Testing Strategy with Multiple Performance Measures Evidence from a BalancedScorecard at Store24* Dennis Campbell Srikant Datar Harvard Business School SusanL. Kulp George Washington University V.G. Narayanan Harvard Business SchoolCurrent Draft: February 2008ABSTRACT: We analyze balanced scorecard data from a convenience store chain,Store24, during the implementation of an innovative, but ultimately unsuccessfulstrategy. Quarterly strategic reviews, based in part on the firm's balancedscorecard, led executives at Store24 to identify problems with, and eventuallyabandon, this strategy over a two year period. We find that formal statisticaltests of the hypotheses underlying the firm's balanced scorecard and strategy mapreveal problems with the strategy on a timelier basis. We also test alternativehypotheses to those underlying the firm's formal strategy map and scorecard thatare consistent with concerns expressed by some of Store24's top executives duringthe initial stages of implementing the new strategy. Our analysis demonstratesthat this firm's balanced scorecard contained useful and timely information fordistinguishing between these alternatives. These results provide some of the firstfield-based evidence on the potential for a firm's balanced scorecard to provideuseful information for detecting problems in its strategy.I.IntroductionThis study investigates the role of the balanced scorecard in generating usefulinformation for testing and validating an organization's strategy. Numerous casestudies of balanced scorecardimplementations document their use in translating organizational strategies toobjectives and measures, communicating strategic objectives to employees,evaluating the performance of business units, and aligning the incentives ofemployees across business units and functions.1 Field-based and experimentalresearch in the accounting literature has also focused on these uses of balancedscorecards (Malina andThe authors thank Store24 for use of its data. We thank Chris Ittner, RobertKaplan, Ken Koga, Joan Luft, Michael Maher, Ella Mae Matsumura Tatiana Sandino,Philip Stocken, Dan Weiss, two anonymous referees, and seminar participants at theAAA Annual Meeting in Orlando, Boston University, the EIASM conference, HarvardUniversity, Management Accounting Section Mid-year Meeting in San Diego, MichiganState University, Ohio State University, University of Arizona, UCLA, Universityof Michigan, University of Southern California, and the University of Wisconsinfor their helpful comments and suggestions. 1 See Kaplan (1998), Campbell and Lane(2006), or many of the organizations documented in Kaplan and Norton (2006) forexamples.*1
1. Outline the steps involved in conducting an internal analysis of a company and gaining a good insight on the basis for its competitive advantage.
Firms can achieve competitive advantage and earn healthy returns only if they develop their core competencies effectively. These competencies can be acquired, bundles or leveraged. However, as time passes on new threats and opportunities come at disposal and the older ones either become competitor’s strength or a company’s weakness. For the internal analysis one can either used SWOT analysis or VRIO analysis (Michale, 2008). The SWOT analysis includes strengths, Weaknesses, Opportunities and Threats. The strengths and weaknesses for an organization are internal analysis for the company and can also be measured through the internal factor evaluation matrix with gives weights to each of the strengths and weaknesses and also helps predict the internal position of an organization (Michale, 2008). Strengths can include, value propositions, competitive advantages, assets, unique selling points, returns on investment, brand image, geographical location, patents, processes, innovative aspects etc.
On the contrary weaknesses may include lack in competitive strength, the workload, dissatisfied workforce, lagged leadership, supply chain inefficiency, accreditations, lack of succession planning etc. The external analysis for the company includes judgment of opportunities and threats (Michale, 2008). The opportunities include market developments, the technological advancement and changing life styles, the tax lax and the global influences, product or business revamp, or development, market volume demands and the changing demographics etc. On the other hand, threats may include, political, legislative or environmental influence, obstacle in the market, financial and credit pressures, lack of control and access to latest technology, patent grants, competitor intentions, rising market demands and IT developments etc. (Michale, 2008)
Whereas VRIO that is Valuable, Rate, Imitate and Organization is an assessment of the organization’s internal resource strength. The Value Chain Analysis is a chart that requires input of resources in the form of bullets and then measures those resources against four factors. For example if the resource cited is valuable then is that resource rare if yes then it is good as it won’t be imitable this means that the company has a clear advantage in the competitive implication section of the VRIO (Michale, 2008) . In addition to this, if the resource is valuable, rare and inimitable then it will also perform above average on the VRIO analysis.
In addition to this, the internal analysis process comprise of several steps, these include, resource analysis for being tangible and intangible, capabilities sand core competencies assessment, the realization of the competitive advantage will lead to strategic competitiveness and assessment of the sustainable advantage on the four criteria that is VRIO analysis. In order to sustain the competitive advantage, the firm needs to assess its valuable capabilities; which will help the firm subtle threats and exploit opportunities (Michale, 2008). In addition to that, the firm must possess inimitable culture and brand name that helps it thrive through the industry and helps it sustain its competitive landscape till the business lives. Hence, for firm to make its competitive advantage a sustainable competitive advantage it should have resources that are rare and complex, with competitors feeling ambiguous that how did the other company achieve such success and the strong culture endorsement (C.K. Prahalad 2003).
2. Prepare a strategy map and balanced scorecard for Store24 based on the information provided. (Use Excel)
The exhibit in the appendix is the illustration of the balanced Scorecard and also reflects the strategic map extracted from the score card. In addition to this, the excel sheet attached also represents the balanced scorecard.
3. Critique the Store24’s Balanced Scorecard you made. What other variables would you include to use the scorecard to test the effectiveness of the Ban Boredom strategy?
In learning and growth perspective, they should have paid attention towards cultural and teamwork. Along with human capital, there is as much as importance of information capital. In internal processes, they should have paid attention towards supply chain management. Risk management issues have not been discussed in that map.
They could include acquiring or have partnership with any firm. In customer perspective, they have not talked about pricing strategy. They should have mentioned that where product will be available. They have not focused on brand image as well...................................
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