Strategic Management Made Simple PDF

STRATEGIC MANAGEMENT MADE SIMPLE Felina C. Young 1 CHAPTER 1 A STRATEGIC MANAGEMENT MODEL The Reality of Dynamism The 21st century epitomizes the reality of dynamism. In fact, today’s milieu is in a state of fluidity. It is not static. Rather, changes and fluctuations are constantly happ...

STRATEGIC MANAGEMENT MADE SIMPLE Felina C. Young 1 CHAPTER 1 A STRATEGIC MANAGEMENT MODEL The Reality of Dynamism The 21st century epitomizes the reality of dynamism. In fact, today’s milieu is in a state of fluidity. It is not static. Rather, changes and fluctuations are constantly happening in the surroundings. These actualities are characterized by the occurrence of phenomenal situations, continuous challenges, and triggering forces that provoke corresponding reactions. The certainty of change is universal and this foregone conclusion is largely experienced by all nations and people—whether developed or undeveloped, large or small, powerful or weak. As a result, the current landscape of competition is highly threatening and daunting. With an environment that is characterized by drive, energy, and pursuit and transformation, volatility is a ruthless reality. Impermanence and unpredictability are certainties. Nothing is stable; neither is regularity a logical expectation. Competition has gone beyond nations, people, cultures, geographic frontiers, and industries. As the global economy expands, blurring boundaries, any business needs to create its own impact in any part of the world. Thus, it is urgent for organizations and businesses to strategize. Hypercompetition Hypercompetition is a fundamental feature of the new economy. As the world implies, it carries note of overexcitement and agitation. Hypercompetition occurs when product/service offerings and technologies are so new that standards become unstable and competitive advantage is not sustainable. It is condition where strategic maneuverings have escalated to bigger business exposure, more sophisticated marketing positioning, aggressive selling, and innovative products and services. Doing business has become intense and more deliberate. It seems like a big waste not to discern and take advantage of every opportunity. The business atmosphere is characterized by activities such as outdoing each other, surpassing sales, taking competitors by surprise, capturing a bigger market share, winning the business battle, and seizing the number one slot. Strategic Management Defined Strategic management is a continuous process of strategy creation. It involves strategic processes like strategic analysis and decision-making, strategy formulation and implementation, and strategy control with the primary objectives of achieving and maintaining better alignment of corporate policies, priorities, and success. Strategic analysis consists of systematic evaluation of variables currently existing in the external and internal environments while strategic decision-making is deliberately bringing together the right resources for the right markets at the right time. Strategy formulation is designing strategies on the business and corporate levels. Strategy implementation is employing these crafted strategies to achieve organization set goals and objectives while strategic control is the application of an appropriate monitoring and feedback system. Strategic Planning 2  Oftentimes, the word strategic planning is more popular than strategic management. Essentially, these two words are the same. In terms of purpose, both strategic management and strategic planning have the same goals and objectives, that is, to devise a strategic mode of preparing, addressing, and steering organizations to where they want to go. Particularly, both undertakings endeavor to understand the strategic position organization—their set goals, preferred choices, and deliberate and calculated strategies. Furthermore, both strategic management and strategic planning use the same process to attain their goal. Strategic planning is defined as a continuous, repetitive, and competitive process of setting the goals and objectives that an organization aims to attain, defining the means to achieve them, and assessing the best way to realize them in the context of the prevailing environment while measuring performance through set standards, and periodically but continuously conducting reassessment. Types of Strategic Plans There are two types of plans: Medium/long range plan – prepared in the context of the coming three to five, ten or more years. it describes the major facts or forces that affect the organization’s long-term objectives, strategies, and resources required. Annual/yearly plan – short-term; succinctly describes the organization’s present situation, its goal and objectives, strategies, monitoring mechanisms, and the budget for the ahead. Need for Strategic Planning Why is there a need for strategic planning? As earlier stated, the reality of dynamism, complexity, and hypercompetition characterizes today’s environment. To survive, organizations need to plan carefully their strategic approaches. Therefore, strategic plans have to be prepared purposefully for effective and efficient implementation, thus, leading to the attainment of their set objectives. The benefits of designing and putting into effect a strategic plan cannot be overemphasized. Strengths and Limitations of Strategic Planning Strategic planning defines an organization’s vision, mission, and set objectives. It provides organizations the opportunity to assess the milieu and specify strategies to achieve their goals. Strategic planning helps organizations to stay focused. It makes things happen. Furthermore, strategic planning helps reduce the chances of committing mistakes, thus, increasing the organization’s efficiency. Strategic planning helps in the more efficient allocation of organizational resources, better collaboration among cross-departmental employees and functional units, and communication between managers/supervisors of all levels. Lastly, when cautiously, clearly, and proactively undertaken, strategic planning provides leverage and competitive advantage to the organization. Organizational Vision 3  To help organizations achieve strategic direction, they need to articulate and have a commonality in vision, mission, and goals. The interrelationship between and among these three variables are essential in the organization’s thrust of achieving competitiveness. The organizational vision is an inspirational statement of what the organization hopes to achieve at some point in the future. It is the image of what an organization desires to achieve. It is short and succinct, but it carries an extraordinary force that will stir, motivate, and inspire employees to work and refocus toward its desired optimal future state. Having a strong sense of vision can move the organizational vision binds the company and its employees together. Mission Statement The mission statement differs from the organizational; vision. The mission statement defines the current purpose of an organization; it answers what the organization does, for whom it is done, and how it does what it does. Organizational Goals and Objectives To operationalize the mission statement, organizational goals and objectives are defined. All organizations have set goals. These are referred to as organizational goals. Organizational goals are pursued to make the specified strategies succeed. They vary and are essentially dependent on their respective purpose and direction. One of the implied basic goals of any organizations to use economic resources efficiently and effectively such that survival, if not profit, is at least secured, thus, ensuring the continuity of the organization. Goals re macro, encompassing in perspective, and prospective in nature. In fact, goals represent the overall vision of an organization. By their very nature, goals have the following properties: Goals provide organizations focus and direction. They neatly converge toward the purpose of any firm, thus, streamlining all unnecessary and redundant considerations. Goals move organizations to action. Because goals have to be attained, organizations re motivated to function and perform toward their vision. Goals develop in organizations the trait of persistence. Thus, organizations continue to persevere until they achieve their desired success. Values and Value System Organizations are guided by values, which vary from one organization to another. Values are inherent roots of motivation within an individual, an organization, a community, or a nation. They are by nature, ingrained and thus, are more stable and enduring. They are both intellectual and behavioral, serving as bases for the organization’s actions and way of thinking. Values are generally exhibited in two different ways, namely, beliefs and attitudes. More particularly, beliefs are cognitive manifestations while attitudes are characteristically behavioral. They are fundamental and intricately integrated in the particular organization’s value system. Take note that the values projected by 4 organizations are largely dependent on any or all of the following: the stockholders, the Board of Directors, and the top management. Strictly speaking, the values of an organization are not synonymous to its value system. The value system is characteristically broader in scope; side from values, it includes other variables such as the organization’s dreams, aspirations, interest, expectation, philosophies, as well as leadership and management styles and ethical practices. Moreover, the value system indicates the hierarchy of values ranked by organizations. Because values are distinct, they differ from one organization to another. This explains why one organization may be perceived as socially and community-active, while another is business-oriented. Hence, the importance of these value qualities and value systems for organizations cannot be underestimated. Organizational Climate and Culture The concepts of organizational climate and culture are interrelated, interdependent, and sequential. They are interrelated, in that organizational climate is often defined as the regular and repetitive patterns of attitudes and behavior exhibited by employees of an organization. It is a measure of the health of an organization. It manifests whether its employees are happy, hard working, and motivated, or otherwise; whether good interpersonal relationships exist between and among different levels of management; and whether the work environment is acceptable and conducive to productivity. Organizational climate is easier to assess and change. It ends to flexibility. It precedes and somehow contributes to the solidification of the culture of an organization. CHAPTER 2 CHALLENGES IN THE EXTERNAL ENVIRONMENT 5 Scanning the Environment Organizations exist to survive. Given their vision and mission statements and set goals and objectives, it is for organizations to conduct themselves clearly, deliberately, and strategically. To achieve this, organizations should develop “organizational intelligence”. Organizational intelligence refers to the expertise, insight, and wisdom possessed by an entity. It serves as a valuable guide to its journey to becoming competitive. Thus, organizations need to possess this capability to be able to accurately audit the environment and come up with creative and cutting-edge strategies. Environmental scanning is the study and interpretation of the forces existing in the external and internal