DOWNLOADwqTHEwqTestwqBankwqforwqContemporarywqStrategywqAnalysiswq10thwqE
ditionwqGrant
, ContemporarywqStrategywqAnalysisw q 10e
TESTwqBANK:wqCHAPTERwq2
Goals,wqValueswqandwqPerformance
Truewqorwqfalsewqquestions
1. Thewqentrepreneurswqwhowqcreatewqbusinesswqenterpriseswqarewqmotivatedwqprimarilywqbywqthewqdesirew
qforwqpersonalwqwealth.
[Seewqp.wq35]
a.wqT
*b.wqF
2. “Value”wqreferswqtowqthewqestimatedwqmonetarywqworthwqofwqawqproduct
wqorwqasset.wq[Seewqp.35]
*a.wqT
b.wqF
3. Thewqvaluewqcreatedwqbywqawqfirmwqiswqthewqvaluewqreceivedwqbywqthewqcustomerswqforwqthatwqfirm’swqpr
oducts,wqminuswqthewqrealwqcostwqofwqproducingwqthewqproducts.
[Seewqp.36]
* a.wqT
b.wqF
4. Ifwqawqfirmwqtowqpursuewqstakeholderwqinterestswqratherwqthanwqshareholderwqinterests,wqitwqmeanswqtha
twqitwqmaximizeswqvaluewqreceivedwqbywqallwqstakeholderswqratherwqthanwqthewqvaluewqreceivedwqbywqsha
reholderswqalone.
[Seewqpp.36-37]
* a.wqT
b.wqF
5. Implementingwqstakeholderwqvaluewqmaximizationwqiswqnotwqinherentlywqmorewqdifficultwqthanwqimpleme
ntingwqshareholderwqvaluewqmaximizationwqsincewqthewqdecisionwqtoolswqofwqmanagementwqcanwqeasilywqb
ewqadaptedwqtowqservewqthewqinterestswqofwqallwqthewqfirm’swqstakeholderwqgroups.
[Seewqpp.36-37]
a.wqT
*b.wqF
6. InwqmostwqcontinentalwqEuropeanwqcountries,wqcompanywqlawwqrequireswqboardswqofwqdirectorswqtowqensu
rewqthatwqtheirwqcompanieswqoperatewqprimarilywqinwqthewqinterestswqofwqshareholders,wqwhilewqinwqmostwqEng
lish-
speakingwqcountrieswqarewqrequiredwqtowqtakewqaccountwqofwqemployees,wqsociety,wqandwqthewqinterestswqofw
qthewqcompanywqas wqawqwhole.
{Seewq37]
a.wqT
*b.wqF
7. Inwqpractice,wqpursuingwqstakeholderwqinterestswqandwqpursuingwqshareholderwqinterestswqarewqidenticalwqsi
ncewqinwqorderwqtowqmakewqprofitswqawqfirmwqmustwqsatisfywqallwqitswqstakeholders.
[Seewqp.38]
a.wqT
*b.wqF
8. Firmswqarewqoftenwqconstrainedwqfromwqpursingwqgoalswqotherwqthanwqprofitwqmaximizationwqbywqth
ewqpressurewqofwqcompetitionwqandwqthreatwqofwqacquisition.
[Seewqp.38]
*a.wqT
b.wqF
©wq2019wqJohnwqWileywq&wqSon 1
s, Inc. mynursytest.store
,DOWNLOADwqTHEwqTestwqBankwqforwqContemporarywqStrategywqAnalysiswq10thwqE
ditionwqGrant
9. Becausewqprofitwqiswqdefinedwqbywqaccountingwqruleswqandwqmeasuredwqinwqfinancialwqstatements,wqprofitw
qmaximizationwqiswqanwqunambiguouswqperformancewqgoalwqforwqawqfirm.
[Seewqp.39]
a.wqT
*b.wqF
10. Economicwqprofitwqiswqawqbetterwqindicatorwqofwqawqfirm’swqperformancewqthanwqaccountingwqprofitwqbeca
usewqeconomicwqprofitwqtakeswqaccountwqofwqthewqnormal,wqexpectedwqreturnwqtowqcapital.
