4.19  Questions

Question 1:   Define briefly what a business model is.

Question 2:  Describe briefly a business model for a retailing firm.

Question 3:  Describe briefly what is meant by business strategy, including how it can be defined relative to Porter’s concept of a value chain.

Question 4:  Refer to the following “Item 1” information for Wal-Mart and Best Buy:

Wal-Mart:  ITEM 1.  BUSINESS

General

Wal-Mart Stores, Inc. (“Walmart,” the “company” or “we”) operates retail stores in various formats around the world and is committed to saving people money so they can live better. We earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices (“EDLP”) while fostering a culture that rewards and embraces mutual respect, integrity and diversity. EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Our fiscal year ends on January 31 for our U.S., Canada and Puerto Rico operations. Our fiscal year ends on December 31 for all other operations. During the fiscal year ended January 31, 2010, we had net sales of $405.0 billion.

Best Buy:  Item 1. Business

Description of Business

We are committed to growth and innovation. Our business strategy is to treat customers as unique individuals, engaging and energizing our employees to serve customer needs with end-to-end solutions, while maximizing overall profitability. We believe we offer consumers meaningful advantages in store environment, multi-channel shopping, product value, product selection, and a variety of in-store and in-home services related to the merchandise we offer, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability.

Use Porter’s concept of a Value Chain to describe the two most important links in Wal-Mart’s Business Strategy and Best Buy’s Business Strategy.  Give brief reasons in support of your argument, using information contained in Item 1.

Question 5:  When Business Strategy is defined relative to Porter’s concept of a value chain, a distinction is made among strategies that differ with respect to:

 

a. The business performs different activities from rivals or,

b. The business performs similar activities in different ways

c. The business chooses not to perform certain activities

 

Refer to the Wal-Mart and Target Item 1 from their latest 10-K. Describe precisely the difference you see in their business strategies using Porter’s framework.

 

Question 6:  Describe briefly how business strategy is communicated when using a Balanced Scorecard approach.

 

Question 7:  An article titled:  “Coca-Cola agrees to acquire North American bottling operations” in the San Antonio Business Journal, February 25, 2010 stated:

“The Coca-Cola Co. has agreed to buy Coca-Cola Enterprises Inc.’s entire North American bottling business — and along with it the company’s bottling plant in San Antonio.

Atlanta-based Coca-Cola Co. (NYSE: KO) is the company that manufactures the soda concentrates for its line of Coke products. Coca-Cola Co. also provides global marketing support to its brands.

Coca-Cola Enterprises (NYSE: CCE) operates the bottling and distribution systems for the soda maker.

Officials with the San Antonio plant could not immediately be reached for comment. The local bottler is responsible for manufacturing and packaging Coke and Diet Coke products within the San Antonio service territory. The bottler is also responsible for marketing those products to area grocery stores, convenience stores and restaurants.

The company’s plant is located across the street from the AT&T Center and Freeman Coliseum complex in East San Antonio.

Under the terms of the agreement, Coca-Cola will acquire the assets and liabilities of Coca-Cola Enterprises in a cash-and-debt deal worth $13 billion.

Coca-Cola Enterprises’ North American operations control 75 percent of the U.S. distribution market for Coke products and 100 percent of Canada’s distribution market.

The two companies expect the transaction will close in the fourth quarter of 2010.

The Coca-Cola Co. says this transaction should create operational efficiencies of $350 million over the next four years. The deal should be accretive to earnings per share on a fully diluted basis by 2012.”

This announcement makes Coca Cola’s investment decision more similar to PepsiCo than it was when described in Item 1 of the 2010 10-K (covering 2009 operations). 

Apply the Balanced Scorecard method for communicating KO’s change in business strategy. 

Real World Exercise on Business Model and Business Strategy

Select two companies from the Current FTS Dataset that are competitors, or at least are in the same industry even if they do not directly compete with each other. 

i.                    Identify and describe the business model for the two stocks you have selected.  Relevant material for this project can be found in Item 1 of the 10-K, the MD&A section of the 10-K and other relevant sources.  You should use Porter’s concept of a value chain to describe the business model for the two stocks.

ii.                  Identify and describe the business strategy for the two stocks you have selected.  You can refer to part i. to describe the business strategy.  You should explicitly describe how the two strategies differ or why you think they are the same if you do not view them to be different.

iii.                Suppose you use the balanced scorecard approach to communicate the business strategy to your clients.  Describe what this approach is and identify three performance measures that you assess to be most important for evaluating performance along the different perspectives/dimensions embraced by a balanced scorecard approach.