978-0078025532 Chapter 2 Solution Manual Part 3

Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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Financial

Customer

Internal

Processes

Learning and

Growth

Improve order filling

time

Improve

perception

of quality

Increase new

manufacturing

processes

Improve

quality

Evaluate emerging

technologies

Increase

training hours

Revenue

growth

Reduce cost for

each unit and for

each value stream

REturn

Return on

Investment

Reduce raw

materials

inventory

Increase

customer

retention

Shareholder Value

Sales Growth

Return on

Investment

Reduce operating

costs and selling

expenses

Improve customer

perception of order

filling

Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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2-46 Strategic Analysis (15 min).

Jim’s new business is likely to face great competition, as there

are already a number of firms in this market. What Jim must do to

have a successful business is differentiate his business from the

other Internet firms. Since the current competition is successful at

low cost and fast delivery, Jim must seek other ways to differentiate

his business. Because of his experience, it is likely that he can

information for setting prices, evaluating product profitability, and

evaluating potential new products. These cost management methods

are explained in Part Two of the book.

Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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2-47 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

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

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

services. The cost management information can be used as the

basis for requests for increased funding from governmental agencies,

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,

Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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2-47 (continued -1)

unique style of cycle) plus increased emphasis on cost reduction and

problem 2-56.

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

likely to be research and development accomplishment (innovation),

effective advertising, excellent results in clinical trials and reports, and

recognition by key medical staff and institutions.

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

prices given in the marketplace. Critical success factors are likely to

be measures of recruiting effectiveness (number of applicants, quality

of applicants…), student/faculty ratio, achievement in sports, facilities

management, etc.

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2-48 Strategic Analysis; The Camera Industry (40-50 min)

1. The objective of this problem is to have the students understand

that the concept of competition is perhaps not as simple as set out in

Porter’s framework. We use Porter’s framework because it provides a

useful organizing theme for understanding how firms compete. But

advantage.” This might be cost leadership or product differentiation.

The major point is that, by applying the cost leadership strategy for

example, a firm remains competitive and successful as long as it

remains the cost leader. Some argue that the competition in certain

industries is far too intense to have any one firm achieve more than a

temporary advantage, whether it be on cost or differentiation.

Instead, each firm must simultaneously compete on the three

competitive factors: cost (low cost and low price), quality

(conformance of the product with advertised features and

specifications), and functionality (the product’s features; its ability to

1995) that most firms in the consumer products industries do not

achieve a competitive advantage. In particular, the camera

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2-48 (continued -1)

It is assumed that quality is near perfect, as is the consumer’s

expectation. Thus, the camera firms work hard at identifying the key

desires (Olympus hires sales agents to work in retail camera stores to

identify customer preferences, for example).

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2-48 (continued -2)

2. A value chain for Olympus Camera Company follows:

STEPS IN THE VALUE

CHAIN

ACTIVITIES AT

EACH STEP OF THE

VALUE CHAIN

EXPECTED

OUTPUT OF

EACH

ACTIVITY

First Step: Acquire raw

materials

Purchase from

appropriate vendors;

maintain effective

long-term relationships

with the vendors;

objectives: flexibility,

low cost, and quality.

High quality,

low cost parts

and materials

Second Step: Assemble

materials and parts into

components of the

camera. Some of the

components may be

manufactured, while

others are purchased

outside the firm.

Raw materials are

converted to

components and parts

used in the

manufacture of the

camera

Desired

components

and parts

Third Step: Camera

Manufacturing

Final assembly,

packaging, and

shipping the final

product

Completed

camera

Fourth Step:

Wholesaling, Warehousing

and Distribution

As needed, move to

retail locations and

warehouses

Freighter, rail,

truck, air

Fifth Step: Retail Sales

Retail sale

Sixth Step: Customer

Service

Process returns,

inquiries and repairs

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2-48 (continued -3)

The opportunities for cost reduction/value enhancement include:

redesign to reduce materials cost and to speed the manufacturing

process

replace expensive materials with less expensive materials, e.g., metal

parts for plastic, effective vendor relationships to reduce costs,

improve quality and delivery, etc.

improve quality as this will lower overall costs

reduce the cost of distributing the product

reduce the complexity of the product, so that it will still meet the

desired functionality at the given price point

Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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2-49 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

competitors in the new markets? How is competition in these new

markets likely to change over the coming months?

2-49 (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

coating developed by

Dana

Fourth Step:

Filling and

Sealing

The customer’s product is

added to the container

which is then sealed;

done only in Dana’s own

plants to ensure safety

and quality and low cost

Focus here on

cleanliness, safety,

and reducing waste

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

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2-49 (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

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

problems or late delivery, etc.?

