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ENANDED FIN fu\ CI AL AN ALYSIS FRAMEWORK
Kaplan's attenrpt at arl apprgpriate frame*'ork has been w idely h aile d for its in s igh: in Sc uing t r r t r nd t hc nlf i o r r perspectile o flcn tttt[x t s edr n N[ ) \ ' aneils is . ' I n s u; t t t l t l r l , K aplan lrgu c:. tha con \ c lt t t r ) n. l:lin; : r . : t ll i: nli- \s r 5 hil( f ( r x r u maior rve akne s:.e r. 'hc n appl r ed t o nla; or inv c s t m c n l s I n 'lhe fi:st i.i ntisas-sessment the t,'{hnolcf ical changc 'f,f appropna(e disfrunl tat3. lt has t^hcntairll' comnlon to sL'tcornparricsuic ra dl h ur dt c r at es in t hc r t ngc of l- 5 I &* r c c n t ti} 2(l J*:ti'ent. Kl1:i;;n pres4;ll-\pLfstrlrl\ c arqutrlcnt' barc'l .-rn the $ lrshtcJ a vcr agc c ( . il { . ' f c apr t al r ( ) oc c pl. ii c t t r . t i ) o".tli thc patt 5l):t\'.vcrn' anclr()nlFrlrriltl 1q\ 3ir1-sr' rel'Jrns "' ment s t(\ ;ho r^ '{hr.: re', / hur ille r ar c ' sc l( ) s f r t o E per . : c n t t t l ! c percen t a re n t'f'e ap p' r opr ir t e' Us ir r g ! ignif iJ ant l\ l i l $ ' c t t hurdle rate s ca n dr:rr,a t ic all' . int ; : r r ov c he alt r ac t lr c n( 's s( r ' new inves'ments. opt A secon d majcr f ac t or lt e c ! les is unt . iue inlr s n r i n - ' r r oI n v e s t projectir:3 co ntin uin g s t s ble r et ur ni under t ir e rn€nl" alte rna tile. If o ne r e c ogniz t s t hiit : aiiur e t o a d o p t technolog ica l ad va nces c ar r of t en le ad t o r apid det er i o r ; t!cn crf thc "b ase ca s e. ' - ihen r he: t t r ac t t , ' ene\ s ot p r 'r mod est lrrlrvth or c Yen s t able pr of it s f r om n e u -iect ed investme nts is ca "t in a m uc h dif f c r ent light " Com bin i n 5 : these first n vo plin ts ! ' nal s ugges t t hat r ejec t t nl n e r t , technaio gical :il" a n:: es ; r of ien r nor e r is k l t han atl o p t ing tl, eni, 'ir:ianA tliirj atcir i";rplan highlights i: icnccrn aLr--'t-ii * ta ng ibl e' benellt . c . I ^lcc hall* nges t he b e ! i t 'i gitrlc" rrlsus th: t it ir troi pra ct;cal { ( } quanl! l' . t t hr bet t c flt s f r ( r r ' ! lh r l l t r r prridr)ct qu alrtr'. cnh anc ed nt ant t f aeiur ing f ler i' r ilit r . t r r lhor{ er factcry cYcle t i! r les . Q uant if l ing s uc h bt ir ef i t s r s c oficn porsible. hr: argues."[ttis can rlranratic:rllfintprt,'r p11'jecte<l ie turn s f!-.rnl s o- c alled "r r r it br : , nc it t " inv c s t nt c n i . i . R eduction s in liork-tn J lr t u- e\ i inv c nlor r ir ont F\ iS t 'o r i version s. fo r cra:rtp lc . c at t < t f lt ' nr "is c t t lt c c ( ls I t r l t t ' u ei t " t b} t he equ iprn en !rc..lt'rred ' t he nt \ t ' s \ s lc ' t li.lr inalll. hc l l r 't c \ t he inip oria nce o i :di\ ing er plic it ait ent iLr nt o ' r it en " r 't r lcxrked sp in-o ff b crre f it s oi t ec hnoli' gl inv es t m t nls . E a r l r rnvest!n cn t.io r r:ran rpie. in eoniput er 'aiiJ edlnr inuf a. tu r l I i $ in nne are a of a factor - Yc r n f ie id dr at nat ii ir lt c r , r rr ltl l c n l r ot laler N'hen lhc ncr'.'technalc,:tl"is crLendcd ri.r(rlhcr 311'35 itecfeuir,r:'. Ka pla n :llustrales his t hes is I er v eiiec t r ' , c l1 r n h i s ' t R \ \ '. ! st udy o f a la p a nd die r nanr r f ac t ur r ngs ubs idiar l ot The cclnpanl' had an excellcnl histr'n' t.'f ;narket lcatlcrshiEr

th1('u'1l'outth{: laSfti. 196ft.r{ arxi strcq hnar,ciai rL-turn-s the latc l9'?t)r, nuln':ricallv conirolleC tar:h' ea;ly l97tls. lJ1 i* nologt' wa-st'ceinninq to altt-t .()iIlp('Iitivc rclatirlrrrhrps 's thc inrlustry.Thc subsidiar\ nlaneliltli*ft1 \\'as erpioring fnxrl op{ions Sofrrn\ di1 signrtlcant nlanuiat ittnng L)FXIrations I el€c,r.:rlxrh1nita i to c ltL tf r:r'li lcl h no log ic'1.'i ince corlxl $ystctlls vtt] tate nl3naqcnt*nt ctnpltiisircJ l rn;iilciII ctrntrr.rI hear'rly. thc subsidr.rrl subnrittt:d :i cQnvrrntional capitrl expendiure gropcnal frx ne'* mrcl:tncs that was fraugit witb *r problcrns Kaplan has identifierl- Thc convention:J firurr cial justifrcatictr for thc prclect did not evcll conle close to nreting corporate hnlncial targets. F r o m a c ( 'n v e n t i o n l l f i n a n . r l l p {r s p e u t i v e , t h e Fr $ n;;rrgirllll:tt r*ust.H()\\t'vcr" hcc;lusc ttl lin{: nrs'n' Frsal '.nas the rtcmcn!'s str(ingixlrcf in thc n.$' 1gs'l11pirr$v, suusrdinr;-\l'enl ahcad * ith thc investtttcnt .n spitc of thc inrbility ter its llrcs.nt a cr)mF*lling iinlncili r.rtror.lllc' decision reiultcd ntight for rn dramaiic sr.tcc('ss thc fintr. l'trt thc opirr.rrtllnity *'cli hale tr:cn ntisscd.Scvcnrl 'rf l-IlW's Lonllx'tit(rrsin lhlr. n r a r \ c l d i t l i r o t c h l t n g c t l u i ek l l '( 'r 'l t ) t l {l l }l r r r t ld i d n t l t s u i vt}{ r rt l i ) c l r r '\ t l c n \ L 'i t r \ . l ; ( r r r '\ i l l l l n l c . i \ : 1 ct T t : l . i rdr l t t r t , l t l t q ;11f^ '.9 'r a n r l d r c s , ( ; t c r p r i l l r . c u r i t \ l l s t r . 'i t l l i l l t t i t : u p p l r c '. i r r :* :' t $ . n t y - f o u r t o t h r r 'c t ^ *t r v c e i tl ( ) S l . r r r t l1 9 S 6 . 'I l l c l - i i t sl b ' r s r r i i a r r 'u a - . r n t -t l f t h c t h r . - ct 0 s t t i I i v c . i'r'L | UsrrieKlpIan' s (:.t€n (i('J I rnancrai anal1sis fi.ill,r'!'" sho* s',nucit ntoic cL-3rl)' tlrt' jrl-.iitlcation li:t thr' n{\i' ntrjir' " f i t ''r e !s i l ': u f a c t u r i n s t t 'c h n o l o s v i n t i r i s i n l r r s t n 's e s l l l ( : n i ' q u c s l i c n , n o u r n r r n d st h r t K i r p l a n i s r i g h t . T h c i i m i t a t r o n s h c c i t c s a r ! - \ 'c r ) ' r c a l i n t p c d i n r cn bt; eft'ectiveuse of tlte NPV frant,:"'(rrk. Thcrc is also no qli$' tion that crpanding thc nrodt-'lin tlle rvar s he rcct-trtlntt'n'lt u . i l l s i g n i t r c a n l l ver . i h a n c ct - su : e i i r l n c s s i n t h c C I \ { . i 'q l t\t' i Wh i l r 'r v e a p p r c c i a t c K : i 'l a r 's p i t r t r t e r i n g c f l i r t' xc b e l r e, e \ t c a a n g L ,b ! ') 'o n d i r r s t . 'r n a n r l t l l g i ! ] ! - N [ '\ ' I '1 - i f: I u r . t : t v l t l ', . s l ; a t c g i c i s s t t t - sn . - t 'd l o b c g i v r ': l i r - l i l : lrfr i l l i * t:'\ tit;rna prtl jcii cvtlttlltiqrtilir(\i{)i r'cf-''':lt" crpire it iii{L'iltl()n prr.rir',,t trr,,xjclis i:iilicd 11".':rgi; niatiel hou r.rrtiuii'r tht-

