Question

enario 1:       (Total = 3 x 5 = 15 Marks)
Western Sydney Steaks (WSS), a national fast-food chain, has experienced a number of problems in the past few years, and management is considering the adoption of a balanced scorecard as part of a turnaround effort. You are one of the renowned Management Accountants in the city. WSS’s CEO has requested you to submit a report highlighting the potential benefits of using balanced scorecard over traditional management accounting tools. You need address the following specific requirements:
Required:

1. Briefly explain the concept of a balanced scorecard. Discuss the general factors that are included in a typical balanced scorecard.




2. Independent of your answer in requirement 1, assume that WSS is very concerned about customer satisfaction. List four different (and specific) customer satisfaction measures that may be appropriate for the firm (and for other fast-food providers).



3. Independent of requirement 1, assume that WSS wants to return to former levels of profitability. List several financial measures that would allow management to assess success or failure with respect to the following goals: (1) pay creditors on a timely basis, (2) keep shareholders happy, and (3) improve profitability over time at stores that have been open at least one year.




 

Answer 1

There are following benefits accruing to WSS through a value chain analysis:

▪ Value chain analysis is a process by which a firm identifies and analysis various

activities that add value to the final product. The idea is to identify those activities which

do not add value to the final product/service thereafter eliminating such non-value

adding activities. The analysis of value chain help a firm in obtaining cost leadership

or improve product differentiation. For WSS, value chain can provide with more

unambiguous picture of the value of the manufacturing function as perceived by

customers.

▪ This model also helps in analyzing other firms within the same industry. As WSS

observed that other firms in the industry are considered to be more cost effective in

terms of manufacturing, it may plan to use the value chain model to examine the reason

for the same.

▪ The value chain will assist WSS to determine ways to get best approach towards

developing higher level competitive performance. This model assists firms in finding

ways to develop higher level of performance either by cost leadership or product

differentiation. Right now, WSS is in a situation wherein it is being defeated on price

by some of its competitors, however is recognized as the best solutions provider to

customer's problems. Through detailed value chain analysis, WSS may be able to

ascertain the reason of falling down in such situation and partners may be able to take

decision regarding the future vision of the firm.

▪ Through this analysis, WSS may apply other relevant management techniques as well.

Post value chain analysis, WSS will be in a position to decide whether it is worthwhile

to continue the technique of benchmark (processes and performance) against its rivals,

to develop an information systems strategy, to carry out a business process re-

engineering process or to adopt activity-based management.

Further, WSS may decide to outsource manufacturing and keep focus on design and

services by following value chain analysis model. This technique may be appropriate

for WSS as by outsourcing manufacturing, WSS may be able to focus on its core area

for which it is well-known in the industry.

▪ Value Chain analysis will also facilitate the development of performance metrics for

WSS. By developing such metrics WSS may be able to identify which aspects of its

business model are not contributing to the overall value and profits of the firm. Although

currently WSS has suspicion that manufacturing and installation are the weak parts of

its operation, development of transparent and appropriate metrics would enable WSS

to recognize where value and profit are being added in the business model.

(ii) Number of criticisms of the value chain developed by Michael Porter have been:

▪ This value chain analysis cannot easily be applied to firms belonging to service

industries. This criticism is particularly imperative in the context of WSS which has

upward profits from rendering solutions and services rather than that from

manufacturing tangibles products. Many people appreciate that the model is more

suitable to manufacturing-based industries, rather than service based industries.

▪ Often this model is seen as complicated and perhaps could be a source of frustration

for the management of a firm. Although the staff of WSS includes bright and intelligent

experts, they may not see the value in-depth analyses of business which is required

for a full value chain analysis.

▪ This analysis has a linear approach and ignores the concept of value networks. This

criticism is specifically relevant to WSS because its major business resort to the

cooperative relationship that the experts have with their customers. If, WSS decides to

outsource manufacturing and focus on design and service, this will become even more

relevant where relationships are utmost important.

Often value chain analysis is perceived as time consuming and expensive as a whole.

However, if the analysis is to be completed timely, there will be requirement of reliable

data such as cost of components in business model. However, in the absence of good

cost capturing system, this model could prove to be a costly process. After completion

of this process, still there is no guarantee that the process lead to have upward trend

in profitability and where it does, it may take some time in realization.

(iii) WSS requires to acknowledge that the nature of its business is turning from manufacturing

zone to a solutions provider or professional services firm.

From this point of view, it would be better for WSS to analyze its business using the

Professional Services Value Chain/ Value Shop Model. The concept of Value Shop came in

to lime light holding the hand of Charles B. Stabell and Oystein D. Fjeldstad in 19 98.This

concept aims to serve firms from service sector. It only deals with problems, figure out the

main area requiring service and finally come with the solution. This approach is designed to

solve customer’s problems rather than creating value by producing output from an input of

raw materials.

A Value Shop mobilizes resources (say: people, knowledge or money) to solve specific

problems such as delivering a solution to business problem. This shop model is iterative,

involving repeatedly performing a generic set of activities until a solution is reached.

Secondary activities in the Professional Service Value Chain have same support activities

as those in the porter’s value chain, However the primary activities are described differently

to recognize the different nature of a service-oriented business. In value shop, primary

activities are performed in a circle within a firm to perform generic set of activities iteratively

before reaching a conclusion. Since WSS team communicate with customers to find a

solution before testing of developed prototypes, so they will find the vale shop, compatible

and effective model to use.