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CONFIDENTIAL

BU Strategic Plan Template Book


Jim Ayala PHO Melissa Gil PHO Regina Manzano PHO Suresh Mustapha PHO Steve Shaw HKO Shelly Yeh PHO Choon-Gin Tan SIO Training materials 8 June 2001
This 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.

STRATEGY PLANNING INSTRUCTIONS

The 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 BUs 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

TABLE OF CONTENTS

I. 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. Exhibits

BU STRATEGIC PLAN DEVELOPMENT


Environmental and internal assessment Industry dynamics and implications Strategic definition and implications

What are the major


changes in industry dynamics and resulting opportunities and risks?

What strategy will your BU


Strategy articulation
pursue over the next 3 years?

What are your competitive


Competitive assessment

What will be the impact of


Strategic initiatives

strengths and weaknesses?

major strategic initiatives?

How does your current


Internal assessment business emphasis fit with industry opportunity and competitive landscape? Financial projections

What are the expected


financial returns of your strategy?

+
Risk/contingencies & strategic alternatives

What strategic alternatives


have you considered?

I. EXECUTIVE SUMMARY
Instructions: The Executive Summary provides a synthesis of the Environmental and Internal Assessments and the resultant BU Strategic Plans

II. ENVIRONMENTAL AND INTERNAL ASSESSMENT

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS SUMMARY


A. What are the major changes in industry dynamics and the resulting opportunities and risks?

Instructions: The answer to this overarching question requires a recapitulation of the sections main findings
A.1 What industry are you competing in? What are the various segments in the industry?
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? 6

Instructions: These subsections contain a 1-2 sentence summary of the relevant findings

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS BACK-UP 1


A.1 What industry are you competing in? What are the various segments in the industry? Industry definition:
Industry definition Industry segmentation
Definition Sizing

Instructions: Exhibit 1 could provide a useful framework for answering this question

Industry segmentation:

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS BACK-UP 2


A.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 power

Instructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS BACK-UP 3


A.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 improvements

Instructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS BACK-UP 4


A.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 breakthroughs

Instructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question

10

IIB. COMPETITIVE ASSESSMENT SUMMARY


B. What are your competitive strengths and weaknesses? Instructions: The answer to this overarching question requires a recapitulation of the sections main findings

B.1 What are the capabilities required to succeed in this industry?

B.2 How do you compare against these necessary capabilities?

Instructions: These subsections contain a 1-2 sentence summary of the relevant findings

11

IIB. COMPETITIVE ASSESSMENT BACK-UP 1


Privileged assets that create competitive advantage, e.g. physical assets, location/space,

B.1 What are the capabilities required to succeed in this industry?

Distinctive skills/competencies that create competitive advantage, e.g.innovation, talent


development

distribution/sales network, intangible assets (intellectual capital, network, brands, talents)

Instructions: Exhibit 5 could provide a useful framework for answering this question

12

IIB. COMPETITIVE ASSESSMENT BACK-UP 2


B.2 How do you compare against these necessary capabilities?
Strengths and weaknesses of your competitive position vs. necessary capabilities Benchmark performance against the industrys relevant key performance indicators (KPIs)*,
with margin and market share as the required minimum

Strengths and weaknesses of your competitive position vs. necessary capabilities:

Instructions: Exhibits 6 and 7 could provide a useful framework for answering this question
Benchmark performance against the relevant industrys KPIs:

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/business 13

IIC. INTERNAL ASSESSMENT SUMMARY


C. How does your current business emphasis fit with the industry opportunities and the competitive landscape? Instructions: The answer to this overarching question requires a recapitulation of the sections main findings

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?
* Please refer to Exhibit 12 for further description 14

Instructions: These subsections contain a 1-2 sentence summary of the relevant findings

IIC. INTERNAL ASSESSMENT BACK-UP 1


Relevant BU segments (based on customer, product, geography, channel) Operating contribution estimates for each segment

C.1 Which segments of the business are providing the highest returns?*

Instructions: Exhibit 9 could provide a useful framework for answering this question

* Based on latest available, 1-2 year historical financial statements 15

IIC. INTERNAL ASSESSMENT BACK-UP 2


KPI performance trends over the last 3-5 years, e.g. return on capital employed (ROCE),
operating income, margins, capital employed

C.2 What have been performance trends along major BU KPIs?

