Business Strategy 050 322 Instructor: Michael Cooke E-mail Address: michco@kku.ac.th Office: IC room 817 Class hours: Tuesday 09:00-12:00 Class Location: IC room 822

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Global Strategy Competitive Advantage Cost leadership Builds on economies of scale and scope Learning effects (how to be more efficient) Long production runs (high cost to change lines) Spread fixed costs over more units (R&D often fixed) Shared resources or volume purchasing of inputs Cost leadership can be a barrier to entry (and a trap!) Product differentiation Customers willing to pay premium price for unique products Can be a barrier to entry (“own a category”) Niche strategy Focus on a highly specialized segment Try to achieve a dominant global position in that segment Pays to stay ‘under the radar’ A overlooked niche can grow into something much bigger Global companies combine cost control and product differentiation

Global Strategy Cost Forces Driving Globalization Global economies of scale and scope Scale economies result from producing in high volume Scope economies arise from producing a range of products Shared inputs Shared resources (such as finance or marketing) Cross selling Global sourcing efficiencies Favorable logistics Difference in country costs High product development costs Need to spread costs onto higher volumes (Boeing’s 787 cost $32BB to develop) Emerging R&D centers in lower cost countries Short product life cycles (need to achieve high volume quickly)

More on Economies of Scope From The Economist, 20 Oct 2008* Economies of scale, however, have a dark side, called diseconomies of scale. The larger an organization becomes in order to reap economies of scale, the more complex it has to be to manage and run such scale. This complexity incurs a cost, and eventually this cost may come to outweigh the savings gained from greater scale. The desire to garner economies of scope was the driving force behind the vast international conglomerates built up in the 1970s and 1980s, including BTR and Hanson in the UK and ITT in the United States. The logic behind these amalgamations lay mostly in the scope for the companies to leverage their financial skills across a diversified range of industries. A number of conglomerates put together in the 1990s relied on cross-selling, thus reaping economies of scope by using the same people and systems to market many different products. The combination of Travelers Group and Citicorp in 1998, for instance, was based on the logic of selling the financial products of the one by using the sales teams of the other. On vertical integration: http://www.economist.com/node/13173671 * http://www.economist.com/node/12446567

Booz & Co. R&D Survey 2011 http://www. booz Study of 1,000 public companies that spent the most on research and development in 2010 Total for the 1,000 $550 bb Computing and electronics 28% of all R&D expenditure Health care (pharmaceuticals) 22% Automotive 15% of all R&D expenditures China and India HQ companies = 2% of total R & D Spending doesn’t correlate successful innovation “There is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues.” according to Booz & Co Most innovative firms were Apple, Google, and 3M Samsung and Toyota were big spenders and innovative The key finding: culture is key to innovation success According to 3M: “Our goal is to get the voice of the customer all the way back to the basic research level and the product development level, to make sure our technical people see how their technologies work in various market conditions.”

Booz & Co. R&D Survey 2011 http://www. booz Need Seekers, Market Readers and Technology Drivers Need Seekers consistently strive to be first movers and proactively engage customers to shape new innovations, and align innovation and business strategies (3M) Market Readers adopt a second mover strategy and emphasize incremental change (Samsung) Technology Drivers stress technology achievement and both incremental and breakthrough change (Google) If you align innovation strategy and culture to your business model, build the right capabilities, and execute, you can prevail no matter which strategy you follow There may be no more critical source of business success or failure than a company’s culture. It is more important than strategy and leadership. According to Booz & Co.: Companies whose strategic goals are clear, and whose cultures strongly support those goals, possess a huge advantage “Connect with the customer, find out their articulated and unarticulated needs, and then determine the capability at 3M that can be developed across the company that could solve that customer’s problem in a unique, proprietary, and sustainable way. Our businesses are all interdependent and collaborative.”

