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Every Business Needs an Angel

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DMS – FINAL PROJECT

PROJECT TITLE:
EVERY BUSINESS NEEDS AN ANGEL

WRITTEN AND SUBMITTED BY:
IRIS CHONG

Executive Summary
(1) Background
Just before last Christmas, Marsh & McLennan Companies Inc. announced the acquisition of HSBC Insurance Brokers Limited (‘HIBL’), through its subsidiary MMC UK Group Limited.1 (‘Marsh’) The announcement came as a surprise for me and quite a few of my fellow workers at the HSBC Insurance Brokers (Asia-Pacific) Ltd.2 – somebody bought us out?! Nobody told us!
(2) Purposes of report
Applying the Co-opetition model3 and the Game Theory,4 I would like to take advantage of this project paper to try to find out some of the hidden ‘Whys’ and ‘Whats’ leading to the acquisition, which might have been classified for internal use, and not released. The exercise and the findings would be useful for future strategic management.
(3) Scope and limitations
Given the geographic locations of Marsh and HIBL, and the confidential nature of the transaction, the acquisition was already factual at the time of its public announcement. Furthermore, the HIBL CEO Announcement5 about the acquisition in Hong Kong was focused mainly on the process of integration, with measly disclosure of the underlying motives. As such, while I believe I have done ample researches and obtained reasonably sufficient information to proceed with the project paper, some of my findings may have been speculative, and may deviate materially from the unpublished corporate records; I do not possess any boardroom-information (other than those that have been made public) that I can use to vouch my analyses and findings.
(4) Methodology
The discussions in this project paper have been based mainly on the book Co-opetition, the Game Theory, insurance industry reports and other statistical information available to the public. e.g. The Marsh & McLennan 2008 Annual Report.
(5) Summary of findings
I believe I have rationalized the moves (strategies) that led Marsh to decide in favor of the acquisition: Marsh changed the game and made the pie bigger.
(6) Conclusion
The Co-opetition model is a great business tool with many remarkable features. In contrast to Porter,6 Nalebuff and Brandenburger departed from the concept of industry, because this concept limits available opportunities. The most interesting business opportunities arise from intersections between traditional industries.7 The principles in the model can be (and have successfully been) applied to the real world businesses, large and small.
(7) Recommendations
In the course of assessing any major business plans, managers should conduct appropriate strategic-management process to analyze the roles and influence of the relevant players so as to achieve the most viable objectives and competitive advantages.

Table of Contents

I Introduction (1) Foreword 6 (2) Project Background 7 - 8 (3) Players’ Background - (a) About Marsh 8 - 9 (b) About HIBL 9 - 10 (c) About HSBC Holdings plc 10 (4) Financially Speaking - (a) The Global Insurance Industry 2008 Financial in brief 11 Table (1): World’s 10 Largest Insurance Brokers in 2008 12 (b) Where did Marsh stand in 2008 financially 13 - 14
II Discussion (1) Business as war 15 - 16 (2) The Marsh-HIBL Acquisition - 17 (a) The Value Net 17 - 18 (b) PARTS in relevance to the Marsh-HIBL acquisition > Players 18 - 20 > Added Value 20 - 21 > Rules 21 - 22 > Tactics 23 - 24 > Scopes 24 - 26 Table (2): Game Tree 27 Illustrations of the Table (2) Game Tree 28 - 29 (3) Conclusions 29 - 32
III Recommendations 32 – 33
IV References 34 - 35 APPENDIX 1: Abstracts from ‘Co-opetition’ 36 - 47 APPENDIX 2: HIBL CEO Announcement (Partial) 48 - 53

I INTRODUCTION
(1) Foreword
I have not read the book Every Business Needs an Angel.1 I was caught by the name of the book when I surfed the Internet for information needed for this project paper. The Book talks about the matching of wealthy individuals (i.e. angel or angels) and entrepreneurs who need financing, ‘The Dinner Club’, etc. – which are not exactly applicable to the business case discussed herein. However, I suppose every business does need an angel, although angel needs not be confined to hard cash – it can be a talented individual (e.g. a glamorous model for a creative fashion designer), a favorable change in legislation (e.g. airport tax reduction for the tourists industry), or, an opportunity for expansion (e.g. China opening its insurance market in 2004).2 In the Marsh-HIBL acquisition, both Marsh and HIBL could have been an angel for each other. Therefore, I adopt the name “Every Business Needs an Angel” as the title of my project paper.

In effort to produce a meaningful project paper, I have visited libraries, read a few books about strategic analysis and management, done extensive research on the Internet, studied numerous public reports about Marsh and HIBL, and discussed with my colleagues and friends regarding the acquisition.

