Copyright 2007 Prentice Hall Ch 8-1 Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, & MIS Issues Strategic Management: Concepts & Cases 11 th Edition Fred David Strategic Management: Concepts & Cases 11th Edition Fred David PowerPoint Slides by Anthony F. Chelte Western New England College Revised by Azhar Kazmi KFUPM Dhahran

Copyright 2007 Prentice Hall Ch 8-2 Strategy implementation means change; strategy implementation could also be termed as change management The Nature of Strategy Implementation Less than 10% of strategies formulated are successfully implemented!

Copyright 2007 Prentice Hall Ch 8-3 Here are some examples: 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 The Nature of Strategy Implementation Why is there low success rate in strategy implementation?

Copyright 2007 Prentice Hall Ch 8-4 Marketing goods & services well Raising needed working capital Producing technologically sound goods Creating sound information systems The Nature of Strategy Implementation Some examples of successful strategy implementation

Copyright 2007 Prentice Hall Ch 8-5 Marketing Issues Marketing variables affect success/failure of strategy implementation 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 warranty Examples of marketing decisions requiring policies

Copyright 2007 Prentice Hall Ch Market segmentation 2. Product positioning Marketing Issues Two marketing variables centrally important to strategy implementation are:

Copyright 2007 Prentice Hall Ch 8-7 Market segmentation is the subdividing of a market into distinct subsets of customers according to needs and buying habits Marketing Issues: market segmentation Key to matching supply & demand Market development, product-development, market penetration & diversification strategies require increased sales through new products/markets Allows operating with limited resources Enables small firms to compete successfully Why market segmentation could be a strategic issue?

Copyright 2007 Prentice Hall Ch 8-8 Directly affect marketing mix variables:  Product  Place  Promotion  Price Marketing Issues: market segmentation Market Segmentation

Copyright 2007 Prentice Hall Ch 8-9 Marketing Mix – Component Factors Service level Warranty Transportation carriers Product line Inventory levels/locations Packaging PublicitySales territoriesBrand name Payment termsSales promotionOutlet locationStyle Discounts & allowances Personal selling Distribution coverage Features LevelAdvertising Distribution channels Quality PricePromotionPlaceProduct

Copyright 2007 Prentice Hall Ch 8-10 Marketing Issues: market segmentation Four bases for market segmentation Psychographic Behavioral Demographic Geographic

Copyright 2007 Prentice Hall Ch 8-11 Geographic: Region Province size City size Density Climate Marketing Issues: bases for segmentation Demographic: Age Family Size Family Life Cycle Income/Occupation Education Religion Race/Nationality Psychographic: Social Class Lifestyle Personality Behavioral: Use occasion Benefits sought User status Usage rate Loyalty status Readiness stage Attitude toward product

Copyright 2007 Prentice Hall Ch 8-12 Marketing Issues: product positioning Product positioning is the schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry Customer Wants Customer Needs Product Positioning

Copyright 2007 Prentice Hall Ch 8-13 Product Positioning Steps 2. Diagram Map with two-dimensional product positioning map 1. Select Key Criteria for differentiating products/ services in industry 3.Plot competitors’ products in the four-quadrant matrix 4. Look for niches in the positioning map 5. Develop Marketing Plan to position company’s product/services

Copyright 2007 Prentice Hall Ch 8-14 Example of Product Positioning Map Conservative, Everyday menswear Low price Very latest, fashionable menswear Menswear retail store High price Average mass merchandizer or discounter Average Department store Average Specialty chain

Copyright 2007 Prentice Hall Ch 8-15 Look for vacant niche as the best opportunity may be unserved segment Avoid sub optimization by squatting between two segments Don’t serve two segments with the same strategy Don’t position in the middle of the map Marketing Issues Product Positioning as Strategy Implementation Tool

Copyright 2007 Prentice Hall Ch 8-16 Finance/Accounting Issues Financial/Accounting issues are central to strategy implementation Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business Examples of financial/accounting issues essential for implementation

