implementing strategies “ there is no “perfect” strategic decision. one always has to pay a...
TRANSCRIPT
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Implementing Strategies
“There is no “perfect” strategic decision. One always has to pay a price. One always has to balance conflicting objectives, conflicting opinions, and conflicting priorities. The best strategic decision is only an approximation—and a risk.”
—Peter Drucker—
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Implementing Strategies
“Most of the time, strategists should not be formulating strategy at all; they should be getting on with implementing strategies they already have.”
—Henry Mintzberg—
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Implementing Strategies
Less than 10% of strategies formulated
are successfully implemented!
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Implementing Strategies
Some reasons for low success rate
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
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Marketing Issues
Two Variables of Central Importance to Strategy Implementation:
Market Segmentation
Product Positioning
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Marketing Issues
Decisions that may require policies:• Use exclusive dealers or multiple
channels of distribution• Use heavy, light, or no TV
advertising• Be a price leader or price
follower• Offer a complete or limited
warranty• Salespersons reward structure
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Marketing Issues
Current Issues:
Tracking individual movements on the Internet
Consumer “profiling”
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Marketing Mix: Component Factors
Service level
Warranty
Transportation carriers
Product line
Inventory levels/locations
Packaging
PublicitySales territories
Brand name
Payment terms
Sales promotionOutlet locationStyle
Discounts & allowances
Personal sellingDistribution coverage
Features
LevelAdvertisingDistribution channels
Quality
PricePromotionPlaceProduct
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Marketing Issues
Market Segmentation
Used in strategy implementation
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Marketing Issues
Market SegmentationImportant because: Market and product
development, market penetration, and diversification require increased sales through new markets or products
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Marketing Issues
Market SegmentationImportant because: Firm can operate with limited
resources. Enables a small firm by maximizing per-unit profits and per-segment sales.
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Marketing Issues
Market SegmentationImportant because: Segmentation decisions
directly affect marketing mix variables:Product, place promotion, and
price
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Marketing Issues
Market SegmentationStrategists evaluate potential: Characteristics & needs of
consumers Consumer similarities and
differences Consumer group profiles
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Marketing Issues
Market SegmentationBased on: Geographic variables Demographic variables Psychographic variables Behavioral variables
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Marketing Issues
Product Positioning
After segmenting the market, determine what customers want and expect
Analysis & research
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Marketing Issues
Product Positioning
Develop schematic representations of productsCompare to competitors on
industry success dimensions
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Marketing Issues
• Develop a marketing plan to position firm’s products appropriately.
• Identify areas in the positioning map where firm’s products could be most competitive. Look for niches.
• Plot major competitors’ products or services in the matrix.
• Diagram a two-dimensional product positioning map.
• Select key criteria that are differentiators in the industry.
Action Steps in Product Positioning
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Marketing Issues
Product Positioning as a Strategy Implementation Tool
Look for the “vacant niche.” Avoid suboptimization Don’t serve two segments with
same strategy.
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© 2001 Prentice Hall
Ch. 8-19
Product Positioning Map
LowConvenience
HighCustomerLoyalty
LowCustomerLoyalty
HighConvenience
Firm 1•
•Firm 2
• Firm 3
Rental Car Market
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Finance/Accounting
Central to Strategy Implementation
Capital acquisition Development of pro forma
financial statements Financial budget preparation Business valuation
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Finance/Accounting
Decisions that may require policies:
• Raise capital with short-term debt, long-term debt, preferred stock, or common stock
• Lease or buy fixed assets• Determine dividend payout ration• LIFO, FIFO, or market-value
accounting approach
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Finance/Accounting
Decisions that may require policies:
• Extend the time of accounts receivable
• Establish a certain percentage discount on accounts w/I specified period of time
• Determine the amount of cash on hand
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Finance/Accounting
Capital Acquisition
Sources of capital:• Net profit from pperations• Sale of assets• Debt• Equity
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Finance/Accounting
Capital Acquisition
Earnings Per Share/Earnings Before Interest and Taxes (EPS/EBIT) Analysis
Determination of debt, stock, or combination of debt & stock is best alternative for raising capital to implement strategies
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Finance/Accounting
Pro Forma Financial Statements
• Allows the firm to examine the expected results of various actions and approaches
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Finance/Accounting
Pro Forma Financial Statements
Forecast impact of various implementation decisions
Compute projected financial ratios under various strategy-implementation scenarios
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Finance/Accounting
• Subtract from net income any dividends to be paid. Add remaining net income to Retained Earnings. Retained earnings total on both income statement and balance sheet as this is the key link for the projected statements.
