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- 1. CONFIDENTIALBU Strategic Plan Template BookTraining materials 8 June 2001This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.Jim Ayala – PHO Melissa Gil – PHO Regina Manzano – PHO Suresh Mustapha – PHO Steve Shaw – HKO Shelly Yeh – PHO Choon-Gin Tan – SIO
- 2. STRATEGY PLANNING INSTRUCTIONSThe objective of these templates is to provide completeness and consistency of BU strategic plan submissions. These templates are not intended to replace or constrain BU strategic thinking and should be adapted to reflect a particular BU’s sectoral context as required Each section begins with a summary that is based on a synthesis of questions and analyses that follow. The suggested approach would be to first complete the relevant back-up analyses and then work towards the overall synthesis 1
- 3. TABLE OF CONTENTSI. Executive summary II. Environmental and internal assessment A. Industry dynamics and its implications B. Competitive assessment C. Internal assessment III. Strategic definition and implications A. Strategy articulation B. Strategic initiatives C. Financial projection D. Risks/contingencies and strategic alternatives IV. Exhibits2
- 4. BU STRATEGIC PLAN DEVELOPMENTIndustry dynamics and implicationsEnvironmental and internal assessmentCompetitive assessmentInternal assessmentWhat are the major changes in industry dynamics and resulting opportunities and risks?What are your competitive strengths and weaknesses?How does your current business emphasis fit with industry opportunity and competitive landscape?Strategy articulationStrategic definition and implicationsStrategic initiativesFinancial projectionsWhat strategy will your BU pursue over the next 3 years?What will be the impact of major strategic initiatives?What are the expected financial returns of your strategy?++++Risk/contingen-cies & strategic alternativesWhat strategic alternatives have you considered?+3
- 5. I. EXECUTIVE SUMMARYInstructions: The Executive Summary provides a synthesis of the Environmental and Internal Assessments and the resultant BU Strategic Plans4
- 6. II. ENVIRONMENTAL AND INTERNAL ASSESSMENT5
- 7. IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – SUMMARYA. What are the major changes in industry dynamics and the resulting opportunities and risks?A.2 How is industry structure changing (demand, supply, and industry chain economics)? What are the resulting opportunities and risks?A.3 What is the expected competitor conduct? What are the resulting opportunities and risks?A.4 What are the present and future external factors that could present new opportunities and risks?A.1 What industry are you competing in? What are the various segments in the industry?Instructions: The answer to this overarching question requires a recapitulation of the section’s main findingsInstructions: These subsections contain a 1-2 sentence summary of the relevant findings6
- 8. IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 1A.1 What industry are you competing in? What are the various segments in the industry?Industry definition Industry segmentation Definition SizingInstructions: Exhibit 1 could provide a useful framework for answering this question Industry definition:Industry segmentation:7
- 9. IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 2A.2 How is industry structure changing with respect to demand, supply, and industry chain economics? What are the resulting opportunities and risks?Economics of demand By segment Substitutes, ability to differentiate Volatility, cyclicality Economics of supply Producer concentration and diversity Import competition Capacity utilization Entry/exit barriers Cost structure (fixed and variable) Industry chain economics Customer and supplier bargaining powerInstructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question 8
- 10. IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 3A.3 What is the expected competitor conduct? What are the resulting opportunities and risks?Major industry competitor moves Marketing initiatives Industry capacity changes M&As, divestitures Vertical integration/disaggregation Alliances and partnerships Cost control and efficiency improvementsInstructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question 9
- 11. IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 4A.4 What are the present and future external factors that could present new opportunities and risks?Impact and likelihood of major industry discontinuities Changes in regulation/government policy Technological breakthroughsInstructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question 10
- 12. IIB. COMPETITIVE ASSESSMENT – SUMMARYB. What are your competitive strengths and weaknesses?B.1 What are the capabilities required to succeed in this industry?B.2 How do you compare against these necessary capabilities?Instructions: The answer to this overarching question requires a recapitulation of the section’s main findingsInstructions: These subsections contain a 1-2 sentence summary of the relevant findings11
