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'It* rjct'iu.;r'r {i't in\f;(t itr nens" tl;urr,rlxtrrdtrg 1,-'{:lii})}i}r:iil$ i.i

tSttn h.a.rrip.*:eel b,v using cort!{:nlfili:itl l:t'itr:.i.r r i *a{'illl$rrtstnter,t analysis. The autht,,r.'; tl*rtss rl* lirtintio;r.. t.rf li,irr'{tgrr:nl ap1rlw;hes urd sitotr l1rxv t}xir ut"t,'n fitflre"r'trk---'$mtryrc Cc.tt l.'lanagw:rent*tppli*s to a lupe frxest prtxlu;tr

{ftr{e-ly thr: is rnalling a detisirN c'n a nrajrr technr-rlttgii:aii"r*qrt*tion.

/r fre.1u+nt elrari;e irr rcccnt yearr har L::;ri thst r:iarl''firnis lhil behinj in gld''al nlerkels l-ecausc the)' ajt t'xi sliirvin implenienline tl-c hcrv ms$ufmluriilg teehiii)logie s*CI\1

{Cornlxlttr intdFra{cd Marrui*.:turin$). Fil{S t filcrihle }{anr.r-{aeftrfirtg S1'stcn:s), AJ!{'i i Adlarrrd h{:rn u 1 a;i !u n Rg'1 c,.- h n :rl -cgl'), (1r lhe rpcrtr fsdilirr CAI). C.\ti, ;rn,:l C Al.1.i .'\ 1'.4uluRr*.rln'rf rlt i: f hat ,t..:n{.fentittfrrl rnCt}.;r:,,jS Crf c:rlitai j;ti csrnr:riixu:f isi* rjlr nr{ (itl!;;tt r.i-l:: frrtl iirlr'r:'f li tlr: lr-,'lii1'.1!r;ri;1 l}rang*l:!*,iir:Oi'1. Airr':rier:t'l*rei n'lt |;,:it:r,l -.rirrr ir''i:'\l fmln":iqriil.

il ir argtterl, pitrcs s+cii il p'e :;tilltri (.,i-l .iililil"iijfrlr f rr:at:iiei

re.slrlii:,.4.*rl +o littir eriti:h.tsi:i l-:n dii'iictrit-t,;t'ii;.:elltii'r' rs'ru:r,gth:tt a: qualiry enhiirY;exisilr Oi ftiarilifi{.tl{u.in;: iir:.r.:biiil;*, tliri

rnnj:rr*iarulr:uricg ilni*Jrthrf'*$hs t!: lhit pi:!:.s th,: ij!)\- test.:

Cune'ri I ltr: r;rliue Ilt$g{r-'ls frxitr R{:pr'::;r.:i*l ii: e i :ri u li i-

ing investmenls ir lr technolaq,icai chi ' :nqrt. e. ich erf t f :r"-sc

appmarhes h a; s i gr;i ti c an t ('leilr L'tfi 1 ili 3s " rJ re .tpi:;r' a c h s'-' g -

$e.ii that rvc dis.citrri all lii,'ntal firre"ncial xl;1!1'5i.r {st;ch a'

lr lP\ i a*elyris) *n,J rr iurply "tNt" On nrrr. tr . ; Irr$logies. \ ,r ,e

lxlicve iitirl live crrt ;io fdtl(f than liris. A -t11'r-inii anrrrnacit.

prrrgrserl try K;rpt*n",:alls itrr a refined h?'1'trcxiei:i a llraior

rhortcomitg r.if this frnrntw*::k is lhat i! di.1t5 rjr,,rl give crplicit

altcntiiln tr) ltl:rlcgic isstte* :lnil cDfl(lr'nis. Iri.rl-rtr'1 ilppr{)i'tih

l inks technclogy Cecisions to suateg,ic arJl ' , ' { is:4 ho"vever,

Portgr'* lranrework do."-.s r.u give cxplrot 3t(criii{)n ttr fintn-

cial arral;-sis. Tirc. fourth firethr:d. suggcslcd i:v Brornu'ith and

Bh inrani, ar Fir*:: l'cr fl$ i n teg:'rjt.d "s t'ati' S i c - f in :t nc ial " anall -

sis fua;nervork:s hrJr"';,'lt'"t, lhc.se aui]iors hn'' e not pnshtil thcir

ir jeas far er)ot igh to ir ivc rr leS.ninqfi t l r 'ui , ianL': i ( ' ) InanigcIs

in evaluat: ing lce [rn.: lr .rg1 chaogc i i lvrst ln0nis' .

^4f ler suntr larir ing thcs,: f , l rr apl i-or,:hcr ' antl int l i t ; ' t i -

ing their sre n[tJr5 irnd Iirrlit:tri+ns. r\'t: tb(-n of'fcr an lri:prrnr*::h---

Srategic Cost l'lanrgernent {SClvl}--$at a(i{ire:ws. $rosc iirn-

i tat inns (sce the sidetrar f i i r a hricl tksrr ipt irrn r: f the SCM

rnclhlr.iniop:y'). 1{i: illustratc tiie ltrnh:!ic po e":i ,tf rit:r lilrnie-

rrr"r{t .!.r:ij Lr:-': iiirt',,ti:t:i,:kl ntt the lrtl,iult:t ;r.}iFi:;}i'[t:lte:\ lt." !xt-

s*ntii:i: et cr.'lrririr r:ri li i.ir.y,t fi:itst pt-,x1ltc1t f,0ii]i ' i3;"i" ti ' l i]i

rntitl tn-r-kt i: dn:.:i..1-,ii rtfl * tt;aior t{:i:hfiolrlt:Hlill iltnr:r':rlii t.

i . II[,]tIN I [rA LISl' Rfl i l ' f t NSI]S'rn1c ir:iilue tiifll $',,' siroultl eiw-';fipltir-rite. i)r evcll e linriii"rtc,i i .rrn : I r n ve 5inrc r i t a rr r l l s is tt lch nlqr"res tn'hgt' l g$nsir.l*ring

rna-i'.r; nilrnufacmring tcchnc!ogy irsuc-s. Stut!ic-$ have rhownrhat ar i l lanl' a! 4t) p.rrteni {:f f i i*tts used n* fnrmal cv*iua-l l { i t ' i i1t . l l f r : r Ah{ I ' proj i :cts.6 ' i 'h iq ai :prr :acir . hotrcrcr isri:*ceptu:rl iv t.ror"rbirng incnust it rcduces sont* t-.f t l tt tnostrinp$r1"ini cloir:t 's I frr ':n fa*cs tu "telhnOi$gy r{:)l l l t: l te"-*-tla;* ',"r,ri Llrt. "\p

jr i lr. ir; xirc.*1. atid h*p:i i i t is pioc*s: i.r rot$'i:h'-:ul its ,"irvn :i l !.s. ' l hert it i tve l;t*n l l iSny ',1:tl l-}.^rir. lwnf;ri iur*:: i in icirerj i )(: i!r i f i i i f i l ; :!rrxl-\ 'd*tr*i: i i 'eEi t*i:h{:i{ j1ctg}'crptrin it!'ri:;:

. {-i*ntti h:!*t*rr ;:ustled &e t'..,nci:.pl +i'ri:i.r,;,tics in it.r fac"to{ie$ rcra,j liard in thr earlf i:1${i.r, and \!*rtillgh*usr;rlliri:le rir invcstnient in cx,:e,t;** at $l biiiie;n lrt l't{r+ticsr;l:riui"rcturii:g i:i i:;.13- Y-.:l thi: plo.ie,,rtc{: ilnpr{rvelrlrllli

f-.f{.}v{:d iJif licr:l; !J i}r'hi*!ii. lvlan; cl't}r* roblLtr; i:tur-chased ','rerc rlcvqf used. end \Yestinghcus* clnsed tllrvnils rr. 'hotrcs subsidii iry in I989.

" Grncral Electric's ipcctitcularly abonive venttlre itt newcondenser {echni}k}8}' fr:r refriSerat$m cort the firnt hun"

circdr; ol ' ;nil l irrns of dollars and irrtplaccahic rnomrntumin nrrqluct l , 'a, lenl t ip

. Sky Channcl. &e r"1dg1y heraidecl .12 tri l l inn expcnnrentin viell i te <lriu-ihutic;t of TV signals ("rvirelcss cahle")by ltCA, Nc''i.s Corp., rrnd CalrleVisisll. rva-s qrrietly dir:-

banr-jed in the iatc i980s in the fa,'c of mr:runting costsrn.3 inplcnrentot ir):r problems.

'l'he grint cf thcse exantpler is ceriainl.v nilt thnt l{:ch-n*l,.r11ical exgretintenli it ion is alway-t a mistali*, ncrr tha: coir-vt ' r r i ional NP\ 'aaai ls is techniques must be rrsed despi tetheir Irrl i tatiors. \\ 'e alst'r elr: Rol nl ')an trr iniply that ths$e

firrris rnadc sr;nrr: sinrp!istic mistakt lhal t i ie] ' could havereacli l,t tr ir ir lcd. i)ucrrl ing rvhen atrr-l hnrv icr irttplrment

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change in prducl or process tcchnolcgies rs a rer l 'o i f f i -

culr and. at the same t ime, cr l t i r :a l ly im;x:runt task that

demanls thc L'c.t thinking scnior nlanaeers can muster. But

to argue that i lo fortrral analysis is a ptausiblc altcrnative to

ovcr ly restr ict i te i lnanci ; i l anal l 's is sccms to us to be just

as misguided. ' fh; idea is to f in i j an opprr :pr iatc al la l ) ' t ic

frarncu'ork.

ENANDED FIN fu\ CI AL AN ALYSISFRAMEWORKKaplan's attenrpt at arl apprgpriate frame*'ork has been

widely hai led for i ts insigh: in Scuing trr t rnd thc nl f iorr

perspect i le of lcn t t t t [xtsed rn N[) \ 'anei ls is. ' In su; t t t l t l r l ,

Kaplan l rguc: . tha con\ c l t t t r )n. l : l in; : r . : t l l i :n l i - \ sr5 hi l ( f ( rxr

maior rveaknes:.er. u 'hcn appl red to nla;or invcstmcnls In

t, ' {hnolcf ical changc ' lhe f i :st i . i nt isas-sessment ' f , f the

appropna(e disfrunl tat3. l t has t^hcn tair l l ' comnlon to sL't-

cornparr ics uic radl hurdtc rates in thc r tngc of l -5 I&*rccnt

t i} 2(l J*:t i 'e nt. Kl1: i ; ;n pres4;l l - \ pLfstr lr l \ c arqutr lcnt ' barc' l

. - rn the $ l rshtcJ avcragc c(.) i l { . ' f caprtal r ( )occpl . i ic t t r . t i

rel 'Jrns o".t l i thc patt 5l): t \ ' .vcrn' ancl r()nlFrlrr i l t l " ' 1q\ 3ir1-sr '

ments t ( \ ;hor^ ' {hr . : re ' , / hur i l le rarc 's c l ( )sf r to E per. :cnt t t l

!c percent are nt ' f 'e app'ropr i r te ' Usirrg ! igni f iJant l \ l i l$ ' ct

hurdle rates can dr:rr ,at ical l ' . int ; : r rovc the al t ract l rcn( 'ss (r '

new inves'ments.A second majcr factor l te c! les is unt. iue opt in l rsnr in

project i r :3 cont inuing stsble returni under t i re - ' r ro Invest-

rn€nl" a l ternat i le. I f one re cognizts th i i t :a i iure to adopt

technological advances carr of ten le ad to rapid deter ior ; -

t !cn cr f thc "base case. ' - ihen rhe:t t ract t , 'ene\s ot pr ' r

- iected modest l r r l rvth or cYen stable prof i ts f rom neu

investments is ca"t in a much di f fcrent l ight" Combinin5:

these f i rst nvo pl ints ! 'nal suggest that re ject tn l nert ,

technaiogical : i l " an: :es ; r of ien rnore r iskl than at lopt-

ing t l ,eni ,

A t l i i r j atcir i" ;rplan highl ights i : icnccrn aLr-- ' t- i i ' i r : ian-

gi t r lc" r r lsus * tangible 'benel l t .c. I^ lc chal l*nges the be ! i t ' i

th: t i t i r t ro i pract ;cal { ( } quanl ! l ' . t thr bet tcf l ts f r ( r r ' ! l hr l l t r r

prr idr)ct qualr t r ' . cnhanced ntantt faeiur ing f ler i ' r i l i t r . t r r

lhor{er factcry cYcle t i ! r les. Quant i f l ing such bt i ref i ts rs

oficn porsible. hr: argues. "[ t t is can r lranratic:r l l f intprt, ' r c p11'-

jecte<l ieturns f ! - . rn l so-cal led "rrr i t br : ,nci t t " invcstntcni . i .

