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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-35 Which of the following statements about the value-chain is correct?
a. The two phases of the activities of the value-chain are the upstream activities
and the downstream activities
b. A company need not operate in all activities of the value-chain
c. There are usually 6-8 activities in the value-chain
d. The value-chain is intended primarily for manufacturers
2-36 Identifying a company’s strengths and weaknesses requires a:
a. Careful analysis of the company’s value-chain
b. Analysis of the company’s balanced scorecard
c. Evaluation of the company’s operations, strategy, and management
competence
d. Review of the company’s industry and competitive environment
2-37 The required resources for implementing a cost leadership strategy include which
of the following?
a. Strong marketing capability
b. Substantial capital investment and access to capital
c. Effective product engineering and process planning
d. Reputation for quality and innovation
2-38 The World Resources Institute is an organization that:
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
a. Provides resources for developing and benchmarking an organization’s value
chain
b. Provides resources for organizations that intend to expand globally
c. Provides resources for organizations that want to develop credible
scorecards that include sustainability
d. Assists companies in understanding the changing environment of financial
and material resources world-wide
2-39 Which of the following is an important method for implementing strategy?
a. Sustainability
b. Value chain analysis
c. Cost leadership
d. Differentiation
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
EXERCISES
2-40 Execution; Strategy (20 min)
1. The critical aspect of the analysis of this special order is how it will
affect the brand image of Deaine’s clothing. Deaine appears to
compete on the basis of product differentiation, that is, its clothing
is perceived to be of higher quality, attractiveness, etc. DEI is thus
able to sell its clothing in upscale designer clothing retail stores,
probably at a premium price. Sale of the same or similar clothing
to department stores could dilute the brand image, and thus hurt
the sales in the upscale retail stores. Customers who are willing
to pay the premium to purchase the clothing in the designer
stores may not be willing to do so if the same or similar clothing is
available in department stores. Thus, while the special order
might be very profitable in the short run, in the long run it is
potentially very damaging for the company.
The main point of this case, and a pervasive theme of
strategic cost management, is that cost analysis from a strategic
perspective can often provide a different answer from the cost
analysis which has a short-term point of view. In practice, many
cost systems have a short-term focus, and the strategic emphasis
of strategic cost management is used to bring the firm’s operations
and decision making back to consistency with the firm’s strategic
objectives.
2. A SWOT analysis would be useful to Joel to help him more
thoroughly understand the key critical success factors of his
strategy and to therefore help him more effectively implement the
strategy. Also, a value chain analysis would help him to
understand his overall strategy and the linkages of the critical
success factors in a more systematic and detailed manner. A
balanced scorecard would provide Joel a means to organize
these critical success factors and to regularly measure progress
on each of them.
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-41 Value Chain; Currency Fluctuations (15 min)
Results for 2011- 2012:
The increase in the value of the Brazilian currency (the real) relative
to that of one of its chief trading partners, China, will likely have a
significant impact on Brazilian companies, particularly those that require
parts for products or other materials that are commonly sourced from
China. The increase in the value of the Brazilian currency (the real) will
mean that these companies will find it increasingly cheaper to outsource
production or purchase of these items from China, and the effect will be
that local Brazilian producers of these items will not be able to compete
with the lower (foreign exchange adjusted) products from China. Some
Brazilian companies will benefit as the purchase of parts or materials at
lower cost from China will bring the overall cost of their products down, and
thus make the company more price competitive. On the other hand, the
Brazilian companies that manufacture these parts will suffer the loss of the
business. Thus those companies whose value chain requires the
acquisition of the parts of materials will benefit, while those whose value
chain involves the production of these parts and materials will suffer.
Source: “Brazil Opts for Deeper Rate Cut to Stoke Recovery,” Reuters,
March 7, 2012; John Lyons and Tom Barkley, ”Brazil Leader Slams U.S.
