BASIC CONCEPTS IN BUSINESS POLICY AND STRATEGY fearing Objectives: After you have studied this chapter, you should be able to: 1. describe the steps in the strategic management process; 2. _ discuss the strategic planning phases; 3. define globalization; 4. — discuss and understand the electronic age; and 5. enumerate and discuss the theories in organizational adaptation. Strategic Management includes all the decisions and actions set by the managers and provides a gauge on the performance of a particular organization. Figure 1.1 signifies the strategic management process which outlines how an organiza- tion formulates, implements, and evaluates systems and processes for efficient and effective company performance. Each chapter of this book discusses the process flow. Business Policy, on the other hand, is also strategic management in context. Although generally it serves primarily on integrating various functional activities. THE STRATEGIC MANAGEMENT PROCESS Situation Analysis. This includes environmental scanning. It also provides the.information Necessary to formulate the company’s vision/mission statement. It involves scanning and evaluating the organization, which also includes the external environment. Analyzing the environment can be performed using several techniques. The internal environment should be observed. This includes employee interactions with one another regardless of rank. Organizations should also analyze the external environment. This comprises of customers, suppliers, creditors, and competitors.Te eee ee Re away On the organizational cul — nal cultu interact with each other, how relationships are formed and observed; employees are interviewed and focused Su techniques are used to provide a better picture of orga Te—how em Ploye, eel dl. Their behavier BFOup discussions are don, nizational culture, .m is ese In the external environment, custom Y ers, suppliers, com) a eti observed. Who are the customers and who are the direct and inane mons others are the relationship of the company and the suppliers? nalrect competitors? What i ? is | SITUATION ANALYSIS STRATEGY FORMULATION Strategies/Policies STRATEGY IMPLEMENTATION Programs/Activities Budgets/Procedures STRATEGY EVALUATION AND CONTROL Performance | Actual Results Figure 1.1. The Strategic Management Process Strategy Formulation. This involves the development of company strategies. Strategy formulation is composed of three organizational levels: operational, competitive, and corpo- rate. Operational strategies are short-term and are associated with the various operational departments of the company such as human resources, finance, marketing, and production. The traditional definition of operational strategies refers solely to the set of processes and structures. There were no strategies that direct overall performance and day-to-day priorities specific to functions. to the techniques in competing in a certain nd weaknesses of its competitors; thus, These strategies deal with establishing in later chapters. Competitive strategies are those related industry. The company must identify the strengths a formulate strategies to gain competitive advantage. J competitive strength against competitors and are discussed in more detail i ic .d compet The essence of corporate strategy is to be able to improve both operational an : 7 me .d thus, competitive itive strategies. There should be a synergy between the operating units ant lidify all the strategies should support overall corporate strategies. These strategies actually sollcily 2other strategies that will result to overall organizational performance. Corporate strategies are long-term and are involved in providing direction for the organization. Competitive Advantage. Competitive advantage looks at quality. It is tantamount to superior quality wherein a customer would pick out a particular brand and no other, because of the belief that a particular brand provides excellent performance. The brand name's image and reputation speaks quality. A customer can rely on the product and it is long-lasting. He gets his money's worth. Operational strategies are short-term and are associated with the various operational departments of the company such as human resources, finance, marketing, and production. Competitive strategies are those related to Building a competitive advantage means that the product or service provides efficiency on the part of the company producing, supplying or giving the product/service. More goods or services are provided with minimum cost of production without sacrificing product or service quality. A competitive edge also covers continuous innovation. As the product Gj or service matures in the product life cycle, it is enhanced or improved. Customer loyalty is built on the belief that continuous improvement means the company wants to maintain and retain its customers, no brand the techniques in competing in a certain industry. ‘The company must identify the strengths and weaknesses of its competitors; thus, formulate strategies to gain competitive advantage. Corporate strategies are long-term and are involved in providing direction for the organization. switching. Competitive advantage is also achieved when the company always anticipates what the customers need and want. It responds to customers’ suggestions, and attends, analyzes, and monitors customers’ complaints. Strategy Implementation. This involves the development of procedures, programs and activities to put the strategies into practice. It is also the time to determine which strategies should be implemented first. Strategy implementation should arrest potential hazards like communication of the strategies to be implemented. Failure to communicate the strategies to the entire organization loses the ability of the organization to implement the strategies. Strategy Evaluation. It includes appraising the company’s performance. All employees are involved in strategy evaluation. There is always a need to modify strategies because the environment is constantly changing. There is always a quest for these modifications to make the strategies more attuned to these changes. STRATEGIC MANAGEMENT: PLANNING PHASES Phase 1: Planning Financial Aspects. This is usually the phase when financial data such as next year’s budget is planned. Usually, these data come from the salespeople. In some companies, activities that require costs are usually suspended in order to give way to the budgeting period. The timeline is usually one year. In reality, there is no strategic management yet in this phase. Phase 2: Forecasting. For long-term planning, five-year plans are made. Since managers have different projects to propose, they have a tendency to outdo each other in terms of: oe getting a larger share of the funds. It takes a while before final projects are evaluated and approved. The timeline is three to five years. Phase 3: External Planning. This is usually the task of top management. Usually, members of top management gather and formulate strategies for the company on a five-year Period, Lower level managers are hands off in this process and only come into the picture during the implementation stage. Phase 4: Strategic Management. In this phase, the strategies formulated will be worth- less without the commitment of all employees. This is now the process of getting the rudi- ments of strategies in detail. They are called strategic plans. These are the detailed versions Of Phase 3. Aside from detailing the implementation and evaluation of strategic plans, it also Provides possible scenarios and the accompanying contingent measures. There is always a strategic action or thinking all throughout the organization. GLOBALIZATION Globalization has changed the way people do business. As the name implies, globaliza- tion is the internationalization of markets and corporations. To be competitive means a paradigm shift from looking at a global (worldwide) market instead of a local (national) market. To be competitive also requires a product or service to be at an affordable price but at the same time maintains good quality. Since the market is now a vast area where there are various brands competing with each other, companies now have to sell their brands in every continent around the world. To main- tain quality and competitive pricing, companies have redesigned their organizational struc- tures and strategically placed regional or country units instead of having one international division to serve all international transactions. With these trends, strategic management plays a key role in positioning the company at the forefront. A local brand, Jollibee, has become a global brand. Aside from the local acquisitions such as Chowking, Red Ribbon, Delifrance and Greenwich, Jollibee Foods has 375 stores overseas. Jollibee has 26 stores in the United States, 20 in Vietnam and 11 in Brunei; there are 38 branches of Red Ribbon in the United States; while Chowking has 37 mostly in the United States as well. As of 2010, Jollibee has also 55% of the majority shares in San Pin Wang, a beef noodle chain in China. San | brands in every continent around the world. Pin Wang takes off in 2011. To maintain quality and competitive Jollibee operates two brands in China: | pricing, companies have redesigned their Yonghe King in Shanghai and Hong Zhuang | organizational structures and strategically Yuan in Beijing. They are bought by Jollibee | placed regional or country units instead of in 2004 and 2008, respectively. having one international division to serve Jollibee also acquired 70% of Mang | l/international transactions. Inasal, another fast-growing, fast-food G restaurant. As of September 2010, Jollibee Foods has 1,578 stores nationwide: Jollibee, 703; Chowking, 404; Greenwich, 218; Red Ribbon, 215; Delifrance, 23; and Manong Pepe's 15. Since the market is now a vast area where there are various brands competing with each other, companies now have to sell theirTHE ELECTRONIC AGE Electronic transactions refer to the various uses of the Internet in conducting business transactions. . 1. The Internet has become a force for companies to improve and enhance the way they transact business. It is now a common knowledge that customers, suppliers, and partners can transact, communicate, and do business through the Internet. 2. Distribution channels have changed drastically through the years. Companies can Now go to customers directly even without the distributors or intermediaries. The repercussions of these changes include the reduction of costs, improved customer service, and better relationships with customers. 