critical review

Crisis Summary

Recession in 2008 all over the world was inevitable despite of the financial rescue package plans, from the part of governments, to stablise the global banking sector and eventually to support the economy. The problem started in the United States because of the housing market is based on high-risk subprime loans. High-risk loans or what is called the 'credit crunch' or the bubble of 2007 made paralysis within the financial sector. The reason behind this bubble is that mortgage brokers are making money by selling risky mortgages to the Wall Street banks, which created the bubble. Surprisingly, the loans begin to default, but the corresponding bond prices increase with static ratings. Some people who work in the financial and business sector discovered there is a conflict of interest in the credit rating agencies and dishonesty amongst the credit rating agencies which, eventually, lead to false rating. The collateralized debt obligations (CDOs) prices somehow rose, in spite of the risky loans. Shockingly, synthetic CDOs make a chain of increasingly large bets on the faulty loans, involving up to 20 times as much money as the loans themselves.

As a result, the Lehman Brothers bank went into liquidation and the financial crisis in the USA started. The financial crisis was a dramatic and major change in the USA and transferred to the world through global communication networks and complex computer programmes. Ultimately, the financial institutions had failed to identify the external factors that would eventually impact on their business.

Authenticity
The writer of the article tries to prove the ideas included through real examples which happened in 2007 financial crisis. It is true that any global financial crisis is due to a combination of external and internal factors such as political, economic, social, technological factors (external) and the internal management decisions and change management (internal factors). However, the article states that the roots of the crisis in the USA go back to 2002 when there were relaxation of financial regulations and the availability of cheap debt to individuals with poor credit standing who had little chance of repaying their loans.

According to the case study, in order to survive and sustain in the business market, organisations will have to respond to the active business environment they work in by managing change. Namely, change is not new to organisations, however, the scale and speed of change may present situations and challenges that are difficult to respond to. For example, in 2008 Lehman Brothers failed to manage change to sustain the organisation. In addition to the external factors, the internal management decisions before the 2007 crisis paved the way to the crisis. These internal management decisions can be summarized as (a) the banks take advantage of a business opportunity by providing risky mortgages; and in turn (b) other banks and financial institutions invest in CDOs as an investment strategy. The large cash bonuses which was given to employees as a reward are behind another major internal driver of change in the financial crisis. Governments may interfere in order to make the market stabilized like what happened in September 2008 when Merrill Lynch was acquired and 'saved' by the Bank of America.

The article quotes that " In future, the critical focus for sustainable organisational success will build on what the organisation knows about itself and its environment, and not on the transient structure and detailed processes"(Lloyd and Maguire, 2002). In my opinion, the idea of change because of the dynamic market is vital to any organisation which tries to maintain its position in the business market. The writer of the article supports this idea by quoting the words of Miller "Change is ultimately about people – if they do not change, nothing significant happens" (Miller, 2004)
Critique
To my mind, the article has touched a very important issue of maintaining organisations' position through managing change. However, the article omits examples of change and how organisations do the change. Moreover, the article lacks the suggested procedures to stop a similar crisis in the future through the ethical and law procedures. The conclusion that the writer draws at the end of the article emphasizes change and I think he should mention the theoretical assumption of this change. In the following lines, I try to suggest a good model of change which should be in the case study.

Recent reviews conclude that Lewin's force field analysis model remains one of the most widely respected ways of viewing change process. One side of the force field model represents the driving forces that push organisations toward a new state of affairs. These might include new competitors or technologies, evolving workforce expectations, or a host of other environmental changes. The other side of Lewin's model represents the restraining forces that maintain the status quo. These restraining forces are commonly called "resistance to change" because they appear as employee behaviors that block the change process. Stability occurs when the driving and restraining forces are roughly in equilibrium.





Critical Review Al Harby
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