How to Maximize Shareholder's Value - Google - Case Study Example

How to maximize shareholders value In any public traded company, a shareholder is part of the capital that is equity unlike long-term debt.Shareholders value is the value that shareholders get from the company after management ability to increase the earnings, dividends, and share price. It can also be defined as total strategic decisions that affect an organization ability to efficiently grow the amount of cash flow over a certain period of time. There are two main things that a firm can do to increase shareholder value that is investing wisely and generating a healthy return on invested capital (Hillman & Keim, 2001). Making profit and increasing shareholders value look the same but they are two different things. If an organization make poor decisions and look for profit in an aggressive way at an expense of other things, it will easily make shareholders value to decline. In large businesses organizations, the ownership and shareholders are separated, the issues normally arise between the shareholders who are the principles owners of the organizations and management that acts as an agent. In some occasions, the management might end up chasing the profits at the expense of shareholders value. In proper financial management, the management should be oriented towards benefitting the principles through increasing their wealth by raising the dividends or making the market value of the shares increase. Successful firms are those that maximize shareholder value and have higher productivity. Such firms are capable of creating employment; pay workers well, and improve job security since demand for products and services is high (Hillman & Keim, 2001). Consumers will keep on getting services from such firms because their products and services are of high quality and affordable and those who hold debt get good security and they become eager to lend more capital. Such kind of a cycle becomes self-propelling and it creates momentum in organization, hence strengthening various stakeholders’ positions. The value of a shareholder is made up of around seven components that is revenue, operating margin, cash tax rate, incremental capital expenditure, investment in working capital, cost of capital, and competitive advantage protocol (Hillman & Keim, 2001). According to some of these components, if a company strives towards making a short term profit, it is not a must that it will raise shareholder value. Competitive advantage is what will take care of this; for example, if a firm sells products and services that are below the required standard at an aim of making a quick profit, it will destroy the company reputation hence competitive advantage will go down in future. This is similar if research and investment in well trained staff is not carried out. The shareholders and media can easily know about this and they will pay less for the shares. Google management should know that the firm value is future oriented naturally. It is equivalent to the current value of its ability to future cash flow stream. They should focus on strategies that increase long-term cash flow. Clearly defined long-term strategic plans that are focused and forward looking should be put in place (William & OSullivan, 2010). They should identify in advance the businesses that they wish to get involved in and how they will gain in that industry. Before any vision is executed, it should be shared by all experts in the company to see if it is viable and profitable, at the same time, cohesiveness and commonality within the firm will be developed. A strong management team should be put in place because it will understand how to create value, for example making possible for the customers to access the internet services or creating new software’s that will enable customer’s access information faster. Well organized management will achieve desired results not through large scale effort but through well directed actions (William & OSullivan, 2010). Their eyes remain kept on the target and they micromanage well the firm. When small things in a firm are done well, operations will be like well oiled machine. Google should enter merger agreement with various companies knowing how to get value from the agreement. For example, the company should enter into agreement with information technology and telecommunication because they can assist the company boost their sales and promotions. Telecommunication and I.T companies such as Nokia and HP can provide innovative technologies and products that will improve the mobile, wire line technologies, and entertainment sharing, under such agreements, the company will acquire Nokia or HP at a certain price per share, with high value innovation from the two companies, Google services will get more value and the values of the shareholders will increase. One of the main businesses of Google is search. The company maintains a variety of websites and content, this can be accessed using organization search engine such as Google chrome (Megginson & Smart, 2005). Due to an ever growing amount of information, better search engines are needed and the existing ones need to be improved. For this to be achieved the company should enter into agreement with software and operating system companies such as Microsoft to assist Google improve on their software’s. With such agreement, Microsoft can help integrate innovative and fast features on the Google search engines at the same time developing new search engines for the organizations. This will help users get relevant results and they can get what they are looking for faster, if that is achieved, Google will have an advantage over other competitors such as yahoo, customers will stick to the organization services and more new customers will join in using the company’s products and services. The organization will continue prospering and shareholders values will continue rising. Over the last decade, the technology development has risen rapidly, many companies are