RCC Strategic Management

REAL COFFEE CLUB
A Strategic Management paper

presented to
Professor Elfren Sicangco Cruz
In partial fulfillment of
the requirements for the subject
STRATEGIC MANAGEMENT
John Roy Robert G. Real, Jr.

5 December 2009
EXECUTIVE SUMMARY
The Real Coffee Club is a start-up company founded by spouses Robert Sr. and Criselda
Real in September 2007. It specializes in the sale of specialty coffee and other beverages in
suburban San Pablo City. It also sells a selection of teas, home-baked cakes and pastries, light
snacks, and other food items. Currently, the company is classified to belong in the food service
industry. This industry encompasses those places, institutions, and companies responsible for
any meal prepared outside the home. It includes sale of prepared foods and drinks for
immediate consumption in the premises such as restaurants, cafés, cafeterias, lunch counters,
and refreshment stands.
To have a logical approach in proposing strategies in order for the company to establish
and maintain competitive advantage, the author considered the following factors: (1) strengths
and weaknesses of the company; (2) threats and opportunities to the industry; (3) personal
values of the key implementers; and (4) broader societal expectations.
After evaluating the abovementioned factors, the author had set clear and attainable
objectives to guide him in crafting the proposed corporate strategies. Such objectives were: (1)
to have yearly net income of at least 5 Million Pesos starting year 5 (2014); and (2) to open two
branches in the CALABARZON area and one flagship store in Metro Manila within the next five
years.
Careful consideration and analysis of the four mentioned factors and two set objectives
had led the author to arrive at three proposed competitive strategies:
1. Broaden the width of SPECIALIZATION in terms of: (a) customer segment it serves,
shifting from a highly-specialized coffee-drinker segment to kids, students, and
young-professionals customer segments; and (b) company’s product line/scope,
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shifting from a specialization in coffee and chocolate-based beverages and light
snacks to full lunch and dinner meals, and other different flavored beverages.
2. Broaden GEOGRAPHIC SCOPE by increasing the company’s efforts in terms of

geographical location served by establishing two more stores in the CALABARZON
area (Dasmariñas, Cavite and Sta. Rosa, Laguna) and a store in a key area in Metro
Manila (Makati City).
3. Manage the company’s FINANCIAL LEVERAGE by increasing its reliance on debt-

instruments to finance its planned product scope expansion and geographic scope
expansion. This is proposed to be done by borrowing money / obtaining loan from
the bank.
To complement these objectives and strategies, the author also proposed the areas
wherein the Real Coffee Club should build and maintain its competitive advantage over rivals.
Using the differentiation position approach, the author recommended that the company
establish its competitive advantages on: (1) ambiance; (2) wider selection of products; (3)
location; and (4) innovation.
Changes in the structure, system, style, staff, skill, and shared values of the company
might take place as a result of the proposed strategies. Thus, proper execution and
implementation of the changes is necessary to the achievement of the strategic objectives of
the company. In the light thereof, the author had proposed specific actions to make the Real
Coffee Club capable of strategy execution.
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TABLE OF CONTENTS
MODULE 1 ..................................................................................................... vi
1.1 ACKNOWLEDGEMENTS ...................................................................................................... vii
1.2 INTRODUCTION ................................................................................................................ viii
MODULE 2 EXTERNAL ENVIRONMENT ANALYSIS................................................. 1

Module Guide – External Environmental Analysis............................................................................2
2.1 DEFINITION OF INDUSTRY....................................................................................................6
2.2 ANALYSIS OF PRESENT TASK ENVIRONMENT ........................................................................7
2.2.1 Threat of Entry (Medium) .......................................................................................................................7
2.2.2 Intensity of Rivalry Among Existing Competitors (Medium) ...............................................................10
2.2.3 Pressure from Substitute Products (Low).............................................................................................12
2.2.4 Bargaining Power of Buyers (High) .......................................................................................................13
2.2.5 Bargaining Power of Suppliers (Low) ....................................................................................................13
2.3 ANALYSIS OF POTENTIAL CHANGES IN THE MACROENVIRONMENT .................................... 15

2.3.1 Demographic Environment ...................................................................................................................16
2.3.2 Social Environment ...............................................................................................................................20
2.3.3 Economic Environment .........................................................................................................................22
2.3.4 Political Environment ............................................................................................................................26
2.3.5 Legal Environment ................................................................................................................................26
2.3.6 Technological Environment ..................................................................................................................27
2.3.7 Ecological Environment .........................................................................................................................29
2.3.8 Institutional Environment .....................................................................................................................29
2.4 EVALUATION OF THE THREATS AND OPPORTUNITIES IN THE INDUSTRY .............................. 31

2.4.1 THREATS ................................................................................................................................................31
2.4.2 OPPORTUNITIES ....................................................................................................................................32
2.5 INDUSTRY AND COMPETITIVE ANALYSIS ............................................................................ 36

Strategic Group Map ..........................................................................................................................................36
2.6 BROADER SOCIETAL EXPECTATIONS ................................................................................... 39

2.6.1 Corporate Social Responsibility ............................................................................................................39
2.6.2 Catholic Social Teachings ......................................................................................................................41
MODULE 3 INTERNAL ENVIRONMENT ANALYSIS ............................................... 43