[Seewqp.40]
*a.wqT
b.wqF
11. Basingwqmanagementwqdecisionswqonwqeconomicwqprofitwq(e.g.wqEconomicwqValuewqAdded)wqratherwqthan
wqaccountingwqprofitwqiswqmorewqimportantwqforwqcompanies wqwithwqfewwqfixedwqassetswq(suchwqaswqsoftwarew
qcompanies wqandwqconsultingwqfirms)wqthanwqcapital-
intensivewqcompanieswqsuchwqaswqchemicalwqcompanieswqandwqvehiclewqmanufacturers.
[Seewqp.40]
a.wqT
*b.wqF
12. Maximizingwqprofitwqoverwqthewqlifewqofwqthewqfirmwqbearswqnowqrelationshipwqtowqthewqgoalwqofwqmaximiz
ingwqshareholderwqvalue.
[Seewqp.41]
a.wqT
*b.wqF
13. Stockwqmarketwqcapitalizationwqofferswqthewqbestwqavailablewqindicatorwqofwqthewqnetwqpresentwqvaluewqof
wqawqfirm’swqfuturewqfreewqcashwqflows.
[Seewqpp.41-42]
*a.wqT
b.wqF
14. Estimatingwqawqfirm’swqfuturewqcashwqflowswqiswqawqfairlywqstraightfor
wardwqtask.wq[Seewqpp.42-43]
a.wqT
*b.wqF
15. Whenwqcomparingwqthewqprofitabilitywqofwqfirmswqinwqdifferentwqindustries,wqitwqiswqbetterwqtowqusewqprofitwq
marginswqonwqsaleswqratherwqthanw q profitabilitywqratioswqbasedwquponwqbalancewqsheetwqitemswq(suchwqaswq
returnwqonwqequitywqorwqreturnwqonwqcapitalwqemployed)?
[SeewqTablewq2.3,wqp.wq44]
a.wqT
*b.wqF
16. Disaggregatingwqreturnwqonwqcapitalwqemployedwqintowqsaleswqmarginwqandwqcapitalwqturnoverwqoff
erswqawqusefulwqstartingwqpointwqforwqdiagnosingwqfirmwqperformance.
[Seewqpp.45-46]
*a.wqT
b.wqF
17. Sincewqthewqlongwqtermwqiswqawqserieswqofwqshortwqterms,wqshort-
termwqprofitwqmaximizationwqwillwqalwayswqleadwqtowqlong-wqtermwqprofitwqmaximization.
[Seewqp.47]
a.wqT
*b.wqF
©wq2019wqJohnwqWileywq&wqSon 2
s, Inc. mynursytest.store
, DOWNLOADwqTHEwqTestwqBankwqforwqContemporarywqStrategywqAnalysiswq10thwqE
ditionwqGrant
18. Awqmajorwqdifficultywqinwqselectingwqperformancewqtargetswqforwqawqfirmwqiswqthatwqperformancewqgoalswq
tendwqtowqbewqlongwqterm,wqbutwqeffectivewqmonitoringwqmustwqbewqshortwqterm.
[Seewqp.47]
*a.wqT
b.wqF
19. Thewqbalancedwqscorecardwqiswqawqusefulwqtoolwqforwqsettingwqandwqmonitoringwqperformancewqtargets
wqforwqfirmswqthatwqpursuewqstakeholder wqgoals;wqitwqiswqlesswqusefulwqforwqfirmswqthatwqseek wqtowqmaximiz
ewqprofitswqoverwqthewqlongwqterm.wq[Seewqp.48]
a.wqT
*b.wqF
20. Ifwqawqfirmwqiswqtowqachievewqsuperiorwqprofitwqperformance,wqitwqiswqessentialwqthatwqprofitabilitywqtargets
wqarewqsetwqforwqmanagers.wqIfwqmanagers wqfocuswqonwqthewqdrivers wqof wqprofitabilitywqratherwqthanwqprofitabi
litywqitself,wqtheirwqeffortswqwillwqbewqdiffused.
[Seewqpp.48-49]
a.wqT
*b.wqF
21. Awqmajorwqproblemwqencounteredwqbywqfirmswqthatwqadoptwqthewqgoalwqofwqmaximizingwqshareholde
rwqvaluewqiswqthewqtendencywqtowqconcentratewqonwqincreasingwqshort-
termwqprofitswqatwqthewqexpensewqofwqlong-termwqprofits.
