06 Mar 2009
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In the latest podcast from London Business School Michael G Jacobides explains that failure to take heed of the changing structure of the financial services industry is partially responsible for the current economic crisis.
Michael describes the changes to the structure of the financial services industry in the last decade, and suggests that these changes to the way the sector is organised and the links between different industry participants were not fully understood or regulated.
"Regulators were enamoured with the idea that markets regulate themselves," Michael explains, "and each was looking at their own, narrow area of responsibility". "Nobody was thinking about the systemic impact of the ways of doing business that were being established."
Yet not only regulators were caught off guard; seasoned executives sleepwalked into crisis, too. Michael goes onto comment that although individuals may have foreseen the problems, bonuses tied to growth meant there was a lot of pressure on individuals to take risks. There are, he explains, important governance issues to address about the incentives for people making decisions in these organisations.
As for what happens now, Michael suggests that we can learn from the crisis and use regulation correctly to enhance innovations that are good for the individuals without creating systemic instability; balancing private benefit with public good. There's a new agenda for executives, regulators and politicians, and we need a new framing to be successful.
Finally, Michael suggests that firms need to think careful about industry architecture to either retain or lose their edge, "it is about shaping your own architecture", he concludes.
Listen to Professor Jacobides' podcast.