Read the case below and answer the four 'Questions for Discussion" that follow. Number and answer the 4 questions separately (you need not copy the questions). Royal-Sen Financials: Sales Force Strategy After the Meeting On a hot Friday aftemoon in July, Bob Powell and John Knowles walked across a parking lot towards Bob's car. They had just finished a two-day strategic planning meeting with other members of Royal-Sen Financials (RSF) Independent Marketing channel at the Grandover Resort and Conference Hotel just outside Greensboro, North Carolina. The group had gathered to develop the sales goals it wanted to achieve in the next two and a half years, to identify strategic projects it needed to accomplish to meet those goals, and to assign responsibility for each project. "Wow, it's going to be hot in your car," John noted. John served as Vice President for Independent Marketing and Bob was Senior Vice President. "Especially after sitting in that air-conditioned room for two days," Bob responded. "But, I'm glad we're riding together. This'll give us a few minutes to talk about the sales force strategy project the group assigned us." Royal-Sen Financials Royal-Sen Corporation (RS), a holding company, was one of the nation's largest shareholderowned life insurance companies. Royal-Sen's life insurance and annuity business, known collectively as Royal Sen Financials (RSF), was comprised principally of Royal-Sen Life Insurance Company, Royal-Sen Financial Insurance Company, and Royal Sen Life America Insurance Company. RSF offered full lines of individual and group life insurance products. Royal-Sen Communications Company, which operated three network television stations and 17 radio stations, produced and syndicated sports programming. Royal-Sen Corporation (RS), a holding company, was one of the nation 5 largest shareholderowned life insurance companies. Royal-Sen's life insurance and annuity business, known collectively as Royal Sen Einancials (RSF), was comprised principally of Royal-Sen Life Insurance Company, Royal-Sen Fmancial Insurance Company, and Royal Sen Life America Insurance Company. RSF offered full lines of indrvidual and group life insurance products. Royal-Sen Communications Company, which operated three network television stations and 17 radio stations, produced and syndicated sports programming. In the previous year, the company amassed $3.33 billion in revenues and $513 million in net income. RS's insurance and investment products produced about 84 percent of its net income. RS took pride in its excellent financial ratings, having earned the highest possible financial ratings from A.M. Best, Standard and Poors, and Fitch Historically, the company generated its individual life insurance sales using a career sales force. The company employed managers to recruit and train life insurance agents, paying the managers commissions based on the insurance premiums their agents generated and an expense allowance to cover their overhead costs. The agents became "captrve" Royal Sen employees who sold only RS's policies. Like most life insurance companies, the company paid agents on a commission-only basis. The agent earned a commission of 50 to 60 percent of the first-year premium paid by the policyholder. In the following years, the agent earned a much lower commission on annual renewal premiums, usually in the range of fringe benefits, such as health insurance, vacation, and sick leave. The individual agent had to pay their own business expenses. In 2016, RS was a conservative, well-run company. However, the Board of Directors wanted the company to grow more rapidly. The Board brought in a new top-management team and charged the team with speeding up the company's growth. The new team immediately examined the company's sales-force strategy. It concluded that although the career sales force had been a.yaluable asset, the company was not capable of meeting its growth goals using only a career force. It simply took too long to hire and train new agents and bring the, up the necessary productivity levels. Further, industry wide, only about one of every seven or eight recruits actually succeeded in the insurance business. In addition to career agents, RSF had used some independent agents all along. Independent agents worked for themselves or for independent companies. They, like captive agents, sold life insurance; but they could sell policies offered by a variety of companies. RSF decided to expand it sales force by focusing on the independent agents. It began to recruit these established, experienced independent agents, licensing them to sell RSF's policies and encouraging them to do so. Because the agents remained independent, RSF did not have to provide them with typical employee benefits. However, because the independent agents still had to cover these expenses, the company had to pay a higher percentage of first-year premiums, usually about 80 percent. The average first-year premium in the independent channel was about $6,000. Because there were independent agents located throughout the United States, the company was able to expand more rapidly outside of its traditional Southeastern market area and have agents offering its policies nationwide. The new focus was extremely successful, and by 2020 , the independent channel had become RSF's primary distribution channel, although the company retained its career agents. In 2020, RSF hired Bob Powell to head the Independent Marketing channel. RSF had begun to recruit not only individual independent agents but also so-called Independent Marketing Organizations (IMOs). An IMO was in the business of serving life insurance agents. IMOs did not produce or "manufacture" life-insurance policies; they just served