Strategy, balanced scorecard

Stanmore Corporation makes a special-purpose machine, D4H, used in the textile industry. Stanmore has designed the D4H machine for 2013 to be distinct from its competitors. It has been generally regarded as a superior machine. Stanmore presents the following data for 2012 and 2013.

Stanmore produces no defective machines, but it wants to reduce direct materials usage per D4H machine in 2013. Conversion costs in each year depend on production capacity defined in terms of D4H units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Stanmore can support, not the actual number of customers it serves. Stanmore has 75 customers in 2012 and 80 customers in 2013.

Required:
1. Is Stanmore's strategy one of product differentiation or cost leadership? Explain briefly.
2. Describe briefly key measures that you would include in Stanmore's balanced scorecard and the reasons for doing so.

1. Stanmore Corporation follows a product differentiation strategy in 2011. Stanmore's D4H machine is distinct from its competitors and generally regarded as superior to competitors' products. To succeed, Stanmore must continue to differentiate its product and charge a premium price.

2. Balanced Scorecard measures for 2013 follow:

Financial Perspective
(1) Increase in operating income from charging higher margins, (2) price premium earned on products
These measures indicate whether Stanmore has been able to charge premium prices and achieve operating income increases through product differentiation.

Customer Perspective
(1) Market share in high-end special-purpose textile machines, (2) customer satisfaction, (3) new customers
Stanmore's strategy should result in improvements in these customer measures that help evaluate whether Stanmore's product differentiation strategy is succeeding with its customers. These measures are leading indicators of superior financial performance.

Internal Business Process Perspective
(1) Manufacturing quality and reduced wastage of direct materials, (2) new product features added, (3) order delivery time
Improvements in these measures are expected to result in more distinctive products delivered to its customers and in turn superior financial performance.

Learning and Growth Perspective
(1) Development time for designing new machines, (2) improvements in manufacturing processes, (3) employee education and skill levels, (4) employee satisfaction
Improvements in these measures are likely to improve Stanmore's capabilities to produce distinctive products that have a cause-and-effect relationship with improvements in internal business processes, which in turn lead to customer satisfaction and financial performance.