- 13. IIB. COMPETITIVE ASSESSMENT – BACK-UP 1B.1 What are the capabilities required to succeed in this industry?Privileged assets that create competitive advantage, e.g. physical assets, location/”space”, distribution/sales network, intangible assets (intellectual capital, network, brands, talents) Distinctive skills/competencies that create competitive advantage, e.g.innovation, talent developmentInstructions: Exhibit 5 could provide a useful framework for answering this question 12
- 14. IIB. COMPETITIVE ASSESSMENT – BACK-UP 2B.2 How do you compare against these necessary capabilities?Strengths and weaknesses of your competitive position vs. necessary capabilities Benchmark performance against the industry’s relevant key performance indicators (KPIs)*, with margin and market share as the required minimumStrengths and weaknesses of your competitive position vs. necessary capabilities:Benchmark performance against the relevant industry’s KPIs:Instructions: Exhibits 6 and 7 could provide a useful framework for answering this question Instructions: Exhibit 8 could provide a useful framework for answering this question * KPIs are a handful of levers that drive the value of the industry/business13
- 15. IIC. INTERNAL ASSESSMENT – SUMMARYC. How does your current business emphasis fit with the industry opportunities and the competitive landscape?C.1 Which segments of the business are providing the highest returns?C.2 What have been the performance trends along major BU KPIs?C.3 Which intangible assets* could be near-term potential sources of value?Instructions: The answer to this overarching question requires a recapitulation of the section’s main findingsInstructions: These subsections contain a 1-2 sentence summary of the relevant findings * Please refer to Exhibit 12 for further description14
- 16. IIC. INTERNAL ASSESSMENT – BACK-UP 1C.1 Which segments of the business are providing the highest returns?*Relevant BU segments (based on customer, product, geography, channel) Operating contribution estimates for each segmentInstructions: Exhibit 9 could provide a useful framework for answering this question * Based on latest available, 1-2 year historical financial statements15
- 17. IIC. INTERNAL ASSESSMENT – BACK-UP 2C.2 What have been performance trends along major BU KPIs?KPI performance trends over the last 3-5 years, e.g. return on capital employed (ROCE), operating income, margins, capital employed Assessment of underlying trend drivers Expected evolutionInstructions: Exhibits 10 and 11 could provide a useful framework for answering this question ROCE = Operating income x (1- tax rate) All interest bearing debt (short and long) + minority interest + stockholders’ equity 16
- 18. IIC. INTERNAL ASSESSMENT – BACK-UP 3C.3 Which intangible assets could be near-term potential sources of value?Identification of in-house intellectual property, talent, networks, brand/image Conversion into sources of valueInstructions: Exhibit 12 could provide a useful framework for answering this question 17
- 19. III. STRATEGIC DEFINITION AND IMPLICATIONS18
- 20. IIIA. STRATEGY ARTICULATION – SUMMARYA. What strategy will your BU pursue over the next 3 years?A.1 Where to compete?A.2 What is your customer value proposition for the different segments you are going to serve?A.3 What is your business model?Instructions: The answer to this overarching question requires a recapitulation of the section’s main findingsA.4 How does your chosen strategy exploit industry opportunities and address industry/competitive threats?Instructions: These subsections contain a 1-2 sentence summary of the relevant findings19
- 21. IIIA. STRATEGY ARTICULATION – BACK-UP 1A.1 Where to compete?Where are you going to compete along these dimensions and why: Target market Distribution channels Product (breadth and depth) Geographic scopeInstructions: Exhibit 13 could provide a useful framework for answering this question 20
- 22. IIIA. STRATEGY ARTICULATION – BACK-UP 2A.2 What is your customer value proposition for the different segments you are going to serve?Target customer definition Benefits that you will offer the customers Product pricing Position against competition vis-à-vis the benefits provided and the price chargedWho is your target customer? What are the explicit benefits you provide to your customers? What perceived value do you provide to the customer better than competition? How much value do your customers attach to the benefits you provide?21
- 23. IIIA. STRATEGY ARTICULATION – BACK-UP 3A.3 What is your business model?Delivery and communication of customer value proposition (value delivery system) Competitive advantage in delivering these benefits to the customer How will the value proposition be provided and communicated? Which of your BU’s existing strengths can be leveraged? What skills/capabilities do you need to build?Instructions: Exhibit 15 could provide a useful framework for answering this question 22