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Change irnpona,nt is only tr' thc e.\t{r{i{ riratir affecrsco,rrpcdrive dvanugc or lndustry suucrur€. Tcchnologl, h6*,ever.rloes gxn,atlea firm's value chain.It c'r(tcr:ds hcyond thosetechnoltrgieasv:crared f,rr s directlv with rbe p:.oduct. Therers rxr suchthing a: a lou echnologv irxluxry if cne tekcsa brt adcr vrerr.. \/icu rngan\ hdustry as b(hffilogically rnarure can s.cll leadro str-aregic disaster. For exanple, rnagazine publrshingis in rurmoil otlay becauseof the en*rgenoe of deskropprbhshing in an i0dustrydeemedtechnologicallymaure Just ten yearsago. The belief in tk r.Jdrechuology fcr pege layo"rt,color sepanuidte, or t5pese;lingis p'revenring ntan1. iarge firms frcnr €omp€li ng c f fcctr I y, h,{orc r, nrerry i nlth}rtant i nnr:r. uve a "*e Eions /tompe for tittye advantege nrunclanr are and involr.c * * .rc ient if icbr eak th ra u g h r. u rh e l l ;* rJ c ra ! s Erp resr' t *r'erniglt dcliverv.Cf coursc.thc c-"ru{,ion overnrght.lc-lir oi cry :nar k ets har ebi fa x l e c h n o l o g \!s a c o u n tc r-e xanrpl c. 8!.tlrnnL.r'ation har.einrportanr can implicatrons ln;r..tcch fcrr as sell as hieh-tech conrpanies. Tkhnc*ogr' arxl Conlp€tition fi,verythrng finr du,e$ a invoivesldchnolrrsv x)me .cor1. of fYen*Kxjglrone cr'nltrreterhnclo;it.,ltlfl) app:r to dtnrr, n"dcthr prcdrrclitr prfiluctisrl pr0,;c$s. eran:;lle, rrila[. Fcr rng rcchwrlogynral'tJuminate rnpier lru;inesr.bur papcr *)€ fted technol,;gy al$oan issur..,lnypar"ticuiar i$ rcchnolog)ts is,prvant fcrrcompetitionif it significanrlrafter.ts ilrm', a rvnnpcl t ive advanlageirr irrl ustrv sr:ucturc. r Technologr aild tbr \ra!tre Chnin. Tlrr.b:sic rtr.rl lw s$JersranCins rolenf technolog_r.crxr11*rrrive t.|rc in advar. Lrgc,s ther alrrs charn. firm, as a collectroil actrrirrcs.,: A oi 'lbchnt'rlogr emLxlie tJin t:r.en a rdloct;an uf technolngics. is r.SLE actl\ it1 o[ rlx' tlrrn. arxl technolo.ercal change affecl can runpefidtm thro.rglr rrnprt on vinualll anv actrvirr.Even. its tCr* a:tivity uses!,,',me technolog-v combine marerialsanJ to ri*chiner"v with hurnanresourLes prtltlucesontcoutput. to 'T}istechnology inai'tnvolvegveial s{-ientllr. c!isc;plrnes or *lbte;hnc,fugies.'ll,e *:.itring technctoglcf :i valueacri\.it\ teF$dnLsi}$€u{rlxlilltr.:ttion thex :.nhir:chn, ies. Of 'ioe 'f?rstrr:hncr!-igies drfferenil.aluc aiiivitle in s can tr.: scl$tcd. Tlrrs iir:kageis a rnaj4,sourc*,.rl-cornpetitire advant*qc.+.ilnin valuechain"For eranlpie.proJuctlechnolosr the crn be linked t,t rhe technologl'lbr :-cn,i,-.in.s ( such r Fir'.xJu(-r :s selfdiagnosirlg cornpttersystcn]-q relaVrr_.ainrenancc lhilr directiy then''anufacrurcr). t,r1rr11rn4n1 irdcmation to Or lsshe ,rrfo git rar thc lr nk r d l o e n d " p r(\l u g1 1 .1 .| l 1 ,rl 1 )c r , c 1 l i g sktop hy,rul of adr"ertisin;l pa.ees. e\a;rrplL'. for rn;kes possib!e :
!ryrief'<o;t nragazint Thus a l€Chtl,i1,'n,tit,-.1..i',1., flart,rl (\ ic , $t c v;luc ch l.in e t'it ,rrvc r nt plic . r il( ) r i:l, ) r , r r hc r J r ; r :.1r l t h , . dgin. In clircrr)c i'a,es. cllan.l.l,!!t ter.tin(.rl{)g\ i'n.." iYitr rn :rif t m rqu ire a ttta i:rtn:cor r f ! f lt : et i, r n, r ir hi r t l0c r . h: ln \ \ t r e n dr bas:t-'{Jr,\'Scn luriiacs'replaceoth'.',rixrr l]!-arl}tlu.rr.ractri S o*l rakin g. scaielxca nr e nr lr c h! r - i, .inr r ", r 1i, t i. lJ r i: r c iu l r c . j 1[ J" -f {rrlrlr* Cn Cco ithtnr i* , . r r ul] . . . r 1: t , . .h. , . i! t f r lii: r it i, t i ; . l l l \ tr ilr.qntf<l t.i){. \l!-ur,'lurf,rf tlx stccl irrilit'!l'",

A firrn's technologies also clcady interdependcnt are r ith its bu1.er'srechnologies.The points of cffltacf belwecn a firn's valuechain and its cus:omers.or suppliers'chains dr[rne anothcrarcaof poteniia!interdepcndenc,: tech_ of nolo5ries" e.rarnplc. For Union Camp pul pCs linked to its rl arehouses inro popxrdistriburcrs'offices and increased sale.,; offerrngirnmediare br productavailabilityand order statur, iniormation. A firm's pmducr tcchnologyilriluences the ; roduct and processrechnology of the custclrer anel vice ,'etsaTechnolegv and Competitive Advantage Tbchnology affccrscomp{tirive adverrtage it haee s{.uificant if rrrlr in dere rmining relariveco$t or d:flbrcntiation.Since technalogvis ernbodiedin ev":ry value activity and is inr olved in ar"hicr linkages3ntongstivities, tt cfin have ing a po\r'€rful et-t-cct botlr rost arxi diffcrentiation. Computer on airirnt rcse rr.arions systems rL'p;csent cxcellentexample an of tcchnologfimpacring difi'erenriation (suchas Ar.rerican Airlincs and *r Sabcrsystcm). Technology affectingrclatir,e cost rs illusrrated the risc ofctrntinuouseastingin steci by makl rg; continuouscaste srgnifi rs cantly rcducernarrulac_ tufirig costl n addi ri onrc i i i fecri ngcost or di ffcrcnti ari orin it s r {-1$ nght. technolog."r. rl alfrct^s eonr;xtitiveadvantage ti;rough ehangine influencing otherdriversof costor unique" or the ness. eranrple.thedr:veloprrenr the interstflte ['or of highway s!stcm dranrari cal l ;changcd the basi s of compet it ion bet\\'ecn rruckingand railrtrads nranybasicways.Thc sucin cessfi,l railrord: tix1a1 (EurlingtonNorthern,for exa-np!e) irrt rh* cnesthathlr.r ldaptedto ihcscchangcs. Test.sof a Desirable T'echnological Change. The link io+tuccn rc'chnol--gical changcandcompetitive acivantapesuggests numbcrof testsfor a desirable a directionoltechnolngical change. ,A,ccc'rding porter,a firnr's technoto loeical chanse will leadtcr sustairrable competitive advantagc underanv of the tb:rrtbllo*'in-e umstances:10 ilre \ " -l'he tc<'jtnological rhange itsc!{lowers costor €nl{:n.r-f di.fferentiationand thefirm 's rer:/rncr/o.gieal lecd ls su-qiainrrll*. Procter& Camble'spatenteri dry llufiing technologl'l'or tissuepapcrsprovidcssotier pak-r at no Incrca.sc drying eost. in 2. The ttchnologicol changeshi17:; or uniqueness cost dri.lsscmbly ters it t;J'a proc.ess is ftat f;rnr. A nL'w -fav,or m(rrcrcalc scnsitive thln the prcvious u,ill bcnefita trnrt thatpionr.crs evcn if (-ol.tlpttit()as lru*c-:;hilrc it evr:nirralll adoprtlreproccss.
1. /)s1,41,r,pi11.q' | \t' tr',.hnoIogir.rrl Iriil r,,ieprgr, \ I aIcs !,th) fir:t-ntot'er advanraees besttle:. rhc.rr inhr:rcrtt in tlte ltt'hn<tktgv irsel,f.A firnr th;t ni\)ve$ fir5t nay estrrblish .1reputati*n ils the pionc-er lcader.a repu{;1tion ,rr that e nrularorsrr.ill havc ditTicult., c-,r,cn_ominS ,g.. Kodak (e rn fi!nt C.',.'c.1-9,-,;., in bclcragcs). A ilrst nrovcr also 'rr rrral Lr,-. first !o sr:n,c truvcrs antl tltus to csialtiish krval r . ct l r c n s hi p s l

