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Goldman Sachs Group Inc | Key Internal and External Factors

Introduction

Formulation of corporate strategy for any company should be based on the detailed analysis of internal and external factors affecting the organization, consideration of market development, recent industry trends and special features of the company which make it unique and can be used for delivering value to the customer (Stevens, 2005). It is also important to be able to evaluate the company’s interaction with internal and external factors, relative importance of these factors and overall position of the company within the industry. All these features are available through performing organizational analysis using EFAS/IFAS frameworks.

The purpose of this assignment is to assess the Goldman Sachs Group Inc. with regard to key internal and external factors, perform organizational and environmental scanning in order to determine the most important factors, classify these factors according to EFAS/IFAS framework and perform analysis of how well the Goldman Sachs Group Inc. responds to external environment, and how well it performs within the industry of diversified investments.

Goldman Sachs overview

Goldman Sachs Group, Inc. was founded in 1869 and is one of the key global players in the area of investment banking and management, investing and lending, securities, and institutional client services. Currently Goldman Sachs is considered to be the third largest US bank (Stevens, 2005). Among key activities of Goldman Sachs Group, Inc. there are recommendations on mergers and acquisitions, asset management, underwriting, services of prime brokerage to private persons and organizations. The company has recently become strongly directed into the areas of proprietary trading and private equity operations. Goldman Sachs is expanding overseas, and is currently represented in more than 50 countries. In Barron’s rating Goldman Sachs managed to hold the first place in 2007 (WetFeet, 2010).

Among Goldman Sachs’s advantages are market knowledge, deep relationships with clients, risk management and ability to diversity and address financial markets in a flexible way. In addition to this, Goldman Sachs has a very dynamic, goal-oriented and challenging corporate culture, which attracts the best talents in financial sphere. Goldman Sachs was able to survive and even profit in the subprime mortgage crisis of 2007, and although its financial performance was also affected by the crisis and recession following it, the company has quickly managed to recover (WetFeet, 2010). In 2011 Goldman Sachs Group, Inc. has shown slightly lower performance compared to 2010, which is most likely related to slower rates of economic recovery in 2011 (http://www2.goldmansachs.com).
Scanning of external factors

Environmental scanning for the external environment should be focused around several key sectors (Kozami, 2002):

  • Market
  • Technological
  • Supplier
  • Economic
  • Regulatory
  • Political
  • Socio-cultural
  • International

Analysis of trends of world financial industry shows that, according to forecasts, emerging markets (or BRIC markets) are going to constitute a larger financial power than countries of the “big 7” (WetFeet, 2010). Financial industry is likely to experience consolidation: global players are acquiring smaller companies and expanding overseas. Technologically, the community becomes more and more interconnected. At the same time, economic recovery is slowing down, and credit markets are still stagnating (WetFeet, 2010). Goldman Sachs is highly vulnerable to political interventions, sanctions and litigation, and has experienced significant losses as well as compromise of reputation due to these issues.

Also, the analysis has shown that Goldman Sachs focuses on core competencies, and operates in 3-4 sectors of diversified investment industry. It is not fully using its global potential for diversification of products and services, and can manipulate aspects of business making in various locations in order to reach cost-effectiveness and to generate higher revenues. However, Goldman Sachs has undertaken certain steps in this direction by launching private equity department and consolidating its asset management efforts.

Scanning of internal factors

There is a variety of organizational factors, and in order to perform scanning of organizational capability, a certain structured framework for scanning the environment should be used. In this paper, Kozami’s organizational capability profile was used to determine the key groups of internal factors. They are (Kozami, 2002):

  • Financial factors
  • Marketing factors
  • Operational capability factors
  • Personnel capability factors
  • Information management capability factors
  • General management capability factors

Overview of Goldman Sachs financial reports, related industry news, dynamics of stocks and reports on organizational culture allowed to determine several main areas related to the above-mentioned groups of factors. Financially, Goldman Sachs is a global leader with a widely recognized brand name, known for professionalism, best performing team. Also, the company is known as an innovator in its sphere. One of its strong positions is the fact that it is able to combine technical and financial expertise for new projects (WetFeet, 2010).

At the same time, the company is known for very challenging and stressful working conditions and high attrition. Goldman Sachs has clear signs of troubles with corporate culture since it has been involved in a number of class actions, criticized for revolving door relationships, participation in AIG bailout, and experienced troubles with insider trading (WetFeet, 2010). Overall, it is possible to state that Goldman Sachs should address its corporate culture and ethical aspects first of all.

Quantitative basis for EFAS/IFAS frameworks

EFAS/IFAS frameworks allow to evaluate how well the company performs against the industry and how well it addresses its internal and external factors. After identifying core factors and classifying them into strengths, weaknesses, opportunities and threats, it is necessary to determine the relative weight of each factor with regard to the whole internal or external environment (weights can range from 0.0 to 1.0, and their sum should be equal to 1 for each framework) (Hunger & Wheelen, 2007). In order to calculate weighted scores in EFAS/IFAS frameworks, it is also necessary to rate the company’s response to each factor; ratings can vary from 1.0 (poor response) to 5.0 (outstanding response) (Hunger & Wheelen, 2007).

For each factor, the weight is multiplied by the rating in order to determine the contribution of every factor to the overall score. Sum of all scores shows the rate of effectiveness of dealing with environmental factors (external or internal), with 3.0 being average response rate. Detailed calculation of EFAS/IFAS weighted score is presented in the Appendix (Excel file).

Conclusion

The analysis according to EFAS/IFAS frameworks has shown that Goldman Sachs Group, Inc. manages internal factors better than external. Indeed, the weighted score in IFAS model is 3.95, which means that the company is performing better than the industry as a whole (above average), and the weighted score in EFAS model is 3.30, which means that the company is reacting to the external environment only slightly above average. While for company being in the median part of the industry it might be a good score, for Goldman Sachs Group this value is indicating that the company does not manage to react timely to external factors and has to devote more attention to addressing them.

Among key issues for Goldman Sachs with regard to external factors there are litigation and government intervention possibilities. Also, the company should correctly address possible emerging issues with competitors. With regard to internal factors, problems with corporate ethics and damaged reputations due to numerous financial controversies have strongly affected the score. The company should invest into improving corporate ethics and integrate it more strongly into organizational culture. In general, EFAS/IFAS analysis has shown that Goldman Sachs Group Inc. is a high-performing player at global financial market, and has allowed to identify possible problems and critical factors.

 

References

Hunger, D.J. & Wheelen, T.L. (2007). Essentials of strategic management. Pearson Prentice Hall.
Kozami, A. (2002). Business policy and strategic management. Tata McGraw-Hill Education.
Stevens, R.E. (2005). Marketing planning guide. Routledge.
WetFeet. (2010). The Goldman Sachs Group. WetFeet, Inc.