3.1 COMPANY OVERVIEW ....................................................................................................... 44
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3.1.1 History and Development .....................................................................................................................44
3.1.2 Geographic Scope ..................................................................................................................................45
3.1.3 Organizational Structure .......................................................................................................................46
3.2 FINANCIAL ANALYSIS ......................................................................................................... 47

Financial Ratios ..................................................................................................................................................47
3.3 VALUE CHAIN ANALYSIS .................................................................................................... 52

3.3.1 Primary Activities ..................................................................................................................................53
3.3.2 Support Activities ..................................................................................................................................56
3.4 STRENGTHS AND WEAKNESSES .......................................................................................... 58

3.4.1 STRENGTHS ............................................................................................................................................58
3.4.2 WEAKNESSES .........................................................................................................................................60
3.5 PERSONAL/FAMILY VALUES ............................................................................................... 63
MODULE 4 STRATEGIC PLAN ............................................................................. 69

4.1 VISION .............................................................................................................................. 70
4.2 OBJECTIVES ....................................................................................................................... 72
4.3 EVALUATION OF PRESENT CORPORATE STRATEGIES ........................................................... 73
4.4 PROPOSED CORPORATE STRATEGIES ................................................................................. 78
4.4.1 CORPORATE STRATEGY ONE .................................................................................................................79
4.4.2 CORPORATE STRATEGY TWO ................................................................................................................82
4.4.3 CORPORATE STRATEGY THREE .............................................................................................................86
4.5 COMPETITIVE ADVANTAGE................................................................................................ 90

4.5.1 Present Competitive Advantage ...........................................................................................................91
4.5.2 Proposed Competitive Advantage ........................................................................................................92
MODULE 5 FUNCTIONAL AREAS STRATEGIES .................................................... 97

5.1 MARKETING ...................................................................................................................... 98
5.2 OPERATIONS ................................................................................................................... 102
5.3 FINANCE ......................................................................................................................... 105
5.4 INFORMATION ................................................................................................................ 106
5.5 HUMAN RESOURCES ....................................................................................................... 107
MODULE 6 IMPLEMENTATION ........................................................................ 110

6.1 ANALYSIS OF COMPANY’S CAPABILITIES TO IMPLEMENT .................................................. 111
6.1.1 Corporate Strategy One ......................................................................................................................113
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6.1.2 Corporate Strategy Two ......................................................................................................................114
6.1.3 Corporate Strategy Three ...................................................................................................................115
6.2 MANAGING INTERNAL ORGANIZATION FOR STRATEGY EXECUTION .................................. 117

6.3 MANAGING STRATEGIC CHANGE ..................................................................................... 125
MODULE 7 FINANCIAL PROJECTIONS .............................................................. 127

7.1 FINANCIAL PROJECTION .................................................................................................. 128
7.2 NOTES TO THE INCOME STATEMENT ................................................................................ 128
BIBLIOGRAPHY .................................................................................................. 130
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MODULE 1
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1.1 ACKNOWLEDGEMENTS
I would like to express my heartfelt thanks to the following people, without whom the
preparation and completion of this strategic management paper (and my MBA-JD Course)
would not have been possible:
To my parents… Thank you very much for inculcating in me the values of dedication and
hard work. I am forever grateful for the unconditional love, care and support you have shown
me;
To my siblings, Jaymee, Rovi, and Redge … For giving me useful insights on how to
improve the company;
To my professor, Elfren Sicangco Cruz… For the exceptional knowledge and wisdom
imparted and for the patience and understanding;
To my friends, and loved ones, for supporting me and for being there when I needed
them the most (especially to air out my frustrations);
And most especially to God… For the gift of life.
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1.2 INTRODUCTION
The Real Coffee Club is a family-owned-and-controlled specialty coffee shop, located in

suburban San Pablo City, Laguna. It offers specialty coffee, a selection of teas, home-baked
cakes and pastries, light snacks, and other food items. In 2008, it proudly introduced one of the
most exquisite and luxurious coffee in the market – the Civet Coffee.
The store has been in operations for 2 years. Unfortunately, it has not yet reached its
full potential, mainly because no one in the family had taken interest in fully managing the
business. Day-to-day operations were usually left to the store supervisor, while the general
manager would only visit the store a few times a week. Nevertheless, despite the lack of effort
from family members, it has become the most popular and highest-selling coffee shop in San
Pablo City. It has become a popular place for socialization and relaxation. With this untapped
potential, the author deemed it apt to finally concretize and formalize the operations of this
family business. This was the reason why the author chose to use the company for his study.
The paper aimed to introduce the discipline of strategic management to the company,
which will require making decisions at present to make the company competitive in the future.
This paper also sought to establish competitive advantage in order to survive in today’s rapidly
growing food service industry.
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MODULE 2
EXTERNAL ENVIRONMENT ANALYSIS
External Internal Functional

Strategic Implemen Financial
Environment Environment Areas
Plan -tation Projections
Analysis Analysis Strategies
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Module Guide – External Environmental Analysis
(The purpose of this section is to guide the readers and the management in understanding the
flow of the discussion and to show how different frameworks were used to arrive at this
strategic management paper. This is not intended as a resource section or a lecture paper.)
Analyze Changes in
Analyze Present Task
Macroenvironment
Define Industry Environment
(Framework: Model of
(Framework: PSIC) (Framework: Porter's 5
the Macroenvironment
Forces)
and Porter's 5 Forces)
Evaluate Broader Evaluate Threats and

