1. Strategy and Performance
Chapter 2

2. Learning Objectives
The value of both financial and non- financial performance dimensions.
Relationship between financial performance and competitive advantage.
Use financial analysis to examine strategy.
Economic logic of industries and companies.
Interaction between strategy formulation and financial analysis.

3. The Goal of Strategy "Superior performance" or
"Substantial positive return" or
"Above average profitability" or
"Above average return on equity"

4. Key Strategy Performance Dimensions
Summary performance – the whole firm
Relative to competition
Over the long run

5. Emerging Performance Considerations
Stockholders versus stakeholders
Value creation can take many forms: economic, social, cultural, knowledge, etc.
Triple Bottom Line
Economic
Social
Ecological or environmental

6. Whole Foods 2013-15 Stockholder performance Stakeholder performance
Company Industry
ROE 14.5% 13.4 %
Revenue % %
Stakeholder performance
Creates larger market for organics farmers
Wider shopping choices for consumers
Seminars on nutrition and healthy eating
GMO transparency

7. Stakeholder Performance

8. Financial Performance
Customary measures
Return on equity (ROE)
Revenue growth
Common stock returns (dividends + stock price gains)
Market capitalization

9. Calculating ROE – "Dupont Analysis"

10. Detailed Financial Analysis
Current financial statements
Reveals patterns of investments and strategic behaviors
Common-sized statements facilitate comparison of different size competitors
Trend analysis – statements over years
Changing levels of investments
Changing expenses and margins

11. Strategy and Financial Statements
Strategic plan and direction Inter-related sets of activities
Decisions on resource allocations Patterns of asset allocations

12. Economic Logic "Recipe" for a type of company "Recipe" for an industry
Club store: "Pile it high, mark it down."
Luxury retailer: "Merchandise beautifully, pamper the customer."
"Recipe" for an industry
Game consoles: "Installed base"
Banks: "Net interest margin"

13. Common Industry Operating Metrics
Retailing
"Same store sales change vs. last year"
Airline
"RPM" – revenue passenger miles
"Load factor" – percentage of seats filled
Cable TV
Net subscriber additions
"Churn" – % subscribers dropping quickly