(2) Project Background – the Marsh-HIBL Acquisition (‘Acquisition’)
On 18 December 2009, Marsh announced that it has concluded an agreement to acquire HSBC Insurance Brokers Ltd. in U.K. (HIBL), a wholly owned subsidiary of the HSBC Banking Group. Under the terms of the agreement, Marsh will acquire HIBL in consideration of £135 million (approximately US$204 billion), comprising a mixture of Marsh & McLennan Companies, Inc. stock and cash. The transaction, which is subject to all relevant regulatory approvals, is expected to close in the first quarter of 2010.

Concurrent with this transaction, Marsh has entered into a Preferred Strategic Partnership (PSP) with HSBC, one of the world's largest financial institutions, which will provide additional revenue opportunities to the company. Under the terms of the PSP, Marsh will have preferred access to provide insurance broking and risk management services to HSBC’s corporate and private clients.

In a media release on 18 December 2009, Marsh avowed the deal will expand presence in key markets; boost client services and solutions; and enable preferred access to HSBC corporate and private clients. “Acquiring HIBL is a great opportunity for Marsh, our clients, our colleagues and for the HIBL team. We are particularly excited by the opportunities available to us through the PSP with HSBC. It will enable us to leverage HSBC’s global network and banking relationship to generate new business,” said Dan Glaser, Marsh Inc’s Chairman and CEO.

HSBC Holdings plc. Group Managing Director, Clive Bannister, said: “The beauty of this agreement is that on the one hand we are improving the breadth and sophistication of HSBC broking services for our customers, while at the same time sharpening our strategic focus on the bancassurance model with emphasis on life, pension, and investments.”

(3) Players’ Background
(a) About Marsh
Marsh, is a world's leading insurance broker and risk adviser, has over 23,000 employees and provides advice and transactional capabilities to clients in over 100 countries. Marsh is a unit of Marsh & McLennan Companies (MMC), a global professional services firm with approximately 52,000 employees and annual revenue of US$11 billion. MMC also is the parent company of Guy Carpenter, the risk and reinsurance specialist; Kroll, the risk consulting firm; Mercer, the provider of HR and related financial advice and services; and Oliver Wyman, the management consultancy. MMC's stock (ticker symbol: MMC) is listed on the New York, Chicago and London stock exchanges.3
According to the Marsh 2008 Annual Report,4 the company recorded a revenue growth of 3.66% year-on-year (4). The growth was in line with the industry’s overall performance for the fiscal year. (Here, I have to remind myself that the insurance industry had very little to talk about in 2008.) The increase in revenue came from underlying revenue (+2%), acquisitions (+1%) and positive impact of foreign currency translation. For the year ended 2007, the company’s revenue growth was 8.09%.

Marsh showed a Net Loss of US$73 million in 2008, versus the Net Profit of US$2.4 billion in 2007(4). As a result, the company’s common stock price plummeted from US$36.82/share in the early third quarter of 2008 to US$20.96/share in the fourth quarter of 2008. On 26 February 2009, the closing price of MMC (i.e. the ticker symbol of Marsh) at the NYSE was US$18.21 per share. (6)

(b) About HIBL
HSBC Insurance Brokers is one of the largest international insurance broking and risk management organizations in the world. Founded in 1808 in London as Antony Gibbs & Sons, today the company has offices in 18 countries and territories in Europe, the Asia-Pacific Region, the Middle East and the Americas, and operates on all international markets and at Lloyd's. HSBC Insurance Brokers placed premiums of over £1 billion at 31 December 2008.5
According to the 2008 Annual Report of the HSBC Holdings plc,6 the parent company of HIBL, the company’s broking income in 2008 was US$1,738 million, a decrease of 13.61% from 2007. For the fiscal year ended 2007, the company’s revenue growth was 48.96%.

While the 472-page HSBC Annual Report is quite informative, it has barely discussed HIBL. Furthermore, due to the nature of HIBL’s incorporation status – a wholly owned subsidiary of HSBC Insurance Brokers Holding Limited, which is ultimately owned by HSBC Holdings plc, there isn’t a lot of financial and business data of the company that can be obtained publicly for this project paper.

(c) About HSBC Holdings plc7
HSBC Holdings plc, the parent of the HSBC Group and ultimate shareholder of HIBL, is headquartered in London. The Group serves customers worldwide from around 8,500 offices in 86 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets US$2.422 billion at 31 June 2009, HSBC is one of the world's largest banking and financial services organizations. HSBC is marketed worldwide as 'the world's local bank'.