Conduct Industry and
Societal Expectations Opportunities in the
Competitive Analysis
[ Framework: W.E.F Industry
(Framework: Porter's
(CSR); Laborem (Framework: Porter's 5
Strategic Group Map)
Exercens (CST) ] Forces)
Definition of the Industry
According to Porter (1998), the essence of formulating competitive strategy is relating a

company to its environment. As first step in the external environment analysis, the author will
DEFINE THE INDUSTRY in which the organization belongs. This is important for developing
strategy and setting business unit boundaries, for what is of crucial importance to one industry
may not be of the same importance in another industry. Many strategy errors emanate from
mistaking the relevant industry (since basis of strategies are different), defining it too broadly
or too narrowly. Thus, the key aspect of the firm’s environment is the industry or industries in
which it competes.
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In defining the industry, the author will primarily refer to the Philippine Standard
Industry Classification (PSIC). The PSIC is a statistical classification of economic activities
obtained in the country. For purposes of international comparability, this industrial
classification system is patterned after the United Nations International Standard Industrial
Classification (ISIC) with some modifications to suit national situation and requirements. The
PSIC serves as a guide in the classification of establishments according to their economic
activity useful for economic analysis.
Analysis of the Present Task Environment
After the industry has been defined, the author will next conduct an ANALYSIS OF THE
PRESENT TASK ENVIRONMENT of the organization. For this section, the author will focus on the
organization’s task environment, instead of the more general macroenvironment. The task
environment is that part of the organization’s external environment that includes the set of
customers, suppliers, and competitors that constitute the firm’s immediate environment. It is
more or less specific to a firm, and is not necessarily shared by its competitors. To conduct this
analysis, the author will use Porter’s Five Competitive Forces as framework. The purpose of
this framework is to determine the intensity of industry competition and the ultimate profit
potential in the industry to which the organization belongs.
Analysis of Potential Changes in the Macroenvironment
The author will next conduct an ANALYSIS OF THE POTENTIAL CHANGES IN THE
MACROENVIRONMENT of the organization. According to Narayanan and Fahey (2001), an
ongoing analysis of the macroenvironment is essential for crafting and executing sound
strategy. It is said that managers need to recognize that all too often the best growth
opportunities occur as a result of events that subtly remake the macroenvironment and that
unanticipated macroenvironmental change can threaten the best laid plans. The author will be
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using the Model of the Macroenvironment as and the Porter’s Five Competitive Forces as
frameworks:
1. to identify, track, project, and assess changes in the major segments of the
macroenvironment that may affect the foodservice industry;
2. to determine the effect of macroenvironmental changes on the structural determinants
surrounding the industry; and
3. to evaluate the effect of such determinants on the 5 competitive forces within the
industry.
Evaluation of Threats and Opportunities in the Industry
The subsequent step for the author is to perform an EVALUATION OF THE THREATS
AND OPPORTUNITIES IN THE INDUSTRY. The two prior steps will be especially helpful in this
stage as they will be the basis in evaluating the threats and opportunities. In particular, the
author will consider the effect of potential changes on the macroenvironment to the present
task environment, and the resulting changes in the present task environment. Here, the
potential changes in the macroenvironment that will cause a change in the task environment
will be a threat or an opportunity to the industry. In order to effectively evaluate the threats
and opportunities, the author will refer to Porter’s Five Competitive Forces as framework. This
will provide a logical framework in determining which competitive forces are really a threats or
opportunities to the industry.
Conduct Industry and Competitive Analysis
After determining the threats and opportunities in the industry, the author will next
conduct an INDUSTRY AND COMPETITIVE ANALYSIS. To guide the author, he will use Porter’s
Strategic Group Map as framework. A strategic group map is a visual representation of the
strategy of an organization. It is used as a framework for the structural analysis within
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industries. Mapping shows what the viable strategic groups in the industry are. A strategic
group is a group of firms which have the same or similar strategies along similar strategic
dimensions. Plotting the strategic groups map allows organizations to identify their
competitors. It will also allow companies to identify the market.
Evaluate Broader Societal Expectations
As final task in this module, the author will evaluate the BROADER SOCIETAL
EXPECTATIONS as guide and basis developing corporate strategies. This is imperative as
changing societal expectations place new challenges on businesses and societies. In the global
information society, a large number of actors outside of business’s traditional stakeholders
create an ever-growing list of expectations towards the business world.
In conducting this evaluation, the author will refer to the World Economic Forum
Framework for Corporate Engagement as framework in identifying Corporate Social
Responsibility of the food service industry and in guiding the company in developing its
strategy. The author will also refer to Catholic Social Teachings and use the framework of the
Encyclical written by Pope John Paul II: Laborem Exercencs in developing its strategy.
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2.1 DEFINITION OF INDUSTRY
Framework Used: Philippine Standard Industrial Classification
An industry is a group of firms producing products and/or services that are close
substitutes for each other and who are competing directly against each other. Further, it refers
to such group that seeks to satisfy a particular need in the market. According to the Philippine
Standard Industrial Classification (PSIC), the Real Coffee Club belongs to the Hotels and
Restaurants Industry, and in particular, part of Sub-Class Restaurants, Bars, Canteens and
other Eating and Drinking Places (Code 55210). This group includes sale of prepared foods and
drinks for immediate consumption in the premises such as restaurants, cafes, cafeterias, lunch
counters and refreshment stands. Basically, this industry encompasses those places,
