1. PowerPoint Points: Strategic Planning Using Your Balanced Scorecard
(Worst-Case Sales) vs. (Best-Case Production) > Forecasting
Bonus Point:
The Analyst Report

2. Begin Strategic Plan

3. NEXT STEP Company Consumers Competitors Conditions
Situation/SWOT Analysis
Strategic Planning
Functional Integration
Performance Assessment
NEXT STEP
Growth & Competitive Strategies
Finance HR
Production
R&D
Marketing
Functional Integration
Profits
Mrkt Share
ROA
ROS
ROE
Asset T/O
Stock
Mrkt Cap
Company
Consumers
Competitors
Conditions
PEST

4. 3 Levels of Strategic MGT
Corporate-Level : In what business should we compete?
Corporation
Business-Level : How should we compete?
Sensors Unit
Cons.Elec. Unit
Nano-Tech Unit
Functional-Level : How do we coordinate?
Finance
HR / R&D
Production
Marketing

5. Level 1-Corporate Strategy
In which businesses do we compete?
Corporation
Consumer Security Services
Sensors Unit
Nano-Tech Unit ?

6. Decide what business(es) want to be in …
what Products to compete with…
What Markets to compete in…
Growth Strategy

7. Growth Strategies Present Products New Products Market Penetration-
Increase share among existing customers.
Product
Development
Create new
products for present markets
Present
Markets
Market Development
Attract new customers to existing products
New
Markets
Diversification
new products… new markets… new alliances

8. Next Level of Strategic MGT
Corporate-Level : In what business should we compete?
Corporation
Business-Level : How should we compete?
Sensors Unit
Cons.Elec. Unit
Nano-Tech Unit
Functional-Level : How do we coordinate?
Finance
HR / R&D
Production
Marketing

9. Business Unit Strategy: How do we Compete?
STRATEGIC
BUSINESS
UNIT
COMPETITOR A B C
MARKET
Focus?
Quality?
Price?

10. What Advantage can we create & sustain against our competitors?
& w/in which Market Segments should we compete?

11. Strategic Thinking- the ten big ideas 6. Resource allocation models –
Porter: strategic choices are set of basic generic strategies
(low cost, differentiation, market focus)

12. “If you don’t know where you are going
Porter “What is Strategy”
“If you don’t know where you are going
any road will get you there.” Lewis Carroll, -- Chapter 6, Alice in Wonderland

13. Design, produce, market more efficiently than competitors
You can Formulate Strategy based on what Competitive advantage you focus on:
Cost:
Design, produce, market more efficiently than competitors
Differentiation:
Deliver unique & superior value in terms of product quality, features, service

14. You can also Formulate Strategy by: Competitive Scope/ MARKET FOCUS Number & Nature of segments compete w/in-

15. & You can also Formulate Strategy by-Riding a Products Life Cycle
Adjust Marketing Mix according to natural Drift of products w/in segments-

16. Competitive Strategy Matrix
Number & nature of
segments compete w/in
Ride Product LifeCycle #2 #3
Compete on:
Broad Market
Niche Mrkt
Evolving Mrkt
Cost
Competitive Strategy Matrix #1
Product Quality

17. Competitive Strategy Matrix
Broad Mrkt
Niche Mrkt
Evolving Mrkt
Compete on:
Overall Cost Leader
Cost Leader- Lo -Tech Focus
Cost Leader - PLC
Lo+Trad+Hi
Differentiator-
Differentiator Hi- End Focus
Differentiator- PLC
Cost
Product Quality

18. Strategic Choice: Cost Leadership
Overriding goal = increased efficiency & lower costs relative to rivals
Minimize costs (Marketing, R&D & Production..)
Advantages
A cost leader able to charge lower prices
Even at same price- greater profitability

19. Strategic Choice: Differentiation
Create a product that customers perceive as distinct/unique & offer superior quality/service
Advantage
Customers expect & willing to pay premium prices

20. Strategic Choice: Differentiation
Will have significant expenditures in R&D & production…. want/need to make high quality/highly desirable product
Significant expenditures in marketing… develop greater brand equity —thru increased awareness of product quality
Greater Equity = Greater loyalty =
Less price sensitivity

21. 3rd Level of Strategy Functional Strategy Marketing Corporate Level
Business unit Level
Functional Strategy
Information
systems
Research &
development
Manufacturing
Finance
Marketing
Human resources

22. Situation/SWOT Analysis Performance Assessment
The Big Picture
Situation/SWOT Analysis
Strategic Planning
Functional Integration
Performance Assessment
Company
Consumers
Competitors
Conditions
PEST
Marketing
Growth
& Competitive Strategies
Profits
Mrkt Share
ROA
ROS
ROE
Asset T/O
Stock
Mrkt Cap
R&D
Production HR
Finance

23. INTERNAL STRATEGIC ALIGNMENT
FINANCE
Achieved when :
All Decisions made by & within all functional areas are in sync w/ one another,
As well as with the overall strategic direction of the firm
PRODUCTION
MARKETING