Reduct ions in l iork- tn J l r tu-e\ i invcnlorr i ront F\ iS t 'or i -

versions. for cra:r tp lc. cat t <t f l t 'n r" isct t l tc c( lsI t r l t t 'ue i t " t -the equiprnen! rc. . l t ' r red b} ' the nt \ t ' s \s lc ' t l i . l r inal l l . hc l l r ' tc \

the in ipor iance oi :d i \ ing erpl ic i t a i tent iLrn to ' r i ten "r ' t r -

lcxrked spin-of f bcrref i ts oi technol i 'g l investmtnls. Ear l r

rnvest!ncnt. ior r : ranrpie. in eoniputer ' a i iJed lnr inu fa. tur l I i$

in nne area of a factor-Y crn f ie id dratnat i i i r l tcr , r r r l t l lcnlr

laler N'hen lhc ncr ' . ' te chnalc,: t l" is crLendcd r i .r (r lhcr 311'35 ot

i tec feuir,r: ' .

Kaplan : l lustrales his thesis Ierv ei iectr ' ,c l1 rn his

study of a lap and die rnanrr facturrng subsidiar l ot ' tR\ \ ' . !

The cclnpanl ' had an excel lcnl histr 'n' t . ' f ;narket lcat lcrshiEr

arxi strcq hnar,ciai rL-turn-s th1('u'1l'out th{: laSfti. 196ft.r{

ea;ly l97tls. lJ1 the latc l9'?t)r, nuln':r ical lv conirol leC tar:h'

nologt ' wa-s t 'ceinninq to alt t- t .() i I lp( ' I i t ivc rclat ir l rrrhrps i*

thc inrlustry. Thc subsidiar\ 's nlanel i l t l i* f t1 \ \ 'as erpioring

op{ions So frrn\ di1 signrtlcant nlanuiat ittnng L)FXIrations fnxrl

el€c,r. :r lxrh 1n i ta i to c l tL t f r :r ' l I i lc l h no log ic '1. ' i ince corlxl

tate nl3naqcnt*nt ctnpltiisircJ l rn;iilciII ctrntrr.rI $ystctlls vtt]

hear'r ly. thc subsidr.rr l subnrit t t :d : i cQnvrrnt ional capitr l

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.

From a c( 'nvent ionl l f inan. r l l p{rspeut ive, the Fr$-

Frsal ' .nas n;;rrgir l l l l : t t r*ust. H()\\ t 'vcr" hcc;lusc tt l l in{: nrs'n'

rtcmcn!'s str( ing ixlrcf in thc n.$' 1gs' l11pirr$v, the suusrdinr;--

\ l 'enl ahcad * i th thc investtt tcnt .n spitc of thc inrbi l i ty ter

l l rcs.nt a cr)mF*l l ing i inlnci l i r .r tror. l l lc ' i ts decision re iultcd

rn dramaiic sr.tcc( 'ss for thc f intr. l ' t r t thc opirr.rrt l lni ty nt ight

* 'cl i hale tr:cn nt isscd. Scvcnrl ' r f l - I lW's Lonl lx ' t i t (rrs in lhlr.

nrar\c l d i t l i rot chl tngc t lu ie k l l ' ( ' r ' l t ) t l { l l } l r r r t l d id nt l t suivt}{

l i )c l r r ' \ t lcn \L ' i t r \ . l ; ( r r r ' \ i l l l ln lc. i \ :1c tTt : l . i r r r dt l t t r t , l t l tq;1rf 1^ ' .9 ' r

anr l drcs, ( ; tcrpr i l l r . cur i t \ l ls t r . ' i t l l i l l t t i t :upplrc ' . i r r :* : '

t$.nty- four to thrr 'c t^* t rvcei t l ( )Sl . r r r t l 19S6. ' I l lc l - i i t s lb '

srr i iarr 'ua-. r rnt- t l f thc thr . -c t0 st t i I ivc.

Usrrie KlpIan' s (: . t | € n ( i ( ' J I r nanc rai anal1 sis f i . i l l , r ' ! ' " i ' r 'L

sho* s' ,nucit ntoic cL-3rl) ' t l r t ' j r l - . i i t lcat ion l i : t thr ' n{\ i ' ntr j i r '

ufactur ins t t 'chnolosv in t i r is in l r rstn 'sesl l l ( :n i ' " f i t ' ' re !s i l ' :

qucsl icn ,n our nrrnds thrt Kirplan is r ight .

Thc i imi tatrons hc c i tcs ar!- \ 'cr) ' rcal intpcdinrcnb t ;

eft 'ect ive use of t l te NPV frant,:" ' (rrk. Thcrc is also no ql i$'

t ion that crpanding thc nrodt- ' l in t l le rvar s he rcct-trt lntt 'n ' l t

u. i l l s igni t rcanl lv e r . ihancc i t -s u:ei i r lncss in thc CI\{ . i 'q l t \ t '

Whi l r ' rve apprcciatc K: i ' lar 's pi t r t r ter ing cf l i r t ' xc

belre ,e \ tc aan gL, b! ' ) 'ond i r rst . ' rnanr l t l lg i ! ] ! - N[ ' \ ' I '1- i f :Iu r . t : t v l t l ' , . s l ;atcgic isst t t -s n.- t 'd lo bc givr ' : l i r - l i l : l r f r i l l i *

crpire i t i i i {L' i l t l ()n t i t ;rn a prt l jc i i cvt l t t l l t iqrt i l i r( \ i {) i r 'cf- ' ' ' : l t" t : ' \

niat iel hou r.rrt iui i ' r tht- prr.r ir ' , , t trr , ,xjcl is i : i i l icd 11". ' :rgi;

colttlE'il-il\ L. AD\,\N ;'.-\Glif ' l iAI lEl \ 0RKA nt-. thc r apprrr lah. f roposcr I or r g i i rel I v b-r ' Pt--t ' lc i . | \ ; . I i" ' i , .

addre sst 's lh!- sl :r i i lagia r j l l l lc l jsi ,)n. i t l l - t i r t l pir lhlrt !1 i : : ; .r ' ; r i r i

c oni pc t I t I v t ad V an t a ge pL- rs f r' c r I V c () n s I rat tr s i !l Jl''!r'l r1"]f, '

ntcnl . ! t ' l l t ts ; tp l r r ) : ta l t sr-cs l i lL ' r r ' l i t i t . r t ts l ! in l rctrr . r . 'c i t ' i ' . l l r . ' , '

losic l i i c i lanr ' and corrrpct i t i ( ) l r l l5 l l l i r i " r ' l l l I l t \ t l l ' r r r t f i t ' -

apPr-3r: . -J! 'chn(r i r - lg ical chanSc- is ' - r l tc t l l i l r r ' , - l ' , j as r t lu l t ' i * '

f t r r i ts orr n sakc. , \nv t : ;hnr. lo: : icr l r t r i ' . l r t - i r : r t inn a l rn l l i * r

prr)nc)r is bclrcrcd to t r 'g(r \ ) ( i bcLl tJsc i t rc 'p, t 'c t ' l t '

prJSi i 'ss. i lut . i roni a Lrt ts incst p! ' rsPe. l ivr^. l t : i :hnr l i 'q i {* t

prr l -gr(ss is not al \ \ 'a) 's a good thi t ig. l ; r ' r i ' r r i rntplc. t l i ' ; r i i -

L'c;rrd and Snr)r ' , sir i int iustr ics tot l l r . ; , tc :uf icr lng l i i ,nt tr : .* '

t rnulng technolooical cvoiut ior that jusi dr t t l nol l r*n-<! i i te

1n11-r prof i ts. 1hc prtxjr,rcts are ovcre ngincered for th I nf$

agc custonrer. I ;roni a busincss perspe.i i ! 'c, tcchncl0gl**l

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Change is irnpona,nt only tr ' thc e.\t{r{i{ rirat ir affecrs co,rr-pcdrive dvanugc or lndustry suucrur€.

Tcchnologl, h6*,ever. rloes gxn,atle a firm's valuechain. It c'r(tcr:ds f,rr hcyond those technoltrgie s asv:crareddirectlv with rbe p:.oduct. There rs rxr such thing a: a lou -echnologv irxluxry if cne tekcs a brt adcr vrerr.. \/icu rng an\hdustry as b(hffilogically rnarure can s.cll lead ro str-aregicdisaster. For exanple, rnagazine publrshing is in rurmoilotlay because of the en*rgenoe of deskrop prbhshing in ani0dustry deemed technologically maure Just ten years ago.The belief in tk r.Jd rechuology fcr pege layo"rt, color sepa-nuidte, or t5pese;ling is p'revenring ntan1. iarge firms frcnr€omp€l i ng c f fcctr "*e I

y, h,{orc uve r, nr erry i nl th}rt an t i n nr:r. a -Eions for /tompe tittye advantege are nrunclanr and involr.c** . rc ient i f ic breakthraughr. surh el l ; * rJcra! Erpresr ' t*r'erniglt dcliverv. Cf coursc. thc c-"ru{,ion oi overnrght .lc-lir -cry :narket share bi fax lechnolog\ !s a countcr-exanrplc.8!.tl rnnL.r'ation can har.e inrportanr implicatrons fcrr ln;r..tcchas sell as hieh-tech conrpanies.

Tkhnc*ogr' arxl Conlp€titionfi,verythrng a finr du,e$ invoives ldchnolrrsv of x)me .cor1.fYen *Kxjglr one cr'nltrre terhnclo;it., l t l f l) app:r to dtnrr,n"dc thr prcdrrcl itr prfiluctisrl pr0,;c$s. Fcr eran:;lle, rrila[.rng rcchwrlogy nral'tJuminate *)€ rnpier lru;inesr. bur papcrfted technol,;gy i$ al$o an issur..,lny par"ticuiar rcchnolog) tsis,prvant fcrr competit ion if i t significanrlr after.ts a i lrm',rvnnpcl r t ive ad vanlage irr irrl us trv sr :uc tu rc.

Technologr aild tbr \ra!tre Chnin. Tlrr. b:sic rtr.rllw s$JersranCins t.|rc role nf technolog_r. in crxr11*rrrive advar.Lrgc ,s the r alrrs charn. A firm, as a collectroil oi actrr irrcs. ,:a rdloct;an uf technolngics. 'lbchnt'rlogr is e mLxlie tJ in t:r.enr.SLE actl\ it1 o[ rlx' tlrrn. arxl technolo.ercal change can affeclrunpefidtm thro.rglr its rrnprt on vinualll anv actrvirr. Even.tCr* a:tivity uses !,,',me technolog-v to combine marerials anJri*chiner"v with hurnan resourLes to prtlt luce sontc output.'T}is technology ina i ' tnvolve gveial s{-ientl lr. c!isc;plrnes or*lbte;hnc,fugies.' l l ,e *:. itr ing technctogl cf : i value acri\. i t\teF$dnLs i}$€ u{rlxlilltr.:ttion Of thex :.nhir:chn, 'ioe ies.

