1. Copyright 2005 Prentice Hall1 Bus 411 Day 15

2. Copyright 2007 Prentice Hall Ch 7-2 Agenda Assignment 5 Corrected  2 A’s, 3 B’s, 2 C’s and 3 F’s  Everyone that submitted all the work on time got an A or B Mid-term exam  Sent to you on WebCT  Fill out the answers and send it back using WebCT e- ail  Due on March 16 Finish Discussion on Finance/Accounting, R&D, & MIS Issues Discussion on Strategy review, evaluation and control

3. Copyright 2007 Prentice Hall Ch 7-3 Midterm The following 20 short essays comprise the midterm exam for this class. This is a take home exam and you may use any resource other than another person. With the exception of Question 18, you should be able to complete the exam using the text as your only resource. Any evidence of collaboration with any other person on this exam will result in a score of zero and a formal charge of cheating to the Student Conduct Officer. If you have questions about the exam, please contact your instructor. The completed exam is due no later than Friday, March 16, 2007 at the beginning of class (9:30AM). Please e-mail your completed exams using WebCT e-mail to Tony Gauvin. Exams submitted beyond the due date will receive a twenty-point reduction per day. Exams submitted on the correct day but beyond the required time will receive a ten-point deduction. There will be no exceptions.

4. Copyright 2007 Prentice Hall Ch 7-4 teams Team 1  J. Harbison  N. Lozier  M. Martin Team 2  C. Brusig  C. Pennine  T. Nhundu  J. Jalbert Team 3  K. Beaulieu  M. Doucette  D. Lemon

5. Copyright 2007 Prentice Hall Ch 7-5 Timeline March 13  Finish Chapter 8  Chapter 9  Mid-term assigned March 16  How to present a case study  Mid-term due  Case study team work March 20  Tony Case study One Apple Computer  Case study team work March 23  Team 1 Case Study Two Dell Computer  Case study team work March 26-30 Spring Break April 3  Team 2 Case Study Three PepsiCo  Case study team work April 6  Team 3 Case Study Four Molson Coors Brewing Company  Case study team work April 10  Team 1 Case Study Five Hershey Foods Corporation  Case study team work April 13 (Friday the 13 th)  Team 2 Case Study Six Kellogg Company  Case study team work

6. Copyright 2007 Prentice Hall Ch 7-6 Assignment 5 Swot Matrix Leave BlankStrengths – S 1.Strong brand recognition and recall 2.Brand equity 3.Talented employee base 4.Access to Google available to anyone with Internet 5.Good cash reserves 6.Strong revenues and profit margins 7.Relationships with major corporations like AOL 8.Culture of innovation and accountability 9.Products based on solving consumer needs Weaknesses – W 1.Corporate governance 2.Lack of independence of board 3.Unclear vision 4.Fast growth 5.Potential for inappropriate positioning of client brands on Web sites 6.Small relative to competitors 7.Little physical presence in some global markets Opportunities – O 1.Internet-based technologies and businesses continue to develop 2.Worldwide growth in Internet coverage and use 3.Asia makes up most of world’s population, but has low Internet penetration 4.Increasing demand for Web-based business and consumer solutions 5.Advertising spending increasing online 6.Potential to expand into other media SO Strategies 1.Continue to develop new offerings that build upon brand and increase unique visitors to sites (e.g., Google Video, Froogle, Gmail) – S4, S9, O4, O5 2.Expand Google into additional countries (particularly in Asia) and languages (especially Mandarin) – S4, O2, O3 3.Increase advertising sales (S1, S2, S9, O5, O6) 4.Target business solutions in addition to consumer solutions (S7, S8, O1) WO Strategies 1.Develop clear vision for company (W3, O1, O4) 2.Partner when possible with organizations to develop new applications (W6, W7, O2, O3, O4) 3.Target growth in specific areas (W6, W7, O2, O3, O4) 4.Develop presence in Asia (especially in China) and South America (W7, O2, O5) Threats – T 1.Competition, especially Microsoft and Yahoo! 2.Potential for click fraud 3.Potential for attack on servers 4.Legal constraints in the are of intellectual property rights 5.Consumer attitudes toward online advertising ST Strategies 1.Defend against competitors by ensuring people are satisfied with Google services and developing new services (S5, S6, T1) 2.Build excellence in areas of importance to consumers in order to encourage Yahoo! users to switch to Google (S9, T1) 3.Harness innovation to develop preventative measures to protect against attacks from hackers (S8, T2, T3) 4.Be proactive in the interpretation of intellectual property rights laws and regulations (S3, S8, T4) 5.Develop new streams of revenue that are not based on advertising models (S5, S3, S8, T5) WT Strategies 1.Establish a plan for addressing threats from Microsoft and other competitors (W1, W2, W3, W6, T1)

