tc00E03l

*h"rgi c* I X:tv*st xm*m9*

i s nf T'** l-r.n
I *. [ $f t"$tsfiic f* ost An*.ll-Vs

'It* rjct'iu.;r'r{i't in\f;(t itr nens"tl;urr,rlxtrrdtrg 1,-'{:lii})}i}r:iil$i.i rrr"r{t .!.r:ij Lr:-':iiirt',,ti:t:i,:kl ntt the lrtl,iult:t ;r.}iFi:;}i'[t:lte:\ lt." !xt-
tSttn h.a.rrip.*:eel b,v using cort!{:nlfili:itl l:t'itr:.i.r r i *a{'illl s*ntii:i: et cr.'lrririr r:ri li i.ir.y,t fi:itst pt-,x1ltc1t f,0ii]i'i3;"i" ti'li]i
$rrtstnter,tanalysis.The autht,,r.'; tl*rtss rl* lirtintio;r.. t.rfli,irr' rntitl tn-r-kt i: dn:.:i..1-,iirtfl * tt;aior t{:i:hfiolrlt:Hlill iltnr:r':rlii t.
{tgrr:nl ap1rlw;hes urd sitotr l1rxv t}xir ut"t,'nfitflre"r'trk---'
$mtryrc Cc.ttl.'lanagw:rent*tppli*s to a lupe frxest prtxlu;tr
{ftr{e-ly thr: is rnalling a detisirN c'n a nrajrr technr-rlttgii:ai i.II[,]tIN I [rA LISl' Rfli l'ft NSI]
i"r*qrt*tion. S'rn1cir:iiluetiifll $',,'siroultleiw-';fipltir-rite. i)r evcll elinriii"rtc,
/r fre.1u+ntelrari;eirr rcccnt yearr har L::;ri thst r:iarl'' ii.rrn: I rn ve5inrcri t arrr ll sis ttlchnlqr"res g$nsir.l*ring
tn'hgt'l
firnis lhil behinj in gld''al nlerkels l-ecauscthe)' ajt t'xi sliirv rna-i'.r; nilrnufacmringtcchnc!ogyirsuc-s. Stut!ic-$haverhown
in implenienlinetl-c hcrv ms$ufmluriilg teehiii)logie s*CI\1 rhatar illanl' a! 4t) p.rrteni{:f fii*ttsusedn* fnrmal cv*iua-
{Cornlxlttr intdFra{cd Marrui*.:turin$). Fil{S t filcrihle }{anr.r- l l { i t' i 1t. l l fr:r A h{ I' proj i :cts.6' i ' hiai
q :prr:aci hotrcrcr
r. is
{aeftrfirtgS1'stcn:s), AJ!{'i i Adlarrrd h{:rnu1a;i!un Rg'1c,.- hn :rl- ri:*ceptu:rlivt.ror"rbirng incnust it rcducessont*t-.ftltt tnost
cgl'), (1rlhe rpcrtrfsdilirr CAI). C.\ti, ;rn,:lC Al.1.i.'\ 1'.4ulu rinp$r1"ini cloir:t's I frr':nfa*cs tu "telhnOi$gyr{:)lllt:lte"-*-
rlt i: fhat ,t..:n{.fentittfrrl
Rr*.rln'rf Crfc:rlitai j;ti csrnr:rii
rnCt}.;r:,,jS tla;* ',"r,riLlrt."\pjri lr.ir;xirc.*1. atidh*p:i iitis pioc*s: i.r rot
xu:fisi* rjlr nr{ (itl!;;tt r.i-l::
frrtliirlr'r:'fli tlr: lr-,'lii1'.1!r;ri;1
l}rang* $'i:h'-:ulits ,"irvn:il!.s.'l hert ititvel;t*n lliSny',1:tll-}.^rir.lwn
ii Airr':rier:t'l*rei n'lt |;,:it:r,l -.rirrr ir''i:'\l fmln":iqriil.
l:!*,iir:Oi'1. f;riiur*::iin icirerji)(:i!ri fiiifil;:!rrxl-\'d*tr*i:ii'eEi t*i:h{:i{j1ctg}'
'*f
rfil il ir argtterl, pitrcs s+cii il p'e :;tilltri (.,i-l.iililil"iijfrlr f rr:at:iiei crptrin it!'ri:;:
nt +o littir eriti:h.tsi:il-:ndii'iictrit-t,;t'ii;.:elltii'r'rs'ru:r,
re.slrlii:,.4.*rl
$ gth:tta: qualiry enhiirY;exisilrOi ftiarilifi{.tl{u.in;:iir:.r.:biiil;*,tliri . {-i*ntti h:!*t*rr ;:ustled&e t'..,nci:.pl in it.r fac"
+i'ri:i.r,;,tics

$
*,
rnnj:rr*iarulr:uricg ilni*Jrthrf'*$hs t!: lhit pi:!:.sth,: ij!)\- test.:
Cune'ri ltr:r;rliue Ilt$g{r-'ls frxitr R{:pr'::;r.:i*l ii: ei :riu li i-
I
to{ie$rcra,jliard in thr earlf i:1${i.r,and \!*rtillgh*usr;
rlliri:lerir invcstnientin cx,:e,t;** at $l biiiie;nlrt l't{r+tics
i*f
,g: ing investmenls irlr technolaq,icai chi':nqrt. e.ich erf tf:r"-sc r;l:riui"rcturii:gi:i i:;.13-Y-.:lthi: plo.ie,,rtc{: ilnpr{rvelrlrllli
# appmarhes h a; s i gr;i ti c ant ('leilr L'tfi1ili 3s " rJ re .tpi:;r' ac h s'-'g - f-.f{.}v{:diJiflicr:l; !J i}r'hi*!ii. lvlan; cl't}r* roblLtr;i:tur-
#, chased','rercrlcvqf used.end \Yestinghcus*clnsedtllrvn
$e.ii that rvc dis.citrri all lii,'ntal firre"ncial xl;1!1'5i.r{st;ch a'
ffi
i#
lrlP\i a*elyris) *n,J rriurply "tNt" On nrrr. tr.;Irr$logies.
\,r,e ils rr.'hotrcs subsidiiiryin I989.
dF lxlicve iitirl live crrt ;io fdtl(f than liris. A -t11'r-inii anrrrnacit. " Grncral Electric'sipcctitcularlyaboniveventtlreitt new
ffi prrrgrserl try K;rpt*n",:alls itrr a refined h?'1'trcxiei:i a llraior condenser{echni}k}8}'fr:r refriSerat$mcort the firnt hun"
:,$ give crplicit circdr; ol' ;nillirrnsof dollarsand irrtplaccahicrnomrntum
:# rhortcomitg r.ifthis frnrntw*::k is lhat i! di.1t5rjr,,rl
s altcntiiln tr) ltl:rlcgic isstte* :lnil cDfl(lr'nis. Iri.rl-rtr'1ilppr{)i'tih i n nrrql uctl ,' a,l enl ti p
i; links technclogy Cecisions to suateg,icarJl','{is:4 ho"vever, . Sky Channcl.&e r"1dg1y heraidecl .12trillinnexpcnnrent
*.
:&: Portgr'* lranrework do."-.s r.u give cxplrot 3t(criii{)n ttr fintn- in viellite <lriu-ihutic;t of TV signals("rvirelcsscahle")
,ff cial arral;-sis.Tirc.fourth firethr:d.suggcslcd i:v Brornu'ith and by ltCA, Nc''i.sCorp.,rrndCalrleVisisll.rva-sqrrietlydir:-
1$ Bh inrani, arFir*:: l'cr fl$ i n teg:'rjt.d "s t'ati' Si c -f in :tncial " anall - banr-jed in the iatc i980s in the fa,'c of mr:runting costs
sis fua;nervork:s hrJr"';,'lt'"t,lhc.se aui]iors hn'' e not pnshtil thcir rn.3inplcnrentot ir):rproblems.
s.
i&
,#
irjeasfar er)otigh to irivc rrleS.ninqfitlr'ui,ianL': i(')InanigcIs
'l'he grint cf thcseexantpleris ceriainl.vnilt thnt l{:ch-
: .i:
,'i r' !l

