1. Copyright 2005 Prentice Hall1 Bus 411 Day 14

2. Copyright 2007 Prentice Hall Ch 6 -2 Agenda Assignment 4 Corrected  1 A, 4 B’s, 2 MIA’s, and 1 late Assignment 5 Posted (Last One!)  Due March 20 (next class)  SWOT, SPACE, BCG and QSPM Matrices for Google Mid term Exam Posted  Due March 24  20 Short essays Finish Discussion on Implementing Strategies Discussion on Strategic Review, Evaluation and Control

3. Copyright 2007 Prentice Hall Ch 6 -3 Case Study Teams Team 1  Karen  Geneice  Lee  James Team 2  Takefumi  Matt  Darius  Danielle

4. Copyright 2007 Prentice Hall Ch 6 -4 Timeline (tentative) Today  Finish Chapter 8  Chapter 9 March 20  Assignment 5 Due  How to present a case study  Tony Case Study One Apple Computer  Team work if time allows March 24  Midterm due  Team work (no class) March 27  Team Work (no class) March 31  Team 1 Case 19 Jet Blue April 3  Team 2 Case 20 AirTran April 7  Tony Case 27 Kroger April 10  Team 1 Case 26 Best Buy April 14  Team 2 Case 28 Home Depot April 17  Tony Case 23 Harrah’s April 21  Team 1 Case 24 Royal Caribbean Cruises April 24  Team 2 Case 25 Web Reservations International April 28  Team 1 Case 21 USA truck May 1  Team 2 Case 22 Yellow Roadway Corp.  Take home final assigned May 6 @ 10AM  In-class final May 9 by 3 PM  Take home final

5. Copyright 2007 Prentice Hall Ch 6 -5

6. Copyright 2007 Prentice Hall Ch 6 -6

7. Copyright 2007 Prentice Hall Ch 6 -7 Allow an organization to examine the expected results of various actions and approaches Finance/Accounting Issues Projected Financial Statements

8. Copyright 2007 Prentice Hall Ch 6 -8 1. Prepare income statement before balance sheet (forecast sales) 2. Use percentage of sales method to project CoGS & expenses 3. Calculate projected net income Finance/Accounting Issues Steps in Preparing Projected Financial Statements

9. Copyright 2007 Prentice Hall Ch 6 -9 4. Subtract dividends to be paid from Net Income and add remaining to Retained Earnings 5. Project balance sheet items beginning with retained earnings 6. List comments (remarks) on projected statements Finance/Accounting Issues Steps in Preparing Projected Financial Statements (cont’d)

10. Copyright 2007 Prentice Hall Ch 6 -10 Projected Income Statement for Litten Company (in millions) Prior Year 2005 Projected Year 2006Remarks 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

11. Copyright 2007 Prentice Hall Ch 6 -11 -- Details how funds will be obtained and spent for a specified period of time. Finance/Accounting Issues Financial Budget

12. Copyright 2007 Prentice Hall Ch 6 -12 Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets Divisional budgets Variable budgets Flexible budgets Fixed budgets Finance/Accounting Issues Types of Budgets

13. Copyright 2007 Prentice Hall Ch 6 -13 Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms Finance/Accounting Issues Evaluating Worth of a Business

14. Copyright 2007 Prentice Hall Ch 6 -14 1. What a firm owns 1. Total assets – liabilities (discount overvalued assets) 2. Stockholders equity 2. What a firm earns 1. 5 X times annual earnings (tax consequences) 3. What a firm will bring in the market 1. Outstanding shares Finance/Accounting Issues Evaluating Worth of a Business: 3 Basic Approaches

15. Copyright 2007 Prentice Hall Ch 6 -15 Worth of a Business Analysis (see 8-8) Southwest Airlines Stockholders’ Equity:$ 5,524 Net Income: 313 Stock Price: 15.70 EPS:.45 Shares Outstanding 784 Company Worth Analysis Stockholders Equity $ 5,524 Net Income x 5 1,565 Share Price/EPS x NI 10,920 # Shares x Share Price 12,309

16. Copyright 2007 Prentice Hall Ch 6 -16 Research & Development Issues -- New products and improvement of existing products that allow for effective strategy implementation