7. Copyright 2007 Prentice Hall Ch 7-7 Space matrix Goog_Space_matrix1.xls

8. Copyright 2007 Prentice Hall Ch 7-8 QSPM WeightOption 1 ASTASOption 2 ASTAS Strengths Brand recognition and recall.052.104.20 Brand equity (#1 among online brands).053.154.20 Talented employee base.103.302.20 Free to consumers with Internet access.104.402.20 Cash resources ($426 million).104.403.30 Strong profits and revenues (up over 100% since previous year).054.203.15 No reliance on specific software/hardware.054.202.10 Culture of innovation.102.203.30 Powerful business relationships.053.154.20 Weaknesses Lack of presence in key international markets (especially Asia).054.201.05 Lack of clear visionary leadership.103.302.20 Issues with corporate governance.102.201.10 Vulnerability in product applications.05---- Weak profitability compared to competition.054.202.10 Total1.0 In this example, option 1 is market development in China and option 2 is product development of an online payment system like PayPal (e.g., new Internet-based business solutions). Both options are suggested by Google’s aggressive position in the Grand Strategy Matrix.

9. Copyright 2007 Prentice Hall Ch 7-9 Opportunities Internet-based technologies and businesses continue to develop.101 4.40 Worldwide growth in Internet coverage and use.054.202.10 Large market still to be tapped (currently only 15.7% of the world has Internet access). Asia, in particular, is a valuable potential market. It makes up 56.4% of the world’s population, but only 9.9% of its population are online (according to www.internetworldstats.com.054.201.05 Increasing demand for Web-based business and consumer solutions.152.303.45 Advertising spending declining in other media but increasing online.153.454.60 Potential to expand into other media.052.103.15 Threats Microsoft has stated its plans to threaten Google’s future.102.203.30 Other competitors (Yahoo!, eBay, MSN, and others).104.402.20 Potential for click fraud.052.10-- Potential for attacks on Google’s servers.05--1 Legal constraints in the area of intellectual property rights.101 3.30 Consumer attitudes toward online advertising.05--4.20 Total1.0 Sum Total Attractiveness Score5.155.10 In this example, option 1 is market development in China and option 2 is product development of an online payment system like PayPal (e.g., new Internet-based business solutions). Both options are suggested by Google’s aggressive position in the SPACE Matrix.

10. Copyright 2007 Prentice Hall Ch 7-10 BCG data RevenuesProfitsMarket Share % Industry Growth Rate Google websites Advertising 1589032198629131.5high Google Network Web Site Advertising 15542561942820.531.5high Licensing (and other revenues) 459355741.875> 0.120high 3189223398652.875 399199 MSFT81280001000's in 2004

11. Copyright 2007 Prentice Hall Ch 7-11 Google BCG Matrix Dogs IV Cash Cows III Question Marks I Stars II Relative Market Share Position High 1.0 Medium.50 Low 0.0 Industry Sales Growth Rate High +40 Low -40 Medium 0

12. Copyright 2007 Prentice Hall Ch 7-12 Steps in Preparing Case Studies Identify Existing Mission, Vision, Objectives, Strategies Develop New Vision and Mission  Most are poor Identify external opportunities and threats  CPM  EFE Identify internal strengths and weaknesses  IFE  Financial ratios Analyze  SWOT Matrix  SPACE  BCG  IE matrix  Grand Strategy Matrix  QSPM Give advantage and disadvantages of alternative strategies Recommend  Strategies and long range objectives  Show cost Specify how strategies are to be implemented and what results to expect Recommend specific annual objectives (goal) and polices Recommend procedures for evaluation Be Original – Take chances  Remember business rewards risk taking

