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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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Competitive Advantage, Firm Performance, and Business Models

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This chapter demonstrated three traditional approaches for assessing and measuring firm performance and competitive advantage, as well as two conceptual frameworks designed to provide a more holistic, albeit more qualitative, perspective on firm performance. We also discussed the role of business models in translating a firm’s strategy into actions.
Conduct a firm profitability analysis using accounting data.
To measure competitive advantage, we must be able to (1) accurately assess firm performance, and (2) compare and benchmark the focal firm’s performance to other competitors in the same industry or the industry average.
To measure accounting profitability, we use standard metrics derived from publicly available accounting data.
Commonly used profitability metrics in strategic management are return on assets (ROA), return on equity (ROE), return on invested capital (ROIC), and return on revenue (ROR). See the key financial ratios in five tables in the “How to Conduct a Case Analysis” module.
All accounting data are historical and thus backward-looking. They focus mainly on tangible assets, and do not consider intangibles that are hard or impossible to measure and quantify, such as an innovation competency.
Applying shareholder value creation to assess and evaluate competitive advantage.
Investors are primarily interested in total return to shareholders, which includes stock price appreciation plus dividends received over a specific period.
Total return to shareholders is an external performance metric; it indicates how the market views all publicly available information about a firm’s past, current state, and expected future performance.
Applying a shareholders’ perspective, key metrics to measure and assess competitive advantage are the return on (risk) capital and market capitalization.
Stock prices can be highly volatile, which makes it difficult to assess firm performance. Overall macroeconomic factors have a direct bearing on stock prices. Also, stock prices frequently reflect the psychological mood of the investors, which can at times be irrational.
Shareholder value creation is a better measure of competitive advantage over the long term due to the “noise” introduced by market volatility, external factors, and investor sentiment.
Economic value creation and different sources of competitive advantage.
The relationship between economic value creation and competitive advantage is fundamental in strategic management. It provides the foundation upon which to formulate a firm’s competitive strategy of cost leadership or differentiation.
Three components are critical to evaluating any good or service: value (V), price (P), and cost (C). In this perspective, cost includes opportunity costs.
Economic value created is the difference between a buyer’s willingness to pay for a good or service and the firm’s cost to produce it (V 2 C).
A firm has a competitive advantage when it is able to create more economic value than its rivals. The source of competitive advantage can stem from higher perceived value creation (assuming equal cost) or lower cost (assuming equal value creation).
Applying a balanced scorecard to assess and evaluate competitive advantage.
The balanced-scorecard approach attempts to provide a more integrative view of competitive advantage.
Its goal is to harness multiple internal and external performance dimensions to balance finansial and strategic goals.
Managers develop strategic objectives for the balanced scorecard by answering four key questions: (1) How do customers view us? (2) How do we create value? (3) What core competencies do we need? (4) How do shareholders view us?.
Applying a triple bottom line to assess and evaluate competitive advantage.
Noneconomic factors can have a significant impact on a firm’s financial performance, not to mention its reputation and customer goodwill.
Managers are frequently asked to maintain and improve not only the firm’s economic performance but also its social and ecological performance.
Three dimensions—economic, social, and ecological—make up the triple bottom line. Achieving positive results in all three areas can lead to a sustainable strategy—a strategy that can endure over time.
A sustainable strategy produces not only positive financial results, but also positive results along the social and ecological dimensions.
Using a triple-bottom-line approach, managers audit their company’s fulfillment of its social and ecological obligations to stakeholders such as employees, customers, suppliers, and communities in as serious a way as they track its finansial performance.
The triple-bottom-line framework is related to stakeholder theory, an approach to understanding a firm as embedded in a network of internal and external constituencies that each make contributions and expect consideration in return.
How business models put strategy into action.
The translation of a firm’s strategy (where and how to compete for competitive advantage) into action takes place in the firm’s business model (how to make money).
A business model details how the firm conducts its business with its buyers, suppliers, and partners.
How companies do business is as important to gaining and sustaining competitive advantage as what they do.
Some important business models include razor– razor-blade, subscription-based, pay-as-you-go, and freemium.

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