institutions, and companies responsible for any meal prepared outside the home. Thus, also
included are catering activities and take-out activities. However, this group excludes sale
through vending machines, which is classified as part of class 5259 (Other non-store retail sale).
For ease of reference, the industry in which the Real Coffee Club belongs shall also be
referred to as Food Service Industry. The organization aims to satisfy the need for the delivery
of processed or prepared food and drinks. It is engaged in providing service, which is food
delivery.
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2.2 ANALYSIS OF PRESENT TASK ENVIRONMENT
Framework Used: Porter’s Five Competitive Forces
Using Porter’s Five Competitive Forces as framework, the author will now determine
the intensity of industry competition and the ultimate profit potential in the industry to which
the organization belongs.
2.2.1 Threat of Entry (Medium)
The first to be analyzed among the competitive forces is the threat of new entrants or
the competitive pressure associated with the threat of new entrants into the market. The
threat of entry into an industry depends on the barriers to entry that are present, coupled with
the reaction from existing competitors that the entrant can expect. Due to the following
reasons, the THREAT OF ENTRY is seen to be LOW.
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Barriers to Entry (Medium)
1. Economies of Scale (High)
Established and existing companies in the food service industry have achieved
economies of scale especially those under a franchise agreement. As franchising have proven to
be profitable in the Philippines, the more a company is able to expand, the more that it is able
to lessen its production cost. Thus, new entrants are at a cost disadvantage.
2. Product Differentiation (High)
Due to the franchising phenomenon, established companies have been able to create
and strengthen brand identification and customer loyalty. Development in food preparation
and food preparation training are strengthened and funded as market share improves. The
more the company franchises, the lesser the product differentiation costs are. Consequently,
new entrants face an extremely challenging task in building its brand name and customer
loyalty.
3. Capital Requirements (Low)
The Philippine market offers numerous equipments and supplies needed for food
preparation at reasonable prices. This allows restaurant owners the luxury of choosing the type
of equipment that best suit their operations and their budget. Research and development costs
related to creating new products are also not high.
4. Switching Costs (Low)
Although the industry provides a service, and quality service especially in food
preparation techniques is highly regarded in the industry, switching cost associated with the
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supply of manpower can still be considered as diminishing in the long run. As soon as the food
preparation techniques are established, food preparation becomes less of an art and more of a
mechanical process, especially in the fast food sector. Ingredients are measured, its quality
controlled, and procedures in food preparation is set and timed. High switching costs may be
considered as prevalent only in highly specialized, full-service restaurants, were the chefs are
given leeway in food preparation.
5. Access to Distribution Channels (Low)
New entrants need not secure and cultivate distribution channels as the services offered
are necessarily provided at the establishments.
6. Cost Disadvantages Independent of Scale (High)
Product technology and “secret recipe” are highly valued in the restaurant industry.
Marinating recipes and ingredients are extremely guarded. In addition, established and
franchising companies have attained favorable access to ingredients (raw materials) as most of
them have strong tie-ups, if not ownership, with their suppliers. They have also attained
favorable locations especially in key and high-density areas. As most of them are in the business
for more than ten years, they have already attained significant experience in the operations,
procedures, and the like.
7. Government Policy (Low)
The Government adheres to the concept of competition. In fact, laws have been passed
to encourage investment in small and medium enterprises. Micro-businesses are even given tax
exemptions.
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Expected Retaliation (Low)
Since 2003, the fast-food industry in general has shifted its competitive focus from price
discounting to product innovation. In doing so, it hoped to mimic the success of quick-casual
units by raising the average check per customer. Restaurants and other eating places are not
also seen as engaged in entry deterring price strategies.
2.2.2 Intensity of Rivalry Among Existing Competitors (Medium)
1. Numerous or Equally Balanced Competitors (High)
Competition in the fast-food sector is especially intense. With the help of the franchising
boom, industry leader Jollibee has been aggressive in increasing its market share. Competition
is relatively high in full-service restaurants. Most companies operate under different brand
names in order to target different customers having different tastes. This includes the Bistro
Group of Companies (T.G.I.Friday's, Italianni's, Outback, Fish & Co., FlapJacks) and the LJC
Group of Restaurants (Abe, Fely J, Lorenzo's Way, Ang Bistro sa Remedios, Cafe Adriatico, Cafe
Havana, Larry's Cafe Bar, Mojito Bay, ITM).
2. Slow Industry Growth (Low)
For the restaurant industry, fast-food continued to lead growth in terms of number of
outlets, transactions, and value. Although market share competition in key and highly
urbanized areas is fierce, there is still rapid growth in emerging areas.
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3. High Fixed or Storage Costs (High)
The restaurant industry highly relies on fresh ingredients. Considering the shelf-life of
products to maintain freshness, companies address “wastage costs” by lowering the price of its
products or by introducing new products using the same ingredients. Consequently, the
competition on this level is high, as established companies have the resources to introduce
more products, and that they have numerous branches or franchises that will lessen storage
costs.
4. Lack of Differentiation or Switching Costs (Low)
Although most of the ingredients may be considered as commodities, the food being
served is perceived to have high qualitative differentiation. Recipe, which is at the core of food
preparation, is the main are of competition. Although price is a factor, taste and flavor is
prioritized by Filipinos. Thus, competition on this level is low.
5. Capacity Augmented in Large Increments (Low)
There is no strong requirement of additions in capacity in large increments. Although

