Managing for Shareholder Value and the Role of Strategy

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					      What is strategy?:
      Creating value for
shareholders and stakeholders

         Paul C. Godfrey
         Mark H. Hansen
   Marriott School of Management
     Brigham Young University
                      What is Strategy?

• Strategy is the search for a sustainable competitive advantage
  over rivals

• Competitive advantage as shareholder value:
   – “above-average performance in the long run” (Porter, 1985)
   – “sustained superior financial performance” (Barney, 1986)
   – “persistent high relative profitability” (Thomas, 1986)

• Competitive advantage as stakeholder value:
   – “a value-creating strategy not simultaneously being implemented by
     any current or potential competitors” (Barney, 1991)
   – the ability of a an enterprise to “create more economic value than
     the marginal (breakeven) competitor in its product market” (Peteraf
     & Barney, 2003)
 Creating Value: The Strategy Puzzle

External Fit           Added Value

   Scope                  Internal Fit
                          Added Value

• How does the business add
  value to its customers?

• How does the business add
  value to other stakeholders?          Added Value

• Does the value added justify
  the cost of the product?

• What benefits accrue from
  doing business with the firm
  (input or output)?
                            External Fit

• What is the structure of the

• How is the industry related to           External Fit
  the general economy? Other

• What competitive dynamics
  drive the industry?

• What strategic positions are
  available? Which are

• What businesses is the
  corporation in?

• What businesses could the
  corporation enter?

• Which new businesses would          Scope
  add value to existing

• Can new products or services
  give the firm access to new
                            Internal Fit

• How does the firm structure its

• How is authority spread in the

• What is the firm’s culture?              Internal Fit
  What are the shared values?

• What level of alignment exists
  between the internal elements
  of the firm?
                  Strategic Position

                                    Added Value
   External Fit

• How does the firm position itself in the industry to maximize
  its economic value?
• 11 January—17 February
• Industries: Soft Drinks, Construction Materials,
  Motorcycles, Airlines
                   Strategic Leverage

• How can the firm parlay its
  existing resources in to new
  value-added businesses?
• 01 March—29 March                     Added Value
• Companies: Intel, Ciba-
  Geigy, Arauco, Newell, OSI,

                       Strategic Alignment

• How should the firm structure
  its internal operations in order           Added Value
  to maximize its value added?

• 06 January

• MBA 682

• Strategy Implementation &
  General Management                           Internal Fit
                           Managing Me, Inc.

• The most important firm you will ever direct is you
    – Professionally
    – Personally
    – Marriage & Family

• What role will strategy play for you?
    – What’s your level of external fit?
    – How are you creating strategic leverage?
    – Where do you have (need) alignment?

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