Leadership Lessons from Financial Crises

This assignment examines the critical lessons that organizations and leaders can learn from financial crises. It emphasizes the importance of prior experience, specialized knowledge, and pressure management skills in effectively leading during times of economic uncertainty. The text argues that training future leaders to possess these qualities is crucial for organizational resilience and success.

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Critical issues in business management
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Critical issues in business
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Contents
Main Drivers of Globalization (Financial Crisis2007-08)...........................................................................3
The challenges of globalization for a multinational company,....................................................................4
Leadership and the tools that used for defending economic crisis...........................................................4
Organizational Structure..........................................................................................................................6
Previously............................................................................................................................................6
Presently..............................................................................................................................................8
The Workforce.....................................................................................................................................8
Strategy Development...........................................................................................................................10
References.................................................................................................................................................14
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Main Drivers of Globalization (Financial Crisis2007-08)
There were several reasons found behind the financial crisis that happened in 2007-08. The crisis
made a huge difference in the global economic structure. The banks of the different country all
around the world were the main reasons behind the financial crisis. This is so because the banks
were able to create too much money by different activities and after the growth of the money the
house prices and hazard on the financial market grew up. Here are some points that can conclude
the financial crisis (Alvarez, 2015):
The banks created too much money
This is the clear description of the banks' activities that caused the financial crisis. This is so
because every time the bank makes a particular loan, new money is created. In the run of the
financial growth, the banks created a huge amount of money. A survey has told that the money
had been doubled in the last seven years.
The growth of the house prices and hazard on the financial market
In between the years of 2000 to 2007 the banks of all around the world produced very little of the
trillion pounds. These amounts of money went to businesses outside of the financial sector.
 The price of the houses was pushed up faster than the wages. It is so because around 31
percent of the amount went to residential property.
 Further 20 percent of the amount went into commercial real estate like an office building
and business property.
 Around 32 percent went to the financial sector. This financial sector is the same financial
sector that eventually imploded during the financial crisis.
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 The main factor of the financial crisis is that only 8 percent of the money went to the
businesses outside the financial sectors.
 The other 8 percent went to the purposes of credit cards and personal loans.
The debts became un-payable
Lending large sum of money into property eventually pushes up the price of the houses along
with the level of personal debt. Moreover, the banks make loans for the people, and they had to
repay the loan with the proper interest rate. Sometimes it had been seen that the rate of the
interest had increased more than the income of the people. So as a result, the people who took the
loan were unable to pay the loan. This was the point when they stopped repaying, and the banks
then found themselves in the situation of going bankrupt. After this kind of situation, the banks
refused to lend anymore loans to the ones who were unable to repay it. Anyhow the bank passed
loans in few cases where they found that the people would be able to repay it. The problem is
that when the amount of money is used to repay the loans were not found in the economy. This is
the clear case of economy risks slipping into a ‘debt-deflation' (Lin, Tsomocos and Vardoulakis,
2014) spiral, where the wages and prices fall but the debts of the people do not change in value.
The challenges of globalization for a multinational company,
Leadership and the tools that used for defending economic crisis
The field of organizational behavior is concerned with the study of that people do in a company
and how that behavior affects the performance of the organization. The major goal of this is to
predict, explain, and control behavior. Many researchers have proposed several ways to
categorize forecasting practices. The critical issues that must be dealt with on the path to
accelerate growth and greater profits are:
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Inadequate funding: Maximum business is undercapitalized from the very beginning. It
happens due to the business owner’s lack of execution. These factors of low gross profit margins
due to pricing too low or too high cost of direct labor or materials result in no profits. Lack of
good financial information and lack of understating of the financial matters by the business
owner is also responsible.
If a business owner does not have an adequate idea about marketing process, then it can affect
the business value. As marketing is an essential tool to represent a business as a trusted company.
But the marketing planning needs to be done after research, budgeting, tracking and executing,
so that the business can make a profit and become trusted to the customers.
Lack of planning and vision can also affect business. A monthly financial forecasting should
content some essential elements such as a sales plan and goal, gross profit targets, net profit
goals, operating expense budget. Sales and sales management is also a very important part of
every business. Without all of the proper steps in managing one's sales effort, the possibility for
success is greatly dismissed.
Uncertainty is always worrying. But without that collaboration will become less innovative and
unable to adapt to essential changes. A business owner must try and stay ahead of the arch. A
constant challenge within any knowledge economy is that brands and innovations are relatively
easy to copy instead of protection afforded through intellectual property. Major disruptions are
occurring that have dramatic impacts (Fincham, 2011) on existing operators. The winds of
creative destruction have increased over the last decade with more businesses becoming victim
to developments in technology, evolving business models and the re-location of significant
amounts of manufacturing. A business owner has to be realistic about can be achieved by trying
to look ahead and anticipate what may happen.
