IMD Professor Paul Strebel has identified “ego-traps” as part of the reason for the major disasters in the recent and ongoing credit meltdown at financial institutions such as Citi Group, Lehman Brothers and Merrill Lynch.

“Over-confidence is a common trait in successful ambitious leaders,” stated Professor Strebel. “Success breeds confidence. But does confidence breed success? Some companies have paid a high price for the self-esteem of their top people.”

Professor Strebel, along with Research Associate Anne-Valérie Ohlsson, have just published Smart Big Moves: The story behind Strategic Breakthroughs, that shows readers how to best respond to the big challenges every company – be it a huge multinational or a small start-up – faces from time to time. In the book, they identify the five strategic big moves that every organization makes: getting back into shape, restoring profitability, going for growth, re-launching growth and finding a new game. For every big move there is a related ego-trap that often gets in the way of rational decision-making. In the process of finding a new game – creating an entirely new business model to replace an existing business that is dying or taking advantage of a new technological or market opportunity – financial institutions have fallen into the trap of opportunistic hubris: the mindset that we can seize any opportunity, run any business.

“The shortcomings at companies such as Citi Group, Lehman Brothers and Merrill Lynch can be traced back to a firm controlled by a dominant personality, a docile top team and boards with a glaring lack of financial expertise,” Professor Strebel added. “Obviously, the blame can be shared with regulators and rating agencies that didn’t do their job properly, risk managers who didn’t raise the red flag high enough, the Federal Reserve that threw money at the party and the yes-men that made up a majority of those boards.”

Learn about the other ego-traps companies fall into by reading the Tomorrow’s Challenge.

Discover more about Smart Big Moves and watch the animated cartoon teaching video.