[Seewqpp.48-49]
*a.wqT
b.wqF
22. AccordingwqtowqMiltonwqFriedman,wqthewqsocialwqpurposewqofwqawqbusinesswqiswqtow
qmakewqprofit.wq[Seewqp.50]
*a.wqT
b.wqF
23. Valueswqandwqethicalwqprincipleswqcanwqcomplementwqawqfirm’swqstrategywqthroughwqcreatingwqawqsensewq
ofwqidentitywqandwqsupportingwqcohesion.
[Seewqp.50]
*a.wqT
b.wqF
24. MichaelwqPorterwqandwqMarkwqKramer’swqconceptwqofwqsharedwqvaluewqiswqbasedwquponwqthewqnotion
wqthatwqbusiness wqenterpriseswqshouldwqfocus,wqfirst,wqonwqcreatingwqvaluewqand,wqsecond,wqonwqdistributi
ngwqthatwqvaluewqamongwqdifferentwqparticipantswq(includingwqshareholderswqandwqsociety-at-large).
[Seewqp.52]
a.wqT
*b.wqF
25. “Bottomwqofwqthewqpyramid”wqinitiativeswqembodywqthewqnotionwqthatwqmultinationalwqcorporationswqs
houldwqusewqawqportionwqofwqtheirwqprofitswqonwqcommunity-
basedwqprojectswqinwqdevelopingwqcountries.
[Seewqp.52]
a.wqT
*b.wqF
26. Onewqimplicationwqofwqrealwqoptionwqanalysiswqiswqthatwqwhenwqpursuingwqawqnewwqstrategicwqinitiative,wqt
herewqiswqvaluewqinwqawqfirmwqmakingwqanwqirreversiblewqcommitmentwqtowqcontinuingwqthatwqinitiative.
[Seewqpp.53-54]
a.wqT
*b.wqF
27. Awq“phaseswqandwqgates”wqapproachwqtowqnewwqproductwqdevelopmentwqiswqanwqexamplewqofwqawqbu
sinesswqprocesswqdesignedwqtowqcreatewqoptionwqvalue.
©wq2019wqJohnwqWileywq&wqSon 3
s, Inc. mynursytest.store
ditionwqGrant
, ContemporarywqStrategywqAnalysisw q 10e
TESTwqBANK:wqCHAPTERwq2
Goals,wqValueswqandwqPerformance
Truewqorwqfalsewqquestions
1. Thewqentrepreneurswqwhowqcreatewqbusinesswqenterpriseswqarewqmotivatedwqprimarilywqbywqthewqdesirew
qforwqpersonalwqwealth.
[Seewqp.wq35]
a.wqT
*b.wqF
2. “Value”wqreferswqtowqthewqestimatedwqmonetarywqworthwqofwqawqproduct
wqorwqasset.wq[Seewqp.35]
*a.wqT
b.wqF
3. Thewqvaluewqcreatedwqbywqawqfirmwqiswqthewqvaluewqreceivedwqbywqthewqcustomerswqforwqthatwqfirm’swqpr
oducts,wqminuswqthewqrealwqcostwqofwqproducingwqthewqproducts.
[Seewqp.36]
* a.wqT
b.wqF
4. Ifwqawqfirmwqtowqpursuewqstakeholderwqinterestswqratherwqthanwqshareholderwqinterests,wqitwqmeanswqtha
twqitwqmaximizeswqvaluewqreceivedwqbywqallwqstakeholderswqratherwqthanwqthewqvaluewqreceivedwqbywqsha
reholderswqalone.
[Seewqpp.36-37]
* a.wqT
b.wqF
5. Implementingwqstakeholderwqvaluewqmaximizationwqiswqnotwqinherentlywqmorewqdifficultwqthanwqimpleme
ntingwqshareholderwqvaluewqmaximizationwqsincewqthewqdecisionwqtoolswqofwqmanagementwqcanwqeasilywqb
ewqadaptedwqtowqservewqthewqinterestswqofwqallwqthewqfirm’swqstakeholderwqgroups.
