chapter 5 bus pol
the subjectively determined maximum amount a customer would pay for a product is its
reservation price
the financial metric for ROIC stands for
return on invested capital
ROIC elements
return on revenue (how much of the firms sales is converted into profits) and working capital turnover (how effectively capital is being used to generate revenue)
in order to determine market capitalization, one multiplies which of the following together
share price and number of outstanding shares
which of the following are among the standard dimensions for measuring competitive advantage
shareholder value, accounting profitability, economic value
when a trade occurs, the consumer and producer both capture
some of the economic value
which theory claims that a firm exists within an interconnected network of constituencies, both within and outside the organization, and the firm is responsible to these constituencies
stakeholder theory
total return to shareholders
stock price appreciation + dividends
a company's total return to shareholders consists of which of the following
stock price appreciation and dividends received
which of the following are considered disadvantages of the shareholder value creation approach
stock prices can be highly volatile, overall macroeconomic factors have a direct bearing on stock prices, and stock prices are influenced by the psychological mood of investors
managers implement the blueprint of their business model through which of the following
structures, processes, and culture
the business model used by telecommunication companies when they provide a basic cell phone at no charge when the customer signs a two year contract is a combination of which of the following
subscription and razor blade business models
which of the following would provide the best benchmark of a computer firm's performance relative to other high tech firms
the NASDAQ index
economic value creation
the difference between a buyer's willingness to pay for a product/service and the firm's total cost to produce it (V-C). Competitive advantage can be based on superior product differentiation and a relative cost advantage over rivals
which of the following correctly describes the information used for comparing the performance of public companies based on accounting profitability?
the information is filed in a 10-k report, the information is derived from such data as income statements and balance sheets, and the relative performance is evaluated using standardized financial metrics
which of the following statements is true about a firm's stock price
the price determines in part the stock's market valuation
wholesaling is considered
traditional business model
consumer surplus
what you were willing to pay minus what you paid
working capital turnover elements
working capital/revenue (how much working capital the firm has tied up in its operations), PPE/revenue (how much of a firm's revenues are dedicated to cover plant, property, and equipment), and intangibles/revenues (intangibles include patents, copyrights, and trademarks, goodwill, and brand value)
producer surplus
(profit) price charged minus cost to produce
limitations of shareholder value creation
-Stock prices can be highly volatile. (makes it difficult to assess firm performance) -Macroeconomic factors affect stock prices. (economic growth or contraction, unemployment, interest and exchange rates) -Stock prices can reflect the mood of investors. (can be irrational)
limitations of accounting profitability
-all accounting data are historical and thus backward looking, accounting data do not consider off balance sheet items, such as pension and leasing obligations, and accounting data focus mainly on tangible assets, which are no longer the most important (innovation, quality, customer experience are important)
market capitalization
-dollar value of total shares outstanding -number of outstanding shares x share price
risk capital
-money provided for an equity share in a company -cannot be recovered if the firm goes bankrupt
shareholders
-own one or more shares of stock in a company -the legal owners of public companies
BHAG stands for
Big Hairy Audacious Goal
return on revenue elements
COGS/revenue (how efficiently a company can produce a good), R&D expense/revenue (how much of each dollar earned is invested in R&D), and selling, general, & administrative expense/revenue (how much of each dollar earned in invested in SG&A)
to determine how efficiently a company can produce a good, managers look to the
COGS/revenue ratio
dynamic nature of business models
Combination Evolution Disruption, must respond to disruption and adapt and legal conflicts can arise
limitations of economic value creation
Determining value for consumers is not simple. The value of a good in the eyes of consumers changes. - Based on income, preferences, time, and other factors To measure firm-level competitive advantage, we must estimate the economic value created for all products and services offered by the firm
at 3M one strategic objective that has been implemented is that 30% of revenues must be obtained from new product instructions. This is an objective that would arise as an answer to which of the following balanced scored questions
How do we create value?
to determine how well money devoted to sales support is being spent, managers look at the marketing intensity ratio which is also known as
SG&A/revenue
which of the following statements is best illustrated by the decades long business rivalry between the technology giants Apple and Microsoft
a firm's competitive advantage is transitory
in a subscription based business model, customers pay for
access to a product or service
which of the following statements about the disadvantages of the accountability profitability perspective are correct
accounting data focus primarily on tangible assets and accounting data are historical and therefore backward looking
which of the following describes how Amazon disrupted the traditional wholesale model for book publishers
amazon sold e-books for its e-reader device at a loss to promote sales of the e-reader
when a person decides to quit his or her job and start a company, the salary that person gave up when quitting can be considered
an opportunity cost
under a wholesale model, retailers sell goods for
any price they want
in their annual filling with the securities and exchange commission, public companies in the US must report which of the following
benchmarks and total return to shareholders
a firm's actual cost of assets minus depreciation is called
book value
when a firm sells a set of products that have different levels of demand for a price less than their total combined prices
bundling business model
how can firms describe how they turn strategy into action
business model
when a firm goes bankrupt, shareholders
cannot cover their risk capital
public companies are required by law to release detailed accounting data, which enables
comparative analysis of firms
answering the balanced scorecard question of "how we create value" challenges managers to develop strategic objectives that ensure future
competitiveness, innovation, and organizational learning
when implementing the razor-blade strategy, companies make their profit from
complementary goods
achieving competitive advantage means maximizing the difference between which of the following?
