Question: Listen to the podcast and identify 3 topics from chapters 1, 2, 3, or 5.

1. Demonstrates that students can identify and connect topics discussed in the course with topics discussed in the podcast (you can quote the podcast).
2. Demonstrates that students can define/provide a general description (in their own words) of the topic identified.
3. Demonstrates that students can connect the definition/general description of the topic they had identified with other related contents in the chapter or course.
4. Demonstrates that students have listened and understood the podcast.

UNIDENTIFIED PERSON: This is PLANET MONEY from NPR.

NICK FOUNTAIN, HOST:

This is a story about what happens when you get between a grandma and her grandkids. The grandma in question is DeLores Williams.

AMANDA ARONCZYK, HOST:

Can I ask how many grandkids you have?

DELORES WILLIAMS: I have, at the moment, 14.

ARONCZYK: You have 14 grandkids.

WILLIAMS: It's wonderful. Yes.

ARONCZYK: It's 2015 when the story starts. DeLores is retired, and she's living in Washington State.

WILLIAMS: I was, like, off the grid almost.

ARONCZYK: Like, you were living in the woods.

WILLIAMS: Basically in the woods.

ARONCZYK: Far away from those beloved grandkids. So DeLores wants photos of those grandkids everywhere. And to save herself money and time and frustration, she wants to print the pictures herself.

FOUNTAIN: So she goes shopping for a new printer. And she's a very savvy technology consumer. She worked in IT for a decade.

ARONCZYK: Sometimes you were the one who had to go open up the printer and make sure it worked.

WILLIAMS: Yeah, and take it apart sometimes and put it back together. I was very good at doing that.

ARONCZYK: She shops around and decides on an HP printer because she used them at work and she thinks they're reliable and trustworthy, easy to fix.

FOUNTAIN: And that first year she has it, it is awesome. She prints tons of adorable photos - so many that pretty quickly, she runs into a problem we've all experienced. She runs out of ink.

ARONCZYK: So DeLores goes on Amazon, and there are two options - HP's ink, which is very expensive, and knockoff ink, which HP claims might mess up her printer, but whatever. It costs a lot less. DeLores goes with the knockoff, and the photos are just as good as before.

FOUNTAIN: But then one day she's got some new photos of the grandkids to print.

WILLIAMS: So I sat down to do it Saturday morning. I said, OK, got nothing else to do. Let me print some photos.

FOUNTAIN: But when she goes to print them, instead of photos, her printer spits out just, like, kind of blobs of color.

WILLIAMS: And it gave me an error message.

ARONCZYK: What - do you remember what it said?

WILLIAMS: Oh, yes, that I needed to change my ink cartridge.

ARONCZYK: OK.

WILLIAMS: And I knew better. There was no reason to change the ink cartridge. I had just done that the month before.

ARONCZYK: So like any good IT professional, DeLores starts to troubleshoot.

WILLIAMS: Software, hardware - I checked it all. I deleted it from the system, reloaded, everything. Finally, after a couple hours, I gave up.

FOUNTAIN: It's at this point that DeLores calls HP's customer service line. She gets someone on the line, and they're like, why don't you try this? Why don't you try that?

WILLIAMS: Meanwhile, in between all of the troubleshooting, they're saying, well, you really should get a new printer. And I was like, no, my printer should be working. There was nothing wrong. I told them they're crazy. Are you giving me one free?

ARONCZYK: Five hours later, she gets off the phone.

WILLIAMS: So I hung up, and I'm getting angry. And finally, I said, oh, let me just do some research on this printer.

ARONCZYK: When DeLores starts researching, she finds there are lots of other people having the exact same problem. They're all getting the same error message. And the really weird thing is that they're getting it around the same time - this one week in September. This is not a coincidence. Hello, and welcome to PLANET MONEY. I'm Amanda Aronczyk.

FOUNTAIN: And I'm Nick Fountain. Why did DeLores' printer stop working? The answer has to do with those ink cartridges she bought. They were not HP's, and the company was not happy about that.

ARONCZYK: Today on the show, big printer and its decades-long fight to keep people loyal, whether they want to be or not.

(SOUNDBITE OF MUSIC)

FOUNTAIN: I'd always just associated printers with mild annoyance until I read this article. It's titled "The Battle For The Soul Of Digital Freedom Taking Place Inside Your Printer," which really got me thinking about just why printers are so annoying. So I called up its author.