(4) Financially Speaking
(a) The Global Insurance Industry 2008 Financial in brief
Global insurance premiums grew by 3.4% in 2008 to reach $4.3 trillion. For the first time in the past three decades, premium income declined in inflation-adjusted terms, with non-life premiums falling by 0.8% and life premiums falling by 3.5%. The insurance industry is exposed to the global economic downturn on the assets side by the decline in returns on investments and on the liabilities side by a rise in claims. So far the extent of losses on both sides has been limited, although investment returns fell sharply following the bankruptcy of Lehman Brothers and bailout of AIG in September 2008.8

Summarily speaking, the global insurance industry had suffered from the global economic downturn in the second half of 2008. However, the above report also indicated that: ‘The financial crisis has shown that the insurance sector is sufficiently capitalized. The vast majority of insurance companies had enough capital to absorb losses and only a small number turned to government for support.” Quite a few corporations with solid financial strengths survive the financial tsunami.

At this time, I thought of a quotation: ‘Whoever has the gold, makes the rules.’9 Nowadays, I think it would be more appropriate to say, “Whoever has the cash, makes the rules.” Cash-rich corporations cannot make the rules, but they can definitely change the games.
Table (1): World’s 10 Largest Insurance Brokers in 2008

(b) Where did Marsh stand in 2008 financially
As shown in the above table, in 2008, Marsh ranked No.1 in the World’s 10 Largest Insurance Brokers, in terms of brokerage revenue. While the total revenue of Marsh, at US$11,516 million, was 57% more than of its immediate competitor – Aon Corp, a dissection of the revenue segments will tell us Marsh had something to worry about.

Name of Broker Total Revenue Commercial Retail Reinsurance All Other Revenue
Marsh $11,516 $4,477 (38.88%) $794 (6.90%) $6,245 (54.22%)
Aon $7,310 $4,745 (64.92%) $960 (13.14%) $1,605 (21.94%)
Better/(Worse) $ $4,206 ($268) ($166) $4,640
Better/(Worse) % 57.54% (5.65%) (17.92%) 289.10%
Comparison of 2008 Revenue (US$ millions) by Segments – Marsh vs. Aon10
The above comparison shows that, in 2008, Marsh was behind Aon, the world’s 2nd largest insurance brokers, in Commercial Retail and Reinsurance revenues. Moreover, these revenues accounted for almost half of Marsh’s revenue portfolio. As such, although Marsh was more superior in Total Revenue, it was not good enough.

It is not enough to succeed. Others must fail.11

Marsh had to respond to the pressures from the competitor.

Brian Duperrault, President and CEO of Marsh, in his letter to the shareholders, wrote:12 Last year, we said that the linchpin of MMC’s recovery was a turnaround of Marsh, our insurance broking subsidiary. In particular, we needed to repair Marsh’s cost structure, simplify the organization, and deliver the products and services that our clients truly wanted from us in more efficient way.
I think Mr. Duperrault was referring to Marsh’s shortcomings in the Commercial Retail and Reinsurance revenues – the company had yet to better the products and services that their clients truly wanted. But, what were the challenges?
The answers are also in the Annual Report:13 As a global professional services firm, MMC experiences acute and continuous competition in each of its operating segments. Our ability to compete successfully depends on a variety of factors, including our geographic reach, the sophistication and quality of our services, and our pricing relative to our competitors. If we are unable to respond successfully to the competition we face, our business and results of operations will suffer.

and, pinpointing specific problems… In our Risk and Insurance segment, we compete intensely against two other major global brokerage firms, Aon and Willis, for both client business and employee talent. We also face competition from a wide range of other insurance brokerage firms that operate on a regional, national or local scale; many of these firms, unlike Marsh, Aon and Willis, have not stopped accepting contingent commissions, and thus may have greater pricing flexibility then we do. We compete as well with the insurance and reinsurance companies that market and service their insurance products without the assistance of brokers or other market intermediaries, and with various other companies that provide risk-related service. The above competition is intensified by an industry trend toward a “syndicated” or “distributed” approach to the purchase of insurance brokerage services, whereby a client engages multiple brokers to service different portions of the client’s account.

Up to this point, I believe I have given sufficient background information to facilitate the discussion: to try to find out some of the hidden ‘Whys’ and ‘Whats’ leading to the Marsh-HIBL acquisition.

II DISCUSSION
(1) Business as war
We have heard people saying: business is war.

Nalebuff and Brandenburger began their book Co-opetition (1997, p. 1) by saying: ‘Business is War.’ The traditional language of business certainly makes it sound that way: outsmarting the competition, capturing market share, making a killing, fighting brands, beating up suppliers, locking up customers. Under business-as-war, there are the victors and the vanquished. The ultimate win-lose view of the world comes from author Gore Vidal: It is not enough to succeed. Others must fail. I think, war is a part of business. People start a business neither just for fun; nor because they want war. People do business for a common objective: profits. War is merely one of the processes in doing business. When there is competition, there’s war.

