Bus 411
Day 14
Copyright 2005 Prentice Hall
1
Agenda
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Assignment 4 Corrected
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Assignment 5 Posted (Last One!)
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Due March 20 (next class)
SWOT, SPACE, BCG and QSPM Matrices for Google
Mid term Exam Posted
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1 A, 4 B’s, 2 MIA’s, and 1 late
Due March 24
20 Short essays
Finish Discussion on Implementing Strategies
Discussion on Strategic Review, Evaluation and Control
Copyright 2007 Prentice Hall
Ch 6 -2
Case Study Teams
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Team 1
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Karen
Geneice
Lee
James
Copyright 2007 Prentice Hall
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Team 2
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Takefumi
Matt
Darius
Danielle
Ch 6 -3
Timeline (tentative)
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Today
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March 24
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Team 2 Case 20 AirTran
April 7
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Tony Case 27 Kroger
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In-class final
May 9 by 3 PM
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Copyright 2007 Prentice Hall
Team 2 Case 22 Yellow Roadway Corp.
Take home final assigned
May 6 @ 10AM
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Team 1 Case 21 USA truck
May 1
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Team 2 Case 25 Web Reservations
International
April 28
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Team 1 Case 24 Royal Caribbean Cruises
April 24
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Tony Case 23 Harrah’s
April 21
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Team 2 Case 28 Home Depot
April 17
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Team 1 Case 19 Jet Blue
April 3
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Team 1 Case 26 Best Buy
April 14
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Team Work (no class)
March 31
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Midterm due
Team work (no class)
March 27
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Assignment 5 Due
How to present a case study
Tony Case Study One Apple Computer
Team work if time allows
April 10
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March 20
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Finish Chapter 8
Chapter 9
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Take home final
Ch 6 -4
Copyright 2007 Prentice Hall
Ch 6 -5
Copyright 2007 Prentice Hall
Ch 6 -6
Finance/Accounting Issues
Projected Financial Statements
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Allow an organization to examine the expected
results of various actions and approaches
Copyright 2007 Prentice Hall
Ch 6 -7
Finance/Accounting Issues
Steps in Preparing 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
Copyright 2007 Prentice Hall
Ch 6 -8
Finance/Accounting Issues
Steps in Preparing Projected Financial
Statements (cont’d)
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
Copyright 2007 Prentice Hall
Ch 6 -9
Projected Income Statement for Litten Company (in millions)
Prior Year 2005
Projected Year
2006
Remarks
Projected Income Statement
Sales
100
150.00
50% increase
70
105.00
70% of sales
30
45.00
10
15.00
10% of sales
5
7.50
5% of sales
15
22.50
3
3.00
12
19.50
Taxes
6
9.75
Net Income
6
9.75
2
5.00
4
4.75
Cost of Goods Sold
Gross Margin
Selling Expense
Administrative Expense
EBIT
Interest
EBT
Dividends
Retained Earnings
Copyright 2007 Prentice Hall
50% rate
Ch 6 -10
Finance/Accounting Issues
Financial Budget
-- Details how funds will be obtained and spent for
a specified period of time.
Copyright 2007 Prentice Hall
Ch 6 -11
Finance/Accounting Issues
Types of Budgets
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Cash budgets
Operating budgets
Sales budgets
Profit budgets
Factory Budgets
Copyright 2007 Prentice Hall
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Expense Budgets
Divisional budgets
Variable budgets
Flexible budgets
Fixed budgets
Ch 6 -12
Finance/Accounting Issues
Evaluating Worth of a Business
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Central to strategy implementation – integrative,
intensive, & diversification strategies often
implemented through acquisitions of other firms
Copyright 2007 Prentice Hall
Ch 6 -13
Finance/Accounting Issues
Evaluating Worth of a Business:
3 Basic Approaches
1.
What a firm owns
1.
2.
2.
What a firm earns
1.
3.
Total assets – liabilities (discount overvalued assets)
Stockholders equity
5 X times annual earnings (tax consequences)
What a firm will bring in the market
1.
Outstanding shares
Copyright 2007 Prentice Hall
Ch 6 -14
Worth of a Business Analysis (see 8-8)
Southwest Airlines
Stockholders’ Equity:
Net Income:
Stock Price:
EPS:
Shares Outstanding
Company Worth Analysis
Stockholders Equity
Net Income x 5
Share Price/EPS x NI
# Shares x Share Price
Copyright 2007 Prentice Hall
$ 5,524
313
15.70
.45
784
$ 5,524
1,565
10,920
12,309
Ch 6 -15
Research & Development
Issues
-- New products and improvement of
existing products that allow for effective
strategy implementation
Copyright 2007 Prentice Hall
Ch 6 -16
Research & Development
Issues
Constraints
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Level of support constrained by resource
availability
Technological improvements shorten product
life cycles
Copyright 2007 Prentice Hall
Ch 6 -17
Research & Development
Issues
3 Major R&D approaches to implementing
strategies
1.
