copyright 2005 prentice hall1 bus 411 day 12. copyright 2007 prentice hall ch 6 -2 agenda assignment...
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Copyright 2005 Prentice Hall 1
Bus 411
Day 12
Copyright 2007 Prentice Hall Ch 6 -2
Agenda
Assignment 4 Due Assignment 5 Posted (Last One!)
Due March 20 SWOT, SPACE, BCG and QSPM Matrices for
Google Mid term Exam Posted
Due March 24 20 Short essays
Continue Discussion on Implementing Strategies
Copyright 2007 Prentice Hall Ch 6 -3
Timeline (tentative) Today
Chapter 8 Assignment 4 due Mid-term assigned Pick teams & assign cases
March 10-14 Spring Break March 17
Chapter 9 How to present a case study
March 20 Assignment 5 Due Tony Case study One Apple Computer Team work
March 24 Midterm due Team work
March 27 Team Work
March 31 Team 1 Case 19 Jet Blue
April 3 Team 2 Case 20 AirTran
April 7 Tony Case 27 Kroger
April 10 Team 1 Case 26 Best Buy
April 14 Team 2 Case 28 Home Depot
April 17 Tony Case 23 Harrah’s
April 21 Team 1 Case 24 Royal Caribbean Cruises
April 24 Team 2 Case 25 Web Reservations
International April 28
Team 1 Case 21 USA truck May 1
Team 2 Case 22 Yellow Roadway Corp. Take home final assigned
May 6 @ 10AM In-class final
May 9 by 3 PM Take home final
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Management Issues
ManagementIssues
ResourcesResources
Organizational structureOrganizational structure
RestructuringRestructuring
Rewards/IncentivesRewards/Incentives
Annual ObjectivesAnnual Objectives
PoliciesPolicies
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Management Issues
Restructuring
-- Reducing the size of the firm – # of employees, divisions and/or units, # of hierarchical levels
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Management Issues
Restructuring
Downsizing
Rightsizing
Delayering
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Management Issues
Reengineering
-- Reconfiguring or redesigning work, jobs, & processes to improve cost, quality, service, & speed
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Management Issues
Reengineering
Process management
Process innovation
Process redesign
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Management Issues
ManagementIssues
ResourcesResources
Organizational structureOrganizational structure
RestructuringRestructuring
Rewards/IncentivesRewards/Incentives
Annual ObjectivesAnnual Objectives
PoliciesPolicies
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Management Issues
Linking Pay/Performance to Strategies
-- Pay for performance systems
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Management Issues
Linking Pay/Performance to Strategies
Dual bonus systemsBased on annual and long-term objectives
Profit sharing systemsCompany makes money .. Employees make money
Gain sharing systemsExceeding “agreed to” objectives
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Tests for Performance-Pay Plans
Does the plan capture attention?
Do employees understand the plan?
Is the plan improving communication?
Does the plan pay out when it should?
Is the company or unit performing better?
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http://www.forbes.com/static/execpay2005/totcomp.html
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Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
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Management Issues
Resistance to Change
-- Single greatest threat to successful strategy implementation
Copyright 2007 Prentice Hall Ch 6 -16
Management Issues
Resistance to Change
-- Raises anxiety; fear concerning
Economic loss
Inconvenience
Uncertainty
Break in status-quo
Copyright 2007 Prentice Hall Ch 6 -17
Management Issues
Change StrategiesForce Change Strategy
Just do it
Educative Change StrategyThis is why we are changing
Rational or Self-Interest Change Strategy
This is why change is good for you
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Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
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Management Issues
Natural Environment
-- Wide appreciation for firms that “mend” rather than “harm” the environment
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Management Issues
Natural Environment – Environmental Strategies
Develop/acquire “green” businesses
Divesting environmental-damaging business
Low-cost producer through waste minimization & energy conservation
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Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
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Management Issues
Strategy-Supportive Culture
-- Preserve, emphasize, & build upon aspects of existing culture that support new strategies
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• Formal statements of philosophy, charters, etc. used for recruitment and selection, socialization
• Designing of physical spaces, facades, buildings• Deliberate role modeling, teaching and coaching• Explicit reward and status system, promotion criteria• Stories, legends, myths about key people and events
Management Issues
Elements linking culture to strategy:
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• What leaders pay attention to, measure and control• Leader reactions to critical incidents and crises• How the organization is designed and structured• Organizational systems and procedures• Criteria used for recruitment, selection, promotion,
retirement
Management Issues
Elements linking culture to strategy:
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Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
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Management Issues
Production/Operations Concerns
-- Production processes typically constitute more than 70% of firm’s total assets
Copyright 2007 Prentice Hall Ch 6 -27
Management Issues
Production/Operations Decisions
Plant size
Inventory/Inventory control
Quality control
Cost control
Technological innovation
Copyright 2007 Prentice Hall Ch 6 -28
Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
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Management Issues
Human Resource Concerns
-- HR manager position has strategic responsibility & has changed dramatically as companies continue to reorganize, outsource, etc.
