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© 2001 Prentice HallCh. 8-1
Strategic ManagementConcepts & Cases
8th editionFred R. David
Chapter 8:Implementing Strategies:
Marketing, Finance/Accounting, R&D,
and CIS IssuesPowerPoint Slides By:
Anthony F. Chelte
Western New England College
© 2001 Prentice HallCh. 8-2
Comprehensive Strategic Management ModelComprehensive Strategic Management Model
Measure &Evaluate
Performance
Chapter 9
Vision &
Mission Statements
Chapter 2
ExternalAudit
Chapter 3
InternalAudit
Chapter 4
Strategies In
Action
Chapter 5
Strategy Analysis
&Choice
Chapter 6
Implement Strategies:
ManagementIssues
Chapter 7
ImplementStrategies:Marketing,Fin/Acct,R&D, CIS
Chapter 8
© 2001 Prentice HallCh. 8-3
Implementing Implementing StrategiesStrategies
“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—
© 2001 Prentice HallCh. 8-4
Implementing Implementing StrategiesStrategies
“As market windows open and close more quickly, it is important that R&D be tied more closely to corporate strategy.”
—William Spenser—
© 2001 Prentice HallCh. 8-5
Implementing Implementing StrategiesStrategies
“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—
© 2001 Prentice HallCh. 8-6
Implementing Implementing StrategiesStrategies
Less than 10% of strategies formulated
are successfully implemented!
© 2001 Prentice HallCh. 8-7
Implementing Implementing StrategiesStrategies
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
© 2001 Prentice HallCh. 8-8
Marketing IssuesMarketing Issues
Two Variables of Central Importance to Strategy Implementation:
• Market Segmentation
• Product Positioning
© 2001 Prentice HallCh. 8-9
Marketing IssuesMarketing 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
© 2001 Prentice HallCh. 8-10
Marketing IssuesMarketing Issues
Current Issues:
• Tracking individual movements on the Internet
• Consumer “profiling”
© 2001 Prentice HallCh. 8-11
Marketing Mix: Component FactorsMarketing 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
© 2001 Prentice HallCh. 8-12
Marketing IssuesMarketing Issues
Market Segmentation
Used in strategy implementation• Particularly useful in small and
specialized firms
© 2001 Prentice HallCh. 8-13
Marketing IssuesMarketing Issues
Market SegmentationImportant because:• Market and product
development, market penetration, and diversification require increased sales through new markets or products
© 2001 Prentice HallCh. 8-14
Marketing IssuesMarketing Issues
Market SegmentationImportant because:• Firm can operate with limited
resources. Enables a small firm by maximizing per-unit profits and per-segment sales.
© 2001 Prentice HallCh. 8-15
Marketing IssuesMarketing Issues
Market SegmentationImportant because:• Segmentation decisions
directly affect marketing mix variables:Product, place promotion, and
price
© 2001 Prentice HallCh. 8-16
Marketing IssuesMarketing Issues
Market SegmentationStrategists evaluate potential:• Characteristics & needs of
consumers• Consumer similarities and
differences• Consumer group profiles
© 2001 Prentice HallCh. 8-17
Marketing IssuesMarketing Issues
Market SegmentationBased on:• Geographic variables• Demographic variables• Psychographic variables• Behavioral variables
© 2001 Prentice HallCh. 8-18
Marketing IssuesMarketing Issues
Product Positioning
• After segmenting the market, determine what customers want and expect
Analysis & research
© 2001 Prentice HallCh. 8-19
Marketing IssuesMarketing Issues
Product Positioning
• Develop schematic representations of productsCompare to competitors on
industry success dimensions
© 2001 Prentice HallCh. 8-20
Marketing IssuesMarketing 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
© 2001 Prentice HallCh. 8-21
Marketing IssuesMarketing Issues
Product Positioning as a Strategy 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.
