Strategy and Control Questions for Class Discussion

Risk Management Strategy

1. Why has strategy evaluation become so important in business today? At least three important reasons and justify them. 2. As owner of a local grocery store chain, how would you evaluate your firms strategy? 3. Identify at least three organizations that may need to more frequently evaluate strategy than others. 4. Identify some key financial ratios that would be important in evaluating a banks strategy.

Strategy Implementation - Modern Book Distribution, Inc.

Richard Guy, CEO of Modem Book Distribution, Inc. (MBD) scanned the "Executive Summary" of the consulting report he had just received. Guy saw the report was filled with the latest buzzwords and hot concepts:

Establish cross-docking facilities for high-volume deliveries to large customers ... centralize storage operations to decrease safety stock levels ... leverage point-of-sale data to move toward a pull distribution strategy.

Guy was familiar with all of these phrases and concepts at a superficial level, of course-anybody who occasionally picked up The Wall Street Journal or Business Week would be. He was less sure, however, if the consultants were trying to dazzle him with fads or if the kind of radical operating changes that were being proposed in the report would help to position MBD for the future.

Founded 80 years ago, MBD had been for many years one of the largest book distributors in the country. From its seven regional warehouses, MBD services major bookstore chains and smaller independent booksellers throughout the country. The company had continuously strived to improve its service levels and operating efficiency, and it was considered the most efficient book distributor in the industry. Using advanced forecasting techniques to control inventory levels and technologically advanced warehouses to control operating expenses, MBD shipped virtually all of the orders it received within two days from its stock of nearly 500,000 books, the largest in the industry.

The bookselling industry, however, had been changing dramatically, and Guy realized that MBD would have to make changes to remain a book distributing powerhouse. In particular, two relatively new types of retailers were becoming more and more dominant in the industry: large superstores and online booksellers. Both of these categories of retailers presented new and unique challenges to their distributors.

In the past MBD had interacted primarily with the superstores through large regional distribution centers (DCs) that the superstores maintained. In general, MBD had shipped to the DCs consolidated orders of many different titles bound ultimately for many different stores. As these superstores learned from the experiences of large retailers in other industries, they started to demand new kinds of services from their distributors. For example, some retailers had started to strongly encourage MBD to ship directly to stores, bypassing the DCs. In addition, as the industry consolidated, these huge superstores were developing more leverage with their distributors. They used this leverage to force the distributors to accept lower and lower margins.

On-line booksellers presented an entirely different set of challenges to Guy and the managers at MBD. Initially, these retailers kept no inventory at hand. Instead, they took orders and relayed them to distributors like MBD, who delivered the books to the retailers for repackaging and shipment. Recently, the large on-line retailers had started moving toward a new business model: they established their own distribution centers where they kept inventory and handled packaging and shipment of books directly to the end customers.

Guy realized that these industry changes could provide opportunities and challenges for his company. In particular, the new business model developed by some of the on-line retailers, in which they established their own warehouses, may cut MBD's profit margins. Clearly, if MBD was to maintain its reputation as one of the nation's leading book distributors, it would have to start doing things differently.

Furthermore, he had the consultant's report, filled with recommendations and designs for new distribution systems. Guy knew that he and his management team would have to develop an understanding of these issues in order to properly assess the consultant's suggestions. As he prepared for the next day's meeting, Guy made a list of many questions:

1.

What is the impact of the Internet on the business strategy used by the superstores and the on-line sellers? In particular, are on-line retailers to keep inventory of most book categories in their distribution centers? How can MBD use the Internet to better serve their customers, the superstores, and the on-line sellers? Should MBD encourage retailers to make point-of-sale (POS) data available? What is the value of these data? How can they be used effectively? Should MBD establish more regional warehouses? Should it eliminate some warehouses and become more centralized? Was cross-docking really a viable strategy for book distributors? Should MBD encourage customers to utilize direct shipping services? Should it discourage them?

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Strategy and Control Performance Evaluation:

1. What type of quantitative and qualitative criteria do you think a company such as Amazon or eBay would use to evaluate its corporate strategy? 2. Discuss the measures that a balanced approach to performance evaluation would include and 3. Why do you believe that the measures that you identify are important in devising both control and strategic objectives?

Balanced Scorecard: Assume you are the COO or CEO of a startup information systems company that provides analytical software to firms such as Newsweek, Time, and Wall Street Journal and so on.

Customers pay a rent to use your services but also want you to provide them customization of the product. But, customization means you incur additional cost and also too much customization means that customers no longer need you to service them.

How would you measure the success of your operations? What measurement criteria will you use to ascertain that your strategy is working? View it from a balanced scorecard type measurement.

Responsibility Centers

1. For each of the following nits, identify whether the most appropriate responsibility center form is a cost enter, a profit enter, or an investment center and why you have made that choice. a. A laboratory in a hospital

b. A restaurant in a department store c. The computer services group in an insurance company

d. A maintenance department in a factory e. A warehoused used to store goods for distribution in a large city

2. Some people and organizations have observed that the discussion of controllable and uncontrollable events is distracting in the sense that it encourages finger-pointing and an excessive preoccupation with assigning blame. These observers argue that it is more important to find solutions than to identify responsibility for unacceptable or acceptable events.

3. Many people believe that, in a successful organization, the focus of control reflects the strategic initiatives in the organization. For each of the following organizations, identify what you think are the three important items that would be assessed by the organizations control system and why each measure is important.

a.

A company selling cable television services

b. A music sabha or an arts academy c. A government agency responsible for finding jobs for its people

d. A chartered accountant firm. e. A company selling high fashion clothing

Analyzing financial performance

1. Based on an analysis of operations, a company making sporting goods has determined that the income provided by its cricket, hockey, tennis, and football product lines are $3,500,000, $7,800,000, $2,600,000, and $1,700,000 respectively. The accountant believes that the investment levels in these product lines are $35,000,000, $50, 0000, $45,000,000 and $23,000,000 respectively. Perform an analysis to evaluate the performance of each product lines, assuming that the organization requires a 10% return on investment.

2. A home services company offers renovations, heating, air conditioning, and plumbing services to its customers. Imagine that you are in the process of computing the income for the renovation division. What problems might you encounter in computing this income?

3. A business whose investors require a return on investment of 8%, after taxes reports an after tax income of