implementation

Strategy Implementation Strategy Implementation IssuesIssues

ByBy

Santiago Ibarreche, Ph. D.Santiago Ibarreche, Ph. D.

Santiago Ibarreche © 2003Santiago Ibarreche © 2003 22 - 32 - 32

Why do strategies fail?Why do strategies fail?

Some answers:Some answers: PurposePurpose ProcessProcess ResourcesResources People involvementPeople involvement Support SystemsSupport Systems Follow upFollow up


PurposePurpose

UnclearUnclear GenericGeneric ImpossibleImpossible Too EasyToo Easy Not shared with othersNot shared with others IncongruentIncongruent


ProcessProcess

Not clearly definedNot clearly defined Too detailedToo detailed Information not availableInformation not available Responsibilities not clearly defineResponsibilities not clearly define People not capablePeople not capable


ResourcesResources

UnavailableUnavailable UnattainableUnattainable Time as a resourceTime as a resource AccountabilityAccountability Not delivered on timeNot delivered on time Lack of controlLack of control


PeoplePeople

Not involved in planningNot involved in planning Not trainedNot trained Lack of authorityLack of authority Not clear accountabilityNot clear accountability ““You get what you pay for”You get what you pay for” MotivationMotivation


Support SystemsSupport Systems

AccessibleAccessible VersatilityVersatility Up to dateUp to date CoordinatedCoordinated UnderstandableUnderstandable


Follow upFollow up

We need to follow up strategies otherwise:We need to follow up strategies otherwise: ““Norma Implantada no supervisada, vale para ….”Norma Implantada no supervisada, vale para ….” Paralysis by analysisParalysis by analysis Plan is fun, action is notPlan is fun, action is not ““All I do is spinning, spinning, and spinning again”All I do is spinning, spinning, and spinning again” ““I have the sensation that I am wasting my time in I have the sensation that I am wasting my time in

controlling things instead of looking for more controlling things instead of looking for more business”business”

““I got into this business to work less … not more”I got into this business to work less … not more”


Follow upFollow up

Do not Micro ManageDo not Micro Manage Set Key IndicatorsSet Key Indicators Set parametersSet parameters Establish a routineEstablish a routine Set time for reflectionSet time for reflection Be flexibleBe flexible Stay currentStay current


General Financial Analysis SchemeGeneral Financial Analysis Scheme

Contribution Margin for the Industry

Market Efficiency

Multiplied By

Co. Contribution Margin

Operational Efficiency

Multiplied By Operational Margin

Financial Efficiency

Multiplied By

Margin before taxes

Tax Efficiency

Multiplied By Net Profit on Sales

Permanent Investment Turnover

Multiplied By Return on Permanent Investment

Financial Leverage

Multiplied By

Return on Equity

Reinvestment Index

Multiplied By Internal Growth Index


Market Gross Margin

Marketing Efficiency

x Co. Gross Profit Margin

Financial Analysis Scheme for Following Strategy Financial Analysis Scheme for Following Strategy implementation (Marketing)implementation (Marketing)

Market Sales /Market Gross Profit Margin

Co. Market Share in Sales/Co. Market Share in Margin

xCo. Gross Profit /Co. Sales

Formulas:


Analysis (Marketing)Analysis (Marketing)

Market Gross Margin Indicates:Market Gross Margin Indicates: How competitive is the IndustryHow competitive is the Industry How has it mature (historically)How has it mature (historically)

Marketing Efficiency indicates:Marketing Efficiency indicates: How well are we doing against the industryHow well are we doing against the industry

Co. Gross Margin Indicates:Co. Gross Margin Indicates: How much of each dollar we sell is left after deducting those How much of each dollar we sell is left after deducting those

costs directly associated with the goods or services soldcosts directly associated with the goods or services sold

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


Strategic Issues (Market)Strategic Issues (Market)

ProductProduct VarietyVariety Satisfaction of needs and wantsSatisfaction of needs and wants

PricePrice CompetitivenessCompetitiveness

PlacePlace ScopeScope

PromotionPromotion Direct and indirectDirect and indirect

PEOPLEPEOPLE CompensationCompensation MotivationMotivation CapacityCapacity TrainingTraining


Financial Analysis Scheme for Following Financial Analysis Scheme for Following Strategy implementation (Marketing)Strategy implementation (Marketing)

Other Indicators:Other Indicators: General:General:

Number of customers and sale per customerNumber of customers and sale per customer Margin analysis per customer or type of customerMargin analysis per customer or type of customer Geographic analysisGeographic analysis

Services (including construction):Services (including construction): Margin by type of serviceMargin by type of service Mix of services in terms of contributions to the mixMix of services in terms of contributions to the mix

