Copyright 2005 Prentice Hall1 Bus 411 Day 15. Copyright 2007 Prentice Hall Ch 7-2 Agenda Assignment...

Copyright 2005 Prentice Hall 1

Bus 411

Day 15

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


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.


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


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 13th)

Team 2 Case Study Six Kellogg Company

Case study team work


Assignment 5 Swot MatrixLeave Blank Strengths – S

1. Strong brand recognition and recall2. Brand equity 3. Talented employee base4. Access to Google available to anyone with

Internet 5. Good cash reserves6. Strong revenues and profit margins7. Relationships with major corporations like

AOL8. Culture of innovation and accountability9. Products based on solving consumer needs

Weaknesses – W1. Corporate governance2. Lack of independence of board3. Unclear vision4. Fast growth5. Potential for inappropriate positioning of client

brands on Web sites6. Small relative to competitors7. Little physical presence in some global markets

Opportunities – O1. Internet-based technologies and businesses

continue to develop2. Worldwide growth in Internet coverage and use3. Asia makes up most of world’s population, but

has low Internet penetration4. Increasing demand for Web-based business and

consumer solutions5. Advertising spending increasing online6. Potential to expand into other media

SO Strategies1. 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 Strategies1. 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 – T1. Competition, especially Microsoft and Yahoo!2. Potential for click fraud3. Potential for attack on servers4. Legal constraints in the are of intellectual

property rights5. Consumer attitudes toward online advertising

ST Strategies1. 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 Strategies1. Establish a plan for addressing threats from

Microsoft and other competitors (W1, W2, W3, W6, T1)


Space matrix

Goog_Space_matrix1.xls


QSPM Weight Option 1 AS TAS Option 2 AS TAS

Strengths

Brand recognition and recall .05 2 .10 4 .20

Brand equity (#1 among online brands) .05 3 .15 4 .20

Talented employee base .10 3 .30 2 .20

Free to consumers with Internet access .10 4 .40 2 .20

Cash resources ($426 million) .10 4 .40 3 .30

Strong profits and revenues (up over 100% since previous year) .05 4 .20 3 .15

No reliance on specific software/hardware .05 4 .20 2 .10

Culture of innovation .10 2 .20 3 .30

Powerful business relationships .05 3 .15 4 .20

Weaknesses

Lack of presence in key international markets (especially Asia) .05 4 .20 1 .05

Lack of clear visionary leadership .10 3 .30 2 .20

Issues with corporate governance .10 2 .20 1 .10

Vulnerability in product applications .05 - - - -

Weak profitability compared to competition .05 4 .20 2 .10

Total 1.0

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.


Opportunities

Internet-based technologies and businesses continue to develop .10 1 .10 4 .40

Worldwide growth in Internet coverage and use .05 4 .20 2 .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

.05 4 .20 1 .05

Increasing demand for Web-based business and consumer solutions .15 2 .30 3 .45

Advertising spending declining in other media but increasing online .15 3 .45 4 .60

Potential to expand into other media .05 2 .10 3 .15

Threats

Microsoft has stated its plans to threaten Google’s future .10 2 .20 3 .30

Other competitors (Yahoo!, eBay, MSN, and others) .10 4 .40 2 .20

Potential for click fraud .05 2 .10 - -

Potential for attacks on Google’s servers .05 - - 1 .05

Legal constraints in the area of intellectual property rights .10 1 .10 3 .30

Consumer attitudes toward online advertising .05 - - 4 .20

Total 1.0

Sum Total Attractiveness Score 5.15 5.10

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.


BCG data

Revenues Profits Market Share% Industry Growth

Rate

Google websites Advertising 1589032 198629 1 31.5 high

Google Network Web Site Advertising 1554256 194282 0.5 31.5 high

Licensing (and other revenues) 45935 5741.875 > 0.1 20 high

3189223 398652.875

399199

MSFT 8128000 1000's in 2004


Google BCG Matrix

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

us

try

Sa

les

Gro

wth

Ra

te

High+40

Low-40

Medium0


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


Debt

Equity

Finance/Accounting Issues

Capital acquisition to implement strategies


EPS/EBIT analysis Earnings per share/Earnings before interest and

taxes


Debt vs. Equity Decisions


$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


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


Conclusion:

Heinz should use debt to raise the $500 million


EPS-EBIT Analysis Heinz


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


Projected Financial Statements


1. Prepare income statement before balance sheet (forecast sales)

2. Use percentage of sales method to project CoGS & expenses

3. Calculate projected net income


Steps in Preparing Projected Financial Statements


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


Steps in Preparing Projected Financial Statements (cont’d)


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


-- Details how funds will be obtained and spent for a specified period of time.