environments. The external environment includes social, economic, political, technological, and environmental forces that may influence an organization, an industry, or any entity. The competitive environment covers competitors, suppliers, customers, stakeholders, culture, and the government. Environmental scanning is carefully monitoring the surroundings with the end goal of ascertaining early indications of prospects and challenges that may influence the organization’s present and future plans. Sources of Strategic Information Strategic information consists of the facts and data used by organizations to assist them in achieving their vision, mission, and goals. Strategic information can be drawn from both external and competitive environments. Both external and internal environments symbiotically interplay and directly or indirectly affect organizations. Information is either primary or secondary. Primary data are gathered through personal experience, observation, and experimentation while secondary information are data collected from reports, internet sources, and other published materials. Modes of Environmental Scanning Scanning the environment involves two processes. The first one is looking at or simply viewing information, and the second one is looking for or searching for information. According to Aguilar (1967), there are four ways of environment scanning. They are undirected viewing, conditioned viewing, informal search, and formal search. Undirected Viewing. The individual is exposed to information with no specific informational need in mind. The sources of information are wide-ranging and large chunks of information are quickly drooped from the individual’s attention. Thus, the early signals of change. It is a significant mode of feeling the environment as this increases awareness in the organization to undertake needed proactive strategic moves. Accordingly, organizations should continuously undertake undirected viewing of the environment. Many times, this process of environmental scanning can save an organization from losing out in the survival game or may be the reason for organizational success. Conditioned Viewing. The individual directs viewing of information to specified facts and data to be able to assess their general impact on the organization. It is not an active search but a mere viewing 6  of information. It provides a cue or hint that more purposive scanning should be instituted if the effect is assessed to be sufficiently significant. Informal Search. The individual actively looks for information to increase knowledge of a particular issue. It essentially involves a relatively unstructured effort where the objective is to gather information to expound on the issue, thus, determining whether a strategic move is needed by the organization. If a need for a decision or action has been established, more time and resources will be spent by the organization. Formal Search. The effort exerted by the individual is deliberate and planned. The search is both focused and structured and the research methodology is clearly enumerated and followed. Specific information is presented and organizations conduct environmental scanning through varied approaches. These search approaches can include industry analysis, market studies, and competitor and customer analyses, among others. Appreciably, results of the formal search normally provide organizations bases for decision-making and courses of action. The SWOT Matrix Analysis The SWOT matrix is a structured assessment tool used to evaluate an organization, industry, a place or even a person in terms of set parameters like strength, weaknesses, opportunities, and threats. Credited to Albert Humphrey in 1960, the SWOT matrix classifies strengths and weaknesses as internal dynamics characterizing an organization and threats and opportunities as external influences to the organization. Specifically: Strengths are features that organizations possess, thus, giving it significant advantage over others. Weaknesses are characteristics that place organization at a disadvantage relative to others, and may just be limitations or vulnerabilities of organizations. Opportunities are possibilities in the external environment that organizations can exploit to their advantage. Threats are challenges in the external environment that can cause problems to organizations. The External Environment The external environment today is highly complex. This fundamental paradigm conspicuously characterizes the global scenario. Nations possess different levels of growth and development. For example, power relationships have become dynamic, volatile, uncertain, complex, and threatening. Multifaceted concerns, although distinct, have become primordial issues among counties, causing differences in policies and global interrelationship. Oftentimes, an atmosphere of strategic negotiation, compromise, and survival permeates. Consequently, knowledge of the broad environment is considered an advantage for organizations when managers constantly develop an audit “intelligence” of the environment. Social Forces 7  Social forces refer to important issues that are characteristic of global and societies. Society consists of individuals, families, and communities, including their beliefs, aspirations, traditions, and practices. Significant societal factors in the environment create varying impacts on organizations. Some of the more critical social concerns today are changing social structures, the world’s aging population, the great demand for health services, the evolving sophistication in the lifestyles of people, and the cross-cultural implications of mobility of people including migration, among others. Changing Social Structure. The social environment can be better understood and analyzed in terms of broad social structure. Social structure refers to the network of social institution that includes the family and the community. The family is one of the basic institutions of a social organization. It performs various function that includes human reproduction, raising up children, and sending to schools to ensure a better life in the future. When bound together, families form communities. Aging Population/Demand for Health Services. There are more maturing and aging individuals today. Like an inverted triangle, the baby boomers are greater in number. Baby boomers are individuals born in the 1940s. today, they are precisely the people who need more medicine and health services. This reality has fundamental social implications like the need to provide elderly people with adequate medical care. Sophisticated Lifestyle of People. Compared to the past, the lifestyle of people today has dramatically changed too. Their way of looking at themselves, the people around them, their lives and careers, their values, attitude, philosophies, and expectations have taken a deeper and wider perspective. They are more demanding, complicated, varied, and unique. Their properties, as well as their wants, are continuously changing. Whereas earlier generation were content with having a simple abode to stay safe, today the new generation of people want to own houses and live extravagantly. Once content with simple things, they expect more from life and living. Cross Cultural Diversity. Similarly, the global community is getting figuratively smaller. Workplaces are either working or migrating to every part of the world. As a result, cross-cultural diversity has become an important organizational issue; culture being a basic component of the global environment. When we speak of multi cultures, we consider the culture of the individual and the host country. Political Forces There are crucial concerns confronting nations today. Geopolitical issues have become the famous of major political powers. Some of these issues re political independence, changing governments, balance of power, terrorism, suicide bombings, global alliances, and chemical and nuclear warfare. These critical problems are affecting the global political balance. Political Independence/Changing Governments. Political sustainability has become the focus and concentration of developed and power-driven countries. They fight wars to attain and maintain political supremacy. The call for global political equilibrium has challenged nations to involve themselves in the attainment of global peace and security. Global ideologies are the main determinants of global support while global power is the main ingredient of global leadership. 8  Consequently, nations today are undergoing changes in government: from communism to socialism to capitalism, and from dictatorship to democracy. More particularly, some colonized territories in the world are waging their own wars to attain independence. Fighting, dissention, and mayhem characterize civil wars. The hostilities between and among the protagonist are bloody and costly. People are killed, families are displaced, and properties are destroyed. These affect the very core humanity. Terrorism/Suicide Bombings. The bloody and painful transition toward equality of basic human rights and the right to a better life have brought about critical security problems like terrorism, kidnappings, suicide bombings, and hijackings. News about wounded and dead children, elderly citizens, and innocent people have become normal occurrences heard over radio and seen on television. Kidnappings for ransom have become sure sources of finances. The fearless and bold attacks by suicide bombers are a brazen testimony of disregard for law and order Chemical and Nuclear Threats. Some countries go on developing and producing weapons with intention of blackmailing and/or intimidating other countries. True enough, the spread of deadly chemicals, viruses, and other forms of microorganisms post dangerous effects. This is likewise true with nuclear military hardware. Nuclear threat is imminent where countries continue to beef of their nuclear arsenals. Although nuclear plants are essentially useful in harnessing nuclear energy, their misuse and abuse are threats to peaceful coexistence. Danger looms and when used indiscriminately, these long-range and short-range missiles can literally erase the whole of humanity. In essence, political survival and power are the great determinants of political decision- making and peaceful coexistence. Global Alliances. Politically, nations are aligning themselves for self-preservation and more so, for global stability and strength. Today, no nation attempts to stand alone because global relationships are essential to national survival. European nations have bonded themselves as the European Union. The same is true with ASEAN countries. Economic Forces Economic realities have concomitantly come to the forefront. Economic issues greatly affect the growth and development of a nation. Nations are strategizing to maintain a continuum of financial stability. Most often, trade and investments are transacted to ensure monetary security. Economic realities include globalization of products and services, the presence of aggressive competitors and suppliers, the fall of large and “supposedly” financially stable organizations, increasing oil prices, economic trade agreements, the emergence of new markets, and the rise of China as a major economic player in the world. Globalization. This is the one major determinant of competition. Globalization can be viewed from four perspectives: products, people, ideas, and money. Before, simple and traditional goods were generally accepted but today’s consumers