Operating income assets 1988 95 Differences in Profitability Within Selected

Operating income assets 1988 95 differences in

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Operating income / assets, 1988-95 (%) Differences in Profitability Within Selected Industries, 1988-95 Semiconductor Industry -5 0 5 10 15 20 25 National Semiconductor Analog Devices AMD Motorola Texas Instruments Intel Operating income / assets, 1988-95 (%) Source: Pankaj Ghemawat and Jan W. Rivkin, “Creating Competitive Advantage,” 1998
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7 Copyright 2002 © Professor Michael E. Porter FEI Conference Halifax – 06-06-02 AF Linking Strategy and Financial Performance Superior Business Superior Business Unit Performance Unit Performance Superior Business Superior Business Industry Industry Structure Structure Industry Structure Competitive Competitive Advantage Advantage Competitive Advantage Financial Indicators • What is long-run  industry   average profitability? • How is industry profitability  changing ? Financial Indicators • What is long-run  industry   average profitability? • How is industry profitability  changing ? Financial Indicators • What is the business unit’s  relative   performance vs. its competitors in the  industry ? • How is relative performance changing? Financial Indicators • What is the business unit’s  relative   performance vs. its competitors in the  industry ? • How is relative performance changing? Strategy formulation requires  disaggregating  the causes of profitability Financial Indicators • What is the  company’s long-run  average profitability  in the unit? – How does it compare to average  performance in the  economy ? • How is the company’s profitability  changing ? Financial Indicators • What is the  company’s long-run  average profitability  in the unit? – How does it compare to average  performance in the  economy ? • How is the company’s profitability  changing ?
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8 Copyright 2002 © Professor Michael E. Porter FEI Conference Halifax – 06-06-02 AF Determinants of Relative Performance Types of Competitive Advantage Differentiation (Higher Price) Lower Cost Competitive Advantage Competitive Advantage
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9 Copyright 2002 © Professor Michael E. Porter FEI Conference Halifax – 06-06-02 AF Superior Business Superior Business Unit Performance Unit Performance Superior Business Superior Business Industry Industry Structure Structure Industry Structure Competitive Competitive Advantage Advantage Competitive Advantage Higher Prices Higher Prices Higher Prices Lower Costs Lower Costs Lower Costs Financial Indicators • What is the company’s  relative  cost position ? • How is the relative cost position  changing ? Financial Indicators • What is the company’s  relative  cost position ? • How is the relative cost position  changing ?
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