'f?rs trr:hncr!-igies in drffereni l.aluc aii ivit le s can tr.:scl$tcd. Tlrrs iir:kage is a rnaj4,- sourc* ,.rl-cornpetitire advan-t*qc.+.ilnin the value chain" For eranlpie. proJuct lechnolosrcrn be linked t,t rhe technologl' lbr :-cn,i,-.in.s r Fir'.xJu(-r ( such:s selfdiagnosirlg cornptter systcn]-q lhilr relaV rr_.ainrenanccirdcmation directiy to the n' 'anufacrurcr). Or t,r1rr11rn4n1 lssh-e,rr fogi t r cart hc l rnkrd lo end"pr( \ lug1 11.1. | l1,r l1 igr , l )csktophy,rul of adr"ertisin;l pa.ees. for e\a;rrplL'. rn;kes possib!e :!ryr ief '<o;t nragazint Thus a l€Chtl , i1, 'n,t , i t ,- .1.. i ' ,1., ( \ ic f lart,r l$tc v; luc chl . in et ' i t , r rvc rntpl ic.r i l ( ) r i : l , ) r , r rhcr Jr ; r :1 . . r l th,dgin. In cl ircrr)c i 'a,es. cl lan.l . l , ! ! t ter.t in(.r l{)g\ rn i 'n.." :r i f iYitrtm rquire a t t ta i : r t n:corr f ! f l t :et i , rn,r i rh i r t l0c r .h: ln \ \ t rendr bas:t- ' {Jr,\ 'Scn luri iacs'replaceo th' . ' ,r ixrr l ] !-arl} t lu.rr.rac tr iSo*l raking. scaie lxcanre nr l rch ! r - i , . inrr" , r1 i , t i . lJr i : rc iu l rc. j1[J"- f { r r l r l r*CnCcoitht nr i* , . r ru l ] . . . r1: t , . . t r h. , . i ! t f r l i i : r i t i , t i ; . l l l \

ilr.qntf<l t.i){. \l!-ur,'lurf ,rf tlx stccl irrilit'!l'",

A firrn's technologies are also clcady interdependcntr ith its bu1.er's rechnologies. The points of cffltacf belwecna firn's value chain and its cus:omers.or suppliers'chainsdr[rne anothcr arca of poteniia! interdepcndenc,: of tech_nolo5ries" For e .rarnplc. Union Camp pul pCs linked to itsrl arehouses inro popxr distriburcrs' offices and increasedsale.,; br offerrng irnmediare product availabil ity and orderstatur, iniormation. A firm's pmducr tcchnology ilriluencesthe ; roduct and process rechnology of the custclrer anelvice ,'etsa-

Technolegv and Competitive Advantage Tbch-nology affccrs comp{tirive adverrtage if it hae e s{.uificantrrrlr in dere rmining relarive co$t or d:flbrcntiation. Sincetechnalogv is ernbodied in ev":ry value activity and isinr olved in ar"hicr ing linkages 3ntong stivities, tt cfin havea po\r'€rful e t-t-cct on botlr rost arxi diffcrentiation. Computerairirnt rcse rr.arions systems rL'p;csent an cxcellent exampleof tcchnologf impacring difi 'erenriation (such as Ar.rericanAirlincs and *r Sabcr systcm). Technology affecting rclatir,ecost rs i l lusrrated by the risc ofctrntinuous easting in stecimak l rg; conti nuous caste rs srgnifi cantly rcduce rnarrulac_tufirig cost-

ln addir ion rc i i i fecr ing cost or di f fcrcnt iar iorr in i ts{-1$ rl nght. technolog."r. alfrct^s eonr;xtitive advantage ti;roughehangine or influencing the other drivers of cost or unique"ness. ['or eranrple. the dr:veloprrenr of the interstflte highways!stcm dranrar ical l ; - changcd the basis of compet i t ionbet\\'ecn rrucking and railrtrads in nrany basic ways. Thc suc-cessfi, l railrord: t ix1a1 (Eurlington Northern, for exa-np!e)irrt rh* cnes that hlr.r ldapted to ihcsc changcs.

Test.s of a Desirable T'echnological Change. Thelink io+tuccn rc'chnol--gical changc and competit ive acivan-tape suggests a numbcr of tests for a desirable direction ol-technolngical change. ,A,ccc'rding to porter, a firnr's techno-loeical chanse wil l lead tcr sustairrable competit ive advantagcunder anv of the tb:rr tbllo*' in-e i lre umstances:10

\ " -l'he tc<'jtnological rhange itsc!{ lowers cost or€nl{:n.r-f di.fferentiation and the firm 's rer:/rncr/o.gieallecd ls su-qiainrrll*. Procter & Camble's patenteri dryllufiing technologl' l'or tissue papcrs providcs sotierpak-r at no Incrca.sc in drying eost.

2. The ttchnologicol change shi17:; cost or uniqueness dri-ters it -fav,or t;J'a f;rnr. A nL'w .lsscmbly proc.ess ftat ism(rrc rcalc scnsitive thln the prcvious u,i l l bcnefit alru*c-:;hilrc trnrt that pionr.crs it evcn if (-ol.t lptt it()asevr:nirrall l adopr tlre proccss.

1. /)s1,41,r,pi11.q' | \ t ' tr ' , .h noIogir.rr l r , , ieprgr, Ir i i l \ I aIcs !, th)fir:t-ntot'er advanraees besttle:. rhc.rr inhr:rcrtt in tlteltt'hn<tktgv irsel,f. A firnr th;t ni\)ve$ fir5t nay estrrblish.1 reputati*n i ls the pionc-er ,rr lcader. a repu{;1t ion thate nrularors rr. i l l havc ditTicult . , c-,r,cn_ominS (e ,g.. Kodakrn f i !nt

' rr C. ' , . 'c.1-9,-, ; . , in bclcragcs). A i l rst nrovcr alsorrral Lr,-. f i rst !o sr:n,c truvcrs antl t l tus to csialt i ish krvalr .c l t l rcnsh ips

l i l r

It is int"rs-rting ho$'rnany firn$ tlut s'erc first tr)i\err

hlve renraincd ltadcn for rjccadcs. ln ccn-qunrtr Ptxrlr' ttx

exflnpk, srlch current lceding brands es Cnscs' I\'or)' st-)ip.

Li fe Savers, Coca-Cola. Camplr l l Soup. \ \ 'nglet ' 8um.Kodak f i lm. L. iF ' ( \n tea. ancj Gotdycar l i res wcre alreadt

lc.ders by *r !$?th. (Jf r"ours., early leaden do rrc* alu al'spcrsis. evidcrrcc,:i by Singer sc'rrnq rnrchires" Bo*mar cal-

culalars, B"rlcva 'r.'etches, s{td RCA telet'isiql sets.A firrsl maver mly te at a disadvanuge if early invest-

rDcnts are specific to tht: crrrient tcchnology ard cannot be

casily mrrCified for latcr generationi In semiconductors' for

cxample, Philco rnovcc! carly for ieadcrship with a large

rotornarcd plant. lt e,rioyed a pencxl cf suc(.ess. but the laterdeveloprnent of a differcnt manufacttrrinS fnoress for senti-orductor chipr nratc its esrlner inve.stme nt obsolete. Sinti'lsly, ttre eariy mnver'r.ill be disadvanuged if its product orprm.ss reflects filct.ir costs m frtor oua!ity levels that have

changed.Techuological discontinuities can also work against

the first mover by making its in"eslrnents in tlx e stablisht'dteclrnologl obsoletc. Tbchnologica I d i :ennt i n u it ic s are irla;or

shifts in rechnology trr ivhie h a fi i tt n"over may be i l l prc-parcd to rcspcnd, given its investntent in thc old techntrl-

ogr- Weyertraeuser, for eumple. pioneered tlre introductionof the technotogy' for "oriented strand board'' (a pil'u'ot-td

subsdrute). But later innor'alions cut th€ cost of a neu' plant

in half, leaving Weyco at a cotnpetit ive disadvanta-re in its

cariy plarts. DrscorrtinuitJ' favors thc fast follou'er u ho docs

not bear the high r:ost of pionet'ring.

4. Tlw tecltnological chonge lntprares o\'eral! i)drrrr.'

structure. Fnr exanrple, tlrc jet engirc improl'ed thecomp€tlt ive positiort r:f all sirl ines versus substituteforms of t ia n-( ponalion.

Alt-lrough Porter's app'rr:ach to understanding techno-logical changc inve3tm€nts is clelly lery insightful at a con-

cephral level, it srrffers trom a significant dratvlrack: Porter&ss not explicrtly' link his srategic frameu'ork to financialanalysis. i{rthorri r;uch a l inkage, it is dift-icult to decitle onspeciftc techrrolr. lgical investments. It is not s.urprising that*e {lnd no exar*ples in thc l iterature usins Pnne r's frame"'wOfk ln fe snlr ,1 tCchrtOlogir a! r l ' , r i ic f s ln ih( ' sc\ 'c t ] \ ' { . ; t t :s incc i t \* 'as lntrodl tced. f t r i -s is tn strong contr is l t \ ) lhcextensi ' /e I i terature apoly inq.rnd i , : - r t ing oth€r aspL'c lq i ' f

Pcrter's mrxiel.

STRAT EGICAI,LY AUG\IENTEDFTNANCIAI, A NALYSIS F R AI{E\\'OR KA founh approach, prop<xed bv Br(,1n1$ ich and Bhi 'nanr.

adcresses tfie lack of er:plictt attcntirrr' to str-atc{ic issttcs in cr'tl

junct ion ' r r th projeci evaluai i r - 'n nrot jc ls. ' ' Thc) cn\ ls !L)n I

forrf lal f inancial analysis. broadll based anr: careful ly exc-

cuted, t iul arrgnicnteC b1' expl ici t c<;nsideral i<ln of straiegic

issr.tss thet do not lend themselvec tr,'qrran{ification in prolcr:t

lenns ..{r Bnrtrrrvrt 'h irntl Bhrtrr:trt i rro{c. "Nllrt l ' of thc clfct ts ofAl'{ ' l 'rnry' ttt [t l l tnt or rl ivisr,rn r{ e \ (-l l corptntes'idr: ' . . .whilcalso freq-cntlt l-lir*'rng fnrm tle ir,te rx'titxt with otler slstems". . .1]r full r*'*ncfit-s of AlrlT invesn'rnt-s arc unlikcll'to bt't'4-run'i L.y investn*'.nt appraivrl tc{hniqucs uhich rcly :n}lcly onfinarrctal data input. The long an-i *' idc'ranging disr'rrssion-srr,hic-h are used in Japanese decisit"'r meking allorv thcse ocrn-

firs to be conside red without ptecise guantiticstion and to trtes{ed &g&inst a widc range of mrnagerial experiences"'

Bromwich and Bhimani propose a frameuort thatexplicitlv consiciers stralegic benefits which can be derived

from AltfT Investnents, both within the firnt and extcrnallyin its market positioning:Internal Stralegics

Coel advanlagesMore control of prodtrcttorr s!'stemslmpro., ed c'rganizationBene ilc ial interact ions

\{arket Strate giesDivcrsi f icat ionExpandr:d prtxluct pnnft, l i t 'Nc*' prrxlucts rvith neu' skii lsNerv skil ls in ne*' areas

Enhancement of existing prodt'ctsEnhance,l corfrorate i ntegeRe-spxrnsc' to fl uctuating .lenrand

Lor,'er ccrst of meeting dentanCImproved qual i t l '

Risk i 'eductionStrongcr ski! l bascBetter controlBetler planningReduced rvorking capitalMore fle r ibk resp:nsesFigure I is an example oi a strategic invcstment

appraisal matrix designed to reilect the blending of f inan'c ia l quant i f icat ion and qual i tat ive strategic analy i is th i lBrom rvich ar:d Bhimani reconrmend.