In a conventional war, soldiers fight, until the opponents are eliminated, or the soldiers they being eliminated.

However, in business wars. No one has to go down to let the other participant win. Business is not a Zero-Sum Game. In fact, the Wikipedia defines that many economic situations are not zero-sum: 2(http://en.wikipedia.org/wiki/Zero-sum, ‘Economic’) Many economic situations are not zero-sum, since valuable goods and services can be created, destroyed, or badly allocated, and any of these will create a net gain or loss. Assuming the counter parties are acting rationally, any commercial exchange is a non-zero-sum activity, because each party mush consider the goods it is receiving as being at least fractionally more valuable than the goods it is delivering. Economic exchanges must benefit both parties enough above the zero-sum such that each party can overcome its transaction costs.
According to Nalebuff and Brandenburger (1997, p. 9), “Business is cooperation when it comes to creating a pie and competition when it comes to dividing it up.” In other words, the authors are saying, and they do have extensive discussions in their book, Co-opetition, that business is a game which allows multiple winners – through cooperation and competition. Ray Noorda, founder of the networking software company Novell once said: “You have to compete and cooperate at the same time.”
In the earlier section of this project paper, ‘Where did Marsh stand in 2008 financially’ (p. 12-13 of this project paper), I analyzed Marsh’s competitive positions and was able to establish some of the threats that the company encountered. Namely, Aon.

The London Post Magazine reported on 28 November 2009: “MMC’c broking business Marsh has been keen to close the gap on rival Aon, following the latter’s acquisition of Benfield in November 2008. The deal left Aon with a significantly larger brokerage than its rival in the UK., and any potential deal would bridge the gap.”

Competitions were intense, and becoming cutthroat. Marsh must take actions.
What solutions are available for deflating the competitive pressures, and snatching additional market shares?

(2) The Marsh-HIBL Acquisition
Needless to emphasize, the acquisition of HIBL was just one of the many options that Marsh could consider to derail Aon and other competitors; it was not the lifesaver, but it must had been an imperative strategic choice for Marsh.
By acquiring HIBL, Marsh changed the game, and made the pie bigger. Let’s find out how they did it by applying using the Co-opetition model.

(a) The Value Net
Nalebuff and Brandenburger (1997, p. 16) introduced a schematic map – the Value Net – for visualizing games. The map represents the players involved in games:-

The Value Net reveals two fundamental symmetries in the game of business: Along the vertical dimension of the Value Net are the company’s customers and suppliers. Resources such as raw materials and labor flow from the suppliers to the company, and products and services flow from the company to its customers. Money flows in the reverse direction, from customers to the company and from the company to suppliers. Along the horizontal dimension are the company’s competitors and complementors, who play mirror-image roles. Note all players in the Value Net have an interactive relationship with the other players, and submit competitive forces4 to the game. Any change in a given combination of players, or the balance of competitive forces, will give rise to a new game. According to Nalebuff and Brandenburger (1997, p. 67): In fact, every element of the game is also a lever for changing it. To change a game, you need to change one or more of its elements. This means that each of the five elements – Players, Added value, Rules, Tactics, and Scope – gives you a way to transform an existing game into an entirely new one. Change one of the PARTS, and you change the whole.

Every business can make use of the Value Net to visualize its players.

I will now discuss the PARTS and their relevance to the Marsh-HIBL acquisition.

(b) PARTS in relevance to the Marsh-HIBL acquisition
Players
Everyone in a Value Net (a game) is a player, be it a customer, a supplier, a competitor, a complementor, or the company itself.
The question is not ‘to be or not to be (a player)’. The question is ‘what will the game be?’ According to Nalebuff and Brandenburger (1997, p. 69): Anytime we enter, or leave, a game, we change it. We don’t have any choice in the matter. It’s a new game because we’ve joined, or left, the cast of players. The game after we’ve entered it, or left, isn’t the same as the one we first saw. In physics, this effect is known as the Heisenberg principle – one can’t interact with a system without changing it.

Now, let’s take a look at the Value Net of the Marsh game, before the acquisition:

In the above chart, we can see all the players that are needed in the Marsh game. These players are (from the top, clockwise) customers, complementors, suppliers, competitors, and the core player, Marsh.

While ‘customers’ are somewhat self-explanatory, ‘complementors’ include examples such as car dealers and dentists – these are players who can bring businesses to Marsh. Customers of car dealers need auto insurance, so do patients of dentist need dental care insurance. Marsh’s principal suppliers are the insurance companies. Marsh’s competitors are the other insurance brokers and risks consultants.