2.
3.
1st firm to market new technological products
Innovative imitator of successful products
Low-cost producer of similar but less
expensive products
Copyright 2007 Prentice Hall
Ch 6 -18
Management Information
Systems (MIS) Issues
-- Information is the basis for
understanding the firm. One of the most
important factors differentiating successful
from unsuccessful firms
Copyright 2007 Prentice Hall
Ch 6 -19
MIS Issues
Functions of MIS
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Information collection, retrieval, & storage
Keeping managers informed
Coordination of activities among divisions
Allow firm to reduce costs
Copyright 2007 Prentice Hall
Ch 6 -20
Chapter 9
Strategy Review, Evaluation, & Control
Strategic
Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2007 Prentice Hall
Ch 6 -21
Strategic Management Process Model
Perfrom External
Audit
Chap 3
Develop Mission and
Mission Statements
Chap 2
Establish Long-term
Objectives
Chap 4
Generate, Evaluate
and Select Strageies
Chap 3
Implement Strategies
Management Issues
Chap 7
Implement Strategies
Marketing, Finance,
accounting, R&D,
MIS issues
Chap 8
Measure and
Evaluate
Performance
Chap 9
Perform Internal
Audit
Chap 4
Copyright 2007 Prentice Hall
Ch 6 -22
Strategy Evaluation
Organizations are most vulnerable when
they are at the peak of their success -R.T. Lenz
Copyright 2007 Prentice Hall
Ch 6 -23
Strategy Review, Evaluation,
& Control
-- Strategies become obsolete
-- Internal environments are dynamic
-- External environments are dynamic
Copyright 2007 Prentice Hall
Ch 6 -24
Strategy Review, Evaluation,
& Control
Strategy Evaluation
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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
Copyright 2007 Prentice Hall
Ch 6 -25
Strategy Review, Evaluation,
& Control
3 Basic Activities
1.
Examine the underlying bases of a firm’s
strategy
1.
2.
2.
3.
Did we do a careful analysis?
Did things change?
Compare expected to actual results
Identify corrective actions to ensure that
performance conforms to plans
Copyright 2007 Prentice Hall
Ch 6 -26
Strategy Review, Evaluation,
& Control
Strategy Evaluation
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Complex & sensitive undertaking
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Overemphasis can be costly &
counterproductive
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Too much time spent measuring rather than doing
Copyright 2007 Prentice Hall
Ch 6 -27
Strategy Review, Evaluation,
& Control
Appraisal of Strategic Performance
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Have assets increased
Increase in profitability
Increase in sales
Increase in productivity
Profit margins, ROI, & EPS ratios increased
Copyright 2007 Prentice Hall
Ch 6 -28
Strategy Evaluation, Review &
Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 6 -29
Strategy Evaluation, Review &
Control
Consistency
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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
Copyright 2007 Prentice Hall
Ch 6 -30
Strategy Evaluation, Review &
Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 6 -31
Strategy Evaluation, Review &
Control
Consonance
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Need for strategies to examine sets of trends
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Need a Holistic view (internal and external)
Copyright 2007 Prentice Hall
Ch 6 -32
Strategy Evaluation, Review &
Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 6 -33
Strategy Evaluation, Review &
Control
Feasibility
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Neither overtax resources or create unsolvable
sub-problems
 Can it be done with the given or available
resources?
Copyright 2007 Prentice Hall
Ch 6 -34
Strategy Evaluation, Review &
Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 6 -35
Strategy Evaluation, Review &
Control
Advantage
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Creation or maintenance of competitive
advantage
 If it doesn't create a competitive advantage
then what’s the point?
Copyright 2007 Prentice Hall
Ch 6 -36
Process of strategic evaluation
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Management should be continually aware of
progress
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Management by wandering around
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Don't wait for information get to you, go out and get the
information
Things Change
Copyright 2007 Prentice Hall
Ch 6 -37
Strategy Review, Evaluation,
& Control
Difficulties in Strategy Evaluation
1.
2.
3.
Increase in environment’s complexity
Difficulty predicting future with accuracy
Increasing number of variables
Copyright 2007 Prentice Hall
Ch 6 -38
Strategy Review, Evaluation,
& Control
Difficulties in Strategy Evaluation
4.
5.
6.
