QUESTION
What is happening in the world (PESTEL) – identify Macroeconomic issues in the environment and explain how they are relevant to the formulation of strategy for this company
What is happening in the industry (5 forces, life cycle) – identify issues in the industry and explain how they are relevant to the formulation of strategy for this company
What is happening in the company (SWOT, life cycle) – identify issues relevant to the formulation of strategy for this company. Discuss the SWOT and try to connect a strength with an opportunity.
Discuss the issues identified above, what is important, show what caused the decline and identify the opportunities.
Recommend a new strategy and explain why this strategy should be adopted.
The presentation should cover your main recommendations (15 minutes). Do not try to present the entire report, there is not enough time. Do waste time on background details. Present and discuss the important ideas and how the strategy should change.
SOLUTION
LEHMAN BROTHERS (RISE AND FALL)
Introduction
Lehman brother is one of the world leading financial global services and Lehman brother is also named as the fourth largest financial service in the USA. Lehman brothers are mainly into the investment banking, sales income, and equity shares, managing the investment, trading, and private banking sectors. They have played their role in all the financial sectors and well known by all the financial competitors. Henry Lehman is the son of the merchant and they are actually immigrated to Alabama county of United States of America. Henry Lehman started the business of dry goods. After a few years other two brother arrival the company firm changed as Lehman brothers. And before it was known as H Lehman. During the early stages cotton is one of the major important crops in the United States of America. They have clearly understood that cotton has very good high market value. And they began to focus on the cotton business by exchanging the payment from the merchandise. They received more profit because people had more cotton then the money. In the later stages they have opened an office in the New York City for the centre trade of cotton exchange. After that they have tie up with New York stock exchange for their update in business both financially and economically. And thus helped the Lehman brothers to grab the other competitor companies like Goodrich, Woolworths and sears. It was great success for them to achieve the success in the short time. With the great success in their business they want to make foot in all the financial sectors. They wanted to operate all the financial companies. They began to involve their business like investment in banking. Income sales, equity shares, trading inside the American treasury securities and managing the investment both in the private equity and private banking. They had helped many organisation and companies from the crisis situation by offering huge sum of loans. And they recovered so many banks from the financial problems. Innovation helped them to establish the business in a healthy stage and proved the best in the industries. They also globally recognised in the field of management investment both in private and corporate. They developed the high level standard through the emerging performance and trustworthy client relationships. Lehman helped IT asset process management. Lehman brother played a vital role in the business for the smooth and fantastic operation of their infrastructure. Which really helped them to protect the business and also for the support. The success of the business is completely moulded with fine strategy. They have analysed the market condition very well and target the goal with effort. It is the great out come for the Lehman brothers business. Strategy is more important for the business to lift in the peak position,
Icarus paradox in Lehman:
Lehman brother has followed its own strategy for their business to be in stable position. And they were in successful path for several years. But unfortunately the big financial firm came to end on September 15 2008 for bankruptcy. This is the largest bankruptcy filling in the United States of America history. Since the Lehman brother holding the business of $600 billion as assets. As per jenny the major reason for the bankruptcy is Lehman brother borrowed amount to invest in the years and the amount they invested in the business is not profitable and unable to get as the profit and this is termed as gearing. A part of the amount invested in the housing assets that made them to downfall in the market. Lehman brother earned a huge amount in the housing assets but on that particular year they were totally in the down position. The main reason for their downfall is that the Lehman brother given the loan to each and every person without knowing their credibility and their status. As per Ben they fail to track them financial records of the customer whether they have financial strength to pay the loan in time or not. This made the vulnerable damage to the company by financially. At the same time the ratio of owner assets equity increased because they can yield more profit with the interest. But unfortunately the total scenario changed. From several locations they were forced to remove the employee from the company. And they took $25 billion after the tax charge and $27 billion reduction in the goodwill. Lehman continuously faces the damages due to the mortgage crisis. Huge loss had happened in the low rated mortgage during the year 2008. In the second quarter of the year Lehman company losses to $2.8 billion and made him huge loss in the business and it forced him to sell $6billion in the assets. When the losses continue company started to reduce the employee because of lacking in the financial status. The company find very good position but in the second quarter due to the poor showing underdetermined the confidence in the brokerage and banks investors for the credit crisis.lehman share was plunged by 20 % in the past two sessions. The company management made hard relationship with the number of potential partners. The people who bought the loan from the company struggle to pay the loan amount due to the bad financial structure. Because the country economy is not at the proper stage. Due to recession period people lost the job and the market is also down. People find themselves very complicated and unable to pay the amount. Lehman bankruptcy causes some depreciation in the commercial price real estate. Lehman $4.3 billion in the mortgage securities were sold off to the commercial mortgage backed securities market. In the Japan the insurers and the bank in potential losses of 249 billion to the collapse of lehman.by citing the network of Lehman company 11.8 billion yen losses in Japan that is related to the bonds and loans connect with the Lehman Company. Not only in Japan they had bad situation in the Hong Kong also more than 43700 people in the city have invested in the mini bonds with linked to the Lehman Company. Many of them claimed that bank and brokers were sold them as low risk. This situation raised a company to the downfall situation and suffer serious loss in the country economy.