Bronr*'ich and Bhinrani are correct in their aL(,, $irle$tthat an erplicit bir 'nding of t lnancial analysis and nonfin*n'cial stratt 'gic considerations deserves careful cansideration.Nr'ither api')r()ach alone is as str(ing as a bleniling of the in'uHrrrre", cr-. th*r' hr,,,r" ntrt Dtislt i, l t i tcsr' i t lcas f irf e nr)ugh tf lerpiain /ioli to :itructurc the stralegic essessrn€:nt phair'" frlon'can L'c applied across all f irnrs to ftxus the slrateSlc cvalut't ic,n iri technologl. changc investnlcnts. Since thc previoltslldr'sirrh'ctl rrppr o;it irts t irr e Irt lu-ti 'r:: invr-stntcnls in lf e lrni)l(;9t,. ' i i l chilngr" are rnadcquutc irt ttttportitnt \\ 'a\ '\, ' .vc iuggt$thcrc l dif-fercnt mr:tht^r.l that adrlresscs thi-se l intit;tt i trs.

TTIF- STRA.TEGIC COST \IANAGF]N,IF"NTF RAil{Ti\1'ORKThc SClil f lcnipcctive, suggested b;' Shank. inr'olves lhrcekc1' thenrcs that art ' takcn froni lhc stralegic ntanagemeiltl i terature:12

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.i lu'r" Efiidlr etn tF Cxfresgid i* rfroruuq trrms scnrerj o,1 ir sintlc' "f\rrnl5' scalc ( | to l0).

Sorrc: M. Briwrelctl rryl A. ghir,rni. ..stratcglc lni,rsrnrcnr Apgrarsel.".rform.{erricnrActounltng,I'iach 1991, p.4{!. Reprintcdby pct'

rfi;!5}l)i 6' tlit tr b,li3l*l

coniponcnt of the SCM analysis, but a slffcient anelysis

nrust involve all three.we il lustrate the application of the SCM framework

in anal;z.ing technology investments by usiag 4 disguised

exanrple oi a large forest pnrducts company that is €valuat'

ing a nroposal for a major technological inn<-rvation'

The SCh{ Perspective on Technology Costing

Ya k rma-Oly nrpia Corporatton, a multibi llion-Collar, highly

ventcally integrated forest products conipany, must choose

Srls

III

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t ".l

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!"alue Chain Anhll'sisCost Drivei AnalYsisCurnpetitive Ad refi uge AnriYs rs

[ach of the thri:e 'epresen$ a streanl of research antl

uralysis about strutegy in rvhie h cost information ts viewed

dilferenrly frorn tirs way it is vtewed in convtntional lnan-

4lenrent accountinS. Blending tlre rhree lllemes repre:ients

ilx most powerfui way to focus cost analysis fcr strategic

droices*"Stmtegi; Cost h;lrnagenlent- Each is a necers{tr}-

203

*{ : l r i f rnenl i ' : , logSirS { tperat ions in i t -s Vlrginr: l t tntbet '

k*::i',. Thc pre", ailr,rg te;hnolugl' fot logging ts cfear cunlr:g

iry u-ling *feller bnlnehg6g"" +'!rich are sirnilar tc !argt farm

uatss and ha','e lmavy-duty *;iss<,'n anahe'<i at thc fr':nl ltr

slear ofi" sta'rdirg lrces al grtzuffl ltvel- "itrcsc traciors al-'<r

ha\'e ts.rge clarnpts fhat csn holJ scl'eral uee trunks upneht at

one urr}c so that tfc tractor can shear thcm cff before stop-

p:ng to dump thc load on the Srourd. The machine literatly

fells trecs m bunchcs. After felling, tix bunctrs of trees arc

drogged iskidded) to a roadside stagin3, area (the deck) bi'

arpthcrrarietv of tra*tor celled a skidder. The fcller-bunch-

ers and skidr ien le lve no rees standing as they n ' t r 'c

t l r roufh a wo.d lot . At t l rc detk, q 'orkcrs usc hand- l ' * l t l

chain saws to r:e l imb Ure Gtes i 's h::t thcy can. usuall l lear'-

ing rnany shorr limbs on &e lc'g- Cranes then ioad the ilgl::

cnto f ialbed trucks for ralr5[x:r'i tc rvoocl 1ards, r'r'heie t]'e

logs are son:d anrl clji ;trto segfients for san niilis, ply* cx-rl

rn i l ls , cr puip nr i i ls , depe nding on the auai l t l and socctts

of the trets-.The rempc and pare of thrs pro("e5s e rn t 'e st 'cr'

descr ibed as pandemonir tn l . Thcr; is no strphist ic i t t t ' 'n

invcrlved, only brulf force applierl ;n an ctrr tr 'rntl lcrlt lhrl r:

trcrt, insect-ridi,:n- srra.l ie-inre;tcd. anrj alternatelv thick * tth

dust c,rder:p rr: inud. Thls pro:css represent-s the late st tc'h-

nologlcal sta6' ' in the elolut icrr of a pro ' :ess geared to ' t l t

dorrn atrd rnol'e es n'!ill1y lrees. as pr:ssible in as shon e tln c

as possible. ' l l ie rr,ethals achieve high-r'olume throughput

but also serilrusil datnage the :re€s a.nC the land and caule

gxeat rliscomtirri and danger fsr the rvorkers."I}te alternatiY* techncllc,gr'. r,r ' idel1 usr'.1 in rtr 'nhern

Eun4x bdL in l9q.r- vtl'tueiil' unkno,"'n rn tht Uirted States'

involves sophisticated contputerized machines tlat resem-

ble Sisr }*ars robots" A wori'.er in a han'e ster' a clostd-"ab

tra(tor that uses compuler programs' moves careiul ly

through the u 'Lrcds" select ing indiv idual t rees for cut t ing

based on curre'rl rreecls in thc p:ocessing niills. The machtne

fells each tree .,,,ith e smcoth sa\Iv cul (as oppo-seci to sclss!1ra

cut), precisely delimbs each log flush to the stem' cuts the

stem into secliorls of prbCetennined lengths, and gently

drops tlte s€f,tirns in neat piles. A forwarder then picks up fie

logs accordin€ ro computer-prtlgrarnmed s4quences and c:'i-

ries thern Seqtl:r'to *re roadside" I-ater rht fonr':rrder will load

thc crtt log$ oi:to trucks cicstined directl;- fcrr spccrfic pro-

cessing mills, \ryoassing the *'ood 1'ard step altogether" In

thts system. (L,e woorJ lot is not cleat-cul Only the iull l

mature trees $ hcse siae and sp€cie s mcet 'rurrcnl process'

ing rnills'needs ffe harvested.In terms of tcropo and pace' the han'ester-f orwarder

* slslem resemt,les ballet danterr ryrforrning an elegant pas

de deux in '.he, ',,/o,cds. It re presf nts the latest technological

stalqe in the evclution of a prclcess ln * hich the logl er s€es

cacn indiv idul l l rce 8s :1 plcr !oL!s objcct and takc' fu l l

rcsponsibilrty to deiirer r-lean. undarnaScd. s{-!tted. and ii l l

logs to specific processing mills, based on thelr current

needs, wnile doing minlmal dan"rage to the land. 'fhe work

is perfr:rnred safelv a:xi cleanly fiom air-conditioned cabs

'F{ow th,:s* t!v{r spproaL}ics to logging devcloped in

such dranratically- eiifferent r*'a' 's i* icc'rthern Europe and

{}}c U"ilitcd StatEs is t*y*rd tht k'(ifir oi'this paper" trn 199$'

tha rs'q-|€ for Virglnia ioggers '*'a*q wtie th{ir to sial with feller"

bu ncfrel sk rtitlc r tc'ttr noi<1gy'r; s "r'

i tch to harve stc r/ | or*'arder

(Hi F) technr-'!ogy for Yaltirrra-Ollnrpia's 4-50.G0'0 acres oi

tinrberlard ir, the tidcwater IL*gr\\n.Yakima-Ol1-mpia (Y-O). iikc nrany malor foresl pruJ'

rlcts cooPanies, n'as vertically integrated fron: researt*h'

intenr"ive farms that developed and planted l,eneticallyinrproverl sectl l ings to whclesalc and rctail distribution of

papcr anrl solid * ood pruluc:r. The onl;- stcp i 'r this chain

in rvhich't '-O did not participrtc wrs logging' P"imarilY t 'or

cost re&lons (nonunlon rvagcs nnd wtlrk 6rractices)" f i lol it $l

thc forest prrxlucts !-rrns harl lont ago cxitctl thc liusincsis *I

culling their own qrccs. Y-C hir,-rl ;rrivalc ittggtng '":o*l:ra'rtcti

to fu{ the ,'ltatuir tre.:$ iitrtri i's Inn,.l:, antl lilttsp:x:ri ihenr ti:\'-

O"s pt'txessing rniiis. flll$ )'-C) shoui'-l e .';aluate a ilruF)sel ti)

s* itch log-eine tcchnologics is thc subjcct of our t ' :!d stutl l- '

' l 'hrct Contponents of thc S(--tl Pcrsp<:ctivt 'Wc wil l eL)n\idcr in lunt eatlr tr i t l tc t ltrt 'c rrrnlp\)r 'cnls i l f Lilt

SCNI pcnpecl tve as ! t appl ies to thc i :hoirc of l r :g ing iu 'c l t '

ni.rltx.) '. stafl ing lvith the value .:hain tonlr$ncnt'Value Chain Anal ;s is. I i r t f re SC[1 l tan'rctr l ] r i "

rnirnaging co:ls effc,-:tivcly reqriircs a brolcj ftn:*us, eltt**::l t':

the t ' irm. Foner has re micd this prrspcctivc thc valuc chain'r '

The valuc chl in for any i i rnr 1p ;1p-r ' "9r :s in*ss is the l ink+rf

set of la lue-creat ing eci iv i ( r ts i ' rcnt basic ra\" matel i i l l !

