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Chapter 8

Implementing Strategies: Marketing,


Finance/Accounting, R&D, & MIS Issues

Strategic Management:
Concepts & Cases
10th Edition
Fred David

PowerPoint Slides by
Anthony F. Chelte
Western New England College

Ch 8-1
Copyright 2005 Prentice Hall
Chapter Outline

The Nature of Strategy Implementation

Marketing Issues

Finance/Accounting Issues

Ch 8-2
Copyright 2005 Prentice Hall
Chapter Outline (cont’d)

Research & Development (R&D) Issues

Management Information Systems (MIS)


Issues

Ch 8-3
Copyright 2005 Prentice Hall
Implementing Strategies

The greatest strategy is doomed if it’s


implemented badly. --
Bernard Reimann

Ch 8-4
Copyright 2005 Prentice Hall
The Nature of Strategy
Implementation

-- Strategy implementation means change.

Ch 8-5
Copyright 2005 Prentice Hall
The Nature of Strategy
Implementation

-- Less than 10% of strategies formulated are


successfully implemented!

Ch 8-6
Copyright 2005 Prentice Hall
Nature of Strategy
Implementation
Low Success Rate – Strategy Implementation

 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

Ch 8-7
Copyright 2005 Prentice Hall
Nature of Strategy
Implementation
Successful Strategy Implementation

 Market goods & services well


 Raise needed working capital
 Produce technologically sound goods
 Sound information systems

Ch 8-8
Copyright 2005 Prentice Hall
Marketing Issues

-- Marketing variables affect


success/failure of strategy implementation

Ch 8-9
Copyright 2005 Prentice Hall
Marketing Issues

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 warrantee

Ch 8-10
Copyright 2005 Prentice Hall
Marketing Issues

Centrally important to Implementation

1. Market segmentation

2. Product positioning

Ch 8-11
Copyright 2005 Prentice Hall
Marketing Issues

Market Segmentation

 Subdividing of a market into distinct subsets


of customers according to needs and buying
habits.

Ch 8-12
Copyright 2005 Prentice Hall
Marketing Issues

Market Segmentation

 Key to matching supply & demand


 Market development, product-development,
market penetration & diversification strategies
 Allows operating with limited resources
 Enables small firms to compete successfully

Ch 8-13
Copyright 2005 Prentice Hall
Marketing Issues

Market Segmentation

 Directly affect marketing mix variables:


 Product
 Place
 Promotion
 Price

Ch 8-14
Copyright 2005 Prentice Hall
Marketing Mix – Component Factors
Product Place Promotion Price

Distribution
Quality Advertising Level
channels
Distribution Discounts &
Features Personal selling
coverage allowances

Style Outlet location Sales promotion Payment terms

Brand name Sales territories Publicity

Inventory
Packaging
levels/locations
Transportation
Product line
carriers

Warranty

Service level

Ch 8-15
Marketing Issues

Geographic

Demographic

Market Segment
Basis Psychographic

Behavioral

Ch 8-16
Copyright 2005 Prentice Hall
Marketing Issues

Geographic

 Region
 County size
 City or SMSA size
 Density
 Climate

Ch 8-17
Copyright 2005 Prentice Hall
Marketing Issues

Geographic

Demographic

Market Segment
Basis Psychographic

Behavioral

Ch 8-18
Copyright 2005 Prentice Hall
Marketing Issues

Demographic
 Age
 Family Size
 Family Life Cycle
 Income/Occupation
 Education
 Religion
 Race/Nationality

Ch 8-19
Copyright 2005 Prentice Hall
Marketing Issues

Geographic

Demographic

Market Segment
Basis Psychographic

Behavioral

Ch 8-20
Copyright 2005 Prentice Hall
Marketing Issues

Psychographic

 Social Class
 Lifestyle
 Personality

Ch 8-21
Copyright 2005 Prentice Hall
Marketing Issues

Geographic

Demographic

Market Segment
Basis Psychographic

Behavioral

Ch 8-22
Copyright 2005 Prentice Hall
Marketing Issues

Behavioral
 Use occasion
 Benefits sought
 User status
 Usage rate
 Loyalty status
 Readiness stage
 Attitude toward product

Ch 8-23
Copyright 2005 Prentice Hall
Marketing Issues

Product Positioning

-- Schematic representations that reflect how


products/services compare to competitors’ on
dimensions most important to success in the
industry

Ch 8-24
Copyright 2005 Prentice Hall
Marketing Issues

Customer Wants

Product
Positioning

Customer Needs

Ch 8-25
Copyright 2005 Prentice Hall
Product Positioning Steps

1. Select Key Criteria

2. Diagram Map

Product 3. Plot competitors’


Positioning products
Steps
4. Look for niches

5. Develop Marketing
Plan
Ch 8-26
Copyright 2005 Prentice Hall
Product Positioning Map
High
Convenience Rental Car Market

Firm 1
Firm 2

High Low
Customer Customer
Loyalty Loyalty


Firm 3
Low
Convenience
Ch 8-27
Copyright 2005 Prentice Hall
Marketing Issues
Product Positioning as Strategy Implementation
Tool

 Look for vacant niche


 Avoid sub optimization
 Don’s serve 2 segments w/ same strategy
 Don’t position in the middle of the map

Ch 8-28
Copyright 2005 Prentice Hall
Finance/Accounting Issues

-- Central to strategy implementation.