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ho$'rnany firn$ tlut s'erc first tr)i\err It is int"rs-rting ln Ptxrlr' ttx hlve renraincdltadcn for rjccadcs. ccn-qunrtr exflnpk, srlchcurrent lcedingbrandses Cnscs' I\'or)' st-)ip. C L i fe S av er s ,Coc a- C o l a . a m p l rl l So u p .\\' n g l e t' 8 um. t Go Ko d a k f ilm . L. iF ' ( \ n e a .a n c j td y c a r l i re s w c re a l r eadt lc.ders by *r !$?th. (Jf r"ours.,early leaden do rrc*alu al's by pcrsis. evidcrrcc,:i Singersc'rrnq rnrchires"Bo*mar cals{td culalars, B"rlcva 'r.'etches, RCA telet'isiql sets. A firrslmaver mly te at a disadvanugeif early investrDcntsare specific to tht: crrrient tcchnology ard cannot be casily mrrCified for latcr generationi In semiconductors'for cxample, Philco rnovcc!carly for ieadcrshipwith a large but rotornarcdplant. lt e,rioyeda pencxlcf suc(.ess. the later of developrnent a differcnt manufacttrrinS fnoressfor sentiSinti' nt inve.stme obsolete. orductor chipr nratc its esrlner lsly, ttre eariy mnver'r.ill be disadvanuged if its product or prm.ss reflectsfilct.ir costsm frtor oua!ity levelsthat have changed. can discontinuities also work against Techuological in first mover by making its in"eslrnents tlx establisht'd the I teclrnologl obsoletc.Tbchnologica d i:ennti nuit ics are irla;or shifts in rechnologytrr ivhieh a fiitt n"overmay be ill prcin parcdto rcspcnd,given its investntent thc old techntrlfor ogr- Weyertraeuser, eumple. pioneeredtlre introduction of the technotogy'for "oriented strand board'' (a pil'u'ot-td cut But subsdrute). laterinnor'alions th€ costof a neu'plant in disadvanta-re its in half, leaving Weycoat a cotnpetitive favorsthc fast follou'er u ho docs cariy plarts. DrscorrtinuitJ' not bear the high r:ostof pionet'ring. chongelntprareso\'eral! i)drrrr.' 4. Tlw tecltnological tlrc Fnr exanrple, jet engirc improl'edthe structure. positiort all sirlines versus substitute r:f comp€tltive ponalion. forms of t ia n-( technoto Alt-lroughPorter'sapp'rr:ach understanding is logical changcinve3tm€nts clelly lery insightfulat a conPorter cephrallevel, it srrfferstrom a significantdratvlrack: &ss not explicrtly'link his srategic frameu'orkto financial to i{rthorri r;uch linkage,it is dift-icult decitleon a analysis. that It investments. is not s.urprising speciftctechrrolr.lgical r's frame"' usins Pnne *e {lnd no exar*plesin thc literature ;tt: ar f wOfk l n f es nlr , 1t Cc h rtO l o g i ! rl ' ,ri i cs l n i h (' s c \' c t]\' {. ftri si n cc it \ *' aslnt r odlt c e d . -si s tn s tro n gc o n tri s l t \) l hc ' o i a I e xte n s i' / e it er at ur e p o l y i n q .rn d ,:-rti n g th € ra s p L' cliqf Pcrter'smrxiel.

STRATEGICAI,LY AUG\IENTED FTNANCIAI, A NALYSIS F R AI{E\\'OR K
ich A founh approach, prop<xed bv Br(,1n1$ and Bhi'nanr. adcresses tfie lack of er:plictt attcntirrr'to str-atc{icissttcsin cr'tl junct ion 'rrth pro jeci ev aluaiir - ' n ot jc ls . ' ' Thc ) c n\ ls ! L ) nI nr forrflal financial analysis. broadll based anr: carefully excof cuted, tiul arrgnicnteCb1' explicit c<;nsiderali<ln straiegic thet do not lend themselvec tr,'qrran{ification in prolcr:t issr.tss

rro{c. lenns..{rBnrtrrrvrt'h Bhrtrr:trti "Nllrtl' of thcclfcttsof irntl . r{ Al'{'l'rnry' [tlltnt rlivisr,rn e\ (-llcorptntes'idr:' . .whilc ttt or rx'titxt with otler slstems" alsofreq-cntlt l-lir*'rngfnrm tle ir,te arc . . .1]r full r*'*ncfit-s AlrlT invesn'rnt-s unlikcll'to bt't'4of uhich rcly :n}lcly on tc{hniqucs investn*'.nt run'i L.y appraivrl disr'rrssion-s datainput.The long an-i*'idc'ranging finarrctal rr,hic-h usedin Japanese decisit"'rmeking allorv thcseocrnare red firs to be conside without pteciseguantiticstionandto tr tes{ed&g&inst widc rangeof mrnagerial experiences"' a Bromwich and Bhimani proposea frameuort that stralegicbenefitswhich can be derived explicitlv consiciers both within the firnt and extcrnally from AltfT Investnents, positioning: in its market Stralegics Internal Coeladvanlages s!'stems Morecontrolof prodtrcttorr lmpro., c'rganization ed Bene ial interact ions ilc \{arketStrate gies D i vcrsi fi cat i on prtxluctpnnft,lit' Expandr:d rvith neu'skiils Nc*' prrxlucts Nervskills in ne*' areas Enhancement existingprodt'cts of i ntege Enhance,l corfrorate Re-spxrnsc' uctuating.lenrand to fl dentanC Lor,'er ccrst meeting of qual i tl ' Improved Risk i'eduction Strongcr ski!l basc Better control Betlerplanning rvorking Reduced capital More fler ibk resp:nses Fi gure I i s an exampl eoi a strategi ci nvcst m ent to appraisal matrix designed reilect the blendingof finan' anal yiist hil and qual i tati vestrategi c ci al quanti fi cati on Bromrvichar:dBhimanireconrmend. $irle$t Bronr*'ichand Bhinraniarecorrectin their aL(,, and nonfin*n' of thatan erplicit bir'nding tlnancialanalysis deserves carefulcansideration. considerations cial stratt'gic Nr'itherapi')r()ach aloneis as str(ingas a blenilingof thein'u tfl Hrrrre", th*r' hr,,,r" Dtislti,ltitcsr'itlcasf irf enr)ugh cr-. ntrt phair'" frlon' essessrn€:nt erpiain /ioli to :itructurc stralegic the cvalut' can L'capplied across firnrsto ftxus the slrateSlc all Sincethc previoltsll tic,n technologl. iri changcinvestnlcnts. in dr'sirrh'ctl o;itirts tirr e Irtlu-ti'r::invr-stntcnls lf elrni) rrppr \\'a\'\,'.vc iuggt$t irt l(;9t,.'iil chilngr" rnadcquutc ttttportitnt are thi-se lintit;ttitrs. hcrc l dif-fercnt mr:tht^r.l adrlresscs that

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coniponcntof the SCM analysis,but a slffcient anelysis nrustinvolveall three. we illustratethe applicationof the SCM framework by technologyinvestments usiag 4 disguised in anal;z.ing forest pnrductscompanythat is €valuat' exanrpleoi a large inn<-rvation' ing a nroposalfor a major technological The SCh{ Perspective on Technology Costing Yak rma-OlynrpiaCorporatton,a multibi llion-Collar,highly forest productsconipany,must choose ventcally integrated