demand flexibility and versability in the products they use. Competitors and Suppliers. Aggressive competitors and creative suppliers compete to get a large slice of the market, both energizing the industry and business environments. Pricing, quality, 9  differentiation, and innovation are the usual criteria for business for business success with consumers more likely patronizing less expensive but quality products. Fall of Financial Stable Organizations. The last few years the downfall of a number of financially successful organizations that were managed by respectable and competent presidents and chief executive officers. The corporate fiascos of Enron, World.Com, and the Lehman brothers are but a few examples of the more widely talked-about financial catastrophes. Increasing Oil Prices. The never-ending increases in oil prices have been creating economic instability in global communities. Characterized by unpredictability in price and production, organizations using oil and any of its “derivative” products find difficulty in projecting costs and profit figures. Planned strategies have become difficult to actualize. A versatile commodity, oil is a multi-purpose raw ingredient found in may products. Changes in oil prices are determined to the survival and success of many organizations. Economic Trade Agreements. Economic trade agreements among nations likewise become a vital bargaining power in a country’s economy. Bilateral and multilateral economic treaties between and among economic global partners provide trade priorities and privileges, allowing local products to reach other markets. Example of these products are clothes, furniture, bananas, handicrafts, dried mangoes, fashion jewelry, and human resources. The World Trade Organization (WTO), Asian Free Trade Organization (AFTA), North American Trade Agreement (NATA), and Asia-Pacific Economic Cooperation (APEC) are examples of these economic alliances. The implementation of zero or near- zero tariffs on all traded products is now effective. Emerging Markets. Closely interrelated to political, social, and economic growth and development of a country is the emergence of different markets. Developed, developing, and underdeveloped countries are economic markets with unique needs, wants, demands, distinct traits, and peculiarities. Rise of China. One of the most potent economic markets in the world today is China. It is seen both as a supplier and a big market. Constituting one-third of the world’s population, China is a market for other countries’ products and services. As a supplier, the country is capable of providing goods and services to the world market. Although not apparent, the economic status of nations indirectly affects political alliances. Technological Forces We live in a digital world. Another important catalyst of competition is technology. In the 1980’s, information technology began its journey toward radical communication and technology growth. Significant changes happening in the world today have been the result of rapid developments in information technology. These technological advances are observed in the fields of communication, business, banking, education, medicine, security, and all facets of everyday living. Communication Technology. Communication technology saw the proliferation of mobile phones, popularity of text messaging, convenience of fax messages, usefulness of CCTV cameras for 10  surveillance and simple monitoring, and benefits of video conferencing, among others. The impact of changes in the area of communication technology cannot be overemphasized. Computer-integrated Business. Today, enterprise resource planning (ERP) integrates business operations in marketing, accounting, production, operations, and management. Computer-aided manufacturing makes production more efficient, computer-aided design results in concise outputs while telecommunication technology makes physical distances immaterial. Product innovation is easier to create, product development is relatively shorter, less cumbersome but more challenging, and fewer employees perform tasks due to technology. In addition, enterprise resource planning is popularly applied in supply chain activities like purchasing, inventory management, scheduling and dispatching deliveries, distribution logistics, documentation and management of accounts receivables and payables, and preparation of income statements and balance sheets. Thus, it can be said that ERP has revolutionized operational activities, making processes more precise and efficient. In production, processes are computer-aided, computer-integrated, and computer- manufactured, thereby production quality, more efficient, and cost-effective and services. E-banking. Banking transactions like deposits, withdrawals, payments can be done online nowadays. Intra-banking operations are more efficient while international banking transactions are operated with accuracy and expediency. Confidentially of transactions can be largely maintained while anomalies can easily be tracked as long as procedures for check and balance are in place. E-learning. One of the most recent developments in education is distance or online learning. It is learning from home, the office, while on vacation, or from any place outside the four walls of s classroom. Popular among busy people, e-learning has become a convenient way of pursuing formal education: high school, vocational, tertiary, graduate, and doctoral levels. Furthermore, e- learning within the classrooms can be conducted since schools today have access to the internet. Digital Medicine. Another surprising and most welcome development in the field of medicine is the use of technology. Scientists conduct stem cell researches from leftover human embryos with the hope of curing illnesses like diabetes, Parkinson’s disease, and spinal cord injuries. These days, computer-guided robots perform surgical procedures. Using androids, surgical operations are more precise, cheaper, and less time-consuming. E-security. Security is another vital global issue. The use of information technology is inevitable in manufacturing missiles and other forms of ammunitions, coding military secrets, safeguarding fortified installations, monitoring enemies, securing soldiers, and planning counterattacks. More particularly, robots can detonate bombs and operate helicopters for reconnaissance missions. True, the age of digital living has arrived and more changes are expected. Environmental Forces Environmental responsibility is the urgent call of the global neighborhood. Ecological damage is happening everywhere. There seems to be an utter disregard or seeming indifference about the environment. 11 Environmentally, no country can claim complete isolation. The safety and survival of one should be the concern of others. After all, nations share water boundaries. Climate Change/Use of Biodegradable Materials. The effects of environmental degradation, malpractices, neglect, and indifference are critical and serious. The use of non-biodegradable materials emitting chlorofluorocarbons continuously causes the widening and deepening of the hole in the ozone layer. As a result, global warming has caused countries to experience extreme rainstorms on the other end like extreme global climate changes: storm surges, tsunamis, below zero degree climate weathers, earthquakes, volcanic eruptions, droughts, and forest fires. Environmental Waste Management. In many undeveloped countries, noise, air, and water pollution levels are high. Smog, fumes, and contaminants continue to cause increasing incidents of diseases, more specially those related to the lungs. Mismanaged disposal of toxic wastes results in occurrence of serious and infectious illnesses; lack of clean water contributes to unhealthy living; unhygienic surroundings are eyesores while lack of cleanliness produces grubby citizens who are health hazards to others. Furthermore, the use of dynamites is destroying marine life, disturbing the sealed, and killing aquatic plants and corals. Oil and gas spills contaminate bodies of water and cause marine imbalance. Preservation of Rainforests and Marine Life. Rainforests are no exception. Continuous depletion and denudation of forests explain why torrential rains are more destructive and intense nowadays. They result in damage to properties and danger to human lives. Irresponsible mining is slowly destroying and running down natural barriers that otherwise provide safety of abode to people. CHAPTER 3 CHALLENGES IN THE INTERNAL ENVIRONMENT 12 The Internal Environment Aside from understanding the developments and changes occurring in the global environment, organizations need to understand the internal environment, or referred to as the local milieu. The internal environment is the setting in which an organization locally exists. As one studies the local environment, there are existing unique variables that directly affect any organization or business. Understanding these variables is essential if one has to conduct his organization successfully. These areas re government, cultures, the stakeholders, competitors, suppliers, customers, and community. Government: The Business Caretakers The government is the sole legitimate institution tasked with overseeing organizational operations in the country. In implementing these administrative functions and responsibilities, the government undertakes the following: 1. Provides the needed infrastructure— a. physically in the form of roads, bridges, electricity, and water services; b. technologically through information technology infrastructure and communication facilities; c. economically by providing availability of loans, banking services, low interest rates, and tax incentives; d. socially through housing, welfare, waste management policies, community services, and societal responsibilities; and e. politically in terms of peace, security, stability, and governance. 2. Creates an atmosphere of fair and robust competition among industry and company players, monitors and regulates monopolies and oligopolies, and eliminates unfair and illegitimate practices. 3. Formulates business policies, implements businesses operating guidelines, and regulates the conduct of business activities such as payment of taxes, health and safety practices in food, manufacturing, constructions, and other service industries, ensures quality of product and services, and mandates minimum wages of employees, and their fair and just treatment. Culture: A Communal Convergence As mentioned previously, a nation’s culture is communal aggregation and convergence of the country’s philosophy, beliefs, traditions, values, attitudes, aspirations, and practices that have historically evolved since a nation’s inception. The Philippines has its own culture—a culture that was greatly influenced by diverse cultures: Chinese, Japanese, Spanish, and American. Through many years of national growth and development, this culture has been shaped by environmental variables happening within and outside the country and until today, continuous to change, mature, and transform. Such evolution has nurtured in the Filipino certain distinct beliefs, traditions, and practices, which re either pride to the country or otherwise. Worth mentioning are the following: 13  1. The trait of hospitality. Filipinos are generally warm people. They are cordial, friendly, and accommodating. Their doors re open to relatives and friends, most especially during town celebration called “fiesta.” 