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© 2001 Prentice Hall Ch. 8-1 Strategic Management Concepts & Cases 8 th 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

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Page 1: Implementing Strategies

© 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

Page 2: Implementing Strategies

© 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

Page 3: Implementing Strategies

© 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—

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© 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—

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© 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—

Page 6: Implementing Strategies

© 2001 Prentice HallCh. 8-6

Implementing Implementing StrategiesStrategies

Less than 10% of strategies formulated

are successfully implemented!

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© 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

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© 2001 Prentice HallCh. 8-8

Marketing IssuesMarketing Issues

Two Variables of Central Importance to Strategy Implementation:

• Market Segmentation

• Product Positioning

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© 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

Page 10: Implementing Strategies

© 2001 Prentice HallCh. 8-10

Marketing IssuesMarketing Issues

Current Issues:

• Tracking individual movements on the Internet

• Consumer “profiling”

Page 11: Implementing Strategies

© 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

Page 12: Implementing Strategies

© 2001 Prentice HallCh. 8-12

Marketing IssuesMarketing Issues

Market Segmentation

Used in strategy implementation• Particularly useful in small and

specialized firms

Page 13: Implementing Strategies

© 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

Page 14: Implementing Strategies

© 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.

Page 15: Implementing Strategies

© 2001 Prentice HallCh. 8-15

Marketing IssuesMarketing Issues

Market SegmentationImportant because:• Segmentation decisions

directly affect marketing mix variables:Product, place promotion, and

price

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© 2001 Prentice HallCh. 8-16

Marketing IssuesMarketing Issues

Market SegmentationStrategists evaluate potential:• Characteristics & needs of

consumers• Consumer similarities and

differences• Consumer group profiles

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© 2001 Prentice HallCh. 8-17

Marketing IssuesMarketing Issues

Market SegmentationBased on:• Geographic variables• Demographic variables• Psychographic variables• Behavioral variables

Page 18: Implementing Strategies

© 2001 Prentice HallCh. 8-18

Marketing IssuesMarketing Issues

Product Positioning

• After segmenting the market, determine what customers want and expect

Analysis & research

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© 2001 Prentice HallCh. 8-19

Marketing IssuesMarketing Issues

Product Positioning

• Develop schematic representations of productsCompare to competitors on

industry success dimensions

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© 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

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© 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.

Page 22: Implementing Strategies

© 2001 Prentice HallCh. 8-22

Product Positioning Product Positioning MapMap

LowConvenience

HighCustomerLoyalty

LowCustomerLoyalty

HighConvenience

Firm 1•

•Firm 2

• Firm 3

Rental Car Market

Page 23: Implementing Strategies

© 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

Page 24: Implementing Strategies

© 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

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© 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

Page 26: Implementing Strategies

© 2001 Prentice HallCh. 8-26

Finance/Accounting Finance/Accounting

Capital Acquisition

Sources of capital:• Net profit from pperations• Sale of assets• Debt• Equity

Page 27: Implementing Strategies

© 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

Page 28: Implementing 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

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© 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

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© 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

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© 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

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© 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

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© 2001 Prentice HallCh. 8-33

Finance/Accounting Finance/Accounting

Financial Budgets

Types of Budgets:• Cash budgets• Operating budgets• Sales budgets• Profit budgets• Factory budgets

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© 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

Page 35: Implementing Strategies

© 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

Page 36: Implementing Strategies

© 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

Page 37: Implementing Strategies

© 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

Page 38: Implementing Strategies

© 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

Page 39: Implementing Strategies

© 2001 Prentice HallCh. 8-39

Finance/Accounting Finance/Accounting

Business Valuation

• Market determinationSelling price of similar companyPrice-earnings ratio methodOutstanding shares method

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© 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

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© 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

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© 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

Page 43: Implementing Strategies

© 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

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© 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

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© 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