Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
Chapter 2
Implementing Strategy: The Value Chain, the Balanced Scorecard, and the
Strategy Map
Learning Objectives
New in this Edition
• All Real World Focus items are revised and updated, particularly the item on the
currency fluctuation; one new Real World Focus item on execution; real world
information throughout the chapter is revised for current information
• New Cost Management in Action item on strategy in consumer electronics – Apple
vs. Samsung
• The section on Execution is updated and enhanced
• Twelve new Brief Exercises, three new problems, and several revised exercises and
problems
Teaching Suggestions
This chapter is unique, and is not included in most cost and management accounting textbooks.
Because of the importance of the strategic theme of the book, this entire chapter is devoted to developing
the three key areas of strategy implementation. The chapter follows the introduction to strategy in chapter
1, which we view as a foundational topic, as is ethics, and is thus included in the first chapter. Chapter
two develops the strategic emphasis by explaining the methods in which it is implemented in
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
For the value chain. I pick a simple example and show it on the board or transparency. Then I ask
the class to help develop a value chain for a similar type of firm. Some students will at first find the
concept of the value chain too vague, and they are concerned how they will do homework problems
(2) how the scorecard differs among firms and industries.
An important point to convey in this chapter is that cost management must be based on a strategic
competitive assessment of the firm. That is, in order to develop effective cost management methods, it is
necessary to know how the firm competes, and how it is successful. The methods to be developed will
depend on this. If the firm is a cost leadership competitor, the choice of cost management methods will be
different than if the firm is a differentiator.
A related point is that the students must understand at this point that what they will see later in the
course, whether it be the master budget, the flexible budget, or productivity analysis, etc, must be viewed
within the context of how it helps the firm advance its strategy and become more successful. None of the
topics are covered simply because this topic or method is used in practice. Rather, each topic is
considered from the standpoint: how will this method help the firm succeed?
Lecture Notes
A. How a Firm Succeeds: The Competitive Strategy. It is useful to reinforce in chapter two the basic
concepts of strategy, using the Michael Porter framework introduced in chapter 1. A firm succeeds by
finding a sustainable strategy, which is a set of policies, procedures, and approaches to business to
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
market share and customer satisfaction) show the firm’s current and potential competitive position.
Strategic financial and nonfinancial measures of success are commonly called critical success factors
(CSFs).
B. Critical Success Factors and SWOT Analysis.
SWOT analysis is a systematic procedure for identifying a firm’s CSFs: its internal Strengths and
Weaknesses and its external Opportunities and Threats. Strengths are skills and resources that the firm
has more abundantly than other firms. Skills or competencies that the firm employs especially well are
called core competencies. Core competencies are important because they point to areas of significant
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
D. Cost, Quality, and Time. Many firms find that a consideration of critical success factors yields a
renewed focus on the three key factors: cost, quality, and speed of product development and product
delivery. Increasingly, firms find that they must compete effectively on each of these three factors.
Suppliers to these firms expect to meet very high standards of quality and to meet increasingly demanding
delivery terms.
E. 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. The activities of the
value-chain include all steps necessary to provide a competitive product or service to the customer.
Although the value-chains are sometimes difficult to describe for a service or not-for-profit organization
because they might have no physical flow to visualize, the approach is applied to all types of firms. The
term value-chain is used because each activity is intended to add value to the product or service.
Management can better understand the firm’s competitive advantage by separating its operations
according to activity. The underlying concept of the analysis is that each firm occupies a selected part or
parts of the entire value chain. The determination of which part or parts of the chain to occupy is a
strategic analysis based on the consideration of comparative advantage for the firm. Value-chain analysis
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
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
First decision: As a differentiator based on product quality and innovation, CIC
considers the importance of the quality of the part in question, and decides to manufacture the
5. Provide an On-going Evaluation of the Effectiveness of implementation in Step 4.
Management of CIC realize that the quality of the product and of customer service is
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
perspective, including measures of customer satisfaction, (3) internal process perspective, which includes
measures of productivity, speed, among others, and (4) learning and innovation, which includes such
measures as employee training hours, number of new patents or new products. The BSC provides four
key benefits:
• it provides a means for implementing strategy, by drawing managers attention to
strategically-relevant critical success factors, and rewarding them for achievement on these
factors
Chapter 02 - Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map
H. Expanding The Balanced Scorecard: Sustainability
More and more large companies, especially those in the extractive industries, are concerned about the
sustainability of their business, that is, the balancing of short and long term goals in all three dimensions
of the company’s performance – economic, social and environmental. Economic performance is