STRATEGIC MANAGEMENT

THE ART AND SCIENCE OF

FORMULATING,
IMPLEMENTING, AND
EVALUATING CROSS-
FUNCTIONAL DECISIONS THAT
ENABLE AN ORGANIZATION
TO ACHIEVE ITS OBJECTIVES
A Comprehensive Strategic-
Management Model

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 6-2

 Current Vision Statement
Evaluation
Parameter Yes/N Why?
o
Does it clearly Yes
answer the
question:
What do we
want to
become?
Is it concise No
enough yet
inspirational?
Does it give No
indication as
to when it
should be
attained?
Example of Mission and Vision
OLD: To become the leader in the local industry by producing high quality and
craftsmanship of plastic products.

NEW: To become the leading plastic packaging manufacturer in the Philippines and the
ASEAN Region by 2021 by providing our clients with total quality plastic packaging
materials.

Parameter Yes/No Why?

Does it clearly Yes More specific on plastic industry in country of
answer the focus
question: What do
we want to
become?
Is it concise Yes Compact message of the products, country and
enough yet the focus of wants to become in the future.
inspirational?
Does it give Yes This is a continuous plan to attain a high
indication as to performance of the organization.
when it should be
attained?
OLD Statement: NEW Statement:
1. Achieve a good return of 1. Provide total packaging
investment. solutions for client needs.
2. Provide quality products on time at 2. Develop a wide range of quality
a good price. products at the right price.
3. Continuously train personnel to 3. Produce high quality plastic
achieve objectives. packaging materials with the
use of cutting edge technology
4. Continuously improve productivity that are energy efficient and
and quality to be ahead of industry use less carbon.
standards.
4. Develop and train skilled
personnel to meet the
companys objectives.
5. Build strong partnerships with
stakeholders to promote
environmentally-safe production
processes.
 9 Parameters Yes/No Why?
Customer No Not identified in the M/V statements.
Product or Services Yes Indicated in the M/V statements.
Markets Yes Although not explicitly mentioned in the M/V, market is clear
to management and staff; it is not clear to outsiders or
potential clients.
Mission statement should particularly identify the market
targeted (i.e. household / cosmetic and pharmaceuticals)
Technology No Not mentioned in the M/V statements;
Reservation by the owner in purchasing high grade
equipment.
Besides investment, the company lacks skilled personnel to
run such equipment.
Profitability Yes Achieve a safe return of investment.
Philosophy Yes Belief in high quality and continuous productivity.
Self Concept No Continuously retain and train people to achieve the
companys objectives.

Concern for Public Image No Not indicated in the M/V statements;

Little or no interest in establishing a positive public image.

Concern for Staff No Ratio of contractual staff to regular employees is high (4:1).
While staff development is indicated in the M/V statements,
in reality it has little regard for their welfare and training.
Training only provided to key technical personnel.
The Strategic Management
Process
1. Study the external and internal environments.
2. Identify marketplace opportunities and threats.
3. Determine how to use core competencies.
4. Use strategic intent to leverage resources,
capabilities and core competencies and win
competitive battles.
5. Integrate formulation and implementation of
strategies.
6. Seek feedback to improve strategies.

20
Example of Objectives of the Study:
1.Study the external environment of Incon Industrial Corporation and
the competition profile to generate the companys opportunities and
threats to be used for strategy formulation;

2.Evaluate the internal operations of the company including its finances

and all other resources and identify the companys strengths,
weaknesses to establish its own competitive advantages;

3.Formulate strategies relative to both external and internal

assessment and eventually recommend primary and secondary
strategies that Incon Industrial Corporation should pursue;

4.Develop timelines and recommend core team for Incon Industrial

Corporation which will be used as a strategic map for the
implementation and monitoring of the formulated strategies; and

