Strategic Development Processes - Case Study Example

Running Head: MANAGING UNDER UNCERTAINTY Student Name Name Institution Course Code Date of Submission Introduction Margin Cal lis a movie showcasing the events of financial companies and other companies in the eve of the financial crisis that hit the world’s economy in the years of 2007 and 2008. The movie tries to unmask the various decisions taken by investment companies that led to the crisis. The setting of the movie itself is in fictional and highly embattled firm (representing various investment banks and companies in Wall Street) that are engaged in brutal activities of cruel layoffs. This resulted in the companies realizing that their toxic assets would lead the firm(s) at any instant into an entire state of bankruptcy. After this information of impending bankruptcy, as reported by top secret financial analyst referred to as Zachary Quinto, the top brass in the firm resorted to convening several meetings that ran throughout the days and nights to discuss some ruthless and desperate measures on how to protect their own wealth. One of the profound ruthless methods developed by the top brass to protect their wealth is the early sacking as observed in the movie. Spacey is the main actor in the movie portrayed as a trading boss on the eve of the bankruptcy who discovers, though very late, that he possessed some degree of conscience (Margin Call, 2011). Although the movie was shot on location in NYC, most of the scenes were shot on the bank’s trading floors and its boardrooms to represent the true picture of an operational bank. It is also worth noting that the cinematography and lighting of the movie were well developed so that it sets up the atmosphere and the good tone of the film. The sets of the film are also well built to represent a typical banking environment. Setting Stage for Management UnderUncertainities The entire film entails managing and making decisions under uncertain economic conditions where firms are faced with greater levels of financial risks. However, the film portrays such institutions as banks and its management as making wayward decisions that led to the financial crisis of 2007/2008. In its opening scene, the film begins with the firing of one of the seniormost men in the bank Eric Dale (Stanley Tucci). After being fired, Eric Dale (Stanley Tucci) hands over his USB drive to Peter Sullivan (Zachary Quinto) who happens to be his fellow associate. On studying the contents of the drive, Peter Sullivan (Zachary Quinto) realizes the fact of the impending demise of their bank and ultimately, the entire Wall Street capitalism. This realization shocks the entire bank crews and eventually catches the attention of the bank’s CEO John Tuld (Jeremy Irons) who arrives late night by landing on the bank’s roof. Thereafter, at 3:00 AM meeting is convened to discuss the bank’s way forward and issues such as who was the responsible individual behind the disaster, its cause, and other issues discussed in the boardroom meeting. This sets the stage for management decisions that resulted in more havoc on the financial sector. As a matter of fact, the meeting concludes with sentimentalities such as “the situation is not impressing at all and we make lots of money” (Margin Call, 2011). Managing Under Uncertainity On realization of the ultimate collapse of the bank, managers became so stressful and acted to desperately to rescue the situation. This resulted in fierce office politics observed to occur between senior manager Sam Rogers (Kevin Spacey) and a senior manager in charge of risk management Sarah Robertson (Demi Moore). This indicates the political role in bringing about the collapse of the bank. Misunderstanding among managers is profound and well spelled within the corporate sector. For instance, Sarah Robertson’s supporting role hits the minds of everyone and stirs a very heated debate that results in several misunderstandings. The film also indicates the disconnection and disorganization typical of banking industries and the corporate world at large. This connection and disorganization is more evident in the management when the CEO John Tuldtells everyone to explain to him as though he was a child when seeking explanation regarding how the bank became overleveraged. This rude language and lack of understanding between the management is a major issue of concern that can lead to bankruptcy (Michael, 2002). “Banking humor” is another style adopted by the director to show how management of the bank management is so poor with a lot of mix-ups. The humor is seen with the management holding meetings in a transition scene similar to a strip club while taking alcohol. The discussion of strategies to rescue the bank from collapse and save their assets goes into a mess when the discussion results to insults and the use of vulgar words like “fuck”. Supposedly, the management is drunk and cannot formulate any proper decisions. Organizational culture is also another factor that is not considered by the bank’s management. The film negatively portrays the Wall Street culture through the appearance of some characters from out-of-reality perspective. A good example of poor culture is shown by Seth Bregman’s (Penn Badgley). This character is so much obsessed with making lots of money in his career without considering job performance. Furthermore, the poor culture is still exemplified by Will Emerson (Paul Bettany) who earns millions of dollars and spends at lavishly by changing luxury vehicles at any moment. The entire film shows that the culture of the corporate world is that of money obsession as compared to performance and productivity. This is evident with the mention of big and shocking numbers mentioned in the film. Such phrases like “That’s a ton of money,” “that’s pretty cool cash”, and “Do they really make that much?” are widely used in a compensation scene of the film. These characters indicate the nature of poor culture characterized by lack of honest and poor commitment. Finally, this financial thriller is useful in putting a spotlight on the impact of proactive and skeptical measures of risk management or the lack thereof. Risk management is particularly important in financial services. The film perfectly demonstrates how the actions of the management of the financial industry and their mistakes impact on the ordinary people. Likewise, the movie brings out a clear picture of how firm’s actions can impact on the entire financial industry when the importance of risk management is underscored in