Implementing Strategies
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This document discusses strategies for implementing organizational strategies in key areas such as marketing, finance/accounting, research and development (R&D), and computer information systems (CIS). It provides an overview of issues and decisions around market segmentation, product positioning, capital acquisition, financial budgeting, business valuation, and R&D approaches. The purpose is to help strategists effectively execute strategies through policies and actions related to these critical functions.
Implementing Strategies
- 1. © 2001 Prentice Hall Ch. 8-1 Strategic Management Concepts & Cases 8th edition Fred R. David Chapter 8: Implementing Strategies: Marketing, Finance/Accounting, R&D, and CIS Issues PowerPoint Slides By: Anthony F. Chelte Western New England College
- 2. Comprehensive Strategic MMaannaaggeemmeenntt MMooddeell © 2001 Prentice Hall Measure & Evaluate Performance Chapter 9 Ch. 8-2 Vision & Mission Statements Chapter 2 External Audit Chapter 3 Strategies In Action Chapter 5 Internal Audit Chapter 4 Strategy Analysis & Choice Chapter 6 Implement Strategies: Management Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8
- 3. Implementing SSttrraatteeggiieess “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.” © 2001 Prentice Hall Ch. 8-3 —Peter Drucker—
- 4. Implementing SSttrraatteeggiieess “As market windows open and close more quickly, it is important that R&D be tied more closely to corporate strategy.” © 2001 Prentice Hall Ch. 8-4 —William Spenser—
- 5. Implementing SSttrraatteeggiieess “Most of the time, strategists should not be formulating strategy at all; they should be getting on with implementing strategies they already have.” © 2001 Prentice Hall Ch. 8-5 —Henry Mintzberg—
- 6. Implementing SSttrraatteeggiieess Less than 10% of strategies formulated are successfully implemented! © 2001 Prentice Hall Ch. 8-6
- 7. Implementing SSttrraatteeggiieess Some reasons for low success rate • Failing to segment markets © 2001 Prentice Hall Ch. 8-7 appropriately • Paying too much for a new acquisition • Falling behind competition in R&D • Not recognizing benefit of computers in managing information
- 8. © 2001 Prentice Hall Ch. 8-8 MMaarrkkeettiinngg IIssssuueess Two Variables of Central Importance to Strategy Implementation: • Market Segmentation • Product Positioning
- 9. © 2001 Prentice Hall Ch. 8-9 MMaarrkkeettiinngg IIssssuueess 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
- 10. © 2001 Prentice Hall Ch. 8-10 MMaarrkkeettiinngg IIssssuueess Current Issues: • Tracking individual movements on the Internet • Consumer “profiling”
- 11. Marketing Mix: CCoommppoonneenntt FFaaccttoorrss Product Place Promotion Price Distribution Advertising Level Quality channels Personal selling allowances Distribution Style Outlet location Sales promotion Payment terms Brand name Sales territories Publicity Inventory Packaging levels/locations © 2001 Prentice Hall Ch. 8-11 Warranty Service level Transportation Product line carriers Discounts & Features coverage
- 12. © 2001 Prentice Hall Ch. 8-12 MMaarrkkeettiinngg IIssssuueess Market Segmentation Used in strategy implementation • Particularly useful in small and specialized firms
- 13. © 2001 Prentice Hall Ch. 8-13 MMaarrkkeettiinngg IIssssuueess Market Segmentation Important because: • Market and product development, market penetration, and diversification require increased sales through new markets or products
- 14. © 2001 Prentice Hall Ch. 8-14 MMaarrkkeettiinngg IIssssuueess Market Segmentation Important because: • Firm can operate with limited resources. Enables a small firm by maximizing per-unit profits and per-segment sales.
- 15. © 2001 Prentice Hall Ch. 8-15 MMaarrkkeettiinngg IIssssuueess Market Segmentation Important because: • Segmentation decisions directly affect marketing mix variables: Product, place promotion, and price
- 16. © 2001 Prentice Hall Ch. 8-16 MMaarrkkeettiinngg IIssssuueess Market Segmentation Strategists evaluate potential: • Characteristics & needs of consumers • Consumer similarities and differences • Consumer group profiles
- 17. © 2001 Prentice Hall Ch. 8-17 MMaarrkkeettiinngg IIssssuueess Market Segmentation Based on: • Geographic variables • Demographic variables • Psychographic variables • Behavioral variables
- 18. © 2001 Prentice Hall Ch. 8-18 MMaarrkkeettiinngg IIssssuueess Product Positioning • After segmenting the market, determine what customers want and expect Analysis & research
- 19. © 2001 Prentice Hall Ch. 8-19 MMaarrkkeettiinngg IIssssuueess Product Positioning • Develop schematic representations of products Compare to competitors on industry success dimensions
- 20. Action Steps in Product Positioning • Select key criteria that are differentiators in the industry. • Diagram a two-dimensional product positioning map. • Plot major competitors’ products or services in the matrix. • Identify areas in the positioning map where firm’s products could be most competitive. Look for niches. © 2001 Prentice Hall Ch. 8-20 MMaarrkkeettiinngg IIssssuueess • Develop a marketing plan to position firm’s products appropriately.