24. Examples of Strategic Alignment
NOTES:

26. Distinctive Competencies Distinctive Competencies
When all decisions made by & within all functional areas are in sync w/ one another,
As well as w/ your overall strategic direction -- you achieve…
Distinctive
Competencies
Distinctive
Competencies

27. Distinct competencies needed to achieve selected competitive strategy
Advantage*
Distinctive
Competencies
*Achieved when you sustain profits above Industry Average

28. Areas in which you can develop “Distinct Competencies”
MARKETING: Awareness & Accessibility
R&D: Product innovation & design
PRODUCTION: Plant Automation & utilization
Human Resources: Worker Expertise & Training

29. Achieving Competitive Advantage thru Cost-Focused Strategy
Allows for good profit margins on sales while keeping prices low especially in price-sensitive segments…
Functional Alignment
Production / HR
Automation - pursued early & aggressively/ relatively less expenditure on HR
Marketing
Spend moderately on promotion & sales
R&D
Spend minimally on R&D

30. Differentiator Seeks to create maximum awareness & brand equity.
Wants to be well known as a maker of high quality/highly desirable products
Functional Alignment
Production / HR
Less likely to invest in increased automation or production capacity / relatively higher expenditure on HR
Marketing
Spend heavy on advertising & sales to create maximum awareness & accessibility
Prices tend to be higher
R&D
High R&D spending - keep products fresh

31. Select one of the
Six
Basic Strategies

32. “Money isn’t Everything” - I knew we were in trouble
As soon as he said-
“Money isn’t Everything”
- I knew we were in trouble

33. It is important to focus on the means used to achieve the ends … …
It is important to focus on the means used to achieve the ends … …..not just on the ends themselves…
To only focus on traditional financial accounting measures (such as ROI, ROE, EPS…) …..does not give mgt the whole picture….

34. Performance needs to be judged thru mix of:
financial measures….
& - non-financial measures
…which drive financial outcomes
Will Make $$$ - if sell product
Will sell product if meets consumer Determinant Attributes………. knows about & can get it
To achieve “above’ everyone must effectively do their job
To effectively do job must know what to do

36. Strategic Thinking- the ten big ideas
9 9. Metrics that matter
Balanced score card- a system that attempts to balance financial performance w/ consideration of:
customer's perspective
learning & growth perspective
& internal business processes perspective

37. What is measured gets noticed
What is noticed gets acted on
What is acted on gets improved
Today …
Vast majority Fortune 1,000 Companies utilize a Balanced Scorecard to help manage performance—
because…..

38. Southwest Airlines – BalancedScorecard- Strategy Map
Strategic Theme: Operations Excellence
Objectives
Measures
Targets
Initiatives
Strategic Theme: Operating Efficiency
Profits and
RONA
Financial
Profitability
Grow Revenues
Fewer planes
30% +/yr
20% 5%
Grow
Revenues
Fewer planes
Attract & Retain More Customers
More Customers
Flight is on -time
Lowest prices
# Customers
FAA On Time Arrival Rating
Market Survey
12% growth
Ranked #1
Customer loyalty program
Quality management
Customer
On-time
Service
Lowest
prices
Internal
Fast ground turnaround
On Ground Time
On-Time Departure
30 Minutes
90%
Cycle time optimization
Fast ground
turnaround
Ground crew alignment
% Ground crew trained
% Ground crew stockholders
yr % yr % yr %
Ground crew training
ESOP
Learning
Ground crew
alignment 17

39. Capstone's Balanced Scorecard

40.   Video
How to use The Capstone Balanced Scorecard

43. Most Basic Principle Guiding Your Decisions-- will it:
Increase Demand for Product
Decrease Cost
of Making & Marketing Product

44. Made all the Right Decisions --product design, pricing, positioning, promotion, distribution… credit terms… production line capacity, automation, hiring training, TQM & PI…

45. IF Then Your Competitors produce a better product
&/or You produce too much of your “great” product IF
You’ll be left w/less revenue than anticipated PLUS production & inventory carrying costs that must be paid..
Then

46. You’re left w/less revenue than anticipated and did not plan & allocate enough cash to cover your production & inventory carrying costs.... IF
Then
Big Al arrives -- pays your bills, and leaves you with a loan & a stiff interest payment

47. Maintain Adequate working capital & cash reserves
In order to:
Need to:
Avoid “Big AL” & a Liquidity Crisis-
Maintain Adequate working capital & cash reserves
Have realistic/ accurate sales forecasts

48. Quick N’ Dirty
Consumer Pref’s
Best vs. Worst Case Projections

49. Estimate Your EARNED SHARE:
2 Q’s:
What will the average product sell in the segment next round?
To what degree is your product above or below average- on consumers'’ buying criteria?

