CHAPTER 10 STRATEGY IMPLEMENTATION; STAFFING & DIRECTING

STRATEGIC MANAGEMENT AND BUSINESS POLICY 11th Edition

Thomas L. Wheelen J. David Hunger

Implementing Strategies

The greatest strategy is doomed if its implemented badly. -Bernard Reimann

Strategy Implementation

The Nature of Strategy Implementation

-- Strategy implementation means change.

Strategy Implementation

The Nature of Strategy Implementation

-- Less than 10% of strategies formulated are successfully implemented!

Strategy Implementation

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

Strategy Implementation

Nature of Strategy Implementation

Successful Strategy Implementation

Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems

Strategy Implementation

Marketing Issues

-- Marketing variables affect success/failure of strategy implementation

Strategy Implementation

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

Strategy Implementation

Marketing Issues
Centrally important to Implementation Segmentation Targeting & Positioning STP

1.

Market segmentation

2.

Product positioning

Strategy Implementation

Marketing Issues
Market Segmentation

Subdividing of a market into distinct subsets of customers according to needs and buying habits.

Strategy Implementation

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

Strategy Implementation

Marketing Issues
Market Segmentation

Directly affect marketing mix variables:

Product Place Promotion Price

Strategy Implementation

Marketing Mix Component Factors

Product Quality Features Style Brand name Place Distribution channels Promotion Advertising Personal selling Sales promotion Publicity Price Level

Distribution coverage
Outlet location Sales territories

Discounts & allowances

Payment terms

Packaging
Product line Warranty Service level

Inventory levels/locations
Transportation carriers

Strategy Implementation

Marketing Issues
Geographic

Demographic

Market Segment Basis

Psychographic

Behavioral

Strategy Implementation

Marketing Issues
Geographic

Region County size City or SMSA size Density Climate

Strategy Implementation

Marketing Issues
Geographic

Demographic

Market Segment Basis

Psychographic

Behavioral

Strategy Implementation

Marketing Issues
Demographic

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

Strategy Implementation

Marketing Issues
Geographic

Demographic

Market Segment Basis

Psychographic

Behavioral

Strategy Implementation

Marketing Issues
Psychographic

Social Class Lifestyle Personality

Strategy Implementation

Marketing Issues
Geographic

Demographic

Market Segment Basis

Psychographic

Behavioral

Strategy Implementation

Marketing Issues
Behavioral

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

Strategy Implementation

Marketing Issues
Product Positioning

-- Schematic representations that reflect how products/services compare to competitors on dimensions most important to success in the industry

Strategy Implementation

Marketing Issues
Customer Wants

Product Positioning
Customer Expects

Strategy Implementation

Product Positioning Steps

1. Identify your key buyers. 2. Collect information from a sample of customers about their perceptions in the product, thus identify the key attributes. Test, from a customer perspective, how those attributes are rated for yourself and your major competitors. 3. Plot a two-dimensional product-positioning map with the those attributes. 4. Determine the competitors position through excess competitors study 5. Check your position. Develop a marketing plan to re-position your product to be more competitive, or to enforce its current position.

Strategy Implementation

Product Positioning Map

High Convenience

Rental Car Market

Firm 2
Low Customer Loyalty

Firm 1
High Customer Loyalty

Firm 3
Low Convenience Strategy Implementation

Marketing Issues
Product Positioning as Strategy Implementation Tool

Look for vacant niche Avoid sub optimization Dons serve 2 segments w/ same strategy Dont position in the middle of the map

Strategy Implementation

Finance/Accounting Issues

-- Central to strategy implementation.

Strategy Implementation

Finance/Accounting Issues
Essential for implementation

Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business

Strategy Implementation

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

Strategy Implementation

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

Strategy Implementation

Finance/Accounting Issues
Capital acquisition to implement strategies Debt Equity

Strategy Implementation

Finance/Accounting Issues
Debt vs. Equity Decisions EPS/EBIT analysis

Earnings per share/Earnings before interest and taxes

Strategy Implementation

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

Strategy Implementation

EPS-EBIT Analysis (in $millions) Heinz Company

Stock Financing Financing Financing

High
EBIT ($982.4 in 2001) $2000

Low
$1000

High
$2000

Low
$1000

High
$2000

Low
$1000

Interest (5%)
EBT Taxes 26%

0
2000 520

0
1000 260

25
1975 514

25
975 254

10
1990 517

10
990 257

EAT
# Shares outstanding EPS

1480
362.5 4.08

740
362.5 2.04

1461
350 4.17

721
350 2.06

1473
357.5 4.12

733
357.5 2.05

Strategy Implementation

Finance/Accounting Issues
EPS-EBIT Analysis Heinz Conclusion:

Heinz should use debt to raise the $500 million

Strategy Implementation

Finance/Accounting Issues
Projected Financial Statements

Allow an organization to examine the expected results of various actions and approaches

Strategy Implementation

Finance/Accounting Issues
Steps in Preparing Projected Financial Statements
1.

Prepare income statement before balance sheet (forecast sales) Use percentage of sales method to project CoGS & expenses Calculate projected net income

2.

3.

Strategy Implementation

Finance/Accounting Issues
Steps in Preparing Projected Financial Statements (contd)
4.

Subtract dividends to be paid from Net Income and add remaining to Retained Earnings Project balance sheet times beginning with retained earnings

5.

6.

List comments (remarks) on projected statements

Strategy Implementation

Projected Income Statement for Litten Company (in millions)

Prior Year 2004 Projected Year 2005 Remarks

Projected Income Statement Sales Cost of Goods Sold 100 70 150.00 105.00 50% increase 70% of sales 10% of sales 5% of sales

Gross Margin
Selling Expense Administrative Expense EBIT Interest EBT Taxes Net Income Dividends Retained Earnings

30
10 5 15 3 12 6 6 2 4

45.00
15.00 7.50 22.50 3.00 19.50 9.75 9.75 5.00 4.75 50% rate

Strategy Implementation

Finance/Accounting Issues
Financial Budget

-- Details how funds will be obtained and spent for a specified period of time.

Strategy Implementation

Finance/Accounting Issues
Types of Budgets

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

Strategy Implementation

Finance/Accounting Issues
Types of Budgets Divisional budgets Variable budgets Flexible budgets Fixed budgets

Strategy Implementation

Finance/Accounting Issues
Evaluating Worth of a Business

Central to strategy implementation integrative, intensive, & diversification strategies often implemented through acquisitions of other firms

Strategy Implementation

Finance/Accounting Issues
Evaluating Worth of a Business:

3 Basic Approaches
1. 2. 3.

What a firm owns What a firm earns What a firm will bring in the market

Strategy Implementation

Research & Development Issues

-- New products and improvement of existing products that allow for effective strategy implementation

Strategy Implementation

Research & Development Issues

Constraints

Level of support constrained by resource availability Technological improvements shorten product life cycles

Strategy Implementation

Research & Development Issues

3 Major R&D approaches to implementing strategies
1. 2. 3.

1st firm to market new technological products Innovative imitator of successful products Low-cost producer of similar but less expensive products

Strategy Implementation

Management Information Systems (MIS) Issues

-- Information is basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms

Strategy Implementation

MIS Issues

Functions of MIS

Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs

Strategy Implementation