Bubble Burst in America:
According to Garber the bubble burst is the economic bubble affecting many parts of the United States housing market in half of the American states. The house prices are hiked in the early 2006 and began to crumble in the later stage most of the house owner in the United States of America led to the crisis situations for the subprime. This housing bubble has direct impact on the house valuations. The back ground of the bubble burst is land prices are contributed more prices in the market. These housing bubbles can occur in the local or global real estate markets. The rapid increase in the real estate property increases the more income, price to rent ratio and other economic affordability. Due to the decrease in the home price which results in many owners finding very difficult they in the negative equity. Housing bubbles are more complex and complicated. The main factors like tax policy low interest rates and lending their standards are the failures. The other most aspect for the house owner problem is inability to pay the mortgage for the base rate. So that the moorage and credit crisis are cause for the problems. The economic bubble is very difficult to track with numerous and economic cultural factors. The world wide rise in the house price is the biggest bubble in the history. By considering the market analysis including the lower sale values and raising inventories helps to achieve the decent position. Due to the bubble burst increase of the house price and gradients forced many resident people to move away from the metropolitan cities. And many residents were sold their house due to the burst of bubble. This affected the Lehman brother company in bad way. Major most things are subprime mortgage industry collapsed due to the higher rates of home without referring the sources. So many companies declare that bankruptcy because of the major loss in the sales. The stock of the country economy is decreased. This affected the people both financially and economically all over the globe. Virtually there is no risk for housing price which is based on the bubble demand for housing and economic factors. The main stream of economic bubbles is will give the temporary boost in wealth when the prices increase the owner feel good and rich and spend more. If they decline negative wealth effect remains owner feel poor and demand for money.
Pestel Analysis:
The Pestel analysis include the factors like political economic social technological environmental and legal.
Political factors:
The political factors relate to the government issues in the economy like tax policy labour law environmental law trade restriction tariff and the political stability. And also involve in the operation of health education and infrastructure of a nation. As per Kraut the political party of the country will closure monitor the trade. This will include both import and the export. The country economy will be determined based upon the goods which they do both import and export. Political parties will sign the agreement for several products like petrol rice rubber cotton etc. there will some exchange of products with the country demand with legal agreement. And at the same time they also work on the tax policy which is the main source for the government to run the country. The will increase and decrease the tax based upon the necessity and market condition. It also should support the people and they also satisfy with judgement. And they also initiate the other countries to start business in the country so that unemployment will not be high. At the same time qualified people get the desired job for their qualification. Due to starting business which is represented by the other countries will increase the country economy and foreign currency also increase. Government also support for the research and development which will helps to create new technology in prospective field. They also monitor the education institutional for the better education to the students… because today children tomorrow pillar. They also work for the quality and efficiency for the education system. They also support the companies by financially by determining the importance of the company. And at the same time they also watch the companies which are creating pollution to the environment they will take the adequate steps for the correct measure for the company to regulate.
Economic factors:
As per Musgrave the economic is more important for the country growth. They also fix the interest rates exchange rates and the inflation rate. These are the major impacts in how the business operates and make decisions. Government also focus on the interest rates some time it also affects the cost of the capital. Exchange rate is also important factors for the exchanging of good to the foreign countries. This will determine how far the goods had been exported to other countries which will results in country economic. The strong currency exporting more difficult because it will raise the price in terms of foreign currency. High national income also boosts the demand for the products. The economy will be much strong when the abundant resources in the country as well as the relatively low population in the country.america is one of the country were most of investment is made by several countries. Domestic market should also be strong for good economy in the country. If the economy is down automatically several problems will raise like unemployment low spending power and low stake holders. A successful organisation like Lehman brother will respond to the economic condition and stake holder behaviour. The economic will target the cheap labour in developing countries also affects the developed countries.
Social factors:
Social factors of the country will reflect within the society like friend’s family neighbours and media. The social force is the powerful source will affect the interest attitudes and opinions. The change of population also has impact on the organisations. Changes in the structure of the organisation will attack the supply and demand of the goods and service. The great organisation like Lehman brother does not respond to the change in the society will take the company to the downward position. This is happened in the Lehman brother company. It fails to notice the change in the society and also failed to stick good structural strategy management.
