Detailed Strategic Evaluation of Goldman Sachs - Report Example

CASE STUDY, COMPANY ANALYSIS Executive Summary Goldman Sachs is an organization based in America that focuses on transnational banking activities. Itcovers a wide range of business activities like asset banking, securities, asset management and monetary services. Strategic profile of the company is made to be for long term. The use of Michael porter’s five forces will be handy. These forces include barriers to entry, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products and lastly, rivalry with competitors. A SWOT analysis will also be used to evaluate Goldman Sachs. This is to determine the strengths, weaknesses, opportunities and threats that the company might face. A PESTEL will also be used to determine the political, economic, social, technological, environmental and legislative standing of the company. TABLE OF CONTENTS Part 1 1. Executive Summary…………………………………………….. 2. Introduction………………………………………………………2 PART 2 3. Strategic Profile and Growth Rate…………………………………….4 4. Michael Porter’s 5 Forces (Competitive Advantages)……………….4 a) Threats of New Entrants…………………………………………….7 b) The Bargaining Power of Buyers…………………………………...7 c) The Bargaining Power of Suppliers…………………………………7 d) The Threat of Substitute Products………………………………….8 e) Competitive Rivalry within an industry……………………………..8 5. SWOT………………………………………………………………...8 a) Strengths…………………………………………………………..9 b) Weaknesses………………………………………………………..9 c) Opportunities………………………………………………………10 d) Threats……………………………………………………………..10 6. Importance of the Organizational Culture………………………………10 PART 3 7. How Customers Affect the Current Strategic Plan…………………….11 8. How Innovation Affect the Current Strategic Plan………………………11 9. How Organizational Culture Affect the Current Strategic Plan……….12 10. Conclusion…………………………………………………………………13 11. Appendix…………………………………………………………………..16 12. References………………………………………………………………….20 Introduction The current strategy being used by the organization is that it is employing a new set of standards for strategic philanthropy in their operations. Many individuals, especially women have benefited from the strategy because the strategy has worked to sponsor women who have a passion for business and management. This has earned it a brand for being an organization that supports social welfare of women in the society. Moreover, the strategy has positively impacted the stakeholders because new organizations are contributing to the company to continue its charitable course. Therefore, the organization has earned trust and loyalty among stakeholders, government and other non-profit organization both locally and internationally (Ellis, 2013: 67). Goldman Sachs as an organization that focuses on transnational banking activities like asset banking, securities, asset management and monetary services, it must have a functional structure. This is because to be able to run all these operations and make profits is a huge job that needs strong SWOT analysis and PESTLE analysis to work through. The power at Goldman Sachs is centralized in that the organization has one main man in power. However, the power chain follows a vertical line in that power flows from the CEO to the general manager and goes down the chain. This type of power chain is effective in quick decision making hence time conservation and enhancement of profit margins. The vision, purpose, and mission statement for the company reflects the key proposes, values and principles and business aims which have put in place to assist in achieving the goals and objectives (Centindamar, 2013: 87). However, the company does not use mission statement, but have business principles which govern their operation with their clients and other companies. They are “. Our clients interests always come first (WetFeet, 2009: 89). Our experience shows that if we serve our clients well, our own success will follow” and “Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard." The financial situation of the company over a three year trend has shown the stock increase. This is largely contributed by the flat revenue experienced by the company over the years. The company has continued to top the list of successful companies even in dire economic conditions of countries (Calomiris &Haber, 2013: 97). The company has institutional Client Services which conducts all business related activities on behalf of the clients and the company. The investment and lending also assist the company in collecting revenue from different sources and it is tasked with managing assets for investors who are renowned by the company (Elsesser, 2013). The strategic plan currently used by the company answers to the opportunities, threats and risks experienced by providing a competitive landscape which makes it unique from other companies (Foster, 1986, 51). This is because the strategy enables the company to focus on advanced boundaries of business like investment banking and private company which are rarely available in other related companies. The company is located at “200 West Street” in New York City. Other known headquarters is London, Tokyo, Hong Kong, Bangalore and Salt Lake City. Part 2: Strategic Profile and Growth Rate The strategic profile of the company is that the assets of the company are generated to seek long term total return (Cameron, & Quinn, 2011, 101). The assets or funds invest in a collection of products having securities, therefore highlighting the performance of these products in the market (Bessant, & Tidd, 2008, 69). In addition, the company on normal economic conditions is known to put in funds which cannot be diversified into