Lost in translation: Deciphering competitive strategy from financial statements
Résumé
In this case study, you will walk through different types of competitive strategies adopted by the world’s leading corporations, dominant players in their respective industries. In the first step, the identification of the generic competitive strategy is made solely based on the information contained in the income statement. Emphasis is placed on the link between the core competencies of the firm: product differentiation and product cost, versus the propensity of the firm to undertake innovation. In the second step, a selected set of examples highlight the ambiguity in the identification of the accurate competitive strategy, based only on the information disclosed in the statement of operating income. Additional information must be sought in order to determine how exactly firms achieve their sustainable competitive advantage. This case study leads through the sources of this additional information that complement the quantitative data included in the income statement. In the final step, we relate business strategy with firm profitability via an array of economic dimensions that jointly determine a firm’s relative position within an industry, and which can be regarded as its key success factors. Financial statements of global companies that are standardized under either GAAP or IFRS are used. This feature makes the students aware of the terminology and style differences adopted by GAAP and IFRS accounting principles, respectively. Equally important, the set of examples highlight terminology and style differences even across companies that use the same set of account rules, namely either GAAP or IFRS.