Booz & Co. R&D Survey – 2011* Most often cited strategic goals of innovation are: Superior product performance Superior product quality Cultural attributes: Strong identification with the customer Pride in products Need seekers: Gaining insights on customers needs is the responsibility of all customer-facing employees. Silicon Valley companies are almost twice as likely as average companies to have capabilities that provide a superior understanding of the stated and unstated needs of their end customers Technological advances that lead to products and services that gain traction in the marketplace come through superior insight into customers, as well as the development of practical value propositions that will win those customers business 6/10 of the most innovative were need seekers 2/10 of the biggest spenders were need seekers *http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf

Booz & Co. R&D Survey Top 12 R&D in 2010 Excluding Health Rank list Rank all Company R&D $BB % sales Region 1 4 Microsoft 8.7 14 US 2 6 Toyota 8.5 Asia 3 7 Samsung 7.9 8 Nokia 7.8 Europe 5 9 General Motors 7.0 11 Intel 6.6 15 12 Panasonic 6.1 VW IBM 6.0 10 17 Honda 5.7 19 Cisco 5.3 13 20 Siemens 5.2 http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf

Booz & Co. R&D Survey 2011 Innovation As part of this year’s study, Booz & Co. surveyed almost 600 innovation leaders in companies around the world, large and small, in every major industry sector. As noted, almost half of the companies reported inadequate strategic alignment and poor cultural support for their innovation strategies. Possibly even more surprising, nearly 20 percent of companies said they didn’t have a well defined innovation strategy at all. http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf

Booz & Co. R&D Survey Top 10 Innovative Companies in 2010 Rank Company R&D $BB % sales Spend rank 1 Apple $1.8 2.7 70 2 Google $3.8 12.8 34 3 3M $1.4 5.4 86 4 GE $3.9 2.6 32 5 Microsoft $14.0 14.0 6 IBM $6.0 6.0 15 7 Samsung $5.9 5.9 8 P&G $2.5 2.5 61 9 Toyota 3.9 10 Facebook na http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf

Developing New Products for Global Markets The Role of Corporate R&D Very few companies do early stage research In the past Bell Labs, Xerox (PARC) and IBM had renowned research “What used to be spent on an in-house division is now spent on sponsorship of university research and the acquisition of intellectual property from smaller companies. The few exceptions to this rule (Google labs?) seem to be for companies that have trade secret protection as a viable alternative to patenting” (1) Enormous expense of basic research often shared IBM, Samsung, Intel, Global Foundries, and TMSC share cost of $4.4BB R&D center and collaborate with SUNY on cost technology SEMATECH launched with US government assistance in 1987 Common model is to focus R&D effort on identifying available technologies or to reducing costs License from other companies, or buy smaller companies with promising technology as Kodak did in the late 90s and early 2000s (1)http://www.patenthawk.com/blog/2008/03/did_bayhdole_end_corporate_rd.html

Samsung’s Software Strategy Samsung is dominant in the smart-phone business because of efficiency and vertical integration in hardware development and production Apple and Nokia-Microsoft masters both hardware and software Samsung’s strategy is to differentiate the Android product with exclusive software add-ons As part of the strategy, Samsung identifies possible acquisitions In-house software development produced poor results Samsung tried to buy an Israeli mapping service Google beat Samsung with a $1.1BB offer Samsung has acquired other software companies mSpot streaming music in 2012 (for a Samsung exclusive service) Boxee television software in 2013 (brought into in-house development) Potential acquisitions include a Seattle mapping startup company, a games company, and a video chat service Samsung hopes to create their own developer community Participates in developer conferences Maintains startup incubators in SF and NYC Service unity across products + less dependence on Google might be goals http://www.theverge.com/2013/10/8/4816092/samsung-bid-for-waze-and-continues-search-for-other-software-startups

R&D as % of GDP - selected EU and non-EU countries, 2006*

Country Variation in R&D Intensity (1) Technological specialization explains the variation in R&D intensity better than any other country characteristics. When industrial specialization is taken into account, only Sweden and the US still outperform other countries. Neither Japan nor Finland has an R&D intensity that is particularly high in relation to what their industrial structures would suggest. A country specialized in the finance industry (e.g., Luxemburg) would not need a high level of R&D expenditure in order to ensure growth. Similarly, a country specialized in the tourism, fashion, services or food industries would have a lower R&D intensity than a country specialized in the pharmaceutical, engineering or biotech industries. The four European countries with the highest academic R&D intensities are also the four countries with the highest business R&D intensities. With effective technology transfer systems in place, academic research is probably the most effective source of new ideas, which in turn induce further research in the business sector. http://www.voxeu.org/article/rd-missing-wrong-targets

Developing New Products for Global Markets The Role of Universities Corporate collaboration with universities Research oriented universities have technology transfer offices – and typically license intellectual property Companies might have a need to fill a hole in product line Corporate R&D’s role is to find and evaluate the technology IBM has research centers in nine countries * Close links to universities in India, for example Seeks collaboration as well as a role in developing future staff University faculty or graduate students may form companies Develop products from early stage university lab ideas Small companies often sold to large organizations or do licensing Some go on to become highly successful industry pioneers Genentech (University of CA) in biotech Google (Stanford) internet technology Sun Microsystems (UC and Stanford) computers and software SAS (NCSU led consortium) statistical analysis software * http://www-07.ibm.com/in/research/univrelations.html

Standardization versus Customization Five forces favoring a globalized product strategy Common customer preferences (Exhibit 10-2) Similar use functions across cultures Similar use conditions or benefits (example: stylishness) Global customers (business to business) Global companies may have centralized sourcing Global customers often prefer identical products/services Scale economies Sourcing efficiencies or R&D efficiencies Economies of scale have limits in some industries (timeliness factor) Time to market – need for speed Short product life cycles Focus R&D and product development efforts on a few projects Regional market agreements (such as single European market) facilitate standardization

Developing New Products for Global Markets Identifying New Product Ideas 4 C’s: Company (internal sources) Transplant ideas from one region to another R&D, sales, market research, other employees Customers The most difficult customers are often the best In most cases initial marketing is to mid-level analysts Analysts review product, make recommendations to executives Difficult customers may become beta sites Suggest improvements, additional features, new approach Competition Collaborators – suppliers, distributors, etc. Innovation Centers – teams to develop new products Institutional barriers to innovation among companies with dominant products Kodak in the 1990s Microsoft after 2000 Role of bureaucracy Threat to profits of legacy products

Truly Global Product Development Companies have research centers across the world. Few have set up a global product development process Lack access to regional talent Establish a global innovation process across regions (Nokia uses ideas from UK, USA, Japan, and Italy) To harvest the benefits of multi-region innovation: Prospecting- Find valuable new pockets of knowledge around the world. Assessing- Decide on the right number of sources Mobilize – Link knowledge clusters

Developing New Products for Global Markets New Product Development Nearly ¾ of the 30 biggest selling products worldwide had origins in marketing or manufacturing * Use of global reach to move ideas from one part of the world to another Alpha and beta test feedback may suggest changes Some companies set up small incubator units or innovation centers Working with distributors or producers of complementary products Watching competitors Screening Product ideas from marketplace most likely to succeed Product advantage (superiority to competitors, unique features) a major success factor Consumer characteristics – some are more likely to buy new products Concept Testing – detailed description of the product Focus groups – small groups of prospective customers “Red Bull” concept rejected all around – concept testing is imperfect Test marketing May be skipped to save money Lead markets can be used as projections (Exhibit 10-4) Timing of Entry (Exhibit 10-5) Waterfall—staged rollout beginning with home country favored if: Long product life cycle Unfavorable host market conditions Sprinkler—global rollout simultaneously motivated by: Competitor concerns Universal segments *Czinkota and Ronkainan “International Marketing 8E” US, Thomson, 2007 p476

Degrees of Global Customization Modular Approach Mass produce standard components (engines, gears, etc) Assemble to local requirements or tastes(Deere example) Core-Product (Common Platform) Approach Mass produce core product Add attachments for local needs or tastes (auto heaters) Standardization versus adaptation Too much standardization stifles local initiative Over-customization = competition with local products Costs of tailoring to local markets (break-even analysis) Proctor and Gamble has Beijing R&D operation

Finance/Accounting And Management Are the interests of management aligned with interests of shareholders/owners? Does the firm have adequate planning and budgeting processes? Are the firm’s financial managers capable? Where is the firm financially weak or strong? Does the firm have access to short term capital or sufficient working capital? How can the firm raise needed long-term capital (debt or issuance of shares)? Are dividend payout policies reasonable? Does the firm have good relations with its investors and stockholders? Does the firm have adequate cash flow for debt service?

Identify strengths and weaknesses in Internal Audit Identify strengths and weaknesses in Management Marketing Finance and accounting Production and operations Research and development Management information systems Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Internal strengths/weaknesses External opportunities/threats Nature of an Internal Audit Basis for Objectives & Strategies Internal strengths/weaknesses External opportunities/threats Clear statement of mission Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces Distinctive Competencies: Firm’s strengths that cannot be easily matched or imitated by competitors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces Distinctive Competencies: Building competitive advantage involves taking advantage of distinctive competencies Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Information gathered from: Internal Audit Process Parallels process of external audit Information gathered from: Management Marketing Finance/accounting Production/operations Research & development Management information systems Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Internal Audit Involvement in performing an internal strategic-management audit provides a vehicle for understanding the nature and effect of decisions in other functional business areas of the firm Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Managers and employees from all areas provide information Internal Audit Managers and employees from all areas provide information A team of managers then selects 10 to 15 key organizational strengths and weaknesses to focus on Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Internal Audit Financial Ratio Analysis Exemplifies complexity of relationships among functional areas of the business Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Internal resources are more important than external factors Resource Based View (RBV) Approach to Competitive Advantage Internal resources are more important than external factors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Resource Based View (RBV) Three All-Encompassing Categories Physical resources Human resources Organizational resources Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Not easily substitutable Resource Based View (RBV) Empirical Indicators Rare Hard to imitate Not easily substitutable Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture Organizational Culture Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration . . . is considered valid and taught to new members as the correct way to perceive, think, and feel Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture Organizational Culture Resistant to change May represent: Strength Weakness Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture Values Beliefs Legends Heroes Rites Cultural Products Symbols Rituals Myths Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture Organizational Culture Can Inhibit Strategic Management Miss external changes due to strongly held beliefs Natural tendency to “hold the course” even during times of strategic change Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Functions of Management Planning Organizing Motivating Staffing Controlling Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage When Most Important Management Stage When Most Important Function Planning Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Strategy Implementation Controlling Strategy Evaluation Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Planning Beginning of management process Bridge between present & future Improves likelihood of attaining desired results Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Developing a mission Forecasting future events and trends Establishing objectives Choosing strategies to pursue Planning Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Planning Synergy Can develop through planning Exists when everyone pulls together as a team that knows what it wants to achieve Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Organizing Achieves coordinated effort Defines task & authority relationships Determines who does what Determines who reports to whom Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Organizing Breaking down tasks into jobs Combining jobs to form departments Delegating authority Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Motivating Influencing to accomplish specific objectives Four components include: Leadership Group dynamics Communication Organizational change Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Human resource management Staffing Personnel management Human resource management Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Staffing Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Controlling Establishing performance standards Ensure actual operations conform to planned operations Taking corrective actions Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Controlling Establish performance standards Measure individual and organizational performance Compare actual performance to planned performance standards Take corrective action Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Audit Checklist Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Audit Checklist Do managers delegate well? Is the organization’s structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Audit Checklist Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Customer Needs or Wants for Products and Services Defining Anticipating Creating Fulfilling Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Marketing Functions Customer analysis Selling products/services Product & service planning Pricing Distribution Marketing research Opportunity analysis Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Customer Analysis Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Selling Products/Services Marketing Advertising Sales Promotion Publicity Personal Selling Sales force management Customer relations Dealer relations Selling Products/Services Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Product/Service Planning Marketing Test marketing Brand positioning Devising warranties Packaging Product features/options Product style Quality Deleting old products Providing for customer service Product/Service Planning Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Consumers Governments Suppliers Distributors Competitors Pricing Major Stakeholders Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Warehousing Distribution channels Retail site locations Sales territories Inventory levels Transportation Wholesaling Retailing Distribution Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Gather data Record data Analyze data Marketing Research Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Cost/Benefit Analysis Marketing Assessing costs Assessing benefits Assessing risks Cost/Benefit Analysis Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Audit Are markets segmented effectively? Is the organization positioned well among competitors? Has the firm’s market share been increasing? Are the distribution channels reliable & cost effective? Is the sales force effective? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Audit Does the firm conduct market research? Are product quality & customer service good? Are the firm’s products and services priced appropriately? Does the firm have effective promotion, advertising, and publicity strategies? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Marketing Audit Are the marketing, planning, and budgeting effective? Do the firm’s marketing managers have adequate experience and training? Is the firm’s Internet presence excellent as compared to rivals? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Investment decision (Capital budgeting) Financing decision Finance/Accounting Investment decision (Capital budgeting) Financing decision Dividend decision Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Basic Financial Ratios Firm’s ability to meet its short-term obligations Ratios Current ratio Quick (or acid test) ratio Liquidity Ratios Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Basic Financial Ratios Extent of debt financing Ratios Debt-to-total assets Debt-to-equity Long-term debt-to-equity Times-interest-earned Leverage Ratios Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Basic Financial Ratios Effective use of firm’s resources Ratios Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period Activity Ratios Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Effectiveness shown by returns on sales and investment Basic Financial Ratios Effectiveness shown by returns on sales and investment Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Profitability Ratios Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Basic Financial Ratios Effectiveness shown by returns on sales & investment Ratios Return on stockholders’ equity (ROE) Earnings per share Price-earnings ratio Profitability Ratios (cont’d) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Firm’s ability to maintain economic position Basic Financial Ratios Firm’s ability to maintain economic position Ratios Sales Net Income Earnings per share Dividends per share Growth Ratios Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Growth Ratios Ratio Sales Net Income Earnings per share Dividends per share Annual percentage growth in Total sales Profits EPS Dividends per share Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 4-3 page 109 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Breakeven point = quantity of units that a firm must sell in order for total revenues to equal total costs Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Production/Operations Production/Operations Functions Process Capacity Inventory Workforce Quality Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Production/Operations Audit Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment, machinery, and offices in good condition? Are inventory-control policies and procedures effective? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Production/Operations Audit Are quality-control policies & procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Research & Development Research & Development Functions Development of new products before competitors Improving product quality Improving manufacturing processes to reduce costs These functions can be done internally or externally Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Research & Development Financing as many projects as possible Use percent-of-sales method Budgeting relative to competitors How many successful new products are needed R&D Budgets Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Research & Development Audit Are the R&D facilities adequate? If R&D is outsourced, is it cost-effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Research & Development Audit Are MIS and computer systems adequate? Is communication between R&D and other organizational units effective? Are present products technologically competitive? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Information Systems Purpose Improve performance of an enterprise by improving the quality of managerial decisions Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Information Systems Audit Do all managers use the information system to make decisions? Is there a CIO or Director of Information Systems position in the firm? Are data updated regularly? Do managers from all functional areas contribute input to the information system? Are there effective passwords for entry into the firm’s information system? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Information Systems Audit Are strategists of the firm familiar with the information systems of rival firms? Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firm’s system being improved? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Value Chain Analysis The process whereby a firm determines the costs associated with: Purchasing raw materials Manufacturing products Marketing products And compares them to the value chain of rival firms Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Value Chain Analysis Core competencies Distinctive competencies Benchmarking Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Transforming Value Chain Activities into Sustained Competitive Advantage Value Chain Activities Are Identified and Assessed Core Competencies Arise in Some Activities Some Core Competencies Evolve into Distinctive Competencies Some Distinctive Competencies Yield Sustained Competitive Advantages Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Internal Factor Evaluation (IFE) Matrix List key internal factors Assign a weight ranging from 0.0 to 1.0 Assign a 1 to 4 rating to each factor Multiply the weight times the rating Sum the weighted scores Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Quiz: Pass/Fail = 50% 1: To make a profit when fixed costs increase A) Product volume must increase B) Gross margin must increase C) Accounts receivable must decrease D) Either A or B   2: High research and development costs, such as the $32 billion cost of developing a modern jet airliner, are a good reason for A) Abandoning R&D altogether B) Patent infringement C) Seeking global markets D) Staying within a domestic market 3: ‘Diseconomy of scale’ A) Occurs when a firm makes large products B) Is an out of date concept C) Can arise from the complexity of managing and running a large organization D) Is due to the tendency for machines to break down after a long use 4: The most innovative companies A) Get innovation ideas from very smart executives, like Steve Jobs B) Do a lot of basic research C) Have superior insights into customer needs D) Any of the above 5: Big company R&D functions A) Have research centers in many parts of the world B) Maintain close ties to research at universities C) Seek to identify promising technology at smaller companies 6: A profitable company with high gross margins and low fixed costs can A) Normally drop prices more than a company with low margins B) Is in a weak position relative to companies with low gross margins C) Should never initiate a price war D) None of the above