Financial Budget


Cash budgets Operating budgets Sales budgets Profit budgets Factory Budgets Expense Budgets


Types of Budgets


Divisional budgets Variable budgets Flexible budgets Fixed budgets


Types of Budgets


Central to strategy implementation – integrative, intensive, & diversification strategies often implemented through acquisitions of other firms


Evaluating Worth of a Business


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


Evaluating Worth of a Business:

3 Basic Approaches


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


Research & Development Issues

-- New products and improvement of existing products that allow for effective strategy implementation


Level of support constrained by resource availability

Technological improvements shorten product life cycles


Constraints


1. 1st firm to market new technological products2. Innovative imitator of successful products3. Low-cost producer of similar but less

expensive products


3 Major R&D approaches to implementing strategies


Management Information Systems (MIS) Issues

-- Information is the basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms


Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs

MIS Issues

Functions of MIS


Chapter 9Strategy Review, Evaluation, & Control

Strategic Management:

Concepts & Cases

11th Edition

Fred David


Strategic Management Process Model

Develop Mission and Mission Statements

Chap 2

Measure and Evaluate

PerformanceChap 9

Implement StrategiesManagement Issues

Chap 7

Generate, Evaluate and Select Strageies

Chap 3

Implement StrategiesMarketing, Finance, accounting, R&D,

MIS issuesChap 8

Perfrom External Audit

Chap 3

Establish Long-termObjectives

Chap 4

Perform Internal Audit

Chap 4


Organizations are most vulnerable when they are at the peak of their success --

R.T. Lenz

Strategy Evaluation


-- Strategies become obsolete

-- Internal environments are dynamic

-- External environments are dynamic

Strategy Review, Evaluation, & Control


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 Evaluation


1. Examine the underlying bases of a firm’s strategy1. Did we do a careful analysis?2. Did things change?

2. Compare expected to actual results3. Identify corrective actions to ensure that

performance conforms to plans


3 Basic Activities


Complex & sensitive undertaking

Overemphasis can be costly & counterproductive Too much time spent measuring rather than doing


Strategy Evaluation



Have assets increased Increase in profitability Increase in sales Increase in productivity Profit margins, ROI, & EPS ratios increased

Appraisal of Strategic Performance


Strategy Evaluation, Review & Control

Consonance

Consistency

Feasibility

Advantage

Rumelt’s4 Criteria



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



Consonance

Consistency

Feasibility

Advantage




Need for strategies to examine sets of trends Need a Holistic view (internal and external)

Consonance



Consonance

Consistency

Feasibility

Advantage




Neither overtax resources or create unsolvable sub-problems Can it be done with the given or available

resources?

Feasibility



Consonance

Consistency

Feasibility

Advantage




Creation or maintenance of competitive advantage If it doesn't create a competitive advantage

then what’s the point?

Advantage


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



1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy

3. Increasing number of variables

Difficulties in Strategy Evaluation



4. Rate of obsolescence of plans

5. Domestic and global events

6. Decreasing time span for planning certainty

Difficulties in Strategy Evaluation



Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating

alternatives

Strategy Evaluation Should --



Develop revised EFE Matrix

Develop revised IFE Matrix

Review of Underlying Bases of Strategy --



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 --



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 --



Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses?

Monitor Strengths & Weaknesses; Opportunities & Threats



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


Evaluation FrameworkReview Underlying Bases

New IFE & EFE

Continue present course

Measure Firm Performance

Take Corrective Actions

Differences?

Differences?

Yes

NO

Yes

NO



Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives

Measuring Organizational Performance



Financial Ratios Compare performance over different periods Compare performance to competitors Compare performance to industry averages

Quantitative Criteria for Strategy Evaluation



Return on investment (ROI) Return on equity (ROE) Profit margin Market Share

Key Financial Ratios



Debt to equity Earnings per share (EPS) Sales growth Asset growth

Key Financial Ratios



Internal consistency of strategy Consistency with environment Appropriateness in view of resources

Qualitative Evaluation of Strategy



Acceptable degree of risk Appropriate time frame Workability of the strategy

Qualitative Evaluation of Strategy



-- Evaluate strategies from 4 perspectives:

1. Financial performance

2. Customer knowledge

3. Internal business processes

4. Learning & growth

Balanced Scorecard


Balanced Scorecard

Area of Objectives Measure or Target Time Expectation Primary 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



Economical Meaningful Generates useful information Timely information Provides accurate picture of events

Characteristics of Strategy Evaluation



Alternative plans that can be put into effect if certain key events do not occur as expected

Contingency Planning



Financial audits determine correspondence between assertions based on strategic plan & established criteria

Environmental audits insure sound and safe practices

Auditing



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

21st Century Challenges in Strategic Management

Copyright 2005 Prentice Hall1 Bus 411 Day 15. Copyright 2007 Prentice Hall Ch 7-2 Agenda Assignment...

Documents

Transcript of Copyright 2005 Prentice Hall1 Bus 411 Day 15. Copyright 2007 Prentice Hall Ch 7-2 Agenda Assignment...