Lecture 19 Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues

Finance/Accounting Issues Central to Strategy Implementation – Acquiring needed capital Developing pro forma financial statements Preparing financial budgets Evaluating worth of a business

Decisions Requiring Finance/Accounting Policies Raise capital w/ short-term, long-term preferred or common stock Lease or buy fixed assets Determine an appropriate dividend payout ratio Use LIFO, FIFO, or market-value accounting approach

Decisions Requiring Finance/Accounting Policies Extend time of accounts receivable Establish percentage discount on accounts for terms Determine the amount of cash kept on hand

Finance/Accounting Issues Acquiring Capital to Implement Strategies – Basic sources of capital: Debt Equity

Finance/Accounting Issues Debt vs. Equity Decisions – EPS/EBIT analysis Earnings per share/Earnings before interest and taxes

Finance/Accounting Issues Pro Forma Financial Statements - Allows an organization to examine the expected results of various actions and approaches

Finance/Accounting Issues 6 Steps in Pro Forma Financial Analysis Prepare income statement before balance sheet (forecast sales) Use percentage-of-sales method to project CGS and expenses Calculate projected net income Subtract dividends to be paid from Net Income and add remaining to Retained Earnings Project balance sheet times beginning with retained earnings List comments (remarks) on projected statements

Finance/Accounting Issues Financial Budget – Document that details how funds will be obtained and spent for a specified period of time.

Finance/Accounting Issues Types of Budgets – Cash budgets Operating budgets Sales budgets Profit budgets Factory budgets Capital budgets Expense budgets Divisional budgets Variable budgets Flexible budgets Fixed budgets

Evaluating Worth of a Business Central to strategy implementation as integrative, intensive and diversification strategies are often implement through acquisitions of other firms.

Evaluating Worth of a Business 3 Basic approaches: What a firm owns What a firm earns What a firm will bring in the market

Research & Development Issues New products and improvement of existing products that allow for effective strategy implementation

Research & Development Issues Level of support is constrained by resource availability Technological improvements shorten product life cycles

Research & Development Issues 3 Major R&D approaches to implementing strategies – First firm to market new technological products Be an innovative imitator of successful products Low-cost producer of similar but less expensive products

Key Terms Cash Budget E-mail EPS/EBIT Analysis Financial Budget Information Systems Market Segmentation Marketing-mix Variables

Key Terms Multidimensional Scaling Outstanding Shares Method Price-earnings Ratio Method Pro Forma Financial Statement Analysis Product Positioning

Key Terms Research and Development Retained Earnings Vacant Niche World Wide Web

Strategy Review, Evaluation and Control

Topic Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework Published Sources of Strategy-Evaluation Information

Topic Outline Characteristics of an Effective Evaluation System Contingency Planning Auditing

Topic Outline Using Computers to Evaluate Strategy Guidelines for Effective Strategic Management

Implementing Strategies Organizations are most vulnerable when they are at the peak of their success. -- R.T. Lenz

Strategy Review, Evaluation & Control Systematic Review, Evaluation & Control – Strategies become obsolete Internal environments are dynamic External environments are dynamic

Strategy Evaluation Strategy evaluation is vital to the organization’s well-being Alert management to potential or actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations

Strategy Evaluation 3 Basic Activities – Examining the underlying bases of a firms’ strategy Comparing expected to actual results Corrective actions to ensure performance conforms to plans

Strategy Evaluation Strategy evaluation – Complex and sensitive undertaking Overemphasis can be costly and counterproductive

Strategy Evaluation In many organizations, evaluation is an appraisal of performance – Have assets increased? Increase in profitability? Increase in sales? Increase in productivity? Profit margins, ROI and EPS ratios increased?

Strategy Evaluation Four Criteria (Richard Rummelt): Consistency Consonance Feasibility Advantage

Rummelt’s Criteria Consistency Strategy should not present inconsistent goals and policies. Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency

Rummelt’s Criteria Consonance aNeed for strategies to examine sets of trends Adaptive response to external environment Trends are results of interactions among other trends

Rummelt’s Criteria Feasibility Neither overtax resources or create unsolvable subproblems Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy

Rummelt’s Criteria Advantage Creation or maintenance of competitive advantage Superiority in resources, skills, or position

Strategy Evaluation Difficulty in strategy evaluation – Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables

Strategy Evaluation Difficulty in strategy evaluation – Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty

Process of Strategy Evaluation Strategy evaluation should – Initiative managerial questioning Trigger review of objectives and values Stimulate creativity in generating alternatives

Reviewing Bases of Strategy Review of underlying bases of strategy – Develop revised EFE Matrix Develop revised IFE Matrix

Reviewing Bases of Strategy Review effectiveness of strategy – Competitors’ reaction to strategy Competitors’ change in strategy Competitors’ changes in strengths and weaknesses 4. Reasons for competitors’ strategic change

Reviewing Bases of Strategy Review effectiveness of strategy – Reasons for competitors’ successful strategies Competitors’ present market positions and profitability Potential for competitor retaliation Potential for cooperation with competitors

Reviewing Bases of Strategy Monitor Threats and Opportunities and Weaknesses and Strengths Are our internal strengths still strengths? Have we added additional strengths? Are our weaknesses still weaknesses? Have we other internal weaknesses?

Reviewing Bases of Strategy Monitor Threats and Opportunities and Weaknesses and Strengths Are opportunities still opportunities? Other external opportunities? Are threats still threats? Are there other threats? Are we vulnerable to a hostile takeover?

II. Measure Firm Performance I. Review Underlying Bases Evaluation Framework III. Take Corrective Actions Yes Differences? NO II. Measure Firm Performance Yes Differences? NO Continue present course

Measuring Organizational Performance Comparing expected to actual results Investigating deviations from plan Evaluating individual performance Progress toward stated objectives

Measuring Organizational Performance Quantitative criteria for strategy evaluation – Financial Ratios: Compare performance over different periods Compare performance to competitors Compare performance to industry averages

Measuring Organizational Performance Key Financial Ratios – Return on investment Return on equity Profit margin Market share

Measuring Organizational Performance Key Financial Ratios – Debt to equity Earnings per share Sales growth Asset growth

Measuring Organizational Performance Qualitative evaluation of strategy - Internal consistency of strategy Consistency of strategy with environment Strategy appropriate in view of resources Acceptable degree of risk Appropriate time frame Workability of the strategy

Characteristics of Evaluation Basic requirements for effective strategy evaluation – Economical Meaningful Generate useful information Timely information Provide a true picture of what is happening

Strategy-Evaluation Assessment Matrix Continue course Yes No Corrective actions Result Has the firm progressed satisfactorily toward achieving its stated objectives? Have major changes occurred in the firm’s external strategic position? Have major changes occurred in the firm’s internal strategic position?

Contingency Planning Premise of sound strategic management – Planning to deal with unfavorable and favorable events before they occur.

Contingency Planning Contingency Planning – Alternative plans that can be put into effect if certain key events do not occur as expected

Auditing Financial audits to determine correspondence between assertions based on strategic plans and established criteria Environmental audits to insure sound and safe practices

Key Terms Advantage Auditing Consistency Consonance Contingency Plans Corporate Agility Feasibility

Key Terms Future Shock Management by Wandering Around Measuring Organizational Performance Planning Process Audit (PPA) Reviewing the Underlying Bases of an Organization’s Strategy

Key Terms Revised EFE Matrix Revised IFE Matrix Taking Corrective Actions

Thank You