The Link Between Company Value And Competitive Advantage

The Link Between Company Value And Competitive

Advantage

PeerValuePeerValueDonald C. Collier, CEO

.

Providing corporate managers and stakeholderswith advanced competitive analysis and financial

bench marking services for business optimization,performance measurement, and reporting.

ProLytiX = Professional + AnalyticsPeerValuePeerValue

Back To The Basics

“This is a football…”

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Equity Investment 101

The ultimate measure of a Corporation’s value is it’s stock price.

Stock price = investors seeking best risk-adjusted return on their money.

The process is inherently Darwinian…» Poor investors lose their capital.» Good investors increase their capital.

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Reaping And Sowing

Most defining characteristic of a good investment = competitive advantage.

Competitive advantage predicts future earnings and a healthy stock price.

Capital flows toward competitive advantage and abandons competitive disadvantage.

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Competitive Advantage Determines...

Which markets should we attack? Which strategies should we pursue? Which partners should we endorse? Which tactics should we execute? Which businesses should we abandon?

» Interestingly, investors will let you know over time which directions make sense.

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Foundational Principle

To win, you must know what is “Core” and what is “Context” for your business.

“Core” tasks directly affect your competitive position in target markets.» Assign your “A” team to these.

“Context” tasks represent the overwhelming bulk of activities» Outsource & minimize focus

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Real-life Examples

Round Table Pizza = Quality ingredients Domino’s Pizza = Delivery time Chuck E. Cheeze Pizza = Entertainment

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Real-life Examples (Cont’d)

Semiconductors » Fab = Foundary and process is core» Fabless = Intellectual property and design

expertise is core…tools, IT, process is context.

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Avoiding The Trap

Don’t stick with outdated core/context paradigms…Continually re-purpose resources, or lose competitive advantage.» How do you think startups pick off legacy

companies in their own target markets?

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2 Questions To Ask

“If maintaining certain in-house resources can’t improve our stock price, why are we worrying about them?”

“Why not let someone else, whose stock price depends on excelling in this area, do our worrying for us?”» “Its Core for them and Context for us.”

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Competitive Rating System

Define which metrics best reflect your company’s core activities?

Gather the same metrics on your competitors/peers.

Regularly measure, compare, and communicate results to those who are in a position to do something about it.

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Closing The Loop

Management compensation should be directly linked to competitive advantage

If investors tell a company what it is worth by its stock price…» …then a company should tell management

what it is worth by its paycheck…”nothing focuses the mind like self-interest.”

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Top Concerns Of CFO’s

“Re-engineering the planning and budgeting process. Companies and CFO’s spend too much time being internally focused when they should be looking at their competitors and the marketplace. How can they make the process more efficient?”

__________CFO Magazine

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Sample Rating System-Financial

Return on sales (EBIT/Sales) Profit growth (historical &

projected by analysts) Asset efficiency (assets-

cash-payables/sales) Market value/sales (reflects

the street’s expectations)

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Sample Rating System-Strategic

Measures how well your business model will protect your profit stream in future.

Strategic control index» similar to “balanced

scorecard”

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Global Perspective

“So it is said that if you know others and know yourself, you will not be imperiled in a hundred battles; if you do not know others but know yourself, you will win one and lose one; if you do not know others and do not know yourself, you will be imperiled in every single battle.”

_______________Sun Tzu, “The Art Of War.”

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Competitive Context

Placing the planning process within a competitive context...

Benchmarking your organization against best-of-breed competitors.

Analyzing the overall economics of your industry to formulate a winning business model.

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Proprietary Divisional Analysis

(1) You provide quarterly Income

Statements & Balance Sheets

by Division

(2) You upload these financial statements via

secure electronic link to Prolytix

(4) Prolytix uploads new

reports to password-

controlled web site for viewing

(3) Prolytix runs your competitive analysis report: Each division vs

its respective peer group

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What You Will Know

Prevailing economics and trends of your business sector as a whole

The key ratios for your competitors and “best-of-breed” subgroups

Where your company ranks now--who is gaining ground? Who is losing ground?

What it will take to be successfulPeerValuePeerValue