Copyright 2007 Prentice Hall Ch 8-17 Raise capital – short-term, long-term, preferred, or common stock Lease or buy fixed assets Determine appropriate dividend payout ratio LIFO, FIFO, or market-value accounting approach Extend time of AR Establish % discount on accounts for terms Determine the amount of cash kept on hand Finance/Accounting Issues Decisions based on Finance/Accounting

Copyright 2007 Prentice Hall Ch 8-18 Sources of capital to implement strategies (besides net profit from operations and sales of assets) are: Debt Equity Determining the appropriate mix of debt and equity in a firm’s capital structure can be vital to successful strategy implementation Finance/Accounting Issues Successful strategy implementation often requires additional capital.

Copyright 2007 Prentice Hall Ch 8-19 EPS/EBIT analysis involves an examination of the impact of debt versus equity financing on earnings per share  Earnings per share/Earnings before interest and taxes Finance/Accounting Issues: debt/equity Debt vs. Equity Decisions Choosing between debt and equity requires analysis based on EPS/EBIT for determining whether debt, equity, or their combination is the best alternative to raise capital for strategy implementation

Copyright 2007 Prentice Hall Ch 8-20 Finance/Accounting Issues: debt/equity

Copyright 2007 Prentice Hall Ch 8-21 Finance/Accounting Issues: debt/equity

Copyright 2007 Prentice Hall Ch 8-22 Projected financial statements analysis enables an organization to examine the expected results of various actions and approaches in strategy implementation. Finance/Accounting Issues Projected Financial Statements

Copyright 2007 Prentice Hall Ch 8-23 Projected Income Statement for Litten Company (in millions) Prior Year 2005 Projected Year 2006Remarks 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 2007 Prentice Hall Ch Financial budget details how funds will be obtained and spent for a specified period of time. Finance/Accounting Issues: financial budget Various types of budgets Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets Divisional budgets Variable budgets Flexible budgets Fixed budgets

Copyright 2007 Prentice Hall Ch 8-25 Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms Finance/Accounting Issues Evaluating Worth of a Business Three basic approaches to evaluating a business: What a firm owns: net worth or stockholder’s equity What a firm earns: future benefits through net profits What a firm will bring in the market when sold

Copyright 2007 Prentice Hall Ch 8-26 Research & Development Issues New products and improvement of existing products that allow for effective strategy implementation Examples of strategy implementation actions in R & D:  Transferring complex technology  Adjusting processes to local raw materials  Adapting processes to local markets  Altering products to specific customer preferences and tastes

Copyright 2007 Prentice Hall Ch 8-27 R & D policies can enhance strategy implementation efforts to: Emphasize product or process improvements Stress basic or applied research Be leaders or followers in R & D Develop robotics or manual-type processes Spend a high, average or low amount on R&D Perform R&D within the firm or to contract it outside Use university researchers or private-sector researchers Research & Development Issues

Copyright 2007 Prentice Hall Ch 8-28 Be the first firm to market new technological products Be an innovative imitator of successful products Be a low-cost producer by mass producing products similar to but less expensive than products recently introduced Research & Development Issues Three R&D approaches for strategy implementation:

Copyright 2007 Prentice Hall Ch 8-29 Management Information Systems (MIS) Issues  Firms that gather, assimilate, and evaluate external and internal information more effectively gain competitive advantage over other firms  Information is the basis for understanding the firm. It is one of the most important factors differentiating successful from unsuccessful firms  Strategic management process is greatly facilitated greatly in firms having an effective information system

Copyright 2007 Prentice Hall Ch 8-30 Information collection, retrieval, & storage can be used to create competitive advantage. Examples of such actions are: Cross-selling to customers Monitoring suppliers Keeping managers and employees informed Coordination of activities among divisions Allow firm to reduce costs MIS Issues Functions of MIS