50. 1 2 3 4 EARNED Share - Sales Forecast
Look-up next round Industry Demand …
Estimate # products that will be in segment.
Divide total industry demand by the number of products= FAIR SHARE
Your product’s EARNED demand can be ½ to 2X the average product’s demand…
Compare your product with competing products.
Factors include design, awareness, accessibility, and planned mid-year revisions.
Examine industry capacities & capacities of the “best” products.
Can products meet the demand they generate?

51. Quick N’ Dirty
Consumer Pref’s
Best vs. Worst Case Projections

52. Forecast off Customer Survey Scores

53. Baker 43 1758 units Able 40 1598 Fast 36 1560 Eat 1492 Cake 42 Daze 26
R#1 Dec Survey score
% of 223
Predicted sales R#2
Actual Sales R#2
Baker 43
19%
1827 units
1758 units
Able 40
18%
1731
1598
Fast 36
16%
1339
1560
Eat
1539
1492
Cake 42
1827
Daze 26
12%
1154
1045
Total=223

54. R#2
R#1 Survey score 43 40 36 42 26 2 1

55. For Example-in Traditional segment everyone begins w/ 13% market share
Opening rounds crucial- can establish competitive advantage (that can be sustained for many years- even thru-out entire sim.)
Initial round demand can vary +/- 25%
Later rounds best case/worst case vary ~~~~ 10-15%
For Example-in Traditional segment everyone begins w/ 13% market share

56. After 1st Year/Round- Can see demand spread

57. CASE
CASE

58. BIG INVENTORY- Little Ca$h
Worst Case:
BIG INVENTORY- Little Ca$h
Best Case:
Lots of CA$H - Little Inventory

59. Enter WORSE case- in “your sales forecast” on marketing spreadsheet
Enter BEST case- in “production schedule” on production spreadsheet
Spread show up as inventory on proforma BALANCE SHEET

60. need to drive cash position to the black…
In WORSE CASE: You have lots of Inventory
& little or no Cash.
need to drive cash position to the black…
$0.00

61. To adjust your cash position --
If you are cash poor, issue Stock /Bonds - or consider a short term loan
If you are cash rich, pay dividends and/or buy back stock.

62. Important Considerations re: BEST-WORST Scenario Analyses
By adjusting your CASH POSITION according to your WORST CASE estimate– will avoid … BiG AL

63. Important Considerations re: BEST-WORST Scenario Analyses
By adjusting production according to BEST CASE estimate– will minimize loss of profit due to Stock-outs
Fixed costs (marketing, R&D, interest or depreciation) already covered
Thus, any additional sales would only incur variable (production) costs

64. For example:
If annual sales $120M, = $10M/mo.
If a months material & labor costs = $7M, you missed contributing $3M to Net Margin.
You’r taxed at ~35%, so your opportunity cost is ~$2M in profit.

65. BIG INVENTORY/ no cash– risk seeing Big Al
How Big is your Slinky?
Worst Case:
BIG INVENTORY/ no cash– risk seeing Big Al
Best case:
Lots of CASH / no Inventory -you risk stockout

66. Determining A Reasonable Spread
Want to avoid generating an ultra Conservative Worst case scenario …matched w/ an ultra Optimistic Best case scenario
Should be able to sell excess inventory
in ~betw. 6 & 16 weeks
w/ 8<9 =

67. Take your total inventory costs
How to measure your slinky slack--
Take your total inventory costs
$23,900M

68. Risk ~9weeks of Inventory to avoid stockout
& Divide by total variable costs of inventory sold:
$23,900M/$131,119M =.18
52weeks *.18 = 9
Risk ~9weeks of Inventory to avoid stockout

69. Additional Tools/Techniques for Managing & Assessing Your Performance:
Marketing-Evaluation Checklist
Round Analysis
Analyst Report

70. Round analysis
-example

71. Simulation Scoring System

72. Virtually all tactical mistakes that are made when implementing strategy
are a consequence of the lack of synchronization of decisions made in at least two functional areas

73. R&D and Production breakdown
You develop a new product but forget to buy plant & equipment for it…the year before it is to be launched…
R&D and Production breakdown

74. Marketing, Production & Finance out of sync
The company takes an emergency loan because inventory levels increase…
Marketing, Production & Finance out of sync

75. Marketing, R&D, and Production out of sync
You reposition a product from the High End to the Traditional segment, but do not address their material & labor costs…
Marketing, R&D, and Production out of sync

76. Everybody is out of sync!
Financial decisions are made before knowing the budget demands of all R&D, Marketing and Production decisions…
Everybody is out of sync!

77. Diff Strategies Play into Different Success Measures
Cost Strategy = higher leverage/more investment/ more assets/more debt/ less equity
Focused Strategies should operate more effectively & have overall less sales
Profit MS
SP & MC
ROE
pf/e
ROS
pf/s AT
s/a
ROA
pf/a
BCL
L=2-3 X
Cost- Niche & PLC
B-Diff L=1.5-2
Niche-PLCDiff
All Segments= more sales & thus enable greater Cum. profit & overall market share
Differentiation Strategy =lower leverage/less investment/ less assets