Implementing strategies: functional level issues

1
Lecture 8

• Implementing strategies functional level issues

2
Objectives

• Explain the role of functional strategies and
  activities in support of the overall corporate
  strategic plan

3
Nature of Strategy Implementation
-- Less than 10 of strategies formulated are
successfully implemented!
Low Success Rate Strategy Implementation

• Failing to segment markets appropriately
• Paying too much for a new acquisition
• Falling behind competition in RD
• Not recognizing benefit of computers in managing
  information

Source David 2005.
4
Nature of Strategy Implementation
Successful Strategy Implementation

• Market goods services well (Marketing)
• Raise needed working capital (Finance)
• Produce technologically sound goods (RD,
  Innovation)
• Sound information systems
• Operations

5
Levels of Strategies
Corporate level
Business level
Functional level
6
Nature of Strategy Implementation

• Decision making at functional level is the
  implementation of corporate plans.
• Therefore, the operational plan for implementing
  corporate or business level strategies needs to
  select appropriate functional strategies.

7
Nature of Strategy Implementation

• Departments (divisions) in the functional level
  also have objectives, which should be
  subordinated to corporate objectives.
• Functional strategies are implemented to meet the
  objectives of individual division and
  corporation.

8
Nature of Strategy Implementation

• For example, regarding marketing issue
• If the general objective of a port is to minimise
  the cost of cargo passing through the port then
  the marketing objective may be attracting and
  obtaining more traffic to ensure full utilisation
  of the port facilities at a high level of
  productivity.
• Marketing strategies for example, leasing of
  berths or terminals to operating companies or
  shipping line.

9
Main functional issues/strategies

• Marketing strategies
• Financial /accounting strategies
• RD strategies
• MIS
• Operation

10
Functional strategies Marketing Issues

• Marketing variables affect success/failure of
  strategy implementation
• Marketing strategy refers to the position that a
  company takes with regard to pricing, promotion,
  advertising, product design, and distribution.

11
Marketing Issues
Centrally important to Implementation

• Market segmentation
• Product positioning
• These two strategies can support business
  strategies such as differentiation strategy

12
Marketing Issues
Market Segmentation

• Subdividing of a market into distinct subsets of
  customers according to needs and buying habits.

13
Marketing Issues
Market Segmentation

• Key to matching supply demand
• Support market development, product-development,
  market penetration diversification strategies
• Allows operating with limited resources
• Enables small firms to compete successfully

14
Marketing Issues
Market Segmentation

• Directly affect marketing mix variables
• Product
• Place
• Promotion
• Price

15
Marketing Mix Component Factors
16
Example

• Market segmentation of the maritime industry?
• Ex bulk cargo segmentation in terms of vessel
  type or market
• Port?

17
Dry bulk market segmentation by vessel size
Minor bulks steel products, cement, sugar,
gypsum, non ferrous metal ores, salt, Sulphur,
forest products, wood chips and chemicals.
Source Kavussanos, M. G. 2002, Handbook or
Maritime transport, p665.
18
Marketing Issues
Product Positioning

• -- Schematic representations that reflect how
  products/services compare to competitors on
  dimensions most important to success in the
  industry

19
Marketing Issues
Customer Wants
ProductPositioning
Customer Needs
20
Positioning strategies

• Attribute positioning
• Benefit positioning (based on providing certain
  benefits)
• Use-application positioning (based on limit use
  or application)
• User positioning (on the basis of some customers
  characteristics)
• Competitor positioning (positioning against one
  or more competitors)
• Product category positioning (on the basis of
  some product category)
• Quality-price positioning
• Ex rental car market (position in terms of high
  (low) convenience and high (low) customer loyalty)

Source Coulter, M. 2005, Strategic management in
Action, 3rd edn, Pearson, New Jersey, pp.147-148.
21
Finance/Accounting Issues

• -- Central to strategy implementation.

22
Finance/Accounting Issues
Essential for implementation

• Acquiring needed capital (source)
• Developing projected financial statements
• Preparing financial budgets
• Evaluating worth of a business

23
Finance/Accounting Issues
Decisions based on Finance/Accounting

• Raise capital short-term, long-term, preferred,
  or common stock
• Lease or by fixed assets
• Determine appropriate dividend payout ratio

24
Finance/Accounting Issues
Capital acquisition to implement strategies

• Debt
• Equity

25
Finance/Accounting Issues
Debt vs. Equity Decisions

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

26
EPS-EBIT Analysis(in millions)
Heinz Company Year End 2001

• Amount Needed 500
• Stock Price 40
• EBIT Range 1000 to 2000
• Tax Rate 26
• Interest Rate 5
• Shares Outstanding 350

27
EPS-EBIT Analysis (in millions) Heinz Company
28
Finance/Accounting Issues
EPS-EBIT Analysis Heinz

• Conclusion
• Heinz should use debt to raise the 500 million

29
Finance/Accounting Issues
Projected Financial Statements

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

30
Finance/Accounting Issues
Steps in Preparing Projected Financial Statements

• Prepare income statement before balance sheet
  (forecast sales)
• Use percentage of sales method to project CoGS
  expenses
• Calculate projected net income

31
Finance/Accounting Issues
Steps in Preparing Projected Financial Statements
(contd)

• Subtract dividends to be paid from Net Income and
  add remaining to Retained Earnings
• Project balance sheet times beginning with
  retained earnings
• List comments (remarks) on projected statements

32
Projected Income Statement for Litten Company (in
millions)
33
Finance/Accounting Issues
Financial Budget

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

34
Finance/Accounting Issues
Evaluating Worth of a Business

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

35
Finance/Accounting Issues
Evaluating Worth of a Business 3 Basic Approaches

• What a firm owns
• What a firm earns
• What a firm will bring in the market

36
Research Development Issues

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

37
Research Development Issues
Constraints

• Level of support constrained by resource
  availability
• Technological improvements shorten product life
  cycles

38
Research Development Issues
3 Major RD approaches to implementing strategies

• 1st firm to market new technological products
• Innovative imitator of successful products
• Low-cost producer of similar but less expensive
  products

39
Research Development Issues

• RD Timing
• First mover
• follower

40
Research Development Issues

• Who?
• RD department
• Cross-functional team
• Some combination
• How?
• Formal or informal process
• Use prototypes, product tests, design reviews or
  test markets
• How to implement new design
• How to evaluate success of new design

Source Coulter, M. 2005, Strategic management in
Action, 3rd edn, Pearson, New Jersey, p.158.
41
Research Development Issues

• Current RD strategies
• Employee suggestion systems
• Innovative culture

42
Importance of information system

• Information is basis for understanding the firm.
  One of the most important factors differentiating
  successful from unsuccessful firms.
• How an organisation collects, uses, and
  disseminates information ultimately will affect
  its ability to develop a sustainable competitive
  advantage. Ex information technology such as
  EDI (Electronic Data Interchange) and RFID (radio
  frequency identification)
• Ex Walt- Mart required its top 100 suppliers to
  use RFID by 2005.

43
Management Information Systems (MIS) Issues
MIS is one type of information systems

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

44
Activities

• Case Toyota Motor (Coulter 2005, pp.137-138)
• 1. What do you think are the keys to Toyotas
  success?
• 2. Do you think production or marketing would be
  most important to Toyota? Support your choice.
• 3. Is strategy coordination important to Toyota?