Chapter 5: Competitive Advantage, Firm Performance, and Business Models

Advantages of balanced scorecard

- Communicate and link strategic vision to responsible parties - Translate vision into measurable operational goals - Design and plan business processes - Implement feedback and learning

Disadvantages of balanced scorecard

- Tool for implementation, not formulation - Limited guidance on what metrics to choose - Failure to achieve competitive advantage is based off strategic failure - Strategy must be accurately translated into objectives

Three performance dimensions

1. Accounting profitability 2. Shareholder value 3. Economic value

Four questions of balanced scorecard

1. How do customers view us 2. How do we create value 3. What core competencies do we need 4. How do shareholders view us

Freemium Model

Basic features of a product/service are provided free, but user must pay for premium services

Triple bottom line

Combination of economic, social, and ecological concerns that can lead to a sustainable strategy

Economic value

Difference between a buyer's willingness to pay (WTC) and the firm's total cost to produce the product/service - (V-C) where (V)= Value (C)= Cost

Firm's Profit

Difference between the price charged (P) and the cost to make the product (C) - (P-C)

Consumer Surplus

Difference between the value a consumer attaches to a good (V) and what they actually paid for it (P) - (V-P)

Accounting profitability

Examines return on invested capital (ROIC) which breaks down into two parts; return on revenue (ROR) and working capital turnover

Extended producer responsibility

In anticipation of government regulations, proactively addressing social or ecological issues

Shareholders

Individuals or organizations who own one or more shares of stock in a public company. Legal owners

Razor-Razor-Blade Model

Initial product is often sold at a loss or given away for free in order to drive demand for complementary goods

Risk capital

Money provided by shareholders in exchange for an equity share in a company

Business Model

Plan that details the firm's competitive tactics and initiatives to make money

Crowdsourcing

Process in which a group of people voluntarily perform tasks that were traditionally completed by a firm's employees

Total return to shareholders

Return on risk capital, including stock price appreciation plus dividends received over a specific period

Pay-As-You-Go Model

The user pays for only the services they consume

Opportunity Costs

The value of the best forgone alternative use of the resource employed - Accounting profitability: relies on historical costs - Economic value creation: all costs considered

Balanced Scorecard

Tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals

Subscription-Based Model

Users pay for access to a product/service during the payment term