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February 29, 2008
March 1, 2008
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Management Issues
Human Resource Strategic Responsibilities
Assessing staffing needs/costs
Developing performance incentives
ESOP’s
Child-care policies
Work-life balance issues
Copyright 2007 Prentice Hall Ch 6 -32
Diversity Issues
CEO Company Age
Meg Whitman eBay 49
Andrea Jung Avon Products 47
Anne Mulcahy Xerox 52
Marjorie Magner Citigroup 56
Betsy Holden Kraft Foods 49
Ann Moore AOL Time Warner 57
Women CEO’s in U.S. 2005 (examples)
http://money.cnn.com/magazines/fortune/fortune500/womenceos/
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Benefits of a Diverse Workforce
Improves corporate culture Improves employee morale Leads to a higher retention of employees Leads to easier recruitment of employees Decreases complaints and litigation Increases creativity Decreases interpersonal conflict
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Benefits of a Diverse Workforce
Enables the organization to move into emerging markets
Improves client relations Increases productivity Improves the bottom line Maximizes brand identity Reduces training costs CostsBenefExSumEN.pdf
Copyright 2007 Prentice Hall Ch 6 -35
Chapter 8Implementing Strategies: Marketing, Finance/Accounting, R&D, & MIS Issues
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2007 Prentice Hall Ch 6 -36
The greatest strategy is doomed if it’s implemented badly. --
Bernard Reimann
Implementing Strategies
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-- Strategy implementation means change
The Nature of Strategy Implementation
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-- Less than 10% of strategies formulated are successfully implemented!
The Nature of Strategy Implementation
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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
The Nature of Strategy Implementation
Low Success Rate – Strategy Implementation
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Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems
The Nature of Strategy Implementation
Successful Strategy Implementation
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Marketing Issues
-- Marketing variables affect success/failure of strategy implementation
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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 warranty
Marketing Issues
Marketing decisions requiring policies
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1. Market segmentation
2. Product positioning
Marketing Issues
Centrally important to Implementation
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Subdividing of a market into distinct subsets of customers according to needs and buying habits
Marketing Issues
Market Segmentation
Copyright 2007 Prentice Hall Ch 6 -45
Key to matching supply & demand Market development, product-development,
market penetration & diversification strategies Allows operating with limited resources Enables small firms to compete successfully
Marketing Issues
Market Segmentation
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Directly affect marketing mix variables: Product Place Promotion Price
Marketing Issues
Market Segmentation
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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 sellingDistribution coverage
Features
LevelAdvertisingDistribution channels
Quality
PricePromotionPlaceProduct
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Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
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Region County size City or SMSA size Density Climate
Marketing Issues
Geographic
Copyright 2007 Prentice Hall Ch 6 -50
Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
Copyright 2007 Prentice Hall Ch 6 -51
Age Family Size Family Life Cycle Income/Occupation Education Religion Race/Nationality
Marketing Issues
Demographic
Copyright 2007 Prentice Hall Ch 6 -52
Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
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Social Class Lifestyle Personality
Marketing Issues
Psychographic
Copyright 2007 Prentice Hall Ch 6 -54
Marketing Issues
Market SegmentBasis PsychographicPsychographic
BehavioralBehavioral
GeographicGeographic
DemographicDemographic
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Use occasion Benefits sought User status Usage rate Loyalty status Readiness stage Attitude toward product
Marketing Issues
Behavioral
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Marketing Issues
-- Schematic representations that reflect how products/services compare to competitors’ on dimensions most important to success in the industry
Product Positioning
Copyright 2007 Prentice Hall Ch 6 -57
Marketing Issues
ProductPositioning
Customer WantsCustomer Wants
Customer NeedsCustomer Needs
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Product Positioning Steps
ProductPositioning
Steps
2. Diagram Map
1. Select Key Criteria
3. Plot competitors’products
4. Look for niches
5. Develop Marketing Plan
Copyright 2007 Prentice Hall Ch 6 -59
Product Positioning Map
LowConvenience
HighCustomerLoyalty
LowCustomerLoyalty
HighConvenience
Firm 1•
•Firm 2
• Firm 3
Rental Car Market
LowCustomerLoyalty
HighConvenience
Firm 1•
•Firm 2
• Firm 3
Rental Car Market
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Look for vacant niche Avoid sub optimization Don’t serve 2 segments w/ same strategy Don’t position in the middle of the map
Marketing Issues
Product Positioning as Strategy Implementation Tool
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Finance/Accounting Issues
-- Central to strategy implementation
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Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business
Finance/Accounting Issues
Essential for implementation
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Raise capital – short-term debt, long-term debt, preferred, or common stock
Lease or buy fixed assets Expense or depreciate
Determine appropriate dividend payout ratio
Finance/Accounting Issues
Decisions based on Finance/Accounting
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LIFO, FIFO, or market-value accounting approach
Extend time of AR Factor AR?
