Group 5

1. Group 5 Brad Maryman Cristina Matthews Todd Duncan Tom Tran Sean Rose

2. Agenda • Chapter 2 Overview • Case 2-3 • SWOT analysis • Reading 2-1 • Value chain analysis • Reading 2-3, Case 2-1 • Value chain analysis • The balanced scorecard

3. Chapter 2 Overview Important management tools for implementing strategy: • SWOT analysis • Value chain analysis • The balanced scorecard

4. SWOT Analysis SWOT analysis is a procedure for identifying a firm’s critical success factors: its internal strengths and weaknesses and its external opportunities and threats. Critical Success Factors (CSFs) are measures of those aspects of the firm’s performance that are essential to its competitive advantage.

5. Value-Chain Analysis Firms use this tool to identify the specific steps required to provide a competitive product or service. It is specifically used to: • Better understand a firm’s competitive advantage • Identify where to add value or reduce costs • Better understand external connections to the firm (suppliers, customers, competitors)

6. Learning improves business processes. Improved business processes improves customer satisfaction. Improving customer satisfaction improves financial results. The Balanced Scorecard

7. THE BALANCED SCORECARD • Financial -insistsevery corporate action culminates in improving short- and long-run financial performance • Customer -allows companies to align their measures of customer values (i.e., satisfaction, loyalty, retention) with targeted customers and segments • Internal Business Process -defines and measures an internal process value chain that identifies current and future customer needs and subsequent solutions • Learning and Growth - drives successful outcomes of the first three perspectives

8. Link Between Strategic Resources SWOT Analysis Value Chain Analysis Balanced Scorecard

9. Case 2-3: Accounting & Tax Practice • Background on Terry Merton • CPA, controller for small manufacturing firm • Dreams of owning her own business • Who should be her target market? • Tax practice = cost leadership • Tax and accounting practice = differentiation • Bill Anderson, the loan officer • Maximum loan of $8,000 • Annual payments of $2,110

10. Differentiation SWOT

11. Cost Leadership SWOT

12. Strategy Analysis • Terry’s perspective • More total income with cost leadership strategy • $48,240 vs. $40,000 • More opportunity with differentiation strategy • Differentiation strategy preferred • Bill’s perspective • Differentiation strategy preferred • More operating income before depreciation • $10,400 vs. $3,840

13. Strategy Focused Performance Measures • Strategy and performance are inseparable • First strategy, then performance measures • Metrics should change as strategy changes • Align strategy and performance measures with the right goal • Use performance measures that help synchronize strategic activities

14. Why Align Performance Measures With the Firm's Strategy? • Accurate evaluation of the firm's success in implementing its strategy. • How well are we really doing? You don't know until you measure the right parameter, be it revenue growth, customer satisfaction, cost savings, etc. • On-going and iterative process

15. How the Value Chain Determines Strategic Performance Measures To utilize value chain analysis: • Step 1: Identify the value chain activities • Step 2: Develop a competitive advantage by reducing cost or adding value • Step 3: Plan and achieve strategic objectives to optimize the competitive advantages. • Step 4: Ensure the performance measures align and change with the strategic goals

16. Financial Perspective “To succeed financially, what kinds of financial performance should we provide to our investors?” Internal Business Processes Customer Perspective VISION & STRATEGY “To satisfy our shareholders and customers, at what business processes must we excel?” “To satisfy our shareholders and customers, at what business processes must we excel?” “To achieve our vision, how should we be seen by our customers?” Learning & Growth Perspective “To achieve our vision, how will we sustain our ability to change and improve?” Balanced Scorecard: Translating Strategy into Operational Terms

17. THE BALANCED SCORECARD4 NEW MANAGEMENT PROCESSES • Translating the vision - a consensus of opinions among management regarding a set of objectives and measures that will drive long-term success • Communicating and Linking - assure all levels of the organization understand the company’s long-term strategy • Business Planning - integrates business and financial plans while providing a basis for allocating resources • Feedback and Learning - helps direct the organization toward strategic learning

19. THE BALANCED SCORECARD FOOD INGREDIENTS COMPANY • Financial Perspective • Industry Growth • Secure base • Expand globally • Customer Perspective • Be low cost supplier • Tailored Products • Internal Perspective • Maintain Lowest Cost • Maintain Consistent Production • Improve Distribution Process • Learning and Growth • Link Strategy to Reward System • Foster a culture that supports innovation *Low Cost Strategy

20. THE BALANCED SCORECARD COMMERCIAL BANK • Financial Perspective • Return on Assets/Equity • Efficiency Ratio • Asset Growth • Customer Perspective • Personalized quality service • Competitive products • Price • Employee Perspective • Competitive wages and benefits • Participation in Success of Organization • Enhanced Job Skills • Community Perspective • Support community activities • Act as good corporate citizens *Differentiation/Quality Strategy

21. THE BALANCED SCORECARD BIOTECHNOLOGY FIRM • Customer Perspective • New Products • Early purchase of seasonal products • Accurate invoices • Internal Business Perspective • Low Cost Producer • Reduce Inventory • New Products • Innovation Perspective • New Active Ingredients • Proprietary positions • Financial Perspective • Growth • Profitability • Industry leadership *Differentiation/Quality Strategy

22. Case 2-1: Atlantic City Casino • Background • HCA purchased LV casino, constructed another • Casino is an independent operating unit • Low ROI (better return in CDs) • Casino located several blocks off of main strip • Proposal for new entertainment center at casino • Management is cautious

23. Value Chain Analysis For HCA • Value chain analysis • Casino operations (4th) • Hotel operations (5th) • Food/beverage operations (1st) • Casinos with similar revenues have greater net income • Casino has been profitable from day one • Cost reduction ideas • Need more information • Value-added ideas • Improve access to the casino • Carry carnival theme into casino • Headline attractions to draw customers • Complimentary gaming chips for theme park customers

24. Investment Decision For HCA • Yes, HCA should invest • Increase the walk-in rate • Current ROI inadequate • Need an attraction • Potential risks: • Too difficult to attract people off of main strip • Change customer base, turn off original customers • People may not want to pay for the entertainment center • What are hotels 1, 3, and 5 doing? • All have higher profit margins

25. Balanced Scorecard For HCA • Customer Perspective • Are past customers coming back? • Number of walk-ins? • Measures of enjoyment/customer satisfactions? • Financial Perspective • Return on investment, profitability, sales growth, cost of sales? • Internal Process Perspective • How well is theme park integrated into casino? • Measure success with complimentary gaming chips • Customer retention rate • Learning and Innovation • Staying up-to-date with latest casino trends • Training employees on creating “carnival” atmosphere • Entertainment focus