Week 02 Assignment 01: Application
Assignment
Michael David
From
2004 to the subsequent fall of the subprime mortgage industry, I worked for JPMorgan Chase Bank as a subprime account
executive. My job was to find brokers
and lenders that had bad paper loans and try to get them funded through
JPMorgan Chase. Sounds pretty easy but
it wasn’t. Being over 200 years old and
having assets well over $2 trillion, the bank accurately predicted all of the
annual forecasts right down to the layoffs.
In addition to their seniority in the world of finance and banking,
Chase also funded the Erie Canal, several wars and saved Manhattan from
bankruptcy several times.
By
2007 the mortgage wave was coming to an end and changing the landscape of
mortgage lending. Chase was completely
tuned into in and ready to adjust. They had to cut staff, close offices and
consolidate their departments in smaller, more profitable centers across the
country. The unfortunate part was that
they were more prepared for the impending changes than the lending staff
was. After 200 years in the business,
they knew how to change their organizational structure to withstand the new
strategy of lending.
Knowing
that they would have to layoff hundreds of employees, they began a campaign to
prepare for the inevitable. Employees
were notified via a nationwide conference call that there would start the
layoffs immediately and that there would be ample notice to prepare the
employees. Several options were offered
to them: they would be able to transfer
back east to either the New Jersey or Florida offices, transfer to a banking
position in a local branch or receive money for retraining in a different
field.
Although
considered by many to be a traditional organization, Chase clearly proved that
it was a “built-to-change” organization by adapting to the economy and market
conditions with the most logical solution.
The failing subprime industry was putting direct lenders out of business
at the rate of several dozen a week and if Chase was going to maintain it’s
financial stability, it would have to move fast.
Designs
of the Star Model can be identified when looking back at how they closed down
the subprime departments. Management
made the decision to eliminate subprime lending from Chase’s product lineup
(strategy). Upper management and other
departments were also involved in the decision making process and the decision
changed the overall structure of the organization (structure). Information to and from people, departments
both inside and out had to be conveyed to complete this task (process). They implemented deadlines to complete the
shut down by certain dates and management was held responsible for them. Employees were offered money for training and
severance packages to assist them with the layoffs (rewards). Lastly, the experts and management staff that
facilitated the shut down were involved because of their successful track
records in dealing with critical deadlines and as a result, were trusted by
upper management to complete the task (people).
The
shutdown took less than a year and was executed with such efficiency that,
contrary to employee expectations, was completed on time and on budget.
References
Chernow, R. (1991). The House of Morgan: an American Banking
Dynasty and the Rise of Modern Finance. New York, NY: Simon & Schuster.
Galbraith., J.R.. (2011) The Star Model, pp. 1-6.
Worley, C. & Lawler, E.
(2006) Designing Organizations that are
Built for Change, MIT Sloan Management Review, 48(1), pp. 18-23.
Michael,
ReplyDeleteNice job tying JP Morgan Chase's reaction to the downturn in the economy to the Star Model. I've been struck this week with how so many of the examples cited in the blog have related to what I would consider to be negative outcomes of demonstrating a company's built-to-change structure. That includes my own blog about Harley-Davidson. It's sad to me that so often the demonstrations have resulted in massive layoffs of literally thousands of individuals. No wonder our unemployment rate is so high! Do you think there are ever any positive examples of a company's built-to-change model? For instance, one where the organizational changes actually resulted in increasing work force to meet demand?
Very interesting illustration of how being around for two centuries does not equate to an inability to change!
Kerry
Kerry, thank you for your review. I do feel there are many positive examples of the "built-to-change" model. What I didn't cover was how Chase adapted to the lightning fast growth of the subprime market by constantly adding new products and modifying the underwriting guidelines to keep pace with the competition. One of the most impressive change was that they added over $1 billion (yes, it was a billion!) in technology so we can safely submit loans electronically via laptop while working from the field. If I had more involvement in that massive change, I would have loved to write about it but that took place on the east coast.
DeleteI'm fascinated by this and even though it stinks that in the end your position no longer existed, I was struck by your line about "Being over 200 years old and having assets well over $2 trillion, the bank accurately predicted all of the annual forecasts right down to the layoffs." That focus, knowledge of their business, and the lightning-fast, well-thought out reaction laying off with options to get trained for new work, or work at the branch almost made me feel like they value their people. I am curious, how many people took the training, the transfer, or the money and ran? They make it look so easy, it makes me wonder how more companies, with a little creativity and effort, couldn't have figured this star model out and thought about the bigger picture and all the people and parts. They let people go and almost made them feel good about it.
ReplyDeleteI don't recall how many people accepted the options because there were approximately 400 reps across the nation. I personally didn't take anything because I dusted off my resume and had it with recruiters faster than you can shake a stick at. I've hired before and know what recruiters look for and what they avoid. They tend to avoid seeing the same job title and company over and over again because it reduces the value of the applicant. That was a main motivating factor in taking the MCM over the MBA program. There are way more MBA grads out there and I wanted to stand out as having a specialty.
Delete