Rate of obsolescence of plans
Domestic and global events
Decreasing time span for planning certainty
Copyright 2007 Prentice Hall
Ch 6 -39
Strategy Review, Evaluation,
& Control
Strategy Evaluation Should -
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Initiate managerial questioning
Trigger review of objectives & values
Stimulate creativity in generating
alternatives
Copyright 2007 Prentice Hall
Ch 6 -40
Strategy Review, Evaluation,
& Control
Review of Underlying Bases of Strategy -
Develop revised EFE Matrix
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Develop revised IFE Matrix
Copyright 2007 Prentice Hall
Ch 6 -41
Strategy Review, Evaluation,
& Control
Review Effectiveness of Strategy -1.
2.
3.
4.
Competitors’ reaction to strategy
Competitors’ change in strategy
Competitors’ changes in strengths &
weaknesses
Reasons for competitors’ strategic change
Copyright 2007 Prentice Hall
Ch 6 -42
Strategy Review, Evaluation,
& Control
Review Effectiveness of Strategy -5.
6.
7.
8.
Reasons for competitors’ successful
strategies
Competitors’ present market positions &
profitability
Potential for competitor retaliation
Potential for cooperation with competitors
Copyright 2007 Prentice Hall
Ch 6 -43
Strategy Review, Evaluation,
& Control
Monitor Strengths & Weaknesses;
Opportunities & Threats
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Are strengths still strengths?
Have we added additional strengths?
Are weaknesses still weaknesses?
Have we developed other weaknesses?
Copyright 2007 Prentice Hall
Ch 6 -44
Strategy Review, Evaluation,
& Control
Monitor Strengths & Weaknesses;
Opportunities & Threats
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Are opportunities still opportunities?
Other opportunities develop?
Are threats still threats
Other threats emerged?
Are we vulnerable to hostile takeover?
Copyright 2007 Prentice Hall
Ch 6 -45
Copyright 2007 Prentice Hall
Ch 6 -46
Review Underlying Bases
New IFE & EFE
Differences?
Evaluation Framework
Yes
NO
Measure Firm Performance
Differences?
Take
Corrective
Actions
Yes
NO
Continue
present
course
Copyright 2007
Prentice
Hall
Ch 6 -47
Strategy Review, Evaluation,
& Control
Measuring Organizational Performance
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Compare expected to actual results
Investigate deviations from plan
Evaluate individual performance
Progress toward stated objectives
Copyright 2007 Prentice Hall
Ch 6 -48
Strategy Review, Evaluation,
& Control
Quantitative Criteria for Strategy Evaluation
Financial Ratios
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Compare performance over different periods
Compare performance to competitors
Compare performance to industry averages
Copyright 2007 Prentice Hall
Ch 6 -49
Strategy Review, Evaluation,
& Control
Key Financial Ratios
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Return on investment (ROI)
Return on equity (ROE)
Profit margin
Market Share
Copyright 2007 Prentice Hall
Ch 6 -50
Strategy Review, Evaluation,
& Control
Key Financial Ratios
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Debt to equity
Earnings per share (EPS)
Sales growth
Asset growth
Copyright 2007 Prentice Hall
Ch 6 -51
Strategy Review, Evaluation,
& Control
Qualitative Evaluation of Strategy
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Internal consistency of strategy
Consistency with environment
Appropriateness in view of resources
Copyright 2007 Prentice Hall
Ch 6 -52
Strategy Review, Evaluation,
& Control
Qualitative Evaluation of Strategy
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Acceptable degree of risk
Appropriate time frame
Workability of the strategy
Copyright 2007 Prentice Hall
Ch 6 -53
Strategy Review, Evaluation,
& Control
Balanced Scorecard
-- Evaluate strategies from 4 perspectives:
1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth
Copyright 2007 Prentice Hall
Ch 6 -54
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
Copyright 2007 Prentice Hall
Ch 6 -55
Copyright 2007 Prentice Hall
Ch 6 -56
Strategy Review, Evaluation,
& Control
Characteristics of Strategy Evaluation
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Economical
Meaningful
Generates useful information
Timely information
Provides accurate picture of events
Copyright 2007 Prentice Hall
Ch 6 -57
Strategy Review, Evaluation,
& Control
Contingency Planning
Alternative plans that can be put into effect if
certain key events do not occur as expected
Copyright 2007 Prentice Hall
Ch 6 -58
Strategy Review, Evaluation,
& Control
Auditing

Financial audits determine correspondence
between assertions based on strategic plan
& established criteria

Environmental audits insure sound and safe
practices
Copyright 2007 Prentice Hall
Ch 6 -59
Strategy Evaluation, Review & Control
21st Century Challenges in
Strategic Management
Process is more an “art” than “science”
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You can learn the “science”, the “art” part requires
experiences and practice
Should strategies be visible or hidden from
stakeholders
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Only when secrecy gives some competitive advantage
Should process be more top-down or bottom up
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Current research suggests bottom-up
Copyright 2007 Prentice Hall
Ch 6 -60