This Harvard business school case study analyzes the strategy and structure of Goldman Sachs that saved the company from the financial crises faced by all investment companies in 2007. The case study briefs the fact that five largest US investment banks-Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch an Morgan Stanley were facing serious threats due to the subprime mortgages. However, all of them except Goldman Sachs faced losses that end up in winding up of the few. Whereas Goldman Sachs was not only able to sustain the crisis, however, was also able to reflect the profitability of $11.6 billion that was recorded on Wall Street. The company’s share prices also reached the record hikes and even the employees and executives were able to earn substantial profits.
The reason for such performance is remarkable and probes in the management style and structure of the organization. The case study reveals that Goldman Sach has flat organizational structure. The communication is in all directions and at the same time. The employees are ‘perfectionist’ of their jobs and find a lot to learn every day.
The company has gone into IPO however, this is said that the structure of the company can be termed as a partnership. The directors and senior executives are managing the company where the decision making is very centralized. The company attributes its success to the three parameters one is employees loyalty, secondly employees recruitment and thirdly the structure of command.
The company has employed co CEO’s and even at the manager level there are co-managers that makes the decision. As per the company’s culture, its is critical that the two people together come up at a decision rather than singly handled teams. The CEO of the company Blankfien and CFO Vieira well predicted the expected storm in the investment industry. Thus, they come up with the strategy to dispose off the home-based mortgage securities. This decision took the company to the hikes of profitability as whole investment structure was standing at subprime mortgages that fell down badly. Hence, the organization's flat structure helped in anticipating and then well communication to the downward level about the strategy.
The internal and external environmental threats the organizations. The external economic environment of Goldman Sachs is characterized as very turbulent and heterogeneous. The investment industry was at the verge of its failure due to sub prime mortgages. The external environment of the company was very threatening as all the key players of the US Investment banks were facing their bad decision consequences. Winding up of companies and mergers of others with heavy losses brought great challenge for the company. The external environment was exerting its pressure from every dimension. However, the prudent approach of the senior executives of the company and timely transmission of the same to the bottom line paved the way of hurdles for the company.
The organization's flat structure helped the company a lot in the times of crises and at the time of stable environment. At the time of the crises, the flat structure facilitated the company to quickly correspond to all the senior executives and sense the future threats that were prevailing in the industry. If the organization structure had been bureaucratic it would have become almost very difficult for the company to bring the executives from every department together and come on some solution. Further in the long hierarchy the individuals are less aware and informed of the affairs of the other department. The lack of integration creates lack of communication.
Further, at the time of stable days, the flat structure facilitates easy, accurate and quick flow of information. That enables the employees to timely respond and get updated of the changes occurring. Further, the employees are motivated as everyone has access to the company’s ongoing movements.
The Goldman’s culture is categorized as flat where open communication is the essence of the organization culture. Hence, at the time of IPO and financial crises the company’s decision making remained in the hands of few senior executives. The centralized decision making helps in the creation of clear vision and directions for the employees of the company. Since the ownership culture helps the organizations like the investment where the critical decision is taken related to investments. The executives have always taken into consideration that their decision should not hamper the employee’s investments and their stakeholders. At the time of financial crises, the CFO and CEO come with the sensed the early warning signal and come up with the strategy that saved the company form historical disasters. Hence, the ownership culture helped in quick decision-making and clear vision and direction for the employees.
The company is influenced by the internal process approach where the satisfaction of the stakeholders is the prime objective of the company. The culture of Goldman is characteristic of three core strengths all of them are related to the employees of the company and integration of them. This includes the employee’s loyalty, recruitment and command structure.
Hence, we can well attribute the fact that the culture of the company promotes employee’s integration, focuses on conducting smooth and efficient operations and maintaining employees morale and satisfaction. The combination of the mentioned competencies has enabled the company to work in efficient and productive manner.
Therefore, in Goldman despite the severe external threats and challenges that the company faced the internal structure was strong. The strong procedures and clear vision helped the company in fighting these threats. Nevertheless, the fate of the company would not have been different from other giants of investment companies.
Thus, the internal process approach facilitated the company reaching the peaks of success. It facilitated the open communication in the company that helped in timely availability of required information. The flat structure helped the decision-makers to easily obtain the understanding of the underlying problems and proposed the strategies before any serious issue aroused.