Strategic Management Essay
Question 1
The connection between Profitability and Shareholders Value
Profitability refers to the metric used to assess the scope of the level of a company’s profits in comparison to the size of its business activities. In a nutshell, profitability is the overall measurement of efficiency and the success or failure of a business. The profitability of a company is measure using metrics known as profitability ratio (Ansoff et al. 2019). These ratios assess how a company generates its annual profits in comparison with the total yearly sales, total assets, and the end year net worth of the business. The higher the values of these particulars, the more profitable a company will be. The profitability of a company is directly influenced by the value or amount of shareholders’ equity. Companies with high shareholders value have enough financial resources that help to run all organizational activities to increase their profitability in the long run (Ansoff et al. 2019). Conversely, companies with small shareholder value lack enough capitalization needed to facilitate corporate activities to earn a reasonable profit for the company. As such, the latter implies that the profitability of a company has a direct link by shareholder value.
For example, Apple Inc. is the top-performing global company with a profitability score of 8. The profitability score is used to measure the attractiveness of a stock in the market. A large percentage of the company market capitalization is made up of shareholders’ equity. Apple Inc has a vast shareholders value that has helped the management to smoothly coordinate all organization activities to realize high-profit levels (Ansoff et al. 2019). As a result, in the past 5 years, Apple’s profitability has been significantly higher than those other companies across the globe. As such, this infers that Apple Inc. is the multinational company that currently owes the world because it has the highest profitability score and index compared to other multinational companies (Ansoff et al. 2019). Since the shareholder value significantly influences the profitability of the company, it is evident that the two factors are directly connected.
Additionally, Apple Inc has been reporting a tremendous revenue growth rate from 2006 to 2019. The high revenue reported annually is defined by the amount received from sales of the products. At the same time, Apple has been able to minimize its production costs and additional expenses to maintain its profitability score and index higher than other companies in the global markets (Ansoff et al. 2019).
The connection between Profitability and Corporate Social Responsibility
The Corporate Social Responsibility activities of Apple also influence the profitability of a company. Companies that report high profitability scores usually have good Corporate Social Responsibility initiatives and programs that act as pillars of increasing their sales volumes (Bromiley & Rau, 2019). Global multinational corporations that report huge annual revenues always give back to the society there Corporate Social Responsibility to improve the company’s relationship with members of the community. Consequently, this has enabled many companies across to build a good reputation with members of the public, thus increases consumer loyalty to those companies.
For instance, due to the high profitability rate of Apple Inc., the company have corporate social responsibility initiatives and programs that aim at giving back to society to improve the quality of life of members of the community it operates. Besides, Apple Inc has involved in supporting local communities during disasters and natural phenomena as a way of appreciating their support to the company. As well, the company engages in educating and empowering staff and employees to be responsible members of the society (Bromiley & Rau, 2019). Intrinsically, this infers that in terms of profitability, Apple Inc currently owes the world the responsibility to give back the society that makes the company remain profitable and competitive in the global markets.
The connection between Shareholder Value and Corporate Social Responsibility
Shareholder value refers to the net worth of owners of a company that is collected to facilitate the smooth running of all organizational activities. Shareholders of a company give the management finances to increase the entity’s sales, free cash flow, earning to be able to pay out dividends, and realize capital gains for the business and the shareholders as well (Bromiley & Rau, 2019). However, the growth of shareholders’ values is significantly influenced by Corporate Social Responsibility programs and initiatives a company put in place. When the management of a company encourages and supports Corporate Social Responsibility initiatives, members of the public feel motivated, thus support back organizational activities by creating an enabling business environment that improves the smooth running of organizational activities (Bromiley & Rau, 2019). As a result, this assists in growing shareholders’ value through profit maximization, which arises due to customers’ loyalty to the company.
For example, Apple Inc. The company is the currently top performing multinational company globally based on its previous revenue records. As such, the company has been able to improve shareholders’ values due to the increase in revenues, which increases organizational performance in the long run (Bromiley & Rau, 2019). The company has initiated Corporate Social Responsibility programs as a way of giving back to society to build a good reputation and increase customer loyalty. As a result, this has enabled Apple Inc to realize continuous revenue flow, which increases shareholders’ value in the company. Therefore, this implies that there is a direct connection between CSR and shareholder value of a firm (Bromiley & Rau, 2019). Apple increases its total revenues by reducing operational costs, which is achieved by the use of advanced technology to improve efficiency and smooth running of all organizational activities.
Question 2
Application of Profitability, Shareholder Value, and Corporate Social Responsibility in Business Strategies
Business strategies comprise of set competitive approaches that entities use to remain competitively strong in the market by attracting more customers, strengthen their performance, and compete successfully to achieve organizational goals. Business strategies play integral roles in improving organizational performance. The concepts of profitability, shareholder value, and corporate social responsibility are applied in different ways in business strategies to enhance organizational performance (Pires et al. 2019).
