Wall Street Crash Changes Companies

Murad Ali
December 17, 2008 — 1,771 views  
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We change, society changes, and business changes. From night to day and from spring to fall the world keeps changing around us. Those who fail to change soon have the please of seeing the back of the head of the new leader. After the recent sub prime mortgage crisis and volatile swings in global stock markets due to the defaulting investment firms the business environment has drastically changed. We don't know how the business environment will change or what the business world will be like but we do know that change management and risk analysis will become more important topics over the next five years.

"The World has changed" says Morgan Stanley spokesman as the Company contemplates converting back to a bank holding company 75 years after it was forced to split into the holding company JP Morgan and the investment firm Morgan Stanley by the enforcement of the Glass-Steagull Act (The end of, 2008). It appears that years of capitalism and the "free hand" approach of government has been reversed in only a few short days. The new reality may require companies to change their approach to business by expecting more oversight and transparency. Investors want to know where their money is and are assured of its safe ty. Management innovation is defined as the "invention and implementation of a management practice, process, structure and techniques that are intended to further organizational goals" (Birkinshaw, Hamel & Mole, 2008, pp. 825-824). This definition has at its root the fostering and improving of organizational goals and objectives. Thus the inner workings of a business and the way in which organizations approach the business environment must change to work within new realities. That reality may be based in further government oversight and scrutiny of accounting and investing practices. Thus a balance needs to be maintained between organizational objectives and investor capital.

To change the processes of an organization is one task but to prepare the working population for such change is a completely different concept. Some approaches to addressing worker change include education, participation of employees, employee involvement in the process, facilitation by decision makers of the change process, as well as brutal honesty which doesn't try and hide information from workers (O'Brien, 2008). In other words, workers should be involved the change process and supported while they change. A company can change a document overnight but it may take weeks or months to change someone's opinion.

Change appears to have two major components from the information presented above. Change management requires first the change in the process to turn the organization into the waves of the new realities and then to motivate workers in order to start rowing in the same direction. Organizations that fail to change and readjust to the realities may find themselves capsized in a market storm. They simply won't have the ability to handle the rolling cycles of business and drastic market adjustments as well as their competitors.

In order to engage in effective risk management companies should balance between the need for risk and return (Frick, 2008). Growth at any cost won't likely work in a world where investors desire some surety over their investments and government desires to monitor company activities. Therefore, a "slow growth" model may allow companies to handle the risks associated with moving into new markets and developing new ventures. Investors will desire some surety over their investments and some level oversight and management.

Companies are also likely to take a look at long-term investments like pension plans and retirement financing (Hedges, Lee & Neilson, 2008). As the average age of Americans increase and the investment market becomes more volatile it is difficult for companies to project how well these retirement accounts will fair in the market. Therefore, these companies may be less willing to promise a pension and are more likely to move to defined contribution plans (Hedges, Lee & Neilson, 2008) with no promises of performance.

In addition to the financial performance of many organizations as well as retirement investments many organizations have found that intellectual capital is also one of their greatest risks. Mergers and acquisitions appear to be growing exponentially year after year. Therefore, intellectual capital and talent is often misplaced. This lost talent can be a serious loss to many organizations.

Loss of intellectual capital can be a substantial risk to organizations (Executive shuffle, 2008) when the efficiencies and innovation developed through that talent is minimized. When companies are acquired, sold, or moved talent might either leave the organization for more stable employment or might be placed in positions where they do not succeed.

Companies should consider the best approaches to maintaining talent and recruiting new talent. An organizations worth is more then simply the profits it generates but also the value of that organization over five or ten years. Thus talent is a major consideration in determining a company's future chances of success.

In conclusion, the report has discussed potential new changes that include change management and further risk management as it relates new realities forced by the recent collapse of the investment brokerages and the substantial loss of capital. Companies that desire to foster change should first design the change required in their policies and procedures and then encourage change among their workforce to ensure understanding and general compliance. Furthermore, the financial resources and any future ventures should balance the need for risk and return to ensure relative safe harbor for resources. Change and risk reduction are likely to cause an environment where slow growth and rapid adjustment are likely.

Birkinshaw, J., Hamel, G. & Mol, M. (2008). Management Innovation. Academy of Management Review, 33 (4). Executive shuffle (2008). Chain Leader, 13 (9).

Frick, R. (2008). This is rocket science. Kiplinger's Personal Finance, 62 (10).

Hedges, P., Lee, R., & Nielson, N. (2008). Alternatives to cash in ensuring the solvency of defined benefit funds. Benefits Quarterly, 24 (3).

Lenders of first resort (2008). Economist, 387 (8581) Retrieved September 21st, 2008 from Ebscohost database.

O'Brien, M. (2008). 5 approaches to leading successful organizational change. Healthcare Financial Management, 62 (9).

The end of Wall Street (September 23rd, 2008). Wall Street Journal, 2011 (71), pp. A28.

About the Author

Murad Ali is a three time business author, a professor, an organizational development manager and manages a consulting service at http://www.magconsulting.biz. Visit Wall Street Crash Changes Companies.

Murad Ali