increased production will indeed decrease production costs and increase economies of scale,
the need for it is not strong as would give a substantial advantage against competitors. Due to
freshness concerns, inventory in the restaurant industry is highly controlled, in that shortages,
as long as not consistent, can be seen as an opportunity to “push” or introduce other products.
6. Diverse Competitors (Low)
The popularity of local brands is primarily due to the unique Filipino taste. Local players
understand the Filipino palate and they create food, which cater to their target market. This is
especially true for fast food, whereby Western food such as hamburger and spaghetti are
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“Filipinised” to be more enjoyable to the Filipino masses. Consequently, it can be said that
diversity in competitors’ strategies is relatively low. Restaurants have tried and failed to change
the Filipino taste. Although increasing globalization has made some Filipinos’ taste more
sophisticated and discriminating, foreign flavors and influences to their meals generally still has
to be fused with the sweet tooth and the spice indulgent taste of Filipinos.
7. Strategic Stakes (Medium)
Strategic stakes in the fast food sector is especially high. Due to the rapid growth in the
restaurant industry, fast food sector leader Jollibee is aggressive in its expansionary strategy. In
fact, the 2:1 Jollibee – Mc Donalds ratio strategy is the testament of Jollibee’s competitive
behavior in the industry.
8. Exit Barriers (Low)
Due to the growth in the industry, and because the equipments in food preparation are
not seen as highly specialized or uneasy to sell, exit barriers can be seen as relatively low. There
are no existing government regulations that would discourage closure of business. In fact, the
Bureau of Internal Revenue is aggressive in cracking down tax evading restaurants, which lead
to their closure.
2.2.3 Pressure from Substitute Products (Low)
There is no existing substitute to the services provided by the restaurant industry

(unless we factor in home-cooked binalot, which is not a commercial enterprise). Indeed, it is
competition between the subsectors of the industry that determines market share.
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2.2.4 Bargaining Power of Buyers (High)
Bargaining leverage of buyers is high since there is a variety in options for the restaurant
industry. Although quality and taste are most preferred by consumers, price must still be
factored in. Consequently, “value for money” is the key in the industry. Buyer concentration
can also be seen as high, as the restaurant industry highly relies on the quality, taste, and price
preference of Filipinos. The service of the companies, therefore, must be within these factors.
2.2.5 Bargaining Power of Suppliers (Low)
Since the industry is engaged in a service, then it must be emphasized that the supplier
of the industry are its labor-force. Firstly, the following determinants that contributes to the
bargaining power of suppliers must be considered: (1) the food service industry can be
considered as not an important customer of the supplier group, especially in the Philippines
where underemployment and switching of careers is prevalent; (2) the supplier’s service is
obviously an important input to the buyer’s business; and (3) the supplier group poses a
credible threat of forward integration, especially when they have understood the know-how in
the restaurant industry.
On the other hand, the following determinants that diminish the bargaining power of
suppliers are as follows: (1) the supplier’s service cannot be considered as dominated by a few
individuals, especially in the Philippines where unemployment is still high; (2) although
supplier’s of service does not need to contend with substitute products, they on the other hand
need to contend with competition in terms of number of applicants willing to provide the
service in order to get work; and (3) switching cost is relatively low especially in fast-food or
unspecialized full-service restaurants.
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An analysis of these determinants would show that the bargaining power of suppliers is
relatively low. That is why established and franchising companies are able to legally engage in
“contractual services” and that such companies are not hugely affected with the high turn-over
rate in terms of employment. The industry has been able to “codify” the food preparation
services that would allow less reliance with the services of its suppliers.
According to Porter (1998), the stronger that each of the five forces is, the more limited
the ability of established companies to raise prices and earn greater profits within their
industry. In the case of the Food Service Industry, it can be seen that the competitive force is
neither weak nor strong. Thus, this can still be seen as an opportunity of industry players to
earn greater profits.
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2.3 ANALYSIS OF POTENTIAL CHANGES IN THE MACROENVIRONMENT
Frameworks Used: Model of the Macroenvironment

