MGT 699 Class 2 Murad Mithani

What is it?
The ability of a firm to perform better than its competitors Do individuals have competitive advantage?
If yes: What is your competitive advantage? Looks? Wealth? Intelligence? Network? Ques: What would you like your competitive

advantage to be?

SM: Planning, organizing, leading and controlling to attain the most favorable outcome.
Selection of one path excludes other potential paths
Strategy = trade-off

Competitive Advantage = to be better than the competitor/s serving the same market
Better than others using the same choices = efficiency Better than others using alternate choices = effectiveness

Ques: Does competitive advantage lead to higher profits?

Ability to identify a good match between opportunities (external) and capabilities (internal) through:

Lower costs (e.g. China) Focused services (e.g. Rado watches) Differentiation (e.g. Apples operating system) Possession of resources not easily available to others (RBV: scientists, location, brand name) Able to rapidly change with customer expectations (DC: e.g. Apple)

Ques: What are other examples of competitive advantage?

Absolute Performance
Market value Profitability

Consistent profits / long-term survival

Altmans Z Tobins q (threatened < 1.8, doing well > 3.0) Economic value added

Relative Performance
Social comparison Historical comparison

Compute any one of the sets of performance measures for Apple Inc. for years 2010 and 2011:

Market value, ROS & Profitability Altmans Z, EPS, ROA & Profitability Tobins q, Net Profit Margin, ROE & Profitability Economic value added, P/E Ratio & Profitability Market Value, Economic value added, Gross profit margin

Assumptions:
Market value per share (common/preferred) = $379.69

(2011), $282.54 (2010) Total Debt = Total Liabilities Cost of Capital = 7% per annum EBIT = Net income Total Taxes (Interest Expense = 0)

Product

New

Existing Market + New Product =

Product Development Existing Market + Existing Product = Market Penetration Existing

New Market + New Product = Diversification Existing Product + New Market = Market Development New Market

Existing

Product

New

Existing Market + New Product =

Product Development Existing Market + Existing Product = Market Penetration Existing

New Market + New Product = Diversification Existing Product + New Market = Market Development New Market

Existing

Strategy as Strategic Positioning and not Operational Effectiveness Ques: Do you agree?