Understanding Corporate Performance: The Role of Strategy and Resources - Prof. 20494, Apuntes de Finanzas Empresariales

¡Descarga Understanding Corporate Performance: The Role of Strategy and Resources - Prof. 20494 y más Apuntes en PDF de Finanzas Empresariales solo en Docsity! TOPIC A: INTRODUCTION AND UNDERSTANDING CORPORATE PERFORMANCE Final exam 40% Theory class participation 10% Seminars 25% Course project 25% What is strategic management about? And why should we care? We associate strategy to the top management of the company. It’s important to care about to get a competitive advantage; we have to understand why some companies perform better than others. PERFORMANCE AND THE ROLE OF LUCK When you set up a firm, you have to see environment and look who is successful. We can depend on luck (the game of the coins 50% probability), the first ones and the lasts ones would have more advantage to be better and worse, because there are switching costs. It is difficult to understand when a firm is doing well, and it is not always a good idea to copy other companies, it doesn’t give you for sure an advantage when you perform like other firms. When resources are cumulative or when strategies/actions have a lot of risk/ noise then, observed performance is not always a reliable indicator of skill. In fact, there could be cases where extreme performers are less skillful than average performance. PERFORMANCE FEEDBACK& EVOLUTION PROBLEMS WITH INFERENCES ABOUT PERFORMANCE Degree of engagement: negative correlation, there are companies that are performing above the line positively and others bad. We don’t pay attention to firms who are performing bad, we just care about the ones that are successful and this is negative to understand strategy. PERFORMANCE & SURVIVOR BIAS [Escriba texto][Escriba texto][Escriba texto] PERFORMANCE & REGRESSION TO THE MEAN Punishing peoples works well (after the punishment the company works better) whereas rewarding people doesn’t work so well. When there is luck, randomness, people move around the mean. PERFORMANCE & CONFOUNDING EFFECTS Correlation doesn’t imply causation. PERFORMANCE & SUPERSTITIOUS LEARNING It is something that affects performance. You do some actions that bring good results, but maybe the actual effect is that the actions don’t cause the positive results. FIRM PERFORMANCE EXPLAINED Resource-based view (valuable & difficult to imitate resources) + Industry characteristics (Porter)= Firm performance. According to Porter, the five forces affect to performance: suppliers, ... The performance of air companies is bad according to porter (suppliers) because they pay to much money for a plane. With the 5 forces we can see how attractive is the market, the 5 forces matter. The resource-based view says that the 5 forces are not so important because it considers internal factors to understand performance, not external as porter. THE RESOURCE-BASED VIEW OF THE FIRM Valuable, rare, inimitable, non-substitutable resources competitive advantage & performance heterogeneity. Strategic Management II