,:,s
,.s: in evaluat:inglce[rn.:lr.rg1
^4fler suntrlariring
chaogc iilvrstln0nis'.
thcs,: f,lrr apli-or,:hcr'antl intlit;'ti- n*l,.r11ical exgretintenliition is alway-ta mistali*,ncrrtha:coir- ii.
i .'ii
ing their sre n[tJr5 irnd Iirrlit:tri+ns. r\'t: tb(-n of'fcr an lri:prrnr*::h--- vt' rri i onalN P \' aaai l si s techni quesmust be rrseddespit e
as
.,f*,
:w Srategic Cost l'lanrgernent {SClvl}--$at a(i{ire:ws.$rosc iirn- their Irrlitatiors. \\'e alst'relr:Rol nl')antrr iniply that ths$e i;
lW itatinns (sce the sidetrar fiir a hricl tksrriptirrn r:f the SCM firrris rnadcsr;nrr:sinrp!isticmistakt lhal tiie]' could have .i'f'
$ rnclhlr.iniop:y').1{i: illustratc tiie ltrnh:!ic po e":i ,tf rit:r lilrnie- reaclil,ttririrlcd. i)ucrrling rvhen atrr-lhnrv icr irttplrment ;i.
:itl
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'ii'
,*lt
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itJ
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ch a n g ein pr duc l or p ro c e s stc c h n o l c g i e srs a re rl ' o i ffi -
cu l r a nd. at t he s am eti m e , c rl ti r:a l l yi m ;x :ru n t ta s k that
can muster.But
demanlsthc L'c.tthinkingscniornlanaeers
to arguethat ilo fortrralanalysisis a ptausiblcaltcrnativeto
o vcrl y r es t r ic t it eilna n c i ;i la n a l l ' s i ss c c msto u s to b e j ust
' f h; ide a i s to fi n i j a n o p p rr:p ri a tc a l l al )' ti c
a s mi s guided.
frarncu'ork.
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
maior rve akne s:.e r. u 'hc n appl r ed t o nla; or inv c s t m c n l s I n
t,'{hnolcf ical changc
'lhe fi:st i.i ntisas-sessment the
'f,f
appropna(e disfrunl tat3. lt has t^hcntairll' comnlon to sL't-
cornparricsuic 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
rel'Jrns o".tli thc patt 5l):t\'.vcrn' anclr()nlFrlrriltl 1q\ 3ir1-sr'
"'
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
hurdle rate s ca n dr:rr,a t ic all' . int ; : r r ov ct he alt r ac t lr c n( 's s( r '
new inves'ments.
A secon d majcr f ac t or lt e c ! les is unt . iueopt 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,
A tliirj atcir i";rplan highlights i: icnccrn aLr--'t-ii 'ir:ian-
* 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
oficn porsible. hr: argues."[ttis can rlranratic:rllfintprt,'rc 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 -
t he equ iprn en !rc..lt'rredb} ' 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
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
latc l9'?t)r, nuln':ricallv conirolleC tar:h'
ea;ly l97tls. lJ1 the
nologt' wa-s t'ceinninq to altt-t .()iIlp('Iitivc rclatirlrrrhrpsi*
's
thc inrlustry.Thc subsidiar\ nlaneliltli*ft1 \\'as erpioring
op{ions Sofrrn\ di1 signrtlcant nlanuiat ittnng L)FXIrations fnxrl
el€c,r.:rlxrh1nita i to c ltL tf r:r'lI i lcl h no log ic'1.'i ince corlxl
tate nl3naqcnt*nt ctnpltiisircJ l rn;iilciII ctrntrr.rI$ystctlls vtt]
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 $ -
Frsal '.nasn;;rrgirllll:tt r*ust.H()\\t'vcr" hcc;lusc ttl lin{: nrs'n'
rtcmcn!'s str(ingixlrcf in thc n.$' 1gs'l11pirr$v, the suusrdinr;--
\l'enl ahcad * ith thc investtttcnt .n spitc of thc inrbility ter
llrcs.nt a cr)mF*lling iinlncili r.rtror.lllc'its decision reiultcd
rn dramaiic sr.tcc('ss for thc fintr. l'trt thc opirr.rrtllnityntight
*'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}{
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 rt l t t r t , l t l t q ;11r f^ '.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 '
s r r i i a r r 'u a - .r r n t -t l f t h c t h r . - ct 0 s t t i I i v c .
UsrrieKlpIan' s (:.t| €n (i('J I rnancrai anal1sis fi.ill,r'!'"i'r'L
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 ci t - su : e i i r l n c s s i n t h c C I \ { . i 'q l t\t'
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 *
crpire it iii{L'iltl()ntit;rna prtl jcii cvtlttlltiqrtilir(\i{)i r'cf-''':lt"t:'\
niatiel hou r.rrtiuii'r tht- prr.rir',,t trr,,xjclis i:iilicd 11".':rgi;
colttlE'il-il\ L. AD\,\N ;'.-\Gli
f ' liA I lE l\ 0 RK
A nt-.thc r apprrrlah. f roposcrI or rg i i relI v b-r'Pt--t'lc i. | \ ;.Ii"'i,.
addresst'slh!- sl:riilagiarjllllcljsi,)n.itll- tirtl pirlhlrt!1 i::;.r';riri
c oni pc t I t I v t ad Van t age pL-rs f r' c r I Vc ()n s I rat trs i !l Jl''!r'lr1"]f, '
n t c n l . ! t 'l l t t s ; t p l r r ) : t a l st r - c sl i l L 'r r 'l i t i t . r t t s l ! i nl r c t r r . r . 'c it'il '. l r .','
l o s i c l i i c i l a n r ' a n d c o r r r p c t i t i ( ) llrl 5 l l l i r i " r 'l l l I l t \ t l l 'r r r t fi t'-
apPr-3r:. - J ! 'c h n ( r i r - l g i c a l
chanSc- i s '- r l t c t l l i l r r ', - l ', j
a s r tl u l t'i * '
f t r r i t s o r r n s a k c . , \ n v t : ; h n r . l o : : i c r l r t r i '. l r t - i r : r t i n an l r n l l i * r
p r r ) n c ) r i s b c l r c r c d t o t r 'g ( r \ ) ( i b c L l t J s c i t r c 'p ,t'ct'l t'
p r J S i i 's s . i l u t . i r o n i a L r t t s i n c s tp ! 'r s P e . l i v r ^ .l t : i : h n rl i 'q i {* t
ot p r r l - g r ( s si s n o t a l \ \ 'a ) 'sa g o o d t h i t i g . l ; r 'r i 'r r i r n t p l c .t l i'; r i i -
L'c;rrdand Snr)r',siri intiustrics totllr. ;,tc :uf icrlng lii,nt tr:.*' :
t r n u l n g t e c h n o l o o i c a l c v o i u t i o r t h a t j u s i d r t t l n o l l r *n - <!i i te :
1n11-r profits. 1hc prtxjr,rctsare ovcre ngincered for th I nf$ !'
agc custonrer.I;roni a busincss perspe.ii!'c, tcchncl0gl**l
2,i)0 l,:,:'
iii
I
 f| | t |r il | [tlll lllll m
--.

Changeis irnpona,ntonly tr' thc e.\t{r{i{riratir affecrsco,rr- A firrn's technologiesare also clcady interdependcnt
pcdrive dvanugc or lndustry suucrur€. r ith its bu1.er'srechnologies.The points of cffltacf belwecn
Tcchnologl, h6*,ever.rloes gxn,atlea firm's value a firn's valuechain and its cus:omers.orsuppliers'chains
chain.It c'r(tcr:ds f,rr hcyond thosetechnoltrgie s asv:crared dr[rne anothcrarcaof poteniia!interdepcndenc,: of tech_
directlv with rbe p:.oduct.Therers rxr suchthing a: a lou - nolo5ries" For e.rarnplc.Union Camp pul pCs linked to its
echnologv irxluxry if cne tekcsa brt adcr vrerr..\/icu rngan\ rl arehousesinro popxrdistriburcrs'offices and increased
hdustry as b(hffilogically rnarurecan s.cll leadro str-aregic sale.,;br offerrngirnmediareproductavailabilityand order
disaster.For exanple, rnagazinepublrshingis in rurmoil statur,iniormation. A firm's pmducr tcchnologyilriluences
otlay becauseof the en*rgenoe of deskropprbhshing in an the ; roduct and processrechnology of the custclrer anel
i0dustrydeemedtechnologicallymaure Just ten yearsago. vice ,'etsa-
The belief in tk r.Jdrechuology fcr pege layo"rt,color sepa- Technolegv and Competitive Advantage Tbch-
nuidte, or t5pese;lingis p'revenringntan1.iarge firms frcnr nology affccrscomp{tirive adverrtageif it haee s{.uificant
€omp€li ng c f fcctr I y, h,{orcuver, nrerry i nlth}rtant i nnr:r.a- rrrlr in derermining relariveco$t or d:flbrcntiation.Since
"*e
Eionsfor /tompetittye advantegeare nrunclanrand involr.c technalogvis ernbodiedin ev":ry value activity and is
* * .rc ient if icbr eak th ra u g h r.s u rh e l l ;* rJ c ra !Erp resr' t inr olved in ar"hicring linkages3ntongstivities, tt cfin have
*r'erniglt dcliverv.Cf coursc.thc c-"ru{,ion oi overnrght.lc-lir- a po\r'€rful et-t-ccton botlr rost arxi diffcrentiation. Computer
cry :nar k ets har ebi fa x l e c h n o l o g \!s a c o u n tc r-e xanrpl c. airirnt rcserr.arionssystemsrL'p;csentan cxcellentexample
8!.tlrnnL.r'ation can har.einrportanrimplicatronsfcrrln;r..tcch of tcchnologfimpacringdifi'erenriation (suchas Ar.rerican
as sell as hieh-techconrpanies. Airlincs and *r Sabcrsystcm).Technologyaffectingrclatir,e
cost rs illusrratedby the risc ofctrntinuouseastingin steci
Tkhnc*ogr' arxl Conlp€tition makl rg; continuouscasters srgnificantly rcducernarrulac_
fi,verythrnga finr du,e$invoivesldchnolrrsvof x)me .cor1. tufirig cost-
fYen*Kxjglrone cr'nltrreterhnclo;it.,ltlfl) app:r to dtnrr, l n addi ri onrc i i i fecri ngcost or di ffcrcnti ari orin
r it s
n"dcthr prcdrrclitr prfiluctisrl pr0,;c$s.Fcr eran:;lle, rrila[. {-1$rl nght. technolog."r. alfrct^seonr;xtitiveadvantageti;rough
rng rcchwrlogynral'tJuminate*)€ rnpier lru;inesr.bur papcr ehangineor influencingthe otherdriversof costor unique"
fted technol,;gyi$ al$oan issur..,lnypar"ticuiar rcchnolog)ts ness.['or eranrple.thedr:veloprrenrof the interstfltehighway
is,prvant fcrrcompetitionif it significanrlrafter.tsa ilrm', s!stcm dranrari cal l ;- changcd the basi s of compet it ion
rvnnpclrt ive advanlageirr irrl ustrv sr:ucturc. bet\\'ecnrruckingand railrtradsin nranybasicways.Thc suc-
Technologr aild tbr \ra!tre Chnin. Tlrr.b:sic rtr.rl cessfi,lrailrord: tix1a1(EurlingtonNorthern,for exa-np!e)
lw s$JersranCins t.|rcrolenf technolog_r. in crxr11*rrrive advar. irrt rh* cnesthathlr.r ldaptedto ihcscchangcs.
Lrgc,s ther alrrscharn.A firm, as a collectroiloi actrrirrcs.,: Test.sof a Desirable T'echnological Change. The
a rdloct;an uf technolngics. 'lbchnt'rlogris emLxlie tJin t:r.en link io+tuccnrc'chnol--gical changcandcompetitiveacivan-
r.SLEactl\ it1 o[ rlx' tlrrn. arxl technolo.ercal changecan affecl tapesuggestsa numbcrof testsfor a desirabledirectionol-
runpefidtm thro.rglrits rrnprt on vinualll anv actrvirr.Even. technolngical change.,A,ccc'rding to porter,a firnr's techno-
tCr* a:tivity uses!,,',metechnolog-vto combine marerialsanJ loeicalchansewill leadtcrsustairrable competitiveadvantagc
ri*chiner"vwith hurnanresourLesto prtltlucesontcoutput. underanv of the tb:rrtbllo*'in-eilre umstances:10
'T}istechnologyina
i'tnvolvegveial s{-ientllr.c!isc;plrnes or
*lbte;hnc,fugies.'ll,e *:.itring technctoglcf :i valueacri\.it\ \ " -l'hetc<'jtnologicalrhange itsc!{lowers costor
teF$dnLsi}$€u{rlxlilltr.:ttion Of thex :.nhir:chn, 'ioeies. €nl{:n.r-f di.fferentiationand thefirm 's rer:/rncr/o.gieal
'f?rstrr:hncr!-igies in drfferenil.aluc aiiivitle s can tr.: lecd ls su-qiainrrll*.Procter& Camble'spatenteridry
scl$tcd.Tlrrs iir:kageis a rnaj4,-sourc*,.rl-cornpetitire advan- llufiing technologl'l'or tissuepapcrsprovidcssotier
t*qc.+.ilninthe valuechain"For eranlpie.proJuctlechnolosr pak-r at no Incrca.sc in drying eost.
crn be linked t,t rhe technologl'lbr :-cn,i,-.in.s r Fir'.xJu(-r ( such 2. The ttchnologicol changeshi17:; costor uniqueness dri-
:s selfdiagnosirlg cornpttersystcn]-q lhilrrelaVrr_.ainrenancc ters it t;J'a A nL'w .lsscmblyproc.ess ftat is
-fav,or f;rnr.
irdcmationdirectiyto then''anufacrurcr). Or t,r1rr11rn4n1 lssh- m(rrcrcalc scnsitivethln the prcviousu,ill bcnefita
e ,rrfo gitcrar thc lr nk r d l o e n d " p r(\l u g111 .1 .| l 1 ,rl 1l )c
i g rsktop
, lru*c-:;hilrctrnrt thatpionr.crsit evcn if (-ol.tlpttit()as
hy,rul of adr"ertisin;l pa.ees. for e\a;rrplL'. rn;kes possib!e: evr:nirrallladoprtlreproccss.
!ryrief'<o;tnragazint Thus a l€Chtl,i1,'n,t , it,-.1..i',1., (\ ic flart,rl 1. /)s1,41,r,pi11.q' | \t' tr',.hnoIogir.rrlr,,ieprgr,
Iriil \ I aIcs !,th)
$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 :.1. r l t h , fir:t-ntot'er advanraees besttle:. rhc.rr inhr:rcrtt in tlte
dgin. In clircrr)c i'a,es. cllan.l.l,!!tter.tin(.rl{)g\ rn i'n..":rif iYitr ltt'hn<tktgv irsel,f.A firnr th;t ni\)ve$ fir5t nay estrrblish
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 .1reputati*n ils the pionc-er,rr lcader.a repu{;1tionthat
dr bas:t-'{Jr,\'Scn luriiacs'replaceoth'.',rixrr l]!-arl}tlu.rr.ractri e nrularorsrr.ill havc ditTicult., c-,r,cn_ominS (e ,g.. Kodak
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 rn fi!nt C.',.'c.1-9,-,;.,in bclcragcs).
'rr A ilrst nrovcr also
1[ J" -f {rrlrlr* Cn Cco ithtnr i* , . r r ul] . . . r 1: t , . .h.
t r , . i! t f r lii: r it i, t i ; . l l l \ rrral Lr,-. first !o sr:n,c truvcrs antl tltus to csialtiish krval
ilr.qntf<l t.i){.\l!-ur,'lurf,rf tlx stccl irrilit'!l'", r . cl t l r c n s hi p s

