StraMa_U3.pdf: BA 218 Strategic Management Unit 3 PDF

BA 218 - STRATEGIC MANAGEMENT UNIT 1 5. To limit (or not) the share of business done STRATEGY FORMULATION with a single customer....

BA 218 - STRATEGIC MANAGEMENT UNIT 1 5. To limit (or not) the share of business done STRATEGY FORMULATION with a single customer. 6. To be a price dealer or a price follower. 7. To offer a complete or limited warranty. UNIT 2 8. To reward salespeople based on straight STRATEGY GENERATION AND SELECTION salary, straight commission, or a combination salary and commission. UNIT 3 Marketing is more about building a two-way STRATEGY IMPLEMENTATION relationship with consumers than just informing consumers about a product or service. Marketers OBJECTIVES: today must get their customers involved in their 1. Explained why strategy implementation is company website and solicit suggestions from more difficult than strategy formulation. customers in terms of product development, 2. Described the relationships between customer service, and ideas. The online community production/operations and strategy is much quicker, cheaper, and effective than implementations. traditional focus groups and surveys. 3. Explained market segmentation and product positioning as strategy implementation tools; Firms should provide incentives to customers to and share their thoughts, opinions, and experiences on 4. Explained how management information the company website. Encourage customers to systems can determine the success of network among themselves on topics of their strategy implementation efforts. choosing on the company website. So the company website must not be all about the company—it must THE NATURE OF STRATEGY IMPLEMENTATION be all about the customer too. Perhaps offer points or Strategy Implementation directly affects the lives of discounts for customers who provide ideas and plant managers, division managers, department suggestions. This practice will not only encourage managers, sales managers, product managers, participation but will allow both the company and project managers, personnel managers, staff other customers to interact with “experts.” managers, supervisors, and all employees. New Principles of Marketing CURRENT MARKETING ISSUES A business or organization’s website must provide Countless marketing variables affect the success or clear and simple instructions for customers to set up failure of Strategy Implementation efforts. Some a blog or contribute to a wiki. Customers trust each example marketing decisions that may require others’ opinions more than a company’s marketing policies are as follows: pitch, and the more they talk freely, the more the firm can learn how to improve its product, service, and 1. How to make advertisements more interactive marketing. Marketers today monitor blogs daily to to be more effective. determine, evaluate, and influence opinions being 2. How to best take advantage of Facebook and formed by customers. Customers must not feel like Twitter conversations about the company and they are a captive audience for advertising at a firm’s industry. website. 3. To use exclusive dealerships or multiple channels of distributions. NEW PRINCIPLES OF MARKETING: 4. To use heavy, light, no TV advertising versus 1. Do not just talk to consumers—work with online advertising. them throughout the marketing process. 2. Give consumers a reason to participate.  BA 218 - STRATEGIC MANAGEMENT The basic approach to tagging customers is to use historical retention data to make predictions about active customers regarding: Whether they are at high risk of cancelling their service Whether they are profitable to retain What retention tactics are likely to be most effective The idea with retention-based segmentation is to match up active customers with customers from historic retention data who share similar attributes. PRODUCT POSITIONING OR PERCEPTUAL MAPPING Identifying target customers on which to focus marketing efforts sets the stage for deciding how to meet the needs and wants of particular consumer Retention-Based Segmentation groups. Product Positioning is widely used for this To aid in more effective and efficient deployment of purpose. marketing resources, companies commonly Positioning entails developing schematic tag each of their active customers with three values: representations that reflect how products or services compare to competitors’ on dimensions most Tag 1: Is this customer at high risk of cancelling the important to success in the industry. company’s service? The following steps are required in Product One of the most common indicators of high-risk Positioning (sometimes called Perceptual customers is a drop off in usage of the company’s Mapping): service. For example, in the credit card industry this could be signalled through a customer’s decline in 1. Select key criteria that effectively differentiate spending on his or her card. products or services in the industry. 2. Diagram a two-dimensional product-positioning Tag 2: Is this customer worth retaining? map with specified criteria on each axis. This determination boils down to whether the post 3. Plot major competitors’ products or services in the retention profit generated from the customer is resultant four-quadrant matrix. predicted to be greater than the cost incurred to 4. Identify areas in the positioning map where the retain the customer. Customers need to be managed company’s products or services could be most as investments. competitive in the given target market. Look for vacant areas (niches). Tag 3: What retention tactics should be used to 5. Develop a marketing plan to position the retain this customer? company’s products or services appropriately. For customers who are deemed “save-worthy,” it is essential for the company to know which save tactics Because just two criteria can be examined on a are most likely to be successful. Tactics commonly single product-positioning (perceptual) map, multiple used range from providing “special” customer maps are often developed to assess various discounts to sending customers communications that approaches to strategy implementation. reinforce the value proposition of the given service.  