Zurich Organizational Structure and Transaction Costs

Zurich Insurance logo as found on http://www.zurich.com

Over this past summer, I worked as a Claims Intern for Zurich North America at its headquarters in Schaumburg, Illinois. Zurich Insurance is a large, global insurer that provides insurance products to over 170 countries. Its global headquarters is located in Zurich, Switzerland and it has five main regions of operation that include North America, Latin America, Europe, the Middle East and Africa and Asia Pacific. Depending on the region of operation, Zurich provides insurance to individuals and from small to large organizations.

Looking at Zurich Insurance as a whole, as with many large, global organizations today, its organizational structure becomes increasingly complex as you move farther and farther away from its global headquarters in Switzerland. Looking into back into economic history, it is similar to GM's multidivisional structure that was visualized and created by Alfred Sloan throughout the 1920s, 30s, and 40s in that its central office is not responsible for its day-to-day operations. Instead, its central office's role is to audit and evaluate divisional performance and also plan and coordinate overall strategy (Milgrom and Roberts 3). For example, one of Zurich's strategies biggest components is "Who we are, what we are and how we do it". This foundational principle and most of the other big-picture strategies and mottos that I was taught during my time there were developed in Switzerland.

The principles that I learned also coincide with Zurich's overall strategy of growth and gaining new, large customers. The organization is currently undergoing a change to "streamline" its organizational structure. In a news release on March 11, 2014 the proposed changes would total to USD 250 million by the end of 2015 and could eliminate as many as 800 jobs throughout their global organization. Although, it is also noted that this change will not affect customer-facing positions, so while this may not directly affect the customer, it will certainly affect both employees of the organization and investors. Also, considering there are over 55,000 employees of Zurich across the globe, this may not affect the organization negatively in a noticeable way.

This organizational change may affect the exact number of employees across the globe, but there was still an incredibly large number of people were also employed at the location I worked at. Not only did this provide for a lengthy organizational chart, but it also meant that constant communication was necessary to keep the gears turning smoothly. While a lot of communication did occur in conference calls and various meetings, most of the communication was done in the form of an email. There are various transaction costs of coordination—costs associated with the need to determine details of a transaction—that can be found with this type of communication across any large organization. Most information is communicated up an organizational hierarchy. Costs can be found in not only the time necessary to communicate but also in the dissemination of the information being communicated. I also noticed that this information was misinterpreted on a regular basis. It is no surprise that in communicating from person to person, information can either be lost or inaccurately communicated. This can be considered a transaction cost of maladaptation because decision makers may or may not have insufficient or inaccurate information (Milgrom and Roberts 29).




Sources:

Milgrom, Paul and John Roberts. Economics, Organizations & Management. Upper Saddle River, New Jersey: Prentice-Hall, Inc., 1992. Print.

http://www.zurich.com/en/about-us/strategy/our-strategy

http://www.zurich.com/en/about-us/a-global-insurer/where-we-operate

http://www.zurich.com/en/investor-relations/shareholder-information/letter-to-shareholders

http://www.zurich.com/en/media/news-releases/2014/2014-0311-01