What should we make of the role of financial innovation in precipitating the financial crisis — and how might problems with risk management that the crisis revealed be addressed?
One conundrum for scholars of innovation has been what to make of the role of financial innovation in precipitating the financial crisis. In a new BusinessWeek.com column, Vijay Govindarajan and Chris Trimble, both of the Tuck School of Business at Dartmouth, argue that while financial "innovation gone awry....nearly blew up the global economy," it's time to recognize that the problems in risk management can be fixed -- and business leaders should regain optimism and move forward.
How might the problems in risk management be addressed? Julian Birkinshaw and Huw Jenkins, both of London Business School, suggested in an article on The Financial Times website that companies need to incorporate greater personalization of risk management -- with risk decisions being made at the right level in an organization, where people have both adequate insight and personal accountability. And economist Andrew W. Lo of MIT's Sloan School of Management, in an interview in MIT Sloan Management Review, discussed the need for a new branch of accounting that measures risk.