Question

Advanced economies are emerging from the worst financial

recessions in modern times. Many developed nations

have implemented austerity measures to adjust the deficit

caused by massive spending during the years of cheap

and available credit facilities. New industrial policies are

also implemented at national and regional levels to police

banks and financial institutions as measures of avoiding

further economic problems in the future. The austerity

measures and policy changes have forced industries and

business practices to change.

1. What changes do you think this might cause in the

immediate task environment for a business operating

within the financial service industry?

2. How do these changes impact on corporate, business,

and functional level strategies of financial service

businesses? Are these changes going to affect

you as customers?

3. How do you think a learning organization would act

in this dynamic environment? What survival chances

do the stagnant organizations have?

Answer 1

There are positive and negative effects of austerity measures taken by government. Austerity measures are nothing but the deliberate reduction of government expenditures in the view of reducing the availability of funds in the economy. This austerity measure will induce a low rate of interest in the economy.

1) For financial services industry, the impact of austerity measures are very direct. This is because of the very nature of this industry which is dependent on interest rates prevailing in the country. The austerity measures may induce the people to take loans at cheaper rate which in turn is expected to be invested in equity, mutual funds etc. So this is giving a positive response to the financial services industry.

2) The corporate strategies can be affected in terms of more and more mergers and acquisitions of companies in the context of austerity measures. Business strategies can be impacted in the context of introduction of innovative and new services to the existing financial services. It may be in the form of introduction of hybrid instruments. The functional level strategies can be impacted in the context of new marketing strategy, new HR policies or finance policies. The situation may affect the customers as well. It may be related to the modified products which may give reduced return to the customers. Customers may be misguided with wrong information too.

3) A learning organization should always look into the opportunities existing in this scenario as well as the inherent threats. They should make sufficient and efficient changes in their corporate strategies and business strategies to get equipped with the situation and face the challenges in the future.

For a stagnant organization, it may be a difficult situation to survive because they are already in to certain problems. So getting into the complex impacts of austerity measures may not be viable for that kind of firms. So, the survival rate is going to be minimal.