Global Financial Analysis - Assignment Example

Running head: Global Financial analysis Name: University: Course: Tutor: Date of Submission: Executive Summary Change is a process which tends to occur in the daily operations of a company as way of remaining more competitive in business. Though, change is a normal process not every employee embraces change with a positive attitude hence most of the time it will face resistance depending on the change process. This paper therefore covers an overview of the case study on the fallout from the global financial crisis by examining in lengthy wether the global financial crisis can be described as unplanned or planned change. In addition, it evaluates whether the reactions of various organizations and governments including Australia are forms of developmental, transitional or transformational change. In addition, it covers the reasons as to why many organizations and individuals resist change as a result of global financial crisis as well as economic turn downs. Introduction This report presents a typically analysis of the case study on the fallout from the global financial crisis ‘located in Chapter 15. In order to get a clear overview of the concepts and issues underlying the case the report will integrate various theories and ideas related to organizational change. The report therefore will present a thoroughly analysis of three questions related to the case as well as a conclusion. Case analysis Q1. Change can be described as the process that individuals as well as organizations foster internally in response to particular environmental or organizational changes. Change therefore refers to the leadership and management actions organizations take in relation to a particular change occurring in the organization (Fugate, Kinicki & Prussia, 2008,pp.1-36). Change in an organization can either be planned or unplanned. According to studies done by Fugate, Kinicki and Prussia (2008,pp.1-36), unplanned change just happens in reaction to unseen or unanticipated influences hence in most cases it is usually hard to tell where the change actually came from as well as how it was initiated. Since unplanned change usually occurs as a result of unforeseen events it normally causes organizations and its members to respond its effects in a highly reactive and disorganized fashion (Fedor, Caldwell & Herold, 2006,pp.1-29). Unplanned change can be disruptive or beneficial depending how an organization actually addresses it. As way of addressing unplanned change it is always necessary to react to it more quickly as well as decisively.On other hand planned change is as a result of specific change agent hence in most cases many organizations tends to put in place proper control measures related to the change effects. Planned change therefore occurs when leaders in the organization specifically recognize the need for a major change by putting in place necessary measures and plans which will ensure that the anticipated change has been properly accomplished. In most cases a planned change usually occurs when a successful strategic plan has been implemented by an organization (Kotter, 2003,pp.45-50).Though, planned change is usually based on proactive and well-done organizational strategic plan, in most cases it does not occur in a highly organized fashion manner rather it tends to occur in a more a chaotic and disruptive fashion than expected by participants. Whether the change is planned or unplanned leaders have a responsibility of effectively manage the change for any business to remain ahead of the competition(Kotter, 2003,pp.45-50). From the case study it is quiet evident that the global financial crisis which occurred can be described as both unplanned as well as planned change. The financial crisis which occurred in 2007 came as a surprise to most organizations as well as economies affecting economic activities of many countries as well as organizations which suit a perfect description for unplanned change. Since the global financial crisis came by surprise to many people and organizations thus it was not anticipated many organizations did not have in place a strategic plan to address the change and its effects (Taylor,2009,pp.56-60). Hence what began initially as mere difficulties in the United States Subprime mortgage market eventually escalated and rapidly spilled over to various financial markets and then to the real economy in different countries around the world including Australia (Greenlaw,. Hatzius, Kashyap & Shin,2008,p.45-48). Due to lack of planned strategic plans to address global financial crisis and its associated changes to the various organizations and economies the crisis later on spilled tremendously causing enormous effects to the world. First and foremost the crisis led to the collapse of the subprime mortgage market in 2008 a situation which caused many mortgages to be taken out at low interest rates by customers who could not afford to pay them when fixed rates reverted to variable market rates. The crisis led too the immediate stock market crisis in the United States losing 34% of its value, the collapse of Lehman Brothers and the government bailout of non-bank mortgage lenders Freddie Mac and Fannie Mae as well as Insurance group American International Group AIG (Adrian & Shin,2009,pp.12-34). In addition, it caused drop in the house prices in the United States and elsewhere in the world. The financial assets relating to mortgages lost value and banks restricted credit making it difficult for many individuals to access credit which became apparent in Australia after the onset of the crisis. The Australian stock market has also lost about 43% of its value over the course of 2008 much of it in the second half of the year when the global financial crisis first became apparent. Since United States