Implementing Strategies ( Part 2 )


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Implementing Strategies ( Part 2 )

  1. 1. Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, & MIS Issues <ul><li>Strategic Management: Concepts & Cases </li></ul><ul><li>10 th Edition </li></ul><ul><li>Fred David PowerPoint Slides by </li></ul><ul><li>Anthony F. Chelte </li></ul><ul><li>Western New England College </li></ul>
  2. 2. Chapter Outline The Nature of Strategy Implementation Marketing Issues Finance/Accounting Issues
  3. 3. Chapter Outline ( cont’d ) Research & Development (R&D) Issues Management Information Systems (MIS) Issues
  4. 4. <ul><li>The greatest strategy is doomed if it’s implemented badly. -- </li></ul><ul><li>Bernard Reimann </li></ul>Implementing Strategies
  5. 5. <ul><li>-- Strategy implementation means change. </li></ul>The Nature of Strategy Implementation
  6. 6. <ul><li>-- Less than 10% of strategies formulated are successfully implemented! </li></ul>The Nature of Strategy Implementation
  7. 7. <ul><li>Failing to segment markets appropriately </li></ul><ul><li>Paying too much for a new acquisition </li></ul><ul><li>Falling behind competition in R&D </li></ul><ul><li>Not recognizing benefit of computers in managing information </li></ul>Nature of Strategy Implementation Low Success Rate – Strategy Implementation
  8. 8. <ul><li>Market goods & services well </li></ul><ul><li>Raise needed working capital </li></ul><ul><li>Produce technologically sound goods </li></ul><ul><li>Sound information systems </li></ul>Nature of Strategy Implementation Successful Strategy Implementation
  9. 9. <ul><li>-- Marketing variables affect success/failure of strategy implementation </li></ul>Marketing Issues
  10. 10. <ul><li>Exclusive dealerships – multiple channels of distribution </li></ul><ul><li>Heavy, light, or no TV advertising </li></ul><ul><li>Price leader or price follower </li></ul><ul><li>Advertise online or not </li></ul><ul><li>Offer complete or limited warrantee </li></ul>Marketing Issues Marketing Decisions requiring policies
  11. 11. <ul><li>Market segmentation </li></ul><ul><li>Product positioning </li></ul>Marketing Issues Centrally important to Implementation
  12. 12. <ul><li>Subdividing of a market into distinct subsets of customers according to needs and buying habits. </li></ul>Marketing Issues Market Segmentation
  13. 13. <ul><li>Key to matching supply & demand </li></ul><ul><li>Market development, product-development, market penetration & diversification strategies </li></ul><ul><li>Allows operating with limited resources </li></ul><ul><li>Enables small firms to compete successfully </li></ul>Marketing Issues Market Segmentation
  14. 14. <ul><li>Directly affect marketing mix variables: </li></ul><ul><ul><li>Product </li></ul></ul><ul><ul><li>Place </li></ul></ul><ul><ul><li>Promotion </li></ul></ul><ul><ul><li>Price </li></ul></ul>Marketing Issues Market Segmentation
  15. 15. Marketing Mix – Component Factors Service level Warranty Transportation carriers Product line Inventory levels/locations Packaging Publicity Sales territories Brand name Payment terms Sales promotion Outlet location Style Discounts & allowances Personal selling Distribution coverage Features Level Advertising Distribution channels Quality Price Promotion Place Product
  16. 16. Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic
  17. 17. <ul><li>Region </li></ul><ul><li>County size </li></ul><ul><li>City or SMSA size </li></ul><ul><li>Density </li></ul><ul><li>Climate </li></ul>Marketing Issues Geographic
  18. 18. Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic
  19. 19. <ul><li>Age </li></ul><ul><li>Family Size </li></ul><ul><li>Family Life Cycle </li></ul><ul><li>Income/Occupation </li></ul><ul><li>Education </li></ul><ul><li>Religion </li></ul><ul><li>Race/Nationality </li></ul>Marketing Issues Demographic
  20. 20. Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic
  21. 21. <ul><li>Social Class </li></ul><ul><li>Lifestyle </li></ul><ul><li>Personality </li></ul>Marketing Issues Psychographic
  22. 22. Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic
  23. 23. <ul><li>Use occasion </li></ul><ul><li>Benefits sought </li></ul><ul><li>User status </li></ul><ul><li>Usage rate </li></ul><ul><li>Loyalty status </li></ul><ul><li>Readiness stage </li></ul><ul><li>Attitude toward product </li></ul>Marketing Issues Behavioral
  24. 24. <ul><li>-- Schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry </li></ul>Marketing Issues Product Positioning
  25. 25. Marketing Issues Product Positioning Customer Wants Customer Needs
  26. 26. Product Positioning Steps Product Positioning Steps 2. Diagram Map 1. Select Key Criteria <ul><li>Plot competitors’ </li></ul><ul><li>products </li></ul>4. Look for niches 5. Develop Marketing Plan
  27. 27. Product Positioning Map Low Convenience High Customer Loyalty Low Customer Loyalty High Convenience Firm 1 • • Firm 2 • Firm 3 Rental Car Market Low Customer Loyalty High Convenience Firm 1 • • Firm 2 • Firm 3 Rental Car Market
  28. 28. <ul><li>Look for vacant niche </li></ul><ul><li>Avoid sub optimization </li></ul><ul><li>Don’s serve 2 segments w/ same strategy </li></ul><ul><li>Don’t position in the middle of the map </li></ul>Marketing Issues Product Positioning as Strategy Implementation Tool
  29. 29. <ul><li>-- Central to strategy implementation. </li></ul>Finance/Accounting Issues
  30. 30. <ul><li>Acquiring needed capital </li></ul><ul><li>Developing projected financial statements </li></ul><ul><li>Preparing financial budgets </li></ul><ul><li>Evaluating worth of a business </li></ul>Finance/Accounting Issues Essential for implementation
  31. 31. <ul><li>Raise capital – short-term, long-term, preferred, or common stock </li></ul><ul><li>Lease or by fixed assets </li></ul><ul><li>Determine appropriate dividend payout ratio </li></ul>Finance/Accounting Issues Decisions based on Finance/Accounting
  32. 32. <ul><li>LIFO, FIFO, or market-value accounting approach </li></ul><ul><li>Extend time of AR </li></ul><ul><li>Establish % discount on accounts for terms </li></ul><ul><li>Determine the amount of cash kept on hand </li></ul>Finance/Accounting Issues Decisions based on Finance/Accounting
  33. 33. <ul><li>Debt </li></ul><ul><li>Equity </li></ul>Finance/Accounting Issues Capital acquisition to implement strategies
  34. 34. <ul><li>EPS/EBIT analysis </li></ul><ul><ul><li>Earnings per share/Earnings before interest and taxes </li></ul></ul>Finance/Accounting Issues Debt vs. Equity Decisions
  35. 35. <ul><li>$Amount Needed: $500 </li></ul><ul><li>Stock Price $40 </li></ul><ul><li>EBIT Range $1000 to $2000 </li></ul><ul><li>Tax Rate 175/673 = .26 = 26% </li></ul><ul><li>Interest Rate 5% </li></ul><ul><li># Shares Outstanding 350 </li></ul>EPS-EBIT Analysis (in $millions) Heinz Company – Year End 2001
  36. 36. EPS-EBIT Analysis (in $millions) – Heinz Company 2.05 4.12 2.06 4.17 2.04 4.08 EPS 357.5 357.5 350 350 362.5 362.5 # Shares outstanding 733 1473 721 1461 740 1480 EAT 257 517 254 514 260 520 Taxes 26% 990 1990 975 1975 1000 2000 EBT 10 10 25 25 0 0 Interest (5%) $1000 $2000 $1000 $2000 $1000 $2000 EBIT ($982.4 in 2001) Low High Low High Low High Financing Financing Stock Financing
  37. 37. <ul><li>Conclusion: </li></ul><ul><ul><li>Heinz should use debt to raise the $500 million </li></ul></ul>Finance/Accounting Issues EPS-EBIT Analysis Heinz
