Final Marketing Lessons from the Collapse of Lehman Brothers

This final installment of a three part series of marketing lessons learned from the collapse of Lehman Brothers studies the power of deep competitive/market analysis and the dangers of ignoring contrarian voices.

The best seller, “A Colossal Failure of Common Sense; the Inside Story of the Collapse of Lehman Brothers,” by Larry McDonald and Patrick Robinson, chronicles the Lehman Brothers timeline from simple cotton trading in the 1850s to a company selling the most complex of financial instruments in the early twenty-first century.

And while the inner workings of this former investment bank are arguably much different from your own company, there are important lessons that can be applied to modern day marketing decisions. Let’s start with the first.

Perform intense analysis or someone else will

The world’s largest financial institutions have a critical advantage not usually available to most companies; armies of research staff. In order to discern whether they should accumulate a “position” on particular company, research staff deep dive into income, free-cash flow and balance sheet statements.

However, this analysis is periphery, and in fact there’s something much deeper going on. In addition to potential interviews of senior management and/or possibly sending teams on site to delve into operations, some analyst firms also review quantitative measures they believe will correlate and/or predict future performance. And this deep analysis often leads to some pretty confident decisions.

In his book, McDonald tells the story of one particular analyst at Lehman Brothers responsible for research on a major US airline. McDonald takes pains to note the decision to purchase the debt (bonds) of this airline was based on a level of analysis that most companies don’t bother to attempt. “Jane can tell you what (this airline) is serving for lunch on their flight from JFK to Berlin and what it cost them,” he says. “There is nothing she doesn’t know about that company.”

And this fanatical level of analysis pays off in spades as Lehman buys bonds of this particular airline from frenzied sellers for sixteen to eighteen cents on the dollar. Meanwhile, “Jane knew exactly what the bonds were worth; .52 cents on the dollar,” McDonald writes. And while Lehman traders had to hold this airline’s debt for an entire year waiting for the right opportunity, Lehman was able to eventually sell the bonds and make a $250 million profit in one day!

Bringing this back to the marketing discipline, it seems that competitive and market analysis is often an after thought for many companies. And it shouldn’t be.

Deep competitive intelligence is getting to the heart of the matter. It’s synthesizing all the learnings found in the annual reports, 10-K’s and other information sources and coming to solid and verifiable conclusions about your where your competition is strong and where/if they have a weak underbelly.

Going a step further, deep intelligence gathering is also about using the assembled information to get such a compelling picture of the competition that one can predict competitive intent with a high degree of confidence.

Extreme analysis was important in many of Lehman’s decision making processes. Are you investing enough in competitive and market analysis? Is your marketing team providing this “insight” into senior management decision making?

Listen to your best people and seek contrarian opinions

Employees from the top to the bottom of the corporate ladder often bring unique perspectives and experience to the table—if only someone would bother listening.

McDonald cites an example of one senior manager at Lehman Brothers—Mike Gelband—going against the grain and warning about the potential of a housing bubble. And while there is nothing intrinsically wrong with riding an asset bubble, one needs a solid exit strategy to get out before the bubble implodes.

Mike Gelband saw the writing on the wall and warned Lehman Brothers CEO Dick Fuld, and COO Joe Gregory to get out of the housing market while there was still an opportunity.

However, Lehman senior management didn’t listen. In fact, McDonald writes, “The general drift upstairs was that Mike Gelband had developed some kind of attitude problem and it needed to be changed real fast.”

Some contrarian views rub us the wrong way. We know what we know, and we like our positions. And sometimes we think that anyone who sees differently is a trouble maker with an attitude problem.

Do you have a “Mike Gelband” in your company right now? On your marketing team? Does he or she have a reasoned position on a competitor, market trend, or even a critique of your marketing campaign? Is his/her opinion worth another look—just as a sanity check?

Questions:
• Should competitive and/or market analysis be a larger portion of the marketing budget? Why/why not?
• Voicing a contrarian opinion can sometimes punch a ticket for the unemployment line. If you have an alternate view to a commonly held belief in your company, how should it be expressed?

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