BUS 411 DAY 13

Agenda Questions? Assignment 4 DUE Assignment 5 posted Due March 19 Assignment 5 Walt Disney.pdf Midterm will Take Home, due March 29 Finish Discussion On Marketing, Finance/Accounting, R&D, and MIS issues. Begin Discussion on Strategy Review Evaluation and Control

Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues Chapter Eight

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives Discuss procedures for determining the worth of a business. Explain why projected financial statement analysis is a central strategy implementation tool. Discuss the nature and role of research and development in strategy implementation. Explain how management information systems can determine the success of strategy-implementation efforts. Explain business analytics and data mining. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Comprehensive Strategic-Management Model Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Project Financials Example McDonalds 2010 1) Build 300 new company-owned and operated McDonald’s in Africa at a cost of $1 million dollars each. 2) Forecast a 10% rise in company-owned restaurant sales in year 2010 3) Borrow $150 million payable in five yearly installments @ 4% simple interest 4) On January 10, 2010 issue enough common stock to raise another $150 million 5) On Dec 20, 2010 declare a $3 per share dividend   Assignment%205%20MCD%20INCOME.xls Assignment%205%20MCD%20balance%20sheet.xls Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Financial Budgets Financial budget a document that details how funds will be obtained and spent for a specified period of time include cash budgets, operating budgets, sales budgets, profit budgets, factory budgets, capital budgets, expense budgets, divisional budgets, variable budgets, flexible budgets, and fixed budgets Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Limitations of Financial Budgets Budgetary programs can become so detailed that they are cumbersome and overly expensive Financial budgets can become a substitute for objectives Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Limitations of Financial Budgets Budgets can hide inefficiencies if based solely on precedent rather than on periodic evaluation of circumstances and standards Budgets are sometimes used as instruments of tyranny that result in frustration, resentment, absenteeism, and high turnover Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Evaluating the Worth of a Business Three main approaches: What a firm owns (assets based) What a firm earns (ROI) What a firm will bring in the market (market based) Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Evaluating the Worth of a Business The first approach is determining a firm’s net worth or stockholders’ equity (True) Assets – liabilities The second approach is based on the future benefits a firm’s owners may derive through net profits Future returns, treats possible purchase as an investment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Evaluating the Worth of a Business The third approach is to divide the market price of the firm’s common stock by the annual earnings per share and multiply this number by the firm’s average net income for the past five years Also called the price-earnings ratio method Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Evaluating the Worth of a Business The fourth method is to simply multiply the number of shares outstanding by the market price per share Also called the outstanding shares method Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

- (Goodwill +Intangibles ) 1,067 1,157 18,371 3,455 1,876 65,573

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Research and Development (R&D) Issues 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 of money on R&D Perform R&D within the firm or contract R&D to outside firms Use university researchers or private-sector researchers Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

R&D Approaches for Implementing Strategies Be the first firm to market new technological products Be an innovative imitator of successful products, thus minimizing the risks and costs of start-up Be a low-cost producer by mass-producing products similar to but less expensive than products recently introduced Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Research and Development Involvement in Selected Strategy-Implementation Situations Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Management Information Systems (MIS) Issues Having an effective management information system (MIS) may be the most important factor in differentiating successful from unsuccessful firms The process of strategic management is facilitated immensely in firms that have an effective information system Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Business Analytics Business analytics a management information system technique that involves using software to mine huge volumes of data to help executives make decisions also called predictive analytics, machine learning, or data mining Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Business Analytics A key distinguishing feature of business analytics is that it is predictive rather than retrospective, in that it enables a firm to learn from experience and make current and future decisions based on prior information Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Strategy Review, Evaluation, and Control Chapter Nine

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives Describe a practical framework for evaluating strategies. Explain why strategy evaluation is complex, sensitive, and yet essential for organizational success. Discuss the importance of contingency planning in strategy evaluation. Discuss the role of auditing in strategy evaluation. Discuss the Balanced Scorecard. Discuss three twenty-first-century challenges in strategic management. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

A Comprehensive Strategic-Management Model Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Nature of Strategy Evaluation Strategy evaluation includes three basic activities: examining the underlying bases of a firm’s strategy comparing expected results with actual results taking corrective actions to ensure that performance conforms to plans Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

