Case Study Description of Risk Management at Lehman Brothers, 2007-2008
Lehman Brothers' September 2008 bankruptcy was the largest in U.S. history, with worldwide repercussions that persist today. The case takes an uncommon approach: it assumes a general management perspective and provides a unique 360Aº description of the firm's internal risk management system (RMS), i.e., the formal structures and processes managers had designed and were using to manage risk. This description serves as a vehicle for providing students of management with basic knowledge about the fundamentals of RMSs. It also facilitates a vivid discussion about relevant issues such as how Lehman's RMS might have contributed to its demise; the promises, perils, and "do's and don'ts" of RMSs; the problems associated with managing risk using generic risk measurement models; how managers could devise a simple tool to measure the risk of a given business strategy; and why RMSs should be a top management priority and be integrated into the corporate management control system.The case comprehensively covers the many specific management challenges associated with delegating risk-taking in a decentralized firm: the organization of risk governance, risk control and risk-taking responsibilities; the performance measurement framework employed to budget, measure and monitor risk-taking over time; and the provision of incentives to empowered, risk-taking frontline staff.It also helps students become acquainted with a financial firm's day-to-day practices and confronts students with a specific, non-trivial decision situation of applied risk management.
Swot Analysis of "Risk Management at Lehman Brothers, 2007-2008" written by Markus Maedler, Scott van Etten includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Risk Rmss facing as an external strategic factors. Some of the topics covered in Risk Management at Lehman Brothers, 2007-2008 case study are - Strategic Management Strategies, Organizational structure, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Risk Management at Lehman Brothers, 2007-2008 casestudy better are - – talent flight as more people leaving formal jobs, increasing energy prices, geopolitical disruptions, increasing government debt because of Covid-19 spendings, central banks are concerned over increasing inflation, customer relationship management is fast transforming because of increasing concerns over data privacy, challanges to central banks by blockchain based private currencies,
increasing transportation and logistics costs, there is backlash against globalization, etc
Introduction to SWOT Analysis of Risk Management at Lehman Brothers, 2007-2008
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Risk Management at Lehman Brothers, 2007-2008 case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Risk Rmss, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Risk Rmss operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Risk Management at Lehman Brothers, 2007-2008 can be done for the following purposes –
1. Strategic planning using facts provided in Risk Management at Lehman Brothers, 2007-2008 case study
2. Improving business portfolio management of Risk Rmss
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Risk Rmss
Strengths Risk Management at Lehman Brothers, 2007-2008 | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Risk Rmss in Risk Management at Lehman Brothers, 2007-2008 Harvard Business Review case study are -
Ability to lead change in Finance & Accounting field
– Risk Rmss is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Risk Rmss in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Superior customer experience
– The customer experience strategy of Risk Rmss in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Strong track record of project management
– Risk Rmss is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Training and development
– Risk Rmss has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Risk Management at Lehman Brothers, 2007-2008 Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Successful track record of launching new products
– Risk Rmss has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Risk Rmss has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Operational resilience
– The operational resilience strategy in the Risk Management at Lehman Brothers, 2007-2008 Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Ability to recruit top talent
– Risk Rmss is one of the leading recruiters in the industry. Managers in the Risk Management at Lehman Brothers, 2007-2008 are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Cross disciplinary teams
– Horizontal connected teams at the Risk Rmss are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Low bargaining power of suppliers
– Suppliers of Risk Rmss in the sector have low bargaining power. Risk Management at Lehman Brothers, 2007-2008 has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Risk Rmss to manage not only supply disruptions but also source products at highly competitive prices.
High switching costs
– The high switching costs that Risk Rmss has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Highly skilled collaborators
– Risk Rmss has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Risk Management at Lehman Brothers, 2007-2008 HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Diverse revenue streams
– Risk Rmss is present in almost all the verticals within the industry. This has provided firm in Risk Management at Lehman Brothers, 2007-2008 case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Weaknesses Risk Management at Lehman Brothers, 2007-2008 | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Risk Management at Lehman Brothers, 2007-2008 are -
No frontier risks strategy
– After analyzing the HBR case study Risk Management at Lehman Brothers, 2007-2008, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Slow to strategic competitive environment developments
– As Risk Management at Lehman Brothers, 2007-2008 HBR case study mentions - Risk Rmss takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High cash cycle compare to competitors
Risk Rmss has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Interest costs
– Compare to the competition, Risk Rmss has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Workers concerns about automation
– As automation is fast increasing in the segment, Risk Rmss needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Need for greater diversity
– Risk Rmss has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Risk Management at Lehman Brothers, 2007-2008, in the dynamic environment Risk Rmss has struggled to respond to the nimble upstart competition. Risk Rmss has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Increasing silos among functional specialists
– The organizational structure of Risk Rmss is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Risk Rmss needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Risk Rmss to focus more on services rather than just following the product oriented approach.
Skills based hiring
– The stress on hiring functional specialists at Risk Rmss has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Risk Management at Lehman Brothers, 2007-2008, is just above the industry average. Risk Rmss needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Risk Management at Lehman Brothers, 2007-2008 HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Risk Rmss has relatively successful track record of launching new products.
Opportunities Risk Management at Lehman Brothers, 2007-2008 | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Risk Management at Lehman Brothers, 2007-2008 are -
Creating value in data economy
– The success of analytics program of Risk Rmss has opened avenues for new revenue streams for the organization in the industry. This can help Risk Rmss to build a more holistic ecosystem as suggested in the Risk Management at Lehman Brothers, 2007-2008 case study. Risk Rmss can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Risk Rmss has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Risk Rmss can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Risk Rmss can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Risk Rmss to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Risk Rmss can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Risk Management at Lehman Brothers, 2007-2008, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Risk Rmss is facing challenges because of the dominance of functional experts in the organization. Risk Management at Lehman Brothers, 2007-2008 case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Building a culture of innovation
– managers at Risk Rmss can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Risk Rmss can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Risk Rmss to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Risk Rmss to hire the very best people irrespective of their geographical location.
Leveraging digital technologies
– Risk Rmss can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Developing new processes and practices
– Risk Rmss can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Risk Rmss can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Risk Rmss can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats Risk Management at Lehman Brothers, 2007-2008 External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Risk Management at Lehman Brothers, 2007-2008 are -
Increasing wage structure of Risk Rmss
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Risk Rmss.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Risk Management at Lehman Brothers, 2007-2008, Risk Rmss may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Consumer confidence and its impact on Risk Rmss demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Environmental challenges
– Risk Rmss needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Risk Rmss can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Stagnating economy with rate increase
– Risk Rmss can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Shortening product life cycle
– it is one of the major threat that Risk Rmss is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Risk Rmss business can come under increasing regulations regarding data privacy, data security, etc.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Risk Rmss will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Technology acceleration in Forth Industrial Revolution
– Risk Rmss has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Risk Rmss needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Regulatory challenges
– Risk Rmss needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Risk Rmss in the Finance & Accounting sector and impact the bottomline of the organization.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Risk Rmss needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Weighted SWOT Analysis of Risk Management at Lehman Brothers, 2007-2008 Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Risk Management at Lehman Brothers, 2007-2008 needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Risk Management at Lehman Brothers, 2007-2008 is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Risk Management at Lehman Brothers, 2007-2008 is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Risk Management at Lehman Brothers, 2007-2008 is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Risk Rmss needs to make to build a sustainable competitive advantage.