Chapter 5 Flashcards
What is accounting profitability?
Firms usually use accounting data to asses competitive advantage and firm performance. When doing so, we use financial data and ratios derive from publicly available accounting data and balance sheets, which enables us to conduct direct performance comparisons between different companies
What is economic value creation?
A firm has a competitive advantage when it creates more economic value than rival firms. Economic value created is the difference between a buyer’s willingness to pay for a product or service (V) and the firm’s total cost to produce it
Whats the balanced scorecard?
The balanced scorecard is a strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals. It helps managers achieve their strategic objectives more effectively
What are the four questions of the balanced scorecard?
(1) How do customers view us? T
(2) How do we create value?
(3) What core competencies do we need?
(4) How do shareholders view us?
Whats the triple bottom line and what does it consist of?
The Triple Bottom Line is a combination of economic, social, and ecological concerns that can lead to a sustainable strategy.
(1) Profits. The economic dimension captures the necessity of businesses to be profitable to survive.
(2) People. The social dimension emphasizes the people aspect, such as PepsiCo’s initiative of the whole person at work.
(3) Planet. The ecological dimension emphasizes the relationship between business and the natural environment.
What are the 7 popular business models and what do they stand for?
(1) Razor-razor-blades. The initial product is often sold at a loss or given away for free to drive demand for complementary goods with which the frim makes money (e.g. Gillette).
(2) Subscription. Users pay for access to a product or service whether they use the product or service during the payment term or not (e.g. Netflix, magazines, UM Sport, Office 365, …)
(3) Pay-as-you-go. Customers only pay for the services they consume (e.g. water and electricity services).
(4) Freemium. It provides the basic features of a product or service free of charge but charges the user for premium services such as advanced features or add-ons (e.g. Spotify). Low-costs business function in a similar way; extra services as paid at premium (e.g. Ryanair, AirAsia, …)
(5) Wholesale. The traditional model in retailing where someone sells something, and a consumer buys it.
(6) Agency. Producer relies on agent to sell product at a predetermined percentage commission (e.g. model agencies, travel agencies, real estate agencies, …)
(7) Bundling. Selling products or services for which demand is negatively correlated at a discount. In other words, the producer is trying to sell two products together at a lower price that if you would buy them separately, to increase their sales (e.g. Microsoft Word & Excel, …)
What are the 5 features of the dynamic nature of business models?
(1) Combination refers to combining two different models (e.g. razor-razor-blade and subscription).
(2) Evolution. The freemium business model can be seen as an evolutionary variation of the razor-razorblade model.
(3) Disruption. When a model disrupts others (e.g. Amazon with the book selling).
(4) Response to disruption. This is usually when a business looks for another model in order to respond to a disruption.
(5) Legal conflicts. The rapid development of business models, especially in response to disruption, can lead producers to breach existing rules of commerce
