Performance of Two Firms: Eli Lilly & Pfizer - Case Study Example

University Name Department Performance of two firms: Eli Lilly & Pfizer Student name & Admission number Date of Submission Overview of the firms Eli Lilly is a firm that thrives on its ability to make people live long lives through provision first-in-class pharmaceutical products at the market. The firm endeavors in discovering, developing and marketing pharmaceutical therapies. Eli Lilly has continued to succeed where other pharmaceutical firms have failed because of sound strategies they employ at the market. On the other hand, Pfizer thrive on its innovation in medicine which continues to be a fundamental cornerstone of the firm (Hill & Jones, 2011). Since its establishment, Pfizer has believed in business innovations in making healthcare products more affordable and easily accessible. Sustainability of firms from the perspective of key stakeholders Sustainability in businesses is meant to implement practices that support and enhance economic safety, social wellbeing and environmental protection as they work hard improved performance. To achieve this, the two firms, that is Eli Lilly and Pfizer formulate sustainable business strategy in pharmaceutical industry which is enclosed in sustainability reports. Sustainable development for this firms entails three components, namely, environmental protection, social equity, and economic prosperity, form the basis for a reporting paradigm called the triple bottom line (TBL). The TBL approach is intended to help companies integrate the three components of sustainable development into core operations and to translate sustainability theory management practice. Sustainability has been vital in decision making processes for firms in pharmaceutical industry. The focus of sustainable development has entirely been made compatible with the hotel goals and decisions of business itself like in the creation of long-term shareholder value. In fact, proponents on Eli Lilly’s sustainability contend that the TBL approach is merely an extension of the scope and time line over which a shareholder’s interests are assessed on strategic decisions reached upon (Hill & Jones, 2011). In Pfizer, sustainability chair has been utilized in pursuing and developing policies and decisions that help satisfy firm’s impact on goals and achievements. Presently, other pharmaceutical firms’ stakeholders have sometimes used sustainability impact evaluations in support decision-making process so as to realize more sustainable outcomes. Additionally, sustainability reports have assisted the two pharmaceutical firms to highlight keys achievements they have made for the public on new initiatives put forth during the strategic decision making process. It has been impressive on how social reporting have expanded the scope of issues covered when analyzing their performance. As such, the sustainability system offers a broader perspective to issues that financial reporting fails to account for during decision making period by various stakeholders. Perspective of key stakeholders The senior management of Pfizer believes opportunities presented by internet on mobile phones, pharmaceutical analytics and behavior change avails exciting opportunity in business. “Our mission is to collaborate with leaders of innovation who offer solutions in health IT, medical technologies which can be applied in real world” say the Corporate Manager of Pfizer during 2000 when Warner-Lambert so acquired Lipitor. Managing rapid growth and overcoming obstacles in an entrepreneurial environment has become part and parcel for many organisations in present times in their day-to-day activities (Hill & Jones, 2011). In 2008, ImClone Systems: paid $6.5billion after bidding war with Bristol Meyers Squibb Finance manager of Eli Lilly asserted “As working environment and practices change and circumstances evolve, firms are forced to review their operations to remain vibrant and maintain their competitive edge. Majority of firms have drawn their attention in overcoming barriers to change because of consistently gains seized from such changes” (Eli Lilly, 2013). In organisations, creativity and innovation has turn out to be an inevitable necessity, for the reason that the competitive surroundings of various firms require to build up and reinforce the processes of innovation (Eli Lilly, 2013).This era of new technology and cut throat competition in global business arena, creativity and innovation is very paramount if organisation has to maintain the status quo, survive and thrive. Most industrialised nations and leading corporations around the world find themselves struggling to establish and maintain effective management changes in their systems. Each country and industry has sought to find a working solution, based upon its economic, social and political environment. The dynamics of life nowadays has made work to become a basic to the human coexistence, though, labour these days is no more unorganised group that is ready to obey without detest or protest on terms of employment (Eli Lilly, 2013). Management has to handle workers at present as individuals with conscious minds as well as members of organised social groupings, which are well-informed on their working rights and possess strong bargaining power. Work allocation and remuneration, together with its organisation and management are of significance importance, how these are carried out in any gainful employment explains much more about the perceptions and ideals we embrace as a society changes. Dividend policy is one of the key decisions in corporate finance. Dividend is termed as an allotment of profit to shareholders. The main reason of the investors trading is to secure a way of raising funds for their businesses, for instance through the buying and selling of shares. The share market also helps them to evaluate the worth of their businesses in terms of shares and securities traded, because of the latest updates on share prices (Hill & Jones, 2011). On yearly basis when profits are reported, firms apportion a given amount of the profit that is available which should be paid to shareholders in the form of dividends, and indicate the fraction that will be retained for reinvestment. The main factors which have been stated to have an effect on dividend policy of banks include profitability, leverage, and changes in dividend, collateral capacity, company growth, ownership structure, risk and age. During May 2014: failed bid for AstraZeneca, Lasher a Fund manager at Pfizer pointed out that “a decrease in dividend, for instance, is believed to be terrible news. It generally exists after sustained reduction in earnings, and confirms to the market that management does not expect the firm to have the cash it had in the past. The tax preference theory argues that a low dividend ratio reduces the required rate of return as well as enhances the market appraisal of company’s stock.” The managers of Pfizer are entrusted to act on the best interest of the owners. But, there are circumstances where conflicts of interests may arise between the two, for example when managers take actions in accordance with their personalized agenda or interests which may necessarily not beneficial to shareholders. The key thrust of agency theory is the payment of dividend which is perceived as a way of cutting down the quantity of surplus money accessible by management which may be misappropriated by them. The share market behavior of Pfizer was believed to fluctuate time and again (fall and rise), a tendency that is known as volatility. Volatility in most share markets around the world makes it hard for price-setter to clear interpretations, sometimes resulting to erroneous economic signals (Hill & Jones, 2011). The firm’s liquidity point is another significant determinant of dividends payments. Firms with a hefty portion of inoperative cash are to be expected to pay back a portion to investors compared to those which do not. It is also expected that when firms minimizes the inoperative cash that is available to management, they cut short the ability of management to use such inoperative cash for firm’s interest rather than in the best interest of management (Eli Lilly, 2013). Limiting the availability of cash to management also forces management to go for debt financing, which to some extent minimizes agency cost. What is not clear, though, is whether the same effect would be indicated on firms which have a wide array of short-term investment vehicles to place inoperative cash funds. The main reason of the equity investors trading on share market is to secure a way of raising funds for their businesses through the buying and selling of shares. The share market also helps them to evaluate the worth of their businesses in terms of shares and securities traded, because of the latest updates on share prices. The share market behavior will fluctuate time and again (fall and rise), a tendency that is known as volatility. Volatility in most share markets around the world makes it hard for price-setter to clear interpretations, sometimes resulting to erroneous economic signals (Barnett et al, 2010). The investment process is therefore surrounded with a number of risks, for example, systematic and unsystematic risks, which should be well analyzed and managed by investors. These risks sometimes undermines a fundamental maxim of share market that states “buy when price is low and sell when price is high” because one who buy cheaply but risks incorporated in them is high. The Investment manager of Eli Lilly asserted that “the share market is to some extent multifaceted system which itself is a part of a multifaceted system of the economy. Under this notion, investors employ a number of mechanisms that help them to analyse and manage the risks of the stock market” during 2008: ImClone Systems: paid $6.5billion after bidding war with Bristol Meyers Squibb. As such, the mechanisms help to foresee the future of the share market by establishing the underlying discrepancies and improvising models to base their market predictions. Stock exchanges are perceived to be