developing new products that are better than the existing ones, for Google to sustain this, the research department should be expanded and new centers should be open outside U.S. when research centers are setup in different countries, new ideas will be brought in. This will assist in developing new products and services that fit and are acceptable by different cultural backgrounds. Innovative products should always be launched earlier before the existing ones are exhausted and be iterated earlier to make them better. Investment towards building employee and systems infrastructures that supports development of new products and improvement on the existing ones should be expanded. People from different countries have different talents and expansion of such infrastructure will help the company acquire new talents that could have been hard to acquire within U.S. Recently, the development of sales and support infrastructure in Google have gown down, currently Google have offices in 40 countries across the world (Booth & Cleary, 2010). Africa is an emerging market and demand for internet services have been growing rapidly. Google does not have a main office in Africa and they should set up at least two offices that will cover the West African states and east and central African states. The desire for internet services have grown but accessing the product is another issue. If Google set up their centers, it will open up the continent huge market that has not been exploited. Many companies who are advertising local products avoid using Google because few people can access online information. Google improving their services on these areas means more advertisement and better revenue for the company that will boost shareholder value. Another thing that Google should do is brand itself in a unique way. They should do unique things that will make customers to keep coming for the products and services. A simple brand that is attractive can easily catch customer’s eyes and it will be difficult for them to forget. With such brand and high quality products and services, it will make a distinguished difference in consumers’ lives. When other companies want their products advertised, Google can do on behalf of them because their brand is well established. This will increase Google shareholders value because advertisement will generate more revenue for the company, at the same time, it will provide thought leadership to people who are in charge of marketing in the organization through research and analysis. Many technology products are designed in a complex way making it hard for customers to use it. To overcome this kind of problem, Google should produce products and services that are user friendly. In businesses, people require things such as mailing services and documents sharing sites. These services are being provided by competitors such as yahoo and hotmail. A interface such as Gmail should contain few and clear information so that when a user opens it, he/she can easily see where to login and once logged in, if it is opening or sending mails it should be easy. Customers like easy to use products and they will stick to company products hence increasing the value of the shareholder. As a result of many companies developing electronics equipments, Google web-based application should designed in a way that is portable, which means they can be used in several devices. As good programs are being developed, hackers are coming in and they are trying to invade people privacy by hacking into their accounts. Much as Google is trying to make its products and services simple to use, they should tighten their security. Security in the internet has been one of the main concerns of the business community. Google have developed firewalls but with the changing face of the hackers, the company’s security developers should be alert all the time to ensure that their products are not invaded by hackers. To get in touch with this, they should set up a security in all their offices to make it easy to detect or receive a complaint from their customers. If complains are received and acted upon on time, it creates customers confidence and it will keep on seeking for more services because he trust the firms services. Every time the organization board of directors wants to hire the management team, they should always look for people who are competent with successful management skills. A motivated management team can make quick decisions, this improve service delivery efficiency. People who are in management cannot work forever, and because of these, it is better for the company to develop new talent within the organization. For this to be achievable, Google should set up a talent academy in different countries across the world. This will nature the talent at early age and it will be easy for those who are in position to know who can perform better if given a position. A better foundation leads to better management and Goggle will remain one of the best companies over a long period of time. This competitive advantage period will always increase the company shareholders value. Reference Google Inc. Annualreports.com. available at http://www.annualreports.com/Company/3190 Srivastava, Rajendra K, Tasadduq A. Shervani, and Liam Fahey (1998). "Market-Based Assets and Shareholder Value: A Framework for Analysis". Journal of Marketing, 62 (1): 2–18 Hillman, Amy J & Gerald D Keim (2001). "Stakeholder Management and Social Issues: Whats the Bottom Line?" Wiley-Blackwell, 2 (22): 125–139. Lazonick, William & Mary OSullivan (2010). "Maximizing shareholder value: a new ideology for corporate governance". Economy and Society, 29 (1): 13–35 Rappaport, Alfred (1998). Creating Shareholder Value: A guide for managers and investors. New York: The Free Press. pp. 13–29. Megginson, W. L., & Smart, S. B. (2005). Introduction to corporate finance. Southbank, Vic: Thomson/South-Western. Booth, L. D., & Cleary, W. S. (2010). Introduction to corporate finance. Etobicoke, Ont: J. Wiley & Sons Canada. Read More