CORY DOCTOROW: My name is Cory Doctorow, and I'm a special adviser to the Electronic Frontier Foundation. I've been there for almost 20 years.

FOUNTAIN: And you are, like, big printer's No. 1 enemy at this point.

DOCTOROW: Well, I'll tell you what. You know, we campaign on lots of issues related to fairness in the digital world, and many of them are very abstract and hard to get people's heads around. But printer ink - like, you just have to whisper the words, and the mob arises online, full of righteous fury.

ARONCZYK: For me, Cory's article gave me flashbacks to the many moments when I wanted to toss my printer out the window. It's sort of a history of all the things that printer companies have been doing to keep us coming back to the proverbial inkwell.

FOUNTAIN: In your mind, where does the story of printer shenanigans start?

DOCTOROW: Well, I think it starts with the vogue for the razor blade business model.

FOUNTAIN: The razor blade business model. I first experienced this at probably, like, 14 when I went to get my first razor.

ARONCZYK: Wait.

FOUNTAIN: The starter pack was...

ARONCZYK: Nick, you were 14 when you started shaving?

FOUNTAIN: It was kind of aspirational.

ARONCZYK: (Laughter) OK.

FOUNTAIN: Anyways, I still remember. The starter pack was affordable even for me at the time. But when I went back for replacement blades over and over, that got kind of expensive.

ARONCZYK: So, right, that's the business model - low upfront costs, but then they keep you coming back for more. And the reason this works is because we are bad at thinking about future costs.

FOUNTAIN: The same is true with printers and ink. At some point, printer companies realized it was more profitable to sell you a printer at a cost or sometimes at a loss because ink - that was where the money was.

ARONCZYK: Printer companies pushed ink prices so high that ink has, at various times, been listed among the world's most expensive liquids up there on an ounce-to-ounce basis with Dom Perignon champagne, Chanel No. 5 and scorpion venom.

FOUNTAIN: Ooh. But printer ink is cheap to manufacture. So this was an opportunity for competitors who came in and started selling generic ink.

ARONCZYK: There was a time back in the late 1900s when there were lots of ways to get more ink for your printer. You could refill the cartridge yourself, or you could go to the mall, pick up a Cinnabon and stop by the ink refiller kiosk.

DOCTOROW: I don't know if you remember there was a time when there were a bunch of orders of monks that were refilling inkjet cartridges, and you could order...

ARONCZYK: What?

DOCTOROW: ...From - you could order - like, you know, you didn't have to buy honey from the monks. You could buy ink from the monks.

ARONCZYK: This was, like, monks that got into the printer ink business?

DOCTOROW: Yeah, printer ink refilling.

ARONCZYK: Because it was lucrative.

DOCTOROW: Because it was lucrative. Yeah. Yeah, it was like - it was meditative work that you could do in small - like, as a cottage - literal cottage industry that had a ready customer base.

FOUNTAIN: For the big printer companies, being undercut by small businesses, whether it was mall kiosks or the monks - that was not part of the plan. They needed customers to buy their ink, but they couldn't get rid of the knockoffs. So to sell more of their own ink, they started doing what we're calling shenanigans.

ARONCZYK: Shenanigan No. 1 - when you bought a new printer, you'd get what was called a starter pack. And what that really meant was that those ink cartridges came half empty.

FOUNTAIN: I'm sure the printer companies thought of it as half full, Amanda.

ARONCZYK: (Laughter) Right. Shenanigan No. 2 - you own a printer, and it tells you that the ink cartridge is empty even though you know it isn't. And finally, shenanigan No. 3 - you own a color printer, and when you print in black and white, the printer throws in some of the more expensive colors, so you'll run out of those faster.

FOUNTAIN: All these shenanigans were in service of one goal - boosting demand for ink. But the third-party sellers, like the monks - they were benefiting, too. If printer companies wanted to own the market, they were going to have to take out the competition. And for that, they were going to need a new strategy.

ARONCZYK: That new strategy is the thing that DeLores ran into when her printer stopped working. To understand exactly how printer companies pulled it off, we're going to need to take a look at the insides of the modern-day printer, which is kind of a technological marvel, right? Years and years and hundreds of millions of dollars of R&D, the modern printer is less like an appliance like a toaster and more like a very, very powerful computer. It even has Wi-Fi.

