By Denise Harrison, Vice President
“As the housing market collapsed in late 2007, Moody’s Investor Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.”
Banks failing, real estate loans made to people who did not have the means to repay them, institutions using derivatives without fully understanding the risk - what happened? Were executives just trying to meet their short-term goals? Did these goals enable them to qualify for significant bonuses? Did this achievement of short-term goals lead to long-term instability?
Many of the financial institutions currently in distress did not pay heed to the warnings of a real estate bubble. Instead many institutions developed plans to keep the top line growing in spite of the increasingly risky nature of the borrowers and the overvaluation of the underlying collateral.
Could this have been prevented?
Well, hindsight is 20-20, but the lessons here are important and should be a part of your strategic planning process:
- Evaluate external forces - (e.g. is there a bubble?) Are your goals consistent with the external environment? How are you positioned if the bubble bursts in 1 year? 2 years? 3 years? Are you making the naïve assumption that business will continue to grow? Do your goals explicitly take risk into consideration?
- Are top line growth goals in line with long-term stability and profitability and perhaps survival?
- Are you not investing in key projects in order to make the top line?
- What will the consequences be if you do not invest? Will it impact your long-term growth? Will your phone system go down if you do not invest?Will you have a safety issue if you do not continue with training?
- Will you have inadequate staff for the upturn if you do not replace key positions now?
- Are you taking on customers who are a time sink in order to make your top line?
- Are you using the right metrics? Are you measuring success from a customers’ viewpoint? (If you are UPS should you measure package delivery or package receipt - i. e. did the addressee really get the package?)
During economic turbulence, be sure you set realistic goals that do not jeopardize your company’s long-term viability. Position your team and your company for the recovery by setting reasonable targets that are not solely focused on short-term results.
 “How Moody’s Sold Ratings and Sold Out Investors”, Kevin G. Hall, McClatchy Newspaper, October, 2009.
Copyright 2009 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI -- Reprint permission granted with full attribution.
Denise Harrison is Vice President of the Center for Simplified Strategic Planning, Inc. She can be reached at: email@example.com .