lilr
 It is int"rs-rtingho$'rnany firn$ tlut s'erc first tr)i\err lenns..{rBnrtrrrvrt'h irntlBhrtrr:trtirro{c."Nllrtl' of thcclfcttsof
hlve renraincdltadcn for rjccadcs.ln ccn-qunrtrPtxrlr' ttx Al'{'l'rnry'ttt [tlltntor rlivisr,rn e\ (-llcorptntes'idr:'. . .whilc
r{
exflnpk, srlchcurrent lcedingbrandses Cnscs' I\'or)' st-)ip. alsofreq-cntlt l-lir*'rngfnrm tle ir,terx'titxt with otler slstems" ::i

L i fe S av er s ,Coc a- C o l a .C a m p l rl l So u p .\\' n g l e t' 8 um. of AlrlT invesn'rnt-sarcunlikcll'to bt't'4-

. . .1]r full r*'*ncfit-s ,ii

Ko d a k f ilm . L. iF ' ( \ nt e a .a n c jGo td y c a r l i re s w c re a l r eadt run'i L.y investn*'.nt appraivrltc{hniqucsuhich rcly :n}lclyon
lc.ders by *r !$?th. (Jf r"ours.,early leaden do rrc*alu al's finarrctal datainput.The long an-i*'idc'rangingdisr'rrssion-s
pcrsis. evidcrrcc,:i by Singersc'rrnq rnrchires"Bo*mar cal- rr,hic-hareusedin Japanesedecisit"'rmeking allorv thcseocrn- l'l

culalars, B"rlcva 'r.'etches,s{td RCA telet'isiql sets. firs to be considered without pteciseguantiticstionandto tr
A firrslmaver mly te at a disadvanugeif early invest- tes{ed&g&insta widc rangeof mrnagerial experiences"'
rDcntsare specific to tht: crrrient tcchnology ard cannot be Bromwich and Bhimani proposea frameuort that
casily mrrCified for latcr generationi In semiconductors'for explicitlv consiciersstralegicbenefitswhich can be derived
cxample, Philco rnovcc!carly for ieadcrshipwith a large from AltfT Investnents,both within the firnt and extcrnally
rotornarcdplant. lt e,rioyeda pencxlcf suc(.ess. but the later in its marketpositioning:
developrnentof a differcnt manufacttrrinS fnoressfor senti- InternalStralegics
orductor chipr nratc its esrlnerinve.stme nt obsolete.Sinti' Coeladvanlages
lsly, ttre eariy mnver'r.ill be disadvanuged if its product or Morecontrolof prodtrcttorr s!'stems
prm.ss reflectsfilct.ir costsm frtor oua!ity levelsthat have lmpro.,ed c'rganization
changed. Beneilc ial interact ions
Techuologicaldiscontinuitiescan also work against \{arketStrate gies
the first mover by making its in"eslrnentsin tlx establisht'd D i vcrsi fi cat
i on
teclrnologl obsoletc.TbchnologicaI d i:ennti nuit ics are irla;or Expandr:d prtxluctpnnft,lit'
shifts in rechnologytrr ivhieh a fiitt n"overmay be ill prc- Nc*' prrxluctsrvith neu'skiils
parcdto rcspcnd,given its investntentin thc old techntrl- Nervskills in ne*' areas
ogr- Weyertraeuser,for eumple. pioneeredtlre introduction Enhancement of existingprodt'cts
of the technotogy'for "oriented strand board'' (a pil'u'ot-td Enhance,l corfrorate i ntege
But laterinnor'alions cut th€ costof a neu'plant Re-spxrnsc' to fl uctuating .lenrand
subsdrute).
in half, leaving Weycoat a cotnpetitivedisadvanta-re in its Lor,'erccrstof meetingdentanC
cariy plarts. DrscorrtinuitJ' favorsthc fast follou'er u ho docs Improvedqual i tl '
not bear the high r:ostof pionet'ring. Risk i'eduction
Strongcrski!l basc
4. Tlw tecltnologicalchongelntprareso\'eral! i)drrrr.' Bettercontrol
structure.Fnr exanrple,tlrcjet engirc improl'edthe Betlerplanning
comp€tltivepositiortr:f all sirlinesversussubstitute Reducedrvorkingcapital
forms of t ia n-(ponalion. More fler ibk resp:nses
Fi gure I i s an exampl eoi a strategi ci nvcst m ent
Alt-lroughPorter'sapp'rr:ach to understandingtechno- appraisalmatrix designedto reilect the blendingof finan'
logical changcinve3tm€ntsis clelly lery insightfulat a con- ci al quanti fi cati onand qual i tati vestrategi canal yiist hil
cephrallevel, it srrfferstrom a significantdratvlrack:Porter Bromrvichar:dBhimanireconrmend.
&ss not explicrtly'link his srategic frameu'orkto financial Bronr*'ichand Bhinraniarecorrectin their aL(,,$irle$t
analysis.i{rthorri r;ucha linkage,it is dift-icultto decitleon thatan erplicit bir'ndingof tlnancialanalysisand nonfin*n'
speciftctechrrolr.lgical investments. It is not s.urprising that cial stratt'gicconsiderations deserves carefulcansideration.
*e {lnd no exar*plesin thc literatureusins Pnne r's frame"' Nr'itherapi')r()ach aloneis as str(ingas a blenilingof thein'u
wOfk l n f es nlr , 1t Cc h rtO l o gai !r rl ' ,ri i csf l n i h (' s c \' c t]\' {.;tt: Hrrrre", cr-.th*r' hr,,,r"ntrt Dtislti,ltitcsr'itlcasf irf enr)ughtfl
si n cc it \ *' aslnt r odlt c e d .ftri -si s tn s tro n gc o n tri s l t \) l hc erpiain /ioli to :itructurcthe stralegicessessrn€:nt phair'"frlon'
e xte n s i' / eI it er at ur ea p o l y i n q .rn di ,:-rti n go th € ra s p L' cliq' f can L'cappliedacrossall firnrsto ftxus the slrateSlc cvalut'
Pcrter'smrxiel. tic,niri technologl. changcinvestnlcnts. Sincethc previoltsll
dr'sirrh'ctl rrppro;itirts tirr e Irtlu-ti'r::invr-stntcnls in lf elrni)
l(;9t,.'iil
chilngr" are rnadcquutc \\'a\'\,'.vciuggt$t
irt ttttportitnt
STRATEGICAI,LY AUG\IENTED hcrc l dif-fercnt mr:tht^r.l thatadrlresscs thi-selintit;ttitrs.
FTNANCIAI, A NALYSIS F R AI{E\\'OR K
A founh approach, prop<xed bv Br(,1n1$ ich and Bhi'nanr.
adcressestfie lack of er:plictt attcntirrr'to str-atc{icissttcsin cr'tl TTIF-STRA.TEGICCOST \IANAGF]N,IF"NT
junct ion 'rrth pro jeci ev aluaiir - ' nnr ot jc ls . ' ' Thc ) c n\ ls ! L ) nI F RAil{Ti\1'ORK
forrflal financial analysis. broadll based anr: carefully exc- Thc SClil flcnipcctive,suggestedb;' Shank.inr'olveslhrce
cuted, tiul arrgnicnteCb1' explicit c<;nsiderali<ln of straiegic kc1'thenrcsthat art' takcn froni lhc stralegicntanagemeilt
issr.tssthet do not lend themselvec tr,'qrran{ification in prolcr:t l i terature:12