cost to produce the good or service and consumers' willingness to pay
examples of metrics for each balanced scorecard section
customers (revenue, profit, customer satisfaction), value creation (competitiveness, innovation, organizational learning), core competencies (key business processes), and shareholders (cash flow, operating income, ROIC, ROE, total returns to shareholders)
compared to the past, the importance of a firms' intangibles has increased. Therefore the importance of a firm's book value has
decreased as a part of the firm's total stock market valuation
why, what, who and how of business models
details competitive tactics and initiatives, and explains how the firm intends to make money and conducts its business with buyers, suppliers, and partners
economic value created is the ___________________ the cost to produce a product/service and the amount the buyer is willing to pay for it
difference between
which of the following would be labeled variable costs by a computer manufacturer
display screens and hard drives
the difference between the cost of producing a product and the price consumers are willing to pay for that product is known as
economic value created
triple bottom line focus
economic, social, and ecological performance
three dimensions of triple bottom line
economic: profits (businesses must be profitable to survive), social:people, and ecological:planet (considers the natural environment)
to determine the value of a good in the eyes of consumers, a firm can
examine a consumers' purchasing habits for their revealed preferences
a balanced scorecard approach helps managers balance
financial and strategic goals
the money a firm spends to set up a sales website can be considered a
fixed cost
disadvantages of the balanced scorecard
focused on implementation (not formulation), managers must identify the rights metrics to track, and lacks guidance (which metrics to use and how to address setbacks)
everybody can use the basic version of dropbox for free, but needs to pay for premium services. Dropbox operates on a
freemium business model
premium services cost money with complimentary basic services, is a description of
freemium business model
a balanced scorecard framework draws from which of the following
from multiple internal and external performance metrics
a company's stock price increases if the company
grows faster than expected
the balanced scorecard
helps managers achieve their strategic objectives, uses internal and external performance metrics, and balances both financial and strategic goals
which of the following are elements of the social dimension of the triple bottom line
human sustainability and achieving work/life balance
a balanced scorecard is a tool for strategy
implementation
which of the following industries use a subscription model
internet and cell providers and magazines
which of the following are true of a firm's book value?
it captures the historical cost of a firm's assets, its importance has declined over time, and its is calculated as costs of assets minus accumulated depreciation
which of the following are true concerning a firm's business model
it essentially explains how the firm intends to make money, it details the firm's competitive tactics and initiatives, and it indicates the way the firm works with buyers and suppliers
which of the following statements about the disadvantages of the value creation perspective are correct
it is difficult to determine the value that consumers place on a given good, the value that a consumer places on a good can vary according to how the consumer feels at a particular moment, for large firms, it is difficult to estimate the economic value created for all products and services offered by the firm
advantages of the balanced scorecard
links strategic vision to responsible parties, translates vision into measurable goals, designs and plans business processes, implements feedback and organizational learning, and alerts to needed strategic goal adaptation
for a balanced scorecard to be effective, managers must do with of the following?
manage objectives according to the balanced-scorecard approach, translate their strategy into measurable objectives, and formulate an effective strategy for achieving competitive advantage
which of the following are offered by a balanced scorecard?
measures of internal processes, common financial metrics, and operational measures on customer satisfaction
bundling
more than one product sold at a discount
since about the year 2000, assets not captured in firms' accounting data have become ________________ to a firm's competitive advantage
much more important
assessing competitive advantage
multidimensional perspective -what is the firms accounting profitability -how much shareholder value does the firm create -how much economic value does the firm generate
when a firm does favorably compared to similar firms, it is said to
outperform
in order to be considered a legal owner of a public company, a person or organization must
own at least one share of the company's stock
when you join the vehicle-sharing company Zoooomm, you are allowed to use a motorized scooter whenever you like, though you do not have to own the machine. You have to pay by the hours of usage. Zooomm operates on a
pay as you go model
subscription
pay for access
freemium
pay for extra features/add ons
razorblade model
pay for replacement
pay as you go
pay for what you consime
which of the following are considered off-balance sheet items
pension obligations and operating leases
if a firm has a successful _________________, its product will have a higher perceived value and the firm will have a competitive advantage over a competitor that creates a product at equal cost but with lower reservation price
product differentiation strategy
wholesale
products sold at a discount
agency
products sold on commission
another name for producer surplus
profit
return on invested capital
proxy for a firm profitability. How effectively does a firm use its total invested capital
which of the following performance dimensions matter in judging the effectiveness of a firm's strategy
qualitative and quanitative
when a company offers video game consoles at a steep discount, but charges customers high fees for games, they are operating on a
razor blade business model
the freemium business model can be considered an evolutionary variation of
razor blade model
