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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
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Risk/contingencies & strategic alternatives
I. EXECUTIVE SUMMARY
Instructions: The Executive Summary provides a synthesis of the Environmental and Internal Assessments and the resultant BU Strategic Plans
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
Instructions: Exhibit 1 could provide a useful framework for answering this question
Industry segmentation:
Instructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question
Instructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question
Instructions: Exhibit 2,3 or 4 could provide a useful framework for answering this question
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Instructions: These subsections contain a 1-2 sentence summary of the relevant findings
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Instructions: Exhibit 5 could provide a useful framework for answering this question
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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
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
C.1 Which segments of the business are providing the highest returns?*
Instructions: Exhibit 9 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
Instructions: Exhibits 10 and 11 could provide a useful framework for answering this question
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Instructions: Exhibit 12 could provide a useful framework for answering this question
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Instructions: The answer to this overarching question requires a recapitulation of the sections main findings
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?
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Instructions: Exhibit 13 could provide a useful framework for answering this question
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What perceived value do you provide to the customer better than competition?
How much value do your customers attach to the benefits you provide?
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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?
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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
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B3. How much value will be created from each strategic initiative?
Instructions: These subsections contain a 1-2 sentence summary of the relevant findings
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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
one-time costs = Present operating income Volume increase Price increase Cost reduction benefit Additional costs Total ongoing operating income
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Categories of initiatives
Ex-Com involvement
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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
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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
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C.2 What is your projected net income in the next few years?
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
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C.3 What is your expected cash generation ability over the medium term?
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
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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
2000
Instructions: These are the minimum required balance sheet accounts and analyses. Feel free to add other accounts and analyses relevant to your BU
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Instructions: The answer to this overarching question requires a recapitulation of the sections main findings
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
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Potential risks
Impact
Likelihood
Contingency
Business risk Regulatory risk Technology risk Integrity risk Macroeconomic risk Other
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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
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IV. EXHIBITS
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Exhibit 1
SEGMENT ANALYSIS
ILLUSTRATIVE
Industry segments
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Exhibit 2
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
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Exhibit 3
2. New entrants
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
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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
Can be used as a thought starter for competitive analysis and internal assessment
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Exhibit 5
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
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Exhibit 6
ILLUSTRATIVE
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
ILLUSTRATIVE
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
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Exhibit 8
Strategic indicators Market share Percent of revenue from new products Working capital trend
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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 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
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Exhibit 10
NOT EXHAUSTIVE
Market share Percent
15 10 5 0
'96
'97
'98
'99
'00
ROCE Percent
20 10 0 '96 '97 '98 '99 '00
The ROCE tree can be disaggregated to show the other relevant KPIs of a BU
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Exhibit 11
NOT EXHAUSTIVE
Net income PhP million
1,500 1,000 500 0 '96 '97 '98 '99 '00
The cash flow tree can be disaggregated to show the other relevant KPIs of a BU
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Exhibit 12
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
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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?
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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?
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Exhibit 15
BUSINESS MODEL
Value proposition
Chose the value
Understand value desires Select target Define benefits/ price Design product/ process
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
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Exhibit 16
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
* E.g. improved working capital employment, increased asset utilization, changes to asset ownership 54
Exhibit 17
ILLUSTRATIVE
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
Exhibit 18
ILLUSTRATIVE
Resource requirements Categories of initiatives Specific actionable initiatives People/skills Funding Ex-Com involvement
2. Cost reduction
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Exhibit 19
DEFINITION OF RISKS
Definition
Business risk
Regulatory risk
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
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