The resource-based view (RBV) is a tool to determine strategic resources and how it affects the performance of the firm based solely on reviewing its internal environment while the external environment remains fixed. Firms using RBV competes in terms of their resources and capabilities. The aim of this article is to study the factors that influence a firm’s performance. The RBV emphasizes the firm’s resources as the essential elements of competitive advantage and performance. It assumes two assumptions in examining sources of a competitive advantage which are that the firms are heterogeneous in terms of the resources they control and that resource heterogeneity can continue over a period as the resources used to implement their strategies are not easily portable across firms. The RBV method of analyzing a firm’s performance is focused that other vital factors that tend to be disregarded. Resources are not valuable of themselves; instead, they are Continue reading
Strategic Management
Strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives. It involves the systematic identification of specifying the firm’s objectives, nurturing policies and strategies to achieve these objectives, and acquiring and making available these resources to implement the policies and strategies to achieve the firm’s objectives. Strategic management, therefore, integrates the activities of the various functional sectors of a business, such as marketing, sales, production etc. , to achieve organizational goals. It is generally the highest level of managerial activity, usually initiate by the board of directors and executed by the firm’s Chief Executive Officer (CEO) and executive team.
McKinsey’s Strategic Control Map
Strategic Control Map shows the relationship between size (measured by book value) and performance for shareholders (measured by market-to-book ratio). It was developed by McKinsey consultants D’Silva, Fallon and Mehta in 1996, and it is used to help companies get visibility into their own and competitors performance trajectories and better understand the threats and opportunities for a company’s strategy execution. Strategic Control Map is helpful in analyzing an industry landscape, looking at various companies or firms in this industry, by breaking down overall performance into two key drivers or indicators, helps companies identify their biggest opportunities and threats and boost their odds of hunting for acquisition targets rather than being hunted themselves. Strategic Control Map tracks the relationship between the two dimensions of market capitalization by plotting a company’s size against its performance for shareholders. The principle behind Strategic Control Map is that, market capitalization = book value of assets Continue reading
External Prospects of Business Growth
The analysis of the internal perspective of the growth of the business reflects on the operations that the organization must undertake to stimulate productivity and the quality of employees. In addition to the internal factors that influence the organization, external factors affect the performance of the business. The external factors include political, economic, socio-cultural, technological, legal, and environmental issues. The political environment involves the political stability of the country in which the business is operating. In this case, the additional factors that the political factors would influence include the regulation policies formulated by the government. If the government formulates stern policies based on its doctoral nature, the business operations will suffer leading to poor performance and reduction in quality provision. On the other hand, if the government adopts democratic leadership, business issues will be considered during policy development leading to business growth in the whole industry. Economic factors are crucial Continue reading
McKinsey Model of Value Based Management
The McKinsey model, developed by leading management consultants McKinsey & Company, is a comprehensive approach to value-based management. This approach is based on the discounted cash flow principle, which is a direct measure of value creation. McKinsey Model of Value Based Management focuses on the identification of key value drivers at various levels of the organization, and places emphasis on these value drivers in all the areas, i.e. in setting up of targets, in the various management processes, in performance measurement, etc. Value based management is a model that allow managers to run a business focusing on the creation, improvement, and delivery of value. According to Copeland, Roller and Murrin, value-based management is “an approach to management whereby the company’s overall aspirations, analytical techniques, and management processes are all aligned to help the company maximize its value by focusing management decision-making on the key drivers of value”. According to Continue reading
Alcar Model of Value Based Management
The Alcar model, developed by the Alcar Group Inc., a company into management education and software development, uses the discounted cash flow analysis to identify value adding strategies. According to Alcar Model of Value Based Management, there are seven ‘value drivers’ that affect a firm’s value. These are The growth rate of sales Operating profit margin Income tax rate Incremental investment in working capital Incremental investment in fixed assets Value growth duration Cost of capital. Value growth duration refers to the time period for which a strategy is expected to result in a higher than normal growth rate for the firm. The first six factors affect the value of the strategy for the firm by determining the cash flows generated by a strategy. The last term, i.e. the cost of capital, affects the value of the strategy by determining the present value of these cash flows. The following figure represents Continue reading
Strategic issues in Not-for-Profit (NFP) organizations
Not-for-Profit (NFP): An organization that provides some service or good with no intention of earning a profit. NFP includes Private nonprofit corporations (such as hospitals, institutes, private colleges, and organized charities) as well as Public governmental units/agencies (such as welfare departments, prisons, and state universities) Types of Not-for-Profit Organizations Importance of Revenue Source: NFPs are dependant on dues, assessments, or donations for their revenue sources. In NFP organizations there is likely to be a very different sort of relationship between the organizations providing and the person receiving the service. Because the recipient of the service typically does not pay the entire cost of the service, outside sponsors are required. The pattern of Influence on Strategic Decision Making: Pattern of influence is derived from its source of revenues. Those who fund the NFP are likely to have a significant influence on its operations The usefulness of Strategic Management and Techniques: some Continue reading