Technology factors:
According to Monsma technology is more important for the country to reach the developed stage. Because technology includes like research and development and automation technology. So that they can determine the barriers of entry to the low production level efficiently. Techonolgy like telephone and internet helped the people in many ways for the communication process. And multiware software is also developed to reduce the burden of mankind. America is top country for the recent technology. They have been experienced and delivered so many technologies for other country to make use of it. Though the technology has been developed to the extent. But the Lehman brother company fails to use the innovative technology to analysis the market condition and structure of the economy in the country.
Environmental factors;
The environment is the most important to safe guard. If the environment spoils whole country will get spoiled. The appropriate measure should be taken to provide healthy environment. And necessary steps also should take to reduce the all the types of pollution occurring in the country. The environmental factors which includes like such as weather climate and climatic change which also affects the farmer to stop their production and for the tourism. Tourism is one important source for the country to bring the people from all over the globe as well as the different currency.
Legal factors:
Legal factors which will include health and safety law consumer law employment law and antitrust law. These factors also affect the company operation and the cost of the product and for its demands. The employment law should be strictly followed in the entire organisation in the country. The organisation should offer good benefits for the employee and they should take care the employee. And bonus should also be given for the employee. But the Lehman brother company failed to take care the employee. The company has been removed so many employee from the organisation and also fail to give the compensation when they fired because of poor financial status of the company. And the company also failed to maintain good relationship with the stake holder’s investors and the insurers. Lehman brother company legal changes affected lot and struggled for the recovery.
SWOT Analysis:
Swot analysis is one of the important analyses for the company to determine the strength weakness opportunities and the threats. By observing all this strategy the base of the company can be found. It also describes the company strategy management. The below mentioned factors are for Lehman brother company analysis.
Strength:
The major strength of the Lehman brother company is the volume of business in large level. The company provided strong foundation. Thus increased the business in a large level. They almost captured overall business in the America. They have invested money like broking trading shares, private equity and banking equity. The company specialised in debt and equity and the global finance. Company operated in the US and Europe. Holds a huge number of employees as the strongest company in the world. And also company highlights in the recorded revenue of $19257 in 2007 november.the diversified revenue of $4192 is the net profit with the increase of 4.6% over the year 2006.
Weakness:
The litigation is the major weakness for the company. The Lehman Company promoted robust and risk movement system. The company disregarded and exceeded the risk limit for the accumulated assets. Lehman Brother Company lacking in credit risk. The importance of credit risk is completely missed in tracking the customer financial status. They failed to provide the materials for the concentration of the mortgage and real estate related assets.
Opportunities:
Good opportunities are widely available for the people to get into the company. They have gained the brand name for the organisation by their service. The fame of the company is climbed to the peak position. With the financial criteria they have also acquired some of the companies as subsidiary for the financial service. This in turn also helps to expand the company into larger level. They also deserved the quality of growing in the banking investment. If they follow a structured strategic management company will fly over the sky for the performance. They also invested in foreign countries though they have branch in the Europe continents. Which in turn foreign currency will rotate come to the organisation and also benefits the country economy also.
Threats:
Threat is the phenomenon factor which always alerts the company standard. Competition is always in the world. Every company want to achieve the success in their level. And they want to be in high position for ever. So competition will automatically rise. In order to beat the competitors the company should rely on ethical issues and customer satisfaction should be provided. The company drawback its losses in the resident busies mortgage. Without tracking the financial record of the customer the home loan has been issued. When the economy collapse the people forced to unemployment. People began to crumble to pay the loan caused major damage for the Lehman brother company. This made the company to the down position and made to remove the employee in larger level both in the United States of America as well as in European continent. They also volatility in the financial market.