The ‘World’s 10 Largest Insurance Brokers’ tabled in page 12 of this papers provides some data and ranking of competitions on the top layer of insurance brokers. We can see that Marsh is tailed quite closely by Aon, while HIBL is nowhere to be found in the table. However, that doesn’t mean HIBL is not a competitor; every player in a game has its position, roles, and influence. After all, it is inconceivable for Marsh to cut a £135 million deal5 if HIBL was a small potato, strategically.

After the acquisition has taken place, Marsh turns HIBL from a competitor into a complementor because of the revenue and other business opportunities at HIBL – despite the relationship of the two being parent-subsidiary from a legal entity perspective. Co-opetition at work!

Added Value
Two hundred years ago, Adam Smith presented a paradox concerning water and diamonds: “Water is essential to life, while diamonds are not. Yet water is essentially free, while diamonds, alas, are not.”6
Added Value is element(s) that each player brings to the game. According to Nalebuff and Brandenburger (1997, p. 42) “Take the size of the pie when you and everyone else are in the game; then see how big a pie the other players can create without out you. The difference is your added value.”

In the case of Marsh-HIBL, the acquisition has created added value for both companies, and for their customers and suppliers, because of their respective strengths:

Marsh:Prominent global reputation;Advice and transactional capabilities; Global resources and presence in over 100 countries.
HIBL:Broking and risk management;Strong establishment in Europe, the Asia-Pacific, the Middle East, the Americas and Africa; Access to HSBC’s Global resources.

After merging, Marsh can have access to the territories established by HIBL, and to a vast base of potential clients of the ‘World’s Local Bank’, the HSBC; and HIBL will be more competitive under the wings of the ‘World’s Largest Insurance Broker’. The acquisition allows Marsh and HIBL to bring Added Values into the game and creates a bigger pie.

Rules
The world is filled with rules that tell us what to do, and what not. In the business world, rules impose on a business what it can do.

Governments have the power to make many rules – or, laws – of the game. e.g. company law, tax law, employment law, etc. Governments can also make ‘meta rules’ - rules that describe how other rules should be enforced. e.g. the Accountant’s Report Rules (Hong Kong Ordinance, Cap. 159A)

According to Nalebuff and Brandenburger (1997, p. 47) “Like added value, rules are an important source of power in games.”

Strategically, the significance of rules that the Marsh-HIBL acquisition demonstrates is that you change not only the rules, but also the game – Marsh changed the rule of engagement that it no longer has to work against, but to work with, HIBL.

NB: Marsh had to secure the approval of The Competition Authority in the US for the acquisition of HIBL. Summarily, the required approval was granted by the Authority on 28 February 2010 on the following ground: “The Authority does not believe it necessary to make a finding on the relevant markets. The Authority considers that the proposed merger is unlikely to raise any competition concerns in the State, in the provision of reinsurance brokerage services…”7

Tactics
When I am getting ready to reason with a man I spend one-third of my time thinking about myself and what I am going to say, and two-thirds thinking about him and what he is going to say.8

Games in business are played in fog.9 Quite frequently, what a company finds out about its competitor(s) is historical facts. And, most of the time, damages have been done (e.g. loss of revenues or market shares) because of misperceptions and poor strategies. That’s why perceptions are important elements in the process of formulating strategies, just like the players’ added values and the rules. According to Nalebuff and Brandenburger (1997, p. 194): Changing people’s perceptions, and you change the game. Shaping perceptions is the domain of tactics. In some sense, everything is tactic. Everything you do, and everything you don’t do, sends a signal. These signals shape people’s perceptions of the game. And what people collectively perceive to be the game is the game. You need to take account of perceptions to really know what game you’re in and to be in control of how you can change it.

Thus, any strategic planning must describe, amongst other information, how other players and participants perceive the plan. Tactics, by changing perceptions, can change the links between games.

During the course of evaluating the acquisition of HIBL, Marsh looked not only at the scenarios and the possible outcome of each move from its own perspectives, but also all the players in the Value Net. To name just a few: the customers, the suppliers, HIBL, and Aon. Without this due perception process, the acquisition plan would have been partial, and the end result may not be most optimal and beneficial for Marsh and HIBL.