  38. 38. <ul><li>Allow an organization to examine the expected results of various actions and approaches </li></ul>Finance/Accounting Issues Projected Financial Statements
  39. 39. <ul><li>Prepare income statement before balance sheet (forecast sales) </li></ul><ul><li>Use percentage of sales method to project CoGS & expenses </li></ul><ul><li>Calculate projected net income </li></ul>Finance/Accounting Issues Steps in Preparing Projected Financial Statements
  40. 40. <ul><li>Subtract dividends to be paid from Net Income and add remaining to Retained Earnings </li></ul><ul><li>Project balance sheet times beginning with retained earnings </li></ul><ul><li>List comments (remarks) on projected statements </li></ul>Finance/Accounting Issues Steps in Preparing Projected Financial Statements (cont’d)
  41. 41. Projected Income Statement for Litten Company (in millions)   4.75 4 Retained Earnings   5.00 2 Dividends   9.75 6 Net Income 50% rate 9.75 6 Taxes   19.50 12 EBT   3.00 3 Interest   22.50 15 EBIT 5% of sales 7.50 5 Administrative Expense 10% of sales 15.00 10 Selling Expense   45.00 30 Gross Margin 70% of sales 105.00 70 Cost of Goods Sold 50% increase 150.00 100 Sales   Projected Income Statement Remarks Projected Year 2005 Prior Year 2004  
  42. 42. <ul><li>-- Details how funds will be obtained and spent for a specified period of time. </li></ul>Finance/Accounting Issues Financial Budget
  43. 43. <ul><li>Cash budgets </li></ul><ul><li>Operating budgets </li></ul><ul><li>Sales budgets </li></ul><ul><li>Profit budgets </li></ul><ul><li>Factory Budgets </li></ul><ul><li>Expense Budgets </li></ul>Finance/Accounting Issues Types of Budgets
  44. 44. <ul><li>Divisional budgets </li></ul><ul><li>Variable budgets </li></ul><ul><li>Flexible budgets </li></ul><ul><li>Fixed budgets </li></ul>Finance/Accounting Issues Types of Budgets
  45. 45. <ul><li>Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms </li></ul>Finance/Accounting Issues Evaluating Worth of a Business
  46. 46. <ul><li>What a firm owns </li></ul><ul><li>What a firm earns </li></ul><ul><li>What a firm will bring in the market </li></ul>Finance/Accounting Issues Evaluating Worth of a Business: 3 Basic Approaches
  47. 47. <ul><li>-- New products and improvement of existing products that allow for effective strategy implementation </li></ul>Research & Development Issues
  48. 48. <ul><li>Level of support constrained by resource availability </li></ul><ul><li>Technological improvements shorten product life cycles </li></ul>Research & Development Issues Constraints
  49. 49. <ul><li>1 st firm to market new technological products </li></ul><ul><li>Innovative imitator of successful products </li></ul><ul><li>Low-cost producer of similar but less expensive products </li></ul>Research & Development Issues 3 Major R&D approaches to implementing strategies
  50. 50. <ul><li>-- Information is basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms </li></ul>Management Information Systems (MIS) Issues
  51. 51. <ul><li>Information collection, retrieval, & storage </li></ul><ul><li>Keeping managers informed </li></ul><ul><li>Coordination of activities among divisions </li></ul><ul><li>Allow firm to reduce costs </li></ul>MIS Issues Functions of MIS
  52. 52. <ul><li>Key Terms & Concepts </li></ul>For Review (Chapter 8) Cash Budget Marketing Mix Variables EPS/EBIT Analysis Outstanding Shares Method Management Information Systems (MIS) Price-Earnings Ratio Method Market Segmentation Product Positioning
  53. 53. <ul><li>Key Terms & Concepts </li></ul>For Review (Chapter 8) Projected Financial Statement Analysis Research & Development (R&D) Vacant Niche