203

V i * {:lr ifr nenl i' : , log S i rS{ tp e ra ti o n sn i t-s l rg i n r: lttntbet' pre", ailr,rgte;hnolugl' fot logging ts cfearcunlr:g k*::i',. Thc *feller bnlnehg6g"" +'!richare sirnilar tc !argt farm iry u-ling and ha','elmavy-duty *;iss<,'nanahe'<iat thc fr':nl ltr uatss "itrcsctraciorsal-'<r slear ofi"sta'rdirg lrces al grtzuffl ltvelfhat clarnpts csn holJ scl'eraluee trunksupneht at ha\'e ts.rge one urr}c so that tfc tractor can shear thcm cff before stopp:ng to dump thc load on the Srourd. The machineliteratly fells trecs m bunchcs.After felling, tix bunctrs of treesarc drogged iskidded) to a roadside stagin3,area (the deck) bi' arpthcrrarietv of tra*tor celleda skidder.The fcller-bunche rs and s k idr ien l e l v e n o re e s s ta n d i n ga s they n' tr' c tl r r ouf h a wo. d l o t. At tl rc d e tk , q ' o rk c rsu s c h and-l ' * l tl limb UreGtesi's h::t thcycan.usualll lear'chainsawsto r:e ing rnany shorr limbs on &e lc'g-Cranesthen ioad the ilgl:: t]'e cnto f ialbed trucks for ralr5[x:r'itc rvoocl1ards,r'r'heie logs are son:d anrlclji ;trtosegfientsfor sanniilis, ply* cx-rl rn ills ,c r puip nr ii l s ,d e p e d i n g o n th e a u a i l tl a n d socctts n of the trets-. 'cr' e The rempc and pare of thrs pro("e5s rn t'est i s n o s trp h i sti ci ttt' ' n l. d es c r ibedas pan d e m o n i rtn T h c r; lhrl r: only brulf forceapplierl;n an ctrrtr'rntllcrlt invcrlved, thick * tth anrj srra.lie-inre;tcd. alternatelv insect-ridi,:ntrcrt, st the rr: dust c,rder:p inud.Thls pro:cssrepresent-s late tc'hto g s t a6' 'in th e e l o l u ti c rro f a p ro ' :e s s e a red ' tl t n o loglc al as lrees. pr:ssiblein as shon e tln c dorrn atrd rnol'e es n'!ill1y 'llie rr,ethalsachievehigh-r'olume throughput as possible. the the but also serilrusildatnage :re€sa.nC land and caule gxeatrliscomtirriand dangerfsr the rvorkers. "I}tealternatiY* r,r'idel1 in usr'.1 rtr'nhern techncllc,gr'. Eun4x bdL in l9q.r-vtl'tueiil'unkno,"'nrn tht Uirted States' tlat resemmachines contputerized involvessophisticated wori'.erin a han'ester' a clostd-"ab ble Sisr }*ars robots"A tra( t or t hat us e s c o mp u l e r p ro g ra ms ' m o v e s carei ul l y i " th r ought he u' Lr c d ss e l e c ti n g n d i v i d u a ltre e sfor cutti ng niills. The machtne in curre'rlrreecls thc p:ocessing basedon to cul e fells eachtree .,,,ith smcothsa\Iv (as oppo-seci sclss!1ra cut), preciselydelimbseachlog flush to the stem'cuts the lengths,and gently stem into secliorlsof prbCetennined drops tlte s€f,tirns in neatpiles.A forwarder then picks up fie and s4quences c:'ilogs accordin€ro computer-prtlgrarnmed will load I-aterrht fonr':rrder *re ries thernSeqtl:r'to roadside" directl;-fcrrspccrficprothc crtt log$oi:to truckscicstined In step altogether" \ryoassing *'ood 1'ard the cessingmills, woorJlot is not cleat-cul Only the iulll thts system.(L,e s maturetrees$ hcsesiaeand sp€cie mcet 'rurrcnlprocess' ing rnills'needsffe harvested. orwarder In termsof tcropoand pace'the han'ester-f pas balletdanterr ryrforrningan elegant * slslem resemt,les It de deux in '.he, ',,/o,cds. represfnts the latesttechnological ln in stalqe the evclution of a prclcess * hich the logl er s€es o cac n indiv idull l rc e 8 s :1p l c r!o L !s b j c c t a n d takc' ful l and s{-!tted. iill undarnaScd. to rcsponsibilrty deiirer r-lean. thelr current mills, basedon logs to specific processing 'fhe work to needs,wnile doing minlmal dan"rage the land. cabs safelva:xi cleanlyfiom air-conditioned is perfr:rnred

to 'F{owth,:s*t!v{rspproaL}ics logging devclopedin r*'a''si* icc'rthern Europeand eiifferent suchdranraticallytrn tht k'(ifir oi'this paper" 199$' is StatEs t*y*rd {}}cU"ilitcd wtieth{irto sial with feller" Virglniaioggers '*'a*q for tha rs'q-|€ s noi<1gy'r; "r'i tch to harvestcr/ | or*'arder buncfrel skrtitlcr tc'ttr oi acres 4-50.G0'0 (Hi F) technr-'!ogy Yaltirrra-Ollnrpia's for tinrberlardir, the tidcwaterIL*gr\\n. (Y-O). iikc nrany malor foresl pruJ' Yakima-Ol1-mpia rlcts cooPanies, n'as vertically integratedfron: researt*h' intenr"ivefarms that developed and planted l,enetically and rctail distributionof to sectllings whclesalc inrproverl papcranrlsolid * ood pruluc:r. The onl;- stcp i'r this chain t'or wrs logging'P"imarilY did in rvhich't'-O not participrtc filolit nnd wtlrk 6rractices)" $l rvagcs (nonunlon costre&lons *I !-rrnsharl lont ago cxitctl thc liusincsis thc forestprrxlucts Y-C hir,-rl;rrivalcittggtng'":o*l:ra'rtcti cullingtheirown qrccs. ihenrti:\'antl iitrtri i's Inn,.l:, lilttsp:x:ri to fu{ the,'ltatuirtre.:$ a e.';aluate ilruF)selti) rniiis.flll$ )'-C)shoui'-l O"spt'txessing is tcchnologics thc subjcctof our t':!d stutll-' s* itchlog-eine 'l'hrct Contponents of thc S(--tl Pcrsp<:ctivt' ilf Wc will eL)n\idcr lunt eatlrtri tltc tltrt'crrrnlp\)r'cnls Lilt in thc i :hoi rcof l r:g ing iu'clt ' to as S C N Ipcnpecl tve !t appl i es tonlr$ncnt' lvith the value.:hain ni.rltx.)'. stafling Ii r tfre S C [1 l tan'r ct r l] r i" V al ue C hai n A nal ;si s. eltt**::l t': a reqriircs brolcj ftn:*us, rnirnaging co:ls effc,-:tivcly thc micd thisprrspcctivc valucchain'r' hasre thet'irm. Foner i s t he The val ucchl i n for any i i rnr 1p;1p-r' " 9r:si n* ss link+r f eci set of l al ue-creati ng i vi (rts i ' rcntbasi c ra\" m at eliill! nisl (si arl i ng ti ntatr-iw i th thc ptri txi i r:tal rl ccl ' i he clcnie ul i' suppl i cl s.to thc ul l i nra t ccnt i't t : t : thrr:ugh conl ponent to t and perha ps hr ough product i vcred the col l sunl ers' to del of rccyclingtcrtlreLreginning I ncr',ralu* chain cyclc' Thc finrl ln tht' cont€rt of ihe ovcnll externalfocusscesear,:h of acti chai nof val ue-creati ng vi ti cs rvhi chi t i s ' t nly a paf i' *'l arearvare nc finrs tharspantlrcentirevaiuechainiu of i \' * ' :i ch thel pani ci pate. al uechai n anal ysi s s cont r asl*t i + val ue-added anal -r' si * ' hi ch startsrvi th pa ynt entts s, rv th (purchases) stopswlih chargcst( ;tlrtlomeni and supolien t (s,rl es], hi l e f{ .xusi ng mari nri zi ngthc di fl er encc.lt r " w on tbr vrlue rdded(sales nrinuspurchascs) thc fimt. is Value-actdcd analvsis f"u ttxr namowa view bccaus* dr)*rtof thc it ntisscs Inlpt)rtancc linkagcsupstreanli1,1d the chain.tiin theCIM context. princip.* stream thevalue in blcnef oi nen' invcsrncntntity rvcll fall clselvherrin lhe rls itself takesplace*r valuechainthanwhcrethc invc.stntcnr illustrates. thc logginge.tanrple of The por'rer ihe vaiuc chain pcrspectivefor this sit* aticlnis hignlighreet its conltastwith a conventiSnal' by Pr'. lr I lcvcl.value-added analysis.'iable showstti': collYf lect 'tional analysis a loggingconlractorconlparingtheltu"i:l for I:ronrthe logger'sDerspcclitc. alternalivc loggingsystenls. rhe returnis virtually identicalttlr the two opl,itxs.(iivt:* the comparablc economicretulns,thc ltigger cuncntly usins technologyis nc* ii:r:linedto swit{:il'The new feller-buncher fora largeriivcsti':cnE invclvesa signifi,:anrl'l technciogy