commodity-linked structured notes. Michael Porter’s 5 Forces (Competitive Advantages) Michael Porter’s 5 forces are meant to understand issues affecting a business or a company (Snyder, & Duarte, 2003, 150). The competitive advantages of The Goldman Sachs are analyzed in this paragraph using Michael Porter 5 forces. Below is a diagram depicting porter’s five forces strategy. Threats of New Entrants The company enjoys the market with only a few competitors to worry about because of the government policies that companies are required to meet before being given the go ahead to operate (Bessant, & Tidd, 2008, 80). Moreover, globalization has led to the use of high sophisticated technology which is not readily available in the market. The Bargaining Power of Buyers The company enjoys a substantial and diversified client base with its buyers. This makes it easy for them to understand each other when on a bargaining table (Msoroka, 2013, 189). The company is also not forced into the price sensitivity of the target audience for the company is almost a monopoly in the sector. Lastly, the company knows that the customers values quality of a product and the reputation of a company, therefore, have put measures in place to earn their buyer trust averaging the bargaining power of customers. The Bargaining Power of Suppliers The Bargaining Power of Suppliers The bargaining power of the suppliers experienced by the company is low and cannot pressure them into making tough choices which affect their profits or revenues. This is because the numbers of company offering substitute products are few; therefore suppliers’ options are limited. Moreover, the company enjoys a wide range of different distribution channels, hence is highly on demand. The Threat of Substitute Products Being a multinational company, the company has branches in all corners of the globe, making it be the most reliable one. Few companies are offering similar services like Goldman Sachs Company; therefore the threat of their profits being reduced due to the presence of substitute products is limited. In addition, the few available companies offering substitutes when ranked are much smaller in size as compared to Goldman Sachs therefore are not effective of service or product delivery. Competitive Rivalry within an industry The company is currently facing competition from different competitors in the market who are opening large industries, therefore giving them competition in satisfying the demand created in the market (Rocha, Vittas, & Rudolph, 201: 30). In addition, the company is also facing challenges in the market as it presents them with a low exit barrier. SWOT The strengths, weaknesses, opportunities and threats of the Goldman Sachs Group, Inc. are summarized below in a diagram form using SWOT 2x2 matrix (BöHm, 2009: 71). The use of matrix is more effective (Hall, 2012: 11). Tows Analysis Strengths Weaknesses Strengths-Opportunities Leading position in the global capital markets and banking industry (MarketLine 2013, 4). Strong, client-oriented culture (Salacuse, 2006). Strong culture of teamwork, solidarity, privacy and collegiality (Charles 2013, 57; Salacuse 2006). Strong balance sheet with more than adequate liquidity and capital mitigating risks (MarketLine 2013, 4). Competitive advantages: cross selling (MarketLine 2013, 4), Balanced, well-diversified revenue stream across the global franchise (both geographically and through business segments) (see Chart 1 and Chart 2) (MarketLine 2013, 4). Weaknesses-Opportunities Exposure to distressed sovereigns and non-sovereigns indicate potential losses (the most concerned in 2012. Ireland, Italy, Greece, Spain and Portugal, highly susceptible to revenue market making activities (MarketLine 2013, 4). Strengths-Threats Launch of viable online banking business opens an opportunity to broaden and diversify its funding base. Emerging markets acts as a driver of future growth (BRIC economies). Focus on asset management likely to payoff (MarketLine 2013: 4). Weaknesses-Threats Lack of trust and confidence among both business and consumers in relation to banks as a consequence of the increased global economic uncertainties. This will negatively affect the company’s operation because the stakeholders concerned will not work in goodwill. External Environment (PESTEL) Forces Key issues Political SEC and FDIC regulations The banking industry is highly dependent on political deals, on which depends allocation of the licenses for banking activity (Calomiris & Haber 2013) Ongoing political ambiguity both in the U.S. and Europe (GS Annual Report, 2012) Economic Reduced systemic risk across Europe due to enhanced Long-Term Refinancing Operations of the European Central Bank (GS Annual Report, 2012); Real GDP growth by 2.2% in 2012 in the USA (GS Annual Report, 2012); Evaluation and integration of new market economies into the global financial system (GS Annual Report, 2012); Social Lack of trust and confidence among both business and consumers in relation to banks as a consequence of the increased global economic uncertainties (GS Annual Report, 2012); Globalization in consumer retail which directly impacts purchasing behavior Technological Consistent growth of technology use (Internet banking, mobile applications), especially in consumer retail (especially the way they shop) (Elsesser 2013) Environmental The negative impact of Hurricane Sandy during the Q4 2012 Legislative New requirements under Basel 3 — a global regulatory standard on capital adequacy and liquidity risk (GS Annual Report, 2012) Importance of the Organizational Culture The organizational culture in Goldman has promoted loyalty