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Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
2-1
Chapter 2
Implementing Strategy: The Value Chain, the Balanced Scorecard,
and the Strategy Map
Teaching Notes for Cases
2-1. Atlantic City Casino: Value Chain Analysis; The Balanced Scorecard
Most cases in value chain analysis are in the retailing or manufacturing industries. This case gives
an opportunity to develop a value chain for a service firm and to see the differences in application in that
context. The point is to show the students that the value chain concept has useful application in both
contexts.
Some useful background information regarding the actual case situation is provided below. This
information can be used to enhance the discussion when needed. A good starting point of the discussion is
to have the students describe the competitive environment of Atlantic City gambling casinos, at which
time, much of the following information may emerge. If not, the information can be supplied during the
discussion, or if desired it can be added to the case material given to the students to prepare.
Background Information:
Customer surveys indicated that a vast majority of the visitors to Atlantic City gambling casinos
are middle-age adults who live within 150 miles of Atlantic City. Further, there are 2 distinct groups of
visitors. Approximately 17 percent of the visitors are frequent visitors, averaging 24 visits per year and
accounting for 67 percent of all visits. The remaining 83 percent of the clientele are infrequent visitors
averaging 2 to 3 visits per year and accounting for 33 percent of total visits. The firm found that
approximately 11 percent of the people living within a 150 mile radius visit Atlantic City annually. This
compares with 14 percent of the people living in Las Vegas' primary marketing area who visit Las Vegas
annually. Thus it appears that future market expansion is possible.
The firm also noted that there has been a change in the mix of mode of transportation for visitors.
Initially 92 percent of all visitors arrived by private car, now 44 percent arrive by bus. This change is
significant as there is a difference in spending patterns. Auto travelers tend to spend a couple of days in
the city. Hence they eat more meals and need lodging. Bus travelers are usually day trippers who come
only to gamble. They do not need lodging and generally only eat lunch, some snacks and beverages.
Casino winnings average $37 per visit for bus travelers and $120 per visit for auto travelers.
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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1. The value chain for the Atlantic City Casino (ACC) follows, both with and without the theme park. The
class discussion of strategy will likely have a number of divergent views. Many will say ACC competes
on differentiation, thinking that gambling is not a “cost-sensitive” business. However, I push the class to
look carefully about what brings a customer into one casino rather than another. Some students will say
that gamblers only want access to gambling, and that service and other enhancements (as in a
differentiation strategy) will not be important. They will also point to the fact that the case says the ACC
has “no distinguishing characteristics.” On balance, most students argue that what brings customers into a
casino is the “pizzaz” and excitement generated by the casino, and they observe that most casinos have a
theme, such as a tower or a circus, etc. It is important in this discussion to distinguish Las Vegas and
Atlantic City, as the style of the casinos is quite different on the average. While theme-based casinos are
the norm in Las Vegas, those in Atlantic City are more oriented to “just for gambling” types of customers.
Most Atlantic City visitors come by bus in ones or twos and do not stay long, while in contrast, the Las
Vegas visitor is likely to stay longer and to bring the family. Thus, the differentiation concept probably
applies more clearly to Las Vegas and less so for Atlantic City.
Looking at the steps in the value chain, one can target possibilities for cost reduction and/or value
enhancement. For example, a close look at steps two and three in the chain can help to study and identify
the most effective forms of advertising and promotion⎯types of advertising for example which are more
targeted to the types of customer and the mode of transportation they use to come to the casino.
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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STEPS IN
THE VALUE
CHAIN
ACTIVITIES AT
EACH STEP IN THE
VALUE CHAIN:
WITHOUT THEME
PARK
ACTIVITIES AT EACH
STEP IN THE VALUE
CHAIN: WITH THEME
PARK
DIFFERENCE ;
STRATEGIC ISSUES
Step 1: Obtain
the right to
compete: federal
and local laws
and ordinances
Licenses, fees, and other
activities and reports to
support compliance
Licenses, fees, and other
activities and reports to
support compliance
Little difference: potentially
some additional compliance
required for new services for
children; baby-sitting, etc.
Step 2:
Advertising and
promotion
Advertising focused on
traditional media locations;
mostly local, and targeted to
specific audiences – those
living within 150 miles, and
are middle aged or older
Advertising and promotion
focused on a younger
audience, those with kids,
promotions for families (kids
stay free etc...)
Probably little difference in
the amount of advertising and
promotion, though the nature
of the advertising will differ.
Will younger adults be
attracted to the casino as older
adults have been?
Step 3: Local
and regional
transportation
Most visitors now arrive by
bus and stay one day (not
overnight); the proportion of
bus visitors is also
increasing ⎯from less than
5% when the casino opened
to more than 44% currently.
