These defi nitions focus more on increasing the value of a business in the long term rather than delivering a profi t in the short term. An example would be Amazon, one of the best known online retailers, where the strategy was to invest in building the distribution network and customer base as the foundation of the business.
Once customer numbers grewthe profi ts would emerge. Throughout its early years the company was
creating long term value while making large losses. During this period
Amazon's share price was volatile as it refl ected changing views on the
future benefi ts that would arise for investors.
For a mature business, an example would be its investment in research
and development to provide the products and revenue streams of the
future. This investment can create shareholder value because of the
potential it is judged to provide. However, the danger is that success is
built on a future promise, and in a fast changing world the future is always
uncertain.
For example, a company investing in new types of fi lms for
cameras only to fi nd that the world has gone digital would realise the
future less is bright than it had seemed. The same is true of a pharmaceutical
company that has taken years to develop a new drug that fails to
meet Food and Drug Administration (fda) regulatory requirements.
For a company that is quoted on a stockmarket, there is the expectation
to achieve a suffi cient roi every year while also investing to create future
value. Once the business has started to make profi ts, any performance
that is worse than the previous year is likely to meet with an adverse
reaction from analysts and investors, which in many instances leads to
a forced change of management. After many years of staggering losses
Amazon now makes a profi t, and in every year to come profi t expectations
will be greater. It has joined the ranks of other global companies
in a battle to produce the ever more superior results that stockmarket
investors look for.
The details of the metrics used to measure and monitor roi and shareholder
value creation are explained in Chapter 12.
Describing success
Although the defi nition of success given above may be at the heart of
a business, many companies prefer a softer approach to defi ning what
they are in business to achieve. For example, Microsoft (a software giant)
states that its mission is: "To enable people and businesses throughout
the world to realize their full potential. We work to achieve our mission
through technology that transforms the way people work, play, and
communicate".
There is no mention of the investors here. Among the exceptions are:
. ExxonMobil, an American oil company, which in its Securities and
Exchange Commission (sec) fi ling stated: "We are committed to
enhancing the long term value of the investment dollars entrusted
to us by our shareholders".
. Scottish and Newcastle, a UK drinks company, states: "Our mission
is to be the best European beer-led drinks company with sustained
revenue growth and consistently improving returns on invested
capital."