Scopes
No man is an island, entire of itself; every man is a piece of continent, a part of the main.10

In the Value Net schematic map (pages 19 and 20 above), we can see all the players in a game and the relationships amongst them. Every game has its own value net; it links to, and affects, other games – even those in other places and other time slots. There are links through added values, links through rules, links through tactics. No game is an island.10

According to Nalebuff and Brandenburger (1997, p. 230): There are links between games, even if you don’t see them. Once you’ve seen the links, you can use them to your benefit. The links aren’t ironclad: you can create new links between games or sever existing ones. And by doing so, you can change the scope of the game.
I am listing two possible outcomes that correspond to the Marsh-HIBL acquisition plan. I have to acknowledge that in reality, the scenario are much, much more complicated. I have also reminded myself that I am supposed to focus the areas that I want to investigate: co-opetition in the Marsh-HIBL acquisition. Anyway, to go back to where I started in this paragraph, there are two possible outcomes. Namely:

Marsh relinquishes acquisition
Marsh conducts acquisition

Certainly, the buck does not stop here. There’s always a larger game.

According to Nalebuff and Brandenburger (1997, p. 254): Every game takes place in a larger context. This is what allows a game’s boundaries to be expanded or simply moved. Even when a player seems to be narrowing the scope of a game, it’s the player’s power in some bigger game that makes this maneuver possible. You may think you know what game you’re playing, but that game is invariably part of a larger one.

As such, no matter what Marsh decides in the then pending acquisition plan, its competitors will react to the situations. The reactions will be multi-directional – to counter, to deduce, to minimize, to compromise the advantages and gains (e.g. in market shares) that Marsh has seized through the acquisition of HIBL.

Benefiting competitors(if Marsh relinquishes acquisition)
Derailing competitors(if Marsh conducts acquisition)

The reactions of the competitors will be multi-directional. They may be responsive or aggressive; or, both. After all, the Newton Third Law dictates “Every action has a reaction equal in magnitude and opposite in direction.” When formulating strategic plans, a company looks forward along the steps to be taken and then reason backward to calculate which initial step will lead to the most optimal outcome. This principle is applicable to any game with a specified sequence of actions and counter-actions.
I am finished with introducing the Value Net and the PARTS. I will now move on to analyzing the Marsh-HIBL acquisition with a little help of the Game Theory. Let’s take a look at the Game Tree below, which sets out the moves for Marsh:

(Table 2: Game Tree illustrating Marsh’s strategies, options and consequences.)

Illustrations of the Table (2) Game Tree:
(1) Marsh suffers from threats in the Commercial Retail and Reinsurance segments in the 2008 fiscal year. It has decided to comprise the threats by expanding through acquisition.
(2) Marsh has two options. (In reality, Marsh should have more options. I am listing only two options for discussion in this project paper.) The first option being “Relinquish acquisition plan” and the second, “Conduct acquisition”.
(3) “Relinquish acquisition plan” – if Marsh takes this option:
(a) It may be able to keep its present market share for a short period of time, but the pressures on the overall profitability will be mounting with inflations, and price increases are at the mercy of competitions.
(b) It may loose some market shares and ancillary revenue on a long run. Pressures on the overall profitability will be compounded. Competitors will become stronger.
(c) It may have to go back to the loop and reassess the entire game plan at some point in time. In the meantime, opportunities and time will be lost.
(d) Competitors will benefit from the above (a), (b) and (c) scenarios.

(4) “Conduct Acquisition” – if Marsh takes this option:
(a) It will not only strengthen its present position, but also increase market share.
(b) It will turn the competition (being acquired) into a co-operation.
(c) It will eliminate some competitions and contain the situations.
(d) It will improve the overall productivity through consolidation of revenue and resources. As results, it will increase its ancillary revenue and overall profitability.
(e) It can provide customers with better services and more product choices.
(f) It will have greater potential and flexibilities for future development.
(g) It will change the game; derailing competitors; and adding values.

When drawing the above game tree, I bore in mind the following strategic rules:11
Ø Look ahead to the very last decision, and assume that if it comes to that point, the deciding player will choose its optimal outcome (the highest payoff, or otherwise most desirable result).
Ø Back up to the second-to-last decision, and assume the next player would choose its best outcome, treating the following decision as fixed (because we have already decided what the player will pick if it should come to that).
Ø Continue reasoning back in this way until all decisions have been fixed.

Certainly, Marsh will repeat the same processes discussed above periodically as a part of its normal course of business. But then, if Marsh decides “Relinquish acquisition plan”, it is not making any move. Thus, it will have to stay with the same game for a while. At the same time, the competitors may advance further and chew up more market shares. On the contrary, if Marsh decides to “Conduct Acquisition”, it will make a move, enter itself into a new game, and creates a bigger pie.