2. The practice of baynihan. Filipinos, most especially those in the provinces, are generally helpful. This practice creates an atmosphere of unity and concern among the townspeople. 3. Filipinos generally take care of their parents, old relatives, and siblings. They work hard to send their brothers and sisters to school. Because of this priority, some set aside their personal lives. In addition to this, most Filipinos take care of their aging grandparents and parents. They do not send them to homes for the aged, which is the usual practice in developed countries. 4. Pakikisana and utang na loob. Many Filipinos prioritize friendship to the point of sometimes sacrificing principles. Some develop bad habits like smoking, drinking, taking drugs, and breaking laws due to pakikisama. Furthermore, they tend to remember the good things done to them by people in the past, wishing that someday they can repay them. These nagging feelings of indebtedness can be abused. 5. The habits of ningas kugon, manana, and ‘Filipino time.’ Some Filipinos excitedly begin something without finishing what they have started. This explains why a celebrated and urgent political, social, or economic issues dies a natural death. Filipinos sometimes tend to procrastinate tasks and responsibilities. They seem to work better when they cram. They re generally late when it comes to meetings and appointments, something of an “easy life” attitude. 6. The attitudes of crab mentality and bahal na. some Filipinos re not happy with the good fortunes of others. They have a subconscious tendency to bring down their own fellow citizens. This is prevalent here and among Filipinos overseas. Moreover, some Filipinos leave their to the natural course of events. There seems to be no sense of urgency. 7. The virtue of resiliency. The Filipinos are flexible people. Despite the difficulties in their personal and social lives, they can easily adjust and bounce back. They are born survivors. 8. The idea of kanya-kanya. Filipinos, on the other hand, tend to be individualistic. At times, they are selfish and are independent to the plight of others. 9. The consciousness of being politically involved. As often noted, Filipinos are highly politicized. They re up-to-date with the least political issues. The ordinary Filipino in barbershops, the vendors long the walkways, and the drivers on the streets generally talk about political views, leanings, and biases. Stakeholders: The Business Inventors Organizations exist because there are individuals who are willing to take risks, invest their capital, and engage in business activities in exchange for a return. This return on their investments is profit. Stakeholders are business investors. Some are actively involved in the conduct of their business while others prefer to be silent investors. Stakeholders are assets to the country. They provide opportunities for exchange of products and services. They initiate business operations and compete among themselves. They boost and energize economic activity, provide employment to the community, and help the government by paying business taxes. Without them, a country is paralyzed. While owners of the businesses are the direct stakeholders, others are indirect stakeholders. These are individuals or entitles that stand to benefit from the investments of the owners. They are the employees, the government, and the community. 14 Competitors: The Business Threats There are various forms of competition as well as several types of competitors. Competition is an economic scenario where nations, communities, organizations, companies and individuals offer and sell their products and services. Competitors continuously strive to outplay and outsmart each other, hoping to get larger share of the target market. They fall in different categories. 1. Same Products. They are companies who sell exactly the same products or offer the same services. They are direct competitors. Examples are Unilever and Procter & Gamble. Both are engaged in the same line of business and they sell the same products. 2. Similar Products. They are companies who sell similar products. Tea and coffee are similar products. 3. Substitute products. Some companies sell substitute products. For example, the competitors of marketplaces are fast-food centers who sell primarily cooked food, and secondly, convenience. Instead of going to the market to buy meat, fish, and vegetables, they now go to fast-food centers for their meals. 4. Different Products. Still, there are companies sell substitute products but market to the same market segments. Competitors also differ with respect to the strategies they adopt. 1. Complementary Competition. Some companies appear to compete with themselves. For capturing a larger market, they produce the same products, use different brand names, and target different market segments. An example is aa real estate company that sells low-cost housing to target market, classes C and D; and average-cost housing to middle-income class families. 2. Collaborative Competition. Similarly, there are companies whose relationships among each other are strategic and cooperative. Examples are oil companies in the country. They are in “friendly” competition. 3. Corrupted Competition. Lastly, some companies produce “fake” products. They compete with legitimate businesses by boldly and unethically transgressing the intellectual property rights of other companies through plagiarism, duplication, and false branding. They produce and sell these products at low prices. How can a company then know who its competitors are? There are different ways of identifying them and they are the following: 1. Determining similarity in characteristics. One way of identifying competitor is by determining similarity in the products and services offered, the specific technologies applied, and the strategies employed, whether marketing, financial, and managerial. 2. Studying consumers. Observing and studying consumers in terms of demographic variables can also help identify competitors: sex, civil status, age, educational attainment, monthly income, employment, and psychographic variables like needs, wants, attitude, perceptions, purchase patterns, and buying behavior. 15  3. Researching company data. Competitors can also be identified through hard company data: capitalization outplay, number of customers, distribution outlets, employees, financial strength, number of years in operation, and company growth. 4. Considering corporate success. Lastly, some competitors look at the degree of success of other company by studying their sales volume and amount of sales, market leadership, and goodwill. Customers: The Business Challenge Competitors continuously compete to capture a bigger share of the market. Customers make the market. They are the very reason why companies pursue new product developments and differentiate their existing products and services. Customers are the focus of companies’ business plans and programs and the thrust of their strategies. Without consumers, companies have no reason to exist. Because of the changing needs, wants, demands, and sophisticated lifestyles of consumers, there is an exigent need to employ various approaches to ensure their patronage and loyalty. Suppliers: The Business Partners In an environment characterized by cut-throat competition, businesses have to produce quality products. This degree of quality is greatly dependent on a number of variables, one of which is the supplier component. During business involves supplier-customer relationship. By definition, suppliers refer to individuals and companies engaged in the delivery of raw materials, machinery, technology, labor, expertise, skills, and other forms of services. They are essentially business partners. The supplier component is important for the following reasons: 1. It is responsible for the quality of the product produce d and the services rendered. If the supplier is not managed well, it may result in the delivery and sale of substandard raw materials, low quality equipment and machinery, diluted admixtures of metals and chemicals, decrease in the number of delivered items, and deficiency in weight, size, and number of units of delivered items. 2. It affects continuity in operational processes (e.g., production, scheduling, and delivery). Delays in delivery schedules may cause inventory problems like stockouts, work stoppages, and work force displacement. Community: The Business Concerns The community is the intermixture of peoples coming from all walks of life with different “provincial or city cultures” different values, attitudes, aspirations, traditional beliefs, standards of living,family backgrounds, religions, and educational attainments. It is essentially heterogeneous but characteristically homogeneous in its end goal of attaining quality life. As such, the community in principle, is the rational of the “business framework”. It is the very reason why stakeholders invest their capital and venture into business. It provides opportunities for businesses to thrive. It is “customers, suppliers, and competitors” all bundled as one. It is primary concern of the government. 16 Porter’s Five Forces Model The competitive environment is best described and illustrated by Michael Porter’s Five Forces Model of Industry Competition. An aerospace and mechanical engineer, Porter pursued his doctorate degree in industrial economics. He was a professor at the Harvard Business School. His book Competitive Strategy (1980), enumerated five forces that determine the intensity, profitability, and attractiveness of an industry: (1) bargaining power of suppliers; (2) the bargaining power of buyers/customers; (3) ease of entry of new firms; (4) availability of substitute products; and (5) rivalry among existing firms within the industry. Porter spelled out one by one when is each of these five forces high, and proposed ways of reducing these situations. 1. Suppliers are sources of input needed to produce goods and services. The bargaining power of suppliers is high when: a. few large suppliers dominate the market where they form powerful oligopolistic bloc; b. there are no substitutes for the specified input; c. switching costs from one supplier to another are high; and d. customers of suppliers are not united but fragmented. To deal with this situation, strategies may include buying out, collaborating, and providing training on supply chain management. 2. The bargaining power of customers is high when: a. customers buy in large volumes; b. their products are not unique, such that they can be replaced or customers can produce those products themselves; c. suppliers are fragmented and few; and d. product switching is easy. To deal with this situation, firms can collaborate, reach out, create loyalty, and increase value- added incentives in customers, improve on supply chain management and work hard to move purchase decision from price. 3. Factors that heighten barriers to threats of new entrants are: a. Financial in nature like economies of scale, high initial investments, fixed costs, and cost advantage due to the learning curve; b. Marketing advantages that include brand loyalty of customers, controlled distribution channels, protected intellectual property on products and services, and good supplier-customer relationships; and c. Production and operation pluses like access to raw materials and scarcity and costs of qualified labor. To reduce the threats of new entrants, firms can produce better products, increase their efficiency, create and promote their brand image, enhance relationship with suppliers and distributors, and pursue aggressive marketing strategies. 