(s iar l ing ul t intatr- i i ' wi th thc ptr i tx i i r : ta l r lc c l ' ihe c lcnie nis l

thrr :ugh to conlponent suppl ic ls. to thc ul l inratc cnt i ' t t : t :

product del ivcred to the col lsunlers ' and perhaps through

rccycling tcr t lre Lreginning of I ncr', ralu* chain cyclc' Thc

external focus sces ear,:h finrl ln tht' cont€rt of ihe ovcnll

chain of value-creat ing act iv i t ics of rvhich i t is ' tn ly a paf i '

* ' l are arvare of nc finrs thar span tlrc entire vaiue chain iu

* ' : ich thel panic ipate. \ 'a lue chain analysis is contrasl* t i

rv th value-added anal-r 's is, * 'h ich starts rv i th payntents t+

supolien (purchases) and stops wlih chargcs t( ;t lrt lomeni

(s,r les] , whi le f { .xusing on marinr iz ing thc di f l erencc. t l t r "

vrlue rdded (sales nrinus purchascs) tbr thc fimt.Value-actdcd analvsis is f"u ttxr namow a view bccaus*

it ntisscs thc Inlpt)rtancc of l inkagcs upstreanl i1,1d dr)*rt-

stream in the value chain.ti in the CIM context. the princip.*

blcnef rls oi nen' invcsrncnt ntity rvcll fall clselvherr in lhe

value chain than whcre thc invc.stntcnr itself takes place *r

thc logging e.tanrple i l lustrates.The por'rer of ihe vaiuc chain pcrspective f or this sit*

aticln is hignlighreet by its conltast with a conventiSnal' Pr'.

lect lcvcl. value-added analysis.' iable I shows tti ' : collYf lr' t ional analysis for a logging conlractor conlparing the ltu"i: l

alternalivc logging systenls. I:ronr the logger's Derspcclitc.rhe return is virtually identical tt lr the two opl,itxs. (i ivt:*

the comparablc economic retulns, thc ltigger cuncntly usins

feller-buncher technology is nc* ii:r:lined to swit{:il' The new

technciogy invclves a signifi,:anrl ' l larger i ivcsti ' :cnE fora

244

$JNCHEN/$qDqf,t IT{HNO{.OGY VERsUsHAR\egrEfuTOf,VdARDER TECHNOLOGY FOR

l{P.v

YIRGINL{ LOCJGING'

I tnal l bustness, a much heavier relrance on hi3hl l ski l i r ' , - l

lalr , trr ( l 'ersus lorv-* 'age, day -rato la'r-n")rerc for i :Qnvcnl l t ' rnlr

lc igging), much more tontpler nlatntenan.L' issues. . in i l ;

nuch more complex job task than thc r ld tecl lnolog).

Y-O expnr l rnented * ' i th thc nc* technologl at tc ' t

si tes. Scnior nla' iagenlcn! at \ ' 'O tnous that the loggcr t lc- ' t 's

not r3al ly s l tu1d trr l ta i r r d i rect iv f rotn ln i 'of lhe p(r tcnlral

benef i ts. Frorn ih is pclsfcct ive. lh*rc ts rcal l l nrr \ \ '3\ l ( )

encoutagc lhe l , , tgger 's tccl ln() l ' ) ! i ( '1r l inn, l r 3111- 'n. ' fahir ' 2gumnrar izer t l te : rnt ic ipalod f in i lnr l i l i rct t l r t lE f ;1r111 111 111-\ \

{e{ hnology, hrol.en dttrvn l ' r r ,r ' !1i ' rr ' tr l lhr ' I aluq" i l t :r tn l l :"".

r ru real i fed, r \ r '5Oun. i t l rh( . ' r tqt l t lh, \ ! \ l ta l l ln h:rnt :stet lOr

r* 'arder ic l fg ing ,*a1," .11t ,g l i r , ' , r i i i ,1 : . r \ , . ' \ - t . ) r r r c! t in l i te. j

S- i1.6 nrr l l ion P( ' r ) ie:1r in j t t ' . t . .nt , , i i t i . r ' ,eral i ,nr t - ' t ' : i . l t r ' l

regions, nL)ne (-) i thc - la i r ts

i t rc ' [ t r r i i7. ' ] i l t rhc . tagr ol t ! - ' , . '

valbe chain where the inveslnlent nrust Lrc r l radc. Appl) ' lne a

','alue-added perslxctive in a prr:tc':t iilalualion mode at lhe

L:gging stage u i l i ncrer l t-ad r{) th. . i :1n9.. Appli . ing a I aluc

charn p' i- .r1xctir 'e ir a t 'usrness unit cvaluation m{'r" ic revt:r lsthe lrenr-'rxJ.'r'ls ptxentral trerx:lrts tirrm thc chanl",^.

Cuit D ri r er .\ rur11 sis I n corrvent irnel m:rntgctncntf,{tr\ntlng. ct>,sl irchar ror rs sct'n lartc'lv as a function of vol-

unre. I r rnrplc 's , r f n!an;rgcnrcnt icc(]unl ing c(rnc€pts thr thrngc on rolunrt 'as lhr crrs l drrvt ' r inclurk f i rcd vcrsus vrr i -

;1h[c r;rxi . i i \ f r . l l t ' \ Crsus nlar]: innl fr ]s(. C()St-vQlr i t l lC. nrr ' i i t

ar . , r lvsrs, bret l ,cren ;ni l )s is, l " ic . r i?: le budgcts, and contr i -f ' . i t t | ln m:lfEin. r(r n3!;1c I [crr ' . ln SClr1. output , ,cl trme pcr

so: ic scen t i ! L; l l iut-t ve n' l i t t i r : , . i t l , r- r ici l rrc.ss r 'r f c.rst "trhar' .-

i , . r r . " ln th is rcsarr l . SC&1 . i ra*.s r l t ich lcss on thr 's inrpl t :

ntr i lc !s of t rasic nr icrcrcrr-nol t rcs and much nlor i on thc

nchr-r nx)drls of industnnl orgrnreation ectlnonl ics.

Tlierc ;irc structuiiri r{rsi drivr'rs that n:late t(r !:te {'imr's

cr l l r ' . ' i t r t r : r tcgic chtr i t 'cs rc! . r r l in! cc()r lo l l l l f s t r r r" t t l rc sr tL l l

a s r.- :t I c. p rrxl u'-' t - | i nc c o nt p I I r r i l'.- s g(J pc o f r)[ r- f J, t i tr n s ( v c r -

t rc.r l r r i t t ' g r l t : ()n ), ()r er ptcri t ' ner ' . r : ' l 'cch nologv invcstl t tcnt s

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

Tl:ere are also e\L'cutronal cost t l r ivcrs lha: are nlf i j ( . \r

i l r ' rrrnrnants of a l l rm's coit l \)si t ion and hingc ' ] | l i ts nhi i

i tv to e ' r 'cutc successful ly * ' i th in thc cconomic stnlcturc r t

ch$.xes.l5 \ \ 'hcreas struclural cr.xr driv 'cn arg n()! nlonoton-

ical lr x..aicd rvith pxrfnrmancc.: ' . \ecuti{1nal cost di!ven typ-

h:l l l \ rre." l . |rat is. fcr e:rci i {) f ,1. ' t : slntctural drivcr-r, m{rre is

no{:r luar: tc!t t :r . Ttrre arc poir: i1t i i l l <. i isfcotlcrnl i ts of sci l lc

; lnd \ cr l t{ jal \dcrpr., as $ e i l as f ir tetnt i : l l cc()nonl ies. A l t tort

contplgl prtr luct lrne is not necL'ssari ly tret ler ()r \ \ 'oFse thi l l l

a l ( ' \s coni l icr l inc. ' l i ) ( ) n ludh : t \ lxr i r 'ncc can t* \ - l rs bed l ts

toc l i t t le in a t ly nanr ic e n\ i ronnlcnt . Frrr exantrr le. Tc\ : ls

l ls tm,nt-nn r 'nrnhssize( l thc le.rrning cun c and f - ' t " l tnt t l { l tc

* ' r . r ' i1 i '1 l { ) \ \ ( - \ t - f ( ) : : t pt t . t lUlet l f OhSOICtC EK n,, - : roChipSI

i i ' t hr i , r i ' r : : icr i !c;rdtnhip \ i : r \ .1\ l i ) l l { } \ \ 'crship :s , r i ' : { i t int l tc

r: l i r ' , rac farr in.)st i i rn)s-in t i tnlre.<t. i r l r r- i , tah l . f t l t - r ' :1c,,-t t i i , .rnrr l t i i t" r ' :"s, i i l (r i r '

,s alr i i t . ist alr ' , ar s bci l*r. l l t r : l is l l l [ ! .r1. ' i - i l i i l l i l i r ' ]1i l !) i I : . i l ' ! l c: 'c-

a.r t i r tnal cr t i t ' r : , i r - i t lLtr l . 's a l icr t ) , i t l rasr l .

\ \ 'ork forcc i nvolvc rt tc nt ( pan rc ipat i r r- rrt i tnatr- ir lcni).\ \ i t rkfOr.-e colnn.l ! tntei l t tr l ccr nt inLr r : ! . j q i r l provc t ' ,e-nt

( i ' rr i :rrr ) ..a,dhcrenrc. to Tct3l Qrralr lv lr l rnagenrent conccpis.

Uti l izat i ,-rn ir i et ' lect ive c:rpacitr ' {g!r 'cn tht ' scal l ci lol i l ts

- n pl3.nt ccrnslruct ion).: . i t lcrcncr of prtxlrrct irrn , lorr iatout.

' f fce t ive ncss of prcKluct desi l :n or l i t rnrtr lat ion'rploi t rn: l inkagr:s u i t l r supnl icrs lnd t : t tstont, ' r : a l l

: , lcn- l lhr : r 'a l t tc chl t in.

\ \br l r r t r l l i rv nrr t n lwnrr h: l r r tc t l tat a higl t t I lcvcl l i r i :

l i i r : r c lcr ' t t t r , :q l l t i l , l t r l r ! l f i l [ r r ( ) \ c. ' , r ' \ ' \ l pr) \ i t t ' \ t '1" l l f f r i l i l ]

r r lc . , ,1 l tst . . \ l t ( !Fl lq \ . r fC nI t ,h l ' t \ . \ ! i - r ( r tenl

fhr- r ; r i i t t . t l t r in perspert i rq ( ' : .11 ic! ' t l l l t i lc t r i t ical

l tnorrnrnc* r- , i ihc iogging st t 'p l r ] t l tc th;r i r r . but vt lue char l i

in l fx)nancc alonr- is n(r i a sul l lc :unt tcsi of the desimoi l i ty r :1

changrng the logging technology. A second necesli.ry conl-pn.)nent rs lhrt i ichnology choice is an inrpror-t;-rnt cost {lr ivcr

jr

ril,iii**7tt!t*

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ii*irs$

Cryitf Co$A-'o.;*'h"x'

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205

*[ d]e lsgginr: srege" " l ] ; t l ;s ' qhat ! r i torr ew dnr inS : i i le -

;;;", fl',iu,* ur .}* i'rgging suge' and ho:r'ltr:Fxxunt r:' thc

rechn*logi, iacr.r, c..nriraygd is r- l ther cost dr!vers? ol ihc

**ur,.r*i i*u**' saie dtrrs nqrt -trr()\'c to bc ver:* rrnfloitajl(

i* t i r is co:i lcrt . f i l inim' ' l ln el i ic l t 'ni scale i tx loEgrng l \ QUlte

stnSil" ( lrp* o{ [ \r fo;{t5 of equir$lenl are ad€{uate to sFead

Ju-, ,up*n, iti"n ctrit clenl'nl' rchlrlh is thc trnlr "'-rr* elerlenl

; ; ; ;"y 5 ait effect\ ' verl icai si :ol 'a- ;r isdr l ic lds ncr

*,,n*,* i*. 1' \ this rcrrter ' l ' ln faci ' becau-oc t lr t pnvate tog-

gcr avoit is l ' - 'e unron wage ratrs and wofk practices in t t lc

il;;;;;, , -.u:urt-u fiml ri"gr* *rt acrual!y disrc(o.'cm?es of

v.lr l i tal 5€{.} i t . Lc'-fnlng, ir alsi ' ncA a rf iej ix ' ;r}1 dn\cr \ , . i 'J l

i ;ont 'eir i ;u3a r:.1uipmer;r- \ \ i : r i ' 'cr: !earrr tht l trb *ui; , :ki ' r anC

t"r ion lnir ' , ,0 r, ' r ' ' ' r 'er ' !4: l : ' -c i l i i ! ' r i i : i?h a si;r- ' i i l i ' : lnt i {r ! ' l Cl is-

ar l ranta5e. l - ' : : ' : : l ; ; ; :6 i \ 3 l . l l t l re !Mf-" ' l i . l l l t i ' ' i r t i l * t : l i i l ;

*qrip,"**, b*'- aits'; high ial''x iui't-!ovel 4air i!1s:n'r-r' tl att ' ri

ih€ ben(f i ls. i . :{ ;rrq'r:rer, i tr ' r inlng is rt i l i ntr i ' rn i tse l f ' a ' j r :-

l?!ai ic f o$( 111i1g1"--* 'ork '11f i r ' ! ih oniv a 'n 'sragt rntel l iqen' :c

ar:d tlilrgc,lce cf.F lr:afir lhe pb in atxrui r'rf i''l tncnths

?rrxJ ' : : r , l r l t * cornplcr i t l is a is ' r n ' r ! an imFrnsnt \ :01t

,.Jrivct si;'tc *:e lr"iir' if i"r:rt s::ortlr: arlC -sizcs ii vc+ nari't 1-

,* **'f;Coo',:ilr regi$fl' i.he uqa !r''al loi:g{d ot}i:c nt''1f tllil

1s1r1 r:,i'thc.tt'ittt!'}' aruj a1:ain i; the 195*--1' Srnct aii ti:r'l'trd

hes ali-r::<i;'h':*n !ra-r"'esteil ti^r{* i-}r t's ict in ii'ie Pas'i sr\'{nl1'

t ! t ' : vear. ' , j t f hi l lnirpen{!11' sf t ' ' - 'e {orei l i r enhen:c' i .

