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The Link Between Strategy and Finance Explored

The Link Between Strategy and Finance Explored. A Strategic View A Video Case Example Some Discussion. What do I mean by Strategic Decisions?. Decisions that affect the long term well being of the firm These decisions have several characteristics:

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The Link Between Strategy and Finance Explored

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  1. The Link Between Strategy and Finance Explored A Strategic View A Video Case Example Some Discussion C M Clarke-Hill

  2. What do I mean by Strategic Decisions? • Decisions that affect the long term well being of the firm • These decisions have several characteristics: • They usually have very high impact on the firm • They are often irrevocable or very difficult and expensive to reverse • They should be about how the firm will create value • They are about sustaining competitive advantage • They often involve managers having a ‘view of the world’ • They commit current resources to future values – time lags effects C M Clarke-Hill

  3. Furthermore • These decisions have ‘market value’ and ‘shareholder value’ implications. By that I mean they can enhance or destroy such values. • Examples here abound the recent corporate literature C M Clarke-Hill

  4. How does the market value strategic decisions? • The current value of the firm is based around three key managerial outcomes: • The net present value of cash flows from legacy assets • The value of the growth opportunities managers can leverage from these legacy assets • The ability of the firm to generate new and innovative areas of business C M Clarke-Hill

  5. Diagrammatically Firm Value VALUE FROM Radical innovation Growth opportunities Legacy assets time C M Clarke-Hill

  6. We can see this in another way Ohmae’s 3-C Model Identify some of the macro and micro issues linked to decision making C M Clarke-Hill

  7. Ohmae’s Competition Model • CUSTOMERS • Target Markets • Segments Competes on “Value” Competes on “Value” COMPANY COMPETITORS Competes on Costs Competencies etc. Differentiation & Differentiation & Service Offered Service Offered C M Clarke-Hill

  8. In strategic Decision Making a Number of issues can be explored • How do managers think and act • Imperfect information • Asymmetric information • Systems demands and paradoxes • Resource availability • Satisficing or Maximising behaviour • Views of the world and mental maps C M Clarke-Hill

  9. Video Case Example Vodafone and Mannessmann Takeover C M Clarke-Hill

  10. Vodafone Analysis How has the market reacted? Share price charts Share value fundamentals C M Clarke-Hill

  11. Vodafone Plc Share price as at 24 April 02 Today’s Price 109p 52 wk High 222p Current Market Cap. £75bn 52 week high £274bn Loss of value £200bn Date 24 April 2002 FT Investor web site. In slide show Mode click chart to update price. • To assess the fundamentals you need to: • Look at Vodafone’s share price values fall • Look at the V share compared with the FTSE • Look at V share compared with the sector • Is this a more fair value of V’s prospects

  12. Key points • Share price halved in 12 months • Market Cap down by half with shareholder values destroyed • Look at the sector as well • Was the view of the world over optimistic • Compare Vodafone and Mannessmann’s views of the world • Is the new valuations more realistic? C M Clarke-Hill

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