is China’s biggest market, the Asian giant also experienced a slowdown that exacerbated the effect of the crisis on Australia. Since much of Western Australia’s recent economic boom hinged on China’s demand for resources for its manufacturing industry the global financial crisis slowed the manufacturing industry (Mayer, Pence & Sherlund,2009,pp.45-56). Accompanied by rising unemployment and a depressed share market, key economic indicators such as the number of homes repossessed, began to rise sharply in Western Australia. In addition, the crisis caused an enormous effect on Australian international borrowings by financial institutions which due to the crisis the borrowings largely stopped. On other hand the global financial crisis can be described as planned change in relation to United States strategic plan action. It is quiet evident from the case that prior to the crisis subprime mortgages were securitised, pooled into investment vehicles and sold to investors including British and Australian banks and even local councils in cities such as Perth ( Herring, Wachter,2003,pp.14-20). Since these investment pools were perceived by these organizations as constituting much of the so- called toxic assets at the heart of the crisis it was necessary for these organizations to sell them to avoid losing a great value of the financial assets in the event of the crisis. With the planned strategy the economy of United States was not adversely affected as other economies which had no planned strategies to address the global financial crisis before it happening (Lewin,2008,pp.12-30).. Q.2 Despite the mere fact that change is an essential process for a company to remain competitive individuals as well as organizations in some situations do resist change especially if the change is unplanned. Some individuals as well as organizations do resist change caused by global financial crisis as in most cases it is usually associated with unexpected adverse economic effects to organizations as well as people (Kotter, 2003,pp.45-50). The second reason as to why individuals as well as organizations resist change caused by global financial crisis is due to the fear of uncertainty. In the event of a global financial crisis it requires certain adjustments such as increasing the rates of borrowing hence in most cases many banks and financial institutions may resist to adjust with a fear that they may lose their customers to potential competitors. In addition, people may resist change when they have a feeling that their performance will be affected under the new systems caused by the global financial crisis. Since global financial crisis has an extreme impact on economic growth in most causes it is usually associated with high unemployment rates some organizations will resist change with the fear of retrenching some of its competent employees (Ford, Ford, & D’Amelio,2008,pp.362-377).. Personal impact of Change is another reason why people resist change hence many organizations as well as individuals tend to resist change regardless of its form. Hence in most cases organizations and individuals tends to accept as well as welcome change that is favourable to them on a personal level, improves quality of life as well as leads to overall organizational growth in terms of profits and revenues. Since economic down turn and global financial crisis have adverse negative effects on the organizations such as low profits, sales, reduced prices many of the organizations will resist the change (Kotter, 2003,pp.45-50). The other reason why people resist change caused by global financial crisis is the mere fact that that change may affect their power and influence in the organization. Due economic down turns some companies may decided to reduce their budget spending by moving the company to a more team based structure turning managers and supervisors into middle level employees. Given the loss of prestige and status many supervisors and managers will resist the change even if it’s in the best interest of the company. In cases some organizations maybe forced to close down or merge with other companies hence in most cases these companies usually resist change with a fear of losing status in the society(Ford, Ford, & D’Amelio,2008,pp.362-377).. Q3. According to the case study Australian government reaction as well as other governments to global financial crisis can described as both developmental change, Transitional and Transformational change. From the case study developmental change refers to the improvement of what an organization as well as a company is by doing more or doing something better. Developmental change therefore can be described as a change which involves an improvement of a skill, method or policy that for some reasons does not measure up to expectations (Herold, Fedor, Caldwell & Liu,2008,346-357).. During the global financial crisis many governments including Australia reacted to it by the implementation various monetary policies as well as other control measures. These measures primarily were aimed at improving the overall economic situation of various economies in the world which is according to the definition of developmental change. The change in monetary policies and other control measures undertaken by governments and organizations can be described as developmental change. On other hand Transitional change refers to the implementation of known new state. During transitional change organizational current ways of doing things are usually replaced by something new for example reorganizations , mergers or introduction of new services, processes and technologies. This usually requires a number of steps during which the organization or society is neither what it once was not nor what it aims to become (Kotter, 2003,pp.45-50).. It often means pilot schemes, temporary