Audit and Analysis of Goldman Sachs
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Published: Wed, 12 Apr 2017
‘The marketing audit is a systematic examination of a business’s marketing environment, objectives, strategies and activities with a view to identifying key strategic issues, problem areas and opportunities.’
The Aims of Marketing Audit:
- It will provide us with an in-depth view of existing marketing practices used by Goldman Sachs.
- It can be used as a baseline for performance measurements to maximise positive external perception.
- As the customers’ preferences and requirement keep on changing and so are the marketing trends, it will provide us with an interim report card on the company’s performance level.
- It will highlight the key problem areas like Weaknesses and Threats for Goldman Sachs and can help invent strategies to overcome them by using their strengths and possible opportunities.
- It will help to assess the importance of macroeconomic factors by analysing the extent of their impact on Goldman Sachs’s operating scenario.
Understanding Marketing Environment for Goldman Sachs at Micro and Macro Levels
It is very important that an organisation considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organisation’s marketing environment is made up of:
Microenvironment – ‘It is the immediate environment that affects its capability to operate efficiently in its chosen markets’. (Jobbers 2001)
The following are the main components of Goldman Sachs Microenvironment:
The Companies Internal Environment: Goldman Sachs is extremely selective when it comes to the resources. It is a well-known fact they employ the Best Brains in the Industry and their resources are claimed to be one of the main assets that the Company has, the other 2 being capital and reputation.
Suppliers/Vendors: Goldman Sachs believes that by broadening its supplier base it will gain access to new ideas, increase competition and receive better value for money. To qualify as a vendor to Goldman Sachs, prospective suppliers are evaluated on several criteria, including:
- Quality products and services;
- Excellent customer service;
- Competitive pricing;
- Ability to assist us in meeting our business goals; and
- Environmental and social impact.
Customers: Goldman Sachs customers include high-net-worth individuals, Corporations, Financial Institutions, Institutional Investment Consultants, Insurance Companies Multi-Employer/Union Benefit Plans, Not-for-Profit Institutions, Public Pension Funds.
Competitors: The major direct market competitors for Goldman Sachs include JPMorgan Chase & Co, Merrill Lynch & Co. and Morgan Stanley whereas; Bank of America Securities LLC, Deutsche Bank AG etc also compete with Goldman Sachs in terms of Investment Banking.
It comprises of a number of broader forces that affect not only Goldman Sachs but other microeconomic factors corresponding to the firm.
Demographic forces/ Social/Cultural Forces:
Consideration of demographic changes is a commendable exhibition of business farsightedness by Goldman Sachs. A lot of vigilance and effort has been incorporated to enumerate the consequences of possible changes regarding the population like the purchasing drifts, spending patterns, inclination towards certain specific classes of financial services.
Also, Goldman Sachs strives to leverage what it calls the most underutilised asset for any country -women. “Womenomics” demonstrates how a country can unleash its economic potential – and increase its long-term growth and prosperity – by employing more women and narrowing the employment gap between men and women.
Economic Forces – These factors would include changes in interest rates, unemployment, inflation overall economic growth and exchange rates. All these factors have a significant impact on the performance of Goldman Sachs.
(Oxford University Press 2007)
Political Forces – Goldman Sachs’s close connection with the US government has been an issue of economists’ concern since the Wall Street Subprime Incidence of 2007. A Lot of employees of Goldman Sachs were appointed by the US Government at powerful posts of Treasury and Federal Reserve Players.
Technological Forces – The technology infrastructure for Goldman Sachs is indeed sound having in view its impact on the cost and the quality of the services offered to the clients.
‘Our technology footprint is primarily driven by business growth and regulatory obligations’.
(Goldman Sachs Website 2009)
Goldman Sachs is bound to use the latest technology like computers with fast microprocessors to meet the computational requirements and to provide internet based services to their clients. However, compliance of maintaining standard technology footprints is one of the major responsibilities that cannot be overruled.
(Goldman Sachs Website 2009)
Global Warming, Climate Changes, renewable energy issues, carbon footprint and attention to clean energy are some of the natural forces that require attention from the environmental point of view. Goldman Sachs’ Environmental Policy Framework embodies their commitment to finding effective, market-based solutions to address climate change, ecosystem degradation and other critical environmental issues, and to creating new business opportunities that benefit the environment.
The firm has tried to maintain its carbon emissions in the central and hub offices.
The data centres show an increased carbon emission every year, the same is accounted for elevated computational requirements and internet services for the clients.
(Goldman Sachs Website 2009)
SWOT ANALYSIS OF GOLDMAN SACHS
‘A critical set of steps in a planning exercise is to perform internal assessments (including an analysis of performance against the previous plan) and external assessments (including an analysis of the operating environment) that result in the identification of strengths, weaknesses, opportunities.’
