2. What is Strategy?
Strategy describes how an organization matches
its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
3. Components of Strategy
What is the focus of industry analysis?
Competitors
Potential entrants into the market
Equivalent products
Bargaining power of customers
Bargaining power of input suppliers
What is the focus of industry analysis?
4. Basic Strategies
1. Product differentiation
2. Cost leadership
Recognize which of two generic
strategies a company is using.
6. The Balanced Scorecard
The scorecard measures an organization’s
performance from four perspectives:
1. Financial
2. Customer
3. Internal business processes
4. Learning and growth
7. Reengineering
Reengineering is the fundamental rethinking
of business processes delivery to achieve
improvements in critical measures of
performance such as cost, quality, service,
speed, and customer satisfaction.
8. Reengineering Example
Customers needs identified
Purchase order issued
Production scheduled
Manufacturing completed
Finished goods to inventory
Quantities to be shipped
matched against purchase order
Shipping documents sent
to Billing Department
Invoice issued
Customer payment follow up
Dallas Co. order delivery system:
9. Reengineering Example
The following was determined:
Frequently, there is a long waiting time before
production begins in the manufacturing department.
Sometimes items are held in inventory until
a truck is available for shipment.
10. Reengineering Example
If the quantity shipped does not match the
number of items requested by the customer,
a special shipment must be scheduled.
Dallas discovered that the many transfers
across departments slowed down the
process and created delays.
A multifunctional team reengineered the
order delivery process.
11. Reengineering Example
A customer relationship manager is responsible
for each customer.
Dallas will enter into long-term contracts with
customers specifying quantities and prices.
The customer relationship manager will work
with the customer and manufacturing to specify
delivery schedules one month in advance.
12. Reengineering Example
The schedule of customer orders will be sent
electronically to manufacturing.
Completed items will be shipped directly from
the manufacturing plant to customer sites.
Each shipment will automatically trigger an
invoice to be sent electronically to the customer.
23. Aligning the Balanced
Scorecard to Strategy
Different strategies call for different scorecards.
What are some of the financial
perspective measures?
Operating income
Revenue growth
Cost reduction is some areas
Return on investment
24. Aligning the Balanced
Scorecard to Strategy
What are some of the customer
perspective measures?
Market share
Customer satisfaction
Customer retention percentage
Time taken to fulfill customers requests
25. Aligning the Balanced
Scorecard to Strategy
What are some of the internal business
perspective measures?
Innovation Process:
Manufacturing capabilities
Number of new products or services
New product development time
Number of new patents
26. Aligning the Balanced
Scorecard to Strategy
Operations Process:
Yield
Defect rates
Time taken to deliver product to customers
Percentage of on-time delivery
Setup time
Manufacturing downtime
27. Aligning the Balanced
Scorecard to Strategy
Post-sales service:
Time taken to replace or repair
defective products
Hours of customer training for
using the product
28. Aligning the Balanced
Scorecard to Strategy
What are some of the learning and growth
perspective measures?
Employee education and skill level
Employee satisfaction scores
Employee turnover rates
Information system availability
Percentage of processes with advanced controls
29. Pitfalls When Implementing
a Balanced Scorecard
What pitfalls should be avoided when
implementing a balanced scorecard?
1. Don’t assume the cause-and-effect
linkages to be precise.
2. Don’t seek improvements across
all measures all the time.
3. Don’t use only objective measures
on the scorecard.
30. Pitfalls When Implementing
a Balanced Scorecard
4. Don’t fail to consider both costs and benefits
of initiatives such as spending on information
technology and research and development.
5. Don’t ignore nonfinancial measures when
evaluating managers and employees.
6. Don’t use too many measures.
32. Evaluating the Success
of a Strategy
Assume the following operating incomes:
Year 2003 Year 2004
Revenues:
(1,000,000 × Rs26) Rs26,000,000
(1,100,000 × Rs24) Rs26,400,000
Expenses:
Materials 4,050,000 3,631,320
Other 16,000,000 16,000,000
Operating income Rs 5,950,000 Rs 6,768,680
33. Evaluating the Success
of a Strategy
How can the increase in operating
income of Rs818,680 be evaluated?
Growth
Price recovery
Productivity
34. Growth Component
Revenue effect of growth component
(Actual units of output sold in 2004
Actual units of output sold in 2003)
Output price in 2003
(1,100,000 – 1,000,000) × Rs26 = 2,600,000 F
This component is favorable because
it increases operating income.
=
–
×
35. Price-Recovery Component
Revenue effect of price-recovery component
= (Output price in 2004 – Output price in 2003)
× Actual units of output sold in 2004
What is the revenue effect of the
price-recovery component?
(Rs24 – Rs26) × 1,100,000 = Rs2,200,000 U
36. Productivity Component
Productivity component
Actual units of inputs or capacity to
produce year 2004 output
Input prices in 2004
=
×
Actual units of inputs or capacity
that would have been used to produce
year 2004 output assuming the same
input-output relationship that existed in 2003
–
37. Change in Operating Income
Increase in operating income
RS818,680
Growth
component
2,195,000 F
Price-recovery
component
2,068,000 U
Productivity
component
691,680 F
39. Engineered Costs
Engineered costs result specifically from a clear
cause-and-effect relationship between output
and the resources needed to produce that output.
They can be variable or fixed in the short run.
40. Discretionary Costs
Discretionary costs have two important features.
They arise from periodic (usually yearly)
decisions regarding the maximum
amount to be incurred.
They have no measurable cause-and-effect
relationship between output and resources used.
41. Relationships Between
Inputs and Outputs
Engineered costs differ from discretionary
costs along two key dimensions:
Type of process
Level of uncertainty
42. Relationships Between
Inputs and Outputs
Engineered costs pertain to processes that are
detailed, physically observable, and repetitive.
Discretionary costs are associated with processes
that are sometimes called black boxes, because
they are less precise and not well understood.
44. Managing Unused Capacity
What actions can management take
when it identifies unused capacity?
Attempt to eliminate the unused capacity
Attempt to use the unused capacity to grow revenue