Money Policy,” The Wall Street Journal, April 10,2012, p.A8; Arnaldo
Galvao and Iuri Dantas, “Brazil May Ask WTO About Possible Action on
Weak Currencies, Official Says,” Bloomberg.com, January 18, 2011;
Matthew Bristow, “Latin Currencies Keep Rising – Until They Don’t,”
Bloomberg Businessweek, August 15, 2011, pp 12-13; Jeffrey T. Lewis,
“Brazil’s Currency Unlikely to See Respite After Rate Cut,” The Wall Street
Journal, September 1, 2011; Tom Lauricella, Alex Frangos and John
Lyons, “Emerging Markets Tumble,” The Wall Street Journal, September
23, 2011, p. C1; John Lyons, “The Dark Side of Brazil’s Rise,” The Wall
Street Journal, September 13, 2011.
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-41 (continued -1)
Results for January 2012 to January 2015
The value of the real fell 37% relative to the yuan and fell 36%
relative to the U.S. dollar in the 2012 to 2015 period. One reason was that
Brazil began to cut its interest rates in late 2011 in order to stimulate
economic recovery. Now, the advantage would be to local producers to
take advantage of the lower real to expand exports.
Source: “Brazil Opts for Deeper Rate Cut to Stoke Recovery,” Thomson
Reuters, March 7, 2012; John Lyons, “Brazil Flexes Strong Arm to Reverse
Slowdown,” The Wall Street Journal, May 31, 2012, p A12.
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-42 Value Chain; Strategy Map; Corporate Alliances (15 min)
Because it specializes only in conducting and analyzing clinical trials for
new drugs, Quintiles can perform this activity more efficiently and more
effectively than Solvay. This means the two corporations both benefit from
the collaboration. Quintiles provides the same service for many other
pharmaceutical companies, providing the same joint benefits. The joint
benefits arise because the industry value chain for pharmaceutical firms
has a step, the testing of new drugs, which can be efficiently and effectively
outsourced. Quintiles, founded in Chapel Hill, NC in 1974, saw the need
for testing and analysis services in pharmaceutical companies, and from a
single contract in 1974 has grown to a company operating in 60 countries
with 22,000 employees. The collaboration between Solvay and Quintiles
was a natural fit.
To recognize the importance of this collaboration and to enhance the
joint benefits, the two companies developed a joint balanced scorecard
and strategy map in 2006. The scorecard and strategy map enabled the
companies to set jointly-beneficial goals, set targets, and monitor progress
toward these targets. The two companies were already using the
balanced scorecard, so the concept of extending the scorecard approach to
their alliance made sense.
Source: Robert S. Kaplan, David P. Norton, and BjarneRugelsjoen,
“Managing Alliances with the Balanced Scorecard,” Harvard Business
Review, January 2010, pp 114-120.
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-43 Value Chain; Sustainability (15 min)
The example of a hypothetical company, CleanTech, is based on an actual
example reported by Julie Lockhart, Audrey Taylor, Karl Thomas, Brenda
Levetsovitis, and Jason Wise, “When Higher Price Pays Off,” Strategic
Finance, January 2011, pp 29-35.
1. The role of the value chain is to assist the company in identifying
opportunities for adding value and reducing cost. In this case there
is an opportunity for both adding value and reducing cost for both
CleanTech and its customers. The complete value chain analysis for
the new system illustrated in the article shows that the new system
would save the cleaning company several thousand dollars per year.
waste fuel. This saves the cost of replacing the fuel, but perhaps
more importantly, it avoids the environmental damage of having to
dispose of the waste fuel, as would be required in CleanTech’s
current cleaning system.
2. The sustainability issues associated with the disposal of the
environmentally harmful waste fuel could be included both financially
and non-financially. It could be included financially in cost measures
could also be included. Some consequences might be difficult to
quantify, such as the long-term effect on plants and wildlife, but these
consequences should also be included in the decision analysis.