5.Propose a five (5) year financial projection for Incon Industrial

Corporation.
Economic Technological Political-Legal Socio-cultural
Globalization of New developments in IT Stability of E-life, N-generation
Markets government
Total national spending Life-style changes
E-commerce for R&D Environmental
protection laws Career expectations
GNP trends Total industry spending
for R&D Tax laws Rate of family
Interest rates formation
Focus of technological Special incentives Consumer activism
Money Supply efforts
Foreign trade Growth rate of
Inflation rates Patent protection regulations population
Unemployment levels New Products Attitudes toward Age distribution of
Wage/price controls foreign companies population
New developments in
Depreciation/ technology transfer from Laws on hiring and Regional shifts in
Appreciation of lab to market place promotion population
Currency Productivity Fair trade laws Life expectancies
Energy availability improvements through Birth rates
and cost automation

Disposable and
discretionary income
 Porters 5 Forces Model
PORTERS 5 FORCES

Bargaining Power of
A new entry of a Buyers means, How
competitor into your Threat of new much control the
market also weakens your entrants buyers have to drive
power. Threat of new entry down your products
depends upon entry and price. Can they work
exit barriers. together in ordering
Industry rivalry large volumes.
mean the intensity
Bargaining of competition
among the existing
Bargaining
power of power of
Rivalryin the
competitors
suppliers market. Intensity of buyers
among
rivalry depends on
competitors
the number of
Bargaining Power of competitors and
supplier means how their capabilities.
strong is the position
of a seller. How Threat of substitute
much your supplier
Threat of products means how easily
have control over
increasing the Price substitute your customers can switch to
of supplies. products/services your competitors product.
THE EXTERNAL FACTOR EVALUATION
(EFE) MATRIX
VALUE CHAIN ANALYSIS (VCA)

Aims to identify low-cost advantages or

disadvantages anywhere along the value chain

SUPPLIERCOSTS
PRODUCTION COSTS
DISTRIBUTION COSTS
SALES AND MARKETING COSTS
CUSTOMER SERVICE COSTS
MANAGEMENT COSTS
FINANCIAL RATIOS:
1. LIQUIDITY RATIO: ability to meet maturing short-term
obligations
- Current ratio
- Quick ratio
2. LEVERAGE RATIO: extent to which a firm has been
financed by debt
- Debt-to-Total-Assets ratio
- Debt-to-Equity ratio
3. ACTIVITY RATIO: effective use of resources
- Inventory turnover
- Total assets turnover
- Average collection period
4. PROFITABILITY RATIO: management effectiveness
(ROI,ROS)
- Gross profit margin
- Net profit margin
5. GROWTH RATIO: ability to maintain companys economic
position vs economic and industry growth
- Sales growth
- Net Income growth
 Key Internal Factors Weight Rating Weighted Score
Strength
Financial Standing 0.130 4 0.52
Strong Partneship with Multi-national
0.190 3 0.57
company
High Technical Capability 0.050 3 0.15

Production Capability and Capacity 0.120 4 0.48

Quality Product and Compliant to Client
0.100 3 0.3
Standard
Design and Development Capability 0.050 3 0.15
Acquisition of new machine 0.050 3 0.15
Weaknesses
High cost on Operation reject 0.100 1 0.1
Fast turnover of Manpower 0.050 2 0.1

Lack of Marketing workforce 0.010 2 0.02

Close Knit operation - Decision comes from
0.050 2 0.1
top to bottom
Customer Satisfaction compliant 0.050 2 0.1
Quality Management System is not fully in
0.05 2 0.1
place

1.00 2.84
The Strategy-Formulation
Analytical Framework

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 6-47

A Comprehensive Strategy-
Formulation Framework
Stage 1 - Input Stage
summarizes the basic input information needed to formulate
strategies
consists of the EFE Matrix, the IFE Matrix, and the
Competitive Profile Matrix (CPM)

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 6-48

A Comprehensive Strategy-
Formulation Framework
Stage 2 - Matching Stage

focuses on generating feasible alternative

strategies by aligning key external and
internal factors
techniques include the Strengths-
Weaknesses-Opportunities-Threats
(SWOT) Matrix, the Strategic Position
and Action Evaluation (SPACE) Matrix,
the Boston Consulting Group (BCG)
Matrix, the Internal-External (IE) Matrix,
and the Grand Strategy Matrix
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 6-50
IE Matrix

