Strategy Evaluation Essay
Suppose your company has just acquired a firm that produces battery-operated lawn mowers, and strategists want to implement a market-penetration strategy. How would you segment the market for this product? Justify your answer.
Explain how you would estimate the total worth of a business.
In order to estimate the total worth of a business, I would determine its net worth or stockholders equity. After calculating net worth, I would add or subtract an appropriate amount for goodwill and overvalued or undervalued assets. I would establish the businesses to worth at five times its current annual profit. I may chose to use a five-year average profit level. I would also consider using the price-earnings ratio method or possibly the outstanding shares method.
Explain why EPS/EBIT analysis is a central strategy-implementation technique.
“An Earnings Per Share/Earnings Before Interest and Taxes (EPS/EBIT) analysis is the most widely used technique for determining whether debt, stock, or a combination of debt and stock is the best alternative for raising capital to implement strategies. EPS/EBIT analysis is a valuable tool for making capital financing decisions needed to implement strategies, but several considerations should be made whenever using this technique.”
How would the R&D role in strategy implementation differ in small versus large organizations?
Resource availability largely determines the research and development of a company. Because small companies have less capital to attain those resources, their emphasis would probably not be on research and development. Because of the rising costs of R&D, consortiums have developed among companies to all have access each other’s R&D. The larger companies can take more risks in this area which is highly risky financially.
Discuss the limitations of EPS/EBIT analysis.
“First, profit levels may be higher for stock or debt alternatives when EPS levels are lower. Another consideration when using EPS/EBIT analysis is flexibility. As an organization’s capital structure changes, so does its flexibility for considering future capital needs. Control is also a concern. When additional stock is issued to finance strategy implementation, ownership and control of the enterprise are diluted. When using EPS/SBIT analysis, timing in relation to movements of stock prices, interest rates, and bond prices becomes important.”
Explain how marketing, finance/accounting, R&D, and management information systems managers’ involvement in strategy formulation can enhance strategy implementation.
Marketing is important in development of products and services to meet the needs of customers. Its strategies involve gauging consumer interests and tastes, developing the desired products, gaining a foothold to ward off competitors, and diversifying to further satisfy and keep customers. Market segmentation allows small firms to target specific customers and to more wisely use limited resources. Marketing is geared to a more exact match of product to consumer in a more streamlined approach. Marketing also involves more research and analysis toward the abovementioned aims. This tact is called product positioning. The needs of customers are targeted and identified and are paramount to what is produced and sold.
Finance/Accounting is concerned with finding the right mix of debt and equity in a company’s capital structure. Debt obligations are of primary importance. If a company’s mission is shareholder wealth, then debt to raise capital is not a consideration. If not, then the best route for capital is to raise debt. An Earnings Per Share/Earnings Before Interest and Taxes analysis is the way most companies evaluate which strategy is best. Many variables are considered in this process. Pro Forma financial statements is a strategy technique that forecasts the impact of different financial implementation decisions. Financial budgets are sound basis for strategy implementation. They indicate a company’s solvency. Methods to determine a business’ worth are central to strategic implementation. These include evaluating stockholder’s equity, future benefits its owners may derive through net profits, and letting the market determine the company’s value.
Research and Development is important in strategy implementation in that the personnel are responsible for new product development and improving existing ones. R&D is also charged with developing raw resources, transferring technology, adapting to local markets, and honing products to meet particular specifications. Success is achieved, however, when R&D can match a company’s capabilities to market opportunities. (Page 291) Three methods employed by R&D are” being the first firm to market new technological products”, “to be an innovative imitator of successful products”, and to be a low-cost producer by “mass- producing products similar to but less expensive than products recently introduced”. (Page 292
Management information systems gather and store information to create competitive advantages vital to the understanding in a firm. An effective MIS greatly enhances strategic management by “cross selling to customers, monitoring suppliers, keeping managers and employees informed, coordinating activities among divisions, and managing funds.” (293) A good MIS reduces cost, for instance, by allowing workers to do their jobs from the home. An MIS serves to protect business interests, especially those involved with the Internet through security measures against hackers.
Consider the following statements: “Retained earnings on the balance sheet are not monies available to finance strategy implementation.” Is it true or false? Explain.