- 24. IIIA. STRATEGY ARTICULATION – BACK-UP 4A.4 How does your chosen strategy exploit the industry opportunities and address the industry/competitive threats?Industry attractiveness and implication review Alignment of strategy and environmental realitiesInstructions: A review of the section on Industry Dynamics and Implications, together with the frameworks used (Exhibit 2,3 or 4) is useful for answering this question23
- 25. IIIB. STRATEGIC INITIATIVES – SUMMARYB. What will be the impact of major strategic initiatives?B3. How much value will be created from each strategic initiative?B4. What resources will each strategic initiative require?Instructions: The answer to this overarching question requires a recapitulation of the section’s main findingsB1. What major strategic initiatives are required to successfully implement your selected business model?B2. What are the sources of value created from each strategic initiative?Instructions: These subsections contain a 1-2 sentence summary of the relevant findings24
- 26. IIIB. STRATEGIC INITIATIVES – BACK-UP 1B.1 What major strategic initiatives are required to successfully imple-ment your selected business model?Possible strategic initiatives list25
- 27. IIIB. STRATEGIC INITIATIVES – BACK-UP 2B.2 What are the sources of value created from each strategic initiative?Sources of value from each strategic initiative (e.g., EBIT, capital employed)Category of initiativesVolume increaseEBIT impact viaPrice increaseCost reductionOtherInvest-mentCapital employed impact viaDivest-mentCapital efficiency*Other * E.g. improved working capital employment, increased asset utilization, changes to asset ownershipSpecific actionable initiatives26
- 28. IIIB. STRATEGIC INITIATIVES – BACK-UP 3Operating income ongoing impact 2001-2004 PhP millionsCapital employed ongoing impact 2001-2004 PhP billionsPresent operating incomeVolume increasePrice increaseCost reduction benefitAdditional costsTotal ongoing operating incomePresent capital employedImproved capital efficiencyDivestmentsInvestments (capex and acquisitions)Total ongoing capital employedB.3 How much value will be created from each strategic initiative?one-time EBIT impact = one-time costs = Financial impact from each strategic initiative Expected financial outlay for each initiative+++–=+–=–27
- 29. IIIB. STRATEGIC INITIATIVES – BACK-UP 4B.4 What resources will each strategic initiative require?Resources required to make strategy work Availability of resources in the organization Plan for filling resource gapsCategories of initiativesSpecific actionable initiativesPeople/skillsResource requirementsFundingEx-Com involvement28
- 30. IIIC. FINANCIAL PROJECTIONS – SUMMARYC. What are the expected financial returns of your strategy?C.3 What is your expected cash generation ability over the medium term?C.4 What is your expected capital productivity?C.2 What is your projected net income in the next few years?C.1 What are the key assumptions?Instructions: The answer to this overarching question requires a recapitulation of the section’s main findingsInstructions: These subsections contain a 1-2 sentence summary of the relevant findings29
- 31. IIIC. FINANCIAL PROJECTIONS – BACK-UP 1C.1 What are the key assumptions?Profit and loss (e.g. revenues, costs, margin) Balance sheet Corporate center directives Corporate center assumptionsBASE CASEBusiness unit assumptionsRevenues•Market size•Market share•PriceCosts•Input costs•Production costs•Other costs(e.g. SG&A)Margins•Gross margin•OperatingmarginCapital•Plannedinvestments/divestments•Changes inworking capital2002KEY FORECAST ASSUMPTIONS20032004Growth rateCorporate center assumptions200220032004Key economicindicators•GDP growth•Consumerprice index•Exchange rate(PhP/USD)•91-day T-billrateCorporate taxrateInstructions: These are the minimum required assumptions. Feel free to add other assumptions relevant to your BU30
- 32. IIIC. FINANCIAL PROJECTIONS – BACK-UP 2C.2 What is your projected net income in the next few years?Income statement forecastBASE CASEHistoricalSalesCost of goods soldGross profitOperating expensesOperating profitOther expensesTaxesNet profit1999FORECASTED INCOME STATEMENT2000In PhP millionForecast2001**200220032004CAGR1999-2004Growth analysisSales (%)Gross profit (%)Operating profit (%)Net profit (%)Margin analysisGross margin (%)Operating margin (%)Net margin (%)* **Key assumptions not listed earlier should be detailed at the bottom of the chart. The impact of planned initiatives on the revenues and costs should be established clearly with additional attachments if required Best estimates on possible actual results Instructions: These are the minimum required income statement accounts and analyses. Feel free to add other accounts and analyses relevant to your BU31
