implementing strategies ( part 2 )
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Copyright 2005 Prentice Hall Ch 8-1
Chapter 8Implementing Strategies: Marketing, Finance/Accounting, R&D, & MIS Issues
Strategic Management: Concepts & Cases
10th EditionFred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Copyright 2005 Prentice Hall Ch 8-2
Chapter Outline
The Nature of Strategy Implementation
Marketing Issues
Finance/Accounting Issues
Copyright 2005 Prentice Hall Ch 8-3
Chapter Outline (cont’d)
Research & Development (R&D) Issues
Management Information Systems (MIS)Issues
Copyright 2005 Prentice Hall Ch 8-4
The greatest strategy is doomed if it’s implemented badly. --
Bernard Reimann
Implementing Strategies
Copyright 2005 Prentice Hall Ch 8-5
-- Strategy implementation means change.
The Nature of Strategy Implementation
Copyright 2005 Prentice Hall Ch 8-6
-- Less than 10% of strategies formulated are successfully implemented!
The Nature of Strategy Implementation
Copyright 2005 Prentice Hall Ch 8-7
Failing to segment markets appropriately Paying too much for a new acquisition Falling behind competition in R&D Not recognizing benefit of computers in
managing information
Nature of Strategy Implementation
Low Success Rate – Strategy Implementation
Copyright 2005 Prentice Hall Ch 8-8
Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems
Nature of Strategy Implementation
Successful Strategy Implementation
Copyright 2005 Prentice Hall Ch 8-9
Marketing Issues
-- Marketing variables affect success/failure of strategy implementation
Copyright 2005 Prentice Hall Ch 8-10
Exclusive dealerships – multiple channels of distribution
Heavy, light, or no TV advertising Price leader or price follower Advertise online or not Offer complete or limited warrantee
Marketing Issues
Marketing Decisions requiring policies
Copyright 2005 Prentice Hall Ch 8-11
1. Market segmentation
2. Product positioning
Marketing Issues
Centrally important to Implementation
Copyright 2005 Prentice Hall Ch 8-12
Subdividing of a market into distinct subsets of customers according to needs and buying habits.
Marketing Issues
Market Segmentation
Copyright 2005 Prentice Hall Ch 8-13
Key to matching supply & demand Market development, product-development,
market penetration & diversification strategies Allows operating with limited resources Enables small firms to compete successfully
Marketing Issues
Market Segmentation
Copyright 2005 Prentice Hall Ch 8-14
Directly affect marketing mix variables: Product Place Promotion Price
Marketing Issues
Market Segmentation
Copyright 2005 Prentice Hall Ch 8-15
Marketing Mix – Component Factors
Service level
Warranty
Transportation carriers
Product line
Inventory levels/locations
Packaging
PublicitySales territoriesBrand name
Payment termsSales promotionOutlet locationStyle
Discounts & allowances
Personal sellingDistribution coverage
Features
LevelAdvertisingDistribution channels
Quality
PricePromotionPlaceProduct
Copyright 2005 Prentice Hall Ch 8-16
Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
Copyright 2005 Prentice Hall Ch 8-17
Region County size City or SMSA size Density Climate
Marketing Issues
Geographic
Copyright 2005 Prentice Hall Ch 8-18
Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
Copyright 2005 Prentice Hall Ch 8-19
Age Family Size Family Life Cycle Income/Occupation Education Religion Race/Nationality
Marketing Issues
Demographic
Copyright 2005 Prentice Hall Ch 8-20
Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
Copyright 2005 Prentice Hall Ch 8-21
Social Class Lifestyle Personality
Marketing Issues
Psychographic
Copyright 2005 Prentice Hall Ch 8-22
Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
Copyright 2005 Prentice Hall Ch 8-23
Use occasion Benefits sought User status Usage rate Loyalty status Readiness stage Attitude toward product
Marketing Issues
Behavioral
Copyright 2005 Prentice Hall Ch 8-24
Marketing Issues
-- Schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry
Product Positioning
Copyright 2005 Prentice Hall Ch 8-25
Marketing Issues
ProductPositioning
Customer WantsCustomer Wants
Customer NeedsCustomer Needs
Copyright 2005 Prentice Hall Ch 8-26
Product Positioning Steps
ProductPositioning
Steps
2. Diagram Map
1. Select Key Criteria
3. Plot competitors’products
4. Look for niches
5. Develop Marketing Plan
Copyright 2005 Prentice Hall Ch 8-27
Product Positioning Map
LowConvenience
HighCustomerLoyalty
LowCustomerLoyalty
HighConvenience
Firm 1•
•Firm 2
• Firm 3
Rental Car Market
LowCustomerLoyalty
HighConvenience
Firm 1•
•Firm 2
• Firm 3
Rental Car Market
Copyright 2005 Prentice Hall Ch 8-28
Look for vacant niche Avoid sub optimization Don’s serve 2 segments w/ same strategy Don’t position in the middle of the map
Marketing Issues
Product Positioning as Strategy Implementation Tool
Copyright 2005 Prentice Hall Ch 8-29
Finance/Accounting Issues
-- Central to strategy implementation.
