Sven Smit, co-author of the new book Strategy Beyond The Hockey Stick, describes why the authors chose economic profit (the total profit after the cost of capital is subtracted) as the measure of a strategy’s success.
Business strategy is about beating the market. In other words, defying the power of “perfect” markets to push economic surplus back to zero. Economic profit measures the success of that defiance by showing what is left on the table after the forces of competition have played out.
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