Analysis of growth, price-recovery, and productivity components (continuation of 12-29 and 12-30). Suppose that during 2017, the market for architectural jobs increases by 10%. Assume that any increase in market share more than 10% and any decrease in selling price are the result of strategic choices by Compton’s management to implement its strategy.
Calculate how much of the change in operating income from 2016 to 2017 is due to the industry-market-size factor, product differentiation, and cost leadership. How successful has Compton been in implementing its strategy? Explain.
Continuation of 12-29
Strategy, balanced scorecard, service company. Compton Associates is an architectural firm that has been in practice only a few years. Because it is a relatively new firm, the market for the firm’s services is very competitive. To compete successfully, Compton must deliver quality services at a low cost. Compton presents the following data for 2016 and 2017.
Architect labor-hour costs are variable costs. Architect support costs for each year depend on the Architect support capacity that Compton chooses to maintain each year (that is, the number of jobs it can do each year). Architect support costs do not vary with the actual number of jobs done that year
1. Is Compton Associate’s strategy one of product differentiation or cost leadership? Explain briefly. .
2. Describe key measures you would include in Compton’s balanced scorecard and your reasons for doing so.
Continuation of 12-30
Strategic analysis of operating income (continuation of 12-29). Refer to Exercise 12-29.
1. Calculate the operating income of Compton Associates in 2016 and 2017.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2016 to 2017.
3. Comment on your answer in requirement 2. What do these components indicate?
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