Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
CHAPTER 2: IMPLEMENTING STRATEGY: THE VALUE CHAIN, THE
BALANCED SCORECARD, AND THE STRATEGY MAP
QUESTIONS
2-1 The two types of competitive strategy (per Michael Porter, as explained in
chapter one) are cost leadership and differentiation. Cost leadership is the
competitive strategy in which the firm succeeds by producing at the lowest cost in
2-2 Many possible examples would be correct here. Examples offered in chapter one
include Walmart, Texas Instruments, and HP (Hewlett-Packard).
2-3 Many possible examples would be correct here. Examples offered in chapter one
include Tiffany, Bentley automobiles, Rolex, and Maytag.
2-4 The four strategic resources are used as follows. First the firm determines the
critical success factors using SWOT analysis, and then uses execution to excel
on these CSFs. The value chain is used to provide a more detailed
overall strategy.
2-5 A strategy map is a framework for showing the relationships among the
perspectives of the balanced scorecard. Typically, the scorecard has the
2-6 SWOT analysis is a systematic procedure for identifying a firm’s critical success
2-1
Education.
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-7 A management accountant is not focused on or limited to financial information
only, as in the traditional view of cost and management accounting. In contrast, a
customer satisfaction.
2-8 Critical success factors are strategic financial and non-financial measures of
success. Critical success factors are used to define and measure the means by
2-9 Several potential critical success factors for an industrial chemical manufacturer
might include:
1. cost and price, since most chemicals are commodities which compete
principally on price
2. speed of delivery, since many applications for these chemicals require prompt
delivery
2-10 Several potential critical success factors for a large savings and loan institution
might include:
1. Spread between the cost of funds and the earnings on investments and loans
2. Amount of total deposits, number of depositors, number of new offices,
2-2
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-11 Several critical success factors for a small chain of retail jewelry stores might
include:
1. Growth in sales, number of new customers, number of new products, number
of branch stores
2. Operating costs, by category
3. Customer satisfaction as measured by phone survey or mail survey
2-12 Several potential critical success factors for a large retail discount store might
include:
1. Growth in sales, number of new branch stores
2. Operating costs, by category
3. Customer satisfaction, as measured by phone survey or mail survey
4. Identification and introduction of new products
2-13 Several potential critical success factors for an auto-repair shop might include:
1. reliability of service
2. fair pricing
3. warranty for service; and policies for satisfying customer complaints when they
2-3
Education.
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-14 The balanced scorecard is an accounting report that includes the firm’s critical
success factors in four groups or “perspectives”: customer satisfaction, financial
performance, internal business processes, and learning & growth (human
2-15 The balanced scorecard is important to integrate both financial and non-financial
information into management reports. Financial measures reflect only a partial —
and short-term — measure of the firm’s progress. Without strategic non-financial
2-16 Sustainability means the balancing of short- and long-term goals in all three
dimensions of the company’s performance – economic, social and
2-17 Value-chain analysis is a strategic analysis tool used to identify where value to
customers can be increased or costs reduced, and to better understand the firm’s
2-4
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
BRIEF EXERCISES
2-18 There are a number of possible examples here. If you have trouble getting a
discussion going refer the class to chapter 1 and some of the firms that were
discussed there as cost leaders. For example, Walmart, which has the strengths
of size, operating efficiency through innovative supply chain, and low cost
operations; weaknesses would include the recent negative publicity the firm has
had for its labor practices and for the negative economic consequences to
competing business in communities where a Walmart is located.
2-19 There are a number of possible examples here. If you have trouble getting a
discussion going refer the class to chapter 1 and some of the firms that were
discussed there as differentiators, such as Target. A strength of Target is its
customer loyalty and its success in developing customer appreciation for the
style and quality of its products, and for the attractiveness of the stores. Survey
results reported in chapter 1 show that particularly wealthy shoppers prefer
Target. Weaknesses include smaller size relative to Walmart, Sears/Kmart, and
other competitors, and to less efficient supply chain relative to Walmart.
2-20 Perhaps the easiest illustration of the application of the value chain is in the
manufacturing industry because it is relatively easy for the students to see or
imagine the processes and steps that take place in a typical manufacturing plant,
from raw materials to assembly and finishing. This is why the examples in the
chapter use manufacturers. The auto industry is a good additional example.
example. Ask the class to consider Walmart or Target (as large retailers) and
consider the supply chain at Walmart as an example of a very effective value
chain.