13. Copyright 2007 Prentice Hall Ch 7-13 Debt Equity Finance/Accounting Issues Capital acquisition to implement strategies

14. Copyright 2007 Prentice Hall Ch 7-14 EPS/EBIT analysis  Earnings per share/Earnings before interest and taxes Finance/Accounting Issues Debt vs. Equity Decisions

15. Copyright 2007 Prentice Hall Ch 7-15 $Amount Needed: $500 Stock Price $40 EBIT Range $1000 to $2000 Tax Rate 175/673 =.26 = 26% Interest Rate 5% # Shares Outstanding 350 (million) EPS-EBIT Analysis (in $millions) Heinz Company – Year End 2001

16. Copyright 2007 Prentice Hall Ch 7-16 EPS-EBIT Analysis (in $millions) – Heinz Company Stock FinancingFinancing Combination 60/40 HighLowHighLowHighLow EBIT ($982.4 in 2001)$2000$1000$2000$1000$2000$1000 Interest (5%)0025 10 EBT2000100019759751990990 Taxes 26%520260514254517257 EAT148074014617211473733 # Shares outstanding362.5 350 357.5 EPS4.082.044.172.064.122.05

17. Copyright 2007 Prentice Hall Ch 7-17 Conclusion:  Heinz should use debt to raise the $500 million Finance/Accounting Issues EPS-EBIT Analysis Heinz

18. Copyright 2007 Prentice Hall Ch 7-18

19. Copyright 2007 Prentice Hall Ch 7-19

20. Copyright 2007 Prentice Hall Ch 7-20 Allow an organization to examine the expected results of various actions and approaches Finance/Accounting Issues Projected Financial Statements

21. Copyright 2007 Prentice Hall Ch 7-21 1. Prepare income statement before balance sheet (forecast sales) 2. Use percentage of sales method to project CoGS & expenses 3. Calculate projected net income Finance/Accounting Issues Steps in Preparing Projected Financial Statements

22. Copyright 2007 Prentice Hall Ch 7-22 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 Steps in Preparing Projected Financial Statements (cont’d)

23. Copyright 2007 Prentice Hall Ch 7-23 Projected Income Statement for Litten Company (in millions) Prior Year 2005 Projected Year 2006Remarks Projected Income Statement Sales100150.0050% increase Cost of Goods Sold70105.0070% of sales Gross Margin3045.00 Selling Expense1015.0010% of sales Administrative Expense57.505% of sales EBIT1522.50 Interest33.00 EBT1219.50 Taxes69.7550% rate Net Income69.75 Dividends25.00 Retained Earnings44.75

24. Copyright 2007 Prentice Hall Ch 7-24 -- Details how funds will be obtained and spent for a specified period of time. Finance/Accounting Issues Financial Budget

25. Copyright 2007 Prentice Hall Ch 7-25 Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets Finance/Accounting Issues Types of Budgets

26. Copyright 2007 Prentice Hall Ch 7-26 Divisional budgets Variable budgets Flexible budgets Fixed budgets Finance/Accounting Issues Types of Budgets

27. Copyright 2007 Prentice Hall Ch 7-27 Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms Finance/Accounting Issues Evaluating Worth of a Business

28. Copyright 2007 Prentice Hall Ch 7-28 1. What a firm owns 1. Total assets – liabilities (discount overvalued assets) 2. Stockholders equity 2. What a firm earns 1. 5 X times annual earnings (tax consequences) 3. What a firm will bring in the market 1. Outstanding shares Finance/Accounting Issues Evaluating Worth of a Business: 3 Basic Approaches

29. Copyright 2007 Prentice Hall Ch 7-29 Worth of a Business Analysis (see 8-8) Southwest Airlines Stockholders’ Equity:$ 5,524 Net Income: 313 Stock Price: 15.70 EPS:.45 Shares Outstanding 784 Company Worth Analysis Stockholders Equity $ 5,524 Net Income x 5 1,565 Share Price/EPS x NI 10,920 # Shares x Share Price 12,309

30. Copyright 2007 Prentice Hall Ch 7-30 Research & Development Issues -- New products and improvement of existing products that allow for effective strategy implementation