Use the value chain to identify the key cost drivers in the

business; for example, it is likely that costs in the coating activity have

increased significantly because of Dana’s move into the more colorful

and innovative types of packaging; has the manufacturing process

been changed to facilitate the increase in setups and product variety?

Chapter 2: Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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

cycle time

production run time

Innovation and Learning:

training hours

productivity (learning) changes

number of new features/products developed

Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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2-50 Strategy Requirements Under the Baldrige Quality Award

Program (30 min)

1. The Baldrige Award Program has a strong emphasis on strategy as

evidenced by the emphasis on strategic planning. This topic is given 85

process.

The second section, titled “Strategy Deployment,” asks the

organization to explain how it implements strategy. The topics from this

chapter are relevant in this regard.

2. The Baldrige Program should be a good process for a firm not only in

developing and revising its strategy, but also in strategy implementation.

In particular, each of the four parts of the seventh category, business

scorecard.

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2-51 Strategy; Value Chain (40-50 min)

1. The following data is for July 25, 2011 (and August 26, 2008), for

public companies in the sectors of the industry.

Measures of Size

Measures of Profitability

Sector

No. of Firms

Market Cap

ROE

Profit margin

Integrated Oil

and Gas

16

(10)

40,833B

(1,608B)

15.0%

(27.3)

6.5%

(8.7)

Drilling and

Exploration

112

(146)

3,856B

(522B)

11.2

(22.2)

11.8

(13.4)

Equipment and

Services

55

(71)

13,733B

(330B)

8.7

(21.0)

7.4

(13.6)

Pipelines

42

(35)

432B

(140B)

11.1

(15.0)

5.6

(6.2)

Refining and

Marketing

38

(32)

8,513B

(241B)

12.7

(21.5)

2.9

(4.7)

For comparison, the airline industry:

Major Airlines

12

(9)

681.2

(16.8B)

40.5%

(0)

2.2%

(-15.5)

Some key observations regarding the above information: (1) market

capitalization has increased substantially for both the Oil & Gas and

airline industries, as the stock market has recovered considerably since

years ago, for all sectors except for pipelines. Overall, the results above

show that the oil and gas industry is profitable in each of its sectors.

The largest firms are the integrated oil and gas producers where there is

the bulk of the market cap.

2. All of the sectors in the industry value chain are very capital intensive – it

requires a lot of investment to enter and stay in the business. This is

particularly true for the integrated firms, and for those in the pipeline and

Chapter 2 – Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

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2-51 (continued -1)

Critical Success Factors

Integrated Oil

and Gas

Customer: marketing expenditures; share of market, customer mix and

profitability

Internal Processes: distribution costs, processing costs, safety incidents,

refinery reliability, inventory level, quality index

Learning and growth: technology for oil and gas exploration, refining and

distribution, hours trained in BSC and strategy map, community service

projects, sustainability scorecard

Financial: return on investment, net profit margin, sales growth, cash flow

Drilling and

Exploration

Customer: marketing expenditures; share of market

Internal Processes: drilling costs per site, exploration yield index, safety

incidents, quality index

Learning and growth: technology for oil and gas exploration, hours trained in

BSC and strategy map, community service projects, sustainability scorecard

Financial: return on investment, net profit margin, sales growth, cash flow

Equipment and

Services

Customer: marketing expenditures; share of market, number of new

customers,

Internal Processes: distribution costs, processing costs, safety incidents,

refinery reliability, inventory level, quality index

Learning and growth: technology for new design in equipment, new products

and types of services offered, hours trained in BSC and strategy map,

community service projects, sustainability scorecard

Financial: return on investment, net profit margin, sales growth, cash flow

Pipelines

Customer: marketing expenditures; share of market, pipeline interruption

incidents

Internal Processes: distribution costs, maintenance costs, safety incidents,

quality index

Learning and growth: technology for oil and gas distribution, hours trained in

BSC and strategy map, community service projects, sustainability scorecard

Financial: return on investment, net profit margin, sales growth, cash flow

Refining and

Marketing

Customer: marketing expenditures; share of market,

Internal Processes: distribution costs, processing costs, safety incidents,

refinery reliability, inventory level, quality index

Learning and growth: technology for oil and gas refining, hours trained in

BSC and strategy map, community service projects, sustainability scorecard

Financial return on investment, net profit margin, sales growth, cash flow

Transport of

Refined Product

Customer: marketing expenditures; share of market

Internal Processes: maintenance of equipment, equipment failures,

distribution costs, on-time delivery index, safety incidents, inventory level,

quality index

Learning and growth: hours trained in BSC and strategy map, community

service projects, sustainability scorecard

Financial: net profit margin, sales growth, cash flow