EFE rating is 3.205

IFE rating is 2.84

Incon recommended strategies

1. Integration
2. Market Development
3. Product Development
SPACE ANALYSIS

Positive results for financial and

industry position for the past 3
years

Incon has capability to invest on its

own equity.
Summary of the Matrices

Top 3 strategies

1. Product Development
2. Market Penetration
3. Backward Integration
A Comprehensive Strategy-
Formulation Framework
Stage 3 - Decision Stage
involves the Quantitative Strategic Planning Matrix (QSPM)
reveals the relative attractiveness of alternative strategies
and thus provides objective basis for selecting specific
strategies

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 6-55

QSPM Strengths & Weaknesses
QSPM
Weight MARKET PEN PROD. DEV. BACKWARD INTEG.
Strengths
Financial Standing 0.130 4 0.520 4 0.520 4 0.520
Strong Partneship with
0.190 4 4 1
Multi-national company 0.760 0.760 0.190
High Technical Capability 0.050 3 0.150 4 0.200 1 0.050
Production Capability and
0.120 4 4 2
Capacity 0.480 0.480 0.240
Quality Product and
Compliant to Client 0.100 3 3 2
Standard 0.300 0.300 0.200
Design and Development
0.050 3 4 3
Capability 0.150 0.200 0.150
Acquisition of new
0.050 3 4 4
machine 0.150 0.200 0.200

Weaknesses
High cost on Operation
0.100 1 1 1
reject 0.100 0.100 0.100
Fast turnover of Manpower 0.050 3 3 4
0.150 0.150 0.200
Lack of Marketing
0.010 1 1 1
workforce 0.010 0.010 0.010
Close Knit operation -
Decision comes from top 0.050 1 1 1
to bottom 0.050 0.050 0.050
Customer Satisfaction
0.050 1 1 1
compliant 0.050 0.050 0.050
Quality Management
0.05 1 1 1
System is not fully in place 0.050 0.050 0.050
Total 1.000 2.920 3.070 2.010
QSPM Opportunities & Threats
QSPM
Weight MARKET PEN PROD. DEV. BACKWARD INTEG.
Opportunities AS TAS AS TAS AS TAS
Growth in Phillipines
0.150 4 3 4
Economy 0.600 0.450 0.600
Labor dispute are
0.010 3 2 3
manageable 0.030 0.020 0.030
Competition of banks in
0.050 4 4 4
3 Alternatives Strategies terms of best loan rates 0.200 0.200 0.200
Annual rate of 1.7%
0.100 4 4 4
increase in population 0.400 0.400 0.400
Increasing export firms in
Rank 1 Product the country
0.050 1
0.050
1
0.050
0
0.000
Development: 3.070 Government Spending 0.075 3 0.225 1 0.075 3 0.225
Consumer Spending 0.075 4 0.300 4 0.300 4 0.300
Rank 2 Market Competence of industry
0.05 2 3 1
work force 0.100 0.150 0.050
Development: 2.905
Rank 3 Backward Threats
Poor Road Infrastructure in
Integration: 2.715 Phils
0.100 1
0.100
2
0.200
3
0.300
Limited local raw material
0.100 1 3 2
suppliers 0.100 0.300 0.200
Environmental Impact on
0.050 1 1 1
plastic waste 0.050 0.050 0.050
Declining the value of local
0.010 2 3 1
currency 0.020 0.030 0.010
Political Governance 0.050 1 0.050 3 0.150 4 0.200
Asean Integration 0.070 1 0.070 2 0.140 2 0.140
Product Differentiation 0.010 1 0.010 4 0.040 4 0.040
Limited local tool maker 0.050 1 0.050 2 0.100 4 0.200
Total 1.000
TYPES AND LEVELS OF
STRATEGIES
EXAMPLES
Situation #1
Softdrinks such as Coke and Pepsi dominated the
Philippine market for many years. Because of the
growing awareness for healthier alternatives, URC
introduced C2 Cool & Clean in the late 90s, affecting
the softdrinks industry.