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L I .i lu'r" Efiidlr etn tF Cxfresgid i* rfroruuq trrms scnrerjo,1ir sintlc' "f\rrnl5' scalc ( | to l0).
II
e ..stratcglclni,rsrnrcnrApgrarsel.".rform.{erricnrActounltng,I'iach1991,p.4{!. Reprintcdby pct'
Sorrc: M. Briwrelctl rryl A. ghir,rni.
d
c rfi;!5}l)i 6' tlit tr b,li3l*l
b"
v t" !"alueChainAnhll'sis coniponcntof the SCM analysis,but a slffcient anelysis
> .l
Cost Drivei AnalYsis nrustinvolveall three.
s we illustratethe applicationof the SCM framework
-{. CurnpetitiveAd refiuge AnriYsrs
in anal;z.ingtechnologyinvestmentsby usiag 4 disguised
[ach of the thri:e 'epresen$a streanlof researchantl exanrpleoi a large forest pnrductscompanythat is €valuat'
uralysisabout strutegyin rvhieh cost informationts viewed ing a nroposalfor a major technologicalinn<-rvation'
dilferenrlyfrorn tirs way it is vtewedin convtntionallnan-
repre:ients The SCh{ Perspective on Technology Costing
4lenrentaccountinS.Blending tlre rhree lllemes
ilx most powerfui way to focus cost analysisfcr strategic Yak rma-OlynrpiaCorporatton,a multibi llion-Collar,highly
droices*"Stmtegi; Cost h;lrnagenlent- Each is a necers{tr}- ventcally integratedforest productsconipany,must choose

203
 'F{owth,:s*t!v{rspproaL}ics to logging devclopedin
* {:lr ifr nenl i' : , log S i rS{ tp e ra ti o n si n i t-sV l rg i n r: lttntbet'
suchdranratically- eiifferentr*'a''s i* icc'rthernEuropeand
k*::i',. Thc pre",ailr,rgte;hnolugl' fot logging ts cfearcunlr:g
*feller bnlnehg6g"" +'!richare sirnilar tc !argt farm {}}cU"ilitcdStatEsis t*y*rd tht k'(ifir oi'this paper"trn199$'
iry u-ling
*;iss<,'nanahe'<iat thc fr':nl ltr tha rs'q-|€
for Virglnia ioggers'*'a*qwtie th{irto sial with feller"
uatss and ha','e lmavy-duty
"itrcsctraciorsal-'<r buncfrel skrtitlcr tc'ttr
noi<1gy'r; s i tch to harve stcr/ | or*'arder
slear ofi"sta'rdirg lrces al grtzuffl ltvel- "r'
(Hi F) technr-'!ogy for Yaltirrra-Ollnrpia's 4-50.G0'0 acresoi
ha\'e ts.rgeclarnpts fhat csn holJ scl'eraluee trunksupneht at
one urr}c so that tfc tractor can shear thcm cff before stop- tinrberlardir, the tidcwaterIL*gr\\n.
Yakima-Ol1-mpia (Y-O). iikc nrany malor foresl pruJ'
p:ng to dump thc load on the Srourd. The machineliteratly
fells trecs m bunchcs.After felling, tix bunctrs of treesarc rlcts cooPanies, n'as vertically integratedfron: researt*h'
drogged iskidded) to a roadside stagin3,area (the deck) bi' intenr"ivefarms that developed and planted l,enetically
arpthcrrarietv of tra*tor celleda skidder.The fcller-bunch- inrproverlsectllingsto whclesalcand rctail distributionof
e rs and s k idr ien l e l v e n o re e s s ta n d i n ga s they n' tr' c papcranrlsolid * ood pruluc:r. The onl;- stcp i'r this chain
tl r r ouf h a wo. d l o t. At tl rc d e tk , q ' o rk c rsu s c h and-l ' * l tl in rvhich't'-Odid not participrtcwrs logging'P"imarilYt'or
costre&lons(nonunlonrvagcsnnd wtlrk 6rractices)" filolit$l
chainsawsto r:elimb UreGtesi's h::t thcycan.usualll lear'-
thc forestprrxlucts !-rrns harl lont ago cxitctl thc liusincsis *I
ing rnany shorr limbs on &e lc'g-Cranesthen ioad the ilgl::
cnto f ialbed trucks for ralr5[x:r'itc rvoocl1ards,r'r'heiet]'e cullingtheirown qrccs.Y-C hir,-rl;rrivalcittggtng'":o*l:ra'rtcti
antl lilttsp:x:riihenrti:\'-
to fu{ the,'ltatuirtre.:$iitrtri i's Inn,.l:,
logs are son:d anrlclji ;trtosegfientsfor sanniilis, ply* cx-rl .';aluatea ilruF)selti)
rn ills ,c r puip nr ii l s ,d e p en d i n g o n th e a u a i l tl a n d socctts O"spt'txessingrniiis.flll$ )'-C)shoui'-le
s* itchlog-eine tcchnologics is thc subjcctof our t':!d stutll-'
of the trets-.
'cr'
The rempc and pare of thrs pro("e5sern t'est 'l'hrct Contponents of thc S(--tl Pcrsp<:ctivt'
d es c r ibedas pan d e m o n i rtn T l . h c r; i s n o s trp h i sti ci ttt' 'n
ctrr tr'rntllcrlt lhrl r: Wc will eL)n\idcr in lunt eatlrtri tltc tltrt'crrrnlp\)r'cnls ilf Lilt
invcrlved, only brulf force applierl ;n an
S C N Ipcnpecl tve as !t appl i esto thc i :hoi rc of l r:g ing iu'clt '
trcrt,insect-ridi,:n- srra.lie-inre;tcd. anrjalternatelvthick * tth
Thls pro:css represent-s the latest tc'h- ni.rltx.)'. staflinglvith the value .:hain tonlr$ncnt'
dust c,rder:p rr:inud.
n o loglc al s t a6' in
' th e e l o l u ti c rr o f a p ro ' :e s sg e a redto V al ue C hai n A nal ;si s. Ii r tfre S C [1 l tan'r ct r l] r i"
' tl t reqriircsa brolcj ftn:*us, eltt**::l t':
dorrn atrd rnol'e es n'!ill1ylrees.as pr:ssiblein as shon e tln c rnirnaging co:ls effc,-:tivcly
re this prrspcctivc thc valuc chain'r'
as possible.'llie rr,ethalsachievehigh-r'olumethroughput thet'irm.Foner has micd
The val ucchl i n for any i i rnr 1p;1p-r' " 9r:si n* t he link+r f
i sss
but also serilrusildatnagethe :re€sa.nCthe land and caule
gxeatrliscomtirriand dangerfsr the rvorkers. set of l al ue-creati ngeci i vi (rts i ' rcntbasi c ra\" m at eliill!
"I}tealternatiY*techncllc,gr'. r,r'idel1usr'.1in rtr'nhern (si arl i ngul ti ntatr-iw i ' i th thc ptri txi i r:tal rl ccl ' i he clcnienisl
Eun4x bdL in l9q.r-vtl'tueiil'unkno,"'nrn tht Uirted States' thrr:ughto conl ponentsuppl i cl s.to thc ul l i nra t ccnt i't t : t :
involvessophisticated contputerized machinestlat resem- productdel i vcredto the col l sunl ers'and perha pst hr ough
ble Sisr }*ars robots"A wori'.er in a han'e ster' a clostd-"ab rccyclingtcrtlreLreginning of I ncr',ralu* chain cyclc' Thc
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 externalfocusscesear,:h finrl ln tht' cont€rt of ihe ovcnll
th r ought he u' Lr c d s "
s e l e c ti n g i n d i v i d u a ltre e sfor cutti ng chai nof val ue-creati ng acti vi ti csof rvhi chi t i s ' t nly a paf i'
basedon curre'rl rreecls in thc p:ocessing niills. The machtne *'l arearvareof nc finrs tharspantlrcentirevaiuechainiu
fells eachtree .,,,ithe smcothsa\Ivcul (as oppo-seci to sclss!1ra * ' :i ch thel pani ci pate.\' al uechai n anal ysi si s cont r asl*t i
cut), preciselydelimbseachlog flush to the stem'cuts the rv th val ue-added anal -r' si *s,' hi ch startsrvi th pa ynt entts+
stem into secliorlsof prbCetenninedlengths,and gently supolien (purchases) and stopswlih chargcst( ;tlrtlomeni
drops tlte s€f,tirns in neatpiles.A forwarder then picks up fie (s,rl es], w hi l e f{ .xusi ngon mari nri zi ngthc di fl er encc.t lt r "
s4quences and c:'i- vrlue rdded(salesnrinuspurchascs) tbr thc fimt.
logs accordin€ro computer-prtlgrarnmed
ries thernSeqtl:r'to*re roadside"I-aterrht fonr':rrderwill load Value-actdcd analvsisis f"u ttxr namowa view bccaus*
it ntisscsthc Inlpt)rtanccof linkagcsupstreanli1,1d dr)*rt-
thc crtt log$oi:to truckscicstineddirectl;-fcrrspccrficpro-
cessingmills, \ryoassingthe *'ood 1'ardstep altogether"In streamin thevaluechain.tiin theCIM context.theprincip.*
thts system.(L,ewoorJlot is not cleat-cul Only the iulll blcnef rls oi nen' invcsrncntntity rvcll fall clselvherrin lhe
maturetrees$ hcsesiaeand sp€cies mcet 'rurrcnlprocess' valuechainthanwhcrethc invc.stntcnr itself takesplace*r
ing rnills'needsffe harvested. thc logginge.tanrple illustrates.
In termsof tcropoand pace'the han'ester-f orwarder The por'rerof ihe vaiuc chain pcrspectivefor this sit*
* slslem resemt,les balletdanterr ryrforrningan elegantpas aticlnis hignlighreet by its conltastwith a conventiSnal'Pr'.
de deux in '.he,',,/o,cds.It represfnts the latesttechnological lect lcvcl. value-added analysis.'iableI showstti': collYflr
'tional analysisfor a loggingconlractorconlparingtheltu"i:l
stalqein the evclution of a prclcessln * hich the logl er s€es
cac n indiv idull l rc e 8 s :1p l c r!o L !so b j c c t a n d takc' ful l alternalivcloggingsystenls.I:ronrthe logger'sDerspcclitc.
rcsponsibilrtyto deiirer r-lean.undarnaScd. s{-!tted.and iill rhe returnis virtually identicalttlr the two opl,itxs.(iivt:*
logs to specific processingmills, basedon thelr current the comparablceconomicretulns,thc ltigger cuncntly usins
'fhe work feller-bunchertechnologyis nc* ii:r:linedto swit{:il'The new
needs,wnile doing minlmal dan"rage to the land.
is perfr:rnredsafelva:xi cleanlyfiom air-conditionedcabs technciogyinvclvesa signifi,:anrl'llargeriivcsti':cnEfora

