Foundations of Corporate Success: How Business Strategies Add Value

By John A. Kay | Go to book overview

CHAPTER 2

Adding Value

What is corporate success, and how is it measured? In this chapter I explore the strengths and weaknesses of common performance measures by comparing six British supermarket chains. Some people judge success by size. They look at a firm's sales, its market share, and its value on the stock market. Sometimes performance is assessed by reference to rate of return. This can be measured as return on equity, on investment, or on sales. And sometimes success is measured by growth, reflected in increase in output, movements in earnings per share, or prospectively, the firm's price-earnings ratio.

All of these are aspects of successful performance. But I argue in this chapter that the key measure of corporate success is added value. Added value is the difference between the (comprehensively accounted) value of a firm's output and the (comprehensively accounted) cost of the firm's inputs. In this specific sense, adding value is both the proper motivation of corporate activity and the measure of its achievement.

This chapter defines and develops the objective of added value. It introduces the added value statement and the analysis of the value chain as means of making a quantitative appraisal of a firm's operating activities. This contrasts with the usual financial statements which concentrate, appropriate for their purpose, on returns to investors. In Chapter 13 I explore these issues in greater detail and describe how added value is the basis of all the more familiar measures of corporate performance. While this chapter identifies the various stakeholders in the business--employees, investors, customers, and suppliers--I postpone until Chapter 12 the issue of how added value is shared among these various stakeholders. In the final part of the chapter I use the added value criterion to identify the most successful European companies of the last decade.

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Foundations of Corporate Success: How Business Strategies Add Value
Table of contents

Table of contents

  • Title Page i
  • Foreword iii
  • Preface vi
  • Contents xi
  • List of Figures xiii
  • List of Tables xiv
  • List of Tables xv
  • I - Corporate Success 1
  • Chapter 1 - The Structure of Strategy 3
  • Chapter 2 - Adding Value 19
  • II - Business Relationships 31
  • Chapter 3 - Co-Operation and Co-Ordination 33
  • Chapter 4 - Relationships and Contracts 50
  • III - Distinctive Capabilities 63
  • Chapter 5 - Architecture 66
  • Chapter 6 - Reputation 87
  • Chapter 7 - Innovation 101
  • Chapter 8 - Strategic Assets 113
  • IV - From Distinctive Capabilities to Competitive Advantage 125
  • Chapter 9 - Markets 127
  • Chapter 10 - Mergers 144
  • Chapter 11 - Sustainability 160
  • Chapter 12 - Appropriability 181
  • Chapter 13 - The Value of Competitive Advantage 192
  • Added Value Statements 211
  • V - Competitive Strategies 219
  • Chapter 14 - Pricing and Positioning, 1 221
  • Chapter 15 - Pricing and Positioning, 2 235
  • Chapter 16 - Advertising and Branding 251
  • Chapter 17 - Vertical Relationships 267
  • VI - The Strategic Audit 283
  • Chapter 18 - The Industry 285
  • Chapter 19 - The Firm 302
  • Chapter 20 - The Nation 320
  • VII - The Future of Strategy 335
  • Chapter 21 - A Brief History of Business Strategy 337
  • Chapter 22 - Conclusion 364
  • Value of the Ecu 369
  • Glossary 371
  • Bibliography 377
  • Index of Companies 395
  • General Index 399
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