Strategy clips
Week 1:
Strategy: How can you make an organization very profitable and are satisfied with their activities.
``Economic value created`` is the difference between perceived benefits gained by a customer and
the full economic costs.
Triangle : consumer surplus (value minus price)
Square : producer surplus (price minus costs)
Economic value created : consumer surplus + producer surplus
Economic advantage:
Measuring Competitive Advantage (Always measured relative to other firms)
- Accounting measures:
o Profit ratios
o Liquidity ratios
o Leverage ratios
o Activity ratios (about processes)
- Economic measures:
o The cost of debt
o The cost of equity
o Weighted average cost of capital (WACC)
▪ WACC is the ratio from investors in the
organisation what the expect in return
(Return On Assets) (average of interest from investors)
WACC < ROA < Industry Avg ROA
Levels of analysis:
- General environment
o Demographic: age, sex, martial status income,
ethnicity
o Culture: values, beliefs and norms that guide
behavior in society
o Economic climate: the overall health of the
economic systems within which a firm operates
o Legal and political conditions: the law and legal systems impact on business
o Specific international events: event like wars, political coup, terrorism, famines which
have an effect on the firms ability to generate a competitive advantage
o Technological change: a shift in the frontier of technological possibilities and the
underlying infrastructure (5G)
- Industry (part of task environment)
o Set of companies that fulfil a similar need with a similar production process
▪ Too narrow? Actual competitors are labelled substitute or new entrant
▪ Too broad? Actual substitutes are labelled direct competitors
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Week 1:
Strategy: How can you make an organization very profitable and are satisfied with their activities.
``Economic value created`` is the difference between perceived benefits gained by a customer and
the full economic costs.
Triangle : consumer surplus (value minus price)
Square : producer surplus (price minus costs)
Economic value created : consumer surplus + producer surplus
Economic advantage:
Measuring Competitive Advantage (Always measured relative to other firms)
- Accounting measures:
o Profit ratios
o Liquidity ratios
o Leverage ratios
o Activity ratios (about processes)
- Economic measures:
o The cost of debt
o The cost of equity
o Weighted average cost of capital (WACC)
▪ WACC is the ratio from investors in the
organisation what the expect in return
(Return On Assets) (average of interest from investors)
WACC < ROA < Industry Avg ROA
Levels of analysis:
- General environment
o Demographic: age, sex, martial status income,
ethnicity
o Culture: values, beliefs and norms that guide
behavior in society
o Economic climate: the overall health of the
economic systems within which a firm operates
o Legal and political conditions: the law and legal systems impact on business
o Specific international events: event like wars, political coup, terrorism, famines which
have an effect on the firms ability to generate a competitive advantage
o Technological change: a shift in the frontier of technological possibilities and the
underlying infrastructure (5G)
- Industry (part of task environment)
o Set of companies that fulfil a similar need with a similar production process
▪ Too narrow? Actual competitors are labelled substitute or new entrant
▪ Too broad? Actual substitutes are labelled direct competitors
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