244
 charn p'i-.r1xctir'eir a t'usrnessunit cvaluation m{'r"icrevt:rls
the lrenr-'rxJ.'r'ls ptxentral trerx:lrts tirrm thc chanl",^.
l{P.v Cuit D ri r er .\ rur11sis I n corrventirnel m:rntgctncnt
$JNCHEN/$qDqf,tIT{HNO{.OGYVERsUs f,{tr\ntlng. ct>,slirchar ror rs sct'n lartc'lv as a function of vol-
TECHNOLOGY
HAR\egrEfuTOf,VdARDER FOR u 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
YIRGINL{LOCJGING' 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 -
;1h[cr;rxi. ii\ f r.llt' \ Crsusnlar]:innl fr]s(. C()St-vQlritllC. nrr'iit
Cryitf Co$
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 ? : lbeu d g c t s , a n d co n tr i -
A-'o.;*'h"x'
f'.itt|ln m:lfEin. r(r n3!;1cI [crr'. ln SClr1.output ,,cltrme pcr
jr so:ic scenti! L;lliut-t ven' littir: ,.itl,r- ricilrrc.ss r'rfc.rst"trhar'.-
ri 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:
l,i 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
ii
* nchr-rnx)drls of industnnl orgrnreationectlnonlics.
* Tlierc ;irc structuiiri r{rsi drivr'rs that n:late t(r !:te {'imr's
7t
t!
t* 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
$. A B as r.-:tIc. p rrxl u'-'t - | i nc c o nt p I I r ri l'.-sg(Jpc o f r)[ r- f J,t i trn s ( v c r -
s6o8,00o 5370,000 t rc.rl rritt'g rlt :()n), ()r er ptcrit'ner'.r:'l'cch nologv invcstlttcnts

ii -rltd represtnt stnratural clttric,'s nhrul hr-r\\'tO (-Omtrte.

* 94,0r.14 lo5,ooo Tl:ere are also e\L'cutronalcost tlrivcrs lha: are nlfij(.\r
ir 'ls,cloo 75,000 ilr' rrrnrnantsof a llrm's coit l\)sition and hingc ']|l its nhii
s
$ 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
91,000 9l,om ch$.xes.l5\\'hcreas struclural cr.xrdriv'cn arg n()! nlonoton-
3,COO 3.000 icallr x..aicdrvith pxrfnrmancc.:'.\ecuti{1nal cost di!ven typ-
, *iglgg 3$,qw h:lll\ rre."l.|ratis. fcr e:rcii{)f ,1.'t: slntctural drivcr-r, m{rre is
?53"OOO 309,O00 no{:rluar: tc!tt:r. Ttrre arc poir:i1tiill<.iisfcotlcrnlits of scillc
l?2,000 7d,GJO ;lnd \ crlt{jal \dcrpr.,as $ e il as firtetnti:llcc()nonlies.A lttort
tB,0c0 contplgl prtrluct lrne is not necL'ssarilytretler ()r \\'oFsethilll
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
**":;ilrg *ibnue 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
q.'
fior-l7,600.tunikl AjT.VJO 4A7,AA4
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{l tc
"FvLidoiNry'
*'r . r 'i 1 i '1l {) \ \( - \ t - f ( ) : : tp t t . t l U l e t l f O h S O I C tE CK n , , - :r o C h i p SI
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 farrin.)st i irn)s-
in titnlre.<t.irlr r-i,tahl.f tlt- r':1c,,-ttii,.rnrrl tii t" r':"s,iil(rir'
,s alriit.istalr',ar s bcil*r. lltr: lisl ll [!.r1.'i-iliillilir']1il!)iI:.il'!l c:'c-
a l i c r t ) , ti l r a s r l .
a . r t i r t n acl r t i t 'r : ,i r - i t l L t r l . 's

\\'ork forcc i nvolvcrttcnt ( pan rcipati r r- rrtitnatr-irlcni).

Itnall bu stn ess,a m uc h heav ier r elr anc e on hi3hll s k i l i r ', - l \\itrkfOr.-ecolnn.l!tnteilt trl ccrntinLrr :!.jq i rl provct',e-nt
lalr,trr(l'ersus lorv-*'age, day -rato la'r-n")rerc for i:Qnvcnllt'rnlr (i'rri:rrr).
lcigg ing ), mu ch mor e t ont pler nlat nt enan. L' is s ue s . . i n i l ; .a,dhcrenrc. to Tct3l Qrralrlv lrlrnagenrentconccpis.
nuch more complex job task than thc rld tecllnolog). Utilizati,-rniri et'lectivec:rpacitr'{g!r'cn tht' scall cilolilts
Y-O e xp nrlrn ent ed * ' it h t hc nc * t ec hnologl a t t c 't - n pl3.ntccrnslruction).
:.itlcrcncr of prtxlrrctirrn,lorr iatout.
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 ' 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
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 : , l c n - ll h r : r 'a l t t cc h l t i n .
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 11111 11 1 1 - \ \
{e{hnology, hrol.en dttrvn l'r r,r'!1i'rr' trl lhr' I aluq"ilt:rtn ll:"". \\brl r rt rl l i rv nrrt nl w nrr h: l rrtc tl tat a hi gl tt I l c v c l l i ri :
rru rea lifed , r\r'5Ou n. it lr h( . ' r t qtt llh, \ ! \ lt all ln h: r nt : s t e t l O r l i i r:rcl cr'tttr,:ql l ti l ,l trl r! l fi l [rr()\ c.',r'\'\l pr)\i tt'\t'1" l l f fri l i l ]
r*' a rde riclfg ing ,* a1, ". 11t , glir , ' , r iii, 1 : . r \ , . ' \ - t . ) r r r c ! t i n l i t e . j rrl c. ,,1 l tst. .\l t(!Fl l q \ .rfC nIt,h l 't\.\ !i -r(rtenl
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 fhr- r;ri i tt .tl tri n persperti rq (':.11i c!'tl l l ti l c tri ti c al
regio ns, nL )ne(-)ithc it r c ' [ t r r ii7. ' ] ilt r hc . t ag r o l t ! - ', . ' l tnorrnrnc* r-,i i hc i oggi ng stt'p l r] tl tc th;ri rr. but vtl ue c harl i
- 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 i nl fx)nancc al onr- i s n(ri a sul l l c:unt tcsi of the desi moi l i ty r:1
','alue-addedperslxctive in a prr:tc':t iilalualion mode at lhe changrngthe loggingtechnology. A secondnecesli.ryconl-
L:gging stageu ili ncrer lt-adr{) th. .i:1n9.. Appli.ing a I aluc pn.)nent cost {lrivcr
rs lhrt iichnologychoiceis an inrpror-t;-rnt

205

,
fr
;,
 "l] ; t l ; s ' qhat ! r it or r ew dnr i n S : i i l e-
*[ d ]e lsg gin r: sre ge"
and ho:r'ltr:Fxxunt r:' thc
;;;", fl',iu,* ur .}* i'rgging suge'
is r-lthercost dr!vers? ol ihc
rechn*logi, iacr.r, c..nriraygd
rrnfloitajl(
**ur,.r*i i*u**' saie dtrrs nqrt-trr()\'cto bc ver:*
scale itx loEgrng l\ QUlte
i* tiris co:ilcrt. filinim''lln eliiclt'ni
are ad€{uate to sFead
stnSil"(lrp* o{ [\rfo;{t5 of equir$lenl
rchlrlh is thc trnlr "'-rr* elerlenl
Ju-,,up*n, iti"n ctrit clenl'nl'
;risdr l iclds ncr
;;; ;"y 5 ait effect\' verlicai si:ol'a- ,li'

1'\ this rcrrter'l' ln faci' becau-oc tlrt pnvate tog-

*,,n*,*i*.
wage ratrs and wofk practices in ttlc
gcr avoitis l'-'e unron
of
disrc(o.'cm?es
fiml ri"gr**rt acrual!y
il;;;;;, , -.u:urt-u dn\cr \,.i'Jl
ncAa rfiejix';r}1
v.lrlital 5€{.}it. Lc'-fnlng,ir alsi'
\\i:ri''cr: !earrrtht ltrb *ui;,:ki'ranC
i;ont'eiri;u3a r:.1uipmer;r- ,lt;
a si;r-'iili':lnti{r!'l Clis- l3j
t"rionlnir',,0r,'r'''r'er'!4:l:'-cilii !'rii:i?h
! M f - "' li. lllt i' ' ir t il *t : l i i l ;
arlran ta5 e. l-'::'::l ; ; ; : 6i\ 3l. llt lr e ,r*

iui't-!ovel 4air i!1s:n'r-r'tl att ' ri

*qrip,"**, b*'- aits'; high ial''x :
ih€ ben(fils. i.:{;rrq'r:rer, itr'rinlng is rtili ntri' rn itself' a 'jr:-
ir ' ! ih oniv a' n' s r agtr nt e l l i q e n ': c
l?!aiicf o $( 11 1i1 g1"- - * ' or k ' 11f
lhe pb in atxrui r'rf i''l tncnths
ar:d tlilrgc,lce cf.F lr:afir
?rrxJ'::r,lrlt* c or nplc r it l is ais ' r n' r ! an im Fr n s n t \ : 0 1 t
ii vc+ nari't
,.Jrivctsi;'tc *:e lr"iir'if i"r:rt s::ortlr: arlC -sizcs 1-
regi$fl' i.he uqa !r''al loi:g{d ot}i:c nt''1f tllil
,* **'f;Coo',:ilr
the 195*--1'Srnct aii ti:r'l'trd
1s1r1r:,i'thc.tt'ittt!'}' aruj a1:aini;
i-}rt's ict in ii'ie Pas'isr\'{nl1'
hes ali-r::<i;'h':*n !ra-r"'esteilti^r{*
sf t''-'e {oreil ir enhen:c'i.
t!t': vear. ',jtf hillnirpen{!11' jl- ; : bit
,\s sl.ttfrilar iz ed in ?' t * t hr l* : ogi ' ; h t i r 'e i s ; r
r- :ri;rti:i n'-t{.1
d rl\ ' el in t his i' it ulliol' ' lr ' ; f ; t i' 'r L r i \ r l '. : i "
ihii s i: t ' l' l* r r . ' i t : r J'cC i r t r '( r s '
Ote r!ier. in4 iiateS t i"i: : O : ali
lt'ltrii !riF"li'i;lni ie'{'rr' l}'-'
J+rilirol,-gr ch*!cc is ihe sli'g)e
t ''l : ; *c i f
lii:|,t sicf ts it'ctns io] t ' t iiiii * : e' : uii+ nai ' ' jiiv er s
i:

i' np: c t ; t i t ; t t ': h -

t
t $ty cifse t ot rtl ii' ?t r { e ih* it i' J < : t ur : ll i:l

nc1u-8)'tfl* lrii
faclr-:l ltt
i-u.or"rute;i in; pl"'v:iucii':]!:pi-(Kc1{ :5 3 r}{:ulral 't-
the groiiinitf ilf the mi!ls il
this stud;-'it is inlp*rtari l*:''rtt$* ratic i1 !i,uncir:rex ph!i':'l'
;..
\'{riab!e tn iht cttt:ert gei arrd ihf prrl:et''i: n g nr i I i "lt- d ran l
i" *ft* i: ;ritlcal, birt il r'" i:ot a !'-';lgin; iiseif thus r:1i;::iti;ti'
Unles: 1'-C 'lecrdenr"ou:" rht
"*t Sili'tli3il1' pr''lJi";r tctrluitiioir l5 6:!o neuffal'
f,ofltex(. l o g g e l i l s i n d e l e n cl * i tl i 1 '1 ;si -
r'eil seedl i nt' i i arr i ri: iri:rlan t lrig thc nr€d to iieri "rirh
fle"cl opi r,B Senirl :cdi l y i i.llItL:' sl';rring io i:rr'luc': r' ti1:ll1':r: i:rl!"
x't' (iapnriri *esses,-:{-lme t{.}!Tllr:f gei;r
!i ls iiiri, o'*iiui"io'ln ilil cufrciil ci:.!-ttf
issui'. !..,u1 [ " c i i c r c i o p cr 'i '
""r 'i :"
ilc[ a far:ii,;-Sinii ii!r sinali i'cal* oi
ap':rii' *g d l e i o n g r h ': '" . i i u J c h a i i r r t i i : 'l '
uiriizilriqlr,is e!*.,-: h{;re ni:lkt \'-$ r":'t:;
,ln,: ir'-r[]pCr rrl':.?ilS th*] Ari': A'l\\'ai i L]ll]\ ' iliscr-:onc'riitsr.rilgl'1ii'r"!iniclgraliolt
trt:!rS f(1! .:f1.\' rn tl:* iog'gin5r busir-icss ln o:'dcrl+
is n' ;l: :- ir li :r ' l1! ' :ll l\:r lt' iic r f
;i $ l l i ! i!- i:i,.ltiirillo ni1{liiiilirltl
C h r()rl i t *!f'i {t!Jl p :"t ':"tirl'iltivljio int"
papet ;:i;:!:iil|it:' r i \ -{)' n:lltc tii* t*cnnl''lrl:gichln.:lt i11"'';lrtr1l*l.!t
iu rr rh t tl :t
F .'l c'*rtd
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 :
l ';'rtl ' l l :*i i r,e i' !} i!li;1ti,:i.j|' i|' cilniiniit]lti!, iir l pr r :.'''.ti .l ''l ti
3 : l r s , i : r t i t l , , il l , 1 , i 'c s s 0 f
1 " i l r c r t l i l l h l 'l ti 'r n 'l
, ,,{,,,tan } . ir lliJ
' lr ' r t' ii ( ) ltr tir i.' I:endg' l l " i i 'nt l l f'i 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 '"
i :'$ i l r'r!);1 h
:r : iii1 r ' ;' !1ii' ii ltit" ir s
' tit"
Siicl ihc v i l i i n:i j i - h.'h i i l d i hL' l l r:1!t' i
i r,,r*,rrn a ,'l ,*:''f ' sl tl i r-' trl 1l 1 i ' i ri ' n'
llir ::l' ir - J- i' ' r l Lj ir l' :t i:1"' itigv
i' iliilcll 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
fcri e l h r:: i {1 !l fi rillgv
i -l ci .tsi l r !. tl 'i l i l r-l 3ci s ti i :i r ' "i { i l t' R l s r'
x!!'}e i l n l :1 1 (- -ir 1 it } iicii' t' lii;' liii itil- ' i;- ' :*iilllllin- r fn {'" i '!- r l i i al ;i :ti i i :"r'i i l nr
fi l $ r{
l c ,i fr - rtr,l .1 .'1 i tl er'ti A ? l l 3\' I' t"' ,ui ' *
rn a fi S i :r'l i ]e l ' il 11f' :il:i3nl lfr ;"n l! tnl ' r lfili- ( tllli !i i : r\.J!rl i an!t: 1l tl i !r:oe5 ';i ci )i l l trl g
f{i [r:f
i n p urel ' Y fi n:ri ' i '
r:l o i ']g ). l h ::! i iis t| ;l!:11' :!i ' l5lilli1lf ir ' lld ' ![r ili]jnifc
nl ':i ti ;; 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
"df rh* teci "i n'rl otl Y ii i angt rv i th'
A l e {! \,rrri :l a ,i .r
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*
'j ? l i .
l r:,:tt cJ iiltt it- ,kl' 1.:ti 11.5i1' i iii' :it
!\ is + : i:qi :ai t:.i :i :r .r r !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
rl t \.crti Li l l :tC Ope:i :ll c :"c
L 3 ti fi : ti ,) i l l ,'l l ,l i l 'i till.) .9\ ii,' ' i:' l r ir ";if i."it!c:;i llir ' ' r ' tti i 'r r - i :'^S l -,:,retl l l . r1l i t;1i ::l i -'l l l a't-l i :ri cr'nr:'l i 1i '-'l :
Iliitl' : ii": fl '€r l r :i r l S ',.i ,:ni {i l l l l sfi Ji 3l i i l n,.l i ',:tn,e r l h!: l i ''!r'gtl l q i rtis i ni :s s ' i -l f' * '
i rr i n '1 l r;tiJ lr 1 { il ;li1ii ' ' ir r l' iii i
8 :e r ca r r:h:!-i i li 'i' r \' { -"r\ { rj l t!'
r:;i !u J i".' tt: tlr i' iltl!i i*t:l! ! ' l:ii l l g 1) r l i i r ) t1 . rr.rE r;l l i rttui nr:;l i f $hi j -reti l i l r-'ti l :;'.'"'atr-i f
i i i r,:!9 :; i l rg Ltlair r
'; i :vr'r;rl l v ei ue c i tl i trt
the i--r:'ri:ltts hc ll:-r'r;':l{"s
there rs !!trle ii,::r,,;,11':i1fii1"rili';
pi e x i ssr-rt'.H t::s' crtl 'r;l l "rccrnLY l l n l ') the
.n'r';tr:r
lrld bt't*'t"la lir': irl!:'
l)llrvccn the lo*qEr ltild !:'if i:iriil