There is a need to focus on
travel agents and on
providing affordable bus
trips for this audience
New focus likely to be on car
traffic (is there sufficient
parking?) and some air travel
for families, in addition to the
bus traffic. Affordable air-fare
packages for families might
be a good idea.
The transportation patterns are
likely to be quite different and
the need for parking, taxi
service, and the like will be
different. What are current
airport facilities like? How
close is the casino to the
airport?
Step 4: Casino
operations
Traditional coverage and
security
While the coverage of the
casino operations is likely to
be same as without the theme
park, with more children
around, security will need to
be increased
Is the area around the casino
safe for children? Will parents
worry about safety?
Step 5: Hotel
Operations
Traditional coverage and
security
While the coverage of the
hotel operations is likely to be
same as without the theme
park, with more children
around, security will need to
be increased. Also there will
be a demand for new services:
baby-sitting, activities for
children, ...
New mix of services;
increased need for security?
Step 6: Theme
Park
NOT APPLICABLE
The theme park will attract
additional visitors to the
casino and to the hotel; also,
the theme park is expected to
be profitable as well.
Strategic issues:
Does management have the
ability to manage a theme
park; can it acquire this
expertise?
Are there other theme parks in
the area which would complete
with this one?
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2. The value chain analysis above, and in particular the right-hand column comparing the options and
indicating strategic issues can be used to help understand the strategic issues in the choice facing Atlantic
City Casinos. Perhaps noting the increase in the number of visitors coming by bus (and not staying
overnight), casino management is looking for ways to attract a different audience who will also use the
hotel. If the theme park is successful, it will provide the needed new audience⎯parents with children who
will use the hotel. Of course, there are a number of related questions. For example, will parents be willing
to bring their children to a theme park which is on the grounds of a casino? What security issues will
arise? And, will the casino’s current guests be put off by the presence of a theme park and more children
around the area. It is likely that casino and hotel management can respond to these issues, but is there a
specific and reasonable plan?
The benefit of the value chain for management analysis is that it helps to show how the theme
park will affect current operations “upstream” of the casino, i.e., the effect on transportation patterns and
the like.
In addition to the value chain analysis, an analysis can be done on the data in the tables in the
case. Exhibit 1 illustrates an example of a type of data analysis. Note that Atlantic City Casino is currently
near the median of the 10 casinos on all the reported descriptors (note also that the data for Casino #9 is
only part year and should be either ignored are extrapolated). In contrast, Casino #6 is clearly the
differentiator, with higher prices, less space, and higher operating costs. Also, least squares regressions on
this data show no significant relationships except for a strong positive relationship between room revenue
and casino revenue (which make sense; many casino visitors choose to stay at the hotel), and between
casino revenue and beverage revenue (again, many of the casino visitors are also likely to order
beverages). Also, note that ACC is among the highest hotel revenue per room and casino revenue per
square foot. This suggests that it is more upscale than some of the other casinos. This is a plus for the
environment of security desired for families, but then the price might be too high for families.
Exhibit 1
Casino Room
Casino Number of Net Revenue Revenue
Sq Ft Rooms Restaurants Casino Rooms
Beverages
Income per Sq ft per Rm
ACC 50,850 521 7 220,183 14,862 36,833 23,921 4.3300492 28.52591
1 59,857 727 9 254,753 17,604 36,457 40,979 4.2560269 24.2145
2 59,296 645 9 224,077 14,836 34,493 18,834 3.7789564 23.0015
3 59,439 512 9 237,700 15,787 35,168 47,146 3.9990579 30.83398
4 49,639 501 14 158,602 9,897 18,788 1,574 3.1951087 19.75449
5 52,083 750 7 210,848 13,870 35,265
64,765 4.0483075 18.49333
6 40,814 504 8 251,675 17,665 33,867 17,904 6.166389 35.04960
7 50,516 500 5 147,037 10,191 35,020 (9,075) 2.9107016 20.38
8 34,408 504 6 121,581 13,469 21,836 2,246 3.5335096 26.72420
9 60,000 612 8 123,947 12,157 22,643 (1,176) 2.0657833 19.86437
Revenues
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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3. Four areas of the balanced scorecard, and potential critical success factors:
a. Financial Performance: hotel revenue per room, casino revenue per visitor, trend in earnings
by month, trend in revenues (casino, hotel, food services) by month,
b. Customers: survey of customer satisfactions, number of visitors per month relative to other
casinos, number and nature of customer compliments and complaints, changes in customer
demand for different types of games,
c. Learning and innovation: training hours for employees, log of employee suggestions and how
these are used, etc.
d. Operational Performance: employee complaints, injuries; security violations, etc
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-2. Sovera Enterprises: Strategic Analysis
1. At least four general characteristics that differentiate the three Sovera Enterprises subsidiaries include:
• Growth potential
• Profitability
• Discretionary cash flow
• Level of risk
These characteristics influenced the formulation of a different strategy for each subsidiary in the
following manner:
• LaBue Videodiscs subsidiary has promise to be a leading player in the videodisc market if it can
develop a moderately priced videodisc record/player before its competition. Because of LaBue's
profit potential, the corporation has placed a high priority on the growth of this subsidiary by
allocating discretionary resources to support its product development efforts and growth.
