Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-2 “Applying the Balanced Scorecard to Small Companies”
(Note: This article is referred to in the text of chapter 2)
The use of the balanced scorecard for developing and evaluating progress for a strategy is illustrated in
these examples of four different companies. Each firm was actively involved planning or implementing
the balanced scorecard at the time of the study, and agreed to discuss its strategic goals, the relative
importance of the goals (ranked by scorecard perspective), and the key performance measures for these
goals. The results are shown in the Tables in the article. The firm’s perspectives are shown in order of
importance from top to bottom in each table.
We can infer the firm’s strategy from studying each balanced scorecard. For example, consider
the scorecard for the firm in the food ingredients industry. The firm puts the financial perspective first,
and emphasizes market growth. This makes sense for a company in a commodity type industry (food
ingredients) where profit margins are small and sales volume is important. Also, cost control is important
for profitability, as noted in the strategic goals within both the customer and operations perspectives. In
effect, the exhibit shows the outline from which a strategy map can be developed. Goals in the learning
and growth perspective support goals in the internal perspective, which in turn support goals in the
customer and financial perspective.
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2-3: Social and Environmental Impact
We cannot ignore social and environmental responsibility, which in turn affects how companies handle
their investment and operation strategies. However, often a win-win situation of making profits while
meeting social goals presents quite a challenge. The author uses the Corporate Sustainability Model to
address tackling this challenge. The model involves inputs, processes, outputs and outcomes.
Discussion Questions
1. Why do challenges exist when companies try to improve their performance while focusing on
social and environmental factors as well?
These challenges exist because implementing sustainability is fundamentally different from
implementing other strategies in an organization. For operating goals, the direct link to profit is
goal is to achieve excellence in both social and financial performance simultaneously.
2. What are the inputs of the Corporate Sustainability Model and how do they fit into the corporate
business world?
Inputs include the external context (regulatory and geographical), the internal context (mission,
strategy, structure, and systems), the business context (industry sector, customers, and products),
and the human and financial resources available to the corporation. These inputs guide the
3. How did Canon attempt to improve costing of their environmental and social impacts?
At Canon, each department bears the financial burden of its own waste processing. With this new
program, waste generated by each workplace is collected at a recycling center where the
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Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-4: “The Use and Usefulness of Nonfinancial Performance Measures”
Firms often use financial, quantitative nonfinancial, and subjective performance measures to run the
organization. The authors provide a discussion on these measures pertaining to specific companies and
various case studies. One case study in particular revolves around the manufacturing industry in which
the authors use data and a survey to support their argument.
Discussion Questions
1. Can every company apply the same methodology to use financial, quantitative nonfinancial, and
subjective performance measures? Explain.
No. The results indicate that companies with different manufacturing strategies use different
mixes of the three types of measures. This is consistent with each type of measure performing a
2. Describe a quality initiative implementation and how its attributes support nonfinancial measures
instead of financial measures.
In the specific case of quality-focused manufacturing, proponents of quality initiatives have
argued that such initiatives tend to change the focus of work (e.g., prevention vs. inspection)
within subunits of the firm and intensify the degree of interdependence among organizational
subunits. Quality strategies also are seen as involving lead-lag relationships (e.g., prevention vs.
3. In Table 3, what measure is seen as the least effective in all but one dimension? Why does this
result occur?
Surprisingly, subjective measures are seen as being the least effective among the three
measurement types along these dimensions (except for “strategic decisions”). A plausible
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Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-5 “Every Manager Can be an Innovator”
The article provides a comprehensive discussion of how companies can use the value chain as a tool to help guide
their efforts to provide on-going innovation in their companies.
Note: This article is also included as Problem 2-61 in the text.
Discussion Questions
1. Explain briefly the difference between disruptive and sustaining innovation.
Disruptive innovation changes completely the nature of the market or business. Examples
include the iPhone or iPad. Sustaining innovation involves significant improvements in existing
2. What are the five activities in the value chain depicted in the article?
The five value chain activities mentioned in the article are:
a. Market analysis
b. Product development and design
and replace “Procurement, Production and Distribution,” with “Operations.”
3. What is the role of strategy in looking for innovation at each of the activities in the value chain?
While not mentioned in the article, strategy plays a key role in the review of the activities for
opportunities for innovation. Depending on the firm’s strategy, cost leadership or differentiation,
the management accountant will find that some of the activities will be more or less important in
areas – procurement, production, and distribution.
4. Explain an example of an opportunity for innovation in market analysis.
Innovation in the market analysis activity can be attained by surveying customers to determine
how they are using the product or service, what features or services they value or do not value,
5. Explain an example of an opportunity for innovation in product development and design.
Innovation in the product development and design activity can be aided by encouraging everyone
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6. Explain an example of an opportunity for innovation in sales and marketing.
Innovation in sales and marketing might use for example, integrated marketing efforts in which
the firm partners with media firms or the firm uses social media to help the company market its
7. Explain an example of an opportunity for innovation in procurement, production, and
distribution.
Innovation in procurement, production, and distribution is an area wherein many firms can
benefit significantly from innovation, particularly for manufacturing and retail firms for which
8. Explain an example of an opportunity for innovation in after-sale customer service.
Innovation in the after-sale customer service activity could also benefit from the application of
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Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-6: “Sustainability and the Balanced Scorecard: Integrating Green Measures into
Business Reporting”
The article explains three ways that sustainability can be incorporated into the BSC. Also, the article explains key
issues in developing and using sustainability metrics.
Note: This article is also included as Problem 2-72 in the text.
Discussion Questions
1. What are the three options for incorporating sustainability into the BSC? Explain briefly the advantages
and disadvantages of each.
The three options are:
a. Adding a fifth perspective to the BSC
b. Developing a separate sustainability balanced scorecard
approach (a) works well since it puts all of the firms goals in a single, comprehensive system.
Option (a) is the option we focus on in chapter 2.
2. Explain briefly each of the seven BSC measurement considerations identified by the authors.
The seven BSC measurement selection considerations for a sustainability scorecard are:
a. There is an underlying objective for the measurement. That is, the measure reflects an
important goal for the company.
b. Measurement terminology is defined and used consistently throughout the organization.
measures can be linked to strategy and goals.
e. While there will likely be a combination of lagging and leading indicators, leading
indicators are more appropriate to help predict how the organization will perform in the
future.
f. Likely a firm will choose to use a combination of both leading and lagging indicators.
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Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
h. Appropriate benchmarks and targets are set.
2-7: “A New Day for Sustainability” by Marc J. Epstein and Adrian Rejc Buhovac, Strategic
Finance (July 2014), pp 25-33.
The article presents a framework for analyzing the interrelationships between an organization’s social,
environmental, economic, and financial performance.
.
Discussion Questions:
1. What is the financial professional’s responsibility regarding sustainability?
2. What is the difference between a sustainability performance driver and a sustainability metric?
The answer here is similar to that for a balanced scorecard. A driver is the term used to describe the sustainability
outcome, input, output, or process. For example, “reduced customer complaints” would be an example of a desired
Table 1.
3. Give an example of some sustainability metrics for (a) inputs, (b) outputs, (c) processes, and (d) outcomes.
Answers are available in Table 1 in the article, as reproduced below:
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4. The article identifies several companies that have adopted sustainability measures and/or sustainability
programs. List two of the companies cited in the article and explain briefly the nature of the sustainability
measures or programs of these companies.
Below are some of the companies mentioned in the article:
Nike: uses an evaluation system called the Considered Index® that footwear designers can use in the
development of a new product to assess the sustainability effects of different design choices
PUMA evaluates and reports its sustainability footprint via an Environmental Profit and Loss statement.
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