17. Copyright 2007 Prentice Hall Ch 6 -17 Level of support constrained by resource availability Technological improvements shorten product life cycles Research & Development Issues Constraints

18. Copyright 2007 Prentice Hall Ch 6 -18 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

19. Copyright 2007 Prentice Hall Ch 6 -19 Management Information Systems (MIS) Issues -- Information is the basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms

20. Copyright 2007 Prentice Hall Ch 6 -20 Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs MIS Issues Functions of MIS

21. Copyright 2007 Prentice Hall Ch 6 -21 Chapter 9 Strategy Review, Evaluation, & Control Strategic Management: Concepts & Cases 11 th Edition Fred David

22. Copyright 2007 Prentice Hall Ch 6 -22 Strategic Management Process Model

23. Copyright 2007 Prentice Hall Ch 6 -23 Organizations are most vulnerable when they are at the peak of their success -- R.T. Lenz Strategy Evaluation

24. Copyright 2007 Prentice Hall Ch 6 -24 -- Strategies become obsolete -- Internal environments are dynamic -- External environments are dynamic Strategy Review, Evaluation, & Control

25. Copyright 2007 Prentice Hall Ch 6 -25 Vital to the organization’s well-being Alert management to potential/actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations Strategy Review, Evaluation, & Control Strategy Evaluation

26. Copyright 2007 Prentice Hall Ch 6 -26 1. Examine the underlying bases of a firm’s strategy 1. Did we do a careful analysis? 2. Did things change? 2. Compare expected to actual results 3. Identify corrective actions to ensure that performance conforms to plans Strategy Review, Evaluation, & Control 3 Basic Activities

27. Copyright 2007 Prentice Hall Ch 6 -27 Complex & sensitive undertaking Overemphasis can be costly & counterproductive  Too much time spent measuring rather than doing Strategy Review, Evaluation, & Control Strategy Evaluation

28. Copyright 2007 Prentice Hall Ch 6 -28 Strategy Review, Evaluation, & Control Have assets increased Increase in profitability Increase in sales Increase in productivity Profit margins, ROI, & EPS ratios increased Appraisal of Strategic Performance

29. Copyright 2007 Prentice Hall Ch 6 -29 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

30. Copyright 2007 Prentice Hall Ch 6 -30 Strategy Evaluation, Review & Control Strategy should not present inconsistent goals & policies  Issue and not “people” problems  Success for one department means failure for another  Policy problems rise to the top Consistency

31. Copyright 2007 Prentice Hall Ch 6 -31 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

32. Copyright 2007 Prentice Hall Ch 6 -32 Strategy Evaluation, Review & Control Need for strategies to examine sets of trends  Need a Holistic view (internal and external) Consonance

33. Copyright 2007 Prentice Hall Ch 6 -33 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

34. Copyright 2007 Prentice Hall Ch 6 -34 Strategy Evaluation, Review & Control Neither overtax resources or create unsolvable sub-problems  Can it be done with the given or available resources? Feasibility

35. Copyright 2007 Prentice Hall Ch 6 -35 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

36. Copyright 2007 Prentice Hall Ch 6 -36 Strategy Evaluation, Review & Control Creation or maintenance of competitive advantage  If it doesn't create a competitive advantage then what’s the point? Advantage

37. Copyright 2007 Prentice Hall Ch 6 -37 Process of strategic evaluation Management should be continually aware of progress  Management by wandering around Don't wait for information get to you, go out and get the information  Things Change

38. Copyright 2007 Prentice Hall Ch 6 -38 Strategy Review, Evaluation, & Control 1. Increase in environment’s complexity 2. Difficulty predicting future with accuracy 3. Increasing number of variables Difficulties in Strategy Evaluation

39. Copyright 2007 Prentice Hall Ch 6 -39 Strategy Review, Evaluation, & Control 4. Rate of obsolescence of plans 5. Domestic and global events 6. Decreasing time span for planning certainty Difficulties in Strategy Evaluation

40. Copyright 2007 Prentice Hall Ch 6 -40 Strategy Review, Evaluation, & Control Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives Strategy Evaluation Should --