Porter’s Five Competitive Forces
Using the Model of the Macroenvironment and the Porter’s Five Competitive Forces as
frameworks, below are the following analyses on the major segments of macroenvironment
that may affect the foodservice industry:
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2.3.1 Demographic Environment
1. Decrease in Population Growth Rate
Filipinos are seen to be aging. The age segment of 40 years old and above is rapidly
growing compared to the other age segments. Filipino consumer is maturing with slow down in
birth rate and longer life expectancy. Households are getting smaller due to urbanization and
family planning. Parents of fewer children will be more willing to spend more per children for
education, entertainment, garments, etc.
In connection however to the increase in family income and expenditure, statistics show
that more Filipinos are eating outside of their homes. Spending during special occasions seems
to have increased as well. In fact, according to the latest data released by the National Statistics
Office (NSO), in 2006, the average annual family income of Filipino families (P173 thousand)
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was 16.8 percent higher than the 2003 estimated average of P148 thousand. Correspondingly,
the average annual family expenditure of families increased from P124 thousand in 2003 to
P147 thousand (18.5%) in 2006. Included in the top four regions in terms of average income
posting estimates higher than the national average (P173 thousand) were National Capital
Region (P311 thousand), CALABARZON (P210 thousand), Central Luzon (P198 thousand) and
Cordillera Administrative Region (P192 thousand).
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 Structural Determinant Affected: BUYER PRICE SENSITIVITY
Since consumers have an increasing disposable income, with the primary consideration
of product quality and taste in mind, buyers will be less price-sensitive so long as there
is increased quality and value for money. Thus, a decrease in buyer price sensitivity can
be seen.
 Effect on the Competitive Force/s: DECREASE IN BUYER’S BARGAINING POWER

2. Increase in the Youth’s Spending Power
According to the National Statistics Office (NSO), a major force in the economic growth
of the Philippines is the strength of domestic consumption from its young and economically
active population. Due to the reason stated above, there will be more young adults with
disposable income and no families to support.
In addition, based on a study conducted by Synovate, commissioned by the Cartoon

Network, Filipino kids from the age of 7 to 14 have increased their economic power sharply
over the last two years. According to the study, some 3.7 million kids in Metro Manila, Cebu,
and Davao will hold a combined spending power of P47 billion for the entire year, around 15%
of which coming from gift money from parents, grandparents, and god parents. This latest
study for 2009 represents a 13.5 percent increase in kids' spending power compared to the P37
billion reported in the 2007 edition of the New Generations survey.
This in complimented by the fact that according to the NSO, more children are enrolling
in educational institutions in all levels.
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 Structural Determinant Affected (1): BUYER PRICE SENSITIVITY
Since the youth have an increased spending power, with the primary consideration of
product quality and taste in mind, buyers will be less price-sensitive so long as there is
increased quality and value for money. Thus, a decrease in buyer price sensitivity can be
seen.
 Effect on the Competitive Force/s (1): DECREASE IN BUYER’S BARGAINING POWER
 Structural Determinant Affected (2): COMPETITOR DIVERSITY
The Filipino youth can be considered as another segment or a separate target market
which companies can tap. Thus, it is expected that competitors will be able to explore
different strategies to address this demand. An increase in competitor diversity can be
seen as a result.
 Effect on the Competitive Force/s (2): INCREASE IN INTENSITY OF RIVALRY
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2.3.2 Social Environment
1. Increase and work-life activities
The biggest concern of the working population will be work-life balance. This means that
consumers will require more convenience in all services and products. They will be looking for
those products and services that simplify the activities such as prepared meal solutions, eating
or taking out, bayad centers, services by phone or internet. Because of the hectic life and
pressures of work, consumers will demand for coddling like spas, other small luxuries, vacations
and entertainment. It is also believed that connected with this is an increase in demand for
places for socialization.
Since Filipino consumers prioritizes product quality and taste, buyers will be less price-
sensitive so long as there is increased quality and value for money. Thus, a decrease in
buyer price sensitivity can be seen.
Since Filipino consumers are beginning to demand certain features, e.g. a comfortable
place to stay or to socialize, it can be said that competitors will be able to explore
different strategies to address this demand. Thus, an increase in competitor diversity
can be seen.
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2. Increase in food quality requirements, food variety, and food sophistication
According to recent studies, Filipino consumers have shifted from price sensitivity to
flavor, taste, and value for money as the most important characteristics in choosing a
restaurant products and services. Increasing globalization has made some Filipinos’ taste more
sophisticated and discriminating.
The demand for different kinds of food is also growing. Consumers from the more
affluent sectors of society, expatriates residing in the country, as well as well-travelled Filipino
professionals are demanding different flavors and influences to their meals. Be it Oriental,
Latin, American, Mediterranean, European or African – nothing seems too adventurous or too
exotic for these consumers. The rising trend for “fusion food” is another indicator of the
growing boldness in food taste of some Filipinos.
The population is also seen to be more sensitive to health and well-being, which can be
attributed to increased advertisements and TV commercials on proprietary drugs, vitamins and
tonics. Popularity of diet regiments like the South Beach Diet and the Atkins Diet, increase in
government efforts in promoting regular exercise, and proliferation of fitness centers also
contribute to the health consciousness of Filipinos.
Since Filipino consumers prioritize product quality and taste, buyers will be less price-
sensitive so long as there is increased quality and value for money. Thus, a decrease in
buyer price sensitivity can be seen.
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Since Filipino consumers can be seen to demand increased product quality and taste, it
is expected that competitors will be able to explore different strategies to address this
demand. Thus, an increase in competitor diversity can be seen.
2.3.3 Economic Environment
1. Decrease in GDP growth
Growth rate in GDP in 2008 declined significantly from that of 2007. Forecast for 2009
and the following years show that GDP growth will still fall. Since it is asserted that the
slowdown of the Philippine economy in 2008 is not directly related to the current global
financial crisis and the ensuing recession in major economies, this trend should be a cause of
concern. This implies that there is a huge downside risk for the economy in the coming months.
GDP growth is projected to be 4.3 percent in 2009. The forecast largely depends on
stable inflow of remittances that will support a consumption growth rate of 4.5 percent; steady
growth in the services sector that will benefit from lower inflation and fuel prices; a boost from
public construction activity; and a contained slowdown in the manufacturing sector. These
conditions are fairly reasonable and even if external conditions deteriorate further, GDP growth
in 2009 is not likely to fall below 4 percent.
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Although there is decrease in GDP growth, economy is still growing and not shrinking.
Consequently, increase in spending power and disposable income can still be seen.
Having in mind the increased priority in product quality and taste, buyers will be less
price-sensitive so long as there is increased quality and value for money. Thus, a
decrease in buyer price sensitivity can be seen.
2. Continuous Growth in the Restaurant Industry and Increase in Franchising
Based on the preliminary results of the 2006 Census of Philippine Business and Industry
conducted nationwide, as of November 15, 2006, the Philippines had a total of 2,750
establishments with average total employment (ATE) of 20 and over engaged in hotels and
restaurants. As shown in the Figure XX, restaurants, bars, canteen and other drinking and
eating places garnered the highest number of establishments at 2,258 (82.1%). Hotels, camping
sites and other provisions of short-stay accommodation recorded the remaining number of
establishments with only 492.
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Gross revenue earned in 2006 for hotels and restaurants sector reached Php 93.5 billion
(Table 1). Restaurants, bars, canteens and other eating and drinking places was the top
contributor with revenue of Php59.3 billion or 63.4 percent of the total. Hotels, camping sites
and other provisions of short-stay accommodation generated only Php34.2 billion (36.6%). With
regard to revenue-cost ratio, which pertains to the revenue generated per P1 cost, the ratio for
the sub-class restaurants, bars, canteens and other eating and drinking places amounted to
Php1.31.
For the restaurant industry, fast-food continued to lead growth in terms of number of
outlets, transactions, and value in 2004, with percentage growth rates more or less all in double
figures. The number of fast food outlets grew by almost 10% in 2003.
Based on the 2008 Franchise Sector Study undertaken by Philippine Franchising

