Chapter 8 Implementing Strategies: Marketing, Finance/Accounting, R&D, & MIS Issues

Strategic Management: Strategic Concepts & Cases 11th Management: Edition Fred David

Concepts & Cases PowerPoint Slides by 11th Edition Anthony F. Chelte Western NewDavid College Fred England
Revised by Azhar Kazmi KFUPM Dhahran

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Ch 8-1

The Nature of Strategy Implementation

Strategy implementation means change; strategy implementation could also be termed as change management

Less than 10% of strategies formulated are successfully implemented!

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Ch 8-2

The Nature of Strategy Implementation

Why is there low success rate in strategy implementation?
Here are some examples: 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

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Ch 8-3

The Nature of Strategy Implementation

Some examples of successful strategy implementation

Marketing goods & services well Raising needed working capital Producing technologically sound goods Creating sound information systems

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Ch 8-4

Marketing Issues
Marketing variables affect success/failure of strategy implementation

Examples of marketing decisions requiring policies

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 warranty
Ch 8-5

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Marketing Issues
Two marketing variables centrally important to strategy implementation are:
1.

Market segmentation Product positioning

2.

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Ch 8-6

Marketing Issues: market segmentation

Market segmentation is the subdividing of a market into distinct subsets of customers according to needs and buying habits

Why market segmentation could be a strategic issue?

Key to matching supply & demand Market development, product-development, market penetration & diversification strategies require increased sales through new products/markets Allows operating with limited resources Enables small firms to compete successfully
Ch 8-7

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Marketing Issues: market segmentation

Market Segmentation

Directly affect marketing mix variables:

Product Place Promotion Price

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Ch 8-8

Marketing Mix Component Factors

Product Quality Features Style Brand name Packaging Product line Warranty Service level Copyright 2007 Prentice Hall
Ch 8-9

Place Distribution channels Distribution coverage Outlet location Sales territories Inventory levels/locations Transportation carriers

Promotion Advertising Personal selling Sales promotion Publicity

Price Level Discounts & allowances Payment terms

Marketing Issues: market segmentation

Geographic

Demographic

Four bases for market segmentation

Psychographic

Behavioral

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Ch 8-10

Marketing Issues: bases for segmentation

Geographic: Region Province size City size Density Climate Behavioral: Use occasion Benefits sought User status Usage rate Loyalty status Readiness stage Attitude toward product
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Demographic: Age Family Size Family Life Cycle Income/Occupation Education Religion Race/Nationality Psychographic: Social Class Lifestyle Personality

Ch 8-11

Marketing Issues: product positioning

Product positioning is the schematic representations that reflect how products/services compare to competitors on dimensions most important to success in the industry Product Positioning
Customer Wants Customer Needs

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Ch 8-12

Product Positioning Steps

1. Select Key Criteria for differentiating products/ services in industry

2. Diagram Map with two-dimensional product positioning map

3. Plot competitors products in the four-quadrant matrix

4. Look for niches in the positioning map

5. Develop Marketing Plan to position companys product/services Copyright 2007 Prentice Hall
Ch 8-13

Example of Product Positioning Map

Very latest, fashionable menswear

Menswear retail store

Average Specialty chain Low price Average mass merchandizer or discounter Average Department store Conservative, Everyday menswear Copyright 2007 Prentice Hall
Ch 8-14

High price

Marketing Issues
Product Positioning as Strategy Implementation Tool

Look for vacant niche as the best opportunity may be unserved segment Avoid sub optimization by squatting between two segments Dont serve two segments with the same strategy Dont position in the middle of the map

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Ch 8-15

Finance/Accounting Issues
Financial/Accounting issues are central to strategy implementation Examples of financial/accounting issues essential for implementation Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business
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Ch 8-16

Finance/Accounting Issues
Decisions based on Finance/Accounting

Raise capital short-term, long-term, preferred, or common stock Lease or buy fixed assets Determine appropriate dividend payout ratio LIFO, FIFO, or market-value accounting approach Extend time of AR Establish % discount on accounts for terms Determine the amount of cash kept on hand
Ch 8-17

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Finance/Accounting Issues
Successful strategy implementation often requires additional capital.
Sources of capital to implement strategies (besides net profit from operations and sales of assets) are:

Debt Equity

Determining the appropriate mix of debt and equity in a firms capital structure can be vital to successful strategy implementation
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Ch 8-18

Finance/Accounting Issues: debt/equity

Debt vs. Equity Decisions
Choosing between debt and equity requires analysis based on EPS/EBIT for determining whether debt, equity, or their combination is the best alternative to raise capital for strategy implementation

EPS/EBIT analysis involves an examination of the impact of debt versus equity financing on earnings per share

Earnings per share/Earnings before interest and taxes

Ch 8-19

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Finance/Accounting Issues: debt/equity

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Ch 8-20

Finance/Accounting Issues: debt/equity

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Ch 8-21

Finance/Accounting Issues
Projected Financial Statements

Projected financial statements analysis enables an organization to examine the expected results of various actions and approaches in strategy implementation.

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Ch 8-22

Projected Income Statement for Litten Company (in millions)

Prior Year 2005 Projected Year 2006 Remarks

Projected Income Statement Sales Cost of Goods Sold Gross Margin Selling Expense Administrative Expense EBIT Interest EBT Taxes Net Income Dividends Retained Earnings 100 70 30 10 5 15 3 12 6 6 2 4 150.00 105.00 45.00 15.00 7.50 22.50 3.00 19.50 9.75 9.75 5.00 4.75 50% rate 10% of sales 5% of sales 50% increase 70% of sales

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Ch 8-23

Finance/Accounting Issues: financial budget

-- Financial budget details how funds will be obtained and spent for a specified period of time.
Various types of budgets Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets Divisional budgets Variable budgets Flexible budgets Fixed budgets Copyright 2007 Prentice Hall
Ch 8-24

Finance/Accounting Issues
Evaluating Worth of a Business Central to strategy implementation integrative, intensive, & diversification strategies often implemented through acquisitions of other firms Three basic approaches to evaluating a business: What a firm owns: net worth or stockholders equity What a firm earns: future benefits through net profits What a firm will bring in the market when sold
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Ch 8-25

Research & Development Issues

New products and improvement of existing products that allow for effective strategy implementation
Examples of strategy implementation actions in R & D: Transferring complex technology Adjusting processes to local raw materials Adapting processes to local markets Altering products to specific customer preferences and tastes
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Ch 8-26

Research & Development Issues

R & D policies can enhance strategy implementation efforts to: 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 on R&D Perform R&D within the firm or to contract it outside Use university researchers or private-sector researchers
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Ch 8-27

Research & Development Issues

Three R&D approaches for strategy implementation:

Be the first firm to market new technological products Be an innovative imitator of successful products Be a low-cost producer by mass producing products similar to but less expensive than products recently introduced

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Ch 8-28

Management Information Systems (MIS) Issues

Firms that gather, assimilate, and evaluate external and internal information more effectively gain competitive advantage over other firms Information is the basis for understanding the firm. It is one of the most important factors differentiating successful from unsuccessful firms Strategic management process is greatly facilitated greatly in firms having an effective information system
Ch 8-29

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MIS Issues
Functions of MIS
Information collection, retrieval, & storage can be used to create competitive advantage. Examples of such actions are: Cross-selling to customers Monitoring suppliers Keeping managers and employees informed Coordination of activities among divisions Allow firm to reduce costs
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Ch 8-30