Unit V

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Strategic Management Concepts: A Competitive Advantage Approach Sixteenth Edition

Chapter 8 Implementing Strategies:

Marketing, Finance/Accounting, R and

D, and MIS Issues

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Learning Objectives (1 of 3) 8.1 Identify and describe strategic marketing issues vital for strategy implementation. 8.2 Explain why social media marketing is an important strategy-implementation tool. 8.3 Explain why market segmentation is an important strategy-implementation tool. 8.4 Explain how to use product positioning (perceptual mapping) as a strategy-implementation tool. 8.5 Identify and describe strategic finance/accounting issues vital for strategy implementation.

Learning Objectives (2 of 3) 8.6 Perform EPS/EBIT analysis to evaluate the attractiveness of debt versus stock as a source of capital to implement strategies. 8.7 Develop projected financial statements to reveal the impact of strategy recommendations. 8.8 Determine the cash value of any business using four corporate evaluation methods. 8.9 Discuss IPOs, keeping cash offshore, and issuing corporate bonds as strategic decisions that face many firms.

Learning Objectives (3 of 3) 8.10 Discuss the nature and role of research and development (R&D) in strategy implementation. 8.11 Explain how management information systems (MISs) impact strategy-implementation efforts.

Figure 8-1 Comprehensive Strategic- Management Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu ArtamaWiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20.

Strategic Marketing Issues (1 of 2) 1. How to make advertisements more interactive to be more

effective

2. How to best take advantage of Facebook and Twitter conservations about the company and industry

3. To use exclusive dealerships or multiple channels of distribution

4. To use heavy, light, or no TV advertising versus online advertising

Strategic Marketing Issues (2 of 2) 5. To limit (or not) the share of business done with a single

customer

6. To be a price leader or a price follower

7. To offer a complete or limited warranty

8. To reward salespeople based on straight salary, straight commission, or a combination salary/commission

Social Media Marketing • Marketers must get customers involved in the company website

and solicit suggestions in terms of product development, customer service, and ideas.

• The company should enable customers to interact with the firm on the following social media networks:

– Facebook – Google Plus – Twitter – LinkedIn – Instagram – Pinterest – Foursquare

Table 8-1 The New Principles of Marketing 1. Do not just talk at consumers-work with them throughout the marketing process. 2. Give consumers a reason to participate. 3. Listen to-and join-the conversation outside your company’s website. 4. Resist the temptation to sell, sell, sell. Instead attract, attract, attract. 5. Do not control online conversations; let it flow freely. 6. Find a “marketing technologist,” a person who has three excellent skill sets (marketing, technology, and social interaction). 7. Embrace instant messaging and chatting.

Source: Based on Salvatore Parise, Patricia Guinan, and Bruce Weinberg, “The Secrets of Marketing in a Web 2.0 World,” Wall Street Journal, December 15, 2008, R1

Market Segmentation (1 of 3) • Market Segmentation

– subdividing of a market into distinct subsets of customers according to needs and buying habits

– widely used in implementing strategies

Market Segmentation (2 of 3) • Strategies such as market development, product

development, market penetration, and diversification require increased sales through new markets and products.

• Market segmentation allows a firm to operate with limited resources because mass production, mass distribution, and mass advertising are not required.

Market Segmentation (3 of 3) • Market segmentation decisions directly affect the

marketing mix variables: – Product – Place – Promotion – Price

Table 8-2 The Marketing Mix Component Variables Product Place Promotion Price

Quality Distribution channels Advertising Level

Features and options

Distribution coverage Personal selling Discounts and

Style Outlet location Sales promotion allowances

Brand name Sales territories Publicity Payment terms

Packaging Inventory levels and locations blank blank

Product line Transportation carriers blank blank

Warranty blank blank blank

Service level blank blank blank

Other services blank blank blank

Source: Based on E. Jerome McCarthy, Basic Marketing: A Managerial Approach, 9th ed. (Homewood, IL: Richard D. Irwin, Inc., 1987), 37-44. Used with permission.

Retention-Based Segmentation Tag #1: Is this customer at high risk of canceling the company’s service?

Tag #2: Is this customer worth retaining?

Tag #3: What retention tactics should be used to retain this customer?

Alternative Bases for Market Segmentation • Geographic

– Region, country size, city size, density, climate

• Demographic – Age, gender, family size, family life cycle, income,

occupation, education, religion, race, nationality

• Psychographic – Social class, personality

• Behavioral – Use occasion, benefits sought, user status, usage rate,

loyalty status, readiness stage, attitude toward product

Product Positioning (1 of 2) • Product Positioning

– entails developing schematic representations that reflect how your products or services compare to competitors' on dimensions most important to success in the industry

– Also called perceptual mapping

Product Positioning Steps (1 of 2) 1. Select key criteria that effectively differentiate products or

services in the industry.

2. Diagram a two-dimensional product-positioning map with specified criteria on each axis.

3. Plot major competitors' products or services in the resultant four-quadrant matrix.

Product Positioning Steps (2 of 2) 4. Identify areas in the positioning map where the

company's products or services could be most competitive in the given target market. Look for vacant areas (niches).