Assessment of underlying trend drivers Expected evolution

ROCE = Operating income x (1- tax rate) All interest bearing debt (short and long) + minority interest + stockholders equity

Instructions: Exhibits 10 and 11 could provide a useful framework for answering this question

16

IIC. INTERNAL ASSESSMENT BACK-UP 3


C.3 Which intangible assets could be nearterm potential sources of value?
Identification of in-house intellectual property, talent, networks, brand/image Conversion into sources of value

Instructions: Exhibit 12 could provide a useful framework for answering this question

17

III. STRATEGIC DEFINITION AND IMPLICATIONS

18

IIIA. STRATEGY ARTICULATION SUMMARY


A. What strategy will your BU pursue over the next 3 years?

Instructions: The answer to this overarching question requires a recapitulation of the sections main findings

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: These subsections contain a 1-2 sentence summary of the relevant findings

A.4 How does your chosen strategy exploit industry opportunities and address industry/competitive threats?

19

IIIA. STRATEGY ARTICULATION BACK-UP 1


Where are you going to compete along these dimensions and why: Target market Distribution channels Product (breadth and depth) Geographic scope

A.1 Where to compete?

Instructions: Exhibit 13 could provide a useful framework for answering this question

20

IIIA. STRATEGY ARTICULATION BACK-UP 2


A.2 What is your customer value proposition for the different segments you are going to serve? Who is your target customer?
Target customer definition Benefits that you will offer the customers Product pricing Position against competition vis--vis the benefits provided and the price charged

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

IIIA. STRATEGY ARTICULATION BACK-UP 3


Delivery and communication of customer value proposition (value delivery system) Competitive advantage in delivering these benefits to the customer

A.3 What is your business model?

How will the value proposition be provided and communicated?

Instructions: Exhibit 15 could provide a useful framework for answering this question

Which of your BUs existing strengths can be leveraged? What skills/capabilities do you need to build?

22

IIIA. STRATEGY ARTICULATION BACK-UP 4


A.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 realities

Instructions: 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 question

23

IIIB. STRATEGIC INITIATIVES SUMMARY


B. What will be the impact of major strategic initiatives? Instructions: The answer to this overarching question requires a recapitulation of the sections main findings
B1. 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?

B3. How much value will be created from each strategic initiative?

Instructions: These subsections contain a 1-2 sentence summary of the relevant findings

B4. What resources will each strategic initiative require?

24

IIIB. STRATEGIC INITIATIVES BACK-UP 1


B.1 What major strategic initiatives are required to successfully implement your selected business model?
Possible strategic initiatives list

25

IIIB. STRATEGIC INITIATIVES BACK-UP 2


Sources of value from each strategic initiative (e.g., EBIT, capital employed)

B.2 What are the sources of value created from each strategic initiative?

Category of initiatives

EBIT impact via Specific actionable Volume Price initiatives increase increase

Cost reduction

Other

Capital employed impact via Invest- Divest- Capital ment ment efficiency*

Other

* E.g. improved working capital employment, increased asset utilization, changes to asset ownership 26

IIIB. STRATEGIC INITIATIVES BACK-UP 3


B.3 How much value will be created from each strategic initiative?
Financial impact from each strategic initiative Expected financial outlay for each initiative

Operating income ongoing impact 2001-2004 PhP millions + + +

= one-time EBIT impact =

one-time costs = Present operating income Volume increase Price increase Cost reduction benefit Additional costs Total ongoing operating income

Capital employed ongoing impact 2001-2004 PhP billions

Present capital employed

Improved capital Divestments efficiency

Investments (capex and acquisitions)

Total ongoing capital employed

27

IIIB. STRATEGIC INITIATIVES BACK-UP 4


B.4 What resources will each strategic initiative require?
Resources required to make strategy work Availability of resources in the organization Plan for filling resource gaps

Categories of initiatives

Specific actionable initiatives

Resource requirements People/skills Funding

Ex-Com involvement

28

IIIC. FINANCIAL PROJECTIONS SUMMARY


C. What are the expected financial returns of your strategy?

Instructions: The answer to this overarching question requires a recapitulation of the sections main findings

C.1 What are the key assumptions? C.2 What is your projected net income in the next few years? C.3 What is your expected cash generation ability over the medium term?
C.4 What is your expected capital productivity?

Instructions: These subsections contain a 1-2 sentence summary of the relevant findings

29

IIIC. FINANCIAL PROJECTIONS BACK-UP 1


Profit and loss (e.g. revenues, costs, margin) Balance sheet Corporate center directives Corporate center assumptions

C.1 What are the key assumptions?