(University Of South Australia 2009)
SWOT MATRIX FOR GOLDMAN SACHS
– International Expansion
– Emerging Markets
– Cross-Selling Opportunities
– Industry Consolidation
– Reduced Competition- rivals bankruptcy
– Credit Market Crisis
– High attrition Rates
– Mortgage Issues
– Increase in Interest Rates
– Government Intervention
-Global Market Leader, Brand Establishment
-Best Brains & resource infrastructure
-Innovative Work Culture
-International Expansion in emerging markets.
-Using Government Support for Industry Consolidation
– Risk/Crisis Management Measures using the resource intellect
-Security Planning against Subprime Mortgage.
– Concentrated in Few Key Products
-High Attrition Rates
-Blotted Public Image (Subprime Mortgage Fraud)
– Low perception of Social Responsibility
-Diversification of the products
-Education, social investments, community involvement
-Increased job security for resources
-Using Government support to survive the Subprime Mortgage Crisis.
Global Market Leader & Brand Name
Being in a leading position and the brand value that it has earned in the market have brought many benefits to Goldman Sachs.
Higher margins, because it charges premium prices for goods since customers perceive a higher standard of quality from companies with strong brands.
Ability to raise debt at lower cost.
Because of its established Brand Image, Goldman Sachs has a more stable business than its competitors and is more likely to acquire other businesses as opportunities.
The international reach of Goldman Sachs has a big advantage over rivals especially when its clients conduct a lot of business in different countries. Currently, Goldman Sachs is operating in over 25 countries in the Americas, Asia, Europe, Middle East and Africa.
For instance, the majority of business travellers need to access their money in another country. They prefer a bank/investment firm that has branches in that country, rather than working with a third party, which will increase they fees and lower their productivity. Global access of Goldman Sachs means that a consumer from one country can feel comfortable banking at any of its branch across the world.
Non-global companies can’t match these advantages; therefore, Goldman Sachs has strong advantages over rivals.
Best Brains and strong resource infrastructure
According to Warren Buffett, ‘Goldman has the best brains in the business.’ This statement implies that they have a better risk management, quicker and more effective action on the opportunities received and a strong market position.
The recent most evidence is that even ‘Subprime Mortgage Meltdown’ case with the SEC and the new financial regulation reform has failed to dent these assets.
In addition to having the best people, Goldman Sachs has a clear, well distributed corporate structure.
- Global Compliance
- Global Investment Research
- Human Capital Management
- Internal Audit
- Investment Banking
- Investment Management
- Merchant Banking/Private Equity
- Insurance Strategy
- Global Portfolio Solutions
- Customized Beta Strategies
Goldman Sachs strives to maintain an innovative culture which affects the production of new and inventive products. An innovative culture has helped in boosting Goldman Sachs’ brand value because consumers start associating its brand name with the latest products.
These products, besides providing the brand boost, have helped Goldman Sachs to stay competitive in the ever-expanding markets.
Possessing the best quality product in one segment directly helps Goldman Sachs to gain a better market share in that segment.
Concentrated in Few Key Products/key clients
The fact that Goldman Sachs lacks diversification is considerably risky, because if one or more of its main products collapses, then the business could face serious issues or maybe even bankruptcy.
Also, loss of one client who is using multiple services of Goldman Sachs would eventually lead to loss of a considerable amount of business to it.
Low perception of Social Responsibility/ Blotted Public Image
As per the ranking released by Fortune, Goldman Sachs stands 7th in the Social Responsibility which depicts the fact that it undermines social cause to a large extent when compared to other aspects of business like People Management and Financial Soundness where it ranks 1st and second respectively.
The Subprime Mortgage Incidence/ SEC lawsuit against Goldman Sachs
April 16, 2010, the SEC filed a lawsuit against Goldman Sachs for selling an asset to banks whose returns depended on a group of home mortgages being repaid by home loan borrowers.
The alleged fraud foundation laid in the fact that Goldman Sachs did not inform the banks that those specific subprime mortgages were recommended by another Goldman Sachs customer. And that same customer planned to bet against the same mortgages ever being paid by the home loan borrowers.
The public stance for this fraud was
-Hosting a poker game for your friends knowing the dealer was bringing stacked cards and not at least informing your friends of the dealer’s intention.
Goldman Sachs has strong opportunities in the area of international expansion that will increase growth and profits.
Global Expansion will bring synergies to Goldman Sachs because it would result in a larger customer base. The expansion also leads to more financial stability, because in the times of regional economic slowdown while one country may suffer economically, other countries may not have the same issues at the same time.
