+1 862 207 3288 SECTIONS (Select a section heading below to link to the information in that section.)
Presentation
Part III – Firm or Internal Environment
• Introduction to the Value Chain Analysis
Primary Value Chin Activities
• Supply Chain Management
• Operations
• Distribution
• Marketing and Sales
• Customer Service
Secondary Value Chain Activities
• Human Resources Management
• R&D / New Product Development
• Corporate Leadership
Summary
Important Reminder
PRESENTATION
The cover page MUST include:
• the first and last name of each student;
• the student number of each student;
• the e-mail address of each student;
• the identification name of the firm being analyzed.
The assignment will be approximately 50 pages, double spaced.
Please place in 3 ringed binder or cerlox bound.
Note: This assignment is worth 5 percent of your final mark.
PART III – FIRM OR INTERNAL ENVIRONMENT
You MUST:
• obtain the last 3 years of financial statements for your firm AND the DIRECT competitors (those in the same Strategic Group). Important: If financial statements are not available for your firm, you must select another firm in your industry for which the financial statements are available;
• NORMALIZE the data (i.e., convert each line item into a percentage of total revenues). Note: Excel will do this quickly;
• IF you do not know Excel, you can do it with a calculator for it relies on knowledge of grade 4 arithmetic ratios and percentages.
• You MUST provide two Appendices: 1. Normalized Balance Sheet for your firm and direct competitors for each of last 3 years; 2. Normalized Income and Expense Statement for your firm AND the direct competitors for each of last 3 years;
• Compare the data for EACH of the last 3 years for your firm and the direct competitors to determine the trend line for EACH category (e.g., the cost of goods sold the same as a percentage over the 3 years or is it increasing or decreasing and why? Are labor costs stable as a percentage relative to competitors? Is cash on hand growing as a percentage of total assets on the balance sheet?);
• RESTATED, complete a normalized financial statement trend analysis for EACH of the past 3 years, and provide a comparison WITH EQUIVALENT METRICS for 3 or 4 direct competitors for EACH of the past 3 years (i.e., percentages and ratios) to determine which firm is ahead (i.e., a strength and which firm possesses a weakness in each VC activity);
• RESTATED, provide ratio metrics for EACH value chain value activity, and include equivalent metrics for EACH of the 3 or 4 direct competitors;
• analyze the ratio metrics in each value chain activity to determine if it is a strength or a weakness (i.e., Is your firm underperforming or performing better than the competitors, based on the ratios provided?);
• evaluate EACH value chain function using Hitt’s typology (i.e., rare, non-substitutable, inimitable, costly) to determine the contribution of each value chain activity to the Sustainable Competitive Advantage;
• identify which value chain activities account for the change in financial performance and explain why;
• identify the firm’s sustainable competitive advantage, if any.
Important:
You WILL be penalized if you complete the financial statement analysis as a separate section OUTSIDE of the value chain analysis.
You must use the financial ratios in EACH section of the Value Chain Analysis.
It is not strategic to simply perform a financial statement analysis without attempting to determine which financial metrics are appropriate or relevant for each value chain activity. This is because financial statement analysis is merely another aspect of value chain analysis. The value chain IS the firm, broken down into smaller activities that are instantly recognizable to bankers, consultants and managers.
Financial statements information IS the firm. Financial statements capture financial consequences of management decisions concerning the various value creating activities and, thereby, provide metrics that can be compared to industry averages OR a leading competitor in your firm’s industry or industry segment.
These requirements force each of you to THINK ABOUT and ANALYZE the relationship of the financial statements and their meaning to the value creating activities and the management decisions concerning those value creating activities; that which we call the functions and functional courses (e.g., marketing, IS, IB, finance, accounting).
You must decide which financial numbers produce meaningful and/or illuminating metrics to evaluate EACH specific value creating activity.
