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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
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
consumers.
2-2 Many possible examples would be correct here. Examples offered in chapter one
2-3 Many possible examples would be correct here. Examples offered in chapter one
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
following relationships; first, achievement in the learning and growth perspective
desired performance on the financial perspective.
2-6 SWOT analysis is a systematic procedure for identifying a firm's critical success
factors: its internal strengths and weaknesses, and its external opportunities and
Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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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
which a firm achieves a competitive advantage. Strategic cost management
in Exhibits 2.1 and 2.5.
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
costs
5. modernization of production and processing facilities, to produce the highest
quality chemicals at the lowest prices
6. research and development, to introduce new and improved products
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,
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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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
8. Effective control of inventory to prevent fraud and theft
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
8. Effective inventory management, both to reduce employee theft and also to
reduce waste, overstocking and excessive out-of-stock conditions
9. Choice of merchandise mix, to attract customers
2-13 Several potential critical success factors for an auto-repair shop might include:
1. reliability of service
2. fair pricing
6. effective marketing using the appropriate media
Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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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
aligning performance of managers and employees with the firm’s strategy.
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
environmental. The concept is used by firms to expand their strategy to include
included sustainability have found that it is also good economics.
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
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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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
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
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
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
likely have a BSC for the housekeeping function, or the dietary function, each a
key part of the hospital’s value chain.
Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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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
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 is an example
here.
2-24 To be implemented effectively, the balanced scorecard should:
Have the strong support of top management
Accurately reflect the organization’s strategy
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
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-25 Normally there are fewer than 100 measures, but sometimes more than 100.
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
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
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.
Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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EXERCISES
2-28 Execution; Competitive 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,
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
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
these critical success factors and to regularly measure progress
on each of them.
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-29 Strategy; Execution (20 min)
1. This question is designed for a good discussion of competitive
strategy. In this case the firm moved outside its expertise, where it
had become strategically sound and competitive, into an entirely
different area of competition, where it faced different critical
success factors.
BPI built its success on the basis of inventory control and
efficient operations which contributed to its ability to satisfy
which are available in equivalent quality from many suppliers, and
that fast delivery is an important, but not critical success factor. I
usually permit this discussion to go on briefly, as it is a good
exercise in identifying generic strategy. Fairly quickly I will remind
the class that to determine the strategy of BPI, they must
determine what is the principal reason customers come to BPI -- is
it fast service or is it low price? Would customers come to BPI if
auto parts quickly to its customers in no way prepared it for
managing the craft type store. In fact, the craft-type store required
a quite different type of inventory management. Rather than to be
able to supply a standard type of part quickly, the craft-type store
manager needed access to non-standard, unique types of items.
Moreover, for the craft store to be successful, the inventory should
not be replaced with identical items, but instead, diversity and
variety are more important.
2-10
2-29 (continued -1)
The return customer looking for a gift or interesting
decorative object expects to see new and different items on
Notice that our analysis does not depend on whether BPI is a
cost leadership or a differentiation firm for the auto parts
business. Whatever the strategy for the auto parts business,
the critical success factors for the craft store are quite different.
2. A SWOT analysis should be used, as it would have provided BPI
with the insight it needed to see that the draft store required a
much different set of operating competencies than that of the auto
parts business; this would provide a basis for BPI to identify the
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-30 Value Chain; Currency Fluctuations (15 min)
The increase in the value of the Brazilian currency 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
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
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.
Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-31 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
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
Source: Robert S. Kaplan, David P. Norton, and BjarneRugelsjoen,
“Managing Alliances with the Balanced Scorecard,” Harvard Business
Review, January 2010, pp 114-120.
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-32 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
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
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
Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-33 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
partnership should produce increased sales and perhaps new customers
for Walmart.
Seventh Generation is potentially 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.
Chapter 2 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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2-34 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)$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
