IAI Actuarial Core Principles · Business Management · Communicating strategy; culture and structure in decision making; strategy case studies
Himalaya Pensions, with a strongly centralised decision structure, plans to enter a fast-changing digital annuity market where local conditions differ widely across states and quick responses matter. The board asks a consultant to recommend an approach. Which recommendation is most consistent with strategy theory on structure and decision making?
The best recommendation is greater decentralisation within clear guardrails: local teams respond quickly to varied state markets, while the centre retains control of risk appetite and reporting. Full centralisation is too slow, and removing central oversight would expose a financial firm to uncontrolled risk.
- ARetain full centralisation because it guarantees consistency, even if responses are slow
- BMove to greater decentralisation with clear guardrails on risk limits and reporting, so local teams can respond quickly while the centre keeps control of risk appetiteCorrect
- CDecentralise fully and remove all central risk oversight to maximise speed
- DOutsource all decisions to an external consultant
- Abolish middle management and give every employee equal authority over strategy
Explanation
Fast-changing, locally varied markets favour decentralised decisions near the customer. For a financial business, though, risk appetite and governance must stay central. Full decentralisation without oversight risks uncontrolled risk, while full centralisation is too slow.
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