244

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charn p'i-.r1xctir'e a t'usrness ir unit cvaluation m{'r"ic revt:rls ptxentral trerx:lrts tirrm thc chanl",^. the lrenr-'rxJ.'r'ls Cuit D ri r er .\ rur11sis I n corrventirnel m:rntgctncnt f,{tr\ntlng. ct>,sl irchar ror rs sct'n lartc'lv as a function of volu n r e . I r r n r p l c 's, r f n ! a n ; r g c n r c n ti c c ( ] u n l i n g c ( r n c € p ts th r t h r n g co n r o l u n r t 'a s l h r c r r s ld r r v t 'r i n c l u r k f i r c d v c r su s vr r i nrr'iit ;1h[cr;rxi. ii\ f r.llt' \ Crsusnlar]:innl fr]s(. C()St-vQlritllC. e a r . , r l v s r sb r e t l , c r e n ; n i l ) s i s , l " i c . r i ? : lb u d g c t s , a n d co n tr i , f'.itt|ln m:lfEin. r(r n3!;1cI [crr'. ln SClr1.output ,,cltrme pcr r'rf ic so: scenti! L;lliut-t ven' littir: ,.itl,r- ricilrrc.ss c.rst"trhar'.i , . r r . "l n t h i s r c s a r r l . S C & 1 . i r a *. s r l t i c h l c s s o n t h r 'si n r p l t: n t r i l c ! s o f t r a s i c n r i c r c r c r r - n o l t r c sa n d m u c h n l o r i o n th c nchr-rnx)drls of industnnl orgrnreationectlnonlics. Tlierc ;irc structuiiri r{rsi drivr'rs that n:late t(r !:te {'imr's c r l l r '. 'i t r t r : r t c g i cc h t r i t 'c sr c ! . r r l i n ! c c ( ) r l o l l l l f s t r r r " ttl r csr tL l l pc t as r.-:tIc. p rrxl u'-' - | i nc c o nt p I I r ri l'.-sg(J o f r)[ r- f J, i trn s ( v c r t ner'.r:'l'cch nologv invcstlttcnts t rc.r rritt'g rlt :()n), ()r er ptcrit' l tO -rltd represtnt stnratural clttric,'s nhrul hr-r\\' (-Omtrte. Tl:ere are also e\L'cutronalcost tlrivcrs lha: are nlfij(.\r ilr' rrrnrnantsof a llrm's coit l\)sition and hingc ']|l its nhii i t v t o e 'r 'c u t c s u c c e s s f u l l y*'i t h i n t h c c c o n o m i c s t n l ctu r c r t ch$.xes.l5\\'hcreas struclural cr.xrdriv'cn arg n()! nlonotoncost di!ven typicallr x..aicdrvith pxrfnrmancc.:'.\ecuti{1nal h:lll\ rre."l.|ratis. fcr e:rcii{)f ,1.'t: slntctural drivcr-r, m{rre is of <.iisfcotlcrnlits scillc no{:rluar: tc!tt:r. Ttrre arc poir:i1tiill ;lnd \ crlt{jal \dcrpr., $ e il as firtetnti:llcc()nonlies.A lttort as thilll tretler ()r \\'oFse contplgl prtrluct lrne is not necL'ssarily a l ( '\ s c o n i l i c r l i n c . 'l i ) ( ) n l u d h : t \ l x r i r 'n c c c a n t *\ -lr s b e d l ts t o c l i t t l e i n a t l y n a n r i c e n \ i r o n n l c n t . F r r r e x a n t r rl e . Tc\:l s {l l l s t m , n t - n n r 'n r n h s s i z e (tlh c l e . r r n i n gc u n c a n d f - ' t"l tn ttl tc *'r . r 'i 1 i '1 {) \ \( - \ t - f ( ) : : tp t t . t l U l e t l f O h S O I C tE K n , , - :r o C h i p SI l C : i i 't h r i , r i 'r : : i c r i! c ; r d t n h i p \ i : r \ . 1 \ l i ) l l {}\ \ 'c r s h i p s , r i ' :{i ti n tl tc r:lir',rac in.)st i irn)sfarr iil(rir' tii t" l.f in titnlre.<t.irlr r-i,tah tlt- r':1c,,-ttii,.rnrrl r':"s, c:'cir']1il!)iI:.il'!l ,s alriit.ist ar s bcil*r. lltr: lisl ll [!.r1.'i-iliillil alr', a i a . r t i r t n ac r t i t 'r : ,i r - i t l L t r l . 'sl i c r t ) , t l r a s r l . l \\'ork forcc i nvolvcrttcnt ( pan rcipati r r- rrtitnatr-irlcni). r q \\itrkfOr.-ecolnn.l nt !tnteilt trl ccr inLr:!.j i rl provct',e-nt (i'rri:rrr). .a,dhcrenrc. Tct3l Qrralrlv lrlrnagenrentconccpis. to Utilizati,-rn et'lectivec:rpacitr'{g!r'cn tht' scall cilolilts iri - n pl3.ntccrnslruction). :.itlcrcncr of prtxlrrctirrn,lorr iatout. ' ffcetivencss of prcKluctdesil:n or litrnrtrlation 'r p l o i t r n : l i n k a g r : su i t l r s u p n l i c r sl n d t : t t s t o n t ,'r :a l l : , l c n - ll h r : r 'a l t t cc h l t i n .
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Itnall bu stn ess,a m uc h heav ier r elr anc e on hi3hll s k i l i r ', - l (l'ersus lorv-*'age, day -rato la'r-n")rerc i:Qnvcnllt'rnlr for lalr,trr lcigg ing ), mu ch mor e t ont pler nlat nt enan. L' is s ue s . . i n i l ; nuch more complex job task than thc rld tecllnolog). Y-O e xp nrlrn ent ed * ' it h t hc nc * t ec hnologl a t t c 't sites.Scnior nla'iagenlcn!at \''O tnous that the loggcr tlc-'t's not r3a lly sltu 1dtrr lt air r dir ec t iv f r ot n lni' of lhe p ( r t c n l r a l bene fits. Frorn ih is pc ls f c c t iv e. lh* r c t s r c alll nr r \ \ '3 \ l ( ) 'f a h i r ' 2 encou tag c lh e l,,tg ger ' st c c lln( ) l' ) ! i( ' 1r linn, lr 3111- 'n . gumnra rize rtlte :rnt ic ipalodf inilnr lili r c t t lr t lEf ; 1r 11 1 11 1 1 - \ \ 11 trl {e{hnology, hrol.en dttrvn l'r r,r'!1i'rr' lhr' I aluq"ilt:rtn ll:"". t lh, rru rea lifed , r\r'5Ou n. it lr h( . ' r t qt l \ ! \ lt all ln h: r nt : s t e t l O r r r*' a rde riclfg ing ,* a1, ". 11t , gli, ' , r ii 1 : . r \ , . ' \ - t . ) r r r c ! t i n l i t e . j i, S -i1.6nrrllio n P('r )ie: 1rin jt t ' . t . . nt , , i it i . r ' , er al i, n r t - 't ': i . l t r 'l it r c ' [ t r r ii7. ' ] ilt r hc . t ag r o l t ! - ', . ' regio ns, nL )ne(-)ithc - lair t s valb ech ain wh ere the inv es lnlent nr us t Lr cr lr adc .Ap p l ) 'l n e a ','alue-addedperslxctive in a prr:tc':t iilalualion mode at lhe L:gging stageu ili ncrer lt-adr{) th. .i:1n9.. Appli.ing a I aluc