• Calculate the projected net income.
• Use percentage-of-sales method to project cost of goods sold (CGS) and the expense items in the income statement.
• Prepare pro forma income statement. Forecast sales as accurately as possible.
Steps in Pro Forma Financial Analysis
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Finance/Accounting
• List comments (remarks) on the projected statements. Significant changes from prior years to projected year necessitate a remark. Remarks are necessary for meaningful pro formas.
• Project balance sheet items. Begin with Retained Earnings. Forecast in the following order: stockholders’ equity, long-term liabilities, current liabilities, total liabilities, total assets, fixed assets, and current assets. Use cash account as the plug figure. Make appropriate adjustments.
Steps in Pro Forma Financial Analysis
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Finance/Accounting
Financial Budgets
Document that details how funds will be obtained and spent for a specified period of time.Annual budgets most commonNot a tool for limiting expendituresMethod for obtaining the most
productive and profitable use of firm’s resources
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Finance/Accounting
Financial Budgets
Types of Budgets:• Cash budgets• Operating budgets• Sales budgets• Profit budgets• Factory budgets
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Finance/Accounting
Financial Budgets
Types of Budgets:• Capital budgets• Expense budgets• Divisional budgets• Variable budgets• Flexible budgets• Fixed budgets
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Finance/Accounting
Financial Budgets
Limitations:• Can become too detailed;
cumbersome and expensive• Can become a substitute for
objectives• Can hide inefficiencies• Can be used as instruments of
tyranny
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Finance/Accounting
Business Valuation
Main approaches:• What a firm owns• What a firm earns• What a firm will bring in the
market
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Finance/Accounting
Business Valuation
Determine net worth or stockholders’ equity
Sum of common stock, additional paid in capital and retained earnings. Goodwill and under- or overvalued assets. Provides estimate of firm’s monetary
value
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Finance/Accounting
Business Valuation
Future benefits derived through net profits
5 X the firm’s current annual profit or
Five-year average profit level
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Finance/Accounting
Business Valuation
Market determinationSelling price of similar companyPrice-earnings ratio methodOutstanding shares method
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R&D Issues
Research and Development (R&D)
Development of new products and improvement of existing products
Strategies of product development, market penetration, and concentric diversification require R&D
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R&D Issues
Research and Development (R&D)
R&D policies match market opportunities with internal capabilities
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R&D Issues
Research and Development (R&D)policies
can enhance strategy-implementation
efforts to:
Product or process improvementsStress basic or applied researchLeaders or followers in R&D
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R&D Issues
Research and Development (R&D) policies
can enhance strategy-implementation
efforts to:Develop robotics or manual
processesSpend high, average, or low on
R&DPerform R&D internal or outsource
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Research and Development Issues
Some obvious choices in R&D:
• Slow technical progress, moderate market growth and significant barrier to entry – In-house R&D.
• Rapid changing technology, slow growing market – Risky to invest in R&D.
• Slow growth in technology but fast growing market – Not enough time for in-house R&D.
• Technical growth and market growth is fast – Acquisition of company with good R&D capabilities.
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R&D Issues
Three Major Approaches First mover in new technological
products Innovative imitator of successful
products Low-cost producer through mass
production similar to recently introduced products
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Management Information System Issues
Recognizing the importance of having an effective management information system (MIS) will not be an option in the future, it will be a requirement.
• Gain competitive advantage.
• Reduce cost.
• Doing away with workplace concepts in the west.