First, the profitability of a company is determined by business plans and strategies that are undertaken by the management to facilitate smooth running organizational activities. Appropriate business strategies help in attracting more customers for the company by winning customer loyalty and commitments (Pires et al. 2019). As a result, this can help to strengthen the performance of a company by increasing its total production levels and sales volumes. A general increase in organizational performance and sales increases the profitability of a company. As such, the management of a company must ensure that their business strategies are comprehensive and are capable of increasing organizational performance. This can be achieved by increasing the company’s sales volume to increase aggregate revenues for the company. Apple Inc has been able to achieve this by improving organizational behavior through appropriate leadership styles and proper corporate management (Pires et al. 2019). In doing so, a company can develop a strong net income network in different markets all over the world to increase its sales in order to boost the profitability of a company.
Apple Inc Company has been able to increase its profitability score by segmenting markets of its products into regions where the demand for its products is high to increase its annual sales. However, this is supported by adopting better management strategies that are capable of increasing organizational performance. As a result, this has help Apple Inc. company its goals as well as improving its profitability. As such, this implies that profitability is considered in making business strategies to help in achieving organizational goals (Pires et al. 2019).
The relationship between Profitability and Corporate Social Responsibility is applied to business strategies in various ways. Generally, corporate social responsibility is an important aspect that determines the profitability of a company. As such, it essential to be considered when making business to help in improving the competitive advantages of a company (Pires et al. 2019). Currently, many companies across the globe have taken the initiative to consider corporate social responsibility when making business strategies to increase the profitability of the firm. Incorporation of corporate social responsibility in organization business strategies helps in building reliability between the company and its customers. Consequently, this assists in improving organizational profitability since most customers will be satisfied with the company’s undertaking (Pires et al. 2019).
For example, due to the high profitability rate of Apple Inc., the management has corporate social responsibility initiatives and programs that aim at giving back to society to improve the quality of life of members of the community the company operates. The latter implies that it is imperative to consider the connection relationship between Profitability and Corporate Social Responsibility when designing business strategies to know of more benefits to the company to better decisions that can improve the performance of a company (Pires et al. 2019). Since Apple Inc. has always considering the relationship between Profitability and Corporate Social Responsibility while designing its business strategies, the company has been able to report substantial annual revenues over the past few years.
Furthermore, the connection between Shareholder Value and Corporate Social Responsibility can be considered when designing business strategies by encouraging Corporate Social Responsibility to be facilitated the company to improve organizational performance. For instance, Apple Inc Company has been able to enhance shareholders’ values due to the increase in revenue values to maintain a constant flow of revenues annually, the management of Apple Inc. The company has initiated Corporate Social Responsibility; it helped to increase the competitive advantage of the company in the market (Pires et al. 2019). A company that puts the needs of members of the community it operates at heart can easily achieve its business goals because it will full support from members of the society. For example, Apple Inc. is a global company that operates in different countries all over the world. As such, the management of the company in those oversees countries incorporate corporate social responsibility in their business strategies depending on the needs of members of the society. As a result, this has enabled Apple Inc to gain a competitive advantage in both foreign and local markets.
Lastly, for a company to maximize shareholders’ wealth, the management implements better business strategies like focus strategies that target markets which require special attention to improve organizational performance to maximize shareholders’ wealth. Similarly, the management of Apple Inc. always considers shareholders’ interest while designing business strategies to ensure the main goal is to maximize shareholders’ wealth. As such, this is achieved by the management by taking into consideration all important measures that can achieve the company goals without betraying consumer trust by increasing prices. Therefore it is important for the management of the company to correctly incorporate business strategies with shareholders’ net worth to achieve organizational goals. In doing so, Apple will be able to remain the most profitable company globally.
Conclusion
Conclusively, the concept of profitability, shareholder value, and corporate social responsibility are vital particulars that determine the performance of a company. The profitability score of a company helps to measure the attractiveness of a stock in the market. The immense value of a company’s market capitalization is made up of shareholders’ equity. As such, this, infer that there is a direct connection between profitability and shareholder value. Hence it essential for the management to use appropriate strategies that can assist in improving the profitability of the company to increase the value of shareholders’ equity. In doing so, a company will be able to generate enough profit, which can be used to encourage corporate social responsibility. The connection between shareholder value and corporate social responsibility also has significant impacts on company profitability and organizational performance, as is it in the case of Apple Inc. Company.
References
Ansoff, H. I., Kipley, D., Lewis, A. O., Helm-Stevens, R., & Ansoff, R. (2019). From Strategic Planning to Strategic Management. In Implanting Strategic Management (pp. 41-52). Palgrave Macmillan, Cham.
Bromiley, P., & Rau, D. (2019). Some Problems in Using Prospect Theory to Explain Strategic Management Issues. Academy of Management Perspectives (JA).
Köseoglu, M. A., Okumus, F., Dogan, I. C., & Law, R. (2019). Intellectual structure of strategic management research in the hospitality management field: A co-citation analysis. International Journal of Hospitality Management, 78, 234-250.
Pires, R. A., Alves, M. C., & Fernandes, C. (2019). Management and mobilization of intellectual capital using strategic management accounting practices: a theoretical approach. In 34th International Business Information Management Association Conference (pp. 13914-13924). International Business Information Management Association (IBIMA).