Copyright 2005 Prentice Hall Ch 8-30
Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business
Finance/Accounting Issues
Essential for implementation
Copyright 2005 Prentice Hall Ch 8-31
Raise capital – short-term, long-term, preferred, or common stock
Lease or by fixed assets Determine appropriate dividend payout ratio
Finance/Accounting Issues
Decisions based on Finance/Accounting
Copyright 2005 Prentice Hall Ch 8-32
LIFO, FIFO, or market-value accounting approach
Extend time of AR Establish % discount on accounts for terms Determine the amount of cash kept on hand
Finance/Accounting Issues
Decisions based on Finance/Accounting
Copyright 2005 Prentice Hall Ch 8-33
Debt
Equity
Finance/Accounting Issues
Capital acquisition to implement strategies
Copyright 2005 Prentice Hall Ch 8-34
EPS/EBIT analysis Earnings per share/Earnings before interest and
taxes
Finance/Accounting Issues
Debt vs. Equity Decisions
Copyright 2005 Prentice Hall Ch 8-35
$Amount Needed: $500 Stock Price $40 EBIT Range $1000 to $2000 Tax Rate 175/673 = .26 = 26% Interest Rate 5% # Shares Outstanding 350
EPS-EBIT Analysis(in $millions)
Heinz Company – Year End 2001
Copyright 2005 Prentice Hall Ch 8-36
EPS-EBIT Analysis (in $millions) – Heinz Company
Stock Financing Financing Financing
High Low High Low High Low
EBIT ($982.4 in 2001) $2000 $1000 $2000 $1000 $2000 $1000
Interest (5%) 0 0 25 25 10 10
EBT 2000 1000 1975 975 1990 990
Taxes 26% 520 260 514 254 517 257
EAT 1480 740 1461 721 1473 733
# Shares outstanding 362.5 362.5 350 350 357.5 357.5
EPS 4.08 2.04 4.17 2.06 4.12 2.05
Copyright 2005 Prentice Hall Ch 8-37
Conclusion:
Heinz should use debt to raise the $500 million
Finance/Accounting Issues
EPS-EBIT Analysis Heinz
Copyright 2005 Prentice Hall Ch 8-38
Allow an organization to examine the expected results of various actions and approaches
Finance/Accounting Issues
Projected Financial Statements
Copyright 2005 Prentice Hall Ch 8-39
1. Prepare income statement before balance sheet (forecast sales)
2. Use percentage of sales method to project CoGS & expenses
3. Calculate projected net income
Finance/Accounting Issues
Steps in Preparing Projected Financial Statements
Copyright 2005 Prentice Hall Ch 8-40
4. Subtract dividends to be paid from Net Income and add remaining to Retained Earnings
5. Project balance sheet times beginning with retained earnings
6. List comments (remarks) on projected statements
Finance/Accounting Issues
Steps in Preparing Projected Financial Statements (cont’d)
Copyright 2005 Prentice Hall Ch 8-41
Projected Income Statement for Litten Company (in millions)
Prior Year 2004Projected Year
2005 Remarks
Projected Income Statement
Sales 100 150.00 50% increase
Cost of Goods Sold 70 105.00 70% of sales
Gross Margin 30 45.00
Selling Expense 10 15.00 10% of sales
Administrative Expense 5 7.50 5% of sales
EBIT 15 22.50
Interest 3 3.00
EBT 12 19.50
Taxes 6 9.75 50% rate
Net Income 6 9.75
Dividends 2 5.00
Retained Earnings 4 4.75
Copyright 2005 Prentice Hall Ch 8-42
-- Details how funds will be obtained and spent for a specified period of time.
Finance/Accounting Issues
Financial Budget
Copyright 2005 Prentice Hall Ch 8-43
Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets
Finance/Accounting Issues
Types of Budgets
Copyright 2005 Prentice Hall Ch 8-44
Divisional budgets Variable budgets Flexible budgets Fixed budgets
Finance/Accounting Issues
Types of Budgets
Copyright 2005 Prentice Hall Ch 8-45
Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms
Finance/Accounting Issues
Evaluating Worth of a Business
Copyright 2005 Prentice Hall Ch 8-46
1. What a firm owns2. What a firm earns3. What a firm will bring in the market
Finance/Accounting Issues
Evaluating Worth of a Business:
3 Basic Approaches
Copyright 2005 Prentice Hall Ch 8-47
Research & Development Issues
-- New products and improvement of existing products that allow for effective strategy implementation
Copyright 2005 Prentice Hall Ch 8-48
Level of support constrained by resource availability
Technological improvements shorten product life cycles
Research & Development Issues
Constraints
Copyright 2005 Prentice Hall Ch 8-49
1. 1st firm to market new technological products2. Innovative imitator of successful products3. Low-cost producer of similar but less
expensive products
Research & Development Issues
3 Major R&D approaches to implementing strategies
Copyright 2005 Prentice Hall Ch 8-50
Management Information Systems (MIS) Issues
-- Information is basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms
Copyright 2005 Prentice Hall Ch 8-51
Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs
MIS Issues
Functions of MIS
Copyright 2005 Prentice Hall Ch 8-52
Key Terms & Concepts
For Review (Chapter 8)
Cash Budget Marketing Mix Variables
EPS/EBIT AnalysisOutstanding Shares
Method
Management InformationSystems (MIS)
Price-Earnings RatioMethod
Market Segmentation Product Positioning
Copyright 2005 Prentice Hall Ch 8-53
Key Terms & Concepts
For Review (Chapter 8)
Projected Financial Statement Analysis
Research & Development(R&D)
Vacant Niche
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