(3) Conclusions
The choice is obvious: Marsh should proceed with the acquisition, strategically speaking.
The move is in line with Marsh’s corporate practice of making acquisitions and dispositions, and can be verified against the company’s 2008 Annual Report:12 We have a history of making acquisitions, including our $1.9 billion acquisition of Kroll in July 2004 and a total of 44 acquisitions in the period 2005-2008 for aggregate purchase consideration of $593 million. We have also exited various businesses, including the sale of Putnam in August 2007 and the divestiture of three separate restructuring business – one in the U.S. and two in the U.K. – in 2008. We expect that targeted acquisitions and dispositions will continue to be part of our business strategy. Our success in this regard will depend on our ability to identify appropriate acquisition and disposition candidates and to complete with favorable results the transactions we decide to pursue.
According to a statement made by the authors of Co-opetition, many businesses – such as Bell Atlantic, Citibank, Merck, Proctor & Gamble, Xerox, etc., have adopted the Co-opetition principles and profited greatly as a result. Management consulting firms are bringing their approach into their practices. Business schools are changing their way they teach strategy.
I find that the Co-opetition model has been a great tool for my project paper in discussing the Marsh-HIBL acquisition in that:13
Ø The framework is based on the well established foundation of game theory.
Ø The co-opetition model provides a framework to organize available information on a company’s market to discover gaps. It is, therefore, a valuable framework to use in strategic planning exercise.
Ø The model builds on the mindset that cooperation is as important in business as competition, and that a company can simultaneously have a competitive and cooperative relationship with another player.
Ø The PARTS of business strategy show that an organization can influence the market on dimensions other than price and quality.
Ø In contrast to Porter, Nalebuff and Brandenburg departed from the concept of industry, because this concept limits have available opportunities. The most interesting opportunities arise from intersections between traditional industries.

and, I have been able to apply the principles onto the Marsh-HIBL acquisition to give myself a better understanding of picture in the sense that:
Ø The Value Net model illustrates ‘the Players that are needed in a game’.
Ø Added Value schools the thought of ‘the elements that each player brings to the game.’ The acquisition allows Marsh and HIBL to bring Added Values into the game and creates a bigger pie.
Ø Quite often, people equate Rules as restrictions, and try to work around them. The PARTS theory says, “Like added value, rules are an important source of power in games.” A game is changed when its rules are changed, as Marsh changed the rule of engagement that it no longer has to work against, but to work with, HIBL.
Ø Tactics are another equally important component of the PARTS. A Chinese proverb says: “Know yourself and know your foes, you’ll win all wars.”14 Without perceiving the scenarios and the possible outcome of each move, Marsh’s acquisition plan would have been partial.
Ø Scopes provide guidance on the links between games and the necessity to look at the bigger picture.

In the course of compiling this project paper, I have noticed and given due considerations to some the limitations of the Co-opetition model, as follows:13
Ø The definition of competitors, complementors and co-opetition is broad.
Ø The model does not provide practical propositions on how to create successful co-opetitive relations with other organizations.
Ø Cooperation among competitors often occurs when an industry standards needs to be set – a process that Brandenburger and Nalebuff did not discuss.
Ø The model is based on the principles of game theory and has inevitably inherited some of its limitations; i.e. the application of the theory becomes exponentially In more complex as more players are options are added.

In addition to the adaptation of the PARTS theory, I borrowed the Game Tree model from the Game Theory15 to help illustrate Marsh’s decision process. The underlying principle is: A rational player in such a game should choose its first action by considering each series of responses and counter-responses that will result from each action open to it. It then asks itself which of the available final outcomes brings it the highest utility, and chooses the action that starts the chain leading to this outcome. This process is called backward induction (because the reasoning works backwards from eventual outcomes to present decision problems).
With the help of the Co-opetition model and the Game Theory, I believe I have analyzed and discussed the Marsh-HIBL acquisition from strategic and decision process perspectives, I also believe that each move that Marsh made, and where it leads to, has been properly labeled in the Game Tree per Table 2, and is easily understandable. I am positive that this project paper, the game tree and its accompanying illustrations, and, most importantly – the Co-opetition model – can be used in the real world for strategic planning and decision making.

III RECOMMENDATIONS
Similar to other business tactics and strategies, acquisitions bring opportunities, and risks, to an organization. As Brian Duperreault, President & CEO of Marsh, puts it: While we intend that our acquisitions will help to improve our competitiveness and profitability, we cannot be certain that our past or future acquisitions will be accretive to earnings or otherwise meet our operational or strategic expectations. Acquisitions involve special risks, including the potential assumption of unanticipated liabilities and contingencies and difficulties in integrating acquired businesses, and acquired businesses may not achieve the levels of revenue, profit or productivity we anticipate or otherwise perform as we expect. In addition, if the operating performance of an acquired business deteriorates significantly, we may need to write down the value of the goodwill and other acquisition-related intangible assets recorded on our balance sheet.

