B A 405 Lecture Notes - Lecture 2: Bounded Rationality, Weighted Arithmetic Mean, Serendipity
11 Nov 2020
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Document Summary
Business model - set of related and aligned strategies across corporate, business, and functional levels. Encompasses the totality of how a company will: To achieve and sustain competitive advantage and superior performance. Numerator = operating profit x (1 tax rate) Also known as earnings before interest and taxes (ebit) Use net income, which may have little to do with operations. Firms create value when roic consistently exceeds a firm"s wacc (weighted average cost of capital) Wacc = debt * interest + equity * return. Strategy need not and should not be limited to a formal planning model orchestrated by top management. Bounded rationality - cognitive limitations, complexities, and time constraints that limit human ability to interpret and process information. Devil"s advocacy - member of a decision-making team identifies all the considerations that might make a proposal unacceptable. Possible perils of recommended courses of action are brought into light.