, \s s l . t t f r i lar ized in j l - ; :b i t

? ' t* thr l* :ogi ' ;ht i r 'e is;r

r - : r i ; r t i : i n ' - t { .1 dr l \ 'e l in th is i ' i tu l l io l ' ' l r ' ; f ; t i ' ' rLr i \ r l ' . : i "

Oter! ier . in4i iateS t i " i : : O: al i ih i i s i : t ' l ' l * r r . ' i t : rJ 'c i Crtr ' ( rs '

J+ri l i rol,-gr ch*!cc is ihe sl i 'g)e l t ' l t r i i !r iF"l i ' i ; lni ie '{ ' rr ' l } ' - '

l i i : | , t s icf ts i t 'c tnsio] t ' t i i i i i * :e ' :u i i+nai ' ' j i ivers t ' ' l : ; *c i f

t$ty c i fset ot r t l i i '? t r {e ih* i t i 'J<: tur : l l i 'np:ct ; t t i t ; t t ' :h-

nc1u8) ' t f l * l r i i- i-u.or"rut e;i in; pl"'v:iucii':]!: pi-(Kc1{ :5 3 r}{:ulral faclr-:l ltt

this stud;- ' i t is inlp*rtari l*: ' ' r t t$* the groi i ini t f i l f the mi! ls

i" *f t* "*t

i : ;r i t lcal, birt i l r ' " i :ot a \ ' {r iab!e tn iht ctt t :ert

f ,of l tex(. Si l i ' t l i3i l1' pr ' ' lJ i";r tctr lui t i ioir l5 6:!o neuffal '

fle"cl opi r,B Se nir l :cdi l y i i.ll ItL:' r'eil seed l i nt' i i arr i ri: iri:rlan t

issui ' . ! . . ,u1 ! i ls i i i r i , o'* i iui" io' ln i l i l cufrci i l ci : . !- t t f x ' t ' ( iapnrir i

uir i iz i l r iqlr, is e!*.,- : i lc[ a far: i i , ;- Sini i i i ! r sinal i i 'cal* oi ap':r i i '

t r t : !rS f(1! . : f1.\ ' , ln,: i r ' -r [ ]pCr rr l ' : .?i lS th*] Ari ' : A' l \ \ 'ai i L] l l ] \ '

Chr()r l i t * ! f ' i { t !J lp:" t is n ' ; l : : - i r l i : r ' l1! ' : l l l \ : r l t ' i icr f ; i$ l l i !

iurr rht F. ' lc '*r td papet ; : i ; : ! : i i l | i t : ' r i \ - { ) '

l ' ; ' r t l ' l l : * i i r ,e i ' ! } i ! l i ;1t i , : i . j | ' i | ' c i ln i in i i t ] l t i ! , i i r lprr : . ' ' ' . t i . l ' ' l t i

i : '$ i l r ' r ! ) ;1h , , , { , , , tan } . i r l l iJ ' l r ' r t ' i i ( ) l t r t i r i . ' I :endg' l l " i i 'n t l l f ' i

i r , , r* , r rna, ' l , * : ' ' f ' : r : i i i1 r ' ; ' !1 i i ' i i l t i t " i r s ' t i t " Si ic l ihcv i l i i n: i j i -

fcr ie lhr : : i {1 ! l f i r i l lgv l l i r : : l ' i r - J- i ' ' r l L j i r l ' : t i :1" ' i t igv i ' i l i i lc l l

f i l$r{ x! ! ' }e i ln l :11(-- i r1 i t } i ic i i ' t ' l i i ; ' l i i i i t i l - ' i ; - ' : * i i l l l l l in-r fn{ ' " i ' ! - r l

f { i [ r : f rnaf iSi : r ' l i ]e l ' i l 11f ' : i l : i3nl l f r ; "n l ! tn l ' r l f i l i - ( t l l l i ! i i : lc , i f r -

r : lo i ' ]g) . lh: : ! "df

i i is t | ; l ! :11' : ! i ' l5 l i l l i1 l f i r ' l ld ' ! [ r i l i ] jn i fc

nl ' : i t i ; ;

Ale{! \ , r r r i : la, i . r

' j? l i . l r : , : t t cJ i i l t t i t - ,k l '1. : t i 11.5i1 ' i ! \ i i i ' : i t is +: i :q i :a i t : . i : i : r . r r

L3t i f i : t i , ) i l l , ' l l , l i l ' i t i l l . ) .9\ i i , ' ' i : ' l r i r " ; i f i . " i t !c : ; i l l i r ' ' r ' t t i i ' r r - i : '^S

8:er car i r r in '1 l r ; t iJ l r1 { i l ; l i1 i i I l i i t l ' : i i " : ' ' i r r l ' i i i i f l '€r l r : i r lS

i i i r , : !9: ; i l rg r : ; i !uJ Lt la i r r i " . ' t t : t l r i ' i l t l ! i i * t : l ! ! ' l : i i l lg 1)r l i i r ) t1

there rs ! ! tr le i i , : :r , , ; ,11': i1f i i1"r i l i ' ; the i--r: ' r i : l t ts ' ; hc l l :-r ' r ; ' : l {"s

l) l l rvccn the lo*qEr l t i ld ! : ' i f i : i r i i l .n'r ' ; tr :r l r ld bt ' t* ' t" la l i r ' : i r l ! : '

,li'

,lt;l3j,r*

:

i :

i:l

't-il;..lgei arrd ihf prr l:et''i: n g nr i I i "lt- d ran r atic i1 ! i,uncir:rex ph!i':'l'

Unles: 1'-C ' lecrden r"o u:" rht ! ' - ' ; lgin; i iseif thus r:1i; : : i t i ; t i '

l r ig thc nr€d to i ier i " r i rh

loggel i ls indelencl* i t l i1 '1;s i -

*esses, -:{- lme t{.} !Tl l r : f gei;r sl ' ; rr ing io i :rr ' luc' : r ' t i1: l l1 ' :r : i : r l !"

*gdl e iong rh ' : ' " . i iuJ chai i r r t i i : ' l ' [ "c i icr c iopcr ' i ' " " r ' i : "

i l iscr-:onc'r i i ts r.r i lgl '1i i ' r" ! iniclgral iol t h{;re ni: lkt \ ' -$ r": ' t : ;

i ! - i : i , . l t i i r i l lo ni1{l i i i i l i r l t l rn t l :* iog'gin5r busir- icss ln o: 'dcr l+

n:l l tc t i i* t*cnnl ' ' l r l :gi chln.: l t i11"' ' ; l r tr1l* l . ! t ' :" t i r l ' i l t iv l j io int"

3: l rs, i : r t i t l , , i l l ,1, i 'css i i rc i i r l i l t : r : pr i : i r icnr l - r ' ' ; l i ; l r i r l l : t l : t

r ' . ' rcni i l r ! l t lncl i t : , ' ihat l t re i !k i l ' " 1" i l rcr t l i l lh l ' l t i 0f ' rn ' l

h. 'h i i ld ihL' l l r :1! t ' i

r l r t t , i t t r , ' fc : ; : i i i l i i i i i t l t r t l ' r i5 ' i i l r ' " ' ' ; t t t ' ; i r s l t l i r - ' t r l1 l1 i ' i r i 'n '

i ia l ; i : t i i i : " r ' i i l nr i - lc i . ts i l r ! . t l ' i l i l r - l3cis t i i : i r ' " i { i l t ' Rlsr '

r \ .J!r l ian! t : 1 l t l i ! r :oe5 r t r , l .1 . '1 ' ; ic i ) i l l t r lg

i t ler ' t iA ?l l3\ ' I ' t " ' ,u i ' *

i l r i r fe pir i i t : ' i . ] : lnng t f iarr r l l ig i i i seet i l is t ioni i l in purel 'Y f in:r i ' i '

i i3 . i ien:15. ! f -1-( l ianrr i i t inciui : t rh* teci" in ' r lot lY i i iangt rv i th '

!1 i i l i r f i .13 3 ' i ' ; i i r ' " i la l i i sct :s as '1 i l t t l 'p4r '1 i rn:r ' : i ; l inr ' ' : Ci lh*

l - , : , re t l l l . r1 l i t ;1 i : : l i - ' l l la ' t - l i : r icr 'nr : ' l i1 i ' - ' l : r l t \ .cr t iL i l l : tCOpe: i : l lc :"c

' , . i , :n i { i l l l l s f iJ i 3 l i i ln, . l i ' , : tn,e r lh! : l i ' ' ! r 'gt l lq i r t is in i :ss ' i - l f ' * '

. r r . rEr; l l i r t tu inr : ; l i f $hi j - ret i l i l r - ' t i l : ; ' . ' " 'atr- i f r :h: ! - i i l i ' i ' r \ ' { - " r \ { r j l t ! '

p ie x issr-r t ' . Ht : :s ' cr t l ' r ; l l " rccrnLYl ln l ' ) the i :vr ' r ; r l l veiue ci t l i t r t

206

Fy r ;nc playcr rctL 'h an equr l rbrrunl dr{ tnhutt( . }n acrcxs al lrh players is an equall_r'compler, isrtr.

We wiil tur;r no\\' to i. ccnsrdcr.rtr..n of thc thrrd conl.fortrnt from thc SCM frarnerficrrk fr.t technol({1,\'clxtrng-tJ?,i i leti l iTe plsil,oning anal_v\is. Even rf :.r-hn{)krq! chortcir. ' ' l im;xxtror rc.5{ Jriver fr.:,r }qgrne arxJ ir)eqint ir poten-rrtui) 'sn imFlnart stt.p ln thf, r 'alue chatn. a sul{h.lcnt lest fortnvcst ing in the nes, loggrng rc{hnology requtrcs that rhctrrleira af,rievable rf,e cor,sistent with the comperl'ivc Flsi-trf i lrnp stratcg)'adopted bv thc firm Thar rs. in more gen.trrl iogical terms, cach of thc three componrnrs ls neces-ti.rv in the anal\.sis, but all threc are rcquircd ft.r suffrienct.

