Let's take a test that I have given to hundreds of managers. Because I've spent years in a B-school, it probably won't surprise you that the test involves a two-by-two matrix (figure 4-1).
The goal of strategy is profitable growth
On the vertical axis is economic profit (EP) or what some have branded as economic value added (EVA). Essentially, EP is what's left after subtracting the cost of capital from net operating profit. When a firm makes an investment—a choice to commit time and capital to build a new plant, hire a new salesperson, or invest in training, for example—that investment should, at a minimum, ...