-Additionally, expansion will Goldman Sachs practice new ideas and create innovative products through experimentation that may work well in one market. Hence the risk of failure is diversified.
Similar to international expansion, emerging markets will create excess demand for Goldman Sachs is helping growth and margins. Emerging markets create new opportunities to expand products from the developed world. Paper products, computer services and other industries will all benefit as emerging countries increase demand for industrial and agricultural products.
Goldman Sachs has many related business lines; they have the opportunity to cross-sell to consumers who arrive for one specific need but leave with many different products and services. Cross-selling is particularly lucrative because it will allow Goldman Sachs to earn extra money from consumers without having to specifically target them with advertising or other promotional material.
Goldman Sachs provides advice on a diverse range of strategic transactions, including mergers, sell-side and buy-side advisories, leveraged buy-outs, joint ventures, strategic alliances, anti-raid and raid defences, fairness opinions and spin-offs, split-offs, divestitures and other restructurings.
Goldman Sachs has been offering its merger advisory services since 1997. Some of its major instances are listed below -:
- Altria, on its spin-off of Philip Morris International ($113bn), 2008
- Pfizer, on its acquisition of Wyeth ($64bn), 2009
- Schering-Plough, on its sale to Merck & Co. ($46bn), 2009
(Goldman Sachs Website 2011)
Reduced Competition after Wall Street Collapse
Reduced competition from an economic slowdown and competitor bankruptcies ideally increases the profit margins of all firms that avoid bankruptcy.
The Wall Street Collapse after the Subprime Mortgage Crisis has seen Goldman Sachs emerge as profitable, contrary to all the rival firms that either had to declare themselves bankrupt or reported huge losses.
Credit Market Crisis
‘Goldman Sachs had slumped into the red and its effort to defy the credit crunch had been futile. It revealed a fourth-quarter loss of $2.12bn (£1.38bn) today. It still achieved a $2.32bn profit for the full year to November, but this was sharply lower than last year’s $11.6bn.’
The cost of borrowing for Goldman Sachs had been considerably increased after the credit market crisis. This increasing cost lowers margins and decreases the free cash flow to shareholders. As free cash flow rises, so does the value of the firm. If costs are high, then loan growth slows down and further weakens cash flow for the business.
(Goldman Sachs Website 2008)
Risk of High Attrition Rates
High attrition rates can be a problem, especially if Goldman Sachs’ best talent is leaving for other opportunities. Employee attrition means a company must go through the expense of hiring new employees, training those employees, and finding the right niche for them in an organisation. When these employees move to other firms, they take their knowledge and expertise with them.
Though Goldman Sachs managed to escape the Subprime Mortgage Crisis, still the potential threat of losses on outstanding mortgage obligations could force bankruptcy and a government takeover. This means that the existing equity investments in the Goldman Sachs will stand worthless.
Mortgage loans are not worth what was paid for them, but their value remains uncertain in the market. Apart from increasing uncertainty risk for the company, they also increase the discount rate applied to future cash flow. Thus the net value of the stock is reduced.
Sharp Rise in Interest Rates
A sharp rise in interest rates (most likely to stop inflation) seriously damages the profit margins of businesses like Goldman Sachs that rely on raising money to finance their expenses. A rise in rates would most likely hurt the financial sector, which profits from borrowing money at low rates and lending it out at higher rates.
PEST analysis stands for ‘Political, Economic, Social, and Technological analysis’ and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management.
It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that a company has to take into consideration
The political arena has a huge influence on the regulation of businesses, and the spending power of consumers and other businesses.
US Government and Goldman Sachs –
‘There can be no doubt that Goldman owes its uncanny success as much to its political connections as to its financial acumen. As long as that remains the case, Goldman will doubtless remain on top, to the perplexity of those who fail to grasp the significance of the Goldman Sachs-D.C. pipeline. Only by restoring the wall of separation between Wall Street and Washington, forcing investment firms like Goldman Sachs to stand or fall on their own merits, can America’s financial sector shake off the taint of political cronyism that men like Sidney Weinberg were happy to encourage’.
(The New American 2010)
As the New York Times explained last October, the presence of Goldman Sachs alumni in virtually all of the top government financial posts is so great that their team is dubbed “Government Sachs”.
The New York Times pointed out that Goldman alums include:
- Former treasury secretary Hank Paulson
- Paulson’s bailout chief Neel Kashkari
- Interim Treasury investment officer Reuben Jeffrey
- Key Treasury players Dan Jester, Steve Shafran, Edward C. Forst, and Robert K. Steel
- Key New York Federal Reserve players Stephen Friedman (head of the New York Fed board of governors, who sat on Goldman’s board and owned a substantial stake in Goldman while he was making official decisions)
- Head of the New York Fed’s unit that buys and sells government securities William C. Dudley and E. Gerald Corrigan (charged with convening a group to analyse risk on Wall Street)
For a firm like Goldman Sachs which focuses on international marketing, the marketers need to consider the state of a trading economy both in the short and long-terms.