3. Customers have more power than ever because they now have unlimited access to information through the Internet. 4. _ Firms are now exploring endless possibilities to innovate using the Internet. 5. Business pacing is increasing. This reality paves the way for the urgency of using the Internet to get information on customer needs and expectations, innovations, among others. The environment becomes increasingly turbulent. 6. The Internet is putting corporations out of their traditional boundaries. Customers, suppliers, and manufacturers are becoming more adjacent to each other that there are no more separations that traditional setup has in terms of internal operating plans and processes. There is now more transparency in doing business. 7. Knowledge is a very important asset. Companies have a competitive advantage if they are well-informed. ORGANIZATIONAL ADAPTATION Aside from globalization and electronic commerce, a company should always be updated on what is in store in all facets of the business environment. Population Ecology explains that when a company is able to take hold of a formidable position in the industry, the tendency is for that company not to adapt to changing conditions. There may be complacency or the company may not respond to the external changes so it may be bought out or closed down and eventually replaced by a more capable company that adjusts and responds well to the new environment. This is primarily the reason why some companies fold up or are acquired by more responsive companies. Institution Theory focuses on the more obvious and important aspects of the social structure which includes norms, rules and policies which form the basis for social behavior. It assumes that the institutional environment where the firm operates influences the organiza- tion’s policies, rules, norms, among others. Each environment where the business operates, affects the organization’s structure and behavior differently. Therefore, the implementation of any business strategy will also depend on the environment. Strategic Choice Perspective theorizes that an organization not only adapts to a changing environment but also tries to reshape its environment. The company develops ways on how to face environmental pressures—head on. The company does not succumb to externalJ, shapes its environment. It also deals with uncertainties and strikes a bat alance forces and thu be made today and leaves some, if needed in the future. between decisions to this theory fits the Organizational Learning Theory which uses knowledge as an i tant component for the company to respond in a changing environment. The strategic choice : ice perspective also includes all levels in the company to provide strategies in all aspects of th e company’s existence. Organizational learning has two views. First is the technical view. It focuses on the pr cessing and preparation and interpretation of these processes to respond to both aaa and internal forces in the organization. On the other hand, the social view includes the experi- ences of people at work and their relevance to organizational performance. Learning can also be derived from a specific skill, for example, of a computer programmer; whereas a strategist would express it on the combination of his intuition and his actual analysis of the situation. STRATEGIC INSIGHTS (Adapted and inspired by the book: On the Profession of Management by Peter Drucker, 2003) The future dictates a scenario that is not typical of the usual economic growth wherein more people are assigned to work, but rather, productivity comes from the ability of any coun- try to develop and maintain knowledge work and knowledge workers to the core of the bus ness processes. itis nt simply the population (more people, better productivity) that makesa country on the competitive edge, but the steady supply of knowledge workers is what counts. Developed countries like the United States, Great Britain, and Germany still have enough supply of knowledge workers. These are the people who have the skills and the expertise to put their knowledge into products and services, and convert their skills to practice. On the ether hand, these countries should not be complacent on their quantitative edge because ‘le counterparts somewhere else in the developing countries there are equally knowledgeal and they can harness and mold their skills and may turn out to be efter workers; thus, can translate more productive work. ization continues to be highly competitive and of The world economy in the age.of global course turbulent. The changes on what is call Drucker defines the theory of the business business becomes obsolete when the business goal company should formulate its objectives based on wha k on its core competencies. These core r example, led relevant knowledge are unpredictable. in several assumptions. It assumes that a Is are already attained, This means that the it the environment dictates. ‘Another assumption is that a business should worl competencies should fit in with the company’s mission and the environment. Fo! Jollibee continues to dominate the fast-food chain by using its core ‘competency: fast food. Its diversification in garments using Jollibee brand name failed. Using horizontal integration, it continues to dominate with the acquisition of