Glossary of techniques for strategic analysis. This article provides a glossary of analytical techniques, страница 16

The premises behind value-based planning are that the company's foremost obligation is to maximize returns to shareholders, and that the market value of shares is related to the expected cash-generating abilities of those shares.

There are several variations in the ways in which the concept may be applied, but all are based on forecast cash ¯ow, discounted by the risk-adjusted cost of capital. Strategies are expected to deliver a discounted return in excess of the cost of capital.

If taken to its logical conclusion, the shareholder value approach moves from being a clutch of techniques to a philosophy and process for the strategic management of the organization.

Day, G. and Fahey, L. (1991). Finding value in strategies. In: D. E. Hussey (ed.), International Review of Strategic Management, 2.1, Wiley, Chichester.

Reimann, B. C. (1987). Managing for Value, Planning Forum, Oxford, Ohio.

Reimann, B. C. (1990). Creating value to keep the raiders at bay. In: P. McNamee (ed.), Developing Strategies for Competitive Advantage, Pergamon Press, Oxford.

Stewart, G. B. (1991). The Quest for Value, Harper Business, New York.

See also: discounted cash ¯ow.

Value chains

A method for separating the activities the ®rm performs in order to identify the underlying areas of competitive advantage. All broad stages of the process from `inbound logistics' to after-sales service are identi®ed. They are then broken down into more detailed chains of activity, so that the areas where the ®rm has advantages can be studied. Similar analysis is undertaken on competitors, leading to more effective competitive strategies, and a fuller understanding of how each competitor is achieving differentiation.

Porter, M. E. (1985). Competitive Advantage, Free Press, New York.

See also: competitor analysis, competitor pro®ling, group competitive intensity map, industry analysis, industry mapping and strategic group mapping.

V matrix

A graphical presentation which is based solely on ®nancial data. Return on investment is plotted on one axis and weighted average cost of capital on the other. A diagonal line drawn from the zero points at the bottom left hand corner of the matrix to the opposite corner at the top right hand corner marks the position at which ROI and the cost of capital are equal.

Anything positioned below this diagonal is likely to be inadequate: anything above it is adequate. A ROI of 4% would be adequate if the cost of capital was only 2%. However, a ROI of 14% would be inadequate if the cost of capital was 16%. The matrix allows the positions of all businesses in the portfolio to be plotted relative to each other. ROI is de®ned as:

Operating income …1 ÿ the tax rate†

Assets where K is the cost of capital and V is value.

ROI

V ˆ

K

Although the matrix uses an undiscounted return on investment, it would probably be possible to adapt it to a discounted rate of return. The main value of the matrix is that it focuses on more than ROI, which may be particularly in an organization with subsidiaries with local borrowing, or minority shareholders.

McNamee, P. B. (1985). Tools and Techniques for Strategic Management, chapter 5, Pergamon Press, Oxford.

Autobiographical note

David Hussey, editor of the journal Strategic Change, is the author or editor of around 20 books on strategic management and change. His career has spanned industrial development in Rhodesia (now Zimbabwe), strategic planning and human resource management in various organizations, and management consultancy. From 1980 to 1994 he was managing director of the European operations of Harbridge House Inc. Currently, he is a member of the world-wide CIMID network, which offers high-quality management education, training and consultancy.

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