Wholesale or Retail:Wholesale or Retail: Sales generated by space (sales per sq. foot)Sales generated by space (sales per sq. foot)

Manufacturing:Manufacturing: Margin by product and/or ModelMargin by product and/or Model Mix of productsMix of products


Financial Analysis Scheme for Following Strategy Financial Analysis Scheme for Following Strategy implementation (Operations)implementation (Operations)

Operational Profit/Co. Gross Profit

x

Formulas:

Co. Contribution Margin

Operational Efficiency

Multiplied By Operational Margin

Co. Gross Profit /Co. Sales

Operational Profit /Co. Sales


Analysis (Operations)Analysis (Operations)

Co. Gross Margin Indicates:Co. Gross Margin Indicates: How much of each dollar we sell is left after deducting those How much of each dollar we sell is left after deducting those

costs directly associated with the goods or services soldcosts directly associated with the goods or services sold Operational Efficiency Indicates:Operational Efficiency Indicates:

How much of each dollar of gross margin is left after paying How much of each dollar of gross margin is left after paying operational costsoperational costs

Operational Margin Indicates:Operational Margin Indicates: How much of each dollar we sell is left after deducting cost of How much of each dollar we sell is left after deducting cost of

goods and operational expensesgoods and operational expenses

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

the industry?the industry?


Break Even ChartsBreak Even Charts

Break Even ChartFixed Expenses = 10

Variable Expenses = .8 (Dollar)

0

20

40

60

80

100

120

0 20 40 60 80 100 120

Amount

Am

ount

Sales Expenses

Break Even ChartFixed Expenses = 40

Variable Expenses = .2 (Dollar)

0

20

40

60

80

100

120

0 20 40 60 80 100 120

Amount

Am

ount

Sales Expenses


Financial Analysis Scheme for Financial Analysis Scheme for Following Strategy implementation Following Strategy implementation

(Operations)(Operations) Other Indicators:Other Indicators:

General:General: Percentage of Types of CostsPercentage of Types of Costs Costs per Customer or LocationCosts per Customer or Location Geographic analysisGeographic analysis

Services (including construction):Services (including construction): Activity Costs by type of serviceActivity Costs by type of service Mix of services in terms of contributions to the total costsMix of services in terms of contributions to the total costs

Wholesale or Retail:Wholesale or Retail: Costs per square footCosts per square foot

Manufacturing:Manufacturing: Cost by processCost by process Mix of productsMix of products Efficiency and Productivity IndexesEfficiency and Productivity Indexes


Financial Analysis Scheme for Following Strategy Financial Analysis Scheme for Following Strategy implementation (Financial)implementation (Financial)

Profit before taxes/Operational profit

x

Formulas:

Operational Margin

Financial Efficiency

Multiplied By Margin before taxes

Operational Profit /Co. Sales Profit before taxes

/Co. Sales


Analysis (financial)Analysis (financial)

Operational Margin Indicates:Operational Margin Indicates: How much of each dollar we sell is left after deducting How much of each dollar we sell is left after deducting

cost of goods and operational expensescost of goods and operational expenses Financial Efficiency Indicates:Financial Efficiency Indicates:

How much of each dollar of operational margin is left How much of each dollar of operational margin is left after paying financial costsafter paying financial costs

Margin before taxes Indicates:Margin before taxes Indicates: How much of each dollar we sell is left after all expenses How much of each dollar we sell is left after all expenses

are deductedare deducted Key Questions:Key Questions:

Are we using the right mix of resources?Are we using the right mix of resources? Is the cost of money congruent with its risk?Is the cost of money congruent with its risk? How well do we invest the resources borrowed?How well do we invest the resources borrowed?


Financial Analysis Scheme for Financial Analysis Scheme for Following Strategy implementation Following Strategy implementation

(Finance)(Finance) Other Indicators:Other Indicators:

Weighted cost of capitalWeighted cost of capital Cost of operations for obtaining capitalCost of operations for obtaining capital Cost of resources as compared with Cost of resources as compared with

industryindustry Strategic Elements:Strategic Elements:

Borrowing or issuing capitalBorrowing or issuing capital Buying or makingBuying or making Buying or leasingBuying or leasing


Financial Analysis Scheme for Following Financial Analysis Scheme for Following Strategy implementation (Tax)Strategy implementation (Tax)

Net Profit/Profit before taxes

x

Formulas:

Margin before taxes

Tax Efficiency

Multiplied By Net Profit on Sales

Profit before taxes /Co. Sales Net Profit/

Co. Sales


Analysis (Tax Effect)Analysis (Tax Effect)

Margin before taxes indicates:Margin before taxes indicates: How much of each dollar we sell is left after all expenses are How much of each dollar we sell is left after all expenses are

deducteddeducted Tax efficiency indicates:Tax efficiency indicates:

How much of each dollar of profit before taxes is left after How much of each dollar of profit before taxes is left after paying taxespaying taxes

Net profit on sales indicates:Net profit on sales indicates: How much of each dollar we sell is left after all costs including How much of each dollar we sell is left after all costs including

taxestaxes

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

in excessive risks?in excessive risks?