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ncAa rfiejix';r}1 t. v.lrlital 5€{.}i Lc'-fnlng,ir alsi' \\i:ri''cr: !earrrtht ltrb *ui;,:ki'ranC r:.1uipmer;ri;ont'eiri;u3a i{r!'l Clisilii r,'r'''r'er'!4:l:'-c !'rii:i?h a si;r-'iili':lnt t"rionlnir',,0 ! M f - "' li. lllt i' ' ir t il *t : l i i l ; arlran ta5 e. l-'::'::l ; ; ; : 6i\ 3l. llt lr e tl iui't-!ovel4air i!1s:n'r-r' att ' ri *qrip,"**, b*'- aits'; high ial''x is rtili ntri' rn itself' a 'jr:i.:{;rrq'r:rer, itr'rinlng ih€ ben(fils. r ir ' ! ih oniv a' n' s r agt nt e l l i q e n ': c l?!aiicf o $( 11 1i1 g1"- - * ' or k ' 11f lhe pb in atxrui r'rf i''l tncnths ar:d tlilrgc,lce cf.F lr:afir n' r ! an im Fr n s n t \ : 0 1 t ?rrxJ'::r,lrlt* c or nplc r it l is ais ' r ii vc+ nari't ,.Jrivctsi;'tc *:e lr"iir'if i"r:rt s::ortlr: arlC -sizcs 1!r''al loi:g{d ot}i:c nt''1f tllil regi$fl' i.he uqa ,* **'f;Coo',:ilr Srnct aii ti:r'l'trd r:,i'thc.tt'ittt!'}' aruj a1:aini; the 195*--1' 1s1r1 i-}rt's ict in ii'ie Pas'isr\'{nl1' ti^r{* hes ali-r::<i;'h':*n !ra-r"'esteil ir enhen:c'i. sf t''-'e vear. ',jtf hillnirpen{!11' : bit {oreil t!t': jl- ; ?' t * t hr l* : ogi ' ; h t i r 'e i s ; r ,\s sl.ttfrilar iz ed in lr ' ; f ; t i' 'r L r i \ r l '. : i " d r- :ri;rti:i n'-t{.1 rl\ ' el in t his i' it ulliol' ' i ihii s i: t ' l' l* r r . ' i t : r J'cC r t r '( r s ' Ote r!ier. in4 iiateS t i"i: : O : ali l}'-' is ihe sli'g)e lt'ltrii !riF"li'i;lni ie'{'rr' J+rilirol,-gr ch*!cc t ''l : ; *c i f lii:|,t sicf ts it'ctns io] t ' t iiiii * : e' : uii+ nai ' ' jiiv er s i' np: c t ; t t i t ; t t ': h t $ty cifse t ot rtl ii' ?t r { e ih* it i' J < : t ur : ll nc1u-8)'tfl* lrii pi-(Kc1{ :5 3 r}{:ulral faclr-:l ltt e;i i-u.or"rut in; pl"'v:iucii':]!: the groiiinitf ilf the mi!ls this stud;-'it is inlp*rtari l*:''rtt$* tn iht cttt:ert i: ;ritlcal, birt il r'" i:ot a \'{riab!e i" *ft* l5 6:!o neuffal' "*t tctrluitiioir f,ofltex(. Sili'tli3il1' pr''lJi";r r'eil seedl i nt' i i arr i ri: iri:rlan t opi r,B Senirl :cdi l y i i.llItL:' fle"cl x't' (iapnriri ilil cufrciil ci:.!-ttf !i issui'. !..,u1 ls iiiri, o'*iiui"io'ln Sinii ii!r sinali i'cal* oi ap':rii' ilc[ uiriizilriqlr,is e!*.,-: a far:ii,;th*] Ari': A'l\\'aii L]ll]\ ' ,ln,: ir'-r[]pCr rrl':.?ilS trt:!rS f(1! .:f1.\'
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ratic i1 !i,uncir:rex ph!i':'l' gei arrd ihf prrl:et''i: n g nr i I i "lt- d ran rht !'-';lgin; iiseif thus r:1i;::iti;ti' Unles: 1'-C 'lecrdenr"ou:" l s i n d e l e n cl * i tl i 1 '1 ;si lrig thc nr€d to iieri "rirh loggeli i:rl!" r' gei;r sl';rring io i:rr'luc': ti1:ll1':r: r:f t{.}!Tll *esses,-:{-lme ""r 'i :" [ " c i i c r c i o p cr 'i ' *g d l e i o n g r h ': '" . i i u J c h a i i r r t i i : 'l ' r":'t:; h{;re ni:lkt \'-$ iliscr-:onc'riitsr.rilgl'1ii'r"!iniclgraliolt busir-icss ln o:'dcrl+ rn tl:* iog'gin5r lo i!- i:i,.ltiiril ni1{liiiilirltl ':"tirl'iltivljio int" n:lltc tii* t*cnnl''lrl:gichln.:lt i11"'';lrtr1l*l.!t tl :t i i r c i i r l i l t : r : p r i : i r i c n r l - r ' ';l i ;l r i r l l : 3 : l r s , i : r t i t l , , il l , 1 , i 'c s s 1 " i l r c r t l i l l h l 'l ti 0 f 'r n 'l r '. 'r c n i i l r ! l t l n c l i t : , ' i h a t l t r e i ! k i l '"
h.'h i i l d i hL' l l r:1!t' i l sl tl i r-' trl 11 i ' i ri ' n' rl rtt ,i ttr,'fc:;:i i i l i i i i i tl trtl 'r i 5' i i l r'"'' ;ttt';i r !. tl 'i l i l r-l 3ci s ti i :i r ' "i { i l t' R l s r' i -l ci .tsi l r i i al ;i :ti i i :"r'i i l nr i tl er'ti A ? l l 3\' I' t"' ,ui ' * .'1 r\.J!rl i an!t: 1l tl i !r:oe5 rtr,l .1 ';i ci )i l l trl g i n p urel ' Y fi n:ri ' i ' i l ri rfe pi ri i t:'i .]:l nng tf i arr rl l i gi i i seeti l i sti oni i l rh* teci "i n'rl otl Y ii i angt rv i th' i i 3.i i en:15. !f-1-(l i anrri i t i nci ui :t rn:r': i ;l i nr' ' :C i l h* !1i i l i rf i .13 3'i ';i i r'"i l al i i sct:s as '1 i l ttl 'p4r'1i l rl:t \.crti Li l l :tC Ope:i :l c :"c tl l -,:,re l l . r1l i t;1i ::l i -'l l l a't-l i :ri cr'nr:'l i 1i '-'l r l h!: l i ''!r'gtl l q i rtis i ni :s s ' i -l f' * ' ',.i ,:ni {i l l l l sfi Ji 3l i i l n,.l i ',:tn,e r:h:!-i i li 'i' r \' { -"r\ { rj l t!' rr.rE r;l l i rttui nr:;l i f $hi j -retil i l r-'ti l :;'.'"'atr-i f ln the i :vr'r;rl l v ei ue c i tl i trt ') pi e x i ssr-rt'. t::s' crtl 'r;l l "rccrnLY l l H

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206

F y r ; nc p l a y c r rc tL ' ha n e q u rl rb rru n l r{tnhutt(.}n d acrcxs l al rh playersis an equall_r'compler, isrtr. We wiil tur;r no\\' to i. ccnsrdcr.rtr..n thc thrrd conl. of fr.t fortrnt from thc SCM frarnerficrrk technol({1,\'clxtrngplsil,oninganal_v\is. tJ?,iiletiliTe Even rf :.r-hn{)krq! chortc ir.''l im;xxtror rc.5{ }qgrne arxJ ir)eqint ir potenJriver fr.:,r rrtui)'sn imFlnart stt.pln thf,r'alue chatn.a sul{h.lcnt for lest t nv c s t i n g n th e n e s , l o g g rn grc { h n o l ogyrequtrcs i that rhc trrleira af,rievablerf,ecor,sistent with the comperl'ivcFlsitrfilrnp stratcg)'adopted thc firm Thar rs. in more gen. bv trrl iogical terms,cach of thc threecomponrnrsls necesti.rv in the anal\.sis,but all threc are rcquircd ft.r suffrienct. Competitive Advantage Anal;-sis. In thc SCM pcfsp{clire, rrndentardingthe implicario,rrs ho\r' the ftrm of $11rr'tgrr comp4teis fully as imgnnanrfcn cost analvsisas to eq( , ; r sta n d i n th e v a l rrcc h a i n a n d u n d ersl andrng ke) g the r r r at r gi cc o s td ri v c r$a t c ri ti c a l s re p si n rhe chai n.A s di srusscd b-vPofle;. the basic choice on ho\.\'t<t t-ornpetc is |7 ktuct*n cftil le:ldcnhrp and Ciffcrentiation. l" i-os Cost. l'ne primary fcx'usof rhrssrrarcgvrs ro achicvclon cost relativero ccmpetitorr. Cost leadership can bc achrc'cd rhrtxgh appr"orchcs sirchas itc{rinomics scalein prduction, learn;ng oi cune tffects,tight coetcontrol,andcost nrinrmiraiion in rreassuchas R&D. scrvice. salesfon-e.or adverrising. !:-xarnpi;s firylrs <-.f t-cllor";sg srrategv thrs ir'clude: TexasIirstrurnent; consumar in electmnics, Enrcrs,.rn in 5ler":tric elcctriciltolors.Hl undarin aurllmobiles, Briggs& Stratron gasolinc in cnsincs.Illack & Dccker in nrachinc trnls. ard Conrnrodore br:skrr-ss rn machlnes. 2. Differentiation.'Ihe primar.v focus of this srrateg;is :o differentiate*re producroffering of the busrness 'rntLcreating io,nethingthtt is perceived cuslonrers b-v rs being uniquc.Approacks to prxiuct diflcrcnriarion rnclude: branC loyaliy (Cu:a-Colain sofrdrintsi. supe(tr8h.1 computers), rior cusiomer service in rlea,ler netin x'ork (Caterpillar construcrion equlpmeni), Frduci (Hervle dcsignand pro.luq,t feature". tt"Packard elccin tronicu). and pfodurt technoloel(Colernan lamoing in c qu i p me n t), f'low this ehoiccaffects i.)sr management a finn is for drx:u,*rcd Shnnk.rilItc relcvancr: tcchnoloFtc!)sring by lbr is illu; : ra l c d \ th e l rr!g l n f i n tl rrs rn e l J snrth b tl \ ' - O h a sc n tb i rr[' e d n a d i l i e rc n tiai l on o srratcgv rrs rn qrird rr'"xrd ()frc!'.rtr!)ns milrr th.rntrvfntt rran. It,sstn t" ior p egt ' r ' t r u i i t a ri ,ru n d l a n tl ti o r:t{ rre :rt- \ pl ;rnrand !ro\\ rc. get lCijC i rli irn p ro tg .lrti :i th a tw rl l ;' re i d:r* .6xnl y l mrx * ' i th a rrtur-lt highcriNrAn ra!r: v:rlucrrrr:r:tUrirr With an errpro\aYe
in tatc thin t - f r v c . ) r . : * f Llr '(wln. r r \ "lc ir r t h c \ l r i r n i a T i d c *; , r tcr rcgr() n, t hc s t nr { egr ' s t r ll f r ; ls ab, r lr i i f r c i , n '. c A r s t . i g o bclbrc rt can be fully intplrnrcnttrJ" By the year 2000. if conr cntional ioggin-e is u.sed, ach e \'-O ti;nbcrlandsr',ili Le I'iclciing ahnui Ii{") per:ent of thc -rca:

hrgh-grade logs rhar irs expanded of sawmillsanrlplv. sct *'<xxC mills r*'ill ;equire"up from thc 6'l pcrccntsupptirv rnternal l yn l 9ti 5. bur sri l l w el l bel c*'lot al r cquir cnr c. n i Thc rrmaining ?O;rrcent *'ill havctr: bc rmt by cutsitl* prrchareq. shor*, lrr:rt' ,x-t rr Lstimated\\ ood Suppl-v and Derrr.ind Year Pulp Mills r985 Demrnd Supplyfrom Y.Otimberlands :CDO

Sawmills/ Pll-rr.nd l\lills 300,ffi0 units ?00,m0 (6?q)

l*(OO.0O)uniLs

(4o*) 6m.000

Demand |,50O.O00 units Suppll fronr \'-t) timLr.rlrnds: (33*) Using 50o.0o0 convcntronal tcchnologr (13%) Using HrF 500,m0 lechnoltx'

50O,000 units 4.tO.000 t8$.6!