31. Copyright 2007 Prentice Hall Ch 7-31 Level of support constrained by resource availability Technological improvements shorten product life cycles Research & Development Issues Constraints

32. Copyright 2007 Prentice Hall Ch 7-32 1. 1 st firm to market new technological products 2. Innovative imitator of successful products 3. Low-cost producer of similar but less expensive products Research & Development Issues 3 Major R&D approaches to implementing strategies

33. Copyright 2007 Prentice Hall Ch 7-33 Management Information Systems (MIS) Issues -- Information is the basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms

34. Copyright 2007 Prentice Hall Ch 7-34 Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs MIS Issues Functions of MIS

35. Copyright 2007 Prentice Hall Ch 7-35 Chapter 9 Strategy Review, Evaluation, & Control Strategic Management: Concepts & Cases 11 th Edition Fred David

36. Copyright 2007 Prentice Hall Ch 7-36 Strategic Management Process Model

37. Copyright 2007 Prentice Hall Ch 7-37 Organizations are most vulnerable when they are at the peak of their success -- R.T. Lenz Strategy Evaluation

38. Copyright 2007 Prentice Hall Ch 7-38 -- Strategies become obsolete -- Internal environments are dynamic -- External environments are dynamic Strategy Review, Evaluation, & Control

39. Copyright 2007 Prentice Hall Ch 7-39 Vital to the organization’s well-being Alert management to potential/actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations Strategy Review, Evaluation, & Control Strategy Evaluation

40. Copyright 2007 Prentice Hall Ch 7-40 1. Examine the underlying bases of a firm’s strategy 1. Did we do a careful analysis? 2. Did things change? 2. Compare expected to actual results 3. Identify corrective actions to ensure that performance conforms to plans Strategy Review, Evaluation, & Control 3 Basic Activities

41. Copyright 2007 Prentice Hall Ch 7-41 Complex & sensitive undertaking Overemphasis can be costly & counterproductive  Too much time spent measuring rather than doing Strategy Review, Evaluation, & Control Strategy Evaluation

42. Copyright 2007 Prentice Hall Ch 7-42 Strategy Review, Evaluation, & Control Have assets increased Increase in profitability Increase in sales Increase in productivity Profit margins, ROI, & EPS ratios increased Appraisal of Strategic Performance

43. Copyright 2007 Prentice Hall Ch 7-43 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

44. Copyright 2007 Prentice Hall Ch 7-44 Strategy Evaluation, Review & Control Strategy should not present inconsistent goals & policies  Issue and not “people” problems  Success for one department means failure for another  Policy problems rise to the top Consistency

45. Copyright 2007 Prentice Hall Ch 7-45 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

46. Copyright 2007 Prentice Hall Ch 7-46 Strategy Evaluation, Review & Control Need for strategies to examine sets of trends  Need a Holistic view (internal and external) Consonance

47. Copyright 2007 Prentice Hall Ch 7-47 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

48. Copyright 2007 Prentice Hall Ch 7-48 Strategy Evaluation, Review & Control Neither overtax resources or create unsolvable sub-problems  Can it be done with the given or available resources? Feasibility

49. Copyright 2007 Prentice Hall Ch 7-49 Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rumelt’s 4 Criteria

50. Copyright 2007 Prentice Hall Ch 7-50 Strategy Evaluation, Review & Control Creation or maintenance of competitive advantage  If it doesn't create a competitive advantage then what’s the point? Advantage

51. Copyright 2007 Prentice Hall Ch 7-51 Process of strategic evaluation Management should be continually aware of progress  Management by wandering around Don't wait for information get to you, go out and get the information  Things Change

52. Copyright 2007 Prentice Hall Ch 7-52 Strategy Review, Evaluation, & Control 1. Increase in environment’s complexity 2. Difficulty predicting future with accuracy 3. Increasing number of variables Difficulties in Strategy Evaluation

53. Copyright 2007 Prentice Hall Ch 7-53 Strategy Review, Evaluation, & Control 4. Rate of obsolescence of plans 5. Domestic and global events 6. Decreasing time span for planning certainty Difficulties in Strategy Evaluation

54. Copyright 2007 Prentice Hall Ch 7-54 Strategy Review, Evaluation, & Control Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives Strategy Evaluation Should --