such highly interconnected system (Martin & Rahul, 2011). However, although the movie shows various poor decisions made at various management levels in the bank, there are various lessons learnt on how to manage uncertain conditions and mitigating risks. Mitigating “Margin Call” risks 1. Promoting an all-inclusive decision-making It is believed that it takes all kinds of people in an organization to make good decisions. This is because the CEO is not always right. The culture shown in the movie is that of discouraging employees from challenging leadership decisions. Financial institutions that have very weak risk management, criticism of poor decisions made by the management are not welcome. Anything that slows interest in developing and establishing a progress toward better achievement of organizational goal and developing strategies about a risk buildup usually face hostility (Elio&Massimilliano, 2010). As observed in the movie, people who try to voice strategies for risk management and challenge poor decisions are usually fired or silenced, thus sending a stern warning to other employees not to follow suit. This idea thus destroys the risk culture and hence encouraging an experience that affects fast growth areas. Finally, to win the favor of the CEO, various business units engage constant petition to outdo each other. This scenario plays out painfully in Margin Call. 2. Chief Risk Officer The position of Chief Risk Officer is one of the most important job titles in the corporate world. The title became so popular and especially after the 2007/2008 financial crisis, when most companies realized they need to create a senior executive management that mainly focuses on risk strategies to fight for the company’s survival in the event of a crisis. Most companies are seeking to convince regulators and financial analysts that indeed their focus is to mind and regulate their company’s risks at all times. However, in most cases, Chief Risk Officers are seldom consulted on the company’s future position or unforeseen risks likely to affect the company. They are also not invited to forums for discussing strategies in the company’s game plan (Peter, 2010). There are limited strong Chief Risk officers amongst companies today. The role of Chief Risk Officer becomes increasingly as financial industry becomes more volatile and unpredictable with risks subjected to companies becoming even more by the day. With this in mind, most companies seek to have a competent individual with adequate training on risks on actuaries. The individual should be able to understand the key risks that are likely to affect strategic decisions of a company and, if necessary, communicate very serious issues to the management. In Margin Call, the risk officer Sarah Robertson (Demi Moore) was not given any audience to present her risk management strategies and faced rebellion by the other managers (Margin Call, 2011). 3. Independent oversight “is unwanted at the dance” During good economic times, independent oversight in business operations meets the praise and credit for a good work done. However, during an economic turmoil, lack of independent oversight helps unmask risks that went undetected previously. Financial risks usually grow slowly when there is less monitoring and go down after damage has been caused. By then, as Margin Call demonstrates, it is very difficult to recover damages already caused by risks. The scene typical of a strip club in the movie shows the actors “dancing”with little consideration of discussing about the need for an independent oversight to assess risks (Michael, 2002). Former Citigroup CEO Chuck Prince for instance summarized this tendency as quoted, “As long as the music is playing, you have got to get up and dance. We are still dancing.” This implies that no employee would wish to challenge decisions made by the CEO, but neither does any employee emulate Demi Moore in the movie, the blame receiver of the financial collapse. 4. All models are wrong There are different models that come in different types and sizes. For instance, mental models may be seen as simple compared to the rules of the thumb or they can be seen as equally complex like those used to analyze calculate structured securities. Models, however, are hard be simple in practice. In financial institutions, for example, most models used greatly reflect second order interactions, like considering the number of homeowners who are likely to fail in paying their mortgages in various prevailing economic circumstances (Martin & Rahul, 2010). The more complex the models become, the harder they become for those who did not create them. Therefore, it is important for companies to adopt better strategies to communicate the results of decision-making recommendations. Conclusion Margin Call remains one of the most popular Wall Street movie developed to unmask the events of the corporate sectors that led to the financial crisis of 2007 and 2008. The entire movie is all about corporate manners. Such corporate manners are those that touch on the protocols of hierarchy, politics within management, and, most of all, poor strategies for decision-making. Issues such as irregular employee dismissal, discouraging an all inclusive decision making programs, and the lack of good cultural culture. However, with proper strategies such as involving everyone in the decision-making process, encouraging challenges from junior employees, developing a strong a powerful Chief Risk Officer position, encouraging an independent oversight, and developing good models would help prevent financial turmoil. Finally, it is good for companies to appreciate that not the CEO alone is always right. Therefore, it can be concluded that Margin Call is one of the best Wall Street movies that is realistic in capturing the events of the corporate world that led to the financial crisis of 2007 and 2008. Reference List Elio, I. & Massimiliano, B. (2010). Global financial crisis: causes and perspectives, EuroMed Journal of Business, 5(3), pp. 279 - 297 Martin, K. & Rahul, B. (2011). Strategic development processes during economic and financial crisis, Management Decision, 49(8), pp. 1343 - 1353 Margin Call. (2011). The Margin Call Movie. Retrieved 5, April, 2013 from: http://margincallmovie.com/ Michael, R. (2002). Leapfrogging the variance: The financial management of extreme-event risk, International Finance Review, issue 3, pp. 39 – 58 Peter, P. (2010). Knowledge risk management: a framework. Journal of Knowledge Management, 14(3), pp. 464 - 485 Read More