size 2 2 2 1 16 1 5 1 30

Strata Senior Managers Departmental heads Area/Regional Managers Assistant managers Insurance Officers Secretaries/Personal assistants Branch clerk/ Customer service officers Subordinate staff Total
Table 3: Respondents profile

Population 8 11 13 7 62 6 31 3 141

Computation of stratified sample 30(8/141) 30(11/141) 30(13/141) 30(7/141) 30(62/141) 63(6/141) 63(31/141) 63(3/141)

Sample size 2 2 3 2 13 1 6 1 30

Demographics Base all respondents Years of service 1 - 3 Years 4 - 6 Years 7 - 10 Years Over ten Years Employees Designation Insurance officer Branch customer service officer Asst manager/Dept manager Branch/Regional manager Senior manager Deputy manager Subordinate staff Branch Clerk Secretary/PA Supervisor Education Secondary College University

Total 56 41% 20% 18% 21% 48% 11% 9% 7% 7% 5% 4% 4% 4% 2% 2% 34% 64%

Headquarters 44 48% 16% 18% 18% 59% 0% 11% 0% 9% 7% 5% 2% 5% 2% 2% 30% 68%

Branch 12 17% 33% 17% 33% 8% 50% 0% 33% 0% 0% 0% 8% 0% 0% 0% 50% 50%

together with a covering letter of introduction through email. A follow up telephone call was made where the researcher explained the purpose of the study to all the respondents. This was to ensure that the expectations of the researcher were clearly understood by all the respondents.

RESULTS The research targeted sixty (60) respondents, 30

employees from Madison Insurance and 30 employees from Cooperative Insurance. They were drawn from the companies headquarters and regional offices. Out of these, fifty-six (56) were able to participate in the study by returning the completed questionnaireThis constitutes a 93.3% response rate, which was considered adequate for analysis. Table 3 shows the respondents profile. The respondents were required to indicate their level of

06 Bolo and Ruguru

Slightly Familiar, 2% Somewhat Familiar, 13%

Very familiar, 32%

Familiar, 54%

Figure 1: Level of familiarity with the change program Table 4: Correlation between employee perception and the success of change management.

Correlations Spearman' s rho Strategic change management implementation Correlation Coefficient Sig. (2-tailed) N Correlation Coefficient Sig. (2-tailed) N

Strategic change management implementation 1.000 . 56 .656(**) .000 56

Results of the Change process .656(**) .000 56 1.000 . 56

Results of the Change process

** Correlation is significant at the 0.01 level (2-tailed).

familiarity of the planned change strategy. As per the chart (figure 1), a total of 86% of respondents reported to be very familiar (32%) or familiar (54%), none of the sampled interviewees were unfamiliar with the planned strategy change, which translates to successful awareness campaign. Overall, out of a likely total score of 5 the familiarity process garnered a mean score of 4.2. We can say that the management sensitized the staff adequately in advance hence the high level of awareness. Effects of employee perception on the success of Strategic Change To test the effects of employee perception on the strategic change, the study evaluated how employees rated the success of the change management in relation

to the way they perceived the implementation process. The correlation of employees perceptions towards the implementation of the change process and the way they rated the results of the change process is highly positively correlated with a correlation coefficient of 0.656 and significance is certain with a P value 0.000 which is less than 0.01 at 99% confidence level. This indicates that those people who perceived the implementation process positively went ahead to indicate their satisfaction with the results it yielded and vice versa. Table 4. A vivid illustration on the relationship on the employees perception towards the implementation of the change process and the way they rated the results of the change process was found necessary. From the scatter diagramfigure 2, employees perception towards the way the

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Strategic change management implementation

4.50

4.00

3.50

3.00

R Sq Linear = 0.377

1.00

2.00

3.00

4.00

5.00

6.00

Results of the Change process

Figure 2: Scatter diagram illustrating the correlation between employee perception and the success of change management.

change was implemented and the way they rated the results of the change process was plotted on the same graph and a trend line drawn to illustrate how the two variables relate to each other. There is a high positive linear relationship between the variables of study which means majority of the employees who did not quite perceive the change process positively went ahead and disagreed on any improvements on the core objectives of the exercise. There is a direct linear relationship on the employees perception of the change program and the perceived success of the same. Factors that influence employee perception of change Management. The following factors were tested to check if they influence employees perception towards change, for example Length of service, Education level, Job position, Location and familiarity level of the change Management program. ANOVA table was applied (Table 5) to verify if there was significant contrast of views across the different groups within these variables. According to the results obtained, there was no single proof whatsoever that any of these influenced their perception. The only

significant contrast was that employees across different lengths of service had contrasting opinions on the factors they felt could affect Success of the strategic change management. When the significance is less than 0.05 there is evidence of contrast among the tested groups. DISCUSSION The objective was to identify whether employee perception affect the success of strategic change management. In this regard, the study clearly reflects a positive correlation of employees perceptions towards the implementation of the change process and the way they rated the results of the change process. This is indicated by the fact that those people who perceived the implementation process positively went ahead to indicate their satisfaction with the results it yielded and vice versa. There is a high positive linear relationship between the variables of study which means majority of the employees who did not quite perceive the change process positively went ahead and disagreed on any improvements on the core objectives of the exercise. The following factors were identified as influencing employees perception towards change, Length of

08 Bolo and Ruguru

Table 5: Relationship between Length of service and staff perception

ANOVA (Length of service) Between Groups Staff expectation Within Groups Total Strategic change management implementation Factors affecting Success of the strategic change management Results of the Change process Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total

Sum of Squares .403 4.303 4.706 .207 8.084 8.291 1.857 10.797 12.654 .063 38.804 38.868

df 3 52 55 3 52 55 3 52 55 3 52 55

Mean Square .134 .083 .069 .155

F 1.622

Sig. .195

.444

.722

.619 .208

2.981

.040

.021 .746

.028

.993

service, Education level, Job position, Location and familiarity level of the change Management program. All the listed variables were tested to identify the extent to which they influenced the employee perception of strategic change. According to the results obtained, there was no single proof whatsoever that any of these factors influenced their perception. The only significant contrast was that employees across different lengths of service had different opinions on the factors they felt could affect Success of the strategic change management. In addition to senior managers involvement is the need to have employees buy in of any proposed change which in turn leads to employees co-operation, It is important for the companies to realize that change is only possible if all the stakeholders are involved. To achieve this co-operation, the companies should employ motivational techniques that build wholehearted commitment and winning attitudes among employees. The management should ensure employees buy into the changes and commit to making them work. Employee involvement always leads to a higher rate of success in the implementation of strategic change management coupled with higher productivity. According to Cummings and Worley (2005), there is a growing body of research, which has found a consistent relationship between employee involvement with such measures as productivity, financial performance, customer satisfaction and labor hours. Madison Insurance Company and Cooperative insurance should also use the reward system whose role is to align the well being of the organization members, with realizing the companys vision, so that the organization members benefit by helping the company execute its strategic changes competently. If properly designed, the reward system is managements most

powerful tool for mobilizing organizational support and commitment to successful strategic change execution. Further, now that it is clear from this study, the relationship between employee perception and the success of strategic change management any organization planning to implement planned strategic change program must understand that employees are the driving force behind the success of an organization. There is therefore need for managers to be aware of the perceptual difference between themselves and that of the employees, which may give rise to organizational conflict. Therefore important for managers to create a positive perception through staff motivation, clear and consistent communication and planning a change program that communicates the benefits of such change to both the individual employees and the organization. Such actions will create a high level of employee support and participation and in turn provides positive perception.
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