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Some recent studies show important and similar across several industries. They are as follows:
 Acute shortage of skilled labor for modern operations
 Strong scrutiny of supply chain management function within mist operations
 Continued shifting of balance of power to outsourced services providers
 Rapidly intensifying pressure to reduce operations cost in the face of business uncertainty
 Demanding customers, expecting more all the time
 Supply chain compression, reduction in inventory, working capital and time
Organizational changes are the alteration of work environment in an organization. The
development of new equilibrium is important. The change affects the organization as a whole.
The change is a never ending process. It is known that equilibrium of relationship is disturbed
when change is first introduced. Thus the problem of new adjustment created.
Organizational Structure
Whenever the crises occur financially, there are certain times when the company must take
caution. The cautions must be taken previously or presently or afterward to maintain the
organizational behavior. The ways of taking the cautions are described below:
Previously
There are certain ways by which the precautions can be taken. The ways are:
Maintaining and cultivating the core competence
The main competence of the organization is one of the main aspects by the development of the
organization. The path of diversification must not affect the environment of the company. It is a
big point to be taken care of. If this is not done, then it may affect the company with negative
impacts, and the company may suffer in a crisis situation.
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Scientific mechanism to make decisions financially
Financial decision making (MacLean and Ziemba, 2013) is one of the main aspects that a
company must take seriously. This type of decision can make a huge change in the environment
of the organization. Every single company or organization depends on the financial condition. If
the financial condition is strong enough, then one can consider the organization or the company
to be effective in the business field. The decision-making process must be taken as an important
factor, and multiple choices and suggestions must be taken while making any kinds of financial
decisions.
Management reinforcement
If the same old management team is not doing well, then the company must take a firm decision
to change the management committee to gain more positive results. There are many management
teams in an organization like cash management (Attig and Cleary, 2014), inventory
managements, etc. The authority must take a close look at every single management team. It
reconfirms the situation whether the management teams are ready to face the crises situations or
not.
Decreasing the expense
This is to be said that there many places where many companies spend unnecessary money.
These kinds of situation can lead to a crisis where the companies may find themselves helpless.
By decreasing the unnecessary expenses, a company can make a huge profit financially, and it
will help a particular company in the situations of financial crises.
Improving the structure of the governance
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The shareholders, the investors, and much more people are there who are linked up with the
company. So the structure of the governance of the company must be made now and then to
maintain the organizational performance. This also helps the organization furthermore in the
situations of the financial crises.
Presently
There are many crucial facts that must be followed in the time of the financial crisis. These facts
help an organization to maintain their work flow during the crisis. The business won't be affected
much if the facts are followed in a proper way. The facts are:
Reducing the expenses
As told previously, the expenses must be reduced as much as possible. The company must be
choosy enough regarding making any expenses. The expense must be made in those places
where the expenses are needed. Except that, it is harmful to the company if unnecessary
expenses are done. Reducing expenses can help an organization in an effective way in the middle
of the financial crisis.
Find a place and learn to grow
The financial crisis can absorb the entire market with its effects, but the organizations must find
alternative ways to grow their company up. It is to be said that a business should never be be
stopped if the company want to be succeeded in the field of the business. One can consider the
company to be successful if a duplicate path is found in the middle of the crisis.
The Workforce
The main situation arises after the financial crisis. The companies or the organizations find
themselves in a very weird situation. Sometimes it has been seen that many companies have
withdrawn their businesses after the crisis. But many companies are there in the fields that are
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not ready to give up easily. There are some facts that can be done after the financial crisis. These
facts help any organization to continue their work in the field. They are:
Accepting the situation
The situation that has been passed in the form of financial crisis must be accepted easily to
maintain the flow of the work. The organizations or the companies must have the ability to
accept what has already happened. This will give them the confidence to fight back (Barras,
2012) again and to absorb the market once again by many strategies.
Take inventory
After the crisis is over the company must take a closer look to the belongings it has. This is to be
done effectively because the belongings are the only hopes for an organization to fight back once
again. A perfect plan must be made to achieve the targets that were set before the crises. But first
of all, the company must identify its position in the market. The base of the finance must be
started from the point where the company belongs to.
The goals must be redefined
An organization does everything perfectly to achieve organizational goals. These goals are set in
the initial stages of the business. After the financial crisis every organization finds them in a
situation where the goals seem far away. So it is necessary for any company to reset the goals in
a new way. This will help the employees of the organizations as well as the management
committee to reach its ultimate destination. Setting organizational goals make a huge difference
in the performance of the employees of the organization.
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So these are the possible times when the company must take serious decisions to maintain the
flow of work in the organizations. The leaders and the management committee of a particular
organization must come forward to make all kinds of necessary changes in the structure,
methods, and strategy. Not only it helps the employees to work freely, but also it helps an
organization to survive in the financial crisis situations. These facts can also be considered as the
solution of the financial crisis.
Strategy Development
The recent events in the global economy have shown that many leaders from many organizations
are unable to deal with the situation of the economic crisis. Since the time of the crisis in the year
2008, good and motivating leaders are needed to control and handle such situations. The leaders
must have the ability to discover the opportunities for the correct recovery and growth of the
organization.
