Chicken or egg? Deciding what the core business driver of a company is helps in choosing between a focus on sales or investments in order to be more successful.

As enterprise risk management and planning take a greater hold in the insurance industry, the dilemma of coordinating sales and investment strategies becomes more significant. The issue resembles that of the chicken-or-the-egg debate, but with more facets. Which strategy should lead and which should follow? If enterprise risk management is the goal and the two primary sources of income and profit for an insurer are premium and investments, how can the sales and investment strategies be coordinated without sub-optimizing the results of one or both?

The answer would appear to be in the response to the question: What is the core business driver of the company? If a company is a sales organization, then sales strategy must lead. If the company is an investment/capital markets company, then investment strategy must lead. Unfortunately, insurance companies typically don't characterize themselves as predominately sales- or investment-driven companies. As financial institutions, they typically view themselves as straddling the border between such classifications. This is why so maw insurers have difficulty implementing true enterprise risk management as a discipline for driving improved results.

For many companies in other financial industries, a more definitive identification with one or the other of these characterizations--sales or investments--has improved a company's focus on how it competes and operates, usually with improved results.

Unfortunately, to subordinate the sales strategy to the needs of the investment strategy, or vice versa, is difficult for insurers in part because they have traditionally not done this and thus do not have appropriate infrastructure or support mechanisms in place. The level of planning sophistication at most insurers does not approach the level needed to explicitly link and coordinate the company sales and investment strategies. Most importantly though, many insurers cannot answer the original question: What is the core business driver and strength of the company? The problem is not that one or the other driver does or does not dominate the planning at the company; rather, the problem is that the management of the company does not know whether one does or should dominate.

This lack of clarity over the relationship of the sales and investment strategies at most insurers has facilitated sales managers taking the lead in establishing their strategies without significant consideration of investment strategy needs. Investment strategies, in most companies, are likewise developed in near isolation from the sales strategy. In the past, this did not cause much of a problem, but in the current competitive and investment environment such lack of coordination may be devastating to competitive success. With such a difficult investment market for insurers, even a carrier that is considered to be a sales-driven organization should give increased consideration to the relationship between sales and investment strategies.

Sales strategies are commonly the core of most insurers' corporate strategies. By linking the choice of competitive sales options to the company's available investment strategy options, the overall strategy is enhanced. This recognition of the linkage and mutual contribution to income and profit of sales and investments will cultivate more expansive business thinking for executives in both the sales and investment operations of the company. To support such an approach most insurance companies would need to:

* Provide mechanisms for better communication and information exchange;

* Improve performance measures and targets; and

* Enhance planning tools and support.

Those carriers that are willing to link their sales and investment strategies will find that their ability to out-perform competitors in difficult times will be enhanced. Opportunities and trade-offs will more readily be recognized and addressed, resources will be applied more appropriately and planning ultimately will become easier.

To be truly competitive, a carrier must look to all aspects of its business to seek advantages and opportunities. The scope of opportunities and advantages is greatly increased when sales and investment choices are considered jointly, particularly in difficult investment environments, such as the one insurers now face. For insurers, it is a case where the whole is truly greater than the sum of the parts, if carriers take a logical approach to coordinating sales and investment strategies.

Gregory J. Hoeg, a Best's Review columnist, is managing director Hoeg & Co. He can be reached at [e-mail].