(9oq.t 4-50,rs0

piar{o<L icnisrrit busier linld" Tbe 'O very rrd€r to ro loging t}r of s$d f ptxmr :h"Rish
requlft

ly finmgewilb re of the € as !€s$ ss. Hofr ryaorl}. ) crea&d

If the H/F ic.:hnology wcre ro be uscd.the nct suppll of high-grade logs irom thc samea( re6gelvould incr*ase b1 -i0.000unit-s u'ach This rvoultlsavethe sas'nrills an'. 1'car. plv*r,rrd nrills r.-rorc than $5 rnillion eachyear in purchasc, l ogs.' fhus, atl opti ngthe new l oggi rrgt echnology nlovcs )'-(J suhstantiallv closerto self-sufllcrencl, supplying in th,c hi gh-gradeog needs thc cxpandc d of sawnr ills i l anr of set pl 1u,txN mi l l s rt hasbui l t as part of i t s high- value r acl cxt tronstrategv. Thesesavings in addrtion tlrequalityru are to ingsshorvn Tablc? l'ronr in l:iln stcmdamage, sortinglosscs, dn'ing losse.s. douLrle and handling. The situation for one of Y-O's nrajor conipctitorr. \larathon PapcrConrpany{disguised"r. which alsoorvnssul' stanti al nbcrl antl s n thc coastal ou t hcast ,ighlight shr ti i t S lt rele','ance thl''c()nrpetitive of gtsitionrngchoirc to tlle tr:clt "gradr nologl'choice.W liereas Y-O's sirateeyenlphnsz.cs i ertraction"(iog.ifor sa*,nrilisand plyu'<mti r"nills) and di:rtribution in globel nrarkets, Mi:rathon'r strategycntpirasize "fiber ertraction" (pulp mill logs)and eon(:e ntriltcspiiillil'il.l: on domcsticmarket-s. Because Marathonseesits tirntrcriand pri mari l vas a s()urcc l orv-val ue pulp logs t o supply, : ; it of pul p nri l l s.i t hasa nruchsnral l er conrm it m cnt sur vr r r il in and plyrvoodnrills and is not nearly as concernccl :rtrotrt tlrr. problenls <:rrrr',r'r.tinnnl 6f loFSing.il,tuathonLrscs rrruci il (trvent3-lwo sh,.rner yei.i's) doesfl{i -sp:r1 rruwing c1,cle and (lertiliring.bumirig"prrrnitt; nlone) eachvea' in its forests lurrJ thinning)tr:r iicl.iereri high-raluervood nrir. It is not necessa|ilv i-rbvi,;us, grorving but bcttcrtrcesr,i onir'.]ustif rableif th::rcis a strategy tbr"subseque nxtraci ntly ing thetexlravalLre end-prcxluc{ in rnn"l.ets" rvhe Funhcrnrorc, ther a high-virluc iit timbcr str'&tegy supcriorto a lorv-r.rluestrategy depc,nds n conrplcxscr on of as-sumptions play out over a twenty-fivc- t$ thirtli that live-year growth cyqle. Various forest products finrrs havt: nradediffercnt choiceson this issue.

207

p

f
(,'onventional loggrng tc''hnok)F) rth rt-r rr urrrph;lsn trn h i gh r olunx ilr r r llo rrtr-r' a l " re ) rrx rh p u trs tl l l l \.i onstsrcnl th w i tir lJ ar at h' , r i' s tri tt€ g y f l c ' .* .cv a l u e ri o uc o s t.r\t thc s o r tirne,1'-C is m$','ing sarne ahcadagq{rrssnclr firxj garnto sh ar ir r g c c hr n: s n rs i n d rrc ci l -sl o -s g rn tc o n tr actor5 m Io t(r s\A . t ( c h t he ll; F r c c h n o l ti g lv ,h i c hrc p rc s e n rsn ruchL* ..rto ,. a te r lit u' it h ils s ( late g yo f a l o rg e rg rr,\\ c 1 -c l e.r thhrgrtr * rh c56t.br/t lrighei valuc" To sumnrarize, Yakima-Olympiafaceda significant problemin rhe logging oprrationstagcof tbe valuc chain. The prevailinf rechtlologyfor log3ing \ras cocl effectivefor firms pursui rrl' a suarety o f h i g h-r.olu rne/ low- valx-added wocr.l pnrduct:,. But it was nor cosreftt;tive fw firms pursuing a srareg)'ot dilferenria:ion.trigh-r alue-added woc,l products.But..srrrce irvJepenoe contmctors fte logging. nt did l b er e r v asno dr r ec t * ' a 1 ' fo r Y-C to c o n tro l th e loseen;' clroiceof technoloty. Conven iional grrolr r-|er.e fi nen: ral a.ra1si s dr^- nrrt i I s suggest rhe ioggcr thara chalrgc rcchnolog,r. a gixxl ro of is b u sir les t lec js r onA n e x p a n rl e d n a n c i a la n a l y s i s s . fi frai newcrk, as reconr.mendeC Kapiart,alsrtdoesnor catch the by significancecl the change.Even fronr thc expanrJedie* I Foint *F bcnet rs from the ne$' re{hnology.fall a}read anJ of b e hindt he loglr eri n th e v a l u ec h a i n .b u r rh e i o g germusr incur tlrc cosrand assume risks.A competirive :hc strareg,, persf}fct!ve rrquired,but the conceptual is frame*ork proposedby Ponerlrot erplicit en()ugh financial on anai_\.sis t() be ver-rhelpful.An a:j:.imented aJ13l_\.sis u,ork,a; Losr frame recommeMed B;onr*'ichand thinrani,alsodoesnotcapby tu re t he s ignif ic an c c i th e c h a l g e b !.c a u s e e 1h aV eno: c rh . p u s heos t r at c t ) an d fi rra n c i a a n a l rs r: i d c a sf!r e nough l E.rplic it l. c ons ide ri n g c s tl a re g i c s s u e s n y o l y edi n rhe ' $ i i technolag-v clrangefrorn tlrc loggen'peispectivedoesenrich thedecision rnerric. But again, one rvill n€verseethepo*,er of the changeb; fccusingsoiell on the logger.even when using an expand::d ard augnicntcd c,xr analy.sis frame*,ork. Y-O ried to conviitcerheccnrracrloggersit hireclro rnove frorn feI Ier'-bunehe te{ hnoic trt harry ster,'fonv arder r e -g}' technrliog./ usingconl,entional projcct-level finane anallral sis.ILseffrns faileJ tr:penulrcle loggers changc. to Evcn 4ny carefulattentionto intangiblefactcrrs. c,:rupied \r'tthhuidle (ln\,estmcnt raiesubsidres gutuantef anriappeai lone-nin s) to der:iiner L'nder cutrrr!t loggingmeiit(xls nilt tn{iuce ditl con, ractorsto su'it.h.Subsequent atiernpls coucht}e decisron to i n st r at egic er m s ,f o r th e l o g g e rs . ri n e ,jS o m e r,, .i i1-y16sc t e 61 rccepr iv it t r ,c hangcb u t s ti l l n o rr c rc.1 .,1 r.!r. l , h tl .Er()un(l \$L.l ' Y O fclr ir neetled. r!,ir\ffri}d{ yp11l \'-{-)atloprer! .gf'}1 No realprogress an fi "a nr c r + c rI :.r r gr . ' re n t th c P rrrb l u trr rn a r a l u cal rrrn k r r,,i l ru p e rsp( . t i" . ,c lc ar ll.re r? a l sth e p s ri rd rr:. a t.a l th l u gh thc. e th ch a n gf lnv , . ) lv r s a j o rfi n i rrc ta ll rri ,..fri ,,, c !trF e tn th(, (h nr
Ch:,tt wh.:rc llrr: ttr.esttrll:fitfrtuti t,r t"Tl.:it(.._.arn\ n,.rni:,ri(ni, rc: itlt,n:' t;f r:rfi t\ en lr t c ur r r r lt [ ] i: . .jt , g i ! g l iliL- : ; 5c r , r i , t j . . . the .,ost 11:-iver nelspectrve Jhnrrs tjtlt r.-ihnoiog\ chrlle!- tn {his situatiou rs indecd a key strucrur:rl ct-rst iactor that rs fur, 'fhird. the com. ther rcinforccd bt' c.xccutioilalcost t.e--rors.