4. Threats of substitutes are present when complementary, alternative, and similar products are in existence and sold at lower prices. 17  To diminish these threats, enhance brand loyalty of customers and increase switching costs. 5. Competitive rivalry among players is high when: a. there are many players with similar strategies; b. rivalry is not differentiated; c. the barriers for exit are high; and d. the growth of the company is at the expense of the other. To deal with this situation, products and services can be differentiated and price competition can be avoided. Collaboration among competitors can be promoted while different segments can be focused. Porter enumerated three fundamental generic strategies, (1) cost leadership, which can be achieved by exploiting economies of scale; (2) optimizing the learning curve, and (3) stressing on operational excellence. Furthermore, differentiation can be demonstrated through product and service leadership and customer intimacy. Lastly, focus can be demonstrated by segmentation. CHAPTER 4 BUSINESS STRATEGIES 18 Value Chain Analysis As global markets widen, businesses have to pay closer attention to where their raw materials come from, how they are produced, how finished products re stored and transported, and what their end products users are really asking for. The main business definition of any organization is to produce goods or render services, and to achieve these set goals and objectives, it engages in a series of activities. If an organization wants to be profitable, it has to sell value to its buyers—value that is worth paying for. Thus, the whole concepts of value chain analysis comes to the picture. Value chain is a general term that refers to a sequence of interlinked undertakings that an organization operation in a specific industry engages in. It looks at every phase of the business from the time of procurement of raw materials to the time its products reaches its eventual end users or consumers. The value chain concept is concretized in supply chain management. Here, value creation is greatly emphasized. Supply Chain Management Supply chain management is a broad continuum of specific activities employed by a company. It consists of the following:  purchasing or supply management which includes the sourcing, ordering, and inventory storing of raw materials, parts, and services;  production and operations, also known as manufacturing and assembly;  logistics which is the efficient warehousing, inventory tracking, order entry, management, distribution and delivery to customers; and  marketing and sales which includes promoting and selling to customers. Supply Management Supply management is now a popular term used for purchasing which was formerly termed as procurement. It is a key business function that is responsible for: (1) identifying material and service needs; (2) locating and selecting suppliers; negotiating and closing contacts; (3) acquiring the needed materials, services, and equipment; (4) monitoring inventory stock keeping units; and (5) tracking supplier performance. Sourcing and Ordering Following are the steps to take when an organization needs to source out raw materials or parts. 1. Specify the need clearly by writing down the details. Normally, the stock keeping unit (SKU) is coded with brief but complete details like date, identification numbers, the originating department, the account to be charged description of the raw materials/service, date needed, any special instruction, and signature of authorized person making the request. 2. Identifying and analyze possible sources of supply. Generally, more than supplier should be considered. The criteria for choosing suppliers are sound business sense and attitude, good record of accomplishment, sound financial base, suitable technical capability, quality orientation, customer service mentality, and effective logistical arrangements. 19  a. Use a Request for Quotation when the need is clear, the commodities are in constant use, and quotations are easily obtainable. b. Use a Request for Proposal when the buyer has complex requirements and plans to negotiate to determine price and terms. c. Lastly, use a Request for Bid when the desire is a competitive bid process. 3. Ask potential suppliers for their respective quotations, proposal, and bids. 4. Compare and evaluate submitted documents, then select the suppliers. Both buyers and suppliers agree and determine the terms of the contract. Correspondingly, the negotiated order placements follow. 5. Prepare, place, follow up, and expedite the purchase order (PO). The purchase order is a written requisition placement to purchase supplies. 6. Confirm that the order placed has actually arrived in good condition and at the quantity. Forward it to the accepting party/parties. 7. Lastly, invoice clearing and payment follows. Inventory Management Another facet of supply management is inventory management. The role of inventory is to buffer uncertainty. It includes all purchased materials d goods, partially completed materials and component parts, and finished goods. There are four broad categories of inventories. 1. All unprocessed purchased input or raw materials for manufacturing. Companies purchase supplies for any of the following reasons: to avail of quantity discounts, to anticipate future price increases, to safeguard against supplier problems, to minimize transportation costs, and to avoid supply shortage. 2. Work-in-process (WIP) 3. Finished goods include all completed products for shipment. 4. Maintenance, repair, and operating supplies (MRO) include the materials and supplies used when producing the products but are not parts of the products. Inventory Models Inventory management is ordering the right quantity of SKUs at minimum inventory costs. Inventory cost is the sum total of ordering costs and carrying costs. Ordering costs (set-up costs) are variable costs associated with placing an order with the supplier like managerial and clerical costs in preparing the purchase, while carrying costs (holding costs) are costs incurred for holding inventory in storage like handling charges, warehousing expenses, insurance, pilferage, shrinkage, taxes, and costs of capital. Production and Operations Production and operations are processes that transform operational input into output to satisfy consumer needs and requirements. This transformational process consists of manufacturing and assembly. Manufacturing is the process of producing goods using people or machine resources. It commonly refers to industrial production where raw materials are converted into finished goods. Assembly is the process 20 of putting together raw materials into a desired output. Quality raw materials and parts, efficient production layouts and processes, and employees with skills and motivation are essential to effective transformational processes. Once achieved, value can be generated through appealing product designs, quality and reliability, efficient service performance, accessible location site, attractive store displays, affordable prices, and good customer service. The Logistic Circle Now a popular term in supply chain management, logistics management includes the supervision of certain sequential processes. These includes warehousing, scheduling, dispatching, transportation, and delivery. 1. Warehousing is the function of physically packing finished goods or merchandises in a building, room, or any space for temporary storage. While these items are stocked in storerooms, they are timetabled for release to customers or buyers. 2. Scheduling is the act of organizing these inventory units and booking them for delivery. 3. Dispatching products are for transfer; this may include posting, mailing, shipping out, transmitting, forwarding, or release commodities. 4. Transportation scheduling and other logistics are necessary to make dispatching cost efficient. The goal is to minimize transporting costs. Therefore, considerations have to be prioritized in terms of location site, ease, or gravity of traffic, safety, and labor requirements. 5. Delivery to the specified site is undertaken. It closes the entire logistics circle. Marketing and Sales Products are produced and services re rendered for ultimate release to customers. Therefore, there is a need to market this merchandise to interested buyers. Companies can adopt different modes of marketing to attract and sell to customers. They can study the unique purchasing patterns of buyers and determined what translate their desire for the products into actual purchase. Aside from coming up with good and distinct products, businesses can offer competitive pricing like special offers, quantity discounts, and volume sales, among others. They can aggressively promote the products through advertisements in newspaper, magazines, radio, television, and other forms of promotional mediums. In all instances, while marketing their products and services, companies will need to complement their efforts with developing salespeople through result-oriented sales trainings, giving competitive salaries that will motivate them to contact sales, providing good working conditions for better productivity coupled with inspirational leadership. Growth Strategies The adoption and implementation of a growth strategy ids one of the most important considerations for every organizations. Particularly, growth strategies are carefully studied and deliberately carried out by organizations for the following reasons: they want to survive the hypercompetitive environment and not perish; they want to increase their earnings or income; they want to create their advantage among competitors; or they may want to increase their market leadership in a given industry. Growth strategy is a 21 mode adopted by an organization to achieve its main objectives of increasing in volume and turnover. Growth strategies can be internal or integrative. This chapter will discuss internal growth strategies. Internal Growth Strategies Internal growth strategies are approaches adopted within the company. These broad growth strategies can be any of the following: market penetration, market development, product development, and diversification. The interrelationship of these four constructs are shown in the Table 4.1. In this table, the two main variables considered are products and markets, possessing two properties; current and new  Market penetration suggest that for an organization to increase its growth, market penetration can be actualized by selling more of its current products/services to its current customers or buyers. It is the least risky for any company to pursue. For example, if we are selling six-pack of Coca-Cola, then we can push for a 12-pack, 24-pack, and so on.  Market development is the process where a company can sell more of its current products by seeking and tapping new markets. It is a little more challenging. For example, if a company has a chicken fast-food chain in Luzon, then it can open new outlets int the Visayas and eventually, in Mindanao.  Product development is ab internal growth strategy where the company sells “new” products to an existing market. In this strategy, there is a need for the organization to be more creative in coming up the differentiated products and services. The products or services need not be new in its truest essence but instead, may be results of products/service enhancement, redesign, or reinvention. For example, a company develops a versatile shampoo product that can be used without wetting the hair.  