• Ulysses Travel has a high level of risk associated with both profit and growth potential. This is a
mature company in a very competitive business. The plan to divest agencies with the biggest drain on
resources will reduce the risk.
• Reddy Self-Storage's growth potential is limited as the self-storage market has slowed considerably.
The subsidiary has predictable profits that will allow it to generate cash (cash cow). To maintain
profitability, the subsidiary has been directed to maintain efficient operations and maximize cash flow
to support the expansion and operating plans of the other subsidiaries.
2. The likely effects of these three strategies on the behavior of the top and middle management of each of
the three businesses include the following:
LaBue Videodiscs:
• Top management will be challenged to develop a moderately priced unit and to capture market share
before the competition enters the market.
• Top management and middle management will view the strategy of developing all future officers as a
career opportunity. There will be high morale and loyalty to the group and the company.
Ulysses Travel Agencies:
• Top management will be challenged to efficiently dispose of the resource-draining agencies, to
operate the remaining agencies on a profitable basis, and to grow in geographical areas where
adequate profit potential exists.
• Middle managers, particularly those in the least productive agencies, will view their jobs as
threatened because the method of their agencies' disposal is not yet defined (e.g., outright closure or
sale to another party).
• Middle managers will view the strategy of developing all future officers in the videodisc subsidiary as
limiting their careers. Morale and motivation are likely to be low.
Reddy Self-Storage:
• Top management will be challenged to operate this subsidiary in an efficient, cash generating manner,
while taking any opportunity to grow as the market may grow. Their motivation will be limited as
little market growth exists, and the excess cash generated will be diverted to other business units.
• Middle managers will view the strategy of developing the corporation's future officers in the
videodisc subsidiary as limiting their careers.
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-3. Recreational Products, Inc.: Strategy; International
1. A class discussion of competitive strategy is likely to take many directions. The important thing is to
develop a productive discussion, and to make sure that each idea is well supported, and not to insist on a
specific conclusion. Some important points to raise, if they do not come up in the discussion are that RPI
is known as a very high quality producer with features and prices higher than most in the industry (per the
case) which suggest the differentiation strategy. The critical success factors are likely to follow the
competitive strategy⎯focus on quality and innovative features. This means that the production costs will
not be the first concern, but that the ability to install high quality manufacturing processes would be most
important.
2. The Singapore plan will work as long as the differentiation strategy can be achieved⎯high quality
production and innovative features. Would the Singapore location be an advantage in achieving quality
and innovation, or would there be a potential negative effect? For example, it is possible that the
availability of highly skilled labor in Singapore would be an advantage. Moreover, it is possible that the
government of Singapore would partially or wholly subsidize research into new sailboat features if the
research is conducted in Singapore, using at least in part Singapore facilities and personnel. The
opportunity for an integration of the development of the innovations with the manufacturing operations
would be a further advantage.
3. Some of the key international issues are noted in the case. There are differences in taxes, and Singapore
offers the advantage of a tax holiday (how many years?) and a subsidized loan. Other issues to consider
are the stability of the Singapore dollar relative to the United States dollar. In recent years the Singapore
dollar has been appreciating relative to the US dollar, which has both advantages and disadvantages. As
the Singapore currency appreciates, expenditures in local currency become more expensive from the
standpoint of RPI. Similarly, the retail prices in US dollars in the United States for the completed sailboat
will have to rise to offset these increased costs. RPI can manage the effects of the currency changes by
appropriate financial policies, including long term purchase contracts.
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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Teaching Strategies for Articles
2-1: “How to Report A Company’s Sustainability Activities”
This article explains the concept of sustainability and its role in the corporation. It describes how a firm
can measure and report its outcomes and efforts regarding sustainability within a balances scorecard.
Discussion Questions:
1. What is meant by sustainability? What measures are included in a sustainability report?
The article states that “Sustainability reporting includes economic, environmental, and social
indicators that help monitor progress toward sustainable practices.” Sustainability is the operating
2. How many companies issued sustainability reports in 2005? Cite your source for this information.
3. Are sustainability goals important to shareholders of public companies? Why or why not?
4. How can sustainability be included within the balances scorecard? Base your answer on the Global
Reporting Initiative (GRI) reporting guidelines and its three categories of indicators:
Sustainability can be included as a separate perspective in the balanced scorecard, as illustrated in the text
chapter. Also, as the article shows in Tables 1, 2, and 3, sustainability measures also have a relationship
