CASE STUDY 1 Until 2007, CrossRock was seen by insiders, customers and many in the wider financial community as a successful financial services company offering mortgage products to the United Kingdom market and providing a portfolio of savings products. Initially, like other traditional building societies, CrossRock relied on its saving products to fund much of its lending but over time, it started to source more and more of its funding through wholesale borrowing on capital markets, bonds and securitized loans. These new sources of funding provided a platform for expansion and the development of a new profitable business model that involved lending higher risk mortgages product (loans of more than 100% of the property value) and making these loans available to a wider customer base, including some customers who, by industry standards, would not have been judged as able to afford the repayments. While property value continued to increase, this business model was very successful and CrossRock continue to expand. Customers were attracted by the more than 100% mortgages because they provided surplus funds, they could use to furnish their new properties of for some other purpose, such as the purchase of a new car. Those in CrossRock who are responsible for managing the agenda for change appeared to focus their attention on opportunities for generating profit and failed to pay much attention to potential threats. There are a number of clients that were unhappy with the quality of services provided by CrossRock. Some of the problem seems because of: 1. The shortage of staff: There has been a high increase in demand for loans and the need for finding the new portfolios of deposits. 2. The style of the management: The company style was top-down command and control. This was effective on the past but less effective now. The top-down approach has a negative impact on motivation, performance of employees. 3. The structure of the management: The number of executives has not increased in line with the business. 4. The ineffective management information system: The information system is not online and not up to date. Adopting SWOT approach might have provided a diagnostic framework that would have helped those caught up in the runaway success of the business be alert to potential threats alongside the opportunities that appeared to dominate their thinking. Some signs of the potential threats were there but they appeared to have little impact on the thinking of those leading the business. These included an increase in consumer debt and the possibility that this was affecting the CrossRock customer demographic more than that of most other high street lenders, associated concerns about affordability, and concerns about the future growth of property values. Questions. In assessing CrossRock, which model should be chosen either Holistic Model or Component Model and give the reasons.
CASE STUDY 1
Until 2007, CrossRock was seen by insiders, customers and many in the wider financial community as a successful financial services company offering mortgage products to the United Kingdom market and providing a portfolio of savings products. Initially, like other traditional building societies, CrossRock relied on its saving products to fund much of its lending but over time, it started to source more and more of its funding through wholesale borrowing on capital markets, bonds and securitized loans. These new sources of funding provided a platform for expansion and the development of a new profitable business model that involved lending higher risk mortgages product (loans of more than 100% of the property value) and making these loans available to a wider customer base, including some customers who, by industry standards, would not have been judged as able to afford the repayments. While property value continued to increase, this business model was very successful and CrossRock continue to expand. Customers were attracted by the more than 100% mortgages because they provided surplus funds, they could use to furnish their new properties of for some other purpose, such as the purchase of a new car. Those in CrossRock who are responsible for managing the agenda for change appeared to focus their attention on opportunities for generating profit and failed to pay much attention to potential threats. There are a number of clients that were unhappy with the quality of services provided by CrossRock. Some of the problem seems because of:
1. The shortage of staff: There has been a high increase in demand for loans and the need for finding the new portfolios of deposits.
2. The style of the management: The company style was top-down command and control. This was effective on the past but less effective now. The top-down approach has a negative impact on motivation, performance of employees.
3. The structure of the management: The number of executives has not increased in line with the business.
4. The ineffective management information system: The information system is not online and not up to date.
Adopting SWOT approach might have provided a diagnostic framework that would have helped those caught up in the runaway success of the business be alert to potential threats alongside the opportunities that appeared to dominate their thinking. Some signs of the potential threats were there but they appeared to have little impact on the thinking of those leading the business. These included an increase in consumer debt and the possibility that this was affecting the CrossRock customer demographic more than that of most other high street lenders, associated concerns about affordability, and concerns about the future growth of property values.
Questions.
- In assessing CrossRock, which model should be chosen either Holistic Model or Component Model and give the reasons.
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