Chowking, Greenwich, Delifrance, Red Ribbon, and lately, Mang Inasal. he customers oncentrate on tl but Another assumption is that a business should not only c ly being customer-driven but also noncustomers, Drucker emphasized the reality of not on! also being market-driven,John Gokongwei and Universal Robina Corporation INSTRUCTIONS: The article is about John Gokongwei. This activity has accompanying questions for you to answer. For further reading, browse the Internet and look for articles on Mr. Gokongwei and his business portfolio. (Adapted from the articles on www.urc.com.ph; article on URC dated August 16, 2009 at www.mb.com.ph and John Gokongwei’s speech at the 20" Advertising Congress, November 21, 2007) A Success Story Universal Robina Corporation (URC) headed by John Gokongwei started in 1954. He constructed a corn milling plant that produced glucose and cornstarch. It was then called Universal Corn Products. Its first product was Panda Cornstarch. While it was doing well, he felt that it was just thriving on a single product unlike Nestle and Procter and Gamble which have had produced diversified products. His vision then was to have a local multinational company. Thus in 1961, Consolidated Foods Corporation was born. Its first hit was Blend 45. It became the best-selling coffee beating Nescafé and Café Puro. Then Nips, a local M&M came in. Robina Farms started its operations in 1963. Robichem Labs which provides veterinary products expanded in the ‘70s with its hog raising. In 1966, URC expanded its operations with Jack ‘n Jill brand. The company produced market leaders like Pretzels, Piattos, and Maxx. In the early ‘70s, Gokongwei started Continental Milling Corporation for flour milling and production. In the late ‘80s, he acquired three sugar mills and refineries under URC sugar. In 1996, Gokongwei decided to start an airline. In its initial operations, Cebu Pacific flew only 360,000 passengers in three destinations. Ten years after, it flew an estimated 5 million passengers in 20 local destinations and 12 Asian cities. In 2003, Digitel Mobile Philippines was established. Sun Cellular was born. Within one year, Sun had one million customers. One year after, the green tea drink C2 was launched. Coca-Cola companies then domi- nated the local beverage industry. With the arrival of C2, the beverage industry changed. In its first month, 100,000 bottles of C2 were sold. Three years after, 30 million bottles of C2 were sold per month. 2 In 2009, the unaudited consolidated income of URC surged P2.248 for the 1* quarter of 009, . 9Lessons from Our Neighbors Korea as we all know has slowly grabbed the world market in semiconductors, robotics, and biotechnology. : Today, a Korean brand, Samsung is one of the top 100 global brands. Samsung has already carved a niche in the Information Technology industry. Some experts say it has already surpassed Sony, a Japanese brand. LG Collins also of Korea is slowly but surely following the footsteps of Samsung. China, on the other hand, is fast becoming the 4" largest economy. Although China’s Products are considered cheap and of low quality, China is the choice of a lot of international manufacturers for their manufacturing requirements. China’s Lenovo, Haier, Cherry, QQ, and Huawei brands are gaining momentum in the world market. Singapore has already created world-class brands: Banyan Tree, Singapore Airlines, and Singapore Telecoms. A Filipino Global Brand? Gokongwei felt that the Philippines has yet to build its own global brand. With 86 million people Gokongwei believes we can create our very own global brand. Gokongwei further added how Switzerland with only 9 million people can create its own global brand, Nestlé; Sweden with 9 million people has Ericsson; and Finland with 5 million people has Nokia. Philippine manpower is used by other international companies mainly for call center and Business Process Outsourcing industries. The Philippines exports labor around the world. Gokongwei has all praises for local brands that have already created a niche in the international market, namely: Goldilocks in the United States and Canada; jewelry and bags by Bea Valdez and Tina Ocampo (Celestina bags) in shops at Barneys and Bergdorf’s in the United States. Gokongwei takes pride in making giant leaps in Malaysia and Singapore with its Jack ‘n Jill potato chips. C2 is doing well in Vietnam. Hopefully, the next few years would be a reckoning for Filipino brands in the elite list of global brands. ilippi i: lephone Company (PLDT) acquired Sun a recent note, Philippine Long Distance Te! n ired Ears in the first quarter of 2011. PLDT is also the owner of Smart Communications.Questions for Analysis: 1 Trace URC’s success story. What are the factors that contributed to its success? i eae sess pseu ——— wee 10Analyze the growing market base in Asia. How did Gokongwei take advantage of it? Based on John Gokongwei’s words of wisdom, how can the Philippines compete globally? Are there hindrances for the Philippines’ inability to have its own global brand? Explain. Identify Gokongwei’s entrepreneurial traits which made him successful. Make a research on the acquisition of Sun Cellular by PLOT. Make your comments. Is Gokongwei’s move a strategic one, with Sun being number 3 in the telecommu- nications industry?