FOUNTAIN: Don't take it from us. Take it from someone who spent years of his life looking under the hood of HP's printers. His name is Ang Cui.

ANG CUI: If you look inside your modern printer - right? - like, you know, your $70 printer, there's so much computing power and sensors and real-time operation that I'm pretty sure that printer can fly, like, all of the Apollo missions.

FOUNTAIN: Ang is a cybersecurity researcher. He runs a company called Red Balloon Security, and he basically studies the security of everything that's not a desktop computer but is still a computer.

CUI: Your television, your fridge, your washing machine, your typical car - right? - like all those things.

ARONCZYK: The thing about computers, no matter what shape they take, is that they can be hacked. Ang says that his mission in life is to make them more secure.

FOUNTAIN: And he does that by trying to understand what their weaknesses are. Like, one of his favorite things to do when he's trying to hack a new device is to see if he can push it so far that it destroys itself.

CUI: There's something about security people, maybe hardware people. Like, we always want to see if we can make fire. We always try to do that.

ARONCZYK: In 2010, Ang was in grad school, and he decided to try to hack/enflame something that exists in every single office - a printer.

FOUNTAIN: He buys a small HP LaserJet printer for about 79 bucks, takes it apart, puts it back together.

ARONCZYK: In order to understand how a printer might get hacked, he's got to figure out how HP's engineers are telling the printer what to do. Now, HP keeps this a secret in part to keep hackers out. But what Ang discovers is that once you buy a printer, one of the ways HP can still update and change that printer is by sending it instructions via a print job.

FOUNTAIN: Once Ang understands this, he knows in theory how to take control of the printer himself, but actually doing it is kind of hard. He tries over and over again for months. And then finally, late one night, he's in the lab alone. It's 4 a.m., and he tries one last time.

CUI: This is, like, attempt 3,000-plus or whatever, and it finally works. You know, it's one of those - like, I wanted to high-five people, but there was nobody around.

FOUNTAIN: (Laughter).

ARONCZYK: Now that he has control, he wants to see what he can make the printer do. He gets it to turn on and turn off. He changes the LED screen, so it blinks, hi, Mom; hi, Mom; hi, Mom.

FOUNTAIN: And of course, Ang being Ang, he tries to get the printer to light itself on fire. He knows it has this little heater inside. Heat makes ink stick to paper. So he tells the heater, heat up all the way.

CUI: So, yeah, we spent a few weeks like, you know, messing with it. We got smoke.

FOUNTAIN: Smoke, not fire. But what Ang figures out is arguably far more scary. Like, he discovers that he could get an HP printer to scan every document it ever sees for Social Security numbers or credit card numbers. And he figures out that one compromised printer on a network can be used to spy on all the computers on that network even if they're all behind a firewall.

ARONCZYK: Once Ang understands all of this, he tells HP so they can fix it, and they do. They send dozens of firmware updates to correct these vulnerabilities so that these printers can no longer be hacked. Ang publishes his findings. For HP, this turns into a PR nightmare.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER #1: Well, a Columbia professor tells MSNBC printer security is simply a corner of the Internet no one has been thinking too much about.

UNIDENTIFIED REPORTER #2: One out of every four HP printers may be vulnerable to malware attacks.

UNIDENTIFIED REPORTER #1: So buying and connecting a printer - it's like selling a car without selling the keys to lock it. It's totally insecure.

ARONCZYK: Quick side note - HP didn't blame Ang for all this bad publicity. They're actually now one of his biggest clients.

FOUNTAIN: After Ang's research blew up, people would ask him, what can I do to protect my printer from hackers? And he would say, it's easy. You know those annoying firmware updates the company sends you all the time? Accept those. If you don't accept those updates, hackers still have a way in.

ARONCZYK: The problem is at some point, HP realized that they could use those friendly firmware updates to deal with their age-old problem - all that third-party ink. That's after the break.

(SOUNDBITE OF SKINNY WILLIAMS AND ADRIAN QUESADA'S "COLLECTIBLE KICKS")

ARONCZYK: Back to doting grandma and former IT professional DeLores Williams. DeLores remembers she'd bought an HP printer, replaced the cartridge, and then not long after, her printer stopped working.

FOUNTAIN: When we last heard from DeLores, she was trying to figure out how to fix her printer by doing all this online research.

WILLIAMS: And finally, I'd see a couple other people having issues with their printer. It just stopped, the same as mine.

ARONCZYK: These are same kind of issues.

