IT Trenches

Oct 1 2008   8:03PM GMT

Financial Crisis & Technology Accelerators



Posted by: Troy Tate
Tags:
administration
analysis
awareness
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financial analysis
government
homeland security
Metrics
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Wall Street
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We all know that things in the US economy are bad right now. Looking back we wonder if anyone was thinking ahead and thinking “what-if” and managing the risk. Apparently no one was doing that and here we are today with the government working on a $700 billion bailout for some critical financial organizations to ensure the world credit market does not collapse.

Speaking of looking back, I was recently reading the book Good to Great by Jim Collins. This is a easy to read business management book with some very good nuggets. It was written in 2001 and focuses on several companies and what it took for them to exceed the general market and become what the researchers considered great companies. Some of the companies mentioned include Abbott, Circuit City, Fannie Mae, Kimberly-Clark…

Wait, did I just say Fannie Mae? Isn’t that one of the companies that is being bailed out by the US government? Why yes it is! Interesting… before 2001 Fannie Mae was considered a great company according to Mr. Collins and team. You are wondering how I am relating this to IT or technology. Well, one of the chapters in the book is titled “Technology Accelerators”. This chapter focuses on how do “good-to-great organizations think differently about technology?” The book says that Fannie Mae:

“Pioneered application of sophisticated algorithms and computer analysis to more accurately assess mortgage risk, thereby increasing economic denominator of profit per risk level. “Smarter” system of risk analysis increases access to home mortgages for lower-income groups, linking to passion for democratizing home ownership”

As we have seen, something must have changed since 2001. Fannie Mae is no longer considered a great company since it is in need of so much taxpayer help due to poor risk management. What did the company do with the technology that made them so great before 2001? Did they just modify some Excel spreadsheet and change the threshold so some cells that were red are now yellow or even green? Did they ignore the idea of managing mortgage risk to ensure that people could have the “dream come true” of home ownership?

I cannot answer that since I am not part of Fannie Mae or any financial institution. I just ponder what if they had continued to use technology effectively in addition to making less risky decisions if they would still be considered a great company.

One thought I want to leave you with is one of the unexpected findings by Mr. Collins and his research team about technology accelerators:

“The idea that technological change is the principle cause in the decline of once-great companies (or the perpetual mediocrity of others) is not supported by the evidence. Certainly, a company can’t remain a laggard and hope to be great, but technology by itself is never a primary root cause of either greatness or decline.”

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