5. Develop a marketing plan to position the company's products or services appropriately.

Rules for Using Product Positioning as a Strategy-Implementation Tool 1. Look for the hole or vacant niche.

2. Don’t serve two segments with the same strategy.

3. Don't position yourself in the middle of the map.

Product Positioning (2 of 2) An effective product positioning strategy meets two criteria:

• It uniquely distinguishes a company from the competition

• It leads customers to expect slightly less service than a company can deliver

Figure 8-2 Example of a Product- Positioning Map

A Perceptual Map for the Automobile Industry Source: Based on info at Perceptual_mapping.

Finance/Accounting Issues (1 of 3) 1. To raise capital with short-term debt, long-term debt,

preferred stock, or common stock

2. To lease or buy fixed assets

3. To determine an appropriate dividend payout ratio

4. To use LIFO (Last-in, First-out), FIFO (First-in, First-out), or a market-value accounting approach

Finance/Accounting Issues (2 of 3) 5. To extend the time of accounts receivable

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

Finance/Accounting Issues (3 of 3) 1. Acquire needed capital to implement strategies.

2. Develop projected financial statements to show expected impact of strategies implemented.

3. Determine the firm’s value (corporate valuation) in the event an offer is received.

4. Decide whether to go public with an Initial Public Offering (IPO).

5. Decide whether to keep cash offshore that was earned offshore.

Acquiring Capital to Implement Strategies (1 of 2) • 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.

Acquiring Capital to Implement Strategies (2 of 2) • EPS = Earnings Per Share, which is Net Income divided

by # of Shares Outstanding

• Another term for Shares Outstanding is Shares Issued

• EBIT = Earnings Before Interest and Taxes (also called operating income)

• EBT = Earnings Before Tax

• EAT = Earnings After Tax

Table 8-4 EPS/EBIT Analysis for the XYZ Company (1 of 2)

Input Data The Number How Determined

$ Amount of Capital Needed

$100 million Estimated $ cost of recommendations

EBIT Range $20 to $40 million Estimate based on prior year EBIT and recommendations for the coming year(s)

Interest Rate 5 percent Estimate based on cost of capital

Tax Rate 30 percent Use prior year %: taxes divided by income before taxes, as given on income statement

Stock Price $50 Use most recent stock price

# Shares Outstanding

500 million For the debt columns, enter the existing # shares outstanding. For stock columns, use the existing # shares outstanding + the # new shares that must be issued to raise the needed capital (i.e., based on stock price). So divide the stock price into the $ amount of capital needed.

Table 8-4 EPS/EBIT Analysis for the XYZ Company (2 of 2)

Conclusion: The best financing alternative is 100% stock because the EPS values are largest; the worst financing alternative is 100% debt because the EPS values are lowest.

Figure 8-6 An EPS/EBIT Chart for the XYZ Company

Projected Financial Statements • Projected Financial Statements

– allows an organization to examine the expected results of various actions and approaches

– allows an organization to compute projected financial ratios under various strategy-implementation decisions

Performing Projected Financial Analysis (1 of 2) 1. Prepare the projected income statement before the

balance sheet.

2. Use the percentage-of-sales method to project cost of goods sold (CGS) and the expense items in the income statement.

3. Calculate the projected net income.

4. Subtract from the net income any dividends to be paid for that year.

Performing Projected Financial Analysis (2 of 2) 5. Project the balance sheet items, beginning with retained

earnings and then forecasting stockholders' equity, long- term liabilities, current liabilities, total liabilities, total assets, fixed assets, and current assets (in that order).

6. Use the cash account as the plug figure.

7. List commentary (remarks) on the projected statements.

Corporate Valuation Methods: • The Net Worth Method

– Total Shareholders’ Equity (SE) minus (Goodwill + Intangibles)

• The Net Income Method – Net Income × Five

• Price-Earnings Ratio Method – Stock Price NI

EPS 

• Outstanding Shares Method – # of Shares Outstanding × Stock Price

IPOs, Cash Management, and Corporate Bonds • Go public with an IPO?

• Keep cash offshore if earned offshore?

• Issue corporate bonds for what purpose?

Research and Development (R and D) Issues 1. Emphasize product or process improvements.

2. Stress basic or applied research.

3. Be leaders or followers in R and D.

4. Develop robotics or manual-type processes.

5. Spend a high, average, or low amount of money on R and D.

6. Perform R and D within the firm or contract R and D to outside firms.

7. Use university researchers or private-sector researchers.

R and D Approaches for Implementing Strategies • Be the first firm to market new technological products.

• Be an innovative imitator of successful products, thus minimizing the risks and costs of start-up.

• Be a low-cost producer by mass-producing products similar to but less expensive than products recently introduced.

Management Information System (MIS) Issues • Having an effective management information system (MIS)

may be the most important factor in differentiating successful from unsuccessful firms.

• The process of strategic management is facilitated immensely in firms that have an effective information system.

Mobile Computing • Mobile tracking of employees

• Mobile apps for customers