Measuring Firm Performance

• Traditional frameworks for measuring firm performance include accounting profitability, shareholder value creation, and economic value creation.
• Integrative frameworks, such as the balanced scorecard and triple bottom line, combine quantitative data with qualitative assessments.

Key Considerations for Traditional Frameworks

• Ease of access to measures influences framework selection.
• The quality of measures as a proxy for performance is important.
• The ability to compare against competitors is a foundation for understanding competitive advantage.

Accounting Profitability

• Key measures include ROIC, ROE, ROA, and ROR.
• Challenges in using accounting profitability include its historical snapshot nature and exclusion of off-balance sheet items and intangibles.
• Comparisons must be made cautiously due to these limitations.

Shareholder Value Creation

• Risk capital is a key consideration for investors.
• Total return to shareholders and market capitalization are primary indicators.
• Challenges include the influence of micro and macro factors and market volatility.

Economic Value Creation

• It's the difference between a buyer's willingness to pay and the firm's total production cost.
• The difference between value and cost determines economic value creation.
• Challenges include measuring consumer perception of value, which changes over time.
• Aggregation to the firm level is necessary for competitive advantage comparison.

Key Considerations for Integrative Frameworks

• Integrative frameworks address the limitations of traditional frameworks through holistic views.
• Focus on specific areas (customers, internal processes, innovation, financial performance) helps drive action.

Balanced Scorecard

• Focuses on measuring what is important to achieve (what you measure is what you get).
• Four core questions: How do customers see us? What must we excel at? Can we continue to improve and create value? How do we look to shareholders?
• Challenges include a focus on implementation rather than formulation and the need for clear metrics.

Triple Bottom Line

• Considers people, profits, and the planet.
• It's not just about sustainable competitive advantage, but the relative impact on the three components while pursuing competitive advantage.

Organizational Aspirations

• Organizational aspirations comprise mission, vision, and values
• "Why" an organization exists is its mission.
• The future the organization wants to create is its vision.
• The "what" is are the things that are important to an organization, it's set of Values.
• Strategic (head): Aspirations specify sufficient choices about how to compete to guide all other choices and decisions
• Motivational (heart): Every employee's personal aspirations aligned with the organizations aspirations

Strategy

• A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
• Competitive advantage is superior performance relative to competitors or the industry average.
• Strategic positioning is a unique position within an industry that allows the firm to provide value to customers while controlling costs.
• It includes trade-offs by either performing different activities or performing the same activities differently.

Stakeholder Strategy

• It's an integrative approach to managing a diverse set of stakeholders to gain and sustain competitive advantage.
• Satisfied stakeholders are more cooperative and likely to share information that can increase the firm's value creation or lower its costs.

Internal Consistency (3 Levels of Fit)

• Simple consistency: Alignment of activities with the overall strategy.
• Mutually Reinforcing: Activities that strengthen each other
• Optimization of effort: Coordination of activities to maximize efficiency.

External Consistency

• How the firm aligns with the business landscape it is a part of.
• Strategic positioning is an outflow of this consideration.
• Great question of what happens if the firm disappears.

Dynamic Consistency

• Addressing changes over time and how the firm can deal with the threats that come from time

Industrial Organization

• The external environment is a primary determinant of a firm's strategic actions.
• Model focuses on the firm's external environment.

Resource-Based Model

• A firm's unique resources and capabilities are the critical link to strategic competitiveness.
• Model focuses on the firm's internal environment.

Strategic Leadership

• It's the use of power and influence to direct the activities of others when pursuing an organization's goals.
• Managers work at an unrelenting pace, oriented to action preferring verbal communication over documents.
• Strategic Implementation: The organization, coordination, and integration of how the work gets done (3 distinct areas)
• Corporate: Where to compete
• Business: How to compete
• Functional: How to implement chosen strategy

The Process of Strategic Leadership

• Includes strategic planning.
• Scenario planning.
• Strategy as planned emergence.

Strategic Planning

• Data driven and attempts to program future success through analysis.
• Shortcomings: May not be adaptable, formulation is distinct from implementation, one way information, leaders vision can be wrong.

Scenario Planning

• Asks "what if" questions.
• Top management hypothesizes about different scenarios and then derives strategic responses.

Strategy as Planned Emergence

• Combines top-down and bottom-up approaches.
• Bottom-up initiatives emerge.
• Less formal, relies on data plus experience, expertise, and front-line employee insights.

External Environment

• All factors outside of the organization that can impact it
• General Environment: Managers have little control over these high-level, macro factors.
• Task Environment: Managers can influence factors closer to the firm.
• Industry: A particular grouping of firms who produce similar products or services, usually named after the principle product
• Sixth force: Complements, that is a product, service, or competency that adds value when used with the original product

Strategic Group

• A collection of firms that follow similar strategies within a specific industry.
• Competition is greater within a strategic group than between strategic groups.

Internal Environment

• Core Competencies: Unique strengths embedded deep within a firm, that are critical to gaining and sustaining competitive advantage

Resources

• Any asset that the firm can leverage, tangible or intangible.

Capabilities

• Organizational and managerial skills for combining and deploying resources, intangible.

Activities

• Distinct and ined-grained business processes that allow the firm to add value.

Resource-Based Model (RBV)

• Assumes firms have bundles of resources and capabilities that differ across firms and that firm resources are strictly and are not easily transferable.

Competitive Advantage

• A strategy competitors are unable to duplicate or find too costly to imitate.
• A strength that is hard for other to compete away.
• A wedge between what a customer is willing to pay and the costs incurred by the firm.

Sustainable Competitive Advantage (Key Factors)

• Future expectations of resource value: Impact over time of the ability to gain resources at lower costs
• Path dependence: prior decisions limit future options.
• Causal ambiguity: cause and effect is hard to trace.
• Social complexity: System interactions increase complexity.
• IB Protection.

Activity Analysis

• Catalog activities, use to analyse relative costs, use to analyze relative willingness to pay, explore options and make choices.

Value Chain

• Use to understand specific value contributions of each piece as well as the strategic activity system

Activity Systems

• Consider the firm's position relative to others on key activities, consider the specific value propositions of the local firm and competitors, costs and willingness to pay

Value Proposition

• Describes the products and services that address a need for a given customer.
• Solves a problem/satisfies a need