Strategic market management chapter 6

Chapter 6 - Internal Analysis PPT 6-3 Shareholder Value Analysis • Cost of equity—weighted average of cost of capital and cost of debt – e.g.. Capital $1 billion 12%; Debt $3 billion 4%

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Chapter 6 - Internal Analysis PPT 6-1

Internal Analysis

Chapter Six

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Financial Performance – Sales and

Profitability

• Sales and Market Share

• Profitability

• Measuring Performance: Shareholder Value Analysis

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Shareholder Value Analysis

• Cost of equity—weighted average of cost of

capital and cost of debt

– e.g Capital $1 billion (12%); Debt $3 billion (4%) then

the cost of capital is 6%

• Each business aims at ROA to exceed cost of

equity so shareholder can improve stock

investment

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Shareholder Value Risks

• ROA estimate requires knowing the cash flow of

any investment and the assets employed—could

encourage short term results

• Reducing assets employed by outsourcing could

result in loss of control of business

• Reducing investment could affect offering

• Increasing debt to reduce cost of equity could be

risky

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Performance Measures Reflecting

Long-Term Profitability

Customer Satisfaction/

Brand Loyalty

Customer Satisfaction/

Brand Loyalty

Relative Cost Brand/Firm Associations

Product/Service Quality

New Product Activity

Manager/Employee

Capability/Performance

Manager/Employee Capability/Performance

Long Term Profits

Current Performance

Figure 6.1

Heritage and Values

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Relative Cost vs Relative Performance

- Strategic Implications

More Expensive

Less Expensive

Change

• Design

• Manufacturing/Systems

Ignore

Value Analysis

• Raise prices

• Promote

Cost Reduction

Value Analysis

• De-emphasize

• Upgrade

Value Analysis

• Emphasize/promote

• Leave it alone

Figure 6.2

Our Component is

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Strengths and Weaknesses

• Strategies leverage strengths and neutralize

weaknesses

• Point of advantage vs points of parity vs liability

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Threats & Opportunities

• Key output of external analysis

• Evaluate as to:

– Immediacy – Impact

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Structuring Strategic Decisions

Strategy Decisions

• Strategic Investment

• Value Proposition

• Assets and Competencies

• Functional Strategies and Programs

Strategy Decisions

• Strategic Investment

• Value Proposition

• Assets and Competencies

• Functional Strategies and Programs

Figure 6.3

Organizational Strengths and Weaknesses

Competitor Strengths and Weaknesses

Market Needs, Attractiveness, and Key Success Factors

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Key Learnings

• Sales and profitability analysis provide an evaluation of past strategies and an indication of the current market viability of a product line

• Shareholder value holds that the flow of profits emanating from an investment

should exceed the cost of capital (which is the weighted average of the cost of equity and cost of debt) Routes to achieving shareholder value – such as

downsizing, reducing assets employed, and outsourcing – can be risky when

they undercut assets and competencies

• Performance assessment should go beyond financials to include such

dimensions as customer satisfaction/brand loyalty, product/service quality,

brand/firms associations, relative cost, new product activity, and

manager/employee capability and performance

• Assets and competences can represent a point of advantage, a point of parity, or

a liability Threats and opportunities that are both imminent and important should trigger strategic imperatives, programs with high priority

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Ancillary Slides

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“We have met the enemy and he is us.”

- Pogo

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“Self-conceit may lead to self-destruction.”

-Aesop,

“The Frog and the Ox”

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“The fish is the last to know if it swims

in water.”

-Chinese proverb

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“The successful man is the one who

finds out what is the matter with his business before his competitors do.”

- Roy L Smith

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Six Rules for Success

1 Face reality as it is, not as it was or as you wish it

were.

2 Be candid with everyone.

3 Don’t manage, lead.

4 Change before you have to.

5 If you don’t have a competitive advantage, don’t

compete.

6 Control your own destiny, or someone else will.

- Jack Welch former Chairman, General Electric

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“It’s not companies that fail, it’s their

leaders who fail.”

- Warren Bennis

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