WILLIAMS: With the same error messages.

FOUNTAIN: Seeing that, DeLores got suspicious.

WILLIAMS: I said, I cannot believe this. I don't understand this. So I called a lawyer that same day.

FOUNTAIN: She found a kind of fancy lawyer in San Francisco. And the lawyer said, yeah, seems like there might be something here. DeLores became a lead plaintiff in a class action lawsuit against HP. The lawsuit said that six months before DeLores' printer had stopped working, HP had pushed what they called a security update to printer, one of those supposedly friendly firmware updates. And the lawsuit said HP had hidden a time bomb in that update - a time bomb that said, act normal for now; stay cool; stay low-key. But when the day comes - September 13, 2016 - sabotage every printer that's using knockoff cartridges.

ARONCZYK: The printers could tell when it was knockoff ink because HP built its cartridges with little embedded chips that allow the printer to ask, essentially, are you an HP cartridge? No? Well, then you're rejected.

FOUNTAIN: For DeLores, this is what that meant. Before September 13, she had a totally functional printer, and after it, she didn't. And when she called up HP for help, they tried to sell her another printer. They didn't cop to what they'd done.

WILLIAMS: It was basically a secret that they did it.

FOUNTAIN: Pretty quickly, HP realized that this was a bad look. They sent updated firmware to affected printers so that they would work with non-HP cartridges. And they released a statement saying, we were just trying to protect your printers and our intellectual property, but, quote, "to our loyal customers who were affected, we apologize."

ARONCZYK: But still, the more DeLores thought about it, the more she felt like a victim of theft and that the perpetrator was HP.

WILLIAMS: How dare you come into my house and upgrade on my printer without my knowledge and then not tell anyone? You stole my printer. You were in my house. You were a thief. You took my printer away. They took it away.

FOUNTAIN: In 2018, HP settled the class action lawsuit for $1.5 million. DeLores got 5,000. We contacted HP, and they declined to comment.

ARONCZYK: That feeling DeLores had that HP had stolen something from her - Cory Doctorow, who we heard from earlier, says, yeah. She's right because when everything is an Internet-connected computer that the manufacturer can track and reprogram after you take it home, then owning something doesn't mean what it used to.

DOCTOROW: We've entered this bizarre digital world where a company's design choices can allow it to sort of rest its cold, dead hand on your property long after the title transfers to you, and it can really punch you in the face.

ARONCZYK: Now, OK, customers do often have options. Like, for printers, there are models you can buy that don't rely on those cartridges. You'll pay more for that printer, but in the end, you'll spend a lot less on ink.

FOUNTAIN: When I think about the takeaway of this story, it's not actually about printer companies. It's about the business model that they've been working towards - you know, lure people into your system, and then sell them things forever. That model is taking over the world. Think about it. It's basically the subscription model, and it's everywhere. We buy fancy exercise bikes and pay a monthly fee for classes. We stop buying CDs, then sign up for streaming services that we can never leave. We buy phones, and when we run out of storage, we pay the phone maker a monthly fee to store our photos in the cloud. It's the relationship that printer companies have always wanted to have with their customers. It's the razor blade business model but with teeth.

ARONCZYK: By the way, HP now has its own subscription service. It's called Instant Ink, where, for a monthly fee, they will monitor the ink level in your printer. And before you run out, they'll send you a refill. You know who got stuck signing up for this one? DeLores.

FOUNTAIN: I know it sounds ridiculous. She literally sued the company. But she still has an HP printer. She still needs ink.

WILLIAMS: Yes.

ARONCZYK: And so even though you were like, never again, you're still kind of stuck.

WILLIAMS: I'm stuck, right, unless I want to go out and buy another printer.

ARONCZYK: She says she's not happy about it, but it is convenient.

(SOUNDBITE OF MUSIC)

FOUNTAIN: The subscription model, by the way, is kind of how we make our money. We ask you to give money to your local public radio station, and they usually try to get you to become a sustaining member. What that means is that they want you to give them $5 a month or whatever forever. I promise it feels really good to be a member of a local public radio station. I am a member of three. If you want to find yours, go to donate.npr.org/planetmoney. That's donate.npr.org/planetmoney.

ARONCZYK: If you've managed to remotely set a device on fire, let us know. You can email us at p..y@npr.org. We're also on Instagram, Twitter, Facebook and TikTok.