KEY FORECAST ASSUMPTIONS


Business unit assumptions 2002 Revenues Market size Market share Price Costs Input costs Production costs Other costs (e.g. SG&A) Margins Gross margin Operating margin Capital Planned investments/ divestments Changes in working capital 2003 2004 Growth rate

BASE CASE Corporate center assumptions 2002 Key economic indicators GDP growth Consumer price index Exchange rate (PhP /USD ) 91-day T-bill rate Corporate tax rate 2003 2004

Instructions: These are the minimum required assumptions. Feel free to add other assumptions relevant to your BU

30

IIIC. FINANCIAL PROJECTIONS BACK-UP 2


Income statement forecast

C.2 What is your projected net income in the next few years?

FORECASTED INCOME STATEMENT


In PhP million
Historical 1999 Sales Cost of goods sold Gross profit Operating expenses Operating profit Other expenses Taxes Net profit Growth analysis Sales (%) Gross profit (%) Operating profit (%) Net profit (%) Margin analysis Gross margin (%) Operating margin (%) Net margin (%) 2000 Forecast 2001** 2002 2003 2004

BASE CASE

CAGR 1999-2004

Instructions: These are the minimum required income statement accounts and analyses. Feel free to add other accounts and analyses relevant to your BU

* 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

31

IIIC. FINANCIAL PROJECTIONS BACK-UP 3


Cash flow forecast

C.3 What is your expected cash generation ability over the medium term?

FORECASTED CASH FLOW STATEMENT


In PhP million
Historical Forecast

BASE CASE CAGR 1999-2004

1999
Operating profit Depreciation and amortization Other non-cash operating expenses Net operating cash flow Increase/(decrease) in working capital Other operating cash flow Total operating cash flow Capital expenditure Other investing cash flow items Total investing cash flow

2000

2001** 2002

2003

2004

Instructions: These are the minimum required cash flow statement accounts. Feel free to add other accounts relevant to your BU

Increase/(decrease) in debt Dividends Other financing cash flow Total financing cash flow
* Key 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

IIIC. FINANCIAL PROJECTIONS BACK-UP 4


Balance sheet forecast ROCE computation

C.4 What is your expected capital productivity?

ROCE = Operating income x (1- tax rate) All interest bearing debt (short and long) + minority interest + stockholders equity
BASE CASE Forecast 2001* 2002 2003 2004 CAGR 1999-2004

FORECASTED BALANCE SHEET


In PhP million
Historical 1999 Cash Accounts receivables Inventories Other current assets Total current assets Net fixed assets Other assets Total assets Accounts payable Other current liabilities Total current liabilities Short-term loans Long-term loans Other liabilities Total liabilities Minority interest Total stockholders equity Total liab. & stockholders equity Ratio analysis Working capital turnover Debt-equity ratio Capital employed ROCE
*
Best estimates on possible actual results

2000

Instructions: These are the minimum required balance sheet accounts and analyses. Feel free to add other accounts and analyses relevant to your BU

33

IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES SUMMARY


D. What strategic alternatives have you considered?

Instructions: The answer to this overarching question requires a recapitulation of the sections main findings

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? D.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 findings

34

IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES BACK-UP 1


Identification of significant potential risks and plans to mitigate Sensitivity/scenario financial analysis

D.1 What are the associated risks to your chosen strategy?

Potential risks

Impact

Likelihood

Contingency

Business risk Regulatory risk Technology risk Integrity risk Macroeconomic risk Other

35

IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES BACK-UP 2


D.2 Re-examining industry opportunities and industry/competitive threats, what alternatives exist to your chosen strategy? Where to compete?:
Where to compete? Value proposition 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 24, 13-15), determine other potential strategic alternatives

Alternative value proposition:

Alternative business model:

Alignment with external realities:

36

IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES BACK-UP 3


D.3 Beyond the 3-year time frame, what breakthrough strategic options may be possible?
Out-of-the-box ideas

Instructions: Think radical! Think out-of-the-box!