arrangements and phased in change. Transitional change was significant in the reactions of Australian government and other governments too since most of the governments were forced to adjust their policies in order to control the situation(Kotter, 2003,pp.45-50). From the case study various governments and organizations resorted to particular actions in order to survive the crisis. According to the case study, the United States government took the unprecedented step of injecting a stimulus package of about US $ 700 billion into the economy to keep among other things, US financial institutions active. This US $ 700 billion was in fact money that United States did not have, as it was already massively in debt. In addition, the United States government took over many default mortgages in return for partial re-regulation of the finance industry and it also injected a rescue package of many billions to sustain its inefficient car industry. In August 2007, the interbank markets and central banks were forced to inject massive liquidity in the market due to the considerable financial pressures. Various Federal governments including Australia were forced to introduce a wide range of measures to try and improve the functioning of the money markets (Reinhart & Rogoff, 2008, pp.45-56). During the fall of 2007, the prices of Subprime securitizations dropped drastically forcing many financial institutions to come under strain. In control the situation, the United States government in March 2008 bailed out Bear Sterns through an arranged Merger with J.P Morgan. The collapse of Lehman Brothers in September 2008 caused a rapid effect on the United States economy hence sending a wave of fear around the world financial markets. This caused many banks to virtually stop lending to each other. In addition, the risk premium on interbank borrowings increased sharply to almost 5% from zero while the risk premium on corporate bonds rose even more to over 6%. (Allen & Carletti, 2006,81-111). The Rudd government was quick to act in response to the crisis. Within months it had issued a guarantee of bank deposits up to a million dollars and announced a A $ 10.4 billion injection of money from a budget surplus into the Australian economy. Various stimulus payments were given to the public to stimulate spending (Reinhart & Rogoff, 2009, pp.12-30). The Rudd government also committed A$ 22 million to a bailout of some ABC Learning childcare centers after the company placed into receivership. The actions undertaken therefore can be described as transitional change since most of them were aimed controlling the situation as well as ensuring the survival of various organizations and economies during the crisis(Kotter, 2003,pp.45-50). Transformational change is another change which was evident in the reactions of Australian government and other governments towards the global financial crisis. According to studies Transformational change occurs after the period of developmental and transitional change. Transformational change therefore refers to the radical change, a radical reconceptualisation of a society or an organization’s mission, culture, values and leadership (Kotter, 2003, pp.45-50). Despite the economic stimulus package introduced by the government of Australia as well as many other countries, reports of corporate losses and a lack of consumer and business confidence resulted to the accumulation of more debts (Herring &Wachter, 2003,pp.14-20).Due to the possible debts that many countries such as United States and Australia had accrued during the global financial crisis it required many of them to put in place long –term financial ramifications as result of these many countries as well as their organizations were required to undergo transformational change. As way of undergoing transformational change the Reserve Bank of Australia cast off its fixation with inflation and reduced the official interest rates very quickly just after the onset of the crisis. On global scale many multinational corporations such as Alcoa and Rio Tinto announced their plans to cut thousands of jobs in Alcoa’s case 15% of its global workforce was retrenched (Allen, Babus & Carletti, 2009, 34-45). Conclusion Global financial crisis is one of the crises which caused devastating effects to various economies as well as the world. In summary the crisis can be described as both planned as well as unplanned change according to the various effects caused by it. In conclusion change is evitable hence senior leaders of the organization should put in place necessary measures which can help alleviate some of the resistance to change. In any given situation employees will naturally resist change though on other hand they are likely to accept change if the top management keep the employees informed as well as support them throughout the entire process. From the global financial crisis transformational, developmental and transitional change are important in any change process hence it is always important organizations involve all the employees in all the phases of change process in order to successful succeed. References Adrian, T. and H. Shin (2009). “Liquidity and Leverage,” Journal of Financial Intermediation. New York: Wiley and Sons,p.12-34 Allen, F., A. Babus, and E. Carletti (2009). “Financial Crises: Theory and Evidence,” Annual Review of Financial Economics 1. New York: Wiley and Sons,pp34- 45 Allen, F and E. Carletti (2006). “Credit Risk Transfer and Contagion,” Journal of Monetary Economics 53, 89-111. Fugate, M., Kinicki, A. J., & Prussia, G. E. (2008). Employee coping with organizational change: An examination of alternative theoretical perspectives and models. Personnel Psychology, 61, 1–36. Fedor, D. M., Caldwell, S., & Herold, D. M. (2006). 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