Copyright 2005 Prentice Hall1 Bus 411 DAY 12

Copyright 2005 Prentice Hall Ch 8-2 Agenda Assignment #4 was mailed to in WebCT  Due MAR 3 at 2:00PM Templates available in WebCT 4 days till Spring Break and Bike Week! Mid-term after Spring Break  Handed out Mar. 21 Due Mar 24  Chapters 1-9  Intense Discussion on Implementing Strategies

Copyright 2005 Prentice Hall Ch 8-3 Schedule for next two weeks Friday this week  Chap 9 Tuesday After Break (March 21)  Discussion on how to prepare a oral Case presentation Friday after break (March 24)  Case 1 by Tony  Group Work Starting Tuesday March 28  Group Case Presentation 40 Min  Group Work 40 Min

Copyright 2005 Prentice Hall Ch 8-4 Case Studies Groups  Static or Dynamic? Static  Same group all semester  One case every 3 Classes (4 total with 3 groups) Dynamic  Changing groups  Schedule coordination difficult Compromise  Start with Static and change groups after 3 weeks?  Schedule of cases Case 2 on March 28  Dustin, Jamie and Donnie Case 3 on March 31  Megan and Kristin Case 4 on April 4  David and Jason

Copyright 2005 Prentice Hall Ch 8-5 Chapter Outline The Nature of Strategy Implementation Marketing Issues Finance/Accounting Issues

Copyright 2005 Prentice Hall Ch 8-6 Chapter Outline ( cont’d ) Research & Development (R&D) Issues Management Information Systems (MIS) Issues

Copyright 2005 Prentice Hall Ch 8-7 Marketing Issues -- Schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry Product Positioning

Copyright 2005 Prentice Hall Ch 8-8 Marketing Issues Product Positioning Customer Wants Customer Needs

Copyright 2005 Prentice Hall Ch 8-9 Product Positioning Steps Product Positioning Steps 2. Diagram Map 1. Select Key Criteria 3.Plot competitors’ products 4. Look for niches 5. Develop Marketing Plan

Copyright 2005 Prentice Hall Ch 8-10 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

Copyright 2005 Prentice Hall Ch 8-11 Look for vacant niche Don’t Squat Between Segments Don’t serve 2 segments w/ same strategy Don’t position in the middle of the map Marketing Issues Product Positioning as Strategy Implementation Tool

Copyright 2005 Prentice Hall Ch 8-12 Finance/Accounting Issues -- Central to strategy implementation.

Copyright 2005 Prentice Hall Ch 8-13 Acquiring needed capital Developing projected financial statements (pro forma) Preparing financial budgets Evaluating worth of a business Finance/Accounting Issues Essential for implementation

Copyright 2005 Prentice Hall Ch 8-14 Raise capital – short-term debt, long-term debt, preferred stock, or common stock Lease or by fixed assets Determine appropriate dividend payout ratio Finance/Accounting Issues Decisions based on Finance/Accounting

Copyright 2005 Prentice Hall Ch 8-15 LIFO, FIFO, or market-value accounting approach Extend time of Accounts Receivable Establish % discount on accounts for terms of payment (factoring receivables) Determine the amount of cash kept on hand Finance/Accounting Issues Decisions based on Finance/Accounting

Copyright 2005 Prentice Hall Ch 8-16 Debt (take a loan)  Creates interest expenses Equity (get more partners, sell treasury stock, issue new stock)  Creates dilution in the case of more partners or issuing new stock  Selling of treasury stick may create realized gains or losses Liquidation of assets may drive stock price down Finance/Accounting Issues Capital acquisition to implement strategies

Copyright 2005 Prentice Hall Ch 8-17 EPS/EBIT analysis  Earnings per share/Earnings before interest and taxes Finance/Accounting Issues Debt vs. Equity Decisions

Copyright 2005 Prentice Hall Ch 8-18 $Amount Needed: $500,000,000 Stock Price $40 EBIT Range $1,000,000,000 to $2,000,000,000 Tax Rate 175/673 =.26 = 26% Interest Rate 5%  $25,000,000 per year # Shares Outstanding 350 (million)  $500,000,000/$40= 12,500,000 shares EPS-EBIT Analysis (in $millions) Heinz Company – Year End 2001

Copyright 2005 Prentice Hall Ch 8-19 EPS-EBIT Analysis (in $millions) – Heinz Company Stock FinancingFinancing Combination 60/40 HighLowHighLowHighLow EBIT ($982.4 in 2001)$2000$1000$2000$1000$2000$1000 Interest (5%) EBT Taxes 26% EAT # Shares outstanding EPS

Copyright 2005 Prentice Hall Ch 8-20 Conclusion:  Heinz should use debt to raise the $500 million Finance/Accounting Issues EPS-EBIT Analysis Heinz

Copyright 2005 Prentice Hall Ch 8-21 Allow an organization to examine the expected results of various actions and approaches Finance/Accounting Issues Projected Financial Statements

Copyright 2005 Prentice Hall Ch Prepare income statement before balance sheet (forecast sales) 2. Use percentage of sales method to project Cost of Good Sold & Expenses 3. Calculate projected net income Finance/Accounting Issues Steps in Preparing Projected Financial Statements

Copyright 2005 Prentice Hall Ch Subtract dividends to be paid from Net Income and add remaining to Retained Earnings 5. Project balance sheet times beginning with retained earnings 6. List comments (remarks) on projected statements Finance/Accounting Issues Steps in Preparing Projected Financial Statements (cont’d)

Copyright 2005 Prentice Hall Ch 8-24 Projected Income Statement for Litten Company (in millions) Prior Year 2004 Projected Year 2005Remarks Projected Income Statement Sales % increase Cost of Goods Sold % of sales Gross Margin Selling Expense % of sales Administrative Expense57.505% of sales EBIT Interest33.00 EBT Taxes % rate Net Income69.75 Dividends25.00 Retained Earnings44.75

Copyright 2005 Prentice Hall Ch Details how funds will be obtained and spent for a specified period of time. Finance/Accounting Issues Financial Budget

Copyright 2005 Prentice Hall Ch 8-26 Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets Finance/Accounting Issues Types of Budgets

Copyright 2005 Prentice Hall Ch 8-27 Divisional budgets Variable budgets Flexible budgets Fixed budgets Finance/Accounting Issues Types of Budgets

Copyright 2005 Prentice Hall Ch 8-28 Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms Finance/Accounting Issues Evaluating Worth of a Business

Copyright 2005 Prentice Hall Ch What a firm owns 1. Total assets – liabilities (discount overvalued assets) 2. Stockholders equity 2. What a firm earns 1. 5 X times annual earnings (tax consequences) 3. What a firm will bring in the market 1. Outstanding shares Finance/Accounting Issues Evaluating Worth of a Business: 3 Basic Approaches

Copyright 2005 Prentice Hall Ch 8-30 Research & Development Issues -- New products and improvement of existing products that allow for effective strategy implementation

Copyright 2005 Prentice Hall Ch 8-31 Level of support constrained by resource availability Technological improvements shorten product life cycles Research & Development Issues Constraints

Copyright 2005 Prentice Hall Ch st firm to market new technological products 2. Innovative imitator of successful products 3. Low-cost producer of similar but less expensive products Research & Development Issues 3 Major R&D approaches to implementing strategies

Copyright 2005 Prentice Hall Ch 8-33 Management Information Systems (MIS) Issues -- Information is basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms

Copyright 2005 Prentice Hall Ch 8-34 Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs MIS Issues Functions of MIS