independent life insurance agents. Thus, the insurance company was the "manufacturer; "the IMO a "wholesaler:" and the independent agent the "retailer." The IMO represented multiple insurance companies and often had a large staff that helped agents develop customized policies to serve special customer needs. independent agent the "retailer." The IMO represented multiple insurance companies and often had a large staff that helped agents develop customized policies to serve special customer needs. IMOs dealt with the insurance companies, talked with underwriters and medical directors, and belped secure the needed life insurance on behalf of the agent's client. This allowed the agents to sell policies without having to worry about the massive amounts of paperwork and administrative details that someone had to perform after an agent made a sale. As a result, the IMO earned an additional fee from the insurance company on policies sold by the agents who worked through it. The insurance company was able to pay this additional fee because the IMOs performed some functions that the insurance company would have to perform if it sold directly through the agent. By recruiting IMOs, RSF was able to bring on more agents more rapidly than it could by having to recruit individual agents. There were also some IMOs that were "recruiting only," that it, they recruited agents but did not provide any of the administrative support for the agents. Powell and Knowles realized that there was no way RSF could recruit and serve the thousands of IMOs in the United States from the Greensboro home office. Thus, they began to put together a field sales team. They divided the country into five multi-state regions and, with the help of an Executive Search firm, recruited a Sales Vice President (SVP) for each region. The SVPs RSF recruited had many years of industry experience with other insurance companies, and several had held similar sales positions with other companies. The SVPs typically spent several days a week traveling to recruit new IMOs or to provide training and support for IMOs with who RSF had a relationship. They also worked with the IMOs to resolve policy issuance or customer service problems the IMOs might have with the home office. The SVPs were relationship builders. They saw themselves as "premium gatherers" who wanted to get more "shelf space" for RSF's products with each IMO. They wanted to get their IMO's, they're staff, and agents into the RSF "culture," make them comfortable doing business with RSF, and make is convenient to do so. Like the career agents, the SVPs were RSF employees to whom it paid a small percentage of all the first-year premium dollars generated by RSF policies sold in their territory. Even though the percentage was small, because of the size of their territories, SVPs could earn a substantial income. Because the SVPs put more "feet on the street" for RSF, and because RSF had very competitive products, policy sales had taken off in the previous year. By the time of this mid-year sales meeting, the IM channel was well ahead of its annual sales targets. Back in the Car "The problem we have," Bob Powell notes, "is that we are too successful. We are way ahead of this year's targets and you know top management is going to want us to exceed what we do this year next year. And, all of us are working as hard as we can. We can't do more by working any harder. You know that means we will have to add more SVPs." "That's right," John Knowles observes, "but you saw in the meeting how the frve SVPs reacted when we brought this up. They want to protect and keep all of their territory. " "Yes but we all know that an SVP can't possibly cover eight to twelve states and develop the kinds of IMO relationships we need," Bob answered. "I don't think an SVP can work with more than 30 or so IMOs. What are we going to do when an SVP gets a full client load? How do we bring on more SVPs without upsetting the apple cart?" "Well," John continued, "that brings up the issue of productivity. We have three marketing coordinators now based in Greensboro who work with the SVPs. However, we don't have a formal job description for them, and the SVPs are unhappy that they don't each have their own coordinator. But you know that in these economic times the company's reluctant to add more people, more overhead." "I can see that some of our discussions may get as hot as this July weather, " Bob laughed. "When I get home," John said, "I'm going to dig out the old marketing textbook I had at Auburn and look back over the chapter on personal selling to see if it'll remind me nf anv issuec urm coordinators now based in Greensboro who work with the SVPs. However, we don't have a formal job description for them, and the SVPs are unhappy that they don't each have their own coordinator. But you know that in these economic times the company's reluctant to add more people, more overhead." "I can see that some of our discussions may get as hot as this July weather," Bob laughed. "When I get home," John said, "T'm going to dig out the old marketing textbook I had at Auburn and look back over the chapter on personal selling to see if it' l1 remind me of any issues we ought to be considering." "We have a September 30 deadline for our sales force strategy proposals, so we'd better get to work, "Bob concluded Questions for Discussion 1. What are the advantages and disadvantages of using a career sales force versus an independent sales force? 2. What are the advantages and disadvantages of commission-only compensation versus salaryonly compensation? 3. What problems do you see with RSF's sales force strategy and structure decisions? 4. What recommendations would you make to RSF to help it deal with these problems