PowerPoint Points:

1. PowerPoint Points: Strategic Planning Using Your Balanced Scorecard (Worst-Case Sales) vs. (Best-Case Production) > Forecasting Bonus Point: The Analyst Report

2. Begin Strategic Plan

3. Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment • Company • Consumers • Competitors • Conditions • PEST Functional Integration • Profits • Mrkt Share • ROA • ROS • ROE • Asset T/O • Stock • Mrkt Cap Marketing Growth &Competitive Strategies R&D Production HR Finance NEXT STEP

4. Corporation Sensors Unit Nano-Tech Unit Cons.Elec. Unit Finance Production Marketing HR / R&D 3 Levels of Strategic MGT Corporate-Level :In what business should we compete? Business-Level: How should we compete? Functional-Level : How do we coordinate?

5. Level 1-Corporate Strategy In which businesses do we compete? Corporation Consumer Security Services Sensors Unit Nano-Tech Unit ?

6. Decide what business(es)want to be in … what Products to competewith… What Markets to compete in… Growth Strategy

7. Growth Strategies Present Products New Products Market Penetration- Increase share among existing customers. Product Development Create new products for present markets Present Markets Market Development Attract new customers to existing products New Markets Diversification new products… new markets… new alliances

8. Corporation Sensors Unit Nano-Tech Unit Cons.Elec. Unit Finance Production Marketing HR / R&D Next Level of Strategic MGT Corporate-Level :In what business should we compete? Business-Level: How should we compete? Functional-Level : How do we coordinate?

9. STRATEGIC BUSINESS UNIT MARKET COMPETITOR COMPETITOR COMPETITOR A B C Business Unit Strategy: How do we Compete? Focus? Price? Quality?

10. What Advantagecan we create & sustain against our competitors? & w/in which Market Segments should we compete?

11. Strategic Thinking- the ten big ideas 6. Resource allocation models – • Porter: strategic choices are set of basic generic strategies • (low cost, differentiation, market focus)

12. Porter “What is Strategy” “If you don’t know where you are going any road will get you there.”Lewis Carroll,-- Chapter 6, Alice in Wonderland

13. Cost: Design, produce, market more efficiently than competitors You can Formulate Strategy based on what Competitive advantage you focuson: Differentiation: Deliver unique & superior value in terms of product quality, features, service

14. You can also Formulate Strategy by:Competitive Scope/ MARKET FOCUSNumber & Nature of segments compete w/in-

15. & You can also Formulate Strategy by-Riding a Products Life Cycle • Adjust Marketing Mix according to natural Drift of products w/in segments-

16. Competitive Strategy Matrix Number & nature of segments compete w/in Ride Product LifeCycle #2 #3 Compete on: Broad Market Niche Mrkt Evolving Mrkt Cost #1 Product Quality

17. Competitive Strategy Matrix Broad Mrkt Niche Mrkt Evolving Mrkt Compete on: Cost Product Quality

18. Strategic Choice: Cost Leadership • Overriding goal = increased efficiency & lower costs relative to rivals • Minimize costs(Marketing, R&D & Production..) • Advantages • A cost leader able to charge lower prices • Even at same price- greater profitability

19. Strategic Choice: Differentiation Create a product that customers perceive as distinct/unique & offer superior quality/service Advantage Customers expect & willing to pay premium prices

20. Strategic Choice: Differentiation Greater Equity = Greater loyalty = Less price sensitivity • Will have significant expenditures in R&D & production…. want/need to make high quality/highly desirable product • Significant expenditures in marketing… develop greater brand equity —thru increased awareness of product quality

21. 3rd Level of Strategy Corporate Level Business unit Level Functional Strategy Information systems Research & development Manufacturing Finance Marketing Human resources

22. Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment The Big Picture • Company • Consumers • Competitors • Conditions • PEST Marketing Growth &Competitive Strategies • Profits • Mrkt Share • ROA • ROS • ROE • Asset T/O • Stock • Mrkt Cap R&D Production HR Finance

23. INTERNAL STRATEGIC ALIGNMENT FINANCE Achieved when : All Decisions made by & within all functional areas are in sync w/ one another, As well as with the overall strategic direction of the firm PRODUCTION MARKETING