Diversification is product/market mix growth strategy that involves creating differentiated products for new customers. Oftentimes, it is going to another product/service area that is NOT related to one’s current business or operations. For example, an aircraft manufacturer can diversify and go into the restaurant business or an accounting firm can manufacture a new robot pilot for airline companies. Competitive Strategies Organizations cannot avoid the permeating competition existing in the business environment. Thus, competitive strategies are designed to deal with this so-called reality of hypercompetition. Competitive strategies are essentially long-term action plans prepared with the end goal of directing how an organization will survive and compete. These strategies are formulated to help organizations gain competitive advantage after evaluation and comparing their strengths and weaknesses against their competitors.  Low-cost Leadership Strategy. The objective of the low-cost leadership competitive strategy is to offer products and services at the lowest cost possible in the industry. This strategy is implemented when the organization makes every effort to be the most effective, if not the overall, low-cost provider of a service or product. For example, Cebu Pacific Airlines uses the low-cost leadership strategy to capture the broadest reach of air traveling customers by offering airfares at low prices.  Broad Differentiation Strategy. The objective of the broad differentiation competitive strategy is to provide a variety of products, services or product/service features that competitors do not offer or 22  not able to offer to consumers. This strategy is implemented when the organization offers a unique product/service with distinct traits and features that will appeal better to its customers/buyers. A mobile phone with a television feature is a broad differentiation strategy product. This is true of fast foods with playground like slides and see-saws.  Best-cost Provider Strategy. This strategy is a combination of the low-cost leadership and broad differentiation strategies. It is implemented when the organization gives its customers more value for money by emphasizing both low-cost products and services with unique features. The end goal is keeping its customers. For example, Baclaran increases its customer base by selling varied, wide- ranged numbers, and low-cost products in large quantities.  Focused/market-niche Lower Cost Strategy. This strategy is implemented when the organization concentrates on a limited market segment and Creates a market niche based on lower costs. For example, there are low-cost condominium units that cater to middle class employees. An affordable and relaxed dwelling residence is an example of using a focused/market-niche lower cost strategy. Another example is a specialized audio and video equipment store that sells only these two types of products. Being dedicated, the store can purchase stocks in bulk, avail of price discounts, and therefore, sell at low prices.  Focused/market-niche Differentiation Strategy. This strategy is implemented where the organization concentrates on a limited market segment and creates a market niche based on differentiated features like designs, utility, and practicality. An example of this focused/market-niche differentiated strategy is Rolex. Rolex has an elite clientele base. It sells limited editions of watches. One look and one can immediately say that the person is wearing a Rolex watch. Cost, design, quality, and branding are distinct features of Rolex watches. Other Competitive Strategy Other competitive strategies include innovation strategy, operational effectiveness strategy, economies of scale, and technology strategy.  Innovation Strategy. Although innovation, in the strictest sense of the world, is anything that is new and original, this strategy is difficult to implement, the goal of competitive innovation strategy is to radically catapult or leapfrog the organization by introducing completely new and highly differentiated products and services that give an organization a competitive posturing. Robotics is a concrete example where automation, engineering, science, computing, and manufacturing are collaboratively used to create a cybernetics product.  Operational Effectiveness Strategy. Some organization operate with a high degree of inefficiencies in their internal business process like wastes, downtime, longer cycle times, complaints, rejects, loses, absences, and others. These forms of incompetence, wastefulness, and inadequacies translate into financial leaks and reduction in potential profits. The objective of an operational effectiveness strategy is to make an organization perform better by making the structure lean, streamlining wasteful and inefficient processes, harnessing better facility and equipment maintenance, and increasing work force productivity. 23   Economies of Scale. When applied as a competitive strategy, economies of scale lowers costs because of volume. In the other words, the more a product/service is produced, the lower costs are for producing the product and rendering the service.  Technology Strategy. The advantage of gearing toward technology cannot be overemphasized. Technology can be applied system-wise through digital integration. As organizations realize the benefits of going digital, they aggressively pursue this thrust. Functional activities like accounting, marketing, purchasing, human resource management, production, and operations are interconnected using enterprise resource planning. Life Cycle Strategies In the context of the horizontal boundaries of the firm, it is worth reviewing the product life cycle. The life cycle of any product/service refers to the lifespan that a commodity/service undergoes from its introduction stage to its growth, maturity, and decline stages. The phases in the life cycle of a product/service are sequential in development. While a product undergoes its life cycle, external and internal forces in the environment affect the product/service ranging from consumer expectations, technological development, and competition to other wide-ranging issues and challenges. In many instances, organizations have little control over forces. Take note too, that products and services have different life cycle patterns.  The introduction stage is the period of launching the product/service for acceptance. In this phase, the product/service is new; hence, there is a need to create awareness. Strategies include promotions, giving discounts, and market development, among others. Depending on the type of product/service, the acceptance phase may either be strong or long.  The growth stage is the phase where the product/service gains acceptance by the consumers, in this phase, sales and profit slowly increase and emphasis is now on continuous market development and improvement. Competition become more challenging. Here, the organization can focus on the branding, building customer loyalty, and promoting repeat business through customer patronage.  The maturity stage is the period where the product has reached its penultimate level. Here, the established product tends to remain steady and the number of competitors increases. Although sales and profits generally reach their peak, it is in this phase where the organization should start reinventing its product/services to maintain their current levels. Product differentiation is recommended in this stage, as well as efficient operations and formulation of creative marketing strategies.  The decline stage is the period where the product/service begins to reach or is reaching lowest point. Here, sales and profits decline and price competition is intense. An organization can choose to keep the status quo, reduce prices to generate more sales, consolidate with other organizations, or simply exit the market. Implementing strategies like product/service reinvention and aggressive marketing can be helpful. Stability Strategy 24  For organizations that are doing fine or doing better in their existing businesses, they may choose not to implement any growth strategy. They may not want to apply any competitive strategy and hence, decide to keep the status quo. Not adopting any growth or competitive strategy is a choice that organizations make. Stable with their current businesses, some organizations are comfortable with their current, market niche and any loud strategy may attract the attention of competitors. Retrenchment Strategies Sometimes, companies encounter serious difficulties. When a company’s survival is threatened or when it is not competing effectively, it usually takes time to sit down and review its current situation. There are different modes of dealing with this situation. They are the following: 1. Liquidation is the most radical action takes when the company is losing money and thus, is further compounded by a disinterest on the part of the stockholders to do anything more to save it. In such cases, the business may be terminated and its assets sold. 2. Divestment is implemented when a company consistently fails to reach the set objectives or when the company does not fit well in the organization. Thus, the stockholders would preferably sell it or set is s a separate corporation. 3. A turnaround strategy is adopted when the organization has reached a significant level of non- performance, non-productivity, demoralization, and unprofitability, and therefore has to implement restorative strategies. Organizations in this level have serious problems that may lead to possible closure. Once an organization decides to continue, turnaround strategies are implemented. In a turnaround strategy, the organization should focus on the following areas: climate and culture, products and services, production and operations, and finances. a. Climate and Culture. The toughest and most challenging area for any organization undergoing a turnaround strategy is the climate and culture. Generally, a new chief executive officers comes in and takes over the critical organization. With a generally demoralized and uncertain workforce, employees feel a certain ambiguity ang hesitancy. Aside from job security, they are unsure how the new CEO will mange the organization. Essentially, the strategy is to first study the organization and audit the job description of each of the employees vis-à-vis their functionality in their departments or business units. After in-depth study is done, certain people strategies can be adopted. b. Products and Services. A review of the products offered and services rendered is needed; ask questions like what product/services are marketable in the industry, which of these products and services need some improvements or major redesign, and what distinct features can be introduced to attract buyers., note that some products and services that were once saleable and attractive may eventually lose their customer appeal/ because of rivalries among competitors, these goods may have become obsolete. Dysfunctional, too expensive, of low quality and therefore, not competitive. When the organization gives due and serious attention to these concerns, the product/service competitiveness aspect would have been half addressed. c. Production and Operation. In the implementation od turnaround strategies, this is the easiest phase to sort out and manage. The CEO can look into