grp2 strategic presentation
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STRATEGY EVALUATION AND CHOICE
PRESENTED BY GROUP TWO (2)
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What are we looking at ?
We are not going into the core evaluation strategies where a strategy ought to be Suitable to organisational objectives and goals, Acceptable, Feasible, should have Competitive Advantage and in Consonance with the external environ and major changes within it.
What are we looking at? Cont’d
We will basically be tackling Profit Impact of Market strategy (PIMS) as some rendition has been done on the Boston Consulting Group matrix and the various matrices by Group One
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PROFIT IMPACT OF MARKET STRATEGY
We are looking at PIMS across the different stages of industry life cycle; Embryonic, Growth, Matured and Aging
BACKGROUND OF PIMS
PIMS was set up by the Strategic Planning Institute (SPI) in Cambridge. It was set up based on the background study or research conducted by General Electric Company in the 1950s.
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BACKGROUND OF PIMS cont‘d
The corporate planners observed differences in the Return On Investment (ROI) of various businesses and began researching into those factors
Sidney Schaeffer led project
In 1960, a research project was set up by the Marketing Research Institute under the direction of Sidney Schaeffer to investigate the difference in ROI
•The relationship between market share and operating economies
•Factors that determine ROI
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The goals/ideas/objectives of PIMS
The basic idea of PIMS is to provide corporate planners, corporate top management, marketing executives etc. with more insight and information on expected profit performance of different kinds of businesses under different competitive environment
To develop an up to date database which truly explains the experience of businesses
To make research findings available to participating businesses and by so doing,
The goals/ideas/objectives of PIMS cont‘d
Managers would be provided answers to the following questions:
I. What rate of ROI, cash flow, profit level etc is normal with a given market and industry condition?
II.What major factors explain the differences in typical levels of ROI, cash flows etc among various kinds of businesses?
III.What strategy should be employed to achieve what level of ROI?
IV.What strategies should particular businesses pursue in order to meet their objectives?
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Profit Determinants
Our main emphasis here would be on the major determinants of ROI though such analysis is done under various conditions such as:
a.Characteristics of the business
b.The type of environment
c.Competitive position
d.Business structure
e.Discretionary budget allocated
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Major Determinants of ROI
Market share (position)
Investment intensity
Product or service quality
Marketing expenditures
Research and Development expenditures
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Market share
In relation to ROI as a major determinant of profitability.
A high relative market share has a positive effect on profit due to economies of scale and bargaining power
ROI goes up steadily as market share increases
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Marketing expenditure in relation to ROI
Higher marketing expenditure damages profitability
When quality is relatively low in relation to competition, then the relationship between marketing expenditure and ROI is negative
ROI diminished by a high level marketing expenditure even for business with average/superior relative product quality
Heavy marketing is no substitute for low product quality
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Research and Development in relation to ROI
Highly R/D spending hurts profitability when market position is weak but increase ROI when the market share is high
The higher the level of R/D spending, the lower the profit
R/D activities are very unprofitable if they don’t yield high product quality
When R/D spending is successfully converted into new products, then it can pay off
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Investment Intensity
The relationship between ROI and capital intensity is that of an inverse one. That is, the higher the ratio of investment to sales, the lower ROI tends to be
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Importance/Application of PIMS
Aid in profit forecasting for individual business unit
Standard for measuring management performance
To estimate the effects of strategic changes on profitability
Insight into the reasons for the past performance and the most fruitful direction for change
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Limitations of PIMS
PIMS ascertain that there should be positive correlation between relative market share and ROI but that does not always hold
PIMS assumes the goal of maximising ROI, as the best measured of performance is too narrow view of business performance eg. Growth, survival
PIMS studies are too concerned with the US big businesses to be of real value to smaller business operating in Europe, Africa etc.
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Conclusion
Despite the limitations and criticisms,
PIMS is still unique with such a vast pool of business experience database
It is seen as more experience accumulated, the quality and accuracy of predictions is improved.
PIMS is the best business database available, with the huge amount of data upon which it is built.
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Profit Impact of Market Strategy
Market share in relation to ROI
Investment intensity
Product or service quality
Marketing expenditure
R/D expenditure
Some recap
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