WE BEGAN OUR JOURNEY into strategic management (in Chapter 1) by looking at how Apple achieved a sustainable competitive advantage (until the end of 2012), while its various competitors struggled to keep up. Prior to the introduction of the iPhone in 2007, however, the Canadian high- tech company BlackBerry was a global leader in wireless communication. As an early innovator, BlackBerry defined the smartphone category and changed the way millions of people around the world live and work. At one point, the BlackBerry smartphone was a corporate status symbol. As we discussed in Chapter 1, strategy is a set of goal-directed actions a firm takes to gain and sustain competitive advantage. Since competitive advantage is defined as superior performance relative to other competitors in the same industry or the industry average, a firm's managers must be able to accomplish two critical tasks: 1. Accurately assess the performance of their firm. 2. Compare and benchmark their firm's performance to other competitors in the same industry or against the industry average. One of the most commonly used metrics in assessing firm financial performance is return on invested capital (ROIC), where ROIC 5 (Net profits/Invested capital). 1 metric because it is a good proxy for firm profitability. In particular, the ratio measures how effectively a company uses its total invested capital, which consists of two components: (1) shareholders' equity through the selling of shares to the public, and (2) interest-bearing debt through borrowing from financial institutions and bond holders. ROIC is a popular As a rule of thumb, if a firm's ROIC is greater than its cost of capital, it generates value; if it is less than the cost of capital, the firm destroys value. To be more precise and to be able to derive strategic implications, however, managers must compare their ROIC to other competitors. Let's compare the financial performance of Apple and BlackBerry, direct competitors in the smartphone and mobile device industry. Exhibit 5.1 shows the ROIC for Apple and BlackBerry (as of fiscal year 2012). It further breaks down ROIC into its constituent components. This provides important clues for managers concerning what areas to focus on when attempting to improve firm performance. Apple's ROIC was 35.0 percent, which was more than 21 percentage points higher than BlackBerry's (14.1 percent). This means that for every $1.00 invested into Apple, the company returned almost $1.35, while for every $1.00 invested in the company, BlackBerry returned $1.14. Since Apple was 2.5 times more efficient than Black Berry at generating a return on invested capital, Apple had a clear competitive advantage over BlackBerry. 2 1.Make a recommendation to Tim Cook, the CEO of Apple, about actions he could take to improve firm performance. Case Study 2 paragraph (5 sentences per paragraph)