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How do we measure accounting profitability
We use standard metrics derived from publically available accounting data
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What are some commonly used profitability metrics in strategic management
- Return on assets (ROA)
- Return on equity (ROE)
- Return on invested captical (ROIC)
- Return on revenue (ROR)
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What is the problem with looking at accounting data
- It's all historical and thus backward-looking
- Mainly focuses on tangible assets, do not consider intangibles that are hard/impossible to measure and quantify
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External performance metric, it indicates how the market views all publically available information about a firm's past, current state, and expected future performance
Total return to shareholders
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Stock pricecs can be highly
Volatile, which makes it difficult to assess firm performance
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is a better measure of competittive advantage over the long term due to the "noise" introduced by market volatilty, external factors and investor sentiment
Shareholder value creation
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Three components that are critical in evaluating any good or service
- Value (V)
- Price (P)
- Cost (C)
- In this perspective cost includes opportunity costs
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The difference between a buyer's willingness to pa for a good or service and the firm's cost to produce it
Economic value created (V-C)
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A firm has competitive advantage when it is able to create more ___________ than it's rivals
Economic value
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Attempts to provide a more integrative view of competitive advantage
Balanced-scorecard approach
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What is the goal of the balanced score card approach
To harness multiple internal and external performance dimensions to balance financial and strategic goals
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Managers develop strategic objectives for the balanced scorecard by answering four key questions
- How do customers view us
- How do we create value
- What core competencies do we need
- How do shareholders view us
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Managers are frequently asked to maintain and improve not only the firm's economic performance but also its
social and ecological performance
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The triple bottomline, achieving positive results in all three areas an lead to a sustainable strategy
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The triple-bottom line framework is realted to ______________, an approach to understanding a firm as embedded in a network of internal and external constituencies that each make contributions and expect consideration in return
Stakeholder theory
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Details how the firm conducts its business with its buyers, suppliers, and partners
Business Model
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This is important in gaining and sustaining a competitive advantage as what thye do
How companie do business
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Difference between the value a consumer attaches to a good or service (V) and what he or she paid for it (P)
Consumer surplus V-P
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A process in which a group of people voluntarily performs tasks that were traditionally completed by a firm's employees
crowdsourcing
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A firm performance metric that captures the valu eof all a company's outstanding shares at any given point in time
- Market capitalization
- Number of outstanding shares * share price
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How do you measure competitive advantage
- Assess firm performance
- Benchmark to the industry average / other competitors
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Total perceived consumer benefits, comsumers maximum willingness to pay
Value
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The money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt
Risk capital
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In anticipation of government regulation - proactively addressing social or ecological issues
Extended producer responsibility
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What is the goal of strategic management
Integrate and align each business function and activity to obtain overall superior performance
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