Financial Analysis Scheme for Following Financial Analysis Scheme for Following Strategy implementation (Permanent Strategy implementation (Permanent

Investment)Investment)

Co. Sales/Permanent Investment

x

Formulas:

Net Profit on Sales

Permanent Investment turnover

Multiplied By Return on Permanent Investment

Net Profit/Co. Sales

Net Profit/ Permanent Investment


Analysis (Investment)Analysis (Investment)

Net profit on sales indicates:Net profit on sales indicates: How much of each dollar we sell is left after all How much of each dollar we sell is left after all

costs including taxescosts including taxes Permanent investment turnover indicates:Permanent investment turnover indicates:

How many times did we “sell” our permanent How many times did we “sell” our permanent investment (Working Capital + Fixed Assets)investment (Working Capital + Fixed Assets)

Return on permanent investment:Return on permanent investment: How much of each dollar of permanent How much of each dollar of permanent

investment has yielded during the period under investment has yielded during the period under analysisanalysis


Key QuestionsKey Questions

Is our level of investment adequate?Is our level of investment adequate? Do we have too much or too little Do we have too much or too little

investment?investment? What are the components of investment?What are the components of investment? How is the investment in current assets How is the investment in current assets

financed by short term debt?financed by short term debt? How is the working capital financed?How is the working capital financed? Do we have enough or too much investment Do we have enough or too much investment

in inventories?in inventories? How do we compare with the industry in How do we compare with the industry in

days for collections and inventories?days for collections and inventories?


Other indicatorsOther indicators

For working capital:For working capital: Current ratioCurrent ratio Inventories turnoverInventories turnover Days for collectionDays for collection Aging of accountsAging of accounts

For fixed assets:For fixed assets: Fixed assets turnoverFixed assets turnover Productivity indexProductivity index


Financial Analysis Scheme for Following Financial Analysis Scheme for Following Strategy implementation (Financing)Strategy implementation (Financing)

Permanent Investment/Stockholders Equity

x

Formulas:

Return on Permanent Investment

Financial Leverage

Multiplied By Return on Equity

Net Profit/Permanent Investment Net Profit/

Stockholders Equity


Analysis (Financial Analysis (Financial Leverage)Leverage)

Return on permanent investment indicates:Return on permanent investment indicates: How much of each dollar of permanent How much of each dollar of permanent

investment has yielded during the period under investment has yielded during the period under analysisanalysis

Financial leverage indicates:Financial leverage indicates: How much of each dollar of equity “leverages” How much of each dollar of equity “leverages”

permanent investmentpermanent investment Return on equity indicates:Return on equity indicates:

How much each dollar of equity yielded during How much each dollar of equity yielded during the period under analysisthe period under analysis


Key QuestionsKey Questions

Is our level of financing adequate?Is our level of financing adequate? Do we have too much or too little debt?Do we have too much or too little debt? What are the sources of financing?What are the sources of financing? What alternative sources of funds are there?What alternative sources of funds are there? How could we finance new projects or natural How could we finance new projects or natural

growth?growth? Is the mix of capital adequate for our Is the mix of capital adequate for our

industry?industry? Is the risk level something we can bear?Is the risk level something we can bear?


Financial Analysis Scheme for Following Financial Analysis Scheme for Following Strategy implementation (Growth)Strategy implementation (Growth)

Reinvestment/Net Profit

x

Formulas:

Return on Equity

Reinvestment Index

Multiplied By Internal Growth Index

Net Profit/ Stockholders Equity Reinvestment/

Stockholders Equity


Analysis (Financial Analysis (Financial Leverage)Leverage)

Return on equity indicates:Return on equity indicates: How much each dollar of equity yielded during How much each dollar of equity yielded during

the period under analysisthe period under analysis Reinvestment index indicates::Reinvestment index indicates::

How much of each dollar of net profit is How much of each dollar of net profit is reinvested in the businessreinvested in the business

Internal growth index indicates:Internal growth index indicates: How much are we growing in relation to the How much are we growing in relation to the

initial equityinitial equity

implementation

Documents

margin santiago ibarreche

financial efficiency

customer margin analysis

dollar of gross margin

motivation santiago

capable santiago ibarreche

incongruent santiago

foot margin