Copyright 2002 by Ernest R. Cadotte Quarter 4 The Skillful Adjustment.

Copyright 2002 by Ernest R. Cadotte

Quarter 4The Skillful Adjustment


Q4: Evaluate Performance Skillfully Adjust Strategy

• Check customer reaction to brands, prices and advertising

• Check financial performance

• Check production operations

• Check out competition– strategic direction– tactics– market’s response


Q4: Skillfully Adjust Strategy

• As needed, adjust– strategy– brand designs and prices– advertising– sales management– production plan

• Check finances

• Feed decisions into Marketplace simulator


Measures of Customer Satisfaction

• Brand judgment (0 to 100)

• Price judgment (0 to 100)

• Ad judgment (0 to 100)

100 indicates complete satisfaction. 70 would be a good brand and ad rating until new technology is available in Quarter 5.

Price ratings should be near 100.


Goal of Monitoring Customer Satisfaction

Give the customer what they want and do so better

than the competition.


Deduce the market’s many response functions

Hot

Cold

Less More

Hot

Cold

Less More

Hot

Cold

Less More

Hot

Cold

Less More

Hot

Cold

Less More

Hot

Cold

Less More


Based upon customer feedback, skillfully adjust marketing tactics

• Revise brand designs or create new ones• Revise ad copy • Adjust prices• Hire more sales people or deploy the

differently

Add or take away elements to find the sweet spot in the customer’s response function.


Competitor Benchmarks

• Brand and ad designs

• Prices and sale priorities

• Sales staffing

• Ad placements

• Demand by brand by segment


Goals of Competitive Benchmarking

• Reverse engineer the strategy of each competitor.• Determine who is a threat and who is not.• Determine strengths and weakness of competition.• Emulate good decisions.• Predict direction of competitive moves.• Adjust strategy and tactics in reaction to

competitor strengths and weaknesses and in anticipation of future moves.


Financial Performance

• Firm profitability

• Brand profitability

• Region profitability

• Return on investment

• Asset management


Goals of Financial Management

• Discover which brands and markets are making the greatest and weakest contribution to the bottom line.

• Deploy resources to correct weaknesses and take advantage of strong performers.


Managing Inventories and Cash(the Razor’s Edge)

• High production– Lower unit production costs– Risk of too much inventory

• Uses up large volumes of cash• Risk of brand obsolesce (wrong product in warehouse)

• Low production– Low cash requirements– Higher per unit production costs– Risk of too little inventory

• Stock outs • Lost revenue• Customer ill will (unhappy customers)


Measurement of the Firm’s Performance

The Balanced Scorecard


Why Use a Balanced Scorecard?

• It is too easy to get caught up in market share and short-term profits.

• Long-term viability requires that managers also deliver customer satisfaction and invest in the future.

• The balanced scorecard measures both the long-term and the short-term.

• The best managers will be good in all measured areas.


Total Business Performance

Financial performance

Market performance

Marketing effectiveness

Investments in the firm’s future

Creation of wealth

Asset management

Manufacturingproductivity


Action Potential of the Firm

The action potential of the firm is equal to the product of the company’s:

– Financial performance– Market performance– Marketing effectiveness– Investments in the firm’s future– Human resource management – Creation of wealth– Asset management– Manufacturing productivity


Learning Points for Quarter 4

• The management of strategy– learning from your customers– learning from your competition– learning from your financial information– skillfully adjusting your strategy and tactics

• Management of financial resources



• Using the tools of management– market feedback – accounting reports (financial statements)– industry financial benchmarks (industry

financial ratios)– profitability analysis (activity based costing)


Quarter 5Making Plans for the Future

An introduction to the Venture Capital Fair


What Is New In Quarter 5?

• Feature R&D

• Debt

• Licensing

• Tactical plan


Licensing R&D

Team A

Invest in RAM

Design in new brand

Receiveincome

Team BReceiveRAM/Pay fee

Q5 Q6 Q7

License R&D from Team A


Cross-Licensing R&D

Team A Q5

Invest in more memory

Design in new brand

Team B

ReceiveMemory/Pay Fee

Invest inhard drive

Design in new brand

ReceiveHard drive /Pay Fee

Q6 Q7

License to B

License to A


Your goal is to speed up the adoption rate

Demand

Time

introduction

growth

maturitydecline

New brand features, sales

offices, and plant capacity will push you

into the growth phase.