t hr P :IIl l re l ,\tl l ()r| { t!l p.r\[..!tt\c l crcl l -sth.tt,l rrth O ugh S tcchnok;g" ch.utr' tSi ttrti Jl rrpl l rn! unrj e al l i on CCivable r strategi c posl .ures, rs c' rnrrrl l i ng undcr the posit ioning ri stratcgy rchrch\:U hl. i()llillt!fied. to virtuall,v rrrevtx.ably. o\er thr ne\t ten lo hiteen rears"[--ach thcsethrcecomtrf t to t f\rnents f-thc S C !rtanai rsi sl s ncccss.l rv tst.r blish hc ratronah th(.nc\| rnvt'stntcnt. tilr Wlpthcr Y-O can ef[ecr a voluntary changeoverto ll,.'1. logging among its contraciorsis srill not clear. It will certainly be neccssar)' explicirty consiJer gain-shuing mechro anismsacrcxstlre supplier-custorner linkagesto encouragc a changein &e bgging sysierpY-O bclievesto be oprirnal.lf tte loggersdecide thar Y-O's irrcentivesare still inadequate. Y-O may be forcedro reconsider decisionto exciudethe its logging step from irs verrical integrationchain. In SClt terms,Y-O ntght realizethat,given irs strategic pcsition.tir potenti al economi es from tcchnol ogi cal change? r c lar gc enoughto effsetrhcdisccrxxrnries fronr vcrtically irtcgrating at lhrsvaluechainstepif gain-sharing inducenrcn:s more for expl i ci t usromcr-suppl li ier .i gcs not successi'ul. e nl arc

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CONCLUSION
Thc Y-O srudyrepresenrs lrnritations all four of th,earr. rhe of rent approaches evaluaring tbr tt'chnology invesmrent oppw, run i t ies--<on'enticrnal nanci anaiysis, fi al expanded nan. fi ci ai anal ysi s,l e compcti ti r advantagcanal ys is, s anJ e strategically augnlented financial analysis.:l st.ulyisalsrr The an excellent e;ranrple hou the Stratcgic of C'ostManagernent iranre*'orkpror'ides morc usctulway to apply rhepo*.rt a of costanall,sis con!'cpts tcchnology t0 investnrent opportu" nrtres r','ithin tully aniculated a anallsiscuntcxt. -\d-.rtegic Cle-arly, essential on€ stepin theeffectivemlnagenlc$l of technology change efl-ecti'.'e is analysis lhe investrnm: oi opponunitics. believerhatSrrategic We Cost Manegenrem is a usefulwa) to structure analysis suchopporlunii"di tlre of and thusrepresents imoonarrt an conlponcnt techn{ilir,itl, of management.
Ll re l tr(),,;,rr.{ dr"r -l ohn K . S hank and \i i j ,t1,Got,i ;ti araj nn di t h e A m o s Tu t: k S c h rt o I o.l' I rr-c ess A d n i n i r r u r iir r!, .{-}i;?.i. in -s nt<tui h C rt!i e?e.

R eferrnces
A nt*lrlitd ttrriurt r-t_! th's ortrr-!t *tl.'appear 1,\'cr. )i:rl: in th<,dtlthori. Irrc I'rcjsj. l<titn(ail.lr4 4r..,,4. Str.\tcEi! ( r)5t \l.ril.rtcnt.nl

"Posritrdus(nal l. R. .latkrrrnar. pa.at. Nlanu,acrunng,"llat:.ord Busiri,ss l 'i ol enrfxr*I)t'r.rnrhrr9fi (r,pp.6i - i 9. i ' R f l arts md \\ r\btrnathy,'LIanagi ,rg \\'a1 l o E contnr,. Our D ecl rrte,ttcr;ard B usi ncss rr.j er... y,.r\ugi i stl l st),pp.6r. a;. R Jul l .t, R . K i f,i :{h "l rtr,q C l },1t}c Ju^:ri fi .,-l i :;rrrh.{i rrtr:'1" ori i j ;:rrtrrdfl * ;w g-l
* i r . l .i ar r h .',pnl i .,:i i .. p[r . q- i . r 5. ' 'l \l .Pe,r i l r ." 1c .hnr ,l r ;1,anda.) i .11r .tt( i ..c ..{r i r .;t11" i c x " ';r ,r ,- ;y 11 , . rri f i r r r r l .j J r c ,c r r \\tnl tr l c t< pp tl ]- - i l i li. 5. \1. Er on:t r c h an<l.\. l J hi nur ni , ..Sr ,a,c gi r l nl c s tr i tnt aec w nt,\c c ounr .r 3. fr l ar c h 1991. np. 4i _- l g. Appr ar s a i , , . l l o r

208

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l1. r- X Sha*, "Srntgic Co-r Flgurettltr!f,{ \A'ir$ tr Jurr N..r Bt*lk:".-,/ur.<:l o,r lll;tspafirlrt A<cxntinSs Rtstar, h Fr| 1r,g9. rf, iti-65 13. If . Foncr, Cca{r.tirift Srrrz-,;r (}icr Yak- Frre hrss r lgSrl

A SMATEGIC COST ft{AMGEMENT APPROACH TECI.TNOLOGICAI. TO I}.TVESTMTNT
Blendingthcsethrecthenrcs rcprcscnt-s thc most po\ier{ul *ay to fr_x.us cost ax dly s is f or tc e h n o i o ttc a l c h a n g c StratcEic Cost h{anagemenr l. Vslue Chain Anell'sls. ltrc ;aluc iri ch;rrn any business tilc ls lr nk c t r c l o f v a l u c + re a ttria Ltr. . g rli3.ia;i thc $'a_r, koln l-rasic rarv mdtcritlsti,rcughio corni{rncnt srpplicri. to tireultirnate rtJ,u.xf prodilctdeilvcredInt{}tl.}rllna; ao|rslimcrs. hands. Eren thOuglr a firnr ma;' pariicipaic only, in a part 3f rhc value chain.uie firnr shoulda.nsl-vza rechnolog its ical tnvcstrnents frum rhe s(andpoint of ilrcir impact througfntrt rhe chairL--rne impacton ir supplicrs, thc impacton the finli ltJ€lt, and thc impacton ii-(customers.
" ' t h l ' " r c f h l ln ' ' 3 .Jla l) .sis n L te ca

c ( ) n l r . i . {: d $ t t h " \ a l u c , . r J . i r . r l " anal)\ri. u.hich is t\ lic:lll\ u\\l i n C 0 n v c n t r o n a i . , \ P \ , f r a t r *. . , * orl. \,iluc-;tJJcd aralr,is :tart: * 'i t h p a i n t c r , t st ! ) t u p p l l er t t p u r chax*s) anil slops $ tth chrrlcs t(! C U S t r ) r l i c n s : 1 , -)'s h l l r . t t x u r r n g u 1 on nta.\|!rr'Zir]S JllTr-rcrtcl], thc ti;c ! a l u e ; . i " J c . J i l c \ n t r n u sp l t r , {r .had--i)irrr r.htfinll. \aluc.lJJcd anallsis is far ',,t s'1al1pr,, \ lL.\r ii becausctt misscs the ;ntpcr-lancc oi linka:cs ur.)-slrL.ant l1-rrr 1n{ flSlrctm rn thr' r aluc ch:ri:r. Cost Driver Anallsis- \alur. c h a i n a n a l _s l Sd l o D c i s n o t a s u l U r cient tesr of rhe desirabilirl of changing tcchnolo-s),. second A neces,sary cf)mponent is that tethnolog! choice ntust be an irriportant cost ,JriVe'r. Cost-s a lUnCare t l ( ) n o f 's l r u c t u r a l " d r r v c l5 1 5 u . . h

r.r.\ s!ilc. prt>duct (onlplerit),. linc strrJr- opcralions. rrf cx;rr iencc and tcchnologl') *crccuand ' tronal drrvers (such as'lot al it)' Q' r.rl lilanagenrcnt,,:.tpacity uti li tatron, and* o* ftrr.: cpar liclpati tn). l n shrrrt. thcrcrre nr ult iplc tiiivcn of cr.rst. Technok:rg"v nrusrlE an inlp{rrurnt ,.eretf dri c(rslel criticaistcpsin rhcch;rinL-'ompeiitive Advarrtagc.Lnal;'si.sTechnological choiccscannotbc by 1u.tundcrs t ant r inS Justi fi cd thc valuechainand untlcmtiinding tire key cosrrlrivcrs.A final cunlpJnent the analysis in involvcsanalyzing whe:hcrtcchnoiogica! change ennanccs the way tlre t-rrrn chosellto L-orlthas pete-rither on the ba\i.i ul-c.Ost or o;. thc hasi s di ffcrcnt i: r t ir , n. of

flcBrintcdfrorn ' Strategic Cost Anal; sis of Technrrlogrt al lnvtslrnents' br J.K. Shank and V. (ior,inrjar.r-tan. ._\.,,,rn tlttrugementRevicn* (Fall 1992), .]9*.5 br pemlssr,rn pp. l, d pjhlisher. iiopl rrghr dl99? | l.)yrhc Slo;rn\l :tn:rer,nrcr:r R r v k * A s lr r r at ro nA l l n g h tsrL -s c c C . . n

Question
l O I W hct ore the four oporcocheso evol ucr ir g echno l t l ogi coli nvesl 6sny, rotS honkond Govi ndor olein rl cri ti que? hor ore the probl ems i th eoch W w o porooch?

209

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