- 33. IIIC. FINANCIAL PROJECTIONS – BACK-UP 3C.3 What is your expected cash generation ability over the medium term?Cash flow forecastInstructions: These are the minimum required cash flow statement accounts. Feel free to add other accounts relevant to your BUBASE CASEOperating profitDepreciation and amortizationOther non-cash operatingexpensesNet operating cash flowIncrease/(decrease) in workingcapitalOther operating cash flowTotal operating cash flowFORECASTED CASH FLOW STATEMENTHistorical19992000Forecast2001**200220032004CAGR1999-2004Capital expenditureOther investing cash flow itemsTotal investing cash flowIncrease/(decrease) in debtDividendsOther financing cash flowTotal financing cash flowIn PhP millionKey assumptions not listed earlier should be detailed at the bottom of the chart. The impact of planned initiatives on the fixed and working capital investments should be established clearly with additional attachments if required Best estimates on possible actual results * **32
- 34. IIIC. FINANCIAL PROJECTIONS – BACK-UP 4C.4 What is your expected capital productivity?Balance sheet forecast ROCE computationROCE = Operating income x (1- tax rate) All interest bearing debt (short and long) + minority interest + stockholders’ equity Instructions: These are the minimum required balance sheet accounts and analyses. Feel free to add other accounts and analyses relevant to your BUBASE CASECashAccounts receivablesInventoriesOther current assetsTotal current assetsNet fixed assetsOther assetsTotal assetsFORECASTED BALANCE SHEETHistorical19992000Forecast2001*200220032004CAGR1999-2004Accounts payableOther current liabilitiesTotal current liabilities Short-term loansLong-term loansOther liabilitiesTotal liabilitiesMinority interestTotal stockholders’ equityIn PhP millionCapital employedROCETotal liab. & stockholders’ equityRatio analysisWorking capital turnoverDebt-equity ratioBest estimates on possible actual results *33
- 35. IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES– SUMMARYD. What strategic alternatives have you considered?D.1 What are the associated risks to your chosen strategy?D.2 Re-examining industry opportunities and industry/competitive threats, what alternatives exist to your chosen strategy?Instructions: The answer to this overarching question requires a recapitulation of the section’s main findingsD.3 Beyond the 3-year time frame, what breakthrough strategic options may be possible?Instructions: These subsections contain a 1-2 sentence summary of the relevant findings34
- 36. IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 1D.1 What are the associated risks to your chosen strategy?Identification of significant potential risks and plans to mitigate Sensitivity/scenario financial analysisPotential risksBusiness riskRegulatory riskTechnology riskIntegrity riskMacroeconomic riskImpactLikelihoodContingencyOther35
- 37. IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 2D.2 Re-examining industry opportunities and industry/competitive threats, what alternatives exist to your chosen strategy? Where to compete? Value proposition Business model Alignment with external realitiesWhere to compete?: Alternative value proposition: Alternative business model: Alignment with external realities:Instructions: Based on a review of the section on Environmental and Internal Assessment, Strategy Articulation, and the frameworks used (Exhibit 2-4, 13-15), determine other potential strategic alternatives36
- 38. IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 3D.3 Beyond the 3-year time frame, what breakthrough strategic options may be possible?“Out-of-the-box” ideasInstructions: Think radical! Think out-of-the-box!37
- 39. IV. EXHIBITSInstructions: Please include all relevant supporting documentation in this section38
- 40. SEGMENT ANALYSISExhibit 1ILLUSTRATIVEIndustry boundariesSegmentsIndustry segmentsRelatively distinct sub-groupings within the industry Market is relatively similar within the segment but different across segments Different industry dynamics may vary in importance in different segments39
- 41. ProducersIndustrySTechnology breakthroughs Changes in government policy/regulations Domestic InternationalEconomics of demand Availability of substitutes Differentiability of products Rate of growth Volatility/cyclicality Economics of supply Concentration of producers Import competition Diversity of producers Fixed/variable cost structure Capacity utilization Entry/exit barriers Industry chain economics Bargaining power of input suppliers Bargaining power of customersMarketing Pricing Volume Advertising/promotion New products/R&D Distribution Capacity change Expansion/contraction Entry/exit Acquisition/merger/ divestiture Vertical integration Forward/backward integration Vertical joint ventures Long-term contracts Internal efficiency Cost control Logistics Process R&D Organization effectivenessFinance Profitability Value creation Technological progress Employment objectivesExternal shocksFeedbacktructureConductPerformanceSTRUCTURE-CONDUCT-PERFORMANCE (SCP) MODELExhibit 240