among employees as they are motivated, hence loyal to those in different managerial positions. This is because the company has integrated employees into their culture, thus making employees to want to contribute to the success of the goals and objectives set up by the company. Secondly, competition is also encouraged among employees as the company has shunned different forms of discrimination and biases. Therefore, employees are motivated to give their best to the company in order to earn recognition from their superiors (Lien, & Lien, 2009: 70). Thirdly, the culture in practice today has created a sense of direction in employees, stakeholders and the management (Lien, & Lien, 2009: 82). This leads to efficiency within the company because both teams know their roles and goals. Lastly, organizational culture is also responsible for defining the identity to which the company is associated with. The food culture within the organization has enabled the company to build a strong build which has marketed it in both local and international markets. Critical Success Factors In order to “do big deals for big clients”, and provide the best advice and execution, Goldman Sachs is focused on one of its key asset - smart people (WetFeet 2009, 10). The other two factors that definitely attribute to the company’s success are leadership and organizational culture (Goldman Sachs Annual Report, 2012, 30; Salacuse 2006). Culture of Goldman Sachs is a result of its special structure of private partnership which has been maintained throughout the twentieth century. The traditional culture of the bank is viewed as a unique blend of the family characteristics and the drive for making money (Charles 2013, 57). In addition to the culture, ability of leading leaders to find and adopt new direction is another CSF of the Goldman Sachs (Salacuse 2006). Part 3: Critical Discussion: How Do the Customers Affect the Current Strategic Plan Customers play crucial role in the Goldman Sachs’ strategy, which is a good thing since in any business customers are the core players (Grundy, Johnson, & Scholes, 1998: 176). This is because they determine the success or failure of a business by boosting sales or dropping them. Therefore, the key target audience of the financial corporation comprises of 4 major categories. These categories include: corporations, financial institutions, high-net worth individuals, and governments (Grundy, Johnson, & Scholes, 1998: 180). While these categories are different from each other by many parameters, Goldman Sachs sets Customer service as the number one priority since they have acknowledged the significance of customers in a businesses success (Spitzer, & Mittelstaedt, 2007: 80). All four categories have different needs and therefore, Goldman Sachs developed different strategic business units for each category. This is crucial because each category is unique and requires different strategies to manage and make it work (Spitzer, & Mittelstaedt, 2007: 67). How Does Innovation Affect the Current Strategic Plan As Goldman Sachs operates in the investment banking industry, and sells its services, crucial for its success is the way these services are provided and operations performed. Thus, innovation in technology has a very important factor affecting the current strategic plan (Kamien, & Schwartz, 1982: 200). Innovation is the ability to come up with new ideas which make work easier or which enhances the success of a service in a company and boost sales (Kamien, & Schwartz, 1982: 190). As it has been stated in the Annual Report 2012 by the Goldman Sachs management: “To keep pace with the rapid evolution in electronic trading, it is critical that we continue to innovate and create greater operational efficiencies.” In addition to improved operational efficiency and servicing of the clients, technology allows the company to respond to regulatory changes more quickly, and to identify and manage its risks effectively (Goldman Sachs Annual Report 2012). Moreover, since technology allows faster response to risk, it boosts sales and enhances profit margins in a company. This makes technology as important as customer service which also needs technology to be efficient and effective (Hippel, 2005: 99). Thus, for example, systems of Goldman Sachs use approximately 1 million computing hours in a single day for risk management calculations (Goldman Sachs Annual Report 2012). This is a big number which would not be possible without technology. Considering the fact that as a financial service company, Goldman Sachs services requires it to take and manage the risks. Therefore, technology innovation is crucial for implementing Goldman Sachs strategy of providing superior returns to the shareholders. In today’s world, technologies are developing extremely quickly and Goldman Sachs keeps in “saddle” by investing in innovation of these technologies which will improve the company’s efficiency and service levels. How Organizational Culture Affect the Current Strategic Plan Organizational culture is a core of Goldman Sachs business and its current success (Johnson, Scholes, & Whittington, 2007: 100). Initial private partnership structure of the organization, aligning the long-term interests of Goldman Sachs was the origin of its corporate culture, facilitating teamwork, communications, confidentiality, integrity, and collaboration (Flamholtz, & Randle, 2011, 300). Goldman Sachs believes that its culture is the core to generating returns in a client-service business (Goldman Sachs, Culture, n.d.). Culture can be defined as the way in which a particular company runs its daily routines as opposed to another. Cultures