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jo.whitehead@ashridge.org.uk

The following materials are key exhibits from the book that may be helpful in teaching Please contact us with any questions, requests or comments!. jo.whitehead@ashridge.org.uk. Chapter 1. Business Attractiveness Matrix. High. Market profitability. Medium. Low.

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jo.whitehead@ashridge.org.uk

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  1. The following materials are key exhibits from the book that may be helpful in teachingPlease contact us with any questions, requests or comments! jo.whitehead@ashridge.org.uk
  2. Chapter 1
  3. Business Attractiveness Matrix High Market profitability Medium Low Significantly disadvantaged About the same Significantly advantaged Competitive advantage
  4. Heartland Matrix LOW HEARTLAND Risk of subtracting value from a business due to mis-understanding of or failing to adjust to the situation in the business Ballast EDGE OF HEARTLAND ALIEN TERRITORY VALUE TRAP HIGH LOW HIGH Potential to add value to a business from parent skills and resources
  5. Fair Value Matrix HIGH Better to be a seller If you own; Sell If you don’t own; Don’t buy Market price No compelling Capital Markets logic for buying or selling Better to be an owner If you own; Hold If you don’t own; Buy LOW LOW HIGH NPV of owning the business
  6. Chapter 2
  7. Experience curve: Costs decline with Cumulative Experience Steam turbine production cost example (1946–1963) Direct cost per megawatt for three different competitors (constant $) Allis Chalmers Westinghouse 95% slope General Electric Firm cumulative megawatts (000s) Note: For each competitor, the cost of production in each year between 1946 and 1963 is shown
  8. The Growth Share matrix HIGH Stars Question marks ? Marketgrowth1 Cash use Cash cows Dogs LOW Cash generation LOW HIGH Relative market share2 1. Over 3–5 years usually 2. Company's market share/largest competitor's market share
  9. Niche The competitive environments matrix MANY Fragmented Graphs in each of the 4 boxes show how profitability of incumbents (y axis) varies with size of the company (x axis) Number of ways toachieve advantage Stalemate Volume FEW HIGH LOW Potential competitiveadvantage
  10. The GE/ McKinsey matrix High Industry attractiveness Medium Low Significantly disadvantaged About the same Significantly advantaged Business Unit Strength
  11. Chapter 3
  12. Profitability of selected EU industriesAverage ROCE (Return on Capital Employed) 1997-20062) Profitability of selected U.S. industriesAverage ROIC(Return on Invested Capital) 1992-20061) Security Brokers & Dealers Manufacture of tobacco products Manufacture of coke, refined petroleumproducts and nuclear fuel Soft Drinks Construction Prepackaged Software Sale, maintenance and repair of motor vehiclesand motorcycles; retail sales of automotive fuel Pharmaceuticals Manufacture of machinery and equipment Perfume, Cosmetics, Toiletries Cookies & Crackers Manufacture of chemicals and chemical products Average industryROIC in the U.S.14.9% Average industryROCE in the EU9.8% Publishing, printing and reproductionof recorded media Mobile Homes Manufacture of medical, precision andoptical instruments, watches and clocks Wine & Brandy Manufacture of motor vehicles trailers and semi-trailers Bakery Products Public administration and defense;compulsory social security Soft Drink Bottling Knitting Mills Manufacture of textiles Hotels Health and social work Catalog, Mail-Order Houses Air transport Airlines Recycling Sources: 1) Porter, HBR, January 2008; 2) ESMT analysis Burger, Rocholl
  13. Why grow? $100 growing at 5%, 10%, and 15% for 10 years 405 259 163 100 10% 15% 0% 5%
  14. Chapter 4
  15. Parent as Value Adding Middleman Shareholders / Investors Parentorganisation Businesses
  16. Comparing critical success factors (example)
  17. Chapter 5
  18. Schiller Price Earnings Ratio “Black Monday” “Black Tuesday” Dotcom bust Lehman goes bust
  19. Real returns: Portfolios based on mean reversion, 1900-2012 Source: Elroy Dimson, Paul Marsh and Mike Staunton, DMS database.
  20. Chapter 6
  21. Many different situations possible Industry profitability Risk of subtracted value Market price Low Competitive advantage HEARTLAND High EDGE OF HEARTLAND BALLAST Med ALIEN TERRITORY Low VALUE TRAP High High Low Significantly disadvantaged About the same Significantly advantaged Competitive advantage Potential for added value NPV Green implies “buy” or “hold”. Red implies “sell”
  22. Chapter 10
  23. The value staircase Contribution of headquarters Value measured by discounted cash flow Dividends/cash Value at end of period Expand in China Develop a new product range Improve technical skills Starting value Rationalise manufacturing Total value
  24. Chapter 11
  25. Three ways to structure operating activities Value Chain Function Process Geography Customer Product Project Asset Two boss matrix Front/back Business Units Matrix
  26. Chapter 13
  27. Table showing HQ role against added value
  28. A way of drawing organisation models Powerful central functions Headof structure Less powerful services and advisory units Championing or coordinating units (KAM,Lean, Region, ..) Policy functions (Fin, HR, IT, Comms, ..) Core resource functions (Production, R&D, Marketing, ..) Shared services (Accounting, HR, IT, ..) Business Divisions
  29. The size and role of the corporate centre varies widely Headquarters staff 100,000 10,000 1,000 100 10 1 1,000 10,000 100,000 1,000,000 Total company employees
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