206
 F y r ; nc p l a y c r rc tL ' ha n e q u rl rb rru ndl r{tnhutt(.}n acrcxsal l hrgh-gradelogs rhar irs expandedsct of sawmillsanrlplv.
rh playersis an equall_r'compler, isrtr. *'<xxCmills r*'ill ;equire"up from thc 6'l pcrccntsupptirv
We wiil tur;r no\\' to i. ccnsrdcr.rtr..n of thc thrrd conl. rnternal l yi n l 9ti 5. bur sri l l w el l bel c*'lot al r cquir cnr c. n
fortrnt from thc SCM frarnerficrrk fr.t technol({1,\'clxtrng- Thc rrmaining ?O;rrcent *'ill havctr: bc rmt by cutsitl* prr-
tJ?,iiletiliTeplsil,oninganal_v\is. Even rf :.r-hn{)krq!chortc chareq.,x-tshor*, rr lrr:rt'
ir.''l im;xxtror rc.5{Jriver fr.:,r }qgrne arxJir)eqint ir poten-
rrtui)'snimFlnart stt.pln thf,r'aluechatn.a sul{h.lcntlestfor Lstimated\\ ood Suppl-vand Derrr.ind
t nv c s t i n gi n th e n e s , l o g g rn grc { h n o l ogyrequtrcsthat rhc
Year Pulp Mills Sawmills/
trrleira af,rievablerf,ecor,sistentwith the comperl'ivcFlsi-
Pll-rr.nd l\lills
trfilrnp stratcg)'adoptedbv thc firm Thar rs. in more gen. r985
trrl iogical terms,cach of thc threecomponrnrsls neces- Demrnd l*(OO.0O)uniLs 300,ffi0 units
ti.rv in the anal\.sis,but all threc are rcquircd ft.r suffrienct. Supplyfrom 6m.000(4o*) ?00,m0 (6?q)
Competitive Advantage Anal;-sis. In thc SCM Y.Otimberlands
pcfsp{clire, rrndentardingthe implicario,rrs of ho\r' the ftrm :CDO
$11rr'tgrr to comp4teis fully as imgnnanrfcn cost analvsisas Demand |,50O.O00units 50O,000units
eq( , ; r sta n d i n thg e v a l rrcc h a i n a n d u n d ersl andrng Suppll fronr \'-t) timLr.rlrnds:
the ke)
r r r at r gi cc o s td ri v c r$a t c ri ti c a l s re p si n rhe chai n.A s di s- Using 50o.0o0(33*) 4.tO.000t8$.6!
convcntronal
russcd b-vPofle;. the basic choice on ho\.\'t<tt-ornpetcis
|7 tcchnologr
ktuct*n cftil le:ldcnhrpand Ciffcrentiation.
Using HrF 500,m0 (13%) 4-50,rs0(9oq.t
lechnoltx'
l" i-os Cost. l'ne primary fcx'usof rhrssrrarcgvrs ro
achicvclon cost relativero ccmpetitorr.Cost leader- If the H/F ic.:hnologywcre ro be uscd.the nct suppll
ship can bc achrc'cd rhrtxgh appr"orchcs sirchas of high-gradelogs irom thc samea( re6gelvould incr*ase
itc{rinomics oi scalein prduction, learn;ngcune b1 -i0.000unit-su'ach1'car.This rvoultlsavethe sas'nrillsan'.
tffects,tight coetcontrol,andcost nrinrmiraiionin plv*r,rrd nrills r.-rorcthan $5 rnillion eachyear in purchasc,
rreassuchas R&D. scrvice.salesfon-e.or adverrising. l ogs.' fhus, atl opti ngthe new l oggi rrgt echnologynlovcs
!:-xarnpi;s <-.ffirylrst-cllor";sgthrssrrategvir'clude: )'-(J suhstantiallv closerto self-sufllcrencl, in supplyingth,c
TexasIirstrurnent;in consumarelectmnics,Enrcrs,.rn hi gh-gradel og needsof thc cxpandc dset of sawnr illsanr i
5ler":tricin elcctriciltolors.Hl undarin aurllmobiles, pl 1u,txN mi l l l s rt hasbui l t as part of i t s high- valuecxt r ac-
Briggs& Stratronin gasolinccnsincs.Illack & Dccker tronstrategv. Thesesavingsarein addrtionto tlrequalityru -
in nrachinctrnls. ard Conrnrodore rn br:skrr-ss ingsshorvnin Tablc? l'ronrstcmdamage,sortinglosscs,l:iln
machlnes. dn'ing losse.s. anddouLrlehandling.
2. Differentiation.'Ihe primar.vfocus of this srrateg;is The situation for one of Y-O's nrajor conipctitorr.
:o differentiate*re producroffering of the busrness \larathon PapcrConrpany{disguised"r. which alsoorvnssul'
piar{o<L 'rntLcreatingio,nethingthtt is perceivedb-vcuslonrers stanti alti nbcrl antl si n thc coastalS ou t hcastlt,ighlight st hr
rs being uniquc.Approacks to prxiuct diflcrcnriarion rele','ance of thl''c()nrpetitive gtsitionrngchoirc to tlle tr:clt
icnisrr-
rnclude:branCloyaliy (Cu:a-Colain sofrdrintsi. supe- nologl'choice.W liereasY-O's sirateeyenlphnsi z.cs"gradr
it busi-
rior cusiomerservice(tr8h.1 in computers), rlea,ler
net- ertraction"(iog.ifor sa*,nrilisand plyu'<mtir"nills)and di:r-
er linl-
x'ork (Caterpillarin construcrion equlpmeni),Frduci tribution in globel nrarkets,Mi:rathon'r strategycntpirasize
d" Tbe (Hervlett"Packardin elcc-
dcsignand pro.luq,t feature". "fiber ertraction" (pulp mill logs)and eon(:e ntriltcspiiillil'il.l:
'O very
tronicu).and pfodurt technoloel(Colernanin lamoing on domcsticmarket-s. BecauseMarathonseesits tirntrcriand
rrd€r to
c qu i p me n t), pri mari l vas a s()urccof l orv-val uepulp logs t o supply,it : ;
ro log-
ing t}r pul p nri l l s.i t hasa nruchsnral l erconrm it m cntin sur vr r r il
f'low this ehoiccaffectsi.)sr management for a finn is and plyrvoodnrills and is not nearly as concernccl:rtrotrttlrr.
of s$d
drx:u,*rcd by Shnnk.rilItc relcvancr:lbr tcchnoloFtc!)sring problenls6f <:rrrr',r'r.tinnnl loFSing.il,tuathonLrscsil rrruci
is illu; : ra l c db \ th e l rr!g l n f i n tl rrs rntl e l J snrth
f ptxmr sh,.rner rruwing c1,cle(trvent3-lwoyei.i's)anddoesfl{i -sp:r1
\ ' - O h a sc n tb i rr[' e d o n a d i l i e rc n tiai l onsrratcgvrn rrs nlone) eachvea' in its forests(lertiliring.bumirig"prrrnitt;
:h"Rish qrird rr'"xrd()frc!'.rtr!)ns ior milrr th.rntrvfntt rran. It,sstn t" lurrJthinning)tr:riicl.iereri high-raluervoodnrir.
requlft
egt ' r ' t r u i i t a ri ,ru n dp l a n tl ti o r:t{ rre :rt- \rc.pl ;rnrand !ro\\ It is not necessa|ilv i-rbvi,;us, but grorvingbcttcrtrcesr,i
ly finm-
get lCijC i rli irn y p ro tg .ll rti :i th a tw rl l ;' re i d:r* .6xnlmrx * ' i th a onir'.]ustif rableif th::rcis a strategytbr"subseque ntly nxtraci
gewilb
rrtur-lt highcriNrAn aYera!r: v:rlucrrrr:r:tUrirr With an errpro\- ing thetexlravalLrein end-prcxluc{ rnn"l.ets"
re of the
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 - Funhcrnrorc,rvhether a high-virluctimbcr str'&tegy iit
€ as !€s$
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 supcriorto a lorv-r.rluestrategydepc,nds
ss. Hofr on n conrplcxscr
bclbrc rt can be fully intplrnrcnttrJ" of as-sumptions that play out over a twenty-fivc- t$ thirtli
ryaorl}.
By the year 2000. if conr cntional ioggin-e is u.sed,e ach live-year growth cyqle. Various forest products finrrs havt:
) crea&d
\'-O ti;nbcrlandsr',ili Le I'iclciing ahnui Ii{")per:ent of thc nradediffercnt choiceson this issue.
-rca:

207
p

f
(,'onventional loggrngtc''hnok)F)rr rth rt-rurrrph;lsn trn P :IIl l re l ,\tl l ()r| { t!l p.r\[..!tt\c l crcl l -sth.tt,l rrth O ugh t hr S
.i.
h i gh r olunx ilr r r llo rrtr-r' a l " reth) rrx rh p u trs tl l l l \.i onstsrcnl tcchnok;g"ch.utr' tSi ttrti Jl rrpl l rn! unrj er al l i on CCivable
!..

:1;
w i tir lJ ar at h' , r i' ss tri tt€ g yo f l c ' .* .cvr a l u e ri o uc o s t.r\t thc strategi cposl .ures, ri rs c' rnrrrl l i ng undcr the posit ioning lt
sarnetirne,1'-C is m$','ingahcadagq{rrssnclrto firxj garn- stratcgyto rchrch\:U hl. i()llillt!fied.virtuall,vrrrevtx.ably. $
sh ar ir r gm c c hr n: s n rsIo i n d rrc ci l -sl o -s g rn tc o n tr actor5t(r o\er thr ne\t ten lo hiteen rears"[--ach trf thcsethrcecom- lii
i,.:
s\A . t ( ct h
o t he ll; F r c c h n o l ti g lv,.,h i c hrc p rc s e n rs a n ruchL* ..r- f\rnentst f-thc S C !rtanai rsi sl s ncccss.l rv to tst.r blisht hc
te r lit u' it h ils s ( late g yo f a l o rg e rg rr,\\rh c 1 -c l e* .r thhrgrtr ratronahtilr th(.nc\| rnvt'stntcnt.
c56t.br/t lrighei valuc" Wlpthcr Y-O can ef[ecr a voluntary changeoverto ll,.'1.
To sumnrarize,Yakima-Olympiafaceda significant logging among its contraciorsis srill not clear. It will cer-
problemin rhe logging oprrationstagcof tbe valuc chain. tainly be neccssar)'ro explicirty consiJer gain-shuing mech-
The prevailinf rechtlologyfor log3ing \ras cocl effectivefor anismsacrcxstlre supplier-custorner linkagesto encouragc
firms pursui rrl' a suarety o f h i g h-r.olu rne/low- valx-added a changein &e bgging sysierpY-O bclievesto be oprirnal.lf
wocr.lpnrduct:,.But it was nor cosreftt;tive fw firms pur- tte loggersdecide thar Y-O's irrcentivesare still inadequate.
suing a srareg)'ot dilferenria:ion.trigh-r alue-addedwoc,l Y-O may be forcedro reconsiderits decisionto exciudethe
products.But..srrrceirvJepenoe nt contmctorsdid fte logging. logging step from irs verrical integrationchain. In SClt
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;' terms,Y-O ntght realizethat,given irs strategicpcsition.tir
clroiceof technoloty. potenti aleconomi esfrom tcchnol ogi calchange? r c lar gc
Conveniional grrolr r-|er.ei fi nen: ral a.raI1si s dr^-s nrrt enoughto effsetrhcdisccrxxrnries fronr vcrtically irtcgrating
suggestro rhe ioggcr thara chalrgcof rcchnolog,r. is a gixxl at lhrsvaluechainstepif gain-sharing inducenrcn:s for more
b u sir les tslec js r onA. n e x p a n rl e dfi n a n c i a la n a l y s i sfrai ne- expl i ci teusromcr-suppl li ier nl .i gcsarc not successi'ul.
wcrk, as reconr.mendeC by Kapiart,alsrtdoesnor catch the
significancecl the change.Even fronr thc expanrJed I ie* -
Foint *F bcnet rs from the ne$' re{hnology.fall a}readof anJ CONCLUSION
b e hindt he loglr eri n th e v a l u ec h a i n .b u r rh e i o g germusr Thc Y-O srudyrepresenrs rhelrnritationsof all four of th,earr.
incur tlrc cosrand assume:hc risks.A competirivestrareg,, rent approaches tbr evaluaringtt'chnologyinvesmrentoppw,
persf}fct!veis rrquired,but the conceptualframe*ork pro- run i t ies--<on'enticrnalfi nancial anaiysis,expandedfi nan.
posedby Ponerlrot erplicit en()ughon financialanai_\.sis t() ci ai anal ysi s,l ecompcti ti re advantagcanal ys is, s anJ
be ver-rhelpful.An a:j:.imented LosraJ13l_\.sis frameu,ork,a; strategically augnlented financialanalysis.:lThe st.ulyisalsrr
recommeMedby B;onr*'ichand thinrani,alsodoesnotcap- an excellente;ranrple of hou the StratcgicC'ostManagernent
tu re t he s ignif ic an c cc i th e c h a l g e b !.c a u s e rh e 1h. aV eno: iranre*'orkpror'idesa morc usctulway to apply rhepo*.rt
p u s heos t r at c t ) an d fi rra n c i a a l n a l rs r: i d c a sf!r e nough of costanall,sis con!'cptst0 tcchnologyinvestnrent opportu"
E.rplic it l. c' ons ide ri n g$ c s tl a re g i ci s s u e si n y o l y edi n rhe nrtresr','ithin a tully aniculated anallsiscuntcxt.
-\d-.rtegic
technolag-v clrangefrorn tlrc loggen'peispectivedoesenrich Cle-arly,
on€essentialstepin theeffectivemlnagenlc$l
thedecisionrnerric.But again,one rvill n€verseethepo*,er of technologychangeis efl-ecti'.'e analysisoi lhe investrnm:
of the changeb; fccusingsoiell on the logger.even when opponunitics.We believerhatSrrategicCost Manegenrem
using an expand::dard augnicntcdc,xr analy.sisframe*,ork. is a usefulwa) to structure tlreanalysisof suchopporlunii"di
Y-O ried to conviitcerheccnrracrloggersit hireclro and thusrepresents an imoonarrtconlponcntof techn{ilir,itl,
rnove frorn feI Ier'-buneher te{ hnoic trt harryester,'fonv arder management.
technrliog./ -g}'
usingconl,entional projcct-level finaneral anall-
sis.ILseffrns faileJ tr:penulrcle 4ny loggersto changc.Evcn -l ohn K . S hank and \i i j ,t1,Got,i ;ti araj nn Ll re l tr(),,;,rr.{ dr"r di
carefulattentionto intangiblefactcrrs. c,:rupied \r'tthhuidle t h e A m o s Tu t: k S c h rt o I o.l' I rr-cin ess A d n i n i r r u r iir r!, .{-}i;?.i.
-s
raiesubsidres (ln\,estmcnt gutuantef s) anriappeaito lone-nin nt<tui h C rt!i e?e.
der:iinerL'ndercutrrr!t loggingmeiit(xlsditl nilt tn{iucecon,
ractorsto su'it.h.Subsequent atiernplsto coucht}e decisron R eferrnces
i n st r at egict er m s ,f o r th e l o g g e rs .e ri n e ,jS o m e r,, .i i1-y16sc 61 A nt*lrlitd ttrriurt r-t_!
th's ortrr-!t *tl.'appear in th<,dtlthori. l<titn(ail.lr4
rccepr iv it tl r ,c hangcb, u t s ti l l n o rrh c rc.1 .,1tlr.!r. .Er()un(l \$L.l ' 4r..,,4. Str.\tcEi! ( r)5t \l.ril.rtcnt.nl
1,\'cr. )i:rl: Irrc I'rcjsj.
Y O fclr ir neetled. l. R. .latkrrrnar."Posritrdus(nal Nlanu,acrunng,"llat:.ord Busiri,sspa.at.
No realprogressr!,ir\ffri}d{yp11l\'-{-)atloprer! an .gf'}1 l 'i ol enrfxr*I)t'r.rnrhrri 9fi (r,pp.6i - i 9.
fi "a nr c r + c rIk:.r r gr .r ' rer,,i n t th c P rrrb l u trrl ru rn a r a l u cal rrrn ' R f l arts md \\ r\btrnathy,'LIanagi ,rg Our \\'a1 l o E contnr,.
p e rsp( . t i" . ,celc ar ll.re r? a l sth e p s ri rd rr:. th a t.a l th l u gh thc. D ecl rrte,ttcr;ard B usi ncss Jul y,.r\ugi i stl l l st),pp.6r. a;.
R rr.j er...
ch a n gf lnv , . ) lv r snr a j o rfi n i rrc ta ll rri ,..fri ,,, (h c !trF e tn th(, .t, R . K i f,i :{h "l rtr,q C l },1t}c Ju^:ri fi .,-l
ori i :;rrrh.{i rrtr:'1"
i j ;:rrtrrdfl * ;w g-l
Ch:,tt wh.:rc llrr: ttr.esttrll:fitfrtuti t,r t"Tl.:it(.._.arn\ n,.rni:,ri(ni, li. * i r . l .i ar r h .',pnl i .,:i i .. p[r . q- i . r 5.
'
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,ri,tj. '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
the .,ost 11:-iver r r r l .j J r c ,c r r \\tnl tr l c t< pp tl ]- - i l i
nelspectrve Jhnrrs tjtlt r.-ihnoiog\ chrlle!- tn
{his situatiou rs indecd a key strucrur:rlct-rstiactor that rs fur, 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
Appr ar s a i , , . l l o r
'fhird. the com. aec w nt,\c c ounr .r 3. fr l ar c h 1991. np. 4i _- l g.
ther rcinforccd bt' c.xccutioilalcost t.e--rors.