1.) Implications of Inflation in US and UK
-The investor’s belief in the US is that unprecedented fiscal and monetary stimulus can lead to US Dollar depreciation and higher inflation.
– In the United Kingdom, the investors fear that the bank of England’s reluctance to raise the interest rates might act as a catalyst for inflation.
Inflation is the greatest concern when we talk about investments like pension funds and related endowments.
Current Goldman Sachs strategy for these countries- Inflation Linked bonds
Inflation-linked bonds also termed as ‘linkers’ are high-quality securities issues mostly by governments that provide income and total return which adjusts itself to keep up with the inflation rates.
Inflation-linked bonds, such as US Treasury Inflation-Protected Securities (TIPS) and UK inflation-linked Gilts, can help hedge this risk because their principal is adjusted to reflect changes in inflation.
Implications for unemployment –
The impact of unemployment on the performance of Goldman Sachs can be understood with a simple example that if any firm is running at its full capacity, there is more pricing power for business.
If there are no unemployed workers, Goldman Sachs will have to pay more to hire a worker away from someone else, often called ‘Poaching’.
So far, Goldman Sachs has been quite accurate in its predictions regarding the unemployment scenario. Below are the illustrations.
(Goldman Sachs Website 2011)
Long-term prospects for the economy Gross Domestic Product (GDP) per capita
The Goldman Sachs Commerce Department timely reviews the current economic environment, tailwinds that could support the recovery and potential risks for the economy. Then it provides a summary of their projections for the economy in the coming year.
(Goldman Sachs Website 2011)
The demographic factors that require attention in order to revisit Goldman Sachs’s existing products include the population fraction comprising retirees, women contribution, purchasing/ spending patterns across the population, middle-class income groups and population peaks in major operating countries.
Intersection of 3 population Shifts
Retiring Baby Boomers- Goldman Sachs considers the option of investing more in the health care funds, pre and post-retirement needs and consumer sector.
The growth of middle-class income group – The middle-income group growth impacts the investment in the agriculture sector, household commodity market stocks, telecom stocks and banking stocks.
Generational waves after the Baby Boom-The United States is claimed to have 2 major population peaks
- The ‘Millennials’ – Age group 16-29 &
- Generation Z – Age group (0-4)
These 2 population zones are expected to have a profound impact on US companies, particularly within the TMT and consumer sectors.
Prosecution of Goldman Sachs’ view of Intersection of these population shifts
For diversified exposure to stocks, Goldman Sachs has introduced 42-name tradable demographics
Basket, Bloomberg ticker GSRHDEMO
Equality between Genders
-Gender inequality hampers the economic growth hence it becomes a mandate for Goldman Sachs to consider and promote women education and employment so as to contribute to the economic growth.
-Better women employment contributes to the GDP, per capita income that in turn motivates the people to channelize their income to investment options.
Investing in a clean energy future
Below are the key figures that highlight Goldman Sachs’ investment in the clean energy initiatives:
COGENTRIX- Efficient Power Generation
Cogentrix is a Goldman Sachs subsidiary and a US-based independent power producer.
It consists of a balanced mix of power facilities, including highly efficient gas-fired combined-cycle, rapid-start peaking, solar thermal and more efficient coal-fired power plants. Together these plants have a total generation capacity of approximately 3,350 megawatts.
Signed a power purchase agreement to construct and operate a wind project in Puerto Rico with a capacity of 50 megawatts.
Completed one river hydroelectric generating plant that has a 23-megawatt capacity. Three additional run-of-river hydroelectricity projects are under development totalling 165 megawatts.
Pursuing solar development projects in the south-west U.S.
Goldman Sachs is one of the founding members of the Green Exchangeâ„¢ venture, which trades environmental futures, options and swap contracts for markets focused on solutions to climate, renewable energy and other environmental challenges. This new exchange offers effective and innovative financial tools to consumers, industrials, project developers, investors and others who wish to participate in these developing markets.
(Goldman Sachs Website 2009)
Goldman Sachs’ Clean Energy Investments
Overall Balanced performance taking Environment in consideration –
Comparing these 2 figures we can infer that Goldman Sachs was unable to reduce its carbon footprints over the years but the firm has tried to compensate the effect by investing more towards the clean energy initiatives.
Being an international business, Goldman Sachs invests largely in technological requirements in order to be able to provide its clients with fast, up to date and secure services.
Technology has a direct impact on the trading speed a
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