Establish % discount on accounts for terms Determine the amount of cash kept on hand
Finance/Accounting Issues
Decisions based on Finance/Accounting
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Debt
Equity
Finance/Accounting Issues
Capital acquisition to implement strategies
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EPS/EBIT analysis Earnings per share/Earnings before interest and
taxes
Finance/Accounting Issues
Debt vs. Equity Decisions
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$Amount Needed: $500 Stock Price $40 EBIT Range $1000 to $2000 Tax Rate 175/673 = .26 = 26% Interest Rate 5% (based on prime rate) # Shares Outstanding 350 (million)
Prime Rate History http://www.moneycafe.com/library/prime.htm
EPS-EBIT Analysis(in $millions)
Heinz Company – Year End 2001
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EPS-EBIT Analysis (in $millions) – Heinz Company
Stock Financing FinancingCombination
60/40
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
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Conclusion:
Heinz should use debt to raise the $500 million
Finance/Accounting Issues
EPS-EBIT Analysis Heinz
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Allow an organization to examine the expected results of various actions and approaches
Finance/Accounting Issues
Projected Financial Statements
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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
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4. Subtract dividends to be paid from Net Income and add remaining to Retained Earnings
5. Project balance sheet items beginning with retained earnings
6. List comments (remarks) on projected statements
Finance/Accounting Issues
Steps in Preparing Projected Financial Statements (cont’d)
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Projected Income Statement for Litten Company (in millions)
Prior Year 2005Projected Year
2006 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
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-- Details how funds will be obtained and spent for a specified period of time.
Finance/Accounting Issues
Financial Budget
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Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets
Finance/Accounting Issues
Types of Budgets
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Divisional budgets Variable budgets Flexible budgets Fixed budgets
Finance/Accounting Issues
Types of Budgets
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Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms
Finance/Accounting Issues
Evaluating Worth of a Business
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1. What a firm owns1. Total assets – liabilities (discount overvalued assets)
2. Stockholders equity
2. What a firm earns1. 5 X times annual earnings (tax consequences)
3. What a firm will bring in the market1. Outstanding shares
Finance/Accounting Issues
Evaluating Worth of a Business:
3 Basic Approaches
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Worth of a Business Analysis (see 8-8)
Southwest AirlinesStockholders’ Equity: $ 5,524Net Income: 313Stock Price: 15.70EPS: .45Shares Outstanding 784
Company Worth AnalysisStockholders Equity $ 5,524Net Income x 5 1,565Share Price/EPS x NI 10,920# Shares x Share Price 12,309
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Research & Development Issues
-- New products and improvement of existing products that allow for effective strategy implementation
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Level of support constrained by resource availability
Technological improvements shorten product life cycles
Research & Development Issues
Constraints
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1. 1st firm to market new technological products2. Innovative imitator of successful products3. Low-cost producer of similar but less
expensive products
Research & Development Issues
3 Major R&D approaches to implementing strategies
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Management Information Systems (MIS) Issues
-- Information is the basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms
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Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs
MIS Issues
Functions of MIS