FOUNTAIN: Today's show was produced by Dave Blanchard and mastered by Gilly Moon. PLANET MONEY's supervising producer is Alex Goldmark. Our editor is Bryant Urstadt. This episode was edited by Molly Messick. Special thanks to Octavio Blanco.

ARONCZYK: I'm Amanda Aronczyk.

FOUNTAIN: And I'm Nick Fountain. This is NPR. Thanks for listening.

CHAPTER 1:

Learning goal 1. Define and explain the role of strategy.

Learning goal 2. Define competitive advantage and related concepts (sustainable competitive advantage, competitive disadvantage, and competitive parity).

Learning goal 3. Assess the relationship between stakeholder strategy and sustainable competitive advantage.

Learning goal 4. Conduct a stakeholder impact analysis.

Learning objective 1. Define and explain the role of strategy:

Definition of strategy: A set of goal-directed actions a firm/individual/organization takes to gain and sustain superior performance relative to competitors.

Elements of a good strategy:

Diagnosis of the competitive challenge. Achieved by understanding the firm's competences (how it creates and captures value) and competitive situation (how it is competitively positioned on relation to competitors)

Formulation of strategy: A decision of the approach/policy to achieve superior performance.Formulation of to a corporate, business, and functional strategies

A set of coherent actions to implement the firm's guiding policy: in areas such as organizational design, governance, ethics, global presence?

Superior performance of what?

Learning Object 1:

To achieve superior performance:

New ventures: Gain access to financial and human capital.

Existing companies: Achieve profitable growth.

Charities: Gather donations.

Universities: Attract the best students and professors.

Sports teams: Gain championships.

Celebrities: Attract media attention.

In this course we will measure superior performance considering two measures:

Profitability.

Market share.

Learning Object 1:

Strategy is not grandiose statements that disregard competitive challenges or profitability.

"We will be number 1."

"We will win."

Firms do not want to be first for the sake of it. They want to make money.

Strategy includes but are not the tactical decisions (or functional strategies) used to implement it: "pricing strategy," "operations strategy," "brand strategy." These are good policies/initiatives/ functional strategies, but they are not a strategy.

Learning Goal 2:

Definition of competitive advantage: Superior performance relative. The benchmark for comparison are either

(a)Competitors in the same industry or

(b)the industry average. Is a ROIC - Return on invested capital - of 15% low or high? It depends on the industry.

Competitive advantage can be

(a)Sustainable or temporary

(b)Advantage, Parity or Disadvantage

Identify examples (follow example 1).

Example (1): Apple (smartphone industry):

Sustainable competitive advantage over Samsung.

Has lasted over a decade.

_________________ ?

Sustainable competitive advantage over _________.

Has lasted _________

_________________ ?

Sustainable competitive advantage over _________.

Has lasted _________

Learning Goal 3:

Definition. Stakeholders are: Organizations, groups, and individuals with a claim or a stake on the actions of the organization:

They can affect or can be affected by a firm's actions.

Have an interest in the performance or survival of the firm.

Learning Goal 3:

Thinking about strategy from a stakeholder perspective requires considering the following:

1. How the company creates value for their stakeholders,
2. How the company captures the value it has created (via their prices)
3. What Stakeholder gets the value ($$) captured.
4. Whether and how all company external stakeholders get compensation for their contributions or how the company incurs on additional costs to avoid harms or how it pays for harms. Examples

Companies contribute taxes to pay for contributions: infrastructure (e.g., roads) or government investments in education and health.

Companies pay taxes or contribute philanthropically for their pollution or other environment impacts of their operations.

Learning Goal 3:

The demands of stakeholders are conflicting. Companies can manage their conflicting interest. Factors defining:

Cooperating with stakeholders

reveals important information and reduces the risk of potentially problematic conflicting relations.

Increases trust which lowers business transaction cost.

Can allow greater adaptability and flexibility.

Can create more predictable relations and stable returns.

Can have positive reputational effects

Learning Goal 4:

Stakeholder Impact Analysis helps to recognize, prioritize and address stakeholder needs.

Three important stakeholder attributes: power, legitimacy, and urgency:

Power: when the stakeholder can get the company to do something that it would not otherwise do.

Legitimate claims: perceived to be legally valid or otherwise appropriate.

Urgent claims: require a company's immediate attention and response.

Chapter 2:

Learning objective 1. Distinguish among corporate, business, and functional strategy.

