RESUME ASSIGNMENT

CHAPTER 2
IMPLEMENTING STRATEGY: THE VALUE CHAIN, THE BALANCE SCORECARD,
AND THE STRATEGY MAP

The various means for implementing that competitive strategy:

1. SWOT Analysis
2. Focus on Execution
3. Value-Chain Analysis
4. The Balanced Scorecard and The Strategy Map

STRENGTHS-WEAKNESS-OPPORTUNITIES-THREATS (SWOT) ANALYSIS

SWOT Analysis is a systematic procedure for identifying a firm’s critical success factors:
Internal strengths and weaknesses and External opportunities and threats.
Strengths and Weaknesses are most easily identified by looking inside the firm at its
specific resources:
 Product Lines
 Management
 Research and Development
 Operations
 Marketing
 Strategy
Opportunities and Threats can be identified most easily by analyzing the industry and
the firm’s competitors:
 Barriers to Entry
 Intensity of Rivalry Among Competitors
 Pressure from Substitute Products
 Bargaining Power of Customers
 Bargaining Power of Suppliers
 VALUE-CHAIN ANALYSIS

Value-Chain Analysis is a strategic analysis tool used to better understand the firm’s
competitive advantage, to identify where value to customers can be increased or costs reduced,
and to better understand the firm’s linkages with suppliers, customers, and other firms in the
industry.
The value-chain can be thought of as three main phases, that is:
1. Upstream
Includes product development and the firm’s linkages with suppliers.
2. Operations
Refers to the manufacturing operations or, for a retailer or service firm, the operations
involved in providing the product or service.
3. Downstream
Refers to linkages with customers, including delivery, service, and other related
activities.
Value-chain analysis has two steps:
Step 1. Identify The Value-Chain Activities
Value activities are activities that firms in the industry must perform in the process of
designing, manufacturing, and providing customer service.
Step 2. Develop a Competitive Advantage by Reducing Cost or Adding Value
The firm determines the nature of its current and potential competitive advantage by
studying the value activities and cost drivers identified earlier. The firm must consider the
following:
1. Identify competitive advantage (cost leadership or differentiation)
2. Identify opportunities for added value
3. Identify opportunities for reduced cost
Value-Chain Analysis in Computer Manufacturing
The computer industry provides an opportunity to show value-chain analysis in action. The
Computer Intelligence Company (CIC) manufactures computers for small businesses. CIC has an
excellent reputation for customer service, product innovation, and quality.
The Five Steps of Strategic Decision Making for CIC Manufacturing
1. Determine the strategic issues surrounding the problem.
2. Identify the alternative actions.
3. Obtain information and conduct analyses of the alternatives.
4. Based on strategy and analysis, choose and implement the desired alternative.
5. Provide an ongoing evaluation of the effectiveness of implementation in Step 4.
 THE BALANCED SCORECARD AND THE STRATEGY MAP

The Balanced Scorecard

Now a rapidly increasing number of firms, not-for-profit organizations, and governmental units
use the BSC to assist them in implementing strategy.
Benefits of the BSC:
 A means for tracking progress toward achievement of strategic goals.
 A means for implementing strategy by drawing managers’ attention to strategically
relevant critical success factors, and rewarding them for achievement of these factors.
 A framework firms can use to achieve a desired organizational change in strategy, by
drawing attention to and rewarding achievement on factors that are part of a new strategy.
The BSC makes the nature and direction of the desired change clear to all.
 A fair and objective basis for firms to use in determining each manager’s compensation
and advancement.
 A framework that coordinates efforts within the firm to achieve critical success factors.
BSC enables managers to see how their activity contributes to the success of others and
motivates teamwork.
Implementing the BSC
To be implemented effectively, the balanced scorecard should:
• Have the strong support of top management.
• Accurately reflect the organization’s strategy.
• Communicate the organization’s strategy clearly to all managers and employees, who
understand and accept the scorecard.
• Have a process that reviews and modifies the scorecard as the organization’s strategy and
resources change.
• Be linked to reward and compensation systems; managers and employees have clear
incentives linked to the scorecard.
• Include processes for assuring the accuracy and reliability of the information in the
scorecard.
• Ensure that the relevant portions of the scorecard are readily accessible to those
responsible for the measures, and that the information is also secure, available only to
those authorized to have the information.
The Balanced Scorecard Reflects Strategy
The BSC can be viewed as a two-way street. Since it is designed to help implement strategy, it
also should reflect strategy. One should be able to infer a firm’s strategy by a careful study of the
firm’s BSC.
Timing, Cause-and-Effect, and Leading Measures in the BSC
 Timing: The measures will be updated on their appropriate time line.
 Cause-and-Effect: Some of these measures are known to have a cause-andeffect
relationship with other measures.
 Leading: Some measures are in effect “leading indicators” of what will happen to other
measures in later periods.
The Strategy Map
Strategy Map is a cause-and-effect diagram of the relationships among the BSC perspectives.
Managers use it to show how the achievement of goals in each perspective affect the
achievement of goals in other perspectives, and finally the overall success of the firm.
Expanding the Balanced Scorecard and Strategy Map: Sustainability
Sustainability means the balancing of shortand long-term goals in all three dimensions of the
company’s performance—social, economic, and environmental. Many companies manage
sustainability in a strategic manner, through sustainability reports to shareholders.
Indicators of the Concern about Sustainability
The concern for sustainability has many dimensions, that is:
1. Global Warming
2. Labor Issues
3. Health Issues
4. Safety Issues
How Companies Have Responded
The five reasons most often given by the survey respondents for choosing to report on
corporate responsibility were:
1. Economic considerations
2. Ethical considerations
3. Innovation and learning
4. Employee motivation
5. Risk management or risk reduction
Sustainability Measures for the Balanced Scorecard
Environmental performance indicators (EPIs) are the CSFs in a sustainability perspective. They
are defined in three categories by the World Resources Institute, that is:
1. Operational indicators measure potential stresses to the environment
Example: Fossil fuel use, Toxic and nontoxic waste, and Pollutants.
2. Management indicators measure efforts to reduce environmental effects
 Example: Hours of environmental training.
3. Environmental condition indicators measure environmental quality
Example: Ambient air pollution concentrations.
Social performance indicators (SPIs) include:
• Working conditions indicators that measure worker safety and opportunity
Example: Training hours and Number of injuries.
• Community involvement indicators that measure the firm’s outreach to the local and
broader community
Example: Employee volunteering and Participation in habitat for humanity.
• Philanthropy indicators that measure the direct contribution by the firm and its
employees to charitable organizations
The role of the management accountant, in developing the sustainability perspective of the
BSC, is to make these EPIs and SPIs an integral part of management decision making, not only
for regulatory compliance but also for product design, purchasing, strategic planning, and other
management functions.