the processes of the organization, determine which processes are redundant and defective, and undertake piecemeal improvements. Questions asked will include finding out whether the processes are lean and efficient, whether there is a need 25  to conduct facility, equipment, production, and operation review, whether the percentage of wastes, rejects, and downtime is high, and whether cycle time is high or very high. Once the organization competently reviews and addresses these areas, financial savings can easily be generated. d. Infrastructure. Turnaround strategies can easily achieve significant improvements when the infrastructure is correctly assessed and appropriate interventions are introduced or reinforced. Technology is the best infrastructure strategy that can bring about radical improvements. An organization seeking to turn itself around can look at its structure and system and implement needed step-ups and enhancement. e. Finances. When an organization needs a turnaround strategy, it is because its finances are waving a “red flag”. This may mean that the organization is losing money or is marginally profitable, causing concerns to investors. Once the aspect of climate and culture, products and services, production and operations, and infrastructure have been adequately confronted and substantial interventions have been successfully implemented, the financial aspects will take care of itself. CHAPTER 5 CORPORATE STRATEGIES Integrative Growth Strategies 26  Integrative growth strategies, which are essentially external growth strategies, involve investing to resources of the organization in another company or business to achieve growth goals. Integrative growth strategies are essentially acquisition strategies. Types of integrative growth strategies include horizontal integration and vertical integration. The two types of vertical integration are backward integration and forward integration. 1. Horizontal integration is a strategy where the organization acquires another competing business. There are varied reasons for undertaking horizontal integration. First, organizations may employ horizontal integration to eliminate real or potential competitors because some competitors can present themselves as deadly threats to organization. For example, Jollibee purchased Mang Inasal for fear of losing their market share in the fast-food industry. 2. Vertical integration is the process of consolidating into an organization other companies involved in all aspects of a product’s or a service’s process from raw materials to distribution. It is integrated growth strategy adopted by an organization to gain control over its suppliers and distributors, increase the company’s market share, minimize transaction and inventory costs, and ensure adequate stocks in the retail stores. Vertical integration can either be backward or forward. a. Backward integration is another integrated acquisition growth strategy where the organization buys one of its suppliers. An organization may carry backward integration to better control its supply chain and ensure a more reliable or cost-effective supply of input. Furthermore, the organization can eliminate inefficiencies to secure quality output or according to set conformance standards. The organization can apply product and process strategies so that the right products are produced and the right service are rendered at the right time. Effective backward integration can help increase the profitability of an organization and thus, create competitive advantage. For example, if Nokia is a manufacturer of mobile phones, it can buy its supplier of phone cases. b. Forward integration is carried out when the organization buys distribution companies that are part of its distribution chain. In effect, the organization is able to remove the intermediary, thus, eliminating distribution costs. Forward integration allows an organization to reinvent its marketing outlook and redesign its marketing strategies. For example, an organization engaged in garment manufacturing can buy retail outlets that are displaying and selling their clothing lines to help increase their sales. The Boston Consulting Group Model The Boston Consulting Group Growth-Share Paradigm started to make its impact on corporate strategy in the early 1970’s. the BGC model was developed by Bruce Henderson of the Boston Consultant Group. This model classifies the products or business units of an organization in terms of two parameters, namely, market share and market growth, in relation to the marketing leader. Market share is the relative sales percentage of a company in relation to the total sales percentage of the market in consideration. This metric value gives a general idea of how the company stands with respect to the market and its competitors. Thus, Company X can have a low market share (5%) or a high market share (80%) of hamburger sales in relation to its competitors. 27  On the other hand, market growth refers to an increase in demand over time. It may be high or low. The BCG Model illustrate four broad categories in relation to market share (low, high) and market growth (low, high). Thus, we have the following:  A high market share in a high market growth defines stars. They are the markets leaders and if the market continuous to grow, they are likely to become cash cows.  A high market share in a low market growth defines cash cows. Since they are the market leaders in a mature market growth, establishing a competitive advantage can generate a lot of cash flow and bring about high profit margins.  A low market share in a high market growth defines question marks. This essentially new products need promotional strategies.  A low market share in a low market growth defines dogs. They should essentially be minimized, if not avoided. They can be expensive to the company. The General Electric Model McKinsey conceptualized the General Electric (GE) Model for the company. This model is an improvement of the BCG Model. It is used to assess the strength of a strategic business unit (SBU) of an organization. It takes into consideration two parameters to determine the overall strength of an SBU. These parameters are market attractiveness and business strength. Global Strategies In some instances, organizations pursue global strategies for external business expansion. Global strategies cover three main areas: international, multinational, and global. Companies who might want to sell their excess products outside their home markets pursue international strategies. A company is said to be doing international business although its focus is the home market. On the other hand, a company can engage in multinational strategies when it is involved in a number of markets outside the home country. The challenge in undertaking multinational strategies is to sell competitive and distinct products and services that are suited to the customer demands of different countries. Thus, strategy in one country may vary in another, depending on customer expectations. In global strategies, the company treats or considers the world as a whole, one market and one source of supply with slight local variations. Benefits of Global Strategies Pursuing global strategies can be beneficial to companies. Given a larger market for its products, companies can enjoy larger sales and earnings. They can benefit from the global branding of their products and services, not to mention, the earnings from economies of scale. Higher production volume with efficiency increases savings and creates greater advantage for companies. Sourcing of labor can be studied to optimize labor costs. Resources Required 28  In building a global strayed, certain resources are necessary to establish a level of competitiveness. They are:  substantial capitalization because funding requirements can be demanding;  managerial and strategic leadership to be able to come up with the best strategies for success;  expertise and capabilities on the part of management and employees; and  quality and differentiated products and services. Chapter 6 ORGANIZATIONAL SYSTEMS 29 Organizational Structure Organizational structure refers to the system or mode by which a group of individuals is able to achieve its desired goals. The organizational structure of an organization/company is subject to many factors like technological breakthroughs by competitors, changes in customer lifestyles, and those that are environmental in nature. Management, employees, suppliers, customers, government, and society are examples of internal factors that significantly affect organizations one way or another. Suffice it to say, servicing and product companies need to be dynamic to stay in readily to unstable conditions. Types of Organizational Structures Functional Organizational Structures Organizations adopt a specific structural arrangement for a reason. Structuring an organization effectively requires that the management should know the goals of the organization, the skills of its people, the needs and goals of its subordinates, the available resources, and the time, costs, and environmental constraints that are existing. Similarly, it requires management to bring together the human, technical, marketing, and financial resources of the organization. Territorial Organizational Structure As an organization begins to serve its customers who are spread over a growing geographical area, a territorial structure becomes a viable design. In this system, the target market is divided into geographical units according to certain criteria. Territorial structural arrangements have several advantages. First, personnel familiar with the history of customers in the area, their culture, their preferences, expectations, and habits of living can cultivate the local markets. Second, the company and its sales force can respond quickly to changes in the competitive environment. Third, there is closer contact between managers familiar with the territory and their subordinates. Finally, because management is familiar with local conditions, it can make quicker strategic decisions. Product Organizational Structure Traditionally, organizational divisions follow a product structure. In some companies, the sub- businesses are assigned to product group managers, each of them are given key operating and staff functions. As long as the product, markets, and customers are diverse and mutually exclusive, there is no limit to the number of product management system used. When different types of products are involved, divisions are likely to include research and development and engineering departments. These allow managers to operate independently. They are responsible for both current and future decisions about the product market since the long-term goal is to increase and not just to maintain the current market. Market-Centered Organizational Structure Companies can structure their businesses to fit their markets. A market-centered organizational structure describes the wide range of structural forms that center on a group of customer needs rather than a 30 region, product line, or function. A market-centered organization is decentralized by market. A market center is a profit center. Organizations in the following situations are suited for the market-centered structure. SBU Organizational Structure This division structure raises the issue of whether any marketing functions should be performed at the corporate staff level. Some companies maintain a minimum marketing services structure at the corporate level. For example, market research, advertising, and media planning services are provided to each territorial division in Luzon, Visiyas, and Mindanao from a corporate staff group in Manila. The decision, whether to maintain some corporate-level marketing staff services or otherwise, depends primarily on the size of the division. Matrix Organizational Structure A matrix is any organization that employs a multiple “boss” arrangement. For example, a person can have two bosses, one for functional and the other for product. Matrix structures have been adopted in manufacturing, service, professional, and non-profit organizations. A marketing specialist is a member of two units, one of which is more or less a permanent home and the second is a temporary home. Thus, the matrix structure combines the idea of specialized departments with the idea of self-sufficient and somewhat autonomous units. Choice of an Organizational Structure  Size of the Firm. Generally speaking, the size of the firm will indicate the complexity of its organization. A firm producing and selling in a restricted territory may find the functional organization the best form for their purposes, whereas a larger firm which produces several products sells to a wider market mat opt for a regional form of organization to maximize selling efforts.  