BUS479 - Chapter 5

balanced scorecard

balanced scorecard Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals How do customers view us? How do we create value? -- for strategy implementation, not formulation

strategy into action

business model Stipulates how the firm conducts its business with its buyers, suppliers, and partners in order to make money

ending

competitive advantage best measured by criteria that reflect overall business unit performance rather than specific departments

economic value creation

conomic value created Difference between value (V) and cost (C), or (V - C). reservation price The maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits ----------- producer surplus Another term for profit, the difference between price charged (P) and the cost to produce (C), or (P - C); also called profit consumer surplus Difference between the value a consumer attaches to a good or service (V) and what he or she paid for it (P), or (V - P) both parties capture some of the value created opportunity costs The value of the best forgone alternative use of the resources employed

limits of economic value creation

determine value of good in the consumers eyes is not easy values of a good to consumers changes based on income, preferences, time, and other factors to measure firm level advantage, must estimate economic value created for all products and services offered by the firm

limits of accounting data

historical and backward looking do not consider off balance sheet items focus mainly on tangible assets

shareholder value creation

shareholders Individuals or organizations that own one or more shares of stock in a public company. risk capital The money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt total return to shareholders Return on risk capital that includes stock price appreciation plus dividends received over a specific period market capitalization A firm performance metric that captures the total dollar market value of a company's total outstanding shares at any given point in time

Limits of Shareholder Value Creation

stock prices can be volatile, especially in short price overall macroeconomic factors play into stock prices prices frequently reflect psychological mood of investors, which can be irrational

sustainability

sustainable strategy A strategy along the economic, social, and ecological dimensions that can be pursued over time without detrimental effects on people or the planet

popular business models

Razor-razorblades Subscription Pay as you go Freemium Wholesale Agency Bundling -- may combine or evolve as they see fit also factor in disruption

standard performance dimensions

accounting profitability -assess the performance of the their firm accurately -company and benchmark to competitors invested capital = shareholder equity + interest bearing debt if ROIC is greater than cost of capital, generates value if ROIC is less, firm destroys value shareholder value economic value