Learning objective 2. Describe the roles of vision, mission, values, and strategic commitments of a firm.

Learning Object 1:

Chapter 3:

Learning goal 1. Generate a PESTEL analysis to evaluate the impact of external factors on the firm.

Learning goal 2. Differentiate the roles of firm effects and industry effects in determining firm performance.

Learning goal 3: Apply Porter's five competitive forces to explain the profit potential of different industries. Including rivalry among competitors

Learning goal 4: Describe the strategic role of complements in creating positive-sum co-opetition.

Learning goal 5: Generate a strategic group model to reveal performance differences between clusters of firms in the same industry.

Learning Goal 1:

Groups environmental factors into six segments:

1. Political.
2. Economic.
3. Sociocultural.
4. Technological.
5. Ecological.
6. Legal.

Learning Goal 2:

Definition of industry: A group of incumbent companies (those already competing) offering similar products and services, their suppliers and buyers. We may also consider those interested in entering, and those that offer substitute products and services (e.g., railroad is a substitute or airplanes)

Learning Goal 2:

Industry analysis, a method to:

Identify an industry's profit potential.

Derive implications for a firm's strategic position (its ability to capture value considering the structure of the industry

Learning Goal 3: Apply Porter's five competitive forces to explain the profit potential of different industries.

The model helps understand

The profit potential of different industries. It depends not only on competitors but also on the other 4 forces

Firms' strategic positioning and how managers can improve it

Learning Goal 3: What makes an entry barrier high or low?

The minimum efficient scale to compete in an industry.

The presence of network effects.

Customer switching costs.

Capital requirements to start operating.

Branding creates loyalty:

Proprietary technologies are relevant:

The potential for incumbents to have access to raw materials, distribution challenges of geographic locations

The company longer operating has advantages because there are cumulative learning effects

The presence of government regulations that restrict entry into the industry

The potential to retaliate towards the new entrant

Power of Suppliers is high when:

Supplier's industry is more concentrated.

Suppliers do not depend heavily on the industry for their revenues.

Incumbent firms face significant switching costs.

Suppliers offer products that are differentiated.

There are no readily available substitutes.

Suppliers can credibly threaten to forward-integrate into the industry.

Power of Buyers (Customers) when

There are a few buyers and each one purchases large quantities.

The industry's products are standardized or undifferentiated commodities.

Buyers face low or no switching costs.

Buyers can credibly threaten to backwardly integrate into the industry.

Rivalry Among Competitors is intense when:

There are many competitors.

The competitors are roughly of equal size.

Industry growth is slow, zero, or even negative.

Exit barriers are high.

Incumbent firms are highly committed to the business.

Incumbent firms cannot read or understand each other's strategies well.

Products and services are a commodity

Fixed costs are high and marginal costs are low.

Excess capacity exists in the industry.

The product or service is perishable.

Learning Goal 4:

A product, service, or competency that adds value when used with the original product is considered a complement (a sixth force).

Complements increase demand for the primary product.

Enhances the profit potential for the industry and the firm.

Learning Goal 5:

Strategic groups are sets of companies that pursue a similar strategy in the same industry.

The strategic group model helps to identify crucial competitors as well as opportunities of underserved consumers. It involves

Clustering competing firms into groups.

It requires the identification of key strategic dimensions (factors that influence customer demand)

Competitive rivalry is strongest between firms in the same strategic group.

External environment affects strategic groups differently

Five competitive forces affect strategic groups differently.

Some strategic groups more profitable than others.

Chapter 5:

Learning goal 0. Review concepts including competitive advantage, financial statements, shareholder value.

Learning goal 1. Evaluate a firm's past competitive advantage applying accounting measures.

Learning goal 2. Evaluate a firm's past competitive advantage considering shareholder-based valuation measures.

Learning goal 3. Evaluate a firm's past competitive advantage considering the economic value created and captured.

Learning goal 4. Define business model and understand how it helps to alleviate some of the limitations of the economic value creation model.

Learning goal 5. Apply a balanced scorecard to assess the sustainability of firms' competitive advantage.

Learning goal 6. Apply a triple bottom line to assess the sustainability of firms' competitive advantage.

Learning Goal 0:

Definition of competitive advantage: Superior performance relative to a benchmark for comparison which is either

(a)Competitors in the same industry or

(b)the industry average.

