Question

QUESTION THREE Mason Paper Company (MPC) manufactures commodity grade papers for use in computer printers and photocopiers. MPC has reported net operating losses for the last two years due to intense price pressure from much larger competitors. The MPC management team - including Kristen Townsend (CEO), Mike Martinez (vice president of Manufacturing), Tom Andrews (vice president of Marketing), and Wendy Chen (CFO) – is contemplating a change in strategy to save the company from impending bankruptcy. Excerpts from a recent management team meeting are shown below: Townsend: As we all know; the commodity paper manufacturing business is all about economies of scale. The largest competitors with the lowest cost per unit win. The limited capacity of our older machines prohibits us from competing in the high-volume commodity paper grades. Furthermore, expanding our capacity by acquiring a new paper-making machine is out of the question given the extraordinarily high price tag. Therefore, I propose that we abandon cost reduction as a strategic goal and instead pursue manufacturing flexibility as the key to our future success. Chen: Manufacturing flexibility? What does that mean? Martinez: It means we have to abandon our "crank out as many tons of paper as possible" mentality. Instead, we need to pursue the low-volume business opportunities that exist in the nonstandard,

Answer 1

(a): MPC’s previous means of competitive advantage was based on cost reduction and offering products to its customers at low price points. The new proposed competitive advantage is radically different from the old one and focuses on manufacturing flexibility so as to be able to provide higher priced paper products to its customers. The previous competitive advantage was based on manufacturing large quantities of paper but the new proposed competitive advantage will focus on making specialized paper grades that will be low volume in nature but will be priced at a premium because of the fact that it is a niche segment. Thus we can say that the company’s competitive advantage is changing from the earlier cost focus based competitive advantage to differentiation focus competitive advantage now.

(b): A company that changes its strategic goals needs to change its performance measurement system as well because of the simple reason that with change in strategic goals the target for success would also change for the company. The change in performance measurement system will ensure that the new laid out objectives are achieved in a structured and systematic manner. It should be noted that performance measurement system serves as a link between decisions and organizational goals and once organizational goals are changed then it will be important to tweak this link as well, otherwise it will serve no purpose and employee’s actions and decisions will not be aligned to new goals.