Recommendations for new strategy for Lehmann:
The Lehman brother company has been closed off now. But the recommendation is always there. If there make some changes in the management they can start and recovery from the crisis situations. Strategic planning is more important for the company to regulate in good directions. The recommendation will be there can start some business in the major cities by acquiring the amount of some of the corporate company. So that they can operate in a smaller level with the less no of employee. More over them should hire good candidate human resource management. Because this professional can make their changes in the company. They can hire good employee for the organisation to develop. They also should focus on strategic management. This strategic management will help to maintain the fundamental principle and criteria underlying in the company. The human resource management also engage in some current environment tracking of both internal and external labour market with the respect to the company organisation. The Lehman brother company can also bounce back into the market with the competitors by giving loan with decent interest rate for small scale Industry Company and people. This will make the company for the entry into the market and great chances to rise globally. Upon the successful business management they can also extend the limit to higher level and they can also operate out of the country by acquiring the brand name with the fame. In the initial stage they can go for the low level later they can switch on to the higher level of the business. And at the same time when they processing loan amount they should follow some strategy like they should get some valuable ornaments like gold or platinum. If the company is unable to pay the loan amount they can take the jewels to compensate the amount which is also profitable for the company. At any circumstances company growth will not get affected in the terms of financial status. Another important aspect for the Lehman Brother Company is there should not process the loan or they should not invest in any other non profitable way. Before they are investing the amount or processing the loan they should check the credibility for the company. Whether the company is in the market for more than two decade or not. So that we can analysis the company strength and background of the organisation. This should also apply for the individual person. Before sanctioning the loan amount they should check their individual credibility of the person and the financial records. If the company or individual person fails to meet the company norms. They should not offer the loan for them. This will protect the company in a seroious node. Other most important thing care should be taken for the employees. Because they are the real pillar of the growing organisations. As per O’Brien human resource management should design profitable strategy for the employee. And the effective measures should be taken to the quality of the company as well as for the employee. Lehman should find the temporary jobs for the workers that they want to layoff the temporarily. Lehman Brother Company should also consider the cost cutting strategy in order to reduce the financial burden. More over Lehman should offer a job security for the past workers so that the company can maintain the stability of workforce. This will make big popularity among the nation along with the competitors. And it is more important for Lehman Brother Company to focus on the employment law of the current and accurate understanding both in the home country as well as the outside country.
Conclusion:
In the global economy the organisation would face so much external pressure influencing the human management aspect of the organisations. Since Lehman Company is one of the biggest financial firm in USA. During the initial stage of the company growth they struggled hard for the establishment and they were climbed to the high position. but unfortunately they fail to remain constant in the market.lehman brother company faced subprime mortgage crisis is one of the high flying investment bank has led to the so much negative feedback and outcomes. They layoff so many worker from the organisation and threaten the workers for the fearful environment by cresting insecurity job. Company has lost huge customer in the decline of mortgage finance applications. The Lehman bankruptcy has led to nearly $46 billion of its total market value has wiped out. Without maintain the good strategy in the organisation the company lost its brand name in the market which also led the competitors to overcome them. The company invested huge money for the large scale industry and processed loan for customer with tracking their credibility which also the major cause for the disasters. During the recession country economy is down so people lost their jobs and the company began to crumble they are unable to turn back in the financial status. The Lehman Company unable to get the amount which they invested in the customers which led to face the failure. The Lehman brother company did huge mistake by taking the risky hedges to gain maximum profit than the competitors. But the company submerged in the mortgages relegated securities. The Lehman brother company failed to maintain the basic business management and fail to stick onto the ethical issues. The company made unethical accounting and they hide the financial report against the investors. When the subprime mortgage issue rose in the country economy the impact made the Lehman brother company to shut down their operations. The financial market had been wounded deeply worldwide. The Lehman brothers companies should focus ion the key areas where they can improve themselves find the place in safety position. As per Allan It will be more essential for the Lehman brother company to provide the security of job for the employees so that they can remove the fear among the employee for job. It will gain energy mentally for the employee and they can also feel that the job is secured. Company also should analysis the environmental aspect for the positive business strategy. And they also identify the m market condition along with economy of the country. More important they should also concentrate on the cost cutting for the business development as well as it helps to reduce the burden in financially.
References:
Jenny Anderson (September 9, 2008). “Wall Street’s Fears on Lehman Bros. Batter Markets
Ben White (September 10, 2008). “Lehman Sees $3.9 billion Loss and Plans to Shed Assets”
Garber, Peter (2001). Famous First Bubbles: The Fundamentals of Early Manias. Cambridge
Jenny Anderson; Eric Dash, Vikas Bajaj, Edmund Andrews (September 13, 2008). “U.S. Gives Banks Urgent Warning to Solve Crisis”
Kraut, Richard (2002). Aristotle: political philosophy
Musgrave, R.A. (1987). “public finance”, The New Palgrave:
Monsma, Stephen V. (1986). Responsible Technology. Grand Rapids
O’Brien, Michael (October 8, 2009). “HR’s Take on The Office”
Charles Gasparino (July 18, 2000). “Lehman Brothers to take over SG Cowen’s brokerage division”
Sam Mamudi (September 15, 2008). “Lehman folds with record $613 billion debt
Robin Blackburn. “Blackburn-The Subprime Crisis-New Left Review-March/April 2008”
Thomson, Victoria (2008-09-19). “Power deal delivers new star to Buffett’s energy constellation
Allan,p (1997) minimizing the employee layoff while downsizing: employer practices that work. International journal of manpower.
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