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AP - Value Creation

The document outlines details from the syllabus of a COEC 491 Value Creation class. It discusses assessment methods including short assignments, exams, and a group project. Students will be assigned seats and are expected to have phones in airplane mode and no laptops in class. The professor requests a class liaison and introduces the goals of developing a framework for value creation and exploring how social responsibility can be embedded within it.

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44 views35 pages

AP - Value Creation

The document outlines details from the syllabus of a COEC 491 Value Creation class. It discusses assessment methods including short assignments, exams, and a group project. Students will be assigned seats and are expected to have phones in airplane mode and no laptops in class. The professor requests a class liaison and introduces the goals of developing a framework for value creation and exploring how social responsibility can be embedded within it.

Uploaded by

No-No-No
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 35

Please turn off all laptops.

Mobile phones and tablets


should be in airplane mode.

COEC 491
Value Creation
Prof. lvaro Parra

A few particulars from the syllabus


Assigned Seats
Starting Today, this will be your seat.
Bring your name tag, please use it every class.

Classroom Expectations
Mobile phones in airplane mode (not abuse)
No laptops or mobile phones are allowed in class
Tablets must lie flat on the desk, be in airplane mode,
and only display course material

How to email me
Subject: [491] xxx.

A few particulars from the syllabus


Assessment

Short Assignments
Midterm Exam
Individual Assignment
Group Assignment
Participation
Final Exam

5% - w/ Cases
20% - Oct 18
10% - Nov 8
20% - Nov 24
15% - Every Class
30% - Dec

A few particulars from the syllabus


Assessment
Short Assignments (5%)
One assignment per case, 2 to 3 questions that will help
you prepare for class discussion.
Each graded: mark o no mark. (Absences)

Individual Assignment (15%)


I will assign a case (TBD).
Using the tools we have developed in class, you will
write a 2 to 3 page write up analyzing the strategy of the
firm.
More information will come right after the midterm.
Due November 8th in class.

A few particulars from the syllabus


Assessment
Group Assignment (20%)
In a couple of weeks you will be randomly assigned to a
group of four(ish) people.
You will look at popular press articles and choose a firm
that we have not analyzed in class. You will have to ask
an specific question about the strategy of the firm.
Using the tools we have developed in class, you will:
Perform a thorough analysis of your question.
Prepare a (at most) 5 page write up with your
conclusions.
Present your finding in front of the class.
Due November 24, in class. (Random PPT Order)

A few particulars from the syllabus


Assessment
Class Participation (15%)

HOW

Points

Comment

Attending

5p.

Whenever you show up in time

Late or missing
class

0p.

You may miss or be late up to


three classes. Beyond that, you
get a discount.

Participating

5 p.

Up to 15 pts./day

Questions

5 p.

They count as participating

My discretion

40 p.

How well prepare you were,


quality, etc.

A few particulars from the syllabus


Assessment
Exams (20% + 30%)

Multiple Choice questions


Short answer questions
Very similar analysis we will be doing the whole term
I will post sample questions close to the examinations

We have an overlap with COEC 370!

I need a class liaison.

Today
Goals
Develop a framework to think about how firms
create and capture value
Show that with simple tools, we can learn a lot
in practice.
Explore how we can embed social responsibility
decisions into this framework

Profit Maximization
What is the main goal of the Firm?
A firm must aim to maximize its profits
Why?
So, where does social impact come in?
Environmental concerns
Labor standards
Social welfare
Other social impact issues?

Profit Maximization
We will take profit maximization as the
overarching goal of strategy.
Profit

= Total Revenue - Total Cost


=

Revenue
per unit

Cost
per unit

x Unit sales

= ( Price - Average cost ) x Quantity

For a strategy to be profitable it must


increase price, or
decrease average cost, or
increase quantity sold

Profit Maximization
Why is Profit maximization not a strategy?
Maximize profits is the goal of the firm in exactly the
same way as win is the goal of a football coach
Profits are the eventual goal, but we will focus on the
decisions that lead to long-term profitability

What inputs to acquire


What process to use
What products to produce
What customers to serve
What price to charge

