405- Ch3
Five types of financial ratios
1. Short-term solvency or liquidity 2. Long-term solvency measures 3. Asset management or turnover 4. Profitability 5. Market value Meaningful ratio analysis must include: -Analysis of how ratios change over time -Comparison with industry norms -Comparison with key competitors
Balance scorecard analysis 2/2
A meaningful integration of many issues that come into evaluating performance Four key perspectives: 1. How do customers see us? (customer perspective) 2. What must we excel at? (internal perspective) 3. Can we continue to improve and create value? (innovation & learning perspective) 4. How do we look to shareholders? (financial perspective)
Primary activities (value chain analysis)
Contribute to the physical creation of the product or service; the sale & transfer to the buyer; and service after the sale. -Inbound logistics -Operations -Outbound logistics -Marketing & sales Service
The Generation and Distribution of the Firm's Profits
Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate 1. Employee bargaining power 2. Employee replacement cost 3. Employee exit costs 4. Manager bargaining power
Marketing and sales activities (value chain analysis- primary)
Involve purchases of products & services by end users and includes how to induce buyers to make those purchases. -Advertising & promotion -Sales force management -Pricing & price quoting -Channel selection & channel relations
Tangible firm resources
PHYSICAL ASSETS: plant & facilities, location, machinery & equipment FINANCIAL ASSETS: Cash & cash equivalents, borrowing capacity, capacity to raise equity TECHNOLOGICAL RESOURCES: trade secrets, patents, copyrights, trademarks, innovative production processes ORGANIZATIONAL RESOURCES: EFFECTIVE planning processes, evaluation & control systems
Strategic Resources
VALUABLE in formulating & implementing strategies to improve efficiency or effectiveness RARE or uncommon; difficult to exploit DIFFICULT TO IMITATE or copy due to physical uniqueness, path dependency, causal ambiguity, or social complexity DIFFICULT TO SUBSTITUTE with strategically equivalent resources or capabilities
Balanced scorecard analysis 1/2
a method of evaluating a firm's performance using performance measures from the customers' perspectives, as well as internal, innovation and learning, and financial perspectives.
Financial ratio analysis
a technique for measuring the performance of a firm according to its balance sheet, income statement, and market valuation. When performing a financial ratio analysis, you must take into account the firm's performance from a historical perspective (not just at one point in time) as well as how it compares with both industry norms and key competitors.
Organizational capabilities
are competencies or skills that a firm employs to transform inputs into outputs. It is the capacity to combine tangible & intangible resources to attain desired ends. -Outstanding customer service -Excellent product development capabilities -Superb innovation processes & flexibility in manufacturing processes -Ability to hire, motivate, & retain human capital
Intangible resources
are difficult for competitors to account for or imitate. They are embedded in unique routines & practices. HUMAN RESOURCES: Trust, experience & capabilities of employees; managerial skills & effectiveness of work teams, firm specific practices & procedures INNOVATION RESOURCES: TECHNICAL & scientific expertise & ideas; innovation capabilities REPUTATION RESOURCES: brand names, reputation for fairness with suppliers, non-zero sum relationships; reputation for reliability & product quality with customers
Inbound logistics (value chain analysis- primary)
are primarily associated with receiving, storing & distributing inputs to the product. -Material handling -Warehousing -Inventory control -Vehicle scheduling -Returns to suppliers
resource-based view of the firm (RBV)
can reveal how core competencies embedded in a firm can help it exploit new product and market opportunities. Integrates two activities. 1. An internal analysis of phenomena within a company 2. An external analysis of the industry & its competitive environment
Interrelationships
collaborative and strategic exchange relationships between value-chain activities either (a) within firms or (b) between firms. Strategic exchange relationships involve exchange of resources such as information, people, technology, or money that contribute to the success of the firm. Example = within the firm, how effective human resource practices can support the entire value chain. Example = between the firm and stakeholders, how teaming up with customers through a "prosumer" or crowdsourcing relationship can help the firm gain insight into customer needs and leverage the wisdom of the customer to create value for all.
Human resource management (value chain analysis- Support)
consists of activities involved in recruitment, hiring, training & development, & compensation of all types of personnel. -Effective employee recruiting, development, & retention mechanisms -Quality relations with trade unions -Reward & incentive programs to motivate all employees
Support activities (value chain analysis)
either add value by themselves or add value through important relationships with both primary activities & other support activities. -Procurement -Technology development -Human resource management -General administration
Operations (value chain analysis- primary)
include all activities associated with transforming inputs into the final product form. -Machining -Packaging & Assembly -Testing or quality control -Printing -Facility operations
Service (value chain analysis- primary)
includes all actions associated with providing service to enhance or maintain the value of the product. -Installation & repair -Training -Parts supply -Product adjustment
Outbound logistics (value chain analysis- primary)
includes collecting, storing, & distributing the product or service to buyers. -Finished goods & warehousing -Material handling -Delivery vehicle operation -Order processing, scheduling & distribution Example = Campbell Soup uses an electronic network so retailers can inform Campbell of product needs and inventory levels. This allows Campbell to forecast future demand and determine which products to replenish, delivering inventory the same day. The retailer gains efficiency, and therefore has an incentive to carry a broader line of Campbell products.
General administration (value chain analysis- Support)
involves: -Effective planning systems to attain overall goals & objectives -Excellent relations with diverse stakeholder groups -Effective information technology to coordinate & integrate value-creating activities across the value chain -Ability of top management to anticipate & act on key environmental trends & events, create strong values, culture & reputation
Technology development (value chain analysis- Support)
is related to a wide range of activities. -Effective R&D activities for process & product initiatives -Collaborative relationships between R&D and other departments -State-of-the-art facilities & equipment -Excellent professional qualifications of personnel -Use of data analytics
Value chain analysis
looks at the sequential process of value-creating activities. -Value is the amount buyers are willing to pay for what a firm provides. -How is value created within the organization? -How is value created for other organizations in the overall supply chain or distribution channel? -The value received must exceed the costs of production.
Procurement (value chain analysis- Support)
the function of purchasing inputs used in the firm's value chain, including raw materials, supplies, and other consumable items as well as assets such as machinery, laboratory equipment, office equipment, and buildings. Example = Microsoft does formal reviews of its outside suppliers, including a feedback system that helps clarify expectations. In addition to the above activities, procurement includes effective procedures to purchase advertising and media services, and the ability to make proper lease versus buy decisions.