This is a Pro-Forma financial statement, which must go on to forecast other variables and then make adjustments in analyzing and forecasting a company’s various implementation strategies. It is not true or false as it is a projection.
Explain why pro forma financial statement analysis is considered both a strategy-formulation and a strategy-implementation tool.
A pro-forma financial statement “allows an organization to examine the expected results of various actions and approaches”. It serves as an implementation tool in this regard. A pro forma statement serves as a strategic formula in that it is a statement made before the fact of those decisions.
What effect is e-commerce having on firms’ efforts to segment markets?
It has a positive effect because people “form communities” online and are much more defined for marketers. Segments of the population hard to reach via traditional media are now accessible because of web sites they frequent and develop themselves. People congregate at websites where they can pool their purchasing power to gain discounts. Those websites in turn provide valuable information to the companies offering discounts. This allows them to further target consumer needs using market segmentation.
Why has strategy evaluation become so important in business today?
“Disciplining oneself to go through the strategy evaluation process is important because only after gaining a thorough understanding of the strategy’s quality can one know what elements of strategy should be changed and, equally important, which elements of strategy are sound and should not be altered. In addition, the evaluation process itself will suggest strategic alternatives. The complexity of a corporation defies its being evaluated in any single dimension.
As any security analyst knows, the quality of a company’s stock must be judged on more than the historical performance of the firm; equally important are the firm’s plan for the future, the quality of its internal resources, and its management. Similarly, the strategy of a corporation is best evaluated by examining it through a variety of lenses. Each lens will give a different perspective and, possibly, different answers. It is only through the combined perspective that comes from looking at past results, future plans, and the risk inherent in a firm’s strategy that a strategist can assess the overall quality of the firm’s strategic thrust.”(http://faculty.darden.virginia.edu/bourgeoisj/Chapter%205.html)
2. BellSouth Services is considering putting divisional EEF and IFE matrices online for continual updating. How would this affect strategy evaluation?
“Business today has become so competitive that strategists are being forced to extend planning horizons and to make decisions under greater degrees of uncertainty. As a result, more information has to be obtained and assimilated to formulate, implement, and evaluate strategic decisions. Computers enable managers to evaluate vast amounts of information quickly and accurately. Use of the Internet, World Wide Web, e-mail, and search engines can make the difference today between a firm that is up-to-date or out-of-date in the current ness of information the firms uses to make strategic decisions.” (Page 316)
5. Under what conditions are corrective actions not required in the strategy-evaluation process?
“The probabilities and possibilities for incorrect or inappropriate actions increase geometrically with an arithmetic increase in personnel. Any person directing an overall undertaking must check on the actions of the participants as well as the results that they have achieved. If either the actions or results do not comply with preconceived or planned achievements, then corrective actions are needed.”
Identify types of organizations that may need to evaluate strategy more frequently than others. Justify your choices.
Types of organizations that may need to evaluate strategy more frequently than others are large manufacturers, large retailers, transportation companies, utilities, banks, insurance companies, and diversified financial corporations.
“Large organizations require a more elaborate and detailed strategy-evaluation system because it is more difficult to coordinate efforts among different divisions and functional areas. Managers in small companies often communicate with each other and their employees daily and do not need extensive evaluative reporting systems. Familiarity with local environments usually makes gathering and evaluating information much easier for small organizations than for large business.” (Page 312)
Identify some key financial ratios that would be important in evaluating a bank’s strategy.
Some key financial rations that would be important in evaluating a bank’s strategy are ROI (return on investment), ROE (return on equity), profit margin, market share, debt to equity, earnings per share, sales growth, and asset growth.
Strategy evaluation allows an organization to take a proactive stance toward shaping its own future. Discuss the meaning of this statement.
The strategic management process examines the “bases for a firm’s strategy,” compares “expected results with actual results,” and takes “corrective actions to ensure that performance conforms to plans.” (300) It is proactive in that strategies are evaluated in a timely fashion with immediate feedback from its analyses. Long range as well as short term operating results must be paramount as well as the consideration of the dynamic environment which can take today’s successes and obliterate them tomorrow. Strategic evaluation is pro-active in that it looks at trends, evaluates the feasibility of a plan, considers a plan in light of stated goals and objectives, and seeks to maintain a competitive advantage. Plans can not be evaluated after they occur, but before, making this evaluation proactive rather reactive.