Question

1. Match the method of measuring competitive advantage with the disadvantage of that method.

Accounting profitability                A. Based on factors other than firm performance

Shareholder value creation         B. Based on historic data.

A economic value creation C. Based on the value of goods to the consumer.

2.

Who are stakeholders from a strategic management perspective?

Anyone that has an equity stake in the firm.

Anyone that can materially affect the firm.

Anyone that cares about the firm.

Anyone for whom the firm is ethically responsible.

3.

Which of the following is sufficient on its own to create a competitive advantage

Making tradeoffs

Industry structure

None of these are sufficient on their own

Difficulty in competitors imitating a completive advantage

Answer 1

Accounting profitability       :-

• Uses standard, publicly available metrics
• Permits direct firm performance comparisons
  • Using standard ratios
• To measure accounting profitability, we use standard metrics derived from publicly available accounting data.
• Commonly used profitability metrics in strategic management are return on assets (ROA), return on equity (ROE), return on invested capital (ROIC), and return on revenue (ROR).
• All accounting data are historical and thus backward-looking. They do not consider off–balance sheet items such as an innovation competency. They focus mainly on tangible assets, which are no longer the most important.

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
  • The measure of competitive advantage that matters from the shareholders’ perspective is the return on (risk) capital.
  • Investors are primarily interested in total return to shareholders, which includes stock price appreciation plus dividends received over a specific period.
  • Total return to shareholders is an external performance metric; it indicates how the market views all available information about a firm’s past, current state, and expected future performance.
  • Stock prices can be highly volatile, which makes it difficult to assess firm performance. Overall macroeconomic factors have a direct bearing on stock prices. Also, stock prices frequently reflect the psychological mood of the investors, which can at times be irrational

A economic value creation:-

• The balanced-scorecard approach provides a more integrative view of competitive advantage.
• Its goal is to harness multiple internal and external performance dimensions to balance financial and strategic goals.
• Managers develop strategic objectives for the balanced scorecard by answering four key questions:

                        2. Who are stakeholders from a strategic management perspective?

Anyone for whom the firm is ethically responsible.

3. Which of the following is sufficient on its own to create a competitive advantage?

A)Difficulty in competitors imitating a completive advantage