37

Instructions: Please include all relevant supporting documentation in this section

IV. EXHIBITS

38

Exhibit 1

SEGMENT ANALYSIS

ILLUSTRATIVE
Industry segments

Industry boundaries Segments

Relatively 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 segments

39

Exhibit 2

STRUCTURE-CONDUCT-PERFORMANCE (SCP) MODEL


Industry Producers

External shocks

tructure

onduct

erformance

Feedback

Technology
breakthroughs Changes in government policy/regulations Domestic International

Economics 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 customers

Marketing 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 effectiveness

Finance Profitability Value creation Technological progress Employment objectives

40

Exhibit 3

"FORCES AT WORK" FRAMEWORK


1. 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 industry
2. 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 retaliation

2. New entrants

5. Industry competitors 1. Suppliers Intensity of rivalry


5. 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 barriers

3. Buyers
3. 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-through Price sensitivity Price/total purchases Product differences Brand Identity Impact on quality perception Buyer profits Decision makers' incentives

4. Substitutes

4. Determinants of substitution threat Relative price performance of substitutes Switching costs Buyer propensity to substitute

41

Exhibit 4

SWOT ANALYSIS
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?

NEUTRALIZE THREATS

BUILD ON STRENGTHS Strengths/ Weaknesses What are your BUs assets/competencies that solidify your competitive position? What are your BUs assets/competencies that weaken your competitive position?

YOUR BU

CONVERT OPPORTUNITIES

ADDRESS WEAKNESSES

Surfaces potential opportunities/threats arising from factors external to the BU

Can be used as a thought starter for competitive analysis and internal assessment
42

Exhibit 5

CAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE (1/2)


Example Physical asset Location/"space" Privileged assets Distribution/sales network Brand/reputation Patent Necessary capabilities in order to succeed in the industry Avons representatives Coca-Cola Pharmaceutical company with a "wonder drug "Favored nation" status with a key minister in liberalizing economy BHPs low-cost mines Telecomm/media company with rights radio spectrum

Relationship with "license" allocator

Innovation Distinctive competencies Cross-functional coordination Market positioning Cost/efficiency management Talent development

3M with new products McDonalds with QSC&V J&J with branded consumer health products Emerson Electrics Best Cost Producer program P&G brand management program

43

Exhibit 6

CAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE (2/2)

ILLUSTRATIVE

Extremely relevant Somewhat relevant Irrelevant

Segments BU Overall Physical asset Location/"space" Privileged assets Distribution/sales network Brand/reputation Necessary capabilities in order to succeed in the industry Patent Relationship with "license" allocator Innovation Cross-functional coordination Distinctive competencies Market positioning Cost/efficiency management Talent development 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 appropriate Step 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 serve 44 A B C

Exhibit 7

COMPETITOR CAPABILITY COMPARISON

ILLUSTRATIVE

Competitors BU Overall Physical asset A B C

Location/"space"
Privileged assets Distribution/sales network Brand/reputation Necessary capabilities in order to succeed in the industry Patent Relationship with "license" allocator Innovation Cross-functional coordination

Distinctive competencies

Market positioning

Cost/efficiency management
Talent development Step 3: Compare the strengths and weaknesses of your competitive position vs. the necessary skills

45

Exhibit 8

BENCHMARK PERFORMANCE AGAINST RELEVANT INDUSTRY KPIs


ILLUSTRATIVE
KPIs (examples) Financial indicators Margin Net income ROCE BU Competitor A Competitor B Competitor C

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

46

Exhibit 9

SEGMENT ANALYSIS
Segment 1 PhP Revenue Gross profit Operating profit Assets employed People employed % of total Segment 2 PhP % of total Segment 3 PhP % of total Segment 4 PhP % of total Total PhP

% of total

Step 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

Segment 1 % Operating profit margin Gross profit margin ROCE

Segment 2 %

Segment 3 %

Segment 4 %

Total %

Step 3: To the extent assets and people can be disaggregated by segment, deployment of assets against returns can be analyzed
47

Exhibit 10

TREND ANALYSIS RETURN ON CAPITAL EMPLOYED (ROCE)