BA 218 - STRATEGIC MANAGEMENT Multidimensional Scaling one another are perceived as similar in the relevant Multidimensional Scaling could be used to examine dimensions. For example, in Figure 9-2, consumers three or more criteria simultaneously, but this see Buick, Chrysler, and Oldsmobile as similar. technique requires computer assistance and is beyond the scope of this text. Perceptual maps may also display consumers’ ideal points. These points reflect ideal combinations of the Some rules for using product positioning as a two dimensions as seen by a consumer. Figure 9-3 strategy-implementation tool are the following: reveals the results of a study of consumers’ ideal points in the alcohol and spirits product space. Each 1. Look for the hole or vacant niche. The best dot represents one respondent’s ideal combination of strategic opportunity might be an unserved segment. the two dimensions. Areas where there is a cluster of 2. Do not serve two segments with the same ideal points (such as A) indicates a market strategy. Usually, a strategy successful with one segment. Areas without ideal points are sometimes segment cannot be directly transferred to another referred to as demand voids. segment. 3. Do not position yourself in the middle of the map. The middle usually means a strategy that is not clearly perceived to have any distinguishing characteristics. This rule can vary with the number of competitors. For example, when there are only two competitors, as in U.S. presidential elections, the middle becomes the preferred strategic position. The product positioning map, or perceptual map, in Figure 9-2, shows consumer perceptions of various automobiles on the two dimensions of sportiness and conservative and classy and affordable. FINANCE AND ACCOUNTING ISSUES In terms of “Financial Soundness,” Fortune recently ranked the following companies as best in the world Perceptual maps can aid marketers in being more effective in spending money to promote products. Products, brands, or companies positioned close to  BA 218 - STRATEGIC MANAGEMENT Several finance and accounting concepts central to EBIT is operating income. EBT is Earnings Before strategy implementation are acquiring needed Tax. EAT is Earnings After Tax. capital, developing projected financial statements, preparing financial budgets, and evaluating the worth The purpose of EPS/EBIT analysis is to determine of a business. whether all debt, or all stock, or some combination of Some examples of decisions that may require debt and stock yields the highest EPS values for the finance and accounting policies are these: firm. EPS is perhaps the best measure of success of a company, so it is widely used in making the capital 1. To raise capital with short-term debt, long-term acquisition decision. EPS reflects the common debt, preferred stock, or common stock “maximizing shareholders’ wealth” overarching 2. To lease or buy fixed assets corporate objective. 3. To determine an appropriate dividend payout ratio 4. To use last-in, first-out (LIFO), first-in, first-out EPS/EBIT analysis may best be explained by (FIFO), or a market-value accounting approach working through an example for the XYZ Company, 5. To extend the time of accounts receivable as provided in Table 9-4. 6. To establish a certain percentage discount on accounts within a specified period of time 7. To determine the amount of cash that should be kept on hand Acquiring Capital to Implement Strategies Successful strategy implementation often requires additional capital. Besides net profit from operations and the sale of assets, two basic sources of capital for an organization are debt and equity. Earnings Per Share/Earnings Before Interest and Taxes (EPS/EBIT) Limitations of EPS-EBIT Analysis: An earnings per share/earnings before interest and 1. Flexibility taxes (EPS/EBIT) analysis is the most widely used 2. Control technique for determining whether debt, stock, or a 3. Interest Rates combination of debt and stock is the best alternative 4. If the firm is already too highly leveraged vs. for raising capital to implement strategies. industry average ratios, then stock may be best regardless of determined EPS values in This technique involves an examination of the impact the analysis. that debt versus stock financing has on Earnings Per 5. The analysis assumes stock price, tax rate, Share under various expectations for EBIT given and interest rates to be the same over all specific recommendations (strategies to be economic conditions. implemented). 6. The estimated EBIT low and high values are based on the prior year plus the impact of Before explaining EPS/EBIT analysis, it is important strategies to be implemented. to know that EPS is Earnings Per Share, which is net income divided by number of shares outstanding. Another term for shares outstanding is shares issued. Also know that EBIT is Earnings Before Interest and Taxes. Another name for  BA 218 - STRATEGIC MANAGEMENT 4. Subtract from the net income any dividends to be paid for that year. This remaining net income is retained earnings (RE). 5. Project the balance sheet items, beginning with retained earnings. 