Chapter 2 HW

2-28 Strategy; Execution Joel Deaine, CEO of Deaine Enterprises, Inc. (DEI), is considering a spe-cial offer
to manufacture a new line of women’s clothing for a large department store chain.DEI has specialized in
designer women’s clothing sold in small, upscale retail clothing stores throughout the country. To protect
the very elite brand image, DEI has not sold clothing to the large department stores. The current offer,
however, might be too good to turn down. The department store is willing to commit to a large order,
which would be very profitable to DEI, and the order would be renewed automatically for two more
years, presumably to continue after that point.

1. Determine Joel’s competitive strategy (cost leadership or differentiation) and use this strategy to
analyze the choice Joel faces.

Joel’s competitive strategy is differentiation. He sells to high end retail clothing stores and not to
department stores so that his brand can be unique. The dilemma he faces is that he would have to

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change his strategy to cost leadership because he will not be able to produce the amount the

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department stores wants unless he mass produces and if he finds a way to cut costs on his products. He

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can increase his profit if he takes the offer of the department store and he will have a guaranteed high

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income for the next 2 years. If he leaves the retail clothing store he would most likely lose the title of

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being unique. Either way he goes he will be at a loss. If he stays with the retail clothing stores, than he
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remains unique. If he chooses the department stores he has to mass produce and he loses the chance of
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the title of being unique.

2. Explain two means Joel can use to implement his strategy

Here are a few ways that Joel can implement his new strategy:
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• Have tight cost control

• Have frequent, detailed control reports

• Have structured organization and policies

• Have incentives based on meeting strict quantitative targets

2-32 Value Chain; Sustainability One way the value chain can be helpful is to provide a basis for a
company to determine the full cost of its product or service, over the entire value chain. Often
companies tend to focus only on manufacturing costs and ignore the upstream (design and test-ing, etc.)
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and downstream (marketing, distribution, etc.) costs of the product or service. Full value-chain analysis
of this type is useful to the consumer as well as the manufacturer. For example, a product might be
inexpensive to buy, but the operating costs may be higher than expected. Lockhart et al. ( Strategic
Finance, January 2011) illustrate this example with the case of a company, Clean Tech, which provides a
cleaning service to owners of large storage tanks that often contain hazardous liquids such as fuel oil or

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 toxic chemicals. Clean Tech is considering the purchase of a new system for cleaning tanks that is
somewhat more expensive than its current equipment, but one which could reduce both operating costs
and the amount of environmentally harmful waste product that must be disposed of after the cleaning
process is complete.

1. What is the role of the value chain in Clean Tech’s purchase decision?

The role of the value chain is to identify if the purchase will add value to Clean Tech and the overall
satisfaction of the product will or will not add value to the company. The value chain will also take into
consideration that it would save on operating costs and help the environment. These things would help
to add value to a company.

2. In its analysis, how should Clean Tech include the disposal of the environmentally harmful waste
product?

So the disposal of the harmful waste product would be a part of the operations in the value chain.

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Operations refer to the manufacturing operations or, for a retailer or service firm, the operations

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involved in providing the product or service.

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3. Consider how Clean Tech might use a balanced scorecard with a sustainability perspective and what
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the measures in this sustainability scorecard might include. Give two or three examples of possible
sustainability measures
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Through the balanced scorecard and an incentive to achieve these CSFs in moving the firm forward to its
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strategic goals. The strategy map is also used to implement strategy, but in contrast to the focus on
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performance measurement in the BSC, the main role of the strategy map is to develop and communicate
strategy throughout the organization. The strategy map links the perspectives of the BSC in a causal
framework that shows systematically how the organization can succeed by achieving specific critical
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success factors in the learning and growth perspective, thereby leading to desired performance in
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internal processes, and thus to desired performance in the customer perspective, and finally to the
ultimate goal, financial performance and, for a public firm, shareholder value. In sum, the BSC provides
the structure of performance measures and the strategy map provides the road map the firm can use to
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execute the strategy.

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.

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 •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 score card.

•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.

Some examples of sustainability measures are:

Customer Perspective Measures

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New products Number of new products percent of sales from new products

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Support Response time customer satisfaction survey

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Innovation

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Technology leadership rs e Product performance compared to competition; number of
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new products with patented technology

Improved quality should increase sales and customer satisfaction. Some measures are in effect “leading
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indicators” of what will happen to other measures in later periods.

2-52 Strategy; Critical Success Factors; Martial Arts Training Martial Arts of Cincinnati (MAC) pro-vides
karate training and practice services in three locations in Cincinnati, Ohio. MAC is known for its quality of
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training and has grown rapidly in recent years due to its solid reputation and the growing interest in
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martial arts, particularly karate. George Moody, the owner of MAC, is are tired police officer who has
been training and teaching martial arts for almost 20 years. He has a plan to grow his business to 10
locations in the Cincinnati area in the coming 5 to 10 years. George thinks that by careful attention to
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customer service, and by choosing his locations wisely, he can achieve this goal. He plans to locate his
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new studios in strip malls where rental costs are relatively low. This way he can keep his prices down,
perhaps lower than other competitors, and thereby attract more customers.

George has developed a list of indicators that he uses to manage the business. The indicators are
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targeted to George’s two key concerns—sales growth and teacher performance. Sales Indicators Number
of introductory lessons Number of new students Number of students attending classes Total number of
enrolled students Class size by teacher and age group The first four indicators are obtained on a daily
basis, while the last is obtained weekly Teacher performance indicators (for each teacher; data collected

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 on a monthly basis) Number of classes taught Average number of students per class Average retention
percentage Student progress in martial arts skills

1. How would you describe George’s competitive strategy?

I feel that his competitive strategy is differentiation and cost leadership. He is going to be different from
his competitors because he will lower the costs of the classes by cutting costs (this is also a cost
leadership), He will enroll students at the malls. This will cut costs and he would be able to get more
students to enroll because he is getting his name out there(This is both). He will keep measure on sales
growth and on teacher performance which will keep the value up and the customer satisfaction up. He
will be both Unique and have low costs.

2. George has listed some of his CSFs. Critically review these indicators, and explain which CSFs you
would add or change, and why.

I would keep both indicators but I would change the length in the measurement for the first four

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indicators. I would change it to weekly rather than daily. This would give you a better comparison to

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other weeks rather than days. Week or even month at a time would help tell if a child is retained in the

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class or has left. Longer periods of time are better comparisons than shorter periods. When I measure

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my students and my retention list it is easier for me to tell on how many children did I have in all per
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month and who stayed and who left and in which classes. It shows a wider scale of events that occur and
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you can tell if one class lost more children in one month, you can go back and check what occurred that
month and in whose class. It is easier to compare with other months.
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