You are here


Q5: Making Plans for the Future

What do you do when cash and net income from current operations are not sufficient to fund new business development activities?

• expand owners’ equity (bring in new investors)

• leverage your investment (borrow money from others)


Business Dilemma

Cash to runthe business

Cash fromthe business

Time

Money

Free cash flow


New Funding Options

• Sell part of the company to venture capitalists– venture capitalists are willing to

invest up to 5,000,000– venture capitalists may ask for

up to 60% of the company in exchange for their investments

• Borrow money– short-term bank loans– long-term bank loans


The venture capital community is willing to invest 5,000,000

• Demand is up for the entire industry.• Your firm has established itself as a viable

competitor.• New sales offices would greatly expand

distribution, drive up unit volume, and thereby reduce unit costs.

• New brand features could be brought on the market if you invest in R&D. These brand features will increase customer satisfaction, and thereby demand.

• New production capacity and quality improvements will allow substantial market expansion.


Venture Capital Guidelines

• No agreements can be made which involve the purchase or merger of another company.

• A signed contract between the Venture Capitalist and the company is required.


Venture Capitalists Want a Plan


A Strategy is a Plan of Action

A strategy is a series of interconnected tactics purposely organized to be executed in a particular order in time and space for the purpose of achieving specific goals.


The best-planned strategies will not survive the test of battle.

Gen. George Patton


Plans are worthless, but planning is everything.

Gen. Dwight D. Eisenhower


The devil is in the details.

Adm. Rickover


It is better to have a class A team with a class B plan than to have a class B team with a class A plan.

Almost any venture capitalist


Venture Capitalists Want a Plan

• History of firm

• Market assessment

• Performance to date

• Marketing strategy

• Manufacturing strategy

• Financial strategy

• Pro forma financial statements

• What is in it for them?


History of Firm

• Time line of major firm activities by quarter – Formation of team– Establishment of strategic direction– Location of factory and size– Location of sales offices– Creation of new brands– Entry into test market– Assessment of test market and adjustment to strategic

direction and tactics– Performance in second test market– Where you are today


Market Assessment

• Nature of business opportunity

• Market potential

• Competition


Firm’s Performance After 1 Year • Market position

– segments

– geography

– competition

• Market performance– demand and market share

– customer satisfaction (brands, prices, reliability)

• Financial performance– cash

– profitability


Marketing Strategy

• Target markets

• Geographic market expansion– timing and order of new markets– expansion in advertising and sales efforts

• New brands– R&D investments in new features– introduction of new brands


Manufacturing Strategy

• Plant expansions – when?– how much?– investment?

• Productivity improvements– changeover – quality – inventory


Financial Strategy

• Cash flow requirements

• Sources of capital– venture capital– debt

• short-term

• long-term

• Profitability and asset projections

• Return on investment


Oops Factor in Strategic Planning

Develop tactical plan

Check cash flow

Oops!

Check cash flow

Revise tactical plan


Sources and Uses of Capital

• Venture capitalists want to know how their money will be spent.

• Venture capital can only be spent on R&D, new sales offices, and factory improvements.

• Venture capital can not be spent on advertising, or sales people.

• Use long-term debt for factory expansions.• Use short-term debt for market uncertainty and

inventory fluctuations.


Venture Capital Fair


Venture Capital Request

• The team is free to ask for up to 5,000,000 in common or preferred stock.

• The maximum you may take is 5,000,000.

• All buyback options and conversion options must take affect after after the end of the exercise.


Procedure

• Each team is given 14 minutes to present its business plan to a group of investors.

• Each team will make two presentations to two sets of venture capitalists.

• The objective is to let the venture capitalists see all teams before they sit down to negotiate an equity investment with any one of them.


At the end of the presentations

• The venture capital group will quickly evaluate the quality of the teams.

