strategy
‘The more dangerous cognitive traps are those like the success paradox. Once you’ve been successful you want to
exploit that success and keep doing the same thing again and again’
identified as a classic cognitive error that occurs in organisations. “This is where organisations start to mimic practices of others that have been successful, and adopt practices without fully evaluating them,” he explains. “An example is increased risk-taking and aggressive bank lending to property developers. In the Irish case, it appears to have been a case of escalating commitment to these practices. “They started as gradual deviations and minor alter-
ations to the business model, but what we found is that the risks of gradual deviations from normal practices can often be ignored, or pass below the radar. Little by little managers start making more aggressive choices, eventually leading organisations to a crisis. “The same appears to have happened when several
other Irish banks started getting into business banking, specifically property development, and lending large sums of money. These actions were under-emphasised and ‘normalised’ in terms of banking as usual. The con- clusion here is that gradual deviations from procedures can easily be ignored, and this can be dangerous.”
The resistance Finally, Sonpar refers to the ideas developed in the third thesis, David Motherway’s, Resistance to deinstitution- alisationofaggressivebankingpractices(2004-2009). “Here we asked why did Irish banks resist changes in
their aggressive banking practices, despite warnings and concerns being expressed from as early as 2000 by the Central Bank of Ireland and the European Central Bank? “This study introduced the concept of ‘impermeability’,
to explain resistance to ‘deinstitutionalisation’. The empirical context here is the field of banking in Ireland in the period 2004–2009, which rejected the initial efforts of the regulatory authorities to shift away from speculative practices such as continuous credit growth and inadequate provisions for bad debts. “Here, impermeability is shown to be a consequence of cognitive barriers which cause organisations to rely on internal frames of reasoning, and to commit to practices that delivered success in the past, thereby isolating them from deinstitutionalisation efforts. “Organisations may remain impermeable to deinstitu- tionalisation even when this is driven by powerful actors like regulatory authorities, if the risks of extant prac- tices are not cogently theorised and power is not used.” There is a valuable lesson here for all organisations,
says Sonpar. “Organisations must continue to challenge assumptions on which their past success is based, they must not excessively focus on internal developments while formulating their strategy, and they should always challenge assumptions when it comes to the markets. “We used the example of the banks, but it is a lesson for anyone in business,” concludes Sonpar.
TRANSACTION SERVICES
Considering your next move? If you are buying or selling a business, you need to have
the best support in the market. To find out how KPMG can help you contact David Wilkinson at +353 (1) 410 1266
kpmg.ie
© 2011 KPMG, an Irishpaph partnership and a memb affiliated with KPMG Intternational Coo rative (“KPM
h KPM al oope ber firmi m of th PMG
o he KPM network of ik ofindependent membe MG Intern tion ”), a Swiss entitty. All l rig
te ational”) a wis
p n en mnt ember firmsr ghts res
servr e ed.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72