208

t
 6 l r i . \ \ o c r J \ t t ,o lfir . I' L r n r r r . r q d !{ fjlr r t, , r:. l:1aa:rrnr : : J \ Shtr:l anJ \'. Cor rndlrpn. ..stretcgr
A'yrrrrtl rn rlr hl-$!trfel &,gire,rng lrrJ$grr. Cosr Nhn:.grrrrnt: Thc
ll..:n-., t t Y r. I, t,'. t' \:lr ( hrrn (-(r-{fn{." rn //ordftrrt t{Ccnt
r.:r (l 'K l. (itr.l rr l9$.t. Jp -V>.3i Hat117p;lat1. crj. Ba16.J.
H r' rl cr , \c* \txl \\ys. {}n166 {i t Lern*i l . l 99t),c}ugc r
2.
? ,\qtrn ( lgv r lr t) R,k\ "{'.mt{rr:r\c Cr:st g,:srd In*sirEnt
St.lc-i.. for lrxlustriei
r P X r r ' r r n - - ! \ r lr n i,r t!.,n T r fr n jl\"- q ( ,rr;.:^rcr. t/.;rrr.;,l r.-rrf l r;rc. (N ru
lc< | ll - l l r ^,:.r l Y rrl . B <ro-.A i l .n & H anti l ton.
8 u : r r 1 r 5 < l . r - i . I tr t;)
o &t.1€ I 'Ql q l ^ tt.J
ro tbd. l;- l'sncr r l9$tl).
;l Irorri:b rrd Bh;r'Lmi( t99; !. lE. Shs\ ( 191i9).
l1. r- X Sha*, "Srntgic Co-r Flgurettltr- !f,{ \A'ir$ tr Jurr N..r 19 Krtb.l 11986)
Bt*lk:".-,/ur.<:l o,r lll;tspafirlrt A<cxntinSs Rtstar, h Fr| 1r,g9.rf, 2r.)Pmcr i !!}35)
iti-65
?l E rtmrrh rrrl thrmrnr(19{l l l
13. If . Foncr, Cca{r.tirift Srrrz-,;r (}icr Yak- Frre hrss r lgSrl

A SMATEGIC
COSTft{AMGEMENTAPPROACH
TOTECI.TNOLOGICAI.
I}.TVESTMTNT
Blendingthcsethrecthenrcsrcprcscnt-s c ( ) n l r . i . {: d $ t t h " \ a l u c , . r J . i r . r l " r.r.\
s!ilc. prt>duct linc (onlplerit),.
thc most po\ier{ul *ay to fr_x.us cost anal)\ri. u.hich is t\ lic:lll\ u\\l strrJr-rrf opcralions. cx;rr iencc
ax dly s is f or tc e h n o i o ttc a l c h a n g c - i n C 0 n v c n t r o n a i . , \ P \ , f r a t r *. . , and tcchnologl')and*crccu-
StratcEicCost h{anagemenr * orl. \,iluc-;tJJcd aralr,is :tart: tronal' drrvers(suchas'lot al
* 'i t h p a i n t c r , t st ! ) t u p p l l er t t p u r -
Q' r.rlit)' lilanagenrcnt,,:.tpacity
l. Vslue Chain Anell'sls.ltrc ;aluc chax*s) anil slops $ tth chrrlcs t(! uti li tatron,and* o* ftrr.: cpar licl-
ch;rrniri any business ls tilc CUStr)rlicn 1 s : 1 , -)'su h l l r . t t x u r r n g pati tn). l n shrrrt.thcrcrre nr ult i-
lr nk c t r c l o f v a l u c + re a ttriagLtr. . on nta.\|!rr'Zir]S thc JllTr-rcrtcl], ti;c plc tiiivcn of cr.rst. Technok:rg"v
rli3.ia;i thc $'a_r, koln l-rasicrarv ! a l u e ; . i " J c . J{r i l c \ n t r n u sp l t r , nrusrlE an inlp{rrurntdri ,.eretf
mdtcritlsti,rcughio corni{rncnt .had--i)irrr r.htfinll. \aluc.lJJcd c(rslel criticaistcpsin rhcch;rin-
srpplicri. to tireultirnatef rtJ,u.x- anallsis is far ',,t s'1al1pr,, ii \ lL.\r L-'ompeiitiveAdvarrtagc.Lnal;'si.s-
prodilctdeilvcredInt{}tl.}rllna; becausctt misscs the ;ntpcr-lancc Technologicalchoiccscannotbc
ao|rslimcrs. hands.Eren thOuglra oi linka:cs ur.)-slrL.ant 1n{ l1-rrrfl- Justi fi cdby 1u.tundcrs t ant r inS
firnr ma;' pariicipaicin only,a Slrctm rn thr' r aluc ch:ri:r. thc valuechainand untlcmtiind-
part 3f rhc value chain.uie firnr Cost Driver Anallsis- \alur. ing tire key cosrrlrivcrs.A final
shoulda.nsl-vza its rechnological c h a i n a n a l _srl Sd l o D c i s n o t a s u l U - cunlpJnentin the analysis
tnvcstrnentsfrum rhe s(andpoint cient tesr of rhe desirabilirl of involvcsanalyzingwhe:hcrtcch-
of ilrcir impact througfntrt rhe changing tcchnolo-s),. A second noiogica!changeennanccsthe
chairL--rneimpacton ir suppli- neces,sarycf)mponent is that teth- way tlre t-rrrnhaschosellto L-orlt-
crs, thc impacton the finli ltJ€lt, nolog! choice ntust be an irripor- pete-rither on the ba\i.i ul-c.Ost
and thc impacton ii-(customers. tant cost ,JriVe'r. Cost-sare a lUnC- or o;. thc hasi sof di ffcrcnt i: r t ir , n.
" ' t h l ' " r c f h l ln ' ' 3 .Jla l) .sisca n L te
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

flcBrintcdfrorn ' StrategicCost Anal; sis of Technrrlogrt al

lnvtslrnents' br J.K. Shank and V. (ior,inrjar.r-tan. ._\.,,,rn
Question
tlttrugementRevicn* (Fall 1992),pp. .]9*.5l, br pemlssr,rn l O I W hct ore the four oporcochesl o evol ucr ir gt echno
d pjhlisher. iiopl rrghr dl99? | l.)yrhc Slo;rn\l :tn:rer,nrcr:r l ogi coli nvesl 6sny,
rl rotS honkond Govi ndor olein
R r v k * A s lr r r at ro nA
. l l n g h tsrL -s c cnC . cri ti que?W hor ore the probl emsw i th eoch
o porooch?

209