parameters geared towards marshalling financial resources to aid a most favorable and lucrative investment. Especially in the case of developing nations, which are in dire need of finances to sponsor their development projects, stock exchanges come in handy. In general, stock market encourages cooperation among investors by creating a neutral ground for investment in respective securities. It also develops a platform for entrepreneurs to mobilize or raise capital through provision of a trading system that ensure easy and accurate business transactions (Kidwell et al, 2010). The rapid advances in technology have eased the mobility of financial flows around the world. As a result, financial markets find themselves in a catch-22 situation of a severe competition. This development has forced some stock exchanges to double the listing of firms in the market and increase cooperation among them as a response to a competitive environment. Such chinks in the share market have appeared to instigate some anomalies on stock market. According to Barnett et al (2010), the stock market anomalies refer to investment elements that constantly make returns above the expected one beside investment risks involved. Mechanisms used to analyze and manage risks There are several mechanisms that investors use to analyse and manage the risk in a share market. The mechanisms include: 1. Monitoring the trend of the market: This is the most common mechanism that investors use to minimize the two risks in a share market. The only hitch with this method is the intricacy of figuring out the trends in the market as they change incredibly fast, for example, a market trend may last even for one day (Hill & Jones, 2011). 2. Portfolio Diversification: Diversification of portfolio is perceived to be the best mechanism that investors use to mitigate an unsystematic risk as it’s not linked to any market risk. Investors who own diversified number of share portfolios minimizes the risk exposure to their investments compared to ones that have one share portfolio. Asset allocation: It is believed asset allocation can partially mitigate systematic risk. By owning different kind of asset classes, with low correlation, an investor will have low portfolio volatility (risk) for the reason that asset classes act in a different way to macroeconomic elements. While in some cases the portfolio of asset categories could be rising some may be diminishing. 3. Stopping Losses: The stoppage of losses is also another mechanism that investors employ to analyse and manage risks. This helps them to make sure that they don’t lose money easily should the securities collapse in the share market. In this mechanism the investor has the choice of walking out of a share market should price fall lower than a preferred specified limit. 4. Self-discipline: This is yet another alternative investors uses to dispose of their stock when there is steep fall in price. This is drawn from Warren Buffet, the ever best investor in stock market who pronounced “don’t lose money” In general, share market presage risk and good enough, there are adequate mechanisms that an astute investor will employ to secure his or her money and ensure good returns. A careful and timely utilization of these mechanisms will help investors analyse the risk associated in their investment and improvise strategy to manage the risk. Conclusion Investment risks are key hindrances to any investment. The adoption of effective mechanism by Eli Lilly and Pfizer to help in analyzing and managing risk by equity investors will be a sound investment decision, which will help in realizing good returns. In a financial market, avoiding and accepting risks are rather clear-cut decisions an investor should insinuate, while the other two, control and transfer, calls for a more reflection before a decision is reached. References   Adams, C, & Hensley, S. (2002, January 29). Drug makers plan to push the FDA to move quicker with approvals.  Wall Street Journal.  Retrieved February 8, 2002 from the World Wide Web:http://online.wsj.com/article/0,,SB1012256019303719720.djm,00.html   Arndt, Michael.  (2001, July 23).  Eli Lilly: Life After Prozac.  Business Week.   Eli Lilly.  (2013). Annual Report—Promise.   Eli Lilly.  (2002). General information obtained from the World Wide Web: http://www.elililly.com   Hill, C. W. L., Jones, G. R. (2011). Strategic Management, Fifth Edition.  Boston, MA; Houghton Mifflin Company.   O’Keefe, Brian (2002, February 4). Finding the Bulls in Biotech.  Fortune, 145(3), 135-140.   Pharmaceutical Research and Manufacturers of America.  (2001). Pharmaceutical Industry Primer—A Century of Progress.    Pharmaceutical Research and Manufacturers of America.  (2002).  Pharmaceutical Industry Profile—New Medicines/New Hope.   Saftlas, Herman. (2001, December 27).  Industry Surveys—Healthcare: Pharmaceuticals.  Standard & Poor’s.   Wall Street Journal.  (2002). It’s not Ted’s FDA.  Retrieved February 8, 2002 from the World Wide Web: http://online.wsj.com/article/0,,SB10112248113614188000.djm,00.html     Read More