Strategy Implementation Issues

Why do strategies fail?

Some answers:

Purpose Process Resources People involvement Support Systems Follow up

Purpose

Unclear Generic Impossible Too Easy Not shared with others Incongruent

Process

Not clearly defined Too detailed Information not available Responsibilities not clearly define People not capable

Resources

Unavailable Unattainable Time as a resource Accountability Not delivered on time Lack of control

People

Not involved in planning Not trained Lack of authority Not clear accountability You get what you pay for Motivation

Support Systems

Accessible Versatility Up to date Coordinated Understandable

Follow up

Do not Micro Manage Set Key Indicators Set parameters Establish a routine Set time for reflection Be flexible Stay current

Analysis (Marketing)

Market Gross Margin Indicates:

How competitive is the Industry How has it mature (historically) How well are we doing against the industry How much of each dollar we sell is left after deducting those costs directly associated with the goods or services sold

Marketing Efficiency indicates:

Co. Gross Margin Indicates:

Key Questions:

Are we High Volume or High Margin Business? Is the market place changing? How so? Is our marketing Efficient?

Strategic Issues (Market)

Product

Price

Variety Satisfaction of needs and wants Competitiveness Scope

Place

Promotion

PEOPLE

Direct and indirect

Compensation Motivation Capacity Training

Financial Analysis Scheme for Following Strategy implementation (Marketing)

Other Indicators:

General:

Number of customers and sale per customer Margin analysis per customer or type of customer Geographic analysis Margin by type of service Mix of services in terms of contributions to the mix

Services (including construction):

Wholesale or Retail:

Sales generated by space (sales per sq. foot)

Margin by product and/or Model Mix of products

Manufacturing:

Financial Analysis Scheme for Following Strategy implementation (Operations)

Co. Contribution Margin

Multiplied By
Operational Efficiency

Operational Margin

Formulas: Co. Gross Profit / Co. Sales

x

Operational Profit / Co. Sales

Operational Profit/ Co. Gross Profit

Analysis (Operations)

Co. Gross Margin Indicates:

Operational Efficiency Indicates:

How much of each dollar we sell is left after deducting those costs directly associated with the goods or services sold How much of each dollar of gross margin is left after paying operational costs How much of each dollar we sell is left after deducting cost of goods and operational expenses

Operational Margin Indicates:

Key Questions:

Are we using our capacity wisely? What are the fixed and variable elements of operations? How is our operational efficiency if compared with the rest of the industry?

Break Even Charts

Break Even Chart Fixed Expenses = 10 Variable Expenses = .8 (Dollar) 120 100 80
Amount

Break Even Chart Fixed Expenses = 40 Variable Expenses = .2 (Dollar) 120 100 80
Amount

60 40 20 0 0 20 40 60 Amount Sales Expenses 80 100 120

60 40 20 0 0 20 40 60 Amount Sales Expenses 80 100 120

Financial Analysis Scheme for Following Strategy implementation (Operations)

Other Indicators:

General:

Services (including construction):

Percentage of Types of Costs Costs per Customer or Location Geographic analysis

Wholesale or Retail:

Activity Costs by type of service Mix of services in terms of contributions to the total costs Costs per square foot Cost by process Mix of products Efficiency and Productivity Indexes

Manufacturing:

Financial Analysis Scheme for Following Strategy implementation (Financial)

Operational Margin Multiplied By Financial Efficiency Margin before taxes

Formulas: Operational Profit / Co. Sales

x

Profit before taxes / Co. Sales

Profit before taxes/ Operational profit

Analysis (financial)

Operational Margin Indicates:

Financial Efficiency Indicates:

How much of each dollar we sell is left after deducting cost of goods and operational expenses How much of each dollar of operational margin is left after paying financial costs How much of each dollar we sell is left after all expenses are deducted Are we using the right mix of resources? Is the cost of money congruent with its risk? How well do we invest the resources borrowed?

Margin before taxes Indicates:

Key Questions:

Financial Analysis Scheme for Following Strategy implementation (Finance)

Other Indicators:

Weighted cost of capital Cost of operations for obtaining capital Cost of resources as compared with industry Borrowing or issuing capital Buying or making Buying or leasing

Strategic Elements:

Financial Analysis Scheme for Following Strategy implementation (Tax)

Margin before taxes Multiplied By Tax Efficiency Net Profit on Sales

Formulas: Profit before taxes / Co. Sales

x

Net Profit/ Co. Sales

Net Profit/ Profit before taxes

Analysis (Tax Effect)

Margin before taxes indicates:

Tax efficiency indicates:

How much of each Rupee we sell is left after all expenses are deducted How much of each Rupee of profit before taxes is left after paying taxes

Net profit on sales indicates:

How much of each Rupee we sell is left after all costs including taxes

Key Questions:

Are we using the right tax strategy? Are there some risks implicit in the tax strategies followed? How can we minimize the payment of taxes without incurring in excessive risks?

Financial Analysis Scheme for Following Strategy implementation (Permanent Investment)

Net Profit on Sales Multiplied By Permanent Investment turnover Return on Permanent Investment

Formulas: Net Profit/ Co. Sales

x

Co. Sales/ Permanent Investment

Net Profit/ Permanent Investment

Analysis (Investment)

Net profit on sales indicates:

How much of each Rupee we sell is left after all costs including taxes How many times did we sell our permanent investment (Working Capital + Fixed Assets) How much of each dollar of permanent investment has yielded during the period under analysis

Permanent investment turnover indicates:

Return on permanent investment:

Key Questions

Is our level of investment adequate? Do we have too much or too little investment? What are the components of investment? How is the investment in current assets financed by short term debt? How is the working capital financed? Do we have enough or too much investment in inventories? How do we compare with the industry in days for collections and inventories?

Thank you