3. Whether or not CleanTech purchases the new system, since it
handles environmentally harmful materials, it would be a benefit to
the company and its community for CleanTech to adopt the
sustainability scorecard. In this way, the company can keep track of
the environmental effects of different choices the company must
make, including the potential purchase of the new cleaning system.
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-44 Strategy; Sustainability (15 min)
There are some good reasons to expect this strategy is a good one for both
Walmart and for Seventh Generation (SGI). For Walmart, which initiated a
“green” strategy in 2005 under CEO Lee Scott, and in 2009 published its
first Sustainability Report, working with Seventh Generation will enhance its
emphasis on and reputation for sustainability. Offering Seventh
Generation Products is consistent with the firm’s overall strategy and
should help in driving positive customer attitudes as well. Walmart is also
likely to be aware that its shoppers are increasingly looking for “green”
products, as more consumers are concerned about climate change, so the
partnership should produce increased sales and perhaps new customers
for Walmart.
Seventh Generation is the big winner here, as its products are now
available in the giant retailer’s stores, opening up a significant new access
to shoppers for the company. Also, the growing awareness of the
commitment of Walmart to sustainability should make the partnership look
favorable to the Seventh Generation’s customers.
Source: Ellen Byron, “Adversary’s Clean Start with Walmart,” The Wall
Street Journal, July 26, 2010, p B9.
Consistent with Walmart’s sustainability strategy, the firm announced in
September 2013 that it would no longer accept suppliers’ products that
contained certain hazardous chemicals. Source: Wendy Koch, “Wal-Mart
Announces Phase-out of Hazardous Chemicals,” USA Today, September
12, 2013.
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-45 Ethics; Sustainability (15 min)
This exercise is intended primarily for class discussion, and since
ethical issues are addressed, the students’ answers must be treated
with proper understanding of the student’s ethical position and
perhaps the student’s looking for guidance. The answers for each
case are based on actual responses from an academic study using
97 coffee drinkers (cases A and B), 84 different coffee drinkers (case
C) and 218 participants (case D)
Case A: a)$9.71
b)$5.89
c)$8.31
Case B: a)$11.59
b)$6.92
Case C: a)$9.90
b)$8.44
Case D: a)$21.21
b)$20.44
c)$20.72
d)$17.33
e)$20.04
Taken together, the results suggest that the participants valued
ethical standards and sustainable production methods. However, the
premium paid for high ethical standards or for sustainability was not
nearly as great as the penalty (lower price) for known unethical
behavior or lack of sustainability. Note also the very small difference
between the prices paid for the shirts with different levels of organic
content, relative to the shirt with no organic content, suggesting that
the consumers were rewarding an effort, even if a small one, to
achieve sustainability.
Source: RemiTrudel and June Cotte, “Does Being Ethical Pay?” The
Wall Street Journal, May 12, 2008, p R4.
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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
PROBLEMS
2-46 Strategy; Health Care (25 min)
1. Medical University’s strategy, a differentiation strategy, should
encompass a focus on the quality of its clinical care, education, and
research. The relative size of the healthcare system is important as a
way to attract third party payers, providers, and patients. A large
hospital system tends to offer a greater breadth of services, which
often increases the clinician’s level of expertise. A physician at a
larger institution will most likely have performed more procedures, i.e.
open-heart surgeries, which tends to increase the probability of a
crucial to its success. It is also essential that the healthcare system
stay within its budget in order to continue operations.
2. The balanced scorecard goes beyond simply monitoring financial
performance. Because the four areas: financial performance,
customer satisfaction, internal processes, and learning and growth
have critical success factors which are monitored, management can
thus determine how well the firm is attaining its strategic goals based
on the measurements of these critical success factors.
The value chain has been applied to the hospital setting by Robert
Kaplan and David Norton (“How to Solve the Cost Crisis in Health
Care,: Harvard Business Review, September 2011, pp 47-64). The
and process improvement.
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3.
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