Economics turns out to be particularly powerful tool to


understand and analyze the underlying decisions

VALUE CREATION AND CAPTURE


$/unit
Benefit of product
to customer;
willingness-to-pay

Price customer
pays for product
in the market

B
Value that goes to
customers as
CONSUMER
SURPLUS
Value created

P
Value that goes to firms
as PROFITS

Average (per unit) C


cost of production
units sold
Q
Units sold, or number of
customers who purchase

VALUE CREATION AND CAPTURE


Cost Reduction
$/unit
Benefit of product
to customer;
willingness-to-pay

Price customer
pays for product
in the market

Value that goes to


customers as
CONSUMER
SURPLUS
Value created

P
Value that goes to firms
as PROFITS

Average (per unit) C


cost of production

units sold
Q
Units sold, or number of
customers who purchase

VALUE CREATION AND CAPTURE


Willingness to pay
$/unit
Benefit of product B
to customer;
willingness-to-pay

Price customer
pays for product
in the market

Value that goes to


customers as
CONSUMER
SURPLUS
Value created

Value that goes to firms


as PROFITS
Average (per unit) C
cost of production

units sold
Q
Units sold, or number of
customers who purchase

VALUE CREATION AND CAPTURE


Quantity sold
$/unit
Benefit of product B
to customer;
willingness-to-pay

Price customer
pays for product
in the market

Value that goes to


customers as
CONSUMER
SURPLUS
Value created

Value that goes to firms


as PROFITS
Average (per unit) C
cost of production

units sold
Q
Units sold, or number of
customers who purchase

Profit Maximization

VALUE CREATION AND CAPTURE


How does Chipotles value creation and capture
change with the use of fair food tomatoes?
$/unit
Benefit of product
to customer;
willingness-to-pay

Price customer
pays for product
in the market

B
Value that goes to
customers as
CONSUMER
SURPLUS
Value created

P
Value that goes to firms
as PROFITS

Average (per unit) C


cost of production

units sold
Q
Units sold, or number of
customers who purchase

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

Consumer surplus

Consumer surplus

P
Profits

Profits
C

units sold

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

Consumer surplus

Consumer surplus

P
Profits

Profits
C

units sold

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

Consumer surplus

Consumer surplus

P
Profits
Profits
C

units sold

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

B
Consumer surplus

Consumer surplus

P
Profits
Profits
C

units sold

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

B
Consumer surplus
P

Consumer surplus

P
Profits
Profits

units sold
Costs go up a lot, benefits only a little
Difficult to increase price and profits

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

B
Consumer surplus
P

Consumer surplus

P
Profits
Profits

units sold
Costs go up a lot, benefits only a little
Difficult to increase price and profits

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

Consumer surplus
P

Consumer surplus
P

Profits
Profits
C

units sold
Costs go up a lot, benefits only a little
Difficult to increase price and profits

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

Consumer surplus
Consumer surplus
P

P
Profits
Profits

units sold
Costs go up a lot, benefits only a little
Difficult to increase price and profits

units sold

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit

Bad news scenario

$/unit

Good news scenario

Consumer surplus
Consumer surplus
P
P
Profits

Profits

units sold
Costs go up a lot, benefits only a little
Difficult to increase price and profits

units sold
Costs go up a little, benefits a lot
Easier to increase price and profits

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit
B

Consumer surplus
P

Profits
C
units sold

Q
Units sold, or number of
customers who purchase

Value Creation and Capture


Chipotle: fair food tomatoes
$/unit
B

Consumer surplus
P
Profits
C

units sold
Q
Units sold, or number of
customers who purchase

Value Creation and Capture


Chipotle: Heterogeneous Costumers
$/unit

Consumer
Surplus
(B-P)
Profit
(P-C)

Demand curve

units sold

Value Creation and Capture


Chipotle: Heterogeneous Costumers
$/unit

Consumer
Surplus
(B-P)
Profit
(P-C)

Demand curve

Q
Customers who care
about ethical food

Customers who
just like burritos

units sold

Value Creation and Capture


Chipotle: Fair trade food?
$/unit

Consumer
Surplus
(B-P)
Profit
(P-C)

Q
Customers who care
about ethical food

Customers who
just like burritos

units sold

Value Creation and Capture


Chipotle: Fair trade food?
$/unit
P

These customers
will go elsewhere

Q
Customers who care
about ethical food

Customers who
just like burritos

units sold

Value Creation and Capture


Chipotle: Fair trade food?
$/unit

Consumer surplus

Profit

Q
Customers who care
about ethical food

Customers who
just like burritos

units sold

Value Creation and Capture


LESSONS SO FAR
A product or service must
provide benefits to the end
user in order to create
value
A firm must create value in
order to have value to
capture as profits
Creating value does not
guarantee profits. The firm
must also be able to
capture some of that
value through the price it
charges.

$/unit

Good news scenario

B
Consumer surplus

P
Profits
C

units sold

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