Conclusion


This chapter discussed the economic filter in the Step-Wise Approach to Value. The economic filter is the first screen that is used for evaluating Strategic Alternatives. This filter has a two-step process:

  1. Understanding market demand

  2. Validating the SA in connection with market demand

Market demand is simply the product price multiplied by the number of buyers. Market demand can be predicted using numerous economic factors. We discussed some common economic metrics such as GNP, GDP, inflation, interest rates, and resource availability. These metrics can serve as inputs to a market demand model.

With an understanding of the future direction of market demand, you can validate the SA by assessing its alignment with the market and its equivalence of action with market risks (Exhibit 4-2). Alignment with market demand tests how well a SA captures market demand. Equivalence of response gauges whether the SA addresses market risk appropriately. Market risk is the probability of not achieving the target shareholder value. If the alternative is aligned with market demand, achieves equivalence of response, and addresses market risk appropriately, then the SA should be tested using the strategic filter.

Exhibit 4-2: Characteristics for evaluating equivalence of action in Strategic Alternatives.

start example

click to expand

end example




Translating Strategy into Shareholder Value. A Company-Wide Approach to Value Creation
Translating Strategy into Shareholder Value: A Company-Wide Approach to Value Creation
ISBN: 0814405649
EAN: 2147483647
Year: 2003
Pages: 117

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