55. Copyright 2007 Prentice Hall Ch 7-55 Strategy Review, Evaluation, & Control Develop revised EFE Matrix Develop revised IFE Matrix Review of Underlying Bases of Strategy --

56. Copyright 2007 Prentice Hall Ch 7-56 Strategy Review, Evaluation, & Control 1. Competitors’ reaction to strategy 2. Competitors’ change in strategy 3. Competitors’ changes in strengths & weaknesses 4. Reasons for competitors’ strategic change Review Effectiveness of Strategy --

57. Copyright 2007 Prentice Hall Ch 7-57 Strategy Review, Evaluation, & Control 5. Reasons for competitors’ successful strategies 6. Competitors’ present market positions & profitability 7. Potential for competitor retaliation 8. Potential for cooperation with competitors Review Effectiveness of Strategy --

58. Copyright 2007 Prentice Hall Ch 7-58 Strategy Review, Evaluation, & Control Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses? Monitor Strengths & Weaknesses; Opportunities & Threats

59. Copyright 2007 Prentice Hall Ch 7-59 Strategy Review, Evaluation, & Control Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover? Monitor Strengths & Weaknesses; Opportunities & Threats

60. Copyright 2007 Prentice Hall Ch 7-60

61. Copyright 2007 Prentice Hall Ch 7-61 Evaluation Framework Review Underlying Bases New IFE & EFE Continue present course Measure Firm Performance Take Corrective Actions Differences? Yes NO Yes NO

62. Copyright 2007 Prentice Hall Ch 7-62 Strategy Review, Evaluation, & Control Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives Measuring Organizational Performance

63. Copyright 2007 Prentice Hall Ch 7-63 Strategy Review, Evaluation, & Control Financial Ratios  Compare performance over different periods  Compare performance to competitors  Compare performance to industry averages Quantitative Criteria for Strategy Evaluation

64. Copyright 2007 Prentice Hall Ch 7-64 Strategy Review, Evaluation, & Control Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Key Financial Ratios

65. Copyright 2007 Prentice Hall Ch 7-65 Strategy Review, Evaluation, & Control Debt to equity Earnings per share (EPS) Sales growth Asset growth Key Financial Ratios

66. Copyright 2007 Prentice Hall Ch 7-66 Strategy Review, Evaluation, & Control Internal consistency of strategy Consistency with environment Appropriateness in view of resources Qualitative Evaluation of Strategy

67. Copyright 2007 Prentice Hall Ch 7-67 Strategy Review, Evaluation, & Control Acceptable degree of risk Appropriate time frame Workability of the strategy Qualitative Evaluation of Strategy

68. Copyright 2007 Prentice Hall Ch 7-68 Strategy Review, Evaluation, & Control -- Evaluate strategies from 4 perspectives: 1. Financial performance 2. Customer knowledge 3. Internal business processes 4. Learning & growth Balanced Scorecard

69. Copyright 2007 Prentice Hall Ch 7-69 Balanced Scorecard Area of ObjectivesMeasure or TargetTime ExpectationPrimary Responsibility Customers 1 2 Managers/Employees 1 2 Operations/Processes 1 2 Community/Social Responsibility 1 2 Business Ethics/Natural Environment 1 2 Financial 1 2

70. Copyright 2007 Prentice Hall Ch 7-70

71. Copyright 2007 Prentice Hall Ch 7-71 Strategy Review, Evaluation, & Control Economical Meaningful Generates useful information Timely information Provides accurate picture of events Characteristics of Strategy Evaluation

72. Copyright 2007 Prentice Hall Ch 7-72 Strategy Review, Evaluation, & Control Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning

73. Copyright 2007 Prentice Hall Ch 7-73 Strategy Review, Evaluation, & Control Financial audits determine correspondence between assertions based on strategic plan & established criteria Environmental audits insure sound and safe practices Auditing

74. Copyright 2007 Prentice Hall Ch 7-74 Strategy Evaluation, Review & Control Process is more an “art” than “science”  You can learn the “science”, the “art” part requires experiences and practice Should strategies be visible or hidden from stakeholders  Only when secrecy gives some competitive advantage Should process be more top-down or bottom up  Current research suggests bottom-up 21 st Century Challenges in Strategic Management