Not all financial numbers can be attributed to a specific value creating activity, as the particular financial ratio or trend may “cut across” several value creating activities. In that case, “Firm infrastructure” (renamed “Corporate HQ/Leadership”) is the residual area where you discuss the numbers and trends that cut across all value creating activities. This “Corporate HQ/Leadership” is the management executive team, or the corporate head office, that manages the corporation. The analysis of firm infrastructure is the longest section of this assignment.
Think of value chain and financial analysis as similar to a biology class in which you had to dissect a frog. You remove the skin to examine the various body parts; parts that are, essentially, “value creating activities.” The heart “adds value” by pumping the blood, while the lungs “add value” by extracting oxygen from the air and into the body. But you would not understand this without dissecting the frog.
Instead of cutting and dissecting, you are analyzing, measuring, and interpreting the meaning of the parts you find inside your firm. The financial statements provide the tools and metrics (i.e., clues, insights, answers) to the value of each of the body parts.
By comparing these metrics to the same industry metrics, you will then be able to evaluate which parts are diseased, which parts are not functioning well, and which parts are functioning strongly.
In this assignment, after looking at the parts of the firm, you will use various “strategies” to fix the problems you discovered.
INTRODUCTION TO THE VALUE CHAIN ANALYSIS
One to two pages, double spaced.
In this section, you must provide:
• a brief history of the firm;
• the year the firm was founded;
• the location where the firm was founded;
• the type of core business the firm was involved in when founded;
• the names of the key entrepreneurs who founded the firm;
• the firm’s current:
o annual revenues;
o net income;
o number of employees;
o percentage of market share in the industry;
o regions in which the firm is doing business.
PRIMARY VALUE CHAIN ACTIVITIES
SUPPLY CHAIN MANAGEMENT (Porter’s Inbound Logistics and Procurement) (Customer)
Approximately 2 pages, double spaced.
In this section, you MUST:
• provide metrics that measure the efficiency of your firm’s supply chain management (e.g., average days of inventory);
• use metrics to identify strengths and weaknesses for this value chain function.
Hint:
• Read recent articles on supply chain management in the business media to identify the metrics used to measure supply chain management effectiveness and efficiency
• Review POM/OR courses for tools and metrics to evaluate this value chain function.
OPERATIONS Approximately 10-20 pages, double spaced.
Operations is the CORE activity of ANY firm where employees create, make or sell the firm’s products or services. The retail branches, or stores, of a retailer or a bank or KPMG = Operations.
The classroom in a university is “operations” as that is where education and learning occurs.
The stores in Walmart or any retail chain are operations.
In this section, you MUST:
• identify the number of stores, outlets or factories, for EACH of last 3 years for your firm and its direct competitors;
• identify the firm’s regional locations;
• compute same store sales for EACH of last 3 years (annual revenues / number of stores or outlets) and compare the same metrics to your direct competitors;
• compute sales per square foot for EACH of last 3 years for your firm and your direct competitors;
• identify other metrics, such as the sales per employee and the sales per store to compare them to the industry average (e.g., annual sales as a multiple of average inventory);
• use metrics to identify strengths and weaknesses in this value chain function.
Hint: Review POM/OR courses for tools and metrics to evaluate this value chain activity.
DISTRIBUTION (Porter’s Outbound Logistics) (Customer)
Approximately 2-3 pages, double spaced.
In this section, you MUST:
• identify outsourcing for your firm:
o to whom;
o how;
o where.
• identify metrics to determine efficiency of this value creating function;
• provide the number of distribution centres;
• provide the number of square feet of EACH distribution centre;
• use metrics to identify the strengths and weaknesses for this value chain function.
Hint: Review POM/OR courses for tools and metrics to evaluate this value chain activity.
MARKETING AND SALES Approximately 5 pages, double spaced.
In this section you MUST:
• identify and analyze the firm’s:
o market share;
o revenues and marketing expense;
o sales trends.
• identify the firm’s advertising strategies (i.e., Which media are used?);
• compute the marketing expense as a percentage of sales for EACH of the last 3 years and compare the expenses to the industry marketing expense as a percentage of sales for EACH of the last 3 years;
• identify any financial or market metrics that illuminate the marketing or sales trends growth or declines, and explain why;
• use metrics to identify strengths and weaknesses for this value chain function.
