What can we learn from failing and failed strategies? Understandably, we would want to learn about and from successful business ventures. However, as learning entails being exposed and getting knowledge also from “what is not, ” the stories of and about failing or failed industry strategies are similarly indispensable. For reasons of semantics, at the outset, we make clear our terminologies. First, the words “failing” and “failed” do not have special meaning. They simply need to be grasped as antonym of the word “success”. Second, strategy is defined differently though complimentarily.
For purpose of facility of our discussion, we at our inception adopt a conventional and general definition of the term. Strategy is a “direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a challenging environment to meet the needs of markets and to fulfill the stakeholders’ expectations” (Johnson, Scholes, & Whittington, 2008, pp. 3). To limit our deliberation, let us posit that in this paper the word “strategy” is particularly referring to corporate strategy. This is so because the word “corporate” is embracing all the levels and kinds of business strategies and is actually the most general level of strategies in any organization.
Likewise, it is deemed useful to note in here that other nomenclatures may be used in this paper – such as strategic management, business policy, and organizational strategy – and still refer to (corporate) strategy. In this paper, too, we shall dwell on two banking institutions that have either failed or is at present showing signs of failing. These are the Lehman Brothers, which used to be the fourth largest US investment bank until its September 15, 2008 filing of bankruptcy, and Bank of America, which after its acquisition of Merrill Lynch was perceived as the strongest, in addition to its being the largest, bank in the US, but in 2009 was recipient of the largest amount for bail out by the US federal government.
These two banks, then, are to be compared with Hong Kong Shanghai Banking Corporation (HSBC) – a bank that has been almost unscathed from the problem of sub-prime mortgages. These three banks were all major players in the US sub-prime mêlée.
However, their eventual fates were diverse. Finally, we shall try to cocoon our discussion with what a strategy-as-competition-perspective has to offer, leading us to learn from the strategies of the three banks that we consider. Lehman Brothers Holdings, Inc. (Lehman, for brevity) used to be the fourth largest investment bank in the US and a major name in dealership of fixed-interest trading in the Wall Street. Its century-and-a-half of experience of investing banking was rendered ineffectual by its heavy investment in securities linked to the US sub-prime mortgage market.
Its trouble pertinent to sub-prime initially became apparent in August 2007 when it closed BNC mortgage, Lehman’s sub-prime lender, citing that poor market conditions (in mortgaging) “necessitated a substantial reduction in its resources and capacity in the sub-prime space” (Kulikowski, 2008). In the same quarter of 2007, Lehman revealed that it would write down as much as $700 million as part of its adjustment of its values in investment in residential mortgages and commercial property (BBC News). In 2008, that Lehman was having unprecedented losses to the continuing sub-prime mortgage crisis was very obvious, accounted for by the bank’s holding on – with unclear reason -- to large positions in sub-prime and other low-rated mortgage tranches when securitizing the underlying mortgage.
The results were staggering: $2.8 billion losses in the second fiscal quarter of 2008 and selling off of $6 billion worth of assets; Lehman lost – in the first half of 2008 alone – 73% of its share price (Anderson & Dash, 2008); in August 2008, the reported loss of Lehman was $7.8 billion – its biggest net loss in its history – topped by $54 billion exposure to hard-to-value mortgage-backed securities (BBC News); its shares nosedived 45% to $7.79 specifically on 9 September 2008 (AFP, 2008); and on 15 September, 2008, Lehman folded up, representing the largest bankruptcy in the US history (Mamudi, 2008).