Literature Related to Growth and Resources
There is a second aspect that is critical to a firm's success and is related to the ability of the firms to grow. According to McKinsey (see Baghai et al.2 9) , firms that want to grow steadily need to develop a special capability platform consisting of business specific core competencies, growth-enabling capabilities, privileged assets (mostly intellectual assets), and special relationships. Edvinsson30 classifies all these items as IC, that is, knowledge and relationships.
Literature Related to How to Measure a Firm's Economic Performance, and Its Connection with Industry and Firm's Factors
The literature has proposed several indexes to measure firm economic performance. Bothwell, Cooley, and Hall31 and Qualls32 used "sales - costs/sales," similar to the Lerner index. Holterman33 included other variables such as output/person, output/capital, output/costs, and similar ones using profits instead of output. He also used the Lerner index and growth of productivity. Bothwell34 approached the concept of stock value as a proxy of economic performance by mentioning free cash flow; however, he finally used return on equity (ROE) and return on assets (ROA).
Other streams of research focus on the EVA as a value-based management tool. Probably the most advanced and inclusive one is Fletcher's research, which presents an integrated value-based management model, linking the EVA and balanced score card to decide and monitor strategies. Some authors have incorporated the EVA in their analysis, including Pettit,35 Ittner, Larcker, and Meyer 36 and Banker, Potter, and Srinivasan.37 Most of these works relate to the pros and cons of EVA in accounting and strategic management.
There is no research that has linked the EVA model with IO or RVF indicators as such. The closest link between stock value creation and industry factors is presented by Lindenberg38 and Montgomery and Wer-nerfelt.39 They reframed Tobin's "q" as a concept related to stock value creation (the difference between the market value of the stock and its book value, which is the net present value of discounted future EVAs). Lindenberg reformulates Tobin's "q" correlations with specific assets (capital special factors and monopoly power: scale economies and patents). Montgomery and Wernerfelt relate it to intangibles (value of intangibles, collusion, unique Ricardian factors, and disequilibrium factors).
Literature Related to Models to Measure a Firm's Economic Performance
Financial accounting has produced several financial models to measure a firm's economic performance. Several of those models measure stock value creation. However, their limitation is that they do not take into account the "soft" side of business, such as the strength of customer relationships, the ability of employees, or the efficiency of processes. These elements, called "intangibles," are critical for economic success and cannot be measured adequately by traditional financial measures.
There are two very popular models to measure business performance that incorporate nonfinancial intangibles: the balanced scorecard model (Kaplan40) and the IC model (Edvinsson41). Both models propose a set of indicators grouped in the following dimensions: financial, customers, employees, processes, and growth. However, both models are limited by the difficulty of measuring intangibles.
The EVA equation, as presented by Stern Stewart42 and Copeland,43 solves the limitations of both the financial and the nonfinancial views. The EVA is strongly aligned with the balanced scorecard and the IC models: the net present value of all future EVAs is equivalent to IC, which measures the value of intangibles, the value of the customers, employees, processes, and the ability to grow. The operating capital of the EVA model is equivalent to the financial perspective of the balanced score-card and the IC models.