A Few Big Company Household Names That Disappeared Over Past Years Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Rumelt’s Criteria for Evaluating Strategies Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Rumelt’s Criteria for Evaluating Strategies Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Nature of Strategy Evaluation Consonance and advantage are mostly based on a firm’s external assessment Consistency and feasibility are largely based on an internal assessment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Why Strategy Evaluation is More Difficult Today A dramatic increase in the environment’s complexity The increasing difficulty of predicting the future with accuracy The increasing number of variables The rapid rate of obsolescence of even the best plans Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Why Strategy Evaluation is More Difficult Today The increase in the number of both domestic and world events affecting organizations The decreasing time span for which planning can be done with any degree of certainty Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Process of Evaluating Strategies Strategy evaluation should initiate managerial questioning of expectations and assumptions, should trigger a review of objectives and values, and should stimulate creativity in generating alternatives and formulating criteria of evaluation Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Process of Evaluating Strategies Evaluating strategies on a continuous rather than on a periodic basis allows benchmarks of progress to be established and more effectively monitored Successful strategies combine patience with a willingness to promptly take corrective actions when necessary Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Reviewing Bases of Strategy How have competitors reacted to our strategies? How have competitors’ strategies changed? Have major competitors’ strengths and weaknesses changed? Why are competitors making certain strategic changes? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Reviewing Bases of Strategy Why are some competitors’ strategies more successful than others? How satisfied are our competitors with their present market positions and profitability? How far can our major competitors be pushed before retaliating? How could we more effectively cooperate with our competitors? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Key Questions to Address in Evaluating Strategies Are our internal strengths still strengths? Have we added other internal strengths? If so, what are they? Are our internal weaknesses still weaknesses? Do we now have other internal weaknesses? If so, what are they? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Key Questions to Address in Evaluating Strategies Are our external opportunities still opportunities? Are there now other external opportunities? If so, what are they? Are our external threats still threats? Are there now other external threats? If so, what are they? Are we vulnerable to a hostile takeover? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

A Strategy-Evaluation Framework

Measuring Organizational Performance Strategists use common quantitative criteria to make three critical comparisons: Comparing the firm’s performance over different time periods Comparing the firm’s performance to competitors’ Comparing the firm’s performance to industry averages Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Problems with Quantitative Criteria Most quantitative criteria are geared to annual objectives rather than long-term objectives Different accounting methods can provide different results on many quantitative criteria Intuitive judgments are almost always involved in deriving quantitative criteria Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Additional Key Questions How good is the firm’s balance of investments between high-risk and low-risk projects? How good is the firm’s balance of investments between long-term and short-term projects? How good is the firm’s balance of investments between slow-growing markets and fast-growing markets? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Additional Key Questions How good is the firm’s balance of investments among different divisions? To what extent are the firm’s alternative strategies socially responsible? What are the relationships among the firm’s key internal and external strategic factors? How are major competitors likely to respond to particular strategies? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Corrective Actions Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Balanced Scorecard How well is the firm continually improving and creating value along measures such as innovation, technological leadership, product quality, operational process efficiencies, and so on? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Balanced Scorecard How well is the firm sustaining and even improving upon its core competencies and competitive advantages? How satisfied are the firm’s customers? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Balanced Scorecard The Balanced Scorecard approach to strategy evaluation aims to balance long-term with short-term concerns, to balance financial with nonfinancial concerns, and to balance internal with external concerns. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

An Example Balanced Scorecard Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Balanced Score Card Source: http://sarjeevansainbhi.webs.com/apps/photos/photo?photoid=136220932

Characteristics of an Effective Evaluation System Strategy evaluation activities must be economical too much information can be just as bad as too little information too many controls can do more harm than good Activities should be meaningful should specifically relate to a firm’s objectives Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Characteristics of an Effective Evaluation System Activities should provide timely information Activities should be designed to provide a true picture of what is happening Activities should not dominate decisions should foster mutual understanding, trust, and common sense Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Contingency Planning If a major competitor withdraws from particular markets as intelligence reports indicate, what actions should our firm take? If our sales objectives are not reached, what actions should our firm take to avoid profit losses? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Contingency Planning If demand for our new product exceeds plans, what actions should our firm take to meet the higher demand? If certain disasters occur, what actions should our firm take? If a new technological advancement makes our new product obsolete sooner than expected, what actions should our firm take? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Effective Contingency Planning Identify both beneficial and unfavorable events that could possibly derail the strategy or strategies. Specify trigger points. Assess the impact of each contingent event. Develop contingency plans. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Effective Contingency Planning Assess the counter-impact of each contingency plan. Determine early warning signals for key contingent events. For contingent events with reliable early warning signals, develop advance action plans to take advantage of the available lead time. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Auditing Auditing “a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria, and communicating the results to interested users” GAAP, GAAS, IFRS, FASB, GASB Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Twenty-First-Century Challenges in Strategic Management Deciding whether the process should be more an art or a science Deciding whether strategies should be visible or hidden from stakeholders Deciding whether the process should be more top-down or bottom-up in their firm Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall