Lecture 18 Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues

Lecture Outline The Nature of Strategy Implementation Marketing Issues Research and Development (R&D) Issues

Lecture Outline Finance/Accounting Issues Management Information Systems Issues

Implementing Strategies There is no “perfect” strategic decision. One always has to pay a price. One always has to balance conflicting objectives, conflicting opinions, and conflicting priorities. The best strategic decision is only an approximation—and a risk -- Peter Drucker

Strategy implementation means change Implementing Strategies

Less than 10% of strategies formulated are successfully implemented! Implementing Strategies:

Low strategy implementation success: 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 Implementing Strategies:

For Successful Strategy Implementation -- – Firms must market goods and services well – Firms must raise needed working capital – Firms produce technologically-sound goods – Firms must have sound information systems Implementing Strategies:

Marketing variables affect success or failure of strategy implementation Market Segmentation Production Positioning Marketing Issues

Marketing Decisions requiring polices – – Use exclusive dealerships or multiple channels of distribution – Use heavy, light, or no TV advertising – Limit (or not) the share of business done with a single customer Implementing Strategies: Marketing Issues

Marketing Decisions requiring polices – – Be a price leader or price follower – Offer a complete or limited warranty – Reward salespeople based on straight commission or combination salary/commission Implementing Strategies: Marketing Issues

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

Widely used in implementing strategies Small and specialized firms Market Segmentation

Market Segmentation Important Variable: 1. Market and product development, market penetration, and diversification require increased sales through new markets or products Market Segmentation

Market Segmentation Important Variable: 2. Firm can operate with limited resources. Enables a small firm by maximizing per-unit profits and per-segment sales. Market Segmentation

Market Segmentation Important Variable: 3. Segmentation decisions directly affect marketing mix variables: - Product, place, promotion, and price Market Segmentation

Marketing Mix – Component Factors Service level Warranty Transportation carriers Product line Inventory levels/locations Packaging PublicitySales territoriesBrand name Payment termsSales promotionOutlet locationStyle Discounts & allowances Personal selling Distribution coverage Features LevelAdvertisingDistribution channelsQuality PricePromotionPlaceProduct

Bases for Segmenting Markets -- – Geographic – Demographic – Psychographic – Behavioral Market Segmentation

Geographic Basis: – Region – County Size – City or SMSA size – Density – Climate Market Segmentation

Demographic Basis: – Age – Family Size – Family Life Cycle – Income Occupation – Education – Religion – Race Nationality Market Segmentation

Psychographic Basis: – Social Class – Lifestyle – Personality Market Segmentation

Behavioral Basis: – Use occasion – Benefits sought – User status – Usage rate – Loyalty status – Readiness Stage – Attitude toward product Market Segmentation

Developing schematic representations that reflect how products or services compare to competitors’ on dimensions most important to success in the industry Product Positioning

Product Positioning based on: – Customers wants – Customers needs Product Positioning

Product Positioning Steps Product Positioning Steps 2. Diagram Map 1. Select Key Criteria 3.Plot competitors’ products 4. Look for niches 5. Develop Marketing Plan

Product Positioning Map Low Convenience High Customer Loyalty Low Customer Loyalty High Convenience Firm 1 Firm 2 Firm 3 Rental Car Market

Product Positioning Map as Strategy- Implementation Tool— – Look for vacant niche – Avoid suboptimization – Don’t serve 2 segments with same strategy – Don’t position in the middle of the map Product Positioning

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Lecture 19 Implementing Strategies: Marketing, Finance/Accounting, R&D, and MIS Issues

Finance/Accounting Issues Central to Strategy Implementation – – Acquiring needed capital – Developing pro forma financial statements – Preparing financial budgets – Evaluating worth of a business

Decisions Requiring Finance/Accounting Policies Raise capital w/ short-term, long-term preferred or common stock Lease or buy fixed assets Determine an appropriate dividend payout ratio Use LIFO, FIFO, or market-value accounting approach

Decisions Requiring Finance/Accounting Policies Extend time of accounts receivable Establish percentage discount on accounts for terms Determine the amount of cash kept on hand

Finance/Accounting Issues Acquiring Capital to Implement Strategies – Basic sources of capital: – Debt – Equity

Finance/Accounting Issues Debt vs. Equity Decisions – EPS/EBIT analysis – Earnings per share/Earnings before interest and taxes

Finance/Accounting Issues Pro Forma Financial Statements - Allows an organization to examine the expected results of various actions and approaches

Finance/Accounting Issues 6 Steps in Pro Forma Financial Analysis 1.Prepare income statement before balance sheet (forecast sales) 2.Use percentage-of-sales method to project CGS and expenses 3.Calculate projected net income 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

Finance/Accounting Issues Financial Budget – Document that details how funds will be obtained and spent for a specified period of time.

Finance/Accounting Issues Types of Budgets – – Cash budgets – Operating budgets – Sales budgets – Profit budgets – Factory budgets – Capital budgets – Expense budgets – Divisional budgets – Variable budgets – Flexible budgets – Fixed budgets

Evaluating Worth of a Business Central to strategy implementation as integrative, intensive and diversification strategies are often implement through acquisitions of other firms.

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

Research & Development Issues New products and improvement of existing products that allow for effective strategy implementation

Research & Development Issues Level of support is constrained by resource availability Technological improvements shorten product life cycles

Research & Development Issues 3 Major R&D approaches to implementing strategies – 1.First firm to market new technological products 2.Be an innovative imitator of successful products 3.Low-cost producer of similar but less expensive products

Key Terms Cash Budget EPS/EBIT Analysis Financial Budget Information Systems Market Segmentation Marketing-mix Variables

Key Terms Multidimensional Scaling Outstanding Shares Method Price-earnings Ratio Method Pro Forma Financial Statement Analysis Product Positioning

Key Terms Research and Development Retained Earnings Vacant Niche World Wide Web

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