24. Examples of Strategic Alignment

26. Distinctive Competencies When all decisions made by & within all functional areas are in sync w/ one another, As well as w/ your overall strategic direction -- you achieve… Distinctive Competencies

27. Distinct competencies needed to achieve selected competitive strategy Competitive Advantage* Distinctive Competencies *Achieved when you sustain profits above Industry Average

28. Areas in which you can develop “Distinct Competencies” • MARKETING: Awareness & Accessibility • R&D: Product innovation & design • PRODUCTION: Plant Automation & utilization • Human Resources: Worker Expertise & Training

29. Achieving Competitive Advantage thru Cost-Focused Strategy • Allows for good profit margins on sales while keeping prices low especially in price-sensitive segments… Functional Alignment

30. Differentiator • Seeks to create maximum awareness & brand equity. • Wants to be well known as a maker of high quality/highly desirable products Functional Alignment

31. Select one of the Six Basic Strategies

32. As soon as he said- “Money isn’t Everything” - I knew we were in trouble

33. It is important to focus on the means used to achieve the ends … …..not just on the ends themselves… To only focus on traditional financial accounting measures(such as ROI, ROE, EPS…) …..does not give mgt the whole picture….

34. Will Make $$$ - if sell product Performance needs to be judged thru mix of: financial measures…. & - non-financialmeasures …whichdrive financial outcomes Will sell product if meets consumer Determinant Attributes………. knows about & can get it To achieve “above’ everyone must effectively do their job To effectively do job must know what to do

36. Strategic Thinking- the ten big ideas 9 9. Metrics that matter Balanced score card- a system that attempts to balancefinancial performance w/ consideration of: • customer'sperspective • learning & growthperspective • & internal business processesperspective

37. Today … Vast majority Fortune 1,000 Companies utilize a Balanced Scorecard to help manage performance— because….. What is measuredgets noticed What is noticed gets acted on What is acted ongets improved

38. Southwest Airlines –BalancedScorecard- Strategy Map Objectives Measures Targets Initiatives StrategicTheme: OperationsExcellence Strategic Theme:Operating Efficiency Profits and RONA Financial • 30% +/yr • 20% • 5% • Profitability • Grow Revenues • Fewer planes Grow Revenues Fewer planes Attract & Retain More Customers • # Customers • FAA On Time Arrival Rating • Market Survey • 12% growth • Ranked #1 • Ranked #1 • Customer loyalty program • Quality management • More Customers • Flight is on -time • Lowest prices Customer On-time Service Lowest prices Internal • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization • Fast ground turnaround Fast ground turnaround • % Ground crew trained • % Ground crew stockholders • yr. 1 70%yr. 3 90%yr. 5 100% • Ground crew training • ESOP • Ground crew alignment Learning Ground crew alignment

39. Capstone's Balanced Scorecard

40.  Video How to use The Capstone Balanced Scorecard

43. Most Basic Principle Guiding Your Decisions-- will it: • Increase Demand for Product • Decrease Cost of Making & Marketing Product

44. Made all the Right Decisions --product design, pricing, positioning, promotion, distribution… credit terms… production line capacity, automation, hiring training, TQM & PI…

45. IF • Your Competitors produce a better product • &/or You produce too much of your “great” product You’ll be left w/less revenue than anticipated PLUSproduction & inventorycarrying costs that must be paid.. Then

46. Big Al arrives -- pays your bills, and leaves you with a loan & a stiff interest payment Then You’re left w/less revenue than anticipated and did not plan & allocate enough cash to cover yourproduction & inventorycarrying costs.... IF

47. Maintain Adequate working capital & cash reserves In order to: Need to: • Avoid “Big AL” & a Liquidity Crisis- • Have realistic/ accurate sales forecasts

48. Quick N’ Dirty • Consumer Pref’s • Best vs. Worst Case Projections

49. Estimate Your EARNED SHARE: 2 Q’s: • What will the average product sell in the segment next round? • To what degree is your product above or below average-on consumers'’ buying criteria?

50. EARNED Share - Sales Forecast Look-up next round Industry Demand … Estimate# products that will be in segment. Divide total industry demand by the number of products= FAIR SHARE Your product’s EARNED demand can be ½ to 2X the average product’s demand… Compare your product with competing products. Factors include design, awareness, accessibility, and planned mid-year revisions. Examine industry capacities & capacities of the “best” products. Can products meet the demand they generate?