- 21. MMaarrkkeettiinngg IIssssuueess Product Positioning as a Strategy © 2001 Prentice Hall Ch. 8-21 Implementation Tool • Look for the “vacant niche.” • Avoid suboptimization • Don’t serve two segments with same strategy. • Don’t position firm in the middle of the map.
- 22. © 2001 Prentice Hall Ch. 8-22 Product PPoossiittiioonniinngg MMaapp Low Convenience High Customer Loyalty Low Customer Loyalty High Convenience Firm 1 • • Firm 2 • Firm 3 Rental Car Market
- 23. FFiinnaannccee//AAccccoouunnttiinngg Central to Strategy Implementation • Capital acquisition • Development of pro forma financial statements • Financial budget preparation • Business valuation © 2001 Prentice Hall Ch. 8-23
- 24. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-24 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
- 25. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-25 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
- 26. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-26 Capital Acquisition Sources of capital: • Net profit from pperations • Sale of assets • Debt • Equity
- 27. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-27 Capital Acquisition EEaarrnniinnggss PPeerr SShhaarree//EEaarrnniinnggss BBeeffoorree IInntteerreesstt aanndd TTaaxxeess ((EEPPSS//EEBBIITT)) AAnnaallyyssiiss • Determination of debt, stock, or combination of debt & stock is best alternative for raising capital to implement strategies
- 28. FFiinnaannccee//AAccccoouunnttiinngg Pro Forma Financial Statements • Allows the firm to examine the expected results of various actions and approaches © 2001 Prentice Hall Ch. 8-28
- 29. FFiinnaannccee//AAccccoouunnttiinngg Pro Forma Financial Statements © 2001 Prentice Hall Ch. 8-29 • Forecast impact of various implementation decisions • Compute projected financial ratios under various strategy-implementation scenarios
- 30. FFiinnaannccee//AAccccoouunnttiinngg Steps in Pro Forma Financial Analysis • Prepare pro forma income statement. Forecast sales as accurately as possible. • Use percentage-of-sales method to project cost of goods sold (CGS) and the expense items in the income statement. • 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. © 2001 Prentice Hall Ch. 8-30 • Calculate the projected net income.
- 31. FFiinnaannccee//AAccccoouunnttiinngg Steps in Pro Forma Financial Analysis • 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. • 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. © 2001 Prentice Hall Ch. 8-31
- 32. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-32 Financial Budgets • Document that details how funds will be obtained and spent for a specified period of time. Annual budgets most common Not a tool for limiting expenditures Method for obtaining the most productive and profitable use of firm’s resources
- 33. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-33 Financial Budgets Types of Budgets: • Cash budgets • Operating budgets • Sales budgets • Profit budgets • Factory budgets
- 34. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-34 Financial Budgets Types of Budgets: • Capital budgets • Expense budgets • Divisional budgets • Variable budgets • Flexible budgets • Fixed budgets
- 35. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-35 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
- 36. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-36 Business Valuation Main approaches: • What a firm owns • What a firm earns • What a firm will bring in the market
- 37. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-37 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
- 38. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-38 Business Valuation • Future benefits derived through net profits 5 X the firm’s current annual profit or Five-year average profit level
- 39. FFiinnaannccee//AAccccoouunnttiinngg © 2001 Prentice Hall Ch. 8-39 Business Valuation • Market determination Selling price of similar company Price-earnings ratio method Outstanding shares method
- 40. © 2001 Prentice Hall Ch. 8-40 RR&&DD IIssssuueess 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
- 41. © 2001 Prentice Hall Ch. 8-41 RR&&DD IIssssuueess Research and Development (R&D) • R&D policies match market opportunities with internal capabilities
- 42. © 2001 Prentice Hall Ch. 8-42 RR&&DD IIssssuueess Research and Development (R&D) • Policies enhance strategy-implementation efforts: Product or process improvements Stress basic or applied research Leaders or followers in R&D
- 43. © 2001 Prentice Hall Ch. 8-43 RR&&DD IIssssuueess Research and Development (R&D) • Policies enhance strategy-implementation efforts: Develop robotics or manual processes Spend high, average, or low on R&D Perform R&D internal or outsource Use university resources or private
- 44. © 2001 Prentice Hall Ch. 8-44 RR&&DD IIssssuueess 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
- 45. KKeeyy TTeerrmmss && CCoonncceeppttss © 2001 Prentice Hall Ch. 8-45 • Cash budget • Computer Information systems • EPS/EBIT analysis • Financial budget • Market segmentation • Marketing mix variables • Outstanding shares method • Price-earnings ratio • Pro forma financial statement analysis • product positioning • Research and development • Vacant niche