[Seewqpp.36-37]
a.wqT
*b.wqF
6. InwqmostwqcontinentalwqEuropeanwqcountries,wqcompanywqlawwqrequireswqboardswqofwqdirectorswqtowqensu
rewqthatwqtheirwqcompanieswqoperatewqprimarilywqinwqthewqinterestswqofwqshareholders,wqwhilewqinwqmostwqEng
lish-
speakingwqcountrieswqarewqrequiredwqtowqtakewqaccountwqofwqemployees,wqsociety,wqandwqthewqinterestswqofw
qthewqcompanywqas wqawqwhole.
{Seewq37]
a.wqT
*b.wqF
7. Inwqpractice,wqpursuingwqstakeholderwqinterestswqandwqpursuingwqshareholderwqinterestswqarewqidenticalwqsi
ncewqinwqorderwqtowqmakewqprofitswqawqfirmwqmustwqsatisfywqallwqitswqstakeholders.
[Seewqp.38]
a.wqT
*b.wqF
8. Firmswqarewqoftenwqconstrainedwqfromwqpursingwqgoalswqotherwqthanwqprofitwqmaximizationwqbywqth
ewqpressurewqofwqcompetitionwqandwqthreatwqofwqacquisition.
[Seewqp.38]
*a.wqT
b.wqF
©wq2019wqJohnwqWileywq&wqSon 1
s, Inc. mynursytest.store
,DOWNLOADwqTHEwqTestwqBankwqforwqContemporarywqStrategywqAnalysiswq10thwqE
ditionwqGrant
9. Becausewqprofitwqiswqdefinedwqbywqaccountingwqruleswqandwqmeasuredwqinwqfinancialwqstatements,wqprofitw
qmaximizationwqiswqanwqunambiguouswqperformancewqgoalwqforwqawqfirm.
[Seewqp.39]
a.wqT
*b.wqF
10. Economicwqprofitwqiswqawqbetterwqindicatorwqofwqawqfirm’swqperformancewqthanwqaccountingwqprofitwqbeca
usewqeconomicwqprofitwqtakeswqaccountwqofwqthewqnormal,wqexpectedwqreturnwqtowqcapital.
[Seewqp.40]
*a.wqT
b.wqF
11. Basingwqmanagementwqdecisionswqonwqeconomicwqprofitwq(e.g.wqEconomicwqValuewqAdded)wqratherwqthan
wqaccountingwqprofitwqiswqmorewqimportantwqforwqcompanies wqwithwqfewwqfixedwqassetswq(suchwqaswqsoftwarew
qcompanies wqandwqconsultingwqfirms)wqthanwqcapital-
intensivewqcompanieswqsuchwqaswqchemicalwqcompanieswqandwqvehiclewqmanufacturers.
[Seewqp.40]
a.wqT
*b.wqF
12. Maximizingwqprofitwqoverwqthewqlifewqofwqthewqfirmwqbearswqnowqrelationshipwqtowqthewqgoalwqofwqmaximiz
ingwqshareholderwqvalue.
[Seewqp.41]
a.wqT
*b.wqF
13. Stockwqmarketwqcapitalizationwqofferswqthewqbestwqavailablewqindicatorwqofwqthewqnetwqpresentwqvaluewqof
wqawqfirm’swqfuturewqfreewqcashwqflows.
[Seewqpp.41-42]
*a.wqT
b.wqF
14. Estimatingwqawqfirm’swqfuturewqcashwqflowswqiswqawqfairlywqstraightfor
wardwqtask.wq[Seewqpp.42-43]
a.wqT
*b.wqF
15. Whenwqcomparingwqthewqprofitabilitywqofwqfirmswqinwqdifferentwqindustries,wqitwqiswqbetterwqtowqusewqprofitwq
marginswqonwqsaleswqratherwqthanw q profitabilitywqratioswqbasedwquponwqbalancewqsheetwqitemswq(suchwqaswq
returnwqonwqequitywqorwqreturnwqonwqcapitalwqemployed)?
[SeewqTablewq2.3,wqp.wq44]
a.wqT
*b.wqF
16. Disaggregatingwqreturnwqonwqcapitalwqemployedwqintowqsaleswqmarginwqandwqcapitalwqturnoverwqoff
erswqawqusefulwqstartingwqpointwqforwqdiagnosingwqfirmwqperformance.