Competit ive Advantage Anal;-sis. In thc SCMpcfsp{clire, rrndentarding the implicario,rrs of ho\r' the ftrm$11rr'tgrr to comp4te is fully as imgnnanr fcn cost analvsis aseq(, ; rstanding the valrrc chain and underslandrng the ke)rrratrgic cost dr ivcr$ at cr i t ical sreps in rhe chain. As dis-russcd b-v Pofle;. the basic choice on ho\.\ ' t<t t-ornpetc isktuct*n cfti l le:ldcnhrp and Ciffcrentiation. |7

l" i-os Cost. l'ne primary fcx'us of rhrs srrarcgv rs roachicvc lon cost relative ro ccmpetitorr. Cost leader-ship can bc achrc' cd rhrtxgh appr"orchcs sirch asitc{rinomics oi scale in prduction, learn;ng cunetffects, t ight coet control, and cost nrinrmiraiion inrreas such as R&D. scrvice. sales fon-e. or adverrising.!:-xarnpi;s <-.f f irylrs t-cllor";sg thrs srrategv ir 'clude:Texas Iirstrurnent; in consumar electmnics, Enrcrs,.rn5ler":tric in elcctric i l tolors. Hl undar in aurllmobiles,Briggs & Stratron in gasolinc cnsincs. I l lack & Dcckerin nrachinc trnls. ard Conrnrodore rn br:skrr-ssmachlnes.

2. Differentiation.'Ihe primar.v focus of this srrateg; is:o differentiate *re producr offering of the busrness'rntL creating io,nething thtt is pe rceived b-v cuslonrersrs be ing uniquc. Approacks to prxiuct dif lcrcnriarionrnclude: branC loyaliy (Cu:a-Cola in sofr drintsi. supe-rior cusiomer service (tr8h.1 in computers), rlea,ler net-x'ork (Caterpil lar in construcrion equlpmeni), Frducidcsign and pro.luq,t feature". (Hervle tt"Packard in e lcc-tronicu). and pfodurt technoloel (Colernan in lamoingcquipment) ,

f ' low this ehoicc affects i.)sr management for a finn isdrx:u,*rcd by Shnnk.ri lItc re lcvancr: lbr tcchnoloFt c!)sringis i l lu; : ra lcd b\ the l r r !g lnf int l r rsrn t le lJ snrth

\ ' -O has cntbirr [ 'ed on a di l iercnt ia i lon srratcgv rn rrsqrird rr '"xrd ()frc!'.rtr!)ns ior milrr th.rn trvf ntt rran. It,s stn t"egt ' r ' t ru i i t ar i , rund plant l t ior : t { r re:r t - \ rc. p l ; rnr and !ro\ \get lCi jCir l iy i rnprotg. l l r t i : i that wr l l ; ' re id:r * .6xnl mrx * ' i th arrtur-lt highcr iNrAn aYe ra!r: v:rluc rrr r:r:tUrirr With an errpro\-intatc th int- f rvc.)r . :* f L l r ( 'wln.r r \ " lc i r r thc \ l r i rn ia Tidc*; , r -tcr rcgr()n, thc stnr{egr 'str l l f r ; ls ab,r l r i i f rc i ,n ' .cArs t . i go

bclbrc rt can be ful ly intplrnrcnttrJ"

By the year 2000. if conr cntional ioggin-e is u.sed, e ach

-rca: \ ' -O t i ;nbcrlands r ' , i l i Le I ' ic lci ing ahnui I i {") per:ent of thc

hrgh-grade logs rhar irs expanded sct of sawmills anrl plv.*'<xxC mills r*' i l l ;equire" up from thc 6'l pcrccnt supptirvlrnternal ly in l9t i5. bur sr i l l wel l belc* ' lotal rcquircnrc.nl i .Thc rrmaining ?O ;rrcent *'ill havc tr: bc rmt by cutsitl* prr-chareq. ,x-t shor*, rr lrr:rt'

Lstimated \\ ood Suppl-v

Year

r 985DemrndSupply fromY.O timberlands

:CDODemand

and Derrr.ind

Pulp Mil ls

l*(OO.0O) uniLs6m.000 (4o*)

|,50O.O00 units

Sawmills/Pll-rr.nd l\lills

300,ffi0 units?00,m0 (6?q)

50O,000 units

4.tO.000 t8$.6!

4-50,rs0 (9oq.t

Suppll fronr \'-t) timLr.rlrnds:UsingconvcntronaltcchnologrUsing HrFlechnoltx'

piar{o<Licnisrr-it busi-er linl-d" Tbe'O veryrrd€r toro log-ing t}rof s$d

f ptxmr:h" Rishrequlftly finm-gewilbre of the€ as !€s$ss. Hofrryaorl}.) crea&d

50o.0o0 (33*)

500,m0 (13%)

If the H/F ic.:hnology wcre ro be uscd. the nct suppllof high-grade logs irom thc same a( re6ge lvould incr*aseb1 -i0.000 unit-s u'ach 1'car. This rvoultl save the sas'nrills an'.!plv*r,rrd nrills r.-rorc than $5 rnillion each year in purchasc,.ilogs. ' fhus, at lopt ing the new loggirrg technology nlovcs)'-(J suhstantiallv closer to self-sufl lcrencl, in supplying th,chigh-grade log needs of thc cxpandcd set of sawnri l ls anr ip l1 u, txNl mi l ls r t has bui l t as part of i ts h igh-value cxtrac-tron strategv. These savings are in addrtion to tlre quality ru -ings shorvn in Tablc ? l 'ronr stcm damage, sorting losscs, l: i lndn'ing losse.s. and douLrle handling.

The situation for one of Y-O's nrajor conipctitorr.\larathon Papcr Conrpany {disguised"r. which also orvns sul's tant ia l t inbcr lant ls in thc coastal Southcast, l t ighl ights thr :rele', 'ance of thl ' ' c()nrpetit ive gtsit ionrng choirc to tl le tr:clt-nologl' choice. W liereas Y-O's sirateey enlphns i z.cs "gradr,:ertraction" (iog.i for sa*,nri l is and plyu'<mti r"nil ls) and di:r-tribution in globel nrarkets, Mi:rathon'r strategy cntpirasize,r"fibe r ertraction" (pulp mill logs) and eon(:e ntriltcs piiillil'il.l:on domcstic market-s. Because Marathon sees its tirntrcriand:ipr imari lv as a s()urcc of lorv-value pulp logs to supply, i t : ;pulp nr i l ls . i t has a nruch snral ler conrmitmcnt in survrrr i l i : ;and plyrvood nrills and is not nearly as concernccl :rtrotrt tlrr.:problenls 6f <:rrrr ',r 'r.t innnl loFSing. i l ,tuathon Lrscs i l rrrucirsh,.rner rruwing c1,cle (trvent3-lwo yei.i 's) and does fl{ i -sp:r1rlnlone) each vea' in its forests (lerti l ir ing. bumirig" prrrnitt;r,lurrJ thinning) tr:r i icl. iere ri high-ralue rvood nrir.

It is not necessa|i lv i-rbvi,;us, but grorving bcttcr trces r,ionir'.]ustif rable if th::rc is a strategy tbr"subseque ntly nxtraci-ing thet exlra valLre in end-prcxluc{ rnn"l.ets"

Funhcrnrorc, rvhe ther a high-virluc timbcr str'&tegy i it isupcrior to a lorv-r.rlue strategy depc,nds on n conrplcx scrtof as-sumptions that play out over a twenty-fivc- t$ thirt l ilive-year growth cyqle. Various forest products finrrs havt:rnrade differcnt choices on this issue.

207

p

(, 'onventional loggrng tc' 'hnok)F) rr rth rt-r urrrph;lsn trnhigh r o lunx i l r r r l lorr t r - r 'a l"re) thrrxrhput rs t l l l l \ . ionstsrcnlwi t i r lJarath ' , r i 's str i t t€gy of lc ' .* .cr valuer iou cost. r \ t thcsarne tirne, 1'-C is m$', ' ing ahcad agq{rrssnclr to firxj garn-shar i r rg mcchrn:snrs Io indrrcc i l -s lo-sgrnt contractor5 t ( rs\A.t(ch to the l l ;F rcchnol t ig l , . v,hich rcprcsenrs a nruch L*. . r -ter l i t u ' i th i ls s( l ategy of a lorger grr , \ \ rh c1-cle * . r th hrgrtrc56t. br/t lrighei valuc"

To sumnrarize, Yakima-Olympia faced a significantproblem in rhe logging oprration stagc of tbe valuc chain.The prevailinf rechtlology for log3ing \ras cocl effective forfirms pursu i r rl' a suarety o f h i g h- r.ol u rne/ low- val x-addedwocr.l pnrduct:,. But it was nor cosr eftt;t ive fw firms pur-suing a srareg)' ot dilferenria:ion.trigh-r alue-added woc,lproducts. But.. srrrce irvJepenoe nt contmctors did fte logging.lbere rvas no drrect * 'a1' for Y-C to control the loseen; 'clroice of technoloty.

Conven iional grrolr r- | e r.e i fi nen : r al a.ra I 1 s i s dr^- s nrrtsuggest ro rhe ioggcr thar a chalrgc of rcchnolog,r. is a gixxlbusir less t lecjsron. An expanr led f inancial analysis f ra ine-wcrk, as reconr.mendeC by Kapiart, alsrt does nor catch thesignif icance cl the change. Even fronr thc expanrJed I ie* -Foint *F bcne t rs from the ne $' re{hnology. fall a}read of anJbehind the loglrer in the value chain. bur rhe iogger musrincur tlrc cosr and assume :hc risks. A competirive strareg,,persf}fct!ve is rrquired, but the conceptual frame*ork pro-posed by Poner lrot erplicit en()ugh on financial anai_\.sis t()be ver-r helpful. An a:j:. imented Losr aJ13l_\.sis frame u,ork, a;recommeMed by B;onr*' ich and thinrani, also does not cap-ture the s igni f icancc ci the chalge b! .cause rhe1. haVe no:pusheo stratct) and f i r rancial analrsr : idcas f ! r enoughE.rpl ic i t l . ' consider ing $c st laregic issues inyolyed in rhetechnolag-v clrange frorn tlrc loggen'peispective does enrichthe decision rnerric. But again, one rvil l n€ver see the po*,erof the change b; fccusing soiell on the logger. even whenusing an expand::d ard augnicntcd c,xr analy.sis frame*,ork.

Y-O ried to conviitce rhe ccnrracr loggers it hirecl rornov e frorn fe I I e r'- bu nehe r te{ h no i c

-g}' trt h arry e s te r,' fonv ard e r

technrliog./ using conl,entional projcct-level f inane ral anall -sis. ILs effrns faileJ tr: penulrcle 4ny loggers to changc. Evcncareful attention to intangible factcrrs. c,:rupied \r 'tth huidleraie subsidres (ln\,estmcnt gutuantef s) anri appeai to lone-ninder:i iner L'nder cutrrr!t logging meiit(xls dit l nilt tn{iuce con,ractors to su'it.h. Subsequent atiernpls to couch t}e decisronin strategic terms, for the loggers. er ine, j Somer, , . i i61 1-y16scrccepr iv i t l t r , changc, but st i l l norr hcrc .1. ,1r t l . ! r . .Er()un( l \$L. l 'Y O fclr ir neetled.