The concerning situation is that many leaders from the organizations of all around the world are
unable to handle these kinds of situations. Mainly it is found that the situations are being very
tough for the leaders who have the responsibilities to control every single situation of the
organizations. Decisions are being made by taking a lot of time; the decisions are uncertain that
is harming the organizations big time. This problem of leadership skills was found running
parallel with the crisis of the financial sectors. This situation gave a perfect lesson to the
authorities of the organizations. They have taken perfect lessons that how to train a person to
become the perfect leader of any organization to handle such kinds of crises. The future business
and the political factor of the business are there to be taken as a matter of concerns. It is to be
said that the leaders of the organization have made a blind spot, such that, they have made a
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same old traditional way to handle different kinds of situation which didn’t work out in the
situation of the financial crisis.
Business ideas and the MBA are associated in case of increasing the strength of a particular
employee to make him or her as a leader in the future. Every organization deserves to have a
proper leader with all kinds of capabilities. The leaders are the one who motivates and give the
enthusiasm to the employees to achieve organizational goals. To produce perfect leaders, the
authority or the training department of the organization has some typical ways. They are very
similar in different kinds of situations. The management and the employees follow the same old
paths to work in different situations. This is where the problem arises. The factors like the
financial crisis, lack of man power need different types of techniques to be handled.
The leaders must have the efficiency
In the field of financial sectors, the leaders must have enough knowledge to handle the situations
in a perfect way. Financial breakdowns are very effective regarding achieving organizational
goal. The perfect training about the financial sectors must be given to the leaders so that in the
situations of the financial crisis they can handle the situations easily. This will help the
organization as well as the employees to work properly in the field of their particular work. The
financial crisis is a very difficult situation for any organization where the leaders must play a
good role to get rid of the crisis situations (Fedorenko, 2014).
The leaders must be motivating
The leaders of the organizations must have the motivating power to control the employee with
positive motivation. This will help the employees of a particular organization to work under
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different kinds of situations. Financial crisis is a big problem for any organizations so the
employees must be motivated by the leaders in every single possible way. The leaders must take
the examples of the failure situations, and they must teach the employees to avoid the activities
which resulted in the failure situation. The leaders must forget the old methods to solve the new
crises. The leaders must take lessons from the person or persons who had handled the crisis in
the financial sectors. It is to be said that the previous experience of a particular person in the
financial crisis or any other situation is very helpful. The strategies and the movements that were
taken previously can help the leader and his or her employee to handle the present situation. The
employees also get the beneficial situation or path to work on properly.
Proper knowledge
The leaders must have the proper knowledge to handle the tricky situations. The financial crisis
is one of the most crucial situations that can affect the organization in big ways. A true leader
with proper financial and economic knowledge can handle the situations with ease. He or she is
the one who can show the correct path to get rid of the situations. The managers and the
authorities must take all the necessary steps to train an employee to make a proper leader. The
leader must have a versatile characteristic that can handle any situations to save the company.
This is the only way to which the company will be able to maintain the flow of their work.
Pressure handling
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This is one of the crucial aspects that leader must have in his or her characteristic. After going
through many researches and their results, the management must teach a leader to take the
pressure. There have been situations where many leaders from many organizations had lost their
way in crucial situations. The management must take care of these kinds of circumstances where
the leader can work with the proper flow in spite of being pressure on their shoulders. It can be
said accordingly that a proper leader can handle the pressure as well as maintain the work flow.
So these are all the possible lessons that the managements can take away from the situation of
financial crisis to train a leader to make him/her a proper leader. These leadership lessons
(Perkins, 2012) must be followed by every single leader of each and every organization. These
key points can help a leader and an organization to be succeeded in the field in which they are
working.
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References
Alvarez, S. (2015). The Mexican debt crisis redux: international interbank markets and
financial crisis, 1977–1982. Financial History Review, 22(01), pp.79-105.
Attig, N. and Cleary, S. (2014). Organizational Capital and Investment-Cash Flow
Sensitivity: The Effect of Management Quality Practices. Financial Management, 43(3),
pp.473-504.
Barras, C. (2012). Placebos boost our confidence to fight infection. New Scientist,
215(2881), p.9.
Fedorenko, I. (2014). ASSESSMENT OF CRISIS SITUATIONS AS PROVIDING
ECONOMIC SECURITY OF ISSUERS. Effective crisis management, (4), p.82.
Fincham, J. (2011). Impending Federal Budget Cuts and Dramatic Impacts Upon Pharmacy
and Pharmacy Education. American Journal of Pharmaceutical Education, 75(7), p.127.
Lin, L., Tsomocos, D. and Vardoulakis, D. (2014). Debt deflation effects of monetary policy.
1st ed. Washington, D.C: Federal Reserve Board.
MacLean, L. and Ziemba, W. (2013). Handbook of the fundamentals of financial decision
making. 1st ed. Singapore: World Scientific.
Perkins, D. (2012). Leading at the edge. 1st ed. New York: AMACOM.
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