10.Strategy+Implementation

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CHAPTER 10

STRATEGY IMPLEMENTATION;

STAFFING & DIRECTING

STRATEGIC MANAGEMENTAND BUSINESS POLICY

11th Edition

Thomas L. Wheelen

J. David Hunger


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Strategy Implementation

The greatest strategy is doomed if its

implemented badly. --Bernard Reimann

Implementing Strategies


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-- Strategy implementation means change.

The Nature of StrategyImplementation



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-- Less than 10% of strategies formulated aresuccessfully implemented!

The Nature of StrategyImplementation



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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 StrategyImplementation

Low Success Rate Strategy Implementation



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Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems

Nature of StrategyImplementation

Successful Strategy Implementation



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Marketing Issues

-- Marketing variables affectsuccess/failure of strategy implementation



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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



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1. Market segmentation

2. Product positioning

Marketing Issues

Centrally important to Implementation

Segmentation Targeting & Positioning STP



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Subdividing of a market into distinct subsetsof customers according to needs and buyinghabits.

Marketing Issues

Market Segmentation



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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



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Directly affect marketing mix variables: Product Place Promotion Price

Marketing Issues

Market Segmentation



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Marketing Mix Component Factors

Service level

Warranty

Transportation

carriersProduct line

Inventorylevels/locations

Packaging

PublicitySales territoriesBrand name

Payment termsSales promotionOutlet locationStyle

Discounts &allowances

Personal sellingDistributioncoverage

Features

LevelAdvertising

Distribution

channelsQuality

PricePromotionPlaceProduct



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Marketing Issues

Market SegmentBasis Psychographic

Behavioral

Geographic

Demographic



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Region County size City or SMSA size Density

Climate

Marketing Issues

Geographic



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Marketing Issues


Behavioral

Geographic

Demographic



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Age

Family Size Family Life Cycle Income/Occupation Education

Religion Race/Nationality

Marketing Issues

Demographic



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Marketing Issues


Behavioral

Geographic

Demographic



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Social Class Lifestyle Personality

Marketing Issues

Psychographic



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Marketing Issues


Behavioral

Geographic

Demographic



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Use occasion Benefits sought User status Usage rate Loyalty status

Readiness stage Attitude toward product

Marketing Issues

Behavioral



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Marketing Issues

-- Schematic representations that reflect howproducts/services compare to competitors on

dimensions most important to success in theindustry

Product Positioning



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Marketing Issues

ProductPositioning

Customer Wants

Customer Expects



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Product Positioning Steps

1. Identify your key buyers.2. Collect information from a sample of customers about

their perceptions in the product, thus identify the key attributes.Test, from a customer perspective, how those attributes arerated for yourself and your major competitors.

3. Plot a two-dimensional product-positioning map with thethose attributes.

4. Determine the competitors position through excesscompetitors study

5. Check your position. Develop a marketing plan to re-positionyour product to be more competitive, or to enforce itscurrent position.



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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



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Look for vacant niche Avoid sub optimization Dons serve 2 segments w/ same strategy Dont position in the middle of the map

Marketing Issues

Product Positioning as Strategy ImplementationTool



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Finance/Accounting Issues

-- Central to strategy implementation.



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Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business


Essential for implementation



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Raise capital short-term, long-term, preferred,

or common stock Lease or by fixed assets Determine appropriate dividend payout ratio


Decisions based on Finance/Accounting



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LIFO, FIFO, or market-value accountingapproach

Extend time of AR Establish % discount on accounts for terms Determine the amount of cash kept on hand


Decisions based on Finance/Accounting



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Debt

Equity


Capital acquisition to implement strategies



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EPS/EBIT analysis Earnings per share/Earnings before interest and

taxes


Debt vs. Equity Decisions



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$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



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EPS-EBIT Analysis (in $millions) HeinzCompany

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



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Conclusion:

Heinz should use debt to raise the $500 million


EPS-EBIT Analysis Heinz



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Allow an organization to examine the expectedresults of various actions and approaches


Projected Financial Statements



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1. Prepare income statement before balance

sheet (forecast sales)

2. Use percentage of sales method to projectCoGS & expenses

3. Calculate projected net income


Steps in Preparing Projected FinancialStatements



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4. Subtract dividends to be paid from Net Incomeand add remaining to Retained Earnings

5. Project balance sheet times beginning withretained earnings

6. List comments (remarks) on projectedstatements


Steps in Preparing Projected FinancialStatements (contd)



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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 salesAdministrative 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



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-- Details how funds will be obtained and spent fora specified period of time.


Financial Budget



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Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets

Expense Budgets


Types of Budgets



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Divisional budgets Variable budgets Flexible budgets Fixed budgets


Types of Budgets



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Central to strategy implementation integrative,intensive, & diversification strategies oftenimplemented through acquisitions of other firms


Evaluating Worth of a Business



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1. What a firm owns2. What a firm earns3. What a firm will bring in the market


Evaluating Worth of a Business:

3 Basic Approaches



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Research & DevelopmentIssues

-- New products and improvement ofexisting products that allow for effectivestrategy implementation



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Level of support constrained by resourceavailability

Technological improvements shorten productlife cycles


Constraints



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1. 1st firm to market new technological products2. Innovative imitator of successful products3. Low-cost producer of similar but less

expensive products


3 Major R&D approaches to implementingstrategies



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Management InformationSystems (MIS) Issues

-- Information is basis for understandingthe firm. One of the most importantfactors differentiating successful fromunsuccessful firms



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Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions

Allow firm to reduce costs

MIS Issues

Functions of MIS

Documents

10.Strategy+Implementation