Analysis: PORTERS

Strategy: Threat of Substitutes

Situation #2
Unhappy about the performance of the
telecommunications in the country, President Duterte
orders companies to shape up or ship out. Australian
telecommunications company Telstra enters the
Philippine market.

Analysis: PORTERS

Strategy: New Entrant

Situation #3
Viking Cars Inc., the Philippine distribution of Volvo
cars, experienced a slump in sales after the Asian
Crisis in 1997. Still incurring losses after closing 3 of
its branches, it decided to remove 50% of its
manpower.

Analysis: Defensive Strategy

Strategy: Retrenchment
Liquidation
Situation #4
Korean skin care brand Face Shop started as a
small business within Seouls upscale district in
2004. Within 2 years, it became the third largest
cosmetic shop in South Korea. The company
landed in the Philippines in 2009 as part of its
expansion program.
Analysis: Intensive Strategy

Strategy: Market Development

Situation #5
San Miguel Corporation was aware that raising
livestock was not its core business, so they needed
to source good poultry growers for its Magnolia
chicken. It devised a supplier partnership program
wherein growers get support from SMC (in terms of
feeds and medicine) in exchange for quality
chickens which it buys thereafter. The agreement
also prevents growers from selling the chickens
outside.
Analysis: Integration Strategy
Strategy: Backward Integration
Situation #6
Sun Cellular caused tough competition in the
cellular communications industry with its unli-
calls and unli-text promotions. It was killing other
networks such as Smart and Globe. But as a result
of JG Summits realignment, it decided to let go
of Sun. Smart bought 51.55% of Digitels shares in
Sun that same year.

Analysis: Integration Strategy

Strategy: Horizontal Strategy

Situation #7
Aware that the food business in the country is
already fully saturated, San Miguel Corporation
decided to diversify its business. Since 2000,
the company has diversified into power and
energy (Petron, Esso Malaysia Berhad, SMC
Energy Corporation), infrastructure, properties
(SMC Properties Holdings), and packaging (San
Miguel Yamamura Packaging Corporation).

Analysis: Diversification Strategy

Strategy: Conglomerate Diversification
Situation #8
Coca-Cola had experienced a big slump in recent
years as several studies had attacked the effects
of softdrinks to health. In 2010, it changed its
advertising campaign by showing known health
buffs like Christine Jacob and Paolo Abiera
drinking Coke, showing that even healthy
people drink Coke too.

Analysis: Intensive Strategy

Strategy: Market Penetration
Situation #9
Petron Corporation is the countrys leading oil
company. From selling gasoline products in 1965,
it has since broadened its products to include LPG
(Petron Gasul), oil additives (Petron Freeport
Corporation) and petrochemicals.

Analysis: Diversification Strategy

Strategy: Concentric Diversification

Situation #10

Pepsi was losing out in the health drink market,

seeing the need to compete, it bought Gatorade in
2000. It has likewise developed Pepsi Max and
Pepsi Light for health conscious drinkers.

Analysis: Intensive Strategy

Strategy: Product Development
Situation #11
Incon Manufacturings manpower is 60%
contractuals. While the company is managing
profitably, its quality has remained stagnant in
years. In a bid to improve its Product Development
Teams performance, yours truly proposed
establish an agency which will improve the needs
of Incon while nurturing the needs of its team
members.

Analysis: Defensive Strategy

Strategy: Divestiture
Situation #12

Aware of the absence of Chinese equity in

Hollywoods film industry, Warner Brothers inked a
joint venture with China Media Capital (CMC) to
produce a slate of Chinese language films. In 2015,
Flagship Group Entertainment Limited was formed
with CMC controlling 51% and Warner 10% of the
consortium.

Analysis: Defensive Strategy

Strategy: Joint Venture

Situation #13

Biogesic tablet, a product of UNILAB, has been

in the market since the 80s. Although it is a
popular brand of paracetamol, it has never
gained popularity until UNILAB took John Lloyd
Cruz as its endorser a few years ago.

Analysis: Intensive Strategy

Strategy: Market Penetration

THANKS !