Association and the University of the Asia and the Pacific, the Philippine franchising sector
proves to be a growing segment in the country’s economy accounting for 5 percent of the
country’s Gross Domestic Product (GDP) for the years 2005 to 2007, or an estimated US$ 10 to
16B (2008). As stated by Paulo Tibig, Vice President-External of the Association of Filipino
Franchisers Inc, “although the economic situation is bad, franchises, especially those in the food
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business, are still growing. Some of our members are even expanding, seeing that the market is
now outside Metro Manila. Many are going to other parts of Luzon, which is a big market, and
even Visayas and Mindanao”. Chained consumer foodservice outlets recorded stronger growth
than independent players in 2007. This was largely explained by the popularity of the
franchising concept, which practically multiplies the business. Fast food has the greatest
number of chained outlets, followed by street stalls/kiosks. Chained cafés/bars and street
stalls/kiosks both posted double-digit growth rates and outlet number growth at independents
generally lagged behind that of chained players’.
Cafés/bars are expected to see strong value growth in the coming years, well ahead of
full-service restaurants. This will primarily be supported by the booming sales at specialist
coffee shops. Specialist coffee shops registered double-digit growth rates in terms of outlets,
transactions and sales in 2007. This trend is expected to continue to 2012. On the other hand,
full-service restaurants is forecast to slow down in outlet and transaction numbers, with sales
value growth rates remaining at similar levels.
 Structural Determinant Affected: VOLATILITY OF MARKET SHARE COMPETITION
Slow industry growth turns competition into a market share game for firms seeking
expansion. Thus, it is said that market share competition is less volatile during rapid
industry growth as firms can improve results just by keeping up with the industry.
Since the restaurant industry is seen to be rapidly expanding, spearheaded by popularity

