1. Copyright 2005 Prentice Hall1 Bus 411 DAY 12

2. Copyright 2005 Prentice Hall Ch 8-2 Agenda Templates available in WebCT Mid-term will be after Spring Break  Chapters 1-9  Take home  Intense Discussion on Implementing Strategies  Marketing  Finance/accounting  R&D  MIS

3. Copyright 2005 Prentice Hall Ch 8-3 Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, & MIS Issues Strategic Management: Concepts & Cases 10 th Edition Fred David PowerPoint Slides by Anthony F. Chelte Western New England College

4. Copyright 2005 Prentice Hall Ch 8-4 Chapter Outline The Nature of Strategy Implementation Marketing Issues Finance/Accounting Issues

5. Copyright 2005 Prentice Hall Ch 8-5 Chapter Outline ( cont’d ) Research & Development (R&D) Issues Management Information Systems (MIS) Issues

6. Copyright 2005 Prentice Hall Ch 8-6 The greatest strategy is doomed if it’s implemented badly. -- Bernard Reimann Implementing Strategies

7. Copyright 2005 Prentice Hall Ch 8-7 -- Strategy implementation means change. The Nature of Strategy Implementation

8. Copyright 2005 Prentice Hall Ch 8-8 -- Less than 10% of strategies formulated are successfully implemented! Why??? The Nature of Strategy Implementation

9. Copyright 2005 Prentice Hall Ch 8-9 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 Nature of Strategy Implementation Low Success Rate – Strategy Implementation

10. Copyright 2005 Prentice Hall Ch 8-10 Market goods & services well Raise needed working capital Produce technologically sound goods Correct use of information systems Nature of Strategy Implementation Successful Strategy Implementation

11. Copyright 2005 Prentice Hall Ch 8-11 Marketing Issues -- Marketing variables affect success/failure of strategy implementation Marketing creates Demand which leads to sales that create revenue

12. Copyright 2005 Prentice Hall Ch 8-12 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 warrantee Marketing Issues Marketing Decisions requiring policies

13. Copyright 2005 Prentice Hall Ch 8-13 1. Market segmentation 2. Product positioning Marketing Issues Centrally important to Implementation

14. Copyright 2005 Prentice Hall Ch 8-14 Subdividing of a market into distinct subsets of customers according to needs and buying habits. Marketing Issues Market Segmentation

15. Copyright 2005 Prentice Hall Ch 8-15 Key to matching supply & demand Market development, product-development, market penetration & diversification strategies Allows operating with limited resources Enables small firms to compete successfully Marketing Issues Market Segmentation

16. Copyright 2005 Prentice Hall Ch 8-16 Directly affect marketing mix variables:  Product  Place  Promotion  Price Marketing Issues Market Segmentation

17. Ch 8-17 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

18. Copyright 2005 Prentice Hall Ch 8-18 Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic

19. Copyright 2005 Prentice Hall Ch 8-19 Region County size City or SMSA (Standard Metropolitan Statistical Area ) size Density Climate Marketing Issues Geographic

20. Copyright 2005 Prentice Hall Ch 8-20 Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic

21. Copyright 2005 Prentice Hall Ch 8-21 Age Family Size Family Life Cycle Income/Occupation Education Religion Race/Nationality Marketing Issues Demographic

22. Copyright 2005 Prentice Hall Ch 8-22 Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic

23. Copyright 2005 Prentice Hall Ch 8-23 Social Class Lifestyle Personality Marketing Issues Psychographic

24. Copyright 2005 Prentice Hall Ch 8-24 Marketing Issues Market Segment Basis Psychographic Behavioral Geographic Demographic

25. Copyright 2005 Prentice Hall Ch 8-25 Use occasion Benefits sought User status Usage rate Loyalty status Readiness stage Attitude toward product Marketing Issues Behavioral

26. Copyright 2005 Prentice Hall Ch 8-26 Marketing Issues -- Schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry Product Positioning