41. Copyright 2007 Prentice Hall Ch 6 -41 Strategy Review, Evaluation, & Control Develop revised EFE Matrix Develop revised IFE Matrix Review of Underlying Bases of Strategy --

42. Copyright 2007 Prentice Hall Ch 6 -42 Strategy Review, Evaluation, & Control 1. Competitors’ reaction to strategy 2. Competitors’ change in strategy 3. Competitors’ changes in strengths & weaknesses 4. Reasons for competitors’ strategic change Review Effectiveness of Strategy --

43. Copyright 2007 Prentice Hall Ch 6 -43 Strategy Review, Evaluation, & Control 5. Reasons for competitors’ successful strategies 6. Competitors’ present market positions & profitability 7. Potential for competitor retaliation 8. Potential for cooperation with competitors Review Effectiveness of Strategy --

44. Copyright 2007 Prentice Hall Ch 6 -44 Strategy Review, Evaluation, & Control Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses? Monitor Strengths & Weaknesses; Opportunities & Threats

45. Copyright 2007 Prentice Hall Ch 6 -45 Strategy Review, Evaluation, & Control Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover? Monitor Strengths & Weaknesses; Opportunities & Threats

46. Copyright 2007 Prentice Hall Ch 6 -46

47. Copyright 2007 Prentice Hall Ch 6 -47 Evaluation Framework Review Underlying Bases New IFE & EFE Continue present course Measure Firm Performance Take Corrective Actions Differences? Yes NO Yes NO

48. Copyright 2007 Prentice Hall Ch 6 -48 Strategy Review, Evaluation, & Control Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives Measuring Organizational Performance

49. Copyright 2007 Prentice Hall Ch 6 -49 Strategy Review, Evaluation, & Control Financial Ratios  Compare performance over different periods  Compare performance to competitors  Compare performance to industry averages Quantitative Criteria for Strategy Evaluation

50. Copyright 2007 Prentice Hall Ch 6 -50 Strategy Review, Evaluation, & Control Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Key Financial Ratios

51. Copyright 2007 Prentice Hall Ch 6 -51 Strategy Review, Evaluation, & Control Debt to equity Earnings per share (EPS) Sales growth Asset growth Key Financial Ratios

52. Copyright 2007 Prentice Hall Ch 6 -52 Strategy Review, Evaluation, & Control Internal consistency of strategy Consistency with environment Appropriateness in view of resources Qualitative Evaluation of Strategy

53. Copyright 2007 Prentice Hall Ch 6 -53 Strategy Review, Evaluation, & Control Acceptable degree of risk Appropriate time frame Workability of the strategy Qualitative Evaluation of Strategy

54. Copyright 2007 Prentice Hall Ch 6 -54 Strategy Review, Evaluation, & Control -- Evaluate strategies from 4 perspectives: 1. Financial performance 2. Customer knowledge 3. Internal business processes 4. Learning & growth Balanced Scorecard

55. Copyright 2007 Prentice Hall Ch 6 -55 Balanced Scorecard Area of ObjectivesMeasure or TargetTime ExpectationPrimary Responsibility Customers 1 2 Managers/Employees 1 2 Operations/Processes 1 2 Community/Social Responsibility 1 2 Business Ethics/Natural Environment 1 2 Financial 1 2

56. Copyright 2007 Prentice Hall Ch 6 -56

57. Copyright 2007 Prentice Hall Ch 6 -57 Strategy Review, Evaluation, & Control Economical Meaningful Generates useful information Timely information Provides accurate picture of events Characteristics of Strategy Evaluation

58. Copyright 2007 Prentice Hall Ch 6 -58 Strategy Review, Evaluation, & Control Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning

59. Copyright 2007 Prentice Hall Ch 6 -59 Strategy Review, Evaluation, & Control Financial audits determine correspondence between assertions based on strategic plan & established criteria Environmental audits insure sound and safe practices Auditing

60. Copyright 2007 Prentice Hall Ch 6 -60 Strategy Evaluation, Review & Control Process is more an “art” than “science”  You can learn the “science”, the “art” part requires experiences and practice Should strategies be visible or hidden from stakeholders  Only when secrecy gives some competitive advantage Should process be more top-down or bottom up  Current research suggests bottom-up 21 st Century Challenges in Strategic Management