Chapter 2 Notes

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University of Toronto Scarborough
Financial Accounting
Prof.Jan Klakurka

Chapter 2 – Basics for Successful Strategy Business strategy is at the root of effective performance measurement and control for 2 reasons: 1. Performance measurement and control systems provide the analytic discipline and communication channels to formalize business strategy and ensure that strategic goals are communicated through the business 2. Performance measurement and control systems are the primary vehicle to monitor the implementation of these strategies Corporate Strategy and Business Strategy Corporate Strategy: The way that a firm attempts to maximize the value of the resources it controls. The focus is on where corporate resources will be invested. Business Strategy: How to compete in defined product markets. Before managers develop specific business strategies, they must analyze and understand: 1. The competitive market dynamics in their industry. Relating the internal strengths and weaknesses of the firm to external opportunities and threats in the marketplace. 2. Their own firm’s resources and capabilities Competitive Market Dynamics Five forces: The five forces analysis provides a useful framework and checklist for analyzing the competitive dynamics of any given industry. The five forces that determine the degree and nature of competition are: 1. Customers 2. Suppliers 3. Substitute products 4. New entrants 5. Competitive rivalry Resources and Capabilities of a Business Assets: A resource, owned or controlled by the entity, the bank, and inventory Resource: A strength of the business embodied in the tangible or intangible assets that are tied semi permanently to the firm Current Assets: Include cash, marketable securities, AR, inventory, prepaid expenses Productive Assets: Assets used to produce goods and services for customers. Include computers, IT equipment, buildings, manufacturing equipment
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