27. Copyright 2005 Prentice Hall Ch 8-27 Marketing Issues Product Positioning Customer Wants Customer Needs

28. Copyright 2005 Prentice Hall Ch 8-28 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

29. Copyright 2005 Prentice Hall Ch 8-29 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

30. Copyright 2005 Prentice Hall Ch 8-30 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

31. Copyright 2005 Prentice Hall Ch 8-31 Finance/Accounting Issues -- Central to strategy implementation.

32. Copyright 2005 Prentice Hall Ch 8-32 Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business Finance/Accounting Issues Essential for implementation

33. Copyright 2005 Prentice Hall Ch 8-33 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

34. Copyright 2005 Prentice Hall Ch 8-34 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

35. Copyright 2005 Prentice Hall Ch 8-35 Debt (take a loan) Equity (get more partners, sell treasury stock, issue new stock) Finance/Accounting Issues Capital acquisition to implement strategies

36. Copyright 2005 Prentice Hall Ch 8-36 EPS/EBIT analysis  Earnings per share/Earnings before interest and taxes Finance/Accounting Issues Debt vs. Equity Decisions

37. Copyright 2005 Prentice Hall Ch 8-37 $Amount Needed: $500 Stock Price $40 EBIT Range $1000 to $2000 Tax Rate 175/673 =.26 = 26% Interest Rate 5% # Shares Outstanding 350 (million) EPS-EBIT Analysis (in $millions) Heinz Company – Year End 2001

38. Copyright 2005 Prentice Hall Ch 8-38 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%)0025 10 EBT2000100019759751990990 Taxes 26%520260514254517257 EAT148074014617211473733 # Shares outstanding362.5 350 357.5 EPS4.082.044.172.064.122.05

39. Copyright 2005 Prentice Hall Ch 8-39 Conclusion:  Heinz should use debt to raise the $500 million Finance/Accounting Issues EPS-EBIT Analysis Heinz

40. Copyright 2005 Prentice Hall Ch 8-40 Allow an organization to examine the expected results of various actions and approaches Finance/Accounting Issues Projected Financial Statements

41. Copyright 2005 Prentice Hall Ch 8-41 1. 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

42. Copyright 2005 Prentice Hall Ch 8-42 4. 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)

43. Copyright 2005 Prentice Hall Ch 8-43 Projected Income Statement for Litten Company (in millions) Prior Year 2004 Projected Year 2005Remarks Projected Income Statement Sales100150.0050% increase Cost of Goods Sold70105.0070% of sales Gross Margin3045.00 Selling Expense1015.0010% of sales Administrative Expense57.505% of sales EBIT1522.50 Interest33.00 EBT1219.50 Taxes69.7550% rate Net Income69.75 Dividends25.00 Retained Earnings44.75

44. Copyright 2005 Prentice Hall Ch 8-44 -- Details how funds will be obtained and spent for a specified period of time. Finance/Accounting Issues Financial Budget

45. Copyright 2005 Prentice Hall Ch 8-45 Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets Finance/Accounting Issues Types of Budgets

46. Copyright 2005 Prentice Hall Ch 8-46 Divisional budgets Variable budgets Flexible budgets Fixed budgets Finance/Accounting Issues Types of Budgets

47. Copyright 2005 Prentice Hall Ch 8-47 Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms Finance/Accounting Issues Evaluating Worth of a Business

48. Copyright 2005 Prentice Hall Ch 8-48 1. What a firm owns 2. What a firm earns 3. What a firm will bring in the market Finance/Accounting Issues Evaluating Worth of a Business: 3 Basic Approaches

49. Copyright 2005 Prentice Hall Ch 8-49 Research & Development Issues -- New products and improvement of existing products that allow for effective strategy implementation

50. Copyright 2005 Prentice Hall Ch 8-50 Level of support constrained by resource availability Technological improvements shorten product life cycles Research & Development Issues Constraints

51. Copyright 2005 Prentice Hall Ch 8-51 1. 1 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

52. Copyright 2005 Prentice Hall Ch 8-52 Management Information Systems (MIS) Issues -- Information is basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms

53. Copyright 2005 Prentice Hall Ch 8-53 Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs MIS Issues Functions of MIS