6. List comments (remarks) on the projected statements. Financial Budgets A financial budget is a document that details how funds will be obtained and spent for a specified period of time. Annual budgets are most common, although the period of time for a budget can range from one day to more than 10 years. When an organization is experiencing financial difficulties, budgets are especially important in guiding strategy implementation. Perhaps the most common type of financial budget is the cash budget. Company Valuation Firms can do many things in the short run to Evaluating the worth of a business is central to maximize profits, so investors and creditors consider strategy implementation because integrative, maximizing shareholders’ wealth to be the better intensive, and diversification strategies are often criteria for making financing decisions. implemented by acquiring other firms. Projected Financial Statements Approaches in Evaluating the Worth of a Projected Financial Statement Analysis is a central Business strategy implementation technique because it allows an organization to examine the expected results of The first approach in evaluating the worth of a various actions and approaches. business is determining its net worth or A projected income statement and balance sheet stockholders’ equity. allow an organization to compute projected financial The second approach to measuring the value ratios under various strategy implementation of a firm grows out of the belief that the worth scenarios. of any business should be based largely on the future benefits its owners may derive Six (6) steps in performing Projected Financial through net profits. Analysis: The third approach is called the price-earnings ratio method. 1. Prepare the projected income statement The fourth method can be called the before the balance sheet. outstanding shares method. 2. Use the percentage-of-sales method to project the cost of goods sold (CGS) and the Deciding Whether to Go Public expense items in the income statement. Initial public offerings (IPOs) to move from being 3. Calculate the projected net income. private to being public. In addition to initial costs involved with a stock offering, there are costs and obligations associated  BA 218 - STRATEGIC MANAGEMENT with reporting and management in a publicly held 3. If technology is changing slowly but the market is firm. growing quickly, there generally is not enough time for in-house development. RESEARCH AND DEVELOPMENT (R&D) ISSUES 4. If both technical progress and market growth are Research and Development (R&D) fast. - personnel can play an integral part in strategy implementation. These individuals are generally Three major R&D approaches for implementing charged with developing new products and improving strategies: old products in a way that will allow effective strategy 1. To be the first firm to market new implementation. technological products. R&D employees and managers perform tasks that 2. To be an innovative imitator of successful include transferring complex technology, adjusting products, thus minimizing the risks and costs processes to local raw materials, adapting processes of start-up. to local markets, and altering products to particular 3. To be a low-cost producer by mass-producing tastes and specifications. products similar to but less expensive than products recently introduced. R&D POLICIES CAN ENHANCE STRATEGY IMPLEMENTATION EFFORTS TO: MANAGEMENT INFORMATION SYSTEMS (MIS) 1. Emphasize product or process improvements. ISSUES 2. Stress basic or applied research. Firms that gather, assimilate, and evaluate external 3. Be leaders or followers in R&D. and internal information most effectively are gaining 4. Develop robotics or manual-type processes. competitive advantages over other firms. Having an 5. Spend a high, average, or low amount of money effective management information system (MIS) may on R&D. be the most important factor in differentiating 6. Perform R&D within the firm or to contract R&D to successful from unsuccessful firms. The process of outside firms. strategic management is facilitated immensely in 7. Use university researchers or private-sector firms that have an effective information system. researchers. Information collection, retrieval, and storage can be used to create competitive advantages in ways such as cross-selling to customers, monitoring suppliers, keeping managers and employees informed, coordinating activities among divisions, and managing funds. Many firms wrestle with the decision to acquire R&D Business Analytics expertise from external firms or to develop R&D Business Analytics is a MIS technique that involves expertise internally. using software to mine huge volumes of data to help The following guidelines can be used to help make executives make decisions. Sometimes called this decision: predictive analytics, machine learning, or data 1. If the rate of technical progress is slow, the rate of mining, this software enables a researcher to assess market growth is moderate, and there are significant and use the aggregate experience of an barriers to possible new entrants, then in-house R&D organization, a priceless strategic asset for a firm. is the preferred solution. 2. If technology is changing rapidly and the market is The history of a firm's interaction with its customers, growing slowly. suppliers, distributors, employees, rival firms, and  BA 218 - STRATEGIC MANAGEMENT more can all be tapped with data mining to generate predictive models. Business Analytics is similar to the actuarial methods used by insurance companies to rate customers by the chance of positive or negative outcomes. A key distinguishing feature of business analytics is that it is predictive rather than retrospective, in that it enables a firm to learn from experience and to make current and future decisions based on prior information.