- 42. Exhibit 31. Determinants of supplier power Differentiation of inputs Switching costs of suppliers and firms in the industry Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchases in the industry Impact of inputs on cost or differentiation Threat of forward integration relative to threat of backward integration by firms in the industry2. Determinants of barriers to entry Economies of scale Proprietary product differences Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Proprietary learning curve Access to necessary inputs Proprietary, low-cost product design Government policy Expected retaliation5. Rivalry determinants Industry growth Fixed (or storage) cost/value added Intermittent overcapacity Product differences Brand identity Switching costs Concentration and balance Informational complexity Diversity of competitors Corporate stakes Exit barriers3. Determinants of buying power Bargaining leverage Buyer concentration vs. firm concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products Pull-through4. Determinants of substitution threat Relative price performance of substitutes Switching costs Buyer propensity to substitute2. New entrants3. Buyers4. SubstitutesIntensity of rivalry1. SuppliersPrice sensitivity Price/total purchases Product differences Brand Identity Impact on quality perception Buyer profits Decision makers' incentives5. Industry competitors"FORCES AT WORK" FRAMEWORK41
- 43. Opportunities/Threats How are demand and supply expected to evolve? How do you expect the industry chain economics to evolve? What are the potential major industry discontinuities? What competitor actions do you expect?YOUR BUSWOT ANALYSISExhibit 4CONVERT OPPORTUNITIESBUILD ON STRENGTHSNEUTRALIZE THREATSADDRESS WEAK-NESSESStrengths/ Weaknesses What are your BU’s assets/competencies that solidify your competitive position? What are your BU’s assets/competencies that weaken your competitive position? Can be used as a thought starter for competitive analysis and internal assessmentSurfaces potential opportunities/threats arising from factors external to the BU42
- 44. Physical asset Location/"space" Distribution/sales network Brand/reputation Patent Relationship with "license" allocatorBHP’s low-cost mines Telecomm/media company with rights radio spectrum Avon’s representatives Coca-Cola Pharmaceutical company with a "wonder drug” "Favored nation" status with a key minister in liberalizing economyInnovation Cross-functional coordination Market positioning Cost/efficiency management Talent development3M with new products McDonald’s with QSC&V J&J with branded consumer health products Emerson Electric’s Best Cost Producer program P&G brand management programPrivileged assetsDistinctive competenciesNecessary capabilities in order to succeed in the industryExampleCAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE (1/2)Exhibit 543
- 45. CAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE (2/2)ILLUSTRATIVE Step 1: Ensure that these are the capabilities required to succeed in the industry. Use this list as a thought starter, add and delete as you see appropriateBU OverallSegmentsABCStep 2: Assess your overall position relative to the capabilities required to succeed in the industry. Also, determine if these capabilities are relevant to the segments you servePhysical asset Location/"space" Distribution/sales network Brand/reputation Patent Relationship with "license" allocatorInnovation Cross-functional coordination Market positioning Cost/efficiency management Talent developmentPrivileged assetsDistinctive competenciesNecessary capabilities in order to succeed in the industryExhibit 6Extremely relevant Somewhat relevant Irrelevant44
- 46. COMPETITOR CAPABILITY COMPARISONBU OverallCompetitorsABCStep 3: Compare the strengths and weaknesses of your competitive position vs. the necessary skillsPhysical asset Location/"space" Distribution/sales network Brand/reputation Patent Relationship with "license" allocatorInnovation Cross-functional coordination Market positioning Cost/efficiency management Talent developmentPrivileged assetsDistinctive competenciesNecessary capabilities in order to succeed in the industryExhibit 7ILLUSTRATIVE 45
- 47. BENCHMARK PERFORMANCE AGAINST RELEVANT INDUSTRY KPIsExhibit 8ILLUSTRATIVE KPIs (examples)Financial indicators Margin Net income ROCE Operating indicators Advertising effectiveness Utilization rate Strategic indicators Market share Percent of revenue from new products Working capital trend External indicators Market prices of raw materials BUCompetitor ACompetitor BCompetitor C46
- 48. SEGMENT ANALYSISRevenue Gross profit Operating profit Assets employed People employedOperating profit margin Gross profit margin ROCEStep 1: Identify the relevant segments Step 2: Provide a segment analysis based on the following minimum financial metrics: revenue, gross profit and margin, operating profit and margin Step 3: To the extent assets and people can be disaggregated by segment, deployment of assets against returns can be analyzed %PhP% of totalSegment 1PhP% of totalSegment 2PhP% of totalSegment 3PhP% of totalSegment 4PhP% of totalTotalExhibit 9 % % % %Segment 1Segment 2Segment 3Segment 4Total47
- 49. TREND ANALYSIS – RETURN ON CAPITAL EMPLOYED (ROCE)NOT EXHAUSTIVE The ROCE tree can be disaggregated to show the other relevant KPIs of a BUROCE PercentOperating income x (1 - tax rate) PhP millionCapital employed PhP million÷Revenue PhP millionOperating margin Percentx(1 - tax rate) PercentxMarket share PercentIndustry sales PhP millionxExhibit 1048