Competitive advantage can be

(a)Sustainable or temporary

Companies can have competitive advantages, competitive parity, or competitive disadvantages.

Learning Goal 0:

Competitive advantage results into performing better than competitors.

Companies can use metrics based on standardized accounting metrics (GAAP, FASB) to compare their performance with competitors or industry average and in this way figure out whether they have a competitive advantage.

Companies use standard accounting statements.

Balance sheet: position at one point in time (assets). One fundamental metric from a strategic perspective is LEVERAGE

Profit and Loss: results from operations. Fundamental metrics from a strategic perspective are those indicative of PROFITABILITY (E.G., GROSSS MARGIN, ROE, ROA, ROR, ROS, BREAK EVEN POINT).

Cash Flow Statement: how assets and operations result into cash to pay bills. Fundamental metrics from a strategic perspective if BURN RATE AND WORKING CAPITAL.

Learning Goal 0:

Shareholders

Own shares of stock, are legal owners of public companies.

Risk Capital:

Money provided for an equity share.

Cannot be recovered if a firm goes bankrupt.

Total Return to Shareholders:

Stock price appreciation + dividends.

Market Capitalization:

Dollar value of total shares outstanding.

Number of outstanding shares x share price.

Learning Goal 1:

Evaluation of past profitability and efficiency. Ratios:

Return on invested capital (ROIC):

Return on equity (ROE),

Return on assets (ROA), and

Return on sales (ROS): How much of the firm's sales is converted into profits.

Return on Revenue (ROR) = Cost of goods sold (COGS) / Revenue (How efficiently a company can produce a good.)

Working capital turnover: How effectively capital is being used to generate revenue.

Selling, general, and administrative expense / Revenue (How much of each dollar earned is invested in SG&A)

Learning Goal 1:

Limitations of Accounting Data

Historical and backward-looking.

Does not consider off-balance sheet items:

For example: pension obligations, operating leases.

Focuses mainly on tangible assets:

May not be the most important.

Consider: innovation, quality, customer experience.

Learning Goal 1:

Accounting measures which help to evaluate the potential for future profitability

Research and development expense / Revenue (How much of each dollar earned is invested in R&D)

Working capital / Revenue (How much working capital the firm has tied up in its operations)

PPE / Revenue (How much of a firm's revenues are dedicated to cover plant, property, and equipment.)

Intangibles / Revenue (Intangibles include patents, copyrights, and trademarks, goodwill, and brand value).

Learning Goal 2:

Limitations of Shareholder Value Creation

Stock prices are volatile due to PESTEL factors that affect investor sentiment and are unrelated to firm's performance.

For example, macroeconomic factors such as economic growth or contraction. unemployment, interest and exchange rates.

Learning Goal 3:

Economic Value created. The difference between:

Value (V) (A buyer's willingness to pay for a product or service) and Cost (C) (the cost to produce the product or service)

Economic Value captured. The difference between:

The Price (P) charged to buyers and Cost (C).

Price is a tactical decision. It depends on factors such as

The information available to buyers to judge value

The price charged by competitors

Strategic considerations of customer loyalty.

Learning Goal 3:

Limitations

It does not consider opportunity costs (the value of the best forgone alternative)

Calculating the value created by a consumer good or service is not always easy.

Calculating the price to charge is not always easy and firms frequently make errors (under or over price their goods). The most dangerous is underpricing.

It needs to be calculated per product or service offered.

The focus is on how value is created. It disregards how processes can influence value capture.

Learning Goal 4:

Popular Business Models

Razor-razorblades: pay for replacements.

Subscription: pay for access.

Pay as you go: pay for what you consume.

Freemium: pay for extra features / add-ons.

Wholesale: products sold at a discount.

Agency: products sold on commission.

Bundling: more than one product sold at a discount.

Learning Goal 4:

Examples of Metrics for the Balanced Scorecard

Customers: Revenue, profit, customer satisfaction.

Value Creation: Competitiveness, innovation, organizational learning.

Core Competencies: Key business processes.

Shareholders: Cash flow, operating income, ROIC, ROE, total returns to shareholders.

Learning Goal 4:

Advantages of the Balance Score card

Links strategic vision to responsible parties.

Translates vision into measurable goals.

Implements feedback and organizational learning.

Alerts to needed strategic goal adaptation.

Disadvantages of the Balance Score card

Focused on implementation and Not formulation

Lacks guidance:

Which metrics to use?

How to address setbacks?