are different and each company has their own unique culture that they use in their different companies (Crouch, 2008: 50). Strongly cultivated culture enabled Goldman Sachs to gain strong and positive reputation on the market, which meanwhile is crucial for any business, especially in investment and commercial banking industry (Johnson, Scholes, & Whittington, 2006: 200). Apart from company reputation, culture gives a company the channel to enable it to see the future and any problems that might arise and gives solutions on how to curb them (Johnson, Scholes, & Whittington, 2007: 107). Furthermore, culture enhances customer loyalty in that a particular culture is caught upon by customers and they patiently follow this culture and boost the success of a company. The 14 principles of Goldman Sachs also contribute to the corporate culture, strengthening, and therefore to the overall success of the company’s strategy (Crouch, 2008L: 73). Moreover, to promote the commitment of Goldman Sachs employees to service, there are developed, various sustainable firms-sponsored programs, such as Community Teamwork’s, GS Gives, 10000 Small businesses, and 10 000 Women (Goldman Sachs, Culture, n.d.). Conclusion In conclusion, the success of Goldman Sachs is largely contributed by the numerous competitive advantages the company has over other major producing similar products and services. Goldman Sachs is the competition to the other companies producing similar products by using different methods and producing quality and customer oriented products. It is widely known that the company has prioritized customer service and this is the area where they beat out other companies which are more interested in making profits at the expense of the customers. This has lead to a bad reputation and low sales in the future of these companies falling under Goldman Sachs in the market. The company has focused on changing its weaknesses into strengths by laying a strong investment banking operation, creating a brand name internationally and improving the technical skills of their employees to match the labor demand in the market. As a matter of fact, they have developed their own culture and routine that is unique to their company which has enhanced customer loyalty. This, together with innovation and technology has greatly improved the company’s reputation globally and made it a household, leading brand name. With the continuous growing gap in investment banking, the company stands to retain its position as a leading financial services company because they have built a clear road map to help them in achieving their goals and objectives. The culture they have implemented in their daily mandates has ensured that other companies face a stiff competition from them and not the other way round. As a result, The Company has succeeded in staying on top by taking advantage of the different performance measurements available within both internally and externally earning it a bigger and better stand in the corporate world. This has enabled the company to create value and make accurate use of its revenues in different departments and for charitable course being sponsored by the company. These charity events also act as an advertisement of the company and make the world aware of this leading company. In fact, charitable events display boldly the success of this company in that it can even afford to give away to charity. This also enhances the company’s image and reputation giving it a powerful name and making it a revered company among companies. Appendix Chart 1. Revenue split by geographical zones (MarketLine 2013). Chart 2. The revenue split by business segments (Market Line 2013) Resources, Strategic capabilities, and Competencies of the Goldman Sachs Resources\ Assets Strategic capability Competencies Employees, partners, customers Human The most effective recruitment of the top business school graduates (Charles 2013, 65); Performance driven culture Balance sheet, cash flow, securities borrowed; receivables from brokers, dealers, customers and counterparts Financial Ability to raise funds, makes direct and indirect investments through funds, manage cash flows; portfolio management (Annual Report, 2013) Archipelago, ICE, TradeWeb, FXaII and BrokerTec Technological Capability to be developing advanced technologies; electronic execution As is shown in the value creation economies of scale shown above, point Q indicated on the output axis against the average cost axis represents Goldman Sachs minimum efficient scale. Strategy Clock Focused differentiation. High perceived value and high price. The product does not necessarily have to have high prices, but the perception of value is enough to charge very large premiums. Cost leadership: Bossini This is having a position of competitive advantage over competitors by offering consumers greater value either by means of lowering prices or by providing greater benefits and services by justifying higher prices. Goldman Sachs could employ differentiation and cost leaderships strategies to seek competitive advantage in a broad range of market or industry segments. By contrast however, the differentiations focus and cost focus strategies could be adopted in a narrow market or industry. References Annual Report, Goldman Sachs 2013. Annual Report 2012. Available at http://www.goldmansachs.com/s/2012annual/assets/downloads/GS_AR12_AllPages.pdf Calomiris, W, Haber, S, 2013, Foreign Affairs. Vol. 92 (6), Black and White Photographs, Database: Business Source Elite, p97-110. Elsesser K, 2013. Trends in Investment Banking: Consumer Retail. 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