A Case Study Analysis on How to Increase Shareholder’s Value

A Case Study Analysis on How to Increase Shareholder’s Value

Introduction

‘Share Holder’s Value’ is a tool used to judge and access the operation and management efficacy in an organization. In any organization, strategic concepts are vital for the determination of the final results and company operation, such as the corporation gains and management efficacy (Marouan & Moez, 2020). Business concepts such as decision making, operational structure, strategic management, and leadership are crucial in the success of any business. The following is a case study analysis on how the concepts mentioned above bring maximum gains.

Strategic Management

Strategic management is a phrase that collectively entails vital creation, analysis, implementation, and monitoring of the ongoing tasks in a business. It also includes environmental analysis by the management. Execution of a viable strategic management plan enables a company to secure a safe ground for maximum profit, for the present, and future (Steiger, Hammou, & Galib, 2014). Utilization of strategic analysis principles such as Porter’s Five Forces and contingency analysis is critical for the prediction of business uncertainties and possible future competitor’s capabilities (Krishnamurthy, 2010). A closer look at competitor strengths, supplier and buyer power, and the potential threat of product substitution in the future are crucial for the safety and competitive ground in the future. Qualitative assumptions try to make the most probable outcome under a particular scenario.

DeBeers’s Diamond Company was the top diamond producer and seller around the globe since the eighteenth century. It is until the twentieth century that the Company started to experience severe competitiveness from its rivals, especially during the emergence of synthetic diamonds (McAdams & Reavis, 2008). The Company experienced a threat of substitution long after dominating the market; an idea developed and utilized by one of the DeBeers’ business partners, ‘General Electric’ (McAdams & Reavis, 2008). The management could have foreseen the threat of new entrants in the market through a closer look and utilization of Porter’s Five Forces and contingency framework, hence, secure and strategize on new market plans in the future.

Decision Making

In businesses, decision making is mostly the responsibility of the management and other professionals to find viable solutions to problems and decisions on alternatives and the best way to handle business activities (Steiger, Hammou, & Galib, 2014). Better decision making enables businesses to outdo their rivals in the market. DeBeers’s Company tries to control and fix the commodity price by holding back its commodity and purchasing more from the market. It is after the fall of shareholder’s value that the Company makes viable decisions. Some of them include;

Demand-Driven and Brand focused

The profits became the priority that the market shares. The Company made a turn to differentiate its commodity to be identified by customers. Engraved logos on the products made their merchandise unique, a situation that segregated them from other competitors in the market (McAdams & Reavis, 2008).

Value Chain Analysis

Under the new strategy, DeBeers’s Company focuses more on value addition rather than piling and holding the stock to control the market price. The production strategy shifted the attention to the end customer and consumers’ demand available (McAdams & Reavis, 2008). The value addition, such as having uniquely shaped polished and engraved diamonds, made the Company win the market and add the shareholders’ value.  The DeBeers’s Company shifted the intention from volume production to an increase in product value. It also made them win back the previously lost market in the United States due to the violation of the ‘Sherman Antitrust Act’ in the year 1994. Moreover, value chain analysis eliminates unnecessary production processes to reduce cost and increase returns and add value to the commodity (Ensign, 2001).

Operational Structure

             An organization’s functional structure is also the key to success in the market. Marketing networks and relationships with the customer enables robust market development and a dramatic increase in sales (Steiger, Hammou, & Galib, 2014). To outdo the peer market rivals, DeBeers’ Company implemented marketing strategies to become a successful player in the market. The retail strategy as a step for successful marketing added value. With the evolvement of the branded diamond, the retailing process became simple and earned more market trust.

DeBeers’s focus on the customers’ demand increased the effort to campaign for its products. Advertisement launches and campaigns such as ‘Celebrate Her,’ and Women of the World Raise Your Right Hand’ to persuade the consumers on the value and worth of the product (McAdams & Reavis, 2008). Signing up the agreement with other diamond-producing companies like Botswana increased the marketing network and commodity volume in the market.

Leadership

Good management leadership in a company leads to viable decision making. Decision making requires a qualified leader and one who looks at business issues from a different angle. The decisions that DeBeers’s take to outwit the synthetic diamond competitors in the market are by far better to be able to identify the difference between synthetic products and their natural products in the market. That makes the Company secure in the market and also assures the security of customers’ preference in the market. Every management task to make the Company successful is under the control of a competitive leadership to retain the company reputation and competitive operation.

Contrary to that, a competitive leader may not decide to pile the stock and hold back the Company’s products to control the market price. However, it would be wise to brand the product just as the DeBeers’s Company did. Notably, DeBeers’s Company realized its mistake to make the right turn and win the market again despite stiff competition (McAdams & Reavis, 2008). The uniqueness of the business and branding became a game-changer for the Company. That indicated the management was under good leadership.

DeBeers’s Solution to Stiff Competition

Synthetic diamond producers such as Gemesis, Life Gem, Chatham created Gems, Apollo, among others, became successful competitors against DeBeers’s Company. The fact that synthetic diamonds have similar looks and qualities as natural diamonds does not shift the consumers’ decision from buying the human-made product. Furthermore, synthetic diamonds are much less costly than natural diamonds. Again, the synthetic diamond producers have more marketing advantages than natural diamonds for DeBeers’ Company in terms of political, environmental, and prices. Despite the campaign and effort by DeBeers’s Company to differentiate their product from the competitors’, the consumer decision remains unchanged. That is evident in the case of Lee Mandell purchasing in one of the DeBeers’s retail jewelry shop in Boston. Therefore, it is advisable to leave the purchasing decision to consumers to determine the taste

Conclusion

By the analysis above, it is quite clear that, despite the effort to make a viable decision to retain the Company’s reputation and profitability, competition challenges are inevitable. Therefore, the best choice is to develop and execute the best management strategies to win consumers’ trust in the market; hence, gain profit and market share. Much focus on how to fight the competitors’ efforts in the market may not entirely work but instead, concentrate on the way the Company’s products will penetrate in the market, create a better marketing strategy, and brand making. That is evident when DeBeers’s Company piles the stock instead of branding and strategizing on the marketing strengths.

Reference

Ensign, P. (2001). Value Chain Analysis and Competitive Advantage. Journal Of General Management, 27(1), 18-42. doi: 10.1177/030630700102700102

Krishnamurthy, B. (2010). Five Forces Model: Analysis from an Emerging Economy. SSRN Electronic Journal. doi: 10.2139/ssrn.1577469

Marouan, K., & Moez, D. (2020). Impact of Corporate Governance on Shareholder Value Creation: Evidence from Tunisian Context. Retrieved 8 April 2020, from https://pdfs.semanticscholar.org/f1e1/cc7902785828fa31ab3f8a40dca2ed995663.pdf

McAdams, D., & Reavis, C. (2008). DeBeers’s Diamond Dilemma. Retrieved 8 April 2020, from https://mitsloan.mit.edu/LearningEdge/CaseDocs/07-045%20DeBeers%20Diamond%20Dilemma%20McAdams.pdf

Steiger, J., Hammou, K., & Galib, M. (2014). An Examination of the Influence of Organizational Structure Types and Management Levels on Knowledge Management Practices in Organizations. International Journal of Business And Management, 9(6). doi: 10.5539/ijbm.v9n6p43