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Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-54 The Balanced Scorecard (20 min)
An example of a balanced scorecard for Tartan Corp follows:
Financial
Sales, sales growth, by product and region
Earnings, as above
Activity-based product costs
Return on investment, by product line
New investment, by product line
Internal
Cycle time
Waste of materials
Rework
Retention
Satisfaction, in specific categories: quality, etc
Number of new customers
Employee
Training hours
Retention
Satisfaction
2-55 Strategy Map (20 min)
There are a variety of possible answers to this question. Here is
an example.
Financial
Customer
Learning and
2-32
Education.
Ownership Equity
Growth
Revenue
growth
product costs
each unit and for
each value stream
Increase number
of new
customers
Improve
customer
satisfaction
Improve
customer
lead time
Reduce
order filling
time
quality
product
innovation
new features and
new products
development
skills
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-56 Strategy Map, Balanced Scorecard; Dell Inc. (25 min)
1. The following BSC was adapted from Peter Brewer, “Putting Strategy
into the Balanced Scorecard,” Strategic Finance, January 2002,
pp44-52.
Learning and Growth
Training dollars per employee
Number of emerging technologies evaluated
Number of new manufacturing processes developed
Number of new manufacturing processes under development
Internal Processes
Product manufacturing time
Raw materials inventory
Financial Perspective
revenue growth
gross margin
operating cost ratio
selling expense to sales ratio
2. Strategy Map for Dell Inc.
This is one example of a possible strategy map, that can be
inferred from the BSC in part 1 above.
Financial
Shareholder Value
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
Customer
2-56 (continued -1)
2-34
Education.
Sales
Growth
Revenue
growth
Reduce operating
costs and selling
expenses
Reduce cost for
each unit and for
each value stream
Increase
customer
retention
Improve
perception
of quality
Improve customer
perception of order
filling
manufacturing
processes
technologies Increase
training hours
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-57 Strategic Analysis (30-40 min)
1. Performance Bicycles: The on-line retail industry is very
competitive, so the competitive strategy is likely to be both cost
leadership (since catalog shoppers can readily find the lowest price)
and differentiation (the mail order customers will differentiate on
speed of delivery, quality of service such as flexible returns policy,
2. Oxford Omni: Because the customers are primarily business and
convention visitors, the Omni is likely to compete on differentiation,
given a market-set price and therefore cost. The business traveler is
not likely to look for the low-cost hotel, but is likely to be more
3. Orange County Public Health Clinic: A strategic goal for a public
agency is compliance with the charter of the organization, including
spending in approved ways. Thus, a critical success factor for the
Clinic is accurate accounting of expenditures, and budget and
management systems which ensure that expenditures are properly
authorized. Also, cost management information is needed to assess
or for donations from foundations and other donors.
4. Harley-Davidson Motorcycle Co.: With the introduction of
Japanese motorcycles in the U.S. in the late 1960s and 1970s,
Harley-Davidson found itself competing in a much more competitive
market. The Japanese motorcycles were cheaper and of higher
2-35
Education.
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-57 (continued -1)
unique style of cycle) plus increased emphasis on cost reduction and
quality, to retain the market share it had enjoyed into the 1960s.
Critical success factors are likely to be innovation, manufacturing
efficiency, customer satisfaction, and market share. See also
problem 2-64.
5. Merck Pharmaceutical Company: A manufacturer of
pharmaceuticals such as Merck Company competes primarily on the
basis of differentiation. Cost management is used to assist the
company in managing the costs of developing new drugs. The
process of researching, developing, testing, and introducing new
drugs is a very long and costly one. The life cycle of a drug will
6. St. Sebastian’s College: A small liberal arts college is likely to
compete primarily on the basis of differentiation. The differentiation
might be the nature of the programs offered, religious affiliation,
location, or some other attractive feature of the college. Cost
leadership is not likely to be important, since colleges do not tend to
compete directly on price (tuition and fees), though there is a certain
range of prices within which all colleges must compete. Thus cost
2-36
Education.
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-58 Strategic Analysis; The Balanced Scorecard, and Value-Chain
Analysis; The Packaging Industry (40-50 min)
1. Dana’s strategy had previously been primarily a cost-leadership
strategy, but with the new focus on high-end markets, the strategy
has changed to differentiation. Can Dana compete as effectively as a
differentiator as it can as a cost-leader? The change has required a
change in operations, to accommodate the smaller batches and
greater number of features added to the product, as noted in the
2-37
Education.
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-58 (continued -1)
2. A value chain for Dana Packaging follows:
STEPS IN THE
VALUE CHAIN
ACTIVITIES AT EACH
STEP OF THE VALUE
CHAIN
EXPECTED
OUTPUT OF EACH
ACTIVITY
First Step:
Acquire the raw
materials, which
is primarily pulp
paper
Produced in Dana’s mills;
also purchased from
recycling operators
High quality, low cost
materials
Second Step:
Conversion
Converts the pulp into
paperboard
High quality
paperboard
Third Step:
Coating
When desired, to apply
the required coating and
color to the container
Increasing, Dana’s
products include
specialized, colorful
products with new
done only in Dana’s own
plants to ensure safety
and quality and low cost
Fifth Step:
Packing and
Shipping
The filled containers are
packed in cartons and
shipped to customers
Focus here on speed
and meeting targeted
delivery dates
Sixth Step:
Customer
Service
Process returns and
inquiries
2-38
Education.
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-58 (continued -2)
There are a number of opportunities for cost reduction/value
enhancement: The value-chain analysis should motivate and facilitate
make-or-buy types of analysis for each of the firm’s internal activities.
Identify activities which might be more cheaply and efficiently done
outside the company; for example, the coating process (which is now
occasionally outsourced) might be effectively outsourced to a greater
extent or entirely. The filling process is the most critical for Dana, as it
is the step where the customer’s product is handled. For strategic
reasons, then, Dana should retain the filling process entirely within its
direct control.
For each activity at each step of the value chain, determine the
outside price for the activity, and use this as a benchmark for
identifying activities which need improvement.
Develop similar value chains for all key competitors, and
compare each of these to Dana’s to identify how Dana fits in the
competition in the industry. This should reveal competitive
weaknesses and strengths, and perhaps opportunities for
improvement.
Use the value chain to evaluate vendor relationships; are any
suppliers causing internal processing problems because of quality
equipment, which will enable it to better handle the increased product
complexity and variety. Are products being properly costed; do the
more complex products bear the appropriate cost of their complexity?
For example, if adding multiple colors to packaging material is very
costly to manufacture, then the pricing should be higher to recapture
these costs.
2-39
Education.
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-58 (continued -3)
Identify those customers for which the cost of service and
delivery is unusually high due to the care with which the material
must be handled or to the weight, or distance, etc. Make sure that
these costs are recaptured in the pricing of the products, or
alternatively, the firm might seek more profitable customers.
3. Critical Success Factors for Dana might include:
Financial:
profit by product line
cost by product and production run
cost by type; by month
standard cost variances
Customer Satisfaction:
ship dates met/ un-met
survey of customer satisfaction
production run time
Innovation and Learning:
training hours
productivity (learning) changes
number of new features/products developed
2-40
Education.