2-21 The value chain is a detailed look at the processes within the firm to accomplish
the ultimate strategic goals. Since the balanced scorecard represents the CSFs
that lead to strategic success, the two are definitely related. The BSC is likely to
be developed to the level of detail so that the CSFs of a given activity are
represented as the balanced scorecard for that activity. For example, a hospital
that uses the balanced scorecard will likely have a BSC for the admission
function, which is one key link in the value chain, or similarly, the hospital will
likely have a BSC for the housekeeping function, or the dietary function, each a
key part of the hospital’s value chain.
2-5
Education.
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-22 This is a potentially great application for value chain analysis. By identifying the
two firms’ value chains and then comparing relative strengths and weaknesses
across the two value chains, it would be possible to see how the combined firm
might be more competitive than the two separate firms. For example, consider
the merger of Disney and ABC; the combination brought together a great
synergy – one firm (Disney) with great content, and the other (ABC) with the
media network to distribute it most effectively.
2-23 The answer should be the same. The merger of HP and Compaq in September
2001 is an example here. Also Tyson Foods and Hillshire Brands in August 2014.
2-24 To be implemented effectively, the balanced scorecard should:
Have the strong support of top management
Accurately reflect the organization’s strategy
Communicate the organization’s strategy clearly to all managers and employees,
who understand and accept the scorecard
Have a process that reviews and modifies the scorecard as the organization’s
strategy and resources change
Be linked to reward and compensation systems; managers and employees have
clear incentives linked to the scorecard
Include processes for assuring the accuracy and reliability of the information in
the scorecard
Assure that the relevant portions of the scorecard are readily accessible to those
responsible for the measures, but that the information is also secure, available
only to those authorized to have the information
2-6
Education.
2-25 Normally there are fewer than 100 measures, but sometimes more than 100.
The median number of measures is between 20 and 50.
Source: Raef Lawson, Toby Hatch and Denis Desrouches, Scorecard Best
Practices, Wiley, 2008.
2-26 1. Commodity producers are likely to compete as cost-leaders because the
product is difficult to differentiate.
2. Professional service firms are usually differentiators, as consumers are likely
to choose their doctors, lawyers, and accountants, etc., on the basis of proven
expertise, licensure, and experience.
2-27 The growth of the contract manufacturers in the electronics industry has had
important effects in the competition within this industry. For example, in the TV
business, it is now possible for a small firm to develop its own design and
marketing organization and outsource all of its production to the contract
manufacturers, thereby avoiding all of the manufacturing-related development
costs that had represented a barrier to entry to the industry in prior years. Many
of the contract manufactures also provide design and marketing services, so that
a small firm can enter the market with a relatively small investment. This is what
Vizio, Inc., a Los Angeles-based TV manufacturer, has done and the firm has
become very successful in competing against some of the larger brands.
Source: “U.S. Upstart Takes on TV Giants in Price War,” The Wall Street
Journal, April 15, 2008, p1.
2-28 SWOT analysis is a useful tool for:
a. Evaluating the performance of an organization
b. Identifying the organization’s critical success factors
c. Developing the organization’s strategy map
d. Developing the organization’s value chain
2-7
Education.
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-29 The following strategy implementation technique can be particularly enhanced by
using benchmarking, as for example, participating in the Malcolm Baldrige National
Quality award program.
a. The value chain
b. The balanced scorecard (BSC)
c. The strategy map
d. Execution
2-30 The balanced scorecard is related to the strategy map in a similar way as:
a. The value chain is related to product differentiation
b. SWOT analysis is related to execution
c. The organization’s key activities are related to the value chain
d. Sustainability can be related to financial reporting
2-8
Education.
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-31 A company taking a strategic and customer-centered point of view can best
address sustainability, a concern for environmental and social as well as economic
performance, through:
a. Annual financial reporting to the Securities and Exchange
Commission
b. The use of a sustainability perspective in the balanced scorecard
c. Reporting violations of company policy to the proper authorities
d. Lobbying in Congress for stronger environmental regulations
2-32 The implementation of the balanced scorecard (BSC) can involve all of the
following except:
a. The strong support of top management
b. An effective value chain
c. A link to reward and compensation systems
d. An accurate reflection of the organization’s strategy
implementation, it is not required in implementing the BSC
2-9
Education.
Chapter 02 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-33 What does it mean for the balanced scorecard to “reflect strategy”?
a. One should be able to infer an organization’s strategy from the balanced
scorecard
b. The management accountant develops the balanced scorecard prior to
developing a strategy
c. The balanced scorecard is one of the key methods for implementing strategy
d. You cannot have an effective strategy without an effective balanced
scorecard
clear strategy.
2-34 Opportunities and threats in Strengths-Weaknesses-Opportunities-Threats
(SWOT) analysis can be identified most readily by:
a. Using value chain analysis
b. Analyzing the industry and the organization’s competitors
c. Analyzing the organization’s critical success factors
d. Using the strategy map
2-10
Education.