1 / 15

Competitive Advantage and Firm Performance

Competitive Advantage and Firm Performance. Instructor: Dr.Gehan Shanmuganathan. LO 5-1 Describe and evaluate economic value creation when measuring competitive advantage. LO 5-2 Describe and evaluate accounting profitability when measuring competitive advantage.

mhering
Télécharger la présentation

Competitive Advantage and Firm Performance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Competitive Advantageand Firm Performance Instructor: Dr.Gehan Shanmuganathan

  2. LO 5-1 Describe and evaluate economic value creation when measuring competitive advantage. LO 5-2Describe and evaluate accounting profitability when measuring competitive advantage. LO 5-3Describe and evaluate shareholder value creation when measuring competitive advantage. LO 5-4Describe and evaluate the balanced-scorecard approach for assessing competitive advantage. LO 5-5Describe and evaluate the triple-bottom-line approach when assessing competitive advantage. LO 5-6Compare and contrast different approaches to measuring competitive advantage, and derive managerial implications. 5-2

  3. Google vs. Microsoft ChapterCase5 • Google & Microsoft in multipoint competition • How to measure success of this competition? • Revenues & net income? • Performance per employee? • There are several ways to measure firm performance. Which is best? 5-3

  4. MEASURING COMPETITIVE ADVANTAGE • Always measured relative to other firms • Three standards are typical by asking: • 1. How much economic value does the firm generate? • 2. What is the firm’s accounting profitability? • 3. How much shareholder value does the firm create? 5-4

  5. Economic Value Creation • Pizza! • Value = $12 • Price = $10 • Cost = $7 • Consumer Surplus • $12 - $10 = $2 • Producer Surplus • $10 - $7= $3 • Economic Value • $12 - $7= $5 • Value: A dollar amount a consumer is willing to pay for a good or service • Price: The dollar amount a good or service is offered for sale • Cost: The dollar amount to make the good or service SOLD! 5-5

  6. EXHIBIT 5.2 Competitive Advantage & Economic Value HIGHEST VALUE – COST COMPETITIVE ADVANTAGE = 5-6

  7. Accounting Profitability • Uses standard, publicly available metrics • Regulated by • Accounting principles (GAAP) • U.S. Securities & Exchange Commission (SEC) • Sarbanes-Oxley Act (2002) • Permits direct firm performance comparisons • Using standard ratios • See Table 1 of text for typical strategic financial ratios 5-7

  8. Profits vs. Return on Revenue (ROR) Ranking changes markedly with the use of different metrics 2010 Profits in $M 2010 ROR % 5-8

  9. Shareholder Value Creation • Shareholders – legal owners of public firms • Total return to shareholders • Return on risk capital + dividends • External performance metric • Efficient-market hypothesis • All available information is embedded in the stock price • SEC requires all public firms to submit shareholder returns • Stock price based on expectations of performance • Nucor (steel) slow growth • Dell (computer) faster growth 5-9

  10. Google vs. Microsoft, Continued • Accounting perspective shows Microsoft with an advantage over Google. • But both firms have large intangible assets. • BUT shareholder value favors Google over Microsoft! • Microsoft stock is flat while Google is up 200%. 5-10

  11. THE BALANCED SCORECARD • Multiple internal & external metrics • Considers both financial & strategic • Customer perspective • Linked to revenues & profits • Future processes to create value • 3M 30% revenues from products less than 4 years old • Internal core competencies • Honda engine design and manufacture • Shareholder perspective • A variety of financial measures 5-11

  12. THE TRIPLE BOTTOM LINE EXHIBIT 5.11 The Triple Bottom Line • Financial, Social, & Ecological Considerations • Also known as "People, Planet, & Profits" • BP oil spill had many major effects • BMW changed car designs to enhance recycling • Integrative approach for sustainable strategy 5-12

  13. STRATEGY HIGHLIGHT 5.1 Interface: The World’s First Sustainable Company • Interface is a global leader in modular carpet tiles • Business to business so not a consumer name • In 1994, founder & CEO set a BHAG • Highly industrial, petroleum-intensive business to go “off oil”! • By 2008, estimates savings at $400 million • Energy efficiency • Recycled raw materials instead of virgin material • Sustainability as a market differentiator • Employee motivation 5-13

  14. Implications for the Strategist • Both quantitative AND qualitative performance dimensions matter. • Managers need to have a holistic view • Competitive advantage is best by criteria, reflecting overall company performance • Metrics aggregate upward, useful to gauge firm's strategy • Only better strategy is our goal. • No best strategy exists • Strategic performance metrics must be relative 5-14

  15. CHAPTERCASE 5/ Consider This… • Google & Microsoft are now competitors in a number of business areas. • Smartphone operating systems may be next… • Microsoft’s “Phone 7” operating system sold 2 M units in the first 10 weeks on the market (launched Nov. 2010). • If Microsoft is successful in gaining a major share of the smartphone market, will economic, accounting, or shareholder perspective be affected first? • How would you rate Google and Microsoft on qualitative elements? 5-15

More Related