Ch 8-29
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Essential for implementation

 Acquiring needed capital


 Developing projected financial statements
 Preparing financial budgets
 Evaluating worth of a business

Ch 8-30
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Decisions based on Finance/Accounting

 Raise capital – short-term, long-term, preferred,


or common stock
 Lease or by fixed assets
 Determine appropriate dividend payout ratio

Ch 8-31
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Decisions based on Finance/Accounting

 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 8-32
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Capital acquisition to implement strategies

 Debt

 Equity

Ch 8-33
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Debt vs. Equity Decisions

 EPS/EBIT analysis
 Earnings per share/Earnings before interest and
taxes

Ch 8-34
Copyright 2005 Prentice Hall
EPS-EBIT Analysis
(in $millions)
Heinz Company – Year End 2001
 $Amount Needed: $500
 Stock Price $40
 EBIT Range $1000 to $2000
 Tax Rate 175/673 = .26 = 26%
 Interest Rate 5%
 # Shares Outstanding 350

Ch 8-35
Copyright 2005 Prentice Hall
EPS-EBIT Analysis (in $millions) – Heinz
Company
Stock Financing Financing Financing

High Low High Low High Low

EBIT ($982.4 in 2001) $2000 $1000 $2000 $1000 $2000 $1000

Interest (5%) 0 0 25 25 10 10

EBT 2000 1000 1975 975 1990 990

Taxes 26% 520 260 514 254 517 257

EAT 1480 740 1461 721 1473 733

# Shares outstanding 362.5 362.5 350 350 357.5 357.5

EPS 4.08 2.04 4.17 2.06 4.12 2.05

Ch 8-36
Copyright 2005 Prentice Hall
Finance/Accounting Issues

EPS-EBIT Analysis Heinz

 Conclusion:

 Heinz should use debt to raise the $500 million

Ch 8-37
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Projected Financial Statements

 Allow an organization to examine the expected


results of various actions and approaches

Ch 8-38
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Steps in Preparing Projected Financial


Statements
1. Prepare income statement before balance
sheet (forecast sales)

2. Use percentage of sales method to project


CoGS & expenses

3. Calculate projected net income

Ch 8-39
Copyright 2005 Prentice Hall
Finance/Accounting Issues
Steps in Preparing Projected Financial
Statements (cont’d)

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

Ch 8-40
Copyright 2005 Prentice Hall
Projected Income Statement for Litten Company (in millions)

Projected Year
Prior Year 2004 2005 Remarks

Projected Income Statement


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

Ch 8-41
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Financial Budget

-- Details how funds will be obtained and spent for


a specified period of time.

Ch 8-42
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Types of Budgets

 Cash budgets
 Operating budgets
 Sales budgets
 Profit budgets
 Factory Budgets
 Expense Budgets

Ch 8-43
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Types of Budgets

 Divisional budgets
 Variable budgets
 Flexible budgets
 Fixed budgets

Ch 8-44
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Evaluating Worth of a Business

 Central to strategy implementation – integrative,


intensive, & diversification strategies often
implemented through acquisitions of other firms

Ch 8-45
Copyright 2005 Prentice Hall
Finance/Accounting Issues

Evaluating Worth of a Business:


3 Basic Approaches

1. What a firm owns


2. What a firm earns
3. What a firm will bring in the market

Ch 8-46
Copyright 2005 Prentice Hall
Research & Development
Issues

-- New products and improvement of


existing products that allow for effective
strategy implementation

Ch 8-47
Copyright 2005 Prentice Hall
Research & Development
Issues

Constraints

 Level of support constrained by resource


availability
 Technological improvements shorten product
life cycles

Ch 8-48
Copyright 2005 Prentice Hall
Research & Development
Issues

3 Major R&D approaches to implementing


strategies

1. 1st firm to market new technological products


2. Innovative imitator of successful products
3. Low-cost producer of similar but less
expensive products

Ch 8-49
Copyright 2005 Prentice Hall
Management Information
Systems (MIS) Issues

-- Information is basis for understanding


the firm. One of the most important
factors differentiating successful from
unsuccessful firms

Ch 8-50
Copyright 2005 Prentice Hall
MIS Issues

Functions of MIS

 Information collection, retrieval, & storage


 Keeping managers informed
 Coordination of activities among divisions
 Allow firm to reduce costs

Ch 8-51
Copyright 2005 Prentice Hall
For Review (Chapter 8)

Key Terms & Concepts

Cash Budget Marketing Mix Variables

Outstanding Shares
EPS/EBIT Analysis
Method

Management Information Price-Earnings Ratio


Systems (MIS) Method

Market Segmentation Product Positioning

Ch 8-52
Copyright 2005 Prentice Hall
For Review (Chapter 8)

Key Terms & Concepts

Projected Financial
Statement Analysis

Research & Development


(R&D)

Vacant Niche

Ch 8-53
Copyright 2005 Prentice Hall

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