The Products. The nature of the product or products to be sold is another factor that influences the choice of an organizational structure. Consumer and industrial goods may require different types or services from the producer. Some products require extensive after-sale servicing to customers and the marketing organizational structure can take care of this task.  The Market. Characteristics of the market like dispersion, income class, and buyer behavior need to be considered in organizing the marketing unit. If markets are contracted, the stakeholders may find it easier to sell directly to the consumers. If markets are dispersed, or if consumers buy in small quantities which does not justify direct sales, then the producer may opt to use intermediaries. Thus, the producers’ efforts will be concentrated on selecting middlemen and devising ways to assist them rather than supervising total sales operation.  Competition. A firm may find it necessary to organize its marketing efforts following the requirements of competition. If a major competitor uses an existing pattern of distribution, the firm may find it necessary to accommodate such a pattern. If brand name merchandising is an established feature of a particular industry, like ready-to-wear denim jeans, then the newcomer may have to strive to establish his own brand. If a change in organizational structure proves to be successful in an already established firm, then other firms may imitate such change. 31   Philosophy of Management. A final factor that affects the structure of an organization is the management philosophy prevailing in the company. In each case, the structure if the business unit differs. Some companies are more business-oriented than others and will have a business unit that is involved in a wider scope of activities. In addition, if management firmly believes in centralization rather than in decentralization, then most of the responsibilities will be borne by the home office rather than by district or regional offices. Evaluation of an Organizational Structure A number of criteria may be used in evaluating organizational structure. These criteria include the ability organizational structure of facilitate control, draw coordination among the employees, provide information, compute for the costs involved, and adopt a culture of flexibility.  Facilitating Control. Control in an organization involves a comparison of actual performance with pre-established standards or plans. If the organization structure enables a manager to identify problem situations and take necessary corrective actions, then the firm may be said to have a control mechanism. If each person clearly understands the scope of his authority and areas of responsibility, and if the organization provides suitable channels for communication, then the company has a solid framework for management control.  Coordination. The coordination of individual actions is often called team effort. A firm employing several specialist and line officers at different levels may still produce ineffective results if efforts are not properly coordinated. The presence of effective teamwork is usually indicative of an efficient and well-organized marketing operation.  Providing information. Because markets are dynamic and subject to change, it is essential for mangers to gather information in order to anticipate changes and make decisions accordingly. A good organization should have an adequate information system and proper channels through which information flows.  Cost of the System. A firm can choose from the simplest to the most complex type of organization. However, it has to strike a balance among three important factors—the organizational information it desires, the organizational control it wishes to employ, and the costs of organizing its personnel. The number of people employed in marketing management is not a criterion of the efficiency of the organization. Theoretically, an optimum size produces the greater efficiency for the marketing management team for each firm. Inefficiency may result form overstaffing, as well as from understaffing. It is the responsibility of the organization. A basic procedure in this evaluation is to weigh the performance against its costs.  Flexibility. To be able to cope with the dynamic and changing environment, the firm should have an organization that can adjust to changes. Flexibility in necessary to attain good performance. Peter Ducker (1954) in his book The Practice of Management, identifies criteria for evaluating organizational strategies. These criteria are clarity which reflects the individual’s needs to understand his tasks and the group’s tasks, personal relationships within the group, and the availability of information. Economy, in the effort to control supervise, and motivate people, will minimize the allocation of resources to management activities. Organizational Components 32  An organization is an entity composed of people that is structured and managed in such a way that it is able to achieve its set goals and objectives. An organization generally consists of elements that act and work together through coordinated activities. The organizational components are the management, employees, facilities and equipment, financial resources, and organizational policies. Management refers to the administrative supervision of an organization. It includes leadership, the organization’s vision-mission, goals, and objectives to attain organizational success.  Leadership is foremost in the management of any business. A good leader, regardless of whether he owns or works for the organization, is someone who inspires his employees and stretches them to their optimum productivity. He is the prime mover and is expected to lead his employees in the attainment of the organization’s set goals. Tasks of a Leader: planning where he sets the objectives to be attained and the means to achieve them; organizing where he identifies, divides, groups, and coordinates various activities to achieve set goals; staffing where he recruits, select, hires, and develops human resources; directing where he leads and communicates with his employees to attain objectives; controlling where he monitors processes and function; and institutes corrective actions when needed. Roles of a Leader: a strategist, a facilitator, and an administrator; a leader who inspire and motivates his employees to attain quality and productivity; an information man who understands critical facts, issues, problems, and other concerns about the industry and the business environments; a conceptualizer who concretizes the vision, mission, and plans of the enterprise in accordance to set goals and objectives; a liaison officer who serves as conduit for the employees who belong to different business units or groups; a mediator who settles concerns, issues, and other problems between labor and management; a facilitator who negotiates the allocation of resources; a delegator who assigns responsibilities, empowers employees, and monitors them periodically and efficiently; a problem-solver who tackles organizational concerns and provides adequate solutions; and a decision-maker who makes appropriate decisions, both qualitative and quantitative, and as needed by the organization. Skills of a Leader: technical skills or being competent in his respective field to play his role adequately and to perform his tasks effectively; human relations skills or being adept in dealing with personal and interpersonal employee relationships; and other skills required to attain organizational success.  Vision refers to the image that the organization aims to establish and project to both its employees and the public while mission refers to the purpose of the organization. This is explicitly stated in the mission statement of the organization. On the other hand, goals and objectives refer to what the organization aims to attain. Goals are general, macro, and long-term in nature, whereas objectives are specific, micro, and short-term. More specifically, organizational objectives should possess the following qualities: immediate or short-term, prioritized, carefully chosen and specific, attainable, flexible, quantifiable, if possible, consistent, aligned to the vision-mission of the organization, and realistic. Employees 33  Aside from the management, employees constitute a significant part of the organizational milieu. They are the very people who work, support, and earn profits for the organization. They are found in all levels, performing tasks ranging from the sophisticated to the difficult, practical, and odd ones. They work in the different function areas of marketing, finance, and production whether formally or informally structured. Employee Relationship  Employee Satisfaction. It is an emotional state where the employee experiences a feeling of content in the workplace. Any or all of the following generally bring employee satisfaction: acceptable salary, fringe benefits and incentives, positive interpersonal relationship between and among management and employees, and acceptable conditions in the workplace. Thus, an employee is generally said, “to be satisfied with his job”.  Employee Involvement. Satisfied with his work conditions, an employee may graduate to a higher level of organizational relationship called employee involvement. He becomes more participative in company activities and essentially aims to contribute to the growth of the company.  Employee Commitment. This degree of employee relationship is further heightened when the employee reaches the highest level that is employee commitment. Here, the employee cultivates within himself an attitude and a “sense of owning” where he treats the interests and welfare of the enterprise as if he owns it. Facilities and Equipment Another important component of the organizational environment is the facilities and equipment. These facilities and equipment may be simple and crude as long as they are functioning and producing the desired output. On the other hand, organizations with sufficient capitalization, use the most sophisticated and the latest machinery and technology. Facilities include management of buildings and site maintenance, management of machinery and