© 2001 Prentice HallCh. 8-22
Product Positioning Product Positioning MapMap
LowConvenience
HighCustomerLoyalty
LowCustomerLoyalty
HighConvenience
Firm 1•
•Firm 2
• Firm 3
Rental Car Market
© 2001 Prentice HallCh. 8-23
Finance/Accounting Finance/Accounting
Central to Strategy Implementation
• Capital acquisition• Development of pro forma
financial statements• Financial budget preparation• Business valuation
© 2001 Prentice HallCh. 8-24
Finance/AccountingFinance/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
© 2001 Prentice HallCh. 8-25
Finance/AccountingFinance/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
© 2001 Prentice HallCh. 8-26
Finance/Accounting Finance/Accounting
Capital Acquisition
Sources of capital:• Net profit from pperations• Sale of assets• Debt• Equity
© 2001 Prentice HallCh. 8-27
Finance/Accounting Finance/Accounting
Capital Acquisition
Earnings Per Share/Earnings Earnings Per Share/Earnings Before Interest and Taxes Before Interest and Taxes (EPS/EBIT) Analysis(EPS/EBIT) Analysis
• Determination of debt, stock, or combination of debt & stock is best alternative for raising capital to implement strategies
© 2001 Prentice HallCh. 8-28
Finance/Accounting Finance/Accounting
Pro Forma Financial Statements
• Allows the firm to examine the expected results of various actions and approaches
© 2001 Prentice HallCh. 8-29
Finance/AccountingFinance/Accounting
Pro Forma Financial Statements
• Forecast impact of various implementation decisions
• Compute projected financial ratios under various strategy-implementation scenarios
© 2001 Prentice HallCh. 8-30
Finance/AccountingFinance/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
© 2001 Prentice HallCh. 8-31
Finance/AccountingFinance/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
© 2001 Prentice HallCh. 8-32
Finance/Accounting 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
© 2001 Prentice HallCh. 8-33
Finance/Accounting Finance/Accounting
Financial Budgets
Types of Budgets:• Cash budgets• Operating budgets• Sales budgets• Profit budgets• Factory budgets
© 2001 Prentice HallCh. 8-34
Finance/Accounting Finance/Accounting
Financial Budgets
Types of Budgets:• Capital budgets• Expense budgets• Divisional budgets• Variable budgets• Flexible budgets• Fixed budgets
© 2001 Prentice HallCh. 8-35
Finance/Accounting 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
© 2001 Prentice HallCh. 8-36
Finance/Accounting Finance/Accounting
Business Valuation
Main approaches:• What a firm owns• What a firm earns• What a firm will bring in the
market
© 2001 Prentice HallCh. 8-37
Finance/Accounting 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
© 2001 Prentice HallCh. 8-38
Finance/Accounting Finance/Accounting
Business Valuation
• Future benefits derived through net profits
5 X the firm’s current annual profit or
Five-year average profit level
© 2001 Prentice HallCh. 8-39
Finance/Accounting Finance/Accounting
Business Valuation
• Market determinationSelling price of similar companyPrice-earnings ratio methodOutstanding shares method
© 2001 Prentice HallCh. 8-40
R&D Issues 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
© 2001 Prentice HallCh. 8-41
R&D Issues R&D Issues
Research and Development (R&D)
• R&D policies match market opportunities with internal capabilities
© 2001 Prentice HallCh. 8-42
R&D Issues R&D Issues
Research and Development (R&D)
• Policies enhance strategy-implementation efforts:
Product or process improvementsStress basic or applied researchLeaders or followers in R&D
© 2001 Prentice HallCh. 8-43
R&D Issues R&D Issues
Research and Development (R&D)
• Policies enhance strategy-implementation efforts:
Develop robotics or manual processes
Spend high, average, or low on R&DPerform R&D internal or outsourceUse university resources or private
© 2001 Prentice HallCh. 8-44
R&D Issues 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
© 2001 Prentice HallCh. 8-45
Key Terms & ConceptsKey Terms & Concepts
• 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