Week 4 Executive Summary

Article: Performance and Value Analysis

A business strategy is used to support a company to gain superior

performance in long term. Performance and Value Analysis (PVA) is a framework to
analyze a firms performance, to determine its sustainability and to evaluate options
to improve it (Van Den Steen, 2014).

The goal of this framework is to analyze the performance of a company and

identify both drivers and components. To accomplish this, it must first eliminate
temporary or random elements and focus on a particular transaction or a set of
identical transactions the transaction would be sale of product/service to a
particular customer (Van Den Steen, 2014). By following these steps, it will provide
a more accurate analysis of a particular product or service then an aggregation
performance at a firm level that can be misleading. This process will also lead to
discoverys of hidden trends and patterns, which will lead to a better prediction of
the firms future performance.

Now the firms strategic performance needs to be decomposed into three

parts that have its own forces, the 3 sections: common performance, bargaining
advantage, ad value creation advantage. Common Performance includes the
component of the profit generated by a firm that is in common with a competitor.
Bargaining Advantage is the component of performance by a firm, due to its ability
to appropriate more of the created value than a competitor. Lastly Value Creation
Advantage, the component that comes from creating more value then a competitor
by a firm.

When the three components are added up, it becomes the overall companies
strategic performance of that particular transaction. The combination of the firms
bargaining advantage and value creation advantage becomes the competitive
advantage of a firm for the transaction. From this process there are two ways in
which a firm can gain superior performance. First by competitive advantage, doing
better then competitors. Another option is through advantageous competition,
doing will with competitors.

Based on the above decomposition it can be noted that there are three ways
for a company to improve its performance.
Improve value creation
Improve bargaining position or pricing with suppliers or customers
Reduce competition
Another key component is Value Creation, value creation is the difference
between customer value and supplier cost. Customer value is the willingness to pay
by the customer for a particular product. Supplier cost is the amount the amount
that suppliers incur to produce inputs for the firm. This calculation is used in the PVA
framework to aid in the analysis in the overall firms performance.

It can be noted that the PVA framework is a strong analytical tool that aids in the
process of analyzing a companys long-term performance. The framework also
decomposes the companys strategic performance and provides a detailed picture
based on transaction. In some cases, there are factors such as volumes produced
that can affect the overall firms performance.

References:

Van Den Steen, E. J. (2014). Performance and Value Analysis