How
effective is your competitive strategy?
The
purpose of a competitive strategy is to achieve a sustainable competitive
advantage for the business.
A
competitive advantage enables a business withstand competitive forces
better than its rivals. A
sustained competitive advantage is indicated by the following:
1. Long
term profits that exceed the business' cost of capital, provide a
reserve for future uncertainty, and enable accomplishment of the
business' goals.
2. Sustained
growth in sales volume and/or sales revenue.
A strong
competitive advantage is evidence of a sound competitive strategy.
| Complete the following matrix to
evaluate your competitive advantage. |
5 to 7 years of data enables a good
evaluation. 3 years of data is a minimum time period to get meaningful
results.
|
NOTE: All cells must have an entry in
them. Enter a zero (0) in
any cell that does not contain data.
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Enter
your fiscal year, beginning
with the most recent year in the extreme right column. |
| Past
Year 6 |
Past
Year 5 |
Past
Year 4 |
Past
Year 3 |
Past
Year 2 |
Past
Year 1 |
Current
Year |
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Year |
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Net
sales revenue (dollars)
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Sales
volume (units)*
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Operating
profit (dollars)
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After tax net income
(dollars)
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Interest paid on long term debt
(dollars)
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Average owners/stockholders equity
(dollars)
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Owners/stockholders after tax rate
of return on equity expectations (percent). See chart below.
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Average income tax rate (percent)
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* If sales volume is not available, enter a
zero (0) in these cells.
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Determining
Owners/Stockholders After Tax Rate of Return Expectations
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| To
preserve and maintain the wealth-producing assets of the business, its
return on equity must be competitive with other investment options
available to stockholders and investors.
Unless there are emotional or indirect financial incentives, this
expected rate of return is based on the investors perceived risk
associated with the investment opportunity.
The range of investment options and their associated risks are
shown in the following table. |
|
Investment
options
|
Rate
of return
|
Risk
|
|
30-year
U. S. government bonds
|
3-5 %
|
Low
|
| Stocks
and mutual funds |
8-13 %
|
Moderate
|
| Venture
capital |
25-30
% or higher
|
High
|
| Investors
and stockholders perceived risk associated with your business activity
will determine their rate of return expectations. Failure to
meet these expectations will dry up future financing capability and
produce unhappy stockholders or investors. |
Your
competitive advantage score
0
Profitability component
0
Growth component
0
Evaluating
your competitive strategy
Score
Minus 9 to 0
1 to 5
-
You
have a marginal competitive advantage.
-
Your
competitive strategy needs to be reexamined.
6 to 9
-
You
have a strong competitive advantage.
-
Your
competitive strategy appears sound for now.
|
Evaluating
your profitability |
Owners/ stockholders earnings
expectations during this period (dollars)
|
$0
|
Actual earnings during this period
(dollars)
|
$0
|
Owners/ stockholders actual return on
equity during this period (percent)
|
0% |
Contact
us to help interpret your results.