Hint: Review all Marketing courses for tools and metrics to evaluate this value chain activity.
CUSTOMER SERVICE (Porter’s Service) Approximately 2-3 pages, double spaced.
In this section, you MUST:
• explain how the firm services its customers after the sale (e.g., warranties, return policies, upgrade policies [for software firms]);
• identify after-sales service, including 1-800 numbers, website, etc.;
• identify some metrics that indicate successful customer service (e.g., industry awards, ratings from JD Power);
• use metrics to identify strengths and weaknesses for this value chain function.
Hint: Review POM/OR courses for tools and metrics to evaluate this value chain activity.
SECONDARY VALUE CREATING ACTIVITIES
HUMAN RESOURCES MANAGMENT
Approximately 3-5 pages, double spaced.
In this section, you MUST:
• identify the number of employees for EACH of the past 3 years for your firm and its direct competitors;
• ensure part time employees are normalized to Full Time Equivalent (FTE) – divide all part time employees by 2 and then asdd to full time employees;
• identify the revenues per employee for EACH of the last 3 years;
• identify the average level of education of the firm’s employees;
• identify the employee salaries and compensation as a percentage of total revenues;
• identify the employee turnover compared to the industry average – if data is available;
• identify any of the firm’s awards, such as the Fortune 100 list of best employers;
• use metrics to identify the strengths and weaknesses for this value chain function.
Hint: Review all OB, OT and HRM courses for tools and metrics to evaluate this value chain function.
R&D / NEW PRODUCT DEVELOPMENT (Porter’s Technology Development) (Customer)
Approximately 2-3 pages, double spaced.
IF your firm IS a technology, pharma or manufacturing firm, you MUST:
• compute R&D as a percentage of sales for EACH of the last 3 years and compare the percentage to the industry average for EACH of the last 3 years
• identify the number of patents filed annually by the firm
• use metrics to identify the strengths and weaknesses of this value chain function
IF your firm IS NOT a technology, pharma or manufacturing firm, you MUST:
• identify the number and frequency of new product introductions to market (e.g., brewery, consumer goods, retailing)
• use metrics to identify the strengths and weaknesses of this value chain function
Hint: Review Marketing, POM/OR, Technology Management courses for tools and metrics to evaluate this value chain function.
CORPORATE LEADERSHIP (Porter’s Firm Infrastructure) Approximately 5 pages, double spaced.
Note: This is a VERY CRITICAL value creating function called Leadership or Management.
In this section, you MUST:
• identify the number of years of EACH executive (compared to direct competitors) and compute an average (compared to direct competitors):
o within the firm;
o within the industry;
o in business more generally.
Note: Do NOT provide pictures or biographies or CVs of executives
• provide major metrics for EACH of the past 3 years for your firm its major direct competitors (e.g., ROIC, EBITDA as a percentage of revenues, growth rate)
• analyze the share price for EACH of the past 3 years;
• provide market capitalization for EACH of the last 3 years for your firm and direct competitors; is the market cap growing or decreasing and why (e.g., price to sales ratio);
• provide any other metrics used to evaluate the CEOs (e.g., examine business media articles on your firm for metrics used for evaluation);
• use metrics to identify strengths and weaknesses in this value chain function.
Hint: Review Finance and Accounting courses.
SUMMARY
Approximately 3-5 pages, double spaced.
In this section, you MUST:
• provide a conclusion to your firm’s value chain analysis;
• identify the most important value chain activities (not all activities are equally important);
• identify IF the firm has a Sustainable Competitive Advantage;
• determine if the firm is overall:
o extremely attractive;
o relatively attractive;
o moderately attractive;
o moderately unattractive;
o extremely unattractive.
Courses to Review
• Financial Accounting courses
• Managerial Accounting courses
• Corporate Finance courses
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