- 50. TREND ANALYSIS – CASHNOT EXHAUSTIVE The cash flow tree can be disaggregated to show the other relevant KPIs of a BUExhibit 11Cash flow generated PhP millionOperating cash flow PhP millionInvesting cash flow PhP million+Net income PhP millionNon-cash expenses PhP million+Change in working capital PhP million+Financing cash flow PhP million+49
- 51. Exhibit 12INTANGIBLE ASSET CHECKLISTIntangible assetsWays to extract near-term valueTalent Highly motivated and competent workforce leveraging specific skill sets to Generate growth Improve/increase company intangibles Intellectual property Patents generating licensing fees Understanding of customer behavior Risk management Software ILLUSTRATIVE Network Interconnected webs of parties Non-exclusive Additional member lowers costs, increases benefits Brand/image Inherent image or brand built upon excellent service and product offerings Lower search costs for customers 50
- 52. WHERE TO COMPETE?Exhibit 13CustomersChannelsProductsGeographic marketsTarget customers and segments Which customers are you trying to target or attract? Which are you willing to serve, but will not spend resources to attract? Which would you prefer not to serve?How does the entity reach its target customers Which distribution channels will you use? What customer segments can they reach?Geographical scope of business activities Geographic limits to the business? Local, regional, multi-local, national, international, or global player? If local, which localities?Quality and breadth of the product line Breadth of the product line? Quality of the product line? Product bundles or a series of unrelated products?51
- 53. VALUE PROPOSITIONA company’s specific promise to its target customers of the benefits it will provide at an explicit price It answer the following questions: Who is your target customer? What are the explicit benefits you provide to your customer? What perceived value do you provide to the customer better than competition? How much value do your customers attach to the benefits you provide?Exhibit 1452
- 54. BUSINESS MODELExhibit 15Understand value desiresSelect target Chose the value Value propositionDesign product/ processProcure, manu- facture Distri- buteProvide the value ServicePriceDefine benefits/ price Sales messageCommunicate the value Business model: Integrated set of actions to provide and communicate the value proposition to customersSegmentationValue propositionAdver- tisingPromo- tional/PRValue delivery system (VDS)Each BU must address these 2 issues to define their business model Illustration of how the value proposition will be provided and communicated Identification of existing strengths that can be leveraged and required capabilities that need to be built to be distinctive in chosen value delivery system1253
- 55. Categories of initiatives1. Capture greater market shareVolume increaseEBIT impact viaPrice increaseCost reductionOtherInvest-mentCapital employed impact viaDivest-mentCapital efficiency*Otherü2. Cost reduction (e.g., effective channel management)3. Obtain higher prices4. Create new market demand5. Form strategic alliances/ partnershipsüüüüüüüüüüü * E.g. improved working capital employment, increased asset utilization, changes to asset ownershipSpecific actionable initiativesSTRATEGIC INITIATIVES: SOURCES OF VALUEExhibit 16ILLUSTRATIVE 54
- 56. STRATEGIC INITIATIVES: VALUE QUANTIFICATIONExhibit 17ILLUSTRATIVE Estimate of total ongoing operating income and capital employed impact from successful implementation of strategic initiativesOperating income ongoing impact 2001-2004 PhP millionsCapital employed ongoing impact 2001-2004 PhP billionsPresent operating incomeVolume increasePrice increaseCost reduction benefitAdditional costsTotal ongoing operating incomePresent capital employedImproved capital efficiencyDivestmentsInvestments (capex, acquisitions)Total ongoing capital employedone-time operating income impact = one-time costs = +++–=––+=55
- 57. STRATEGIC INITIATIVES: RESOURCING REQUIREMENTSExhibit 18ILLUSTRATIVE Categories of initiativesSpecific actionable initiativesPeople/skillsResource requirementsFundingEx-Com involvement1. Capture greater market share2. Cost reduction3. Achieve higher prices4. Create new market demand5. Form strategic alliances/partnerships56
- 58. DEFINITION OF RISKSExhibit 19DefinitionRisk of loss due to changes in industry and competitive environment, as well as shifts in customer preferences Business riskRisk due to changes in regulatory environment (e.g. deregulation)Regulatory riskRisk due to major changes in technologyTechnology riskRisk of failures due to business processes and operations or people’s behavior, either intentional (e.g. fraud) or unintentional (e.g. errors)Integrity riskRisk of loss due to changes in the political, social, or economic environmentsMacroeconomic risk57
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