[Seewqpp.45-46]
*a.wqT
b.wqF
17. Sincewqthewqlongwqtermwqiswqawqserieswqofwqshortwqterms,wqshort-
termwqprofitwqmaximizationwqwillwqalwayswqleadwqtowqlong-wqtermwqprofitwqmaximization.
[Seewqp.47]
a.wqT
*b.wqF
©wq2019wqJohnwqWileywq&wqSon 2
s, Inc. mynursytest.store
, DOWNLOADwqTHEwqTestwqBankwqforwqContemporarywqStrategywqAnalysiswq10thwqE
ditionwqGrant
18. Awqmajorwqdifficultywqinwqselectingwqperformancewqtargetswqforwqawqfirmwqiswqthatwqperformancewqgoalswq
tendwqtowqbewqlongwqterm,wqbutwqeffectivewqmonitoringwqmustwqbewqshortwqterm.
[Seewqp.47]
*a.wqT
b.wqF
19. Thewqbalancedwqscorecardwqiswqawqusefulwqtoolwqforwqsettingwqandwqmonitoringwqperformancewqtargets
wqforwqfirmswqthatwqpursuewqstakeholder wqgoals;wqitwqiswqlesswqusefulwqforwqfirmswqthatwqseek wqtowqmaximiz
ewqprofitswqoverwqthewqlongwqterm.wq[Seewqp.48]
a.wqT
*b.wqF
20. Ifwqawqfirmwqiswqtowqachievewqsuperiorwqprofitwqperformance,wqitwqiswqessentialwqthatwqprofitabilitywqtargets
wqarewqsetwqforwqmanagers.wqIfwqmanagers wqfocuswqonwqthewqdrivers wqof wqprofitabilitywqratherwqthanwqprofitabi
litywqitself,wqtheirwqeffortswqwillwqbewqdiffused.
[Seewqpp.48-49]
a.wqT
*b.wqF
21. Awqmajorwqproblemwqencounteredwqbywqfirmswqthatwqadoptwqthewqgoalwqofwqmaximizingwqshareholde
rwqvaluewqiswqthewqtendencywqtowqconcentratewqonwqincreasingwqshort-
termwqprofitswqatwqthewqexpensewqofwqlong-termwqprofits.
[Seewqpp.48-49]
*a.wqT
b.wqF
22. AccordingwqtowqMiltonwqFriedman,wqthewqsocialwqpurposewqofwqawqbusinesswqiswqtow
qmakewqprofit.wq[Seewqp.50]
*a.wqT
b.wqF
23. Valueswqandwqethicalwqprincipleswqcanwqcomplementwqawqfirm’swqstrategywqthroughwqcreatingwqawqsensewq
ofwqidentitywqandwqsupportingwqcohesion.
[Seewqp.50]
*a.wqT
b.wqF
24. MichaelwqPorterwqandwqMarkwqKramer’swqconceptwqofwqsharedwqvaluewqiswqbasedwquponwqthewqnotion
wqthatwqbusiness wqenterpriseswqshouldwqfocus,wqfirst,wqonwqcreatingwqvaluewqand,wqsecond,wqonwqdistributi
ngwqthatwqvaluewqamongwqdifferentwqparticipantswq(includingwqshareholderswqandwqsociety-at-large).
[Seewqp.52]
a.wqT
*b.wqF
25. “Bottomwqofwqthewqpyramid”wqinitiativeswqembodywqthewqnotionwqthatwqmultinationalwqcorporationswqs
houldwqusewqawqportionwqofwqtheirwqprofitswqonwqcommunity-
basedwqprojectswqinwqdevelopingwqcountries.
[Seewqp.52]
a.wqT
*b.wqF
26. Onewqimplicationwqofwqrealwqoptionwqanalysiswqiswqthatwqwhenwqpursuingwqawqnewwqstrategicwqinitiative,wqt
herewqiswqvaluewqinwqawqfirmwqmakingwqanwqirreversiblewqcommitmentwqtowqcontinuingwqthatwqinitiative.
[Seewqpp.53-54]
a.wqT
*b.wqF
27. Awq“phaseswqandwqgates”wqapproachwqtowqnewwqproductwqdevelopmentwqiswqanwqexamplewqofwqawqbu
sinesswqprocesswqdesignedwqtowqcreatewqoptionwqvalue.
©wq2019wqJohnwqWileywq&wqSon 3
s, Inc. mynursytest.store