It is important for managers and executives in any organization to evaluate, formulate, and implement strategies cautiously so as to achieve the most optimal results.
Managers can methodically classify the players; identify their roles, positions, influence and threats using the Co-opetition model and the Game Theory. Properly formulated and carefully implemented strategic plans can study how interactions amongst players and the choices each player makes lead to different end results of a game.
Every business needs an angel – it can be an investor, a talented individual, a favorable change in legislation or an opportunity for expansion.
However, no matter what the angel may be, it calls for the professional tackling of appropriate business plans and strategies to get the most out of opportunities.

IV REFERENCES
References to Executive Summary
1. Marsh and HIBL made media release simultaneously on 18 December 2009 about the acquisition. URL =
2. The HSBC Insurance Brokers (Asia-Pacific) Ltd. is subsidiary of HIBL in the UK. The HSBC Group plc is the ultimate owner of HIBL.
3. Nalebuff, B.J., & Brandenburger A.M. (1996). Co-opetition, Hammersmith, London, U.K.: HarperCollinsBusiness.
4. Ross, Don, "Game Theory", The Stanford Encyclopedia of Philosophy (Fall 2009 Edition), Edward N. Zalta (ed.), URL = .
5. The HIBL Asia-Pacific CEO Announcement, which took place in Hong Kong on 22~23 Dec., 2009.
6. Five-Forces Model developed by Michael E. Porter of Harvard Business School in 1979.
7. Proven Model: Co-opetition. URL =

References to Introduction
1. John May and Cal Simons. (2005). Every Business Needs an Angel: Getting the Money You Need to Make Your Business Grow. New York, USA: Random House, Inc.
2. Altron. (2004) China to Open Up Insurance Market Completely. URL =
3. The above statement has been abstracted from the Marsh’s web site: www.mmc.com.
4. The Marsh & McLennan Company 2008 Annual Report can be viewed on the Internet. URL =
5. The above statement has been abstracted from the HIBL’s web site: www.insurancebrokers.hsbc.com
6. The HSBC 2008 Annual Report can be viewed on the Internet. URL =

7. The above statement has been abstracted from the HSBC’s web site: www.hsbc.com
8. The above statement has been abstracted from the ‘Global Insurance Industry’ section under Insurance, Wikipedia. URL =
9. Parker and Hart. (1971). The Golden Rule. Minnesota, USA: Fawcett Gold Medal.
10. As most 2009 official figures and statistics relevant to this project paper have not been released, I am using the 2008 data throughout this project.
11. Gore Vidal. U.S. author and dramatist. (1925~ )
12. Abstracts from the Shareholder Letter, MMC 2008 Annual Report.
13. Abstracts from the ‘Competitive Risks’ section, MMC 2008 Annual Report, p. 17.

References to Discussion
1. Nalebuff, B.J., & Brandenburger A.M. (1997). War and Peace. Co-opetition. p. 1.
2. Zero Sum Game describes a situation in which a participant’s gain or loss is exactly balanced by the losses or gains of the other participant(s). URL=
3. Nalebuff, B.J., & Brandenburger A.M. (1997). Changing the Game. Co-opetition. 2, p. 9.
4. According to the Porter’s Five-Forces Model, the nature of competitiveness in a given industry can be viewed as a composite of five factors: (1) Rivalry among competing firms; (2) Potential entry of new competitors; (3) Potential development of substitute products; (4) Bargaining power of suppliers; (5) Bargaining power of consumers.
5. Marsh acquired HIBL for £135 million.
6. Adam Smith, Wealth of Nations, 1776.
7. The Competition Authority of the US. Determination of Merger Notification M/10/001 – MMC/HIBL (p. 4) URL =
8. By Abraham Lincoln, the 16th president of the U.S.A.
9. Nalebuff, B.J., & Brandenburger A.M. (1997). Tactics. Co-opetition. p. 193.
9. Ross, Don, "Game Theory", The Stanford Encyclopedia of Philosophy (Fall 2009 Edition), Edward N. Zalta (ed.), URL = .
10. Dixit, Avinsah K. and Nalebuff B.J. (1991). Thinking Strategically. New York, USA: W.W. Norton & Co. URL =
11. Marsh & McLennan Company 2008 Annual Report. (p. 19).
12. Proven model - Co-opetition. URL =
13. In Chinese, this means ‘知己知彼.百戰百勝.’ 孫子兵法。Sun Zi. The Art of War.
14. Ross, Don, "Game Theory", The Stanford Encyclopedia of Philosophy (Fall 2009 Edition), Edward N. Zalta (ed.), URL = .

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