Operating income x (1 - tax rate) PhP million
60 40 20 0 '96 '97 '98 '99 '00

NOT EXHAUSTIVE
Market share Percent
15 10 5 0

Revenue PhP million


1,500 1,000 500 0 '96 '97 '98 '99 '00

'96

'97

'98

'99

'00

x Industry sales PhP million


15,000 10,000 5,000 0 '96 '97 '98 '99 '00

ROCE Percent
20 10 0 '96 '97 '98 '99 '00

x Operating margin Percent


16 14 12 '96 '97 '98 '99 '00

(1 - tax rate) Percent


34 33 32 31 '96 '97 '98 '99 '00

Capital employed PhP million


600 400 200 0 '96 '97 '98 '99 '00

The ROCE tree can be disaggregated to show the other relevant KPIs of a BU

48

Exhibit 11

TREND ANALYSIS CASH


Operating cash flow PhP million
60 40 20 0 '96 '97 '98 '99 '00

NOT EXHAUSTIVE
Net income PhP million
1,500 1,000 500 0 '96 '97 '98 '99 '00

+ Non-cash expenses PhP million

Cash flow generated PhP million


600 400 200 0 '96 '97 '98 '99 '00

60 40 20 0 '96 '97 '98 '99 '00

+ Investing cash flow PhP million


60 40 20 0 '96 '97 '98 '99 '00

Change in working capital PhP million


34 33 32 31 '96 '97 '98 '99 '00

+ Financing cash flow PhP million


60 40 20 0 '96 '97 '98 '99 '00

The cash flow tree can be disaggregated to show the other relevant KPIs of a BU

49

Exhibit 12

INTANGIBLE ASSET CHECKLIST


Intangible assets Intellectual property Patents generating licensing fees Understanding of customer behavior Risk management Software

ILLUSTRATIVE
Ways to extract near-term value

Talent Highly motivated and competent workforce leveraging specific skill sets to Generate growth Improve/increase company intangibles

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

Exhibit 13

WHERE TO COMPETE?
Target 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? Customers Geographical scope of business activities Geographic limits to the business? Local, regional, multilocal, national, international, or global player? If local, which localities?

Geographic markets

Channels

How does the entity reach its target customers Which distribution channels will you use? What customer segments can they reach?

Products 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

Exhibit 14

VALUE PROPOSITION

A companys 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?

52

Exhibit 15

BUSINESS MODEL
Value proposition
Chose the value
Understand value desires Select target Define benefits/ price Design product/ process

Value delivery system (VDS)


Provide the value
Procure, manufacture Distribute

Communicate the value


Sales message Advertising Promotional/PR

Service

Price

Segmentation

Value proposition

Business model: Integrated set of actions to provide and communicate the value proposition to customers Each BU must address these 2 issues to define their business model 1 Illustration of how the value proposition will be provided and communicated 2 Identification of existing strengths that can be leveraged and required capabilities that need to be built to be distinctive in chosen value delivery system

53

Exhibit 16

STRATEGIC INITIATIVES: SOURCES OF VALUE

ILLUSTRATIVE

Categories of initiatives 1. Capture greater market share 2. Cost reduction (e.g., effective channel management) 3. Obtain higher prices

EBIT impact via Specific actionable Volume Price Cost initiatives increase increase reduction Other

Capital employed impact via


Investment Divestment Capital efficiency* Other

4. Create new market demand


5. Form strategic alliances/ partnerships

* E.g. improved working capital employment, increased asset utilization, changes to asset ownership 54

Exhibit 17

STRATEGIC INITIATIVES: VALUE QUANTIFICATION

ILLUSTRATIVE

Operating income ongoing impact 2001-2004 PhP millions

Estimate of total ongoing operating income and capital employed impact from successful implementation of strategic initiatives

=
one-time operating income impact =

one-time costs =
Present operating income Volume increase Price increase Cost reduction benefit Additional costs Total ongoing operating income

Capital employed ongoing impact 2001-2004 PhP billions

Present capital employed

Improved capital Divestments efficiency

Investments (capex, acquisitions)

Total ongoing capital employed 55

Exhibit 18

STRATEGIC INITIATIVES: RESOURCING REQUIREMENTS

ILLUSTRATIVE

Resource requirements Categories of initiatives Specific actionable initiatives People/skills Funding Ex-Com involvement

1. Capture greater market share

2. Cost reduction

3. Achieve higher prices

4. Create new market demand

5. Form strategic alliances/partnerships

56

Exhibit 19

DEFINITION OF RISKS

Definition

Business risk

Risk of loss due to changes in industry and competitive


environment, as well as shifts in customer preferences

Regulatory risk

Risk due to changes in regulatory environment (e.g.


deregulation)

Technology risk

Risk due to major changes in technology Risk of failures due to business processes and operations or
peoples behavior, either intentional (e.g. fraud) or unintentional (e.g. errors)

Integrity risk

Macroeconomic risk

Risk of loss due to changes in the political, social, or


economic environments

57

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