• Each individual investor:– decides which teams he or she wants to

negotiate with and the order (probably no more than three for detailed negotiations).

– may inform a team whether and when he or she wants to meet with them (team can approach venture capitalists).

– meets with the team to ask questions and negotiate an equity position.


Each Investor is a Free Agent

• Each Individual Investor:– has 4,000,000 to invest.– is free to negotiate an equity position in any

team.– is free to contact each other for consultation.

• It is not necessary that the investors agree on a common stock price.

• Investors are encouraged to consider a stock price between 70 and 120 per share.


The Deal• The negotiation is concluded when the

venture capitalist physically gives the cash (in play money) for the equity investment. Both parties should sign a contract for the exchange.

• The team can issue the stock once they have turned over the cash to the instructor, along with a copy of the stock agreements which they have negotiated with the venture capitalists.


Fast Eddy's Venture Capital Fund

• Fast Eddy's Venture Capital Fund is the investor of last resort in case a team is not able to find suitable investors.

• FEVCF will make an open offer at a stock price 5 less than the worst stock price on the market.


Details

• See schedule for the team presentation times.

• Negotiations will run for approximately one hour.

• All transactions must be completed within the allotted time.

• Quarter 5 decisions will be due shortly after the Venture Capital fair.



• Strategic and tactical planning– time phasing decisions into the future– working investment money and debt to support

tactical plans



• Understanding cash flows– Cash is king.– How is profit different from cash?– You can not go to Hawaii on market share. At

the end of the day, wealth creation is the goal.


Competitive Thinking

• Competition or cooperation• Strategic alliances with competitors

– multiplying resources– developing markets more quickly– Versus helping the competition

• Game theory and prisoner’s dilemma (if I do this and they do that, then …….?)

• Negotiations



• Management of strategy – discover the causes of performance shortfalls– adapt to new opportunities and problems– work on the margin to improve performance

• where should money be spent next?

• how can we get more out of our current investments?

– manage the future (taking the initiative now by expending resources that will shape the events and opportunities of the future)


When we work strictly in our functional silos, we are like a bunch of blind people trying to understand what an elephant is.

Please tell me

what it is?It’s a snake.

It’s atree trunk.

It’s a sheetof rawhide.

It’s a steeltube.


With business war games, you can crawl all over and under the enterprise to help you

to see and understand the whole thing.

It is anenterprise!

Accounting

Production

MarketingSales

Finance


Mental Discipline of Marketplace

Marketconditions

Marketingstrategy

Marketingtactics

Marketassessment

Marketobjectives

Marketperformance

Manufacturingconditions

Manufacturingstrategy

Manufacturingtactics

Manufacturingassessment

Manufacturingobjectives

Manufacturingperformance

EnvironmentalAnalysis

BusinessStrategy

Feedback

BusinessPerformance

Assessment of BusinessConditions B

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SS

LE

VE

L

FU

NC

TIO

NA

L L

EV

ELStrategy

Financialconditions

Financialtactics

Financialassessment

Financialobjectives

Financialperformance

Financialstrategy


Key Benefits

• Develop teamwork across functions & locations.

• Promote better decision making by helping participants see how their decisions can affect the performance of others & the organization as a whole.

• Facilitate learning of important business concepts, principles and ways of thinking.


Key Benefits

• Develop strategic planning and execution

skills within a rapidly changing

environment.

• Instill a bottom line focus and the

simultaneous need to deliver customer value.

• Crystallize the financial implications of

business decisions and how they affect cash

flows and bottom-line performance.


Key Benefits

• Discover how important it is to use market data and competitive signals to adjust the strategic plan and more tightly focus business tactics.

• Build confidence through knowledge and experience.


Total Business Performance

Financial performance

Market performance

Marketing effectiveness

Investments in the firm’s future

Creation of wealth

Asset management

Manufacturingproductivity

Copyright 2002 by Ernest R. Cadotte Quarter 4 The Skillful Adjustment.

Documents

Transcript of Copyright 2002 by Ernest R. Cadotte Quarter 4 The Skillful Adjustment.