No real progress r!, ir\ ffr i}d{ yp11l \ '-{-) atloprer! an .gf'}1f i "anrcr+crk. I : r rgr . r ' re r , , int thc Prrrblutrr l rurn a r a luc alrrrnpersp(. t i " . ,e c lcar l l . rer?als the psr i rdrr : . that . a l th lugh thc.changf lnv, . ) lvrs nrajor f in i r rctal l r r i , . . f r i , , , (hc ! t rFe tn th( ,Ch:,tt wh.:rc l l rr : t tr .esttr l l : f i t fr tut i t ,r t"Tl. : i t( . ._.arn\ n,.rni: ,r i (ni,rc: i t l t ,n: ' t ; f r : r f i t \ en l r t currr r l t [ ] i : . . . j t ,g i ! g l i l iL- : ; . 5cr,r i , t j .the .,ost 11:- iver nelspectrve Jhnrr s t j t l t r .- ihnoiog\ chrl le!- tn{his situatiou rs indecd a key strucrur:r l ct-rst iactor that rs fur,ther rcinforccd bt ' c.xccutioi lal cost t .e--rors. ' fhird. the com.

P:I I l l re l , \ t l l ( ) r | { t ! l p.r \ [ . . ! t t \c lcrc l l -s th. t t , l r r thOugh thrStcchnok;g" ch.utr ' tS i t t r t iJ l r rp l l rn! unr je r a l l ionCCivablestrategic posl .ures, r i rs c ' rnrrr l l ing undcr the posi t ioningstratcgy to rc hrch \:U hl. i()l l i l l t !f ied. virtuall,v rrrevtx.ably.o\er thr ne\t ten lo hitee n rears" [--ach trf thcse thrce com-f\ rnents t f - thc SC!rt anairs is ls ncccss. l rv to tst . rb l ish thcratronah ti lr th(. nc\| rnvt'stntcnt.

Wlpthcr Y-O can ef[ecr a voluntary changeover to ll,.'1.logging among its contraciors is srill not clear. It will cer-tainly be neccssar)' ro explicirty consiJer gain-shuing mech-anisms acrcxs tlre supplier-custorner linkages to encouragca change in &e bgging sysierp Y-O bclieves to be oprirnal. lftte loggers decide thar Y-O's irrcentives are still inadequate.Y-O may be forced ro reconsider its decision to exciude thelogging step from irs verrical integration chain. In SCltterms, Y-O ntght realize that, given irs strategic pcsition. tirpotent ia l economies from tcchnological change ?rc largcenough to effset rhc disccrxxrnries fronr vcrtically irtcgratingat lhrs value chain step if gain-sharing inducenrcn:s for moreexpl ic i t e usromcr-suppl ier l in l . igcs arc not successi 'u l .

CONCLUSIONThc Y-O srudy represenrs rhe lrnritations of all four of th,earr.rent approaches tbr evaluaring tt'chnology invesmrent oppw,ru n i t ies--<on'e nticrnal f i nanci al anaiysis, expanded fi nan.ciai analysis, le compct i t i r e advantagc analysis,s anJstrategically augnlented financial analysis.:l The st.uly is alsrran excellent e;ranrple of hou the Stratcgic C'ost Managernentiranre*'ork pror' ides a morc usctul way to apply rhe po*.rtof cost anall,sis con!'cpts t0 tcchnology investnrent opportu"nrtres r', ' i thin a tully aniculated -\d-.rtegic anallsis cuntcxt.

Cle-arly, on€ essential step in the effective mlnagenlc$lof technology change is efl-ecti ' . 'e analysis oi lhe investrnm:opponunitics. We believe rhat Srrategic Cost Manegenremis a useful wa) to structure tlre analysis of such opporlunii"diand thus represents an imoonarrt conlponcnt of techn{il ir, i t l ,management.

- lohn K. Shank and \ i i j , t1,Got, i ; t iarajnn Llre l t r ( ) , , ; , r r . {dr"r d it h e A m o s Tu t: k S c h rt o I o.l' I rr-c in ess A d n i n i -s r r u r iir r!, .{-}i;?.i.nt<tuih Crt ! ie?e.

R eferrncesA nt* l r l i td t t r r iur t r - t_! th 's ortrr - ! t * t l . 'appear in th<,dt l thor i . l<t i tn(ai l . l r44r. . , ,4. Str . \ tcEi ! ( r )5t \ l . r i l . r tcnt .n l 1, \ 'cr . ) i : r l : I r rc I ' rc js j .

l. R. .latkrrrnar. "Posritrdus(nal Nlanu,acrunng," llat:.ord Busiri,ss pa.at.l ' io le nrfxr* I ) t ' r . rnrhrr i9f i ( r , pp.6i- i9.

' R f lar ts md \ \ r \btrnathy, 'LIanagi , rg Our \ \ 'a1 lo Econtnr, .Declrr te, t tcr ;ard Busincss Rrr . jer . . . July, . r \ugi ist l l ls t ) , pp.6r. a; .

. t , R. Ki f , i : {h " l r t r ,q Cl} ,1 t }c Ju^:r i f i . , - l or i i : ; r r rh.{ i r r t r : '1" i j ; : r r t r rdf l* ;wg- ll i .

' * i r . l . iarrh . ' ,pnl i . , : i i . . p[r . q- i . r5.

' l \ l .Pe,r i l r . "1c.hnr, l r ;1,anda.) i .11r. t t ( i . .c . . { r i r . ; t11" icx" ' ; r , r , - ;y11 , . r r i f i rr r r l . jJrc,crr \ \ tn l t r lc t< pp t l ] - - i l i

5. \1. Eron:t rch an<l . \ . lJhinurni , . .Sr,a,cgir ln lcstr i tnt Apprarsai , , . l lor

aecwnt, \ccounr.r3. f r larch 1991. np. 4i_- lg.

t

208

f.i.!..

:1;lt$lii

i,.:

6 l r i . \ \ocrJ \ t t ,o l f i r . I ' Lrnrrr . rqd ! { f j l r r t ,A'yrrrrtl rn rlr hl-$!trfel &,gire,rng lrrJ$grr.r.:r (l 'K l. (itr.l rr l9$.t. Jp -V>.3i

? , \qtrn ( lgv r

r P Xrr ' r rn -- ! \ r l rn i , r t ! . ,nTrfrnj l \ " -q lc< |8u:rr1r 5<l . r - i . I t r t ; )o &t.1€ I 'Ql q

ro tbd.

l l - l l r^ , : . r l

c()nlr . i . { :d $ t th " \ a luc, . rJ. i r . r l "anal) \ r i . u.hich is t \ l ic : l l l \ u\ \ lin C0nvcntronai . , \P\ , f ratr* . . ,* or l . \ , i luc-; tJJcd aralr , is : tar t :* ' i th pai ntcr , ts t ! ) tuppl le r t tpur-chax*s) ani l slops $ tth chrr lcs t(!CUStr)r l icn 1s:1,- 's ) u h l l r . t tx urrngon nta.\ | !rr 'Zir]S thc Jl lTr-rcrtcl ] , t i ;c! a lue ; . i "Jc.J {r i lc \ ntrnus pl t r ,.had-- i ) i r r r r .ht f in l l . \a luc. lJJcdanallsis is far ',,t s'1al1pr,, ii \ lL.\rbecausc tt misscs the ;ntpcr- lanccoi l inka:cs ur.)-slrL.ant 1n{ l1-rrr f l -Slrctm rn thr ' r aluc ch:r i :r .Cost Dr iver Anal ls is- \a lur .chain anal_r s lS dloDc is not a sulU-cient tesr of rhe desirabi l i r l ofchanging tcchnolo-s),. A secondneces,sary cf)mponent is that teth-nolog! choice ntust be an irr ipor-tant cost ,Jr iVe'r. Cost-s are a lUnC-t l ( )n of 's l ructural" drrvcl 5 15u..h

: : J \ Shtr:l anJ \'. Cor rndlrpn. ..stretcgr Cosr Nhn:.grrrrnt: Thc

\:lr ( hrrn (-(r-{fn{." rn //ordftrrt t{Ccnt Hat117p;lat1. crj. Ba16.J.Hr ' r lcr , \c* \ tx l \ \ys. { }n166 { i t Lern* i l . l99t) ,c}ugcr 2.lr t) R,k\ "{'.mt{rr:r\c Cr:st g,:srd In*sirEnt St.lc-i.. for lrxlustriei( , r r ; . :^rcr . t / . ; r r r . ; , l r . - r r f l r ; rc. (Nru Yrr l . B<ro-. Ai l .n & Hant i l ton.

l^ t t .J

l;- l 'sncr r l9$tl).

lE. Shs\ ( 191i9).

19 Krtb.l 11986)

2r.) Pmcr i !!}35)

?l Ertmrrh rrr l thrmrnr(19{ l l l

, r : . l :1aa:rrnr

l l . . :n- . , t t Y r . I , t , ' . t '

;l Irorri:b rrd Bh;r'Lmi ( t99; !.

l1. r- X Sha*, "Srntgic Co-r Flgurettltr- !f,{ \A'ir$ tr Jurr N..rBt*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

Blending thcse threc thenrcs rcprcscnt-sthc most po\ier{ul *ay to fr_x.us costaxdlysis for tcehnoiot tcal changc-StratcEic Cost h{anagemenr

l. Vslue Chain Anell 'sls. ltrc ;alucch;rrn iri any business ls t i lcl rnkct rc l of valuc+reattr ig aL tr . .rli3.i a;i thc $'a_r, koln l-rasic rarvmdtcrit ls t i,rcugh io corni{rncntsrpplicri. to tire ult irnate f rtJ,u.x-prodilct de i lvcred Int{} t l.}r l lna;ao|rslimcrs. hands. Eren thOuglr afirnr ma;' pariicipaic in only, apart 3f rhc value chain. uie firnrshould a.nsl-vza its rechnolog icaltnvcstrnents frum rhe s(andpointof ilrcir impact througfntrt rhechairL--rne impact on ir suppli-crs, thc impact on the finli ltJ€lt,and thc impact on i i-( customers." ' th l ' " rc f h l ln ' ' 3.J la l ) .s is can Lte

A SMATEGIC COST ft{AMGEMENT APPROACH TO TECI.TNOLOGICAI. I}.TVESTMTNTr.r.\ s!i lc. prt>duct l inc (onlplerit),.st rrJr- rrf opcralions. cx;rr ienccand tcchnologl') and *crccu-

tronal 'drrvers (such as' lotalQ' r.rl i t) ' l i lanagenrcnt,,:.tpacityut i l i tatron, and * o*f t r r . :c par l ic l -pat i t n) . ln shrrr t . thcrc rre nrul t i -plc tiiivcn of cr.rst. Technok:rg"vnrusr lE an inlp{rrurnt dri ,.er etfc(rsl el crit icai stcps in rhc ch;rin-L-'ompeiitive Advarrtagc .Lnal;'si.s-Technological choiccs cannot bcJust i f icd by 1u.t undcrstantr inSthc value chain and untlcmtiind-ing tire key cosr rlrivcrs. A finalcunlpJnent in the analysisinvolvcs analyzing whe:hcr tcch-noiogica! change ennanccs theway tlre t-rrrn has chosell to L-orlt-pete-rither on the ba\i.i ul-c.Ostor o; . thc hasis of d i f fcrcnt i : r t i r ,n.

flcBrintcd frorn ' Strategic Cost Anal; sis of Technrrlogrt allnvtslrnents' br J.K. Shank and V. (ior,inrjar.r-tan. ._\.,,,rntlttrugement Revicn* (Fall 1992), pp. .]9*.5 l, br pemlssr,rnd pjhlisher. i iopl rrghr d l99? | l.)y rhc Slo;rn \l :tn:rer,nrcr:rRrvk* Aslrrratron. Al l nghts rL-scn cC.

lO I Whct ore the four oporcoches lo evolucr i rg technologicol invesl6sny, r l rot Shonk ond Govindoroleincr i t ique? Whor ore the problems with eocho porooch?

Question

209