of franchising, a decrease the volatility of market share competition can be seen.
 Effect on the Competitive Force/s: DECREASE IN INTENSITY OF RIVALRY
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2.3.4 Political Environment
Increase in political uncertainty
The country is currently preparing for the 2010 national elections. Next year would be a
momentous occasion in Philippine politics since the country will experience its first ever
automated elections. Due to allegations of massive cheating in the past elections, multi-sectoral
election watchdogs have emerged to ensure clean, honest, free, and orderly elections.
However, the effect in the change of administration still remains to be uncertain.
Trust in the new administration may further spur industry growth. Expectation of a
more honest, transparent, and accountable government can motivate increase in
investments.
2.3.5 Legal Environment
Increase in SME Initiative Programs
In light of the President’s program to boost the economy and domestic investment,
Small and Medium Enterprises (SME) initiative programs were made. One important measure is
the enactment by the legislature of the Baranggay Micro-Business Enterprises Law. A few of its
main features are tax exemptions and minimum wage exemptions. Other relevant laws include:
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1. R.A. 7394 Consumer Act
2. R.A. 8762 Retail Trade Act
3. R.A. 9257 Senior Citizen's Act
4. R.A. 9501 Magna Carta for SMEs
 Structural Determinant Affected: GOVERNMENT POLICY RESTRICTIONS
Due to the more accommodating legal environment, especially for SMEs, companies can
expect more players joining the industry. A decrease in government policy restrictions
can be seen.
 Effect on the Competitive Force/s: INCREASE IN THREAT OF NEW ENTRANTS
2.3.6 Technological Environment
1. Increase in Transfer of Technology
According to the Euromonitor, franchising has seen chained outlets mushroom across
the Philippines. It has become a common business in the country, most especially in the
consumer foodservice market. This has been practiced continuously in all the sectors, especially
in fast food, cafés/bars and 100% home delivery/takeaway. “Various franchisees” led consumer
foodservice in 2007, and continued to grow over the previous year as chained cafés/bars
recorded double-digit growth. Provided with free training, free marketing support and
practically everything needed to start a business, the franchising concept has been very
appealing to both new and long-standing business people. In addition, international food chains
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and franchises facilitate transfer of technology in the local restaurant sub-sector. They provide
training of potential employees and employ strict quality control systems.
 Structural Determinant Affected: BRAND IDENTITY
With the popularity of franchising, technology transfers can help establish brand
identity of companies. More people will be able to reach, get to know, and “experience”
the services being offered by different companies. Thus, an increase in brand identity
can be seen.
 Effect on the Competitive Force/s: INCREASE IN INTENSITY OF RIVALRY
2. Increase in Research and Development for New Food Preparation Techniques
The Euromonitor also asserts that the latest trend in consumer foodservice menus is the
enhancement of traditional Filipino foods, either though incorporating modern cooking styles,
such as the use of spicy ingredients on ordinary menus, or improving the packaging and
presentation. “Fusion” of different food preparation and cooking styles has begun to emerge.
 Structural Determinant Affected: PRODUCT DIFFERENTIATION – BARRIER TO ENTRY
Increase in research and development will further allow companies to differentiate their
products from others. With the increasing demand for quality products, an increase in
product differentiation is apparent. Differentiation in this instance creates a barrier to
entry by forcing entrants to spend heavily to overcome existing customer loyalties.
 Effect on the Competitive Force/s: DECREASE IN THREAT OF NEW ENTRANTS
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2.3.7 Ecological Environment
Increase in Environmental Concerns
Due to the increasing consciousness about global warming, more Filipinos are shifting to
environment-friendly choices. This would include non-use of products or services that
negatively affect the environment. Some companies even demand food caterers to refrain from
using plastic. Others would choose only organically grown food ingredients.
Having in mind the increased environmental consciousness, buyers will be less price-
sensitive so long as they can have a sense of contribution in helping alleviate
environmental concerns. Thus, a decrease in buyer price sensitivity can be seen.
2.3.8 Institutional Environment
Increase in Spending for Advertising
Over the past few years, the rise of the Internet and the growing prevalence of cable
television programming have vastly increased the ways in which restaurant companies can
effectively connect with potential customers. Advertising budgets have ballooned, due
primarily to geographic expansion. Because most restaurants chains set their advertising
budgets as a percentage of sales, the proliferation of restaurant opening not only has driven
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system-wide sales growth, but it also has increased the amount of money spent on advertising.
Furthermore, in recent years, new products and menu turnover have increased the importance
of communicating with the customer.
Due to the increasing number of Filipinos using the internet, more and more companies
are using this new media to increase their marketing strength and to drive customer traffic. In a
recent study commissioned by the Cartoon Network, the Philippines now has an estimated 43
million users, 71 percent of whom access the Web in Internet Cafes, while another 27 percent
do it from their homes. Yahoo! and Facebook have developed advertising tools in order for
Filipino establishments to reach their target market. Internet advertising has become cheap as
websites like clickthecity.com and 88db.com provide free advertising for restaurants and other
establishments.
Another tool being used by companies is the mobile phone. According to Cartoon
Network’s commissioned study for 2009, the country has about 68 mobile phone users.
 Structural Determinant Affected: STRATEGIC STAKES
Companies have become more aggressive to increase their market share. With the
advent of the “new media”, companies have begun to tap into this cheaper avenue to
reach its target market. Thus, an increase in strategic stakes can be seen.
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2.4 EVALUATION OF THE THREATS AND OPPORTUNITIES IN THE INDUSTRY
Framework Used: Porter’s Five Competitive Forces
In order to effectively evaluate the threats and opportunities, the author will refer to
Porter’s Five Competitive Forces as framework. This will provide a logical framework in
determining which competitive forces are really a threats or opportunities to the industry.
Although the effect of the macroenvironment on the five competitive forces has already been
determined, the author will only endeavor to evaluate major threats and opportunities in the
industry.
2.4.1 THREATS
1. Increase in SME Initiative Programs
Although generally good for the economy, this poses a threat to the industry as more
players will have a decreased barrier to entry. Especially contributing to the threat are tax
exemptions granted by law to eligible micro-businesses. Curiously, establishments “whose total
assets including those arising from loans but exclusive of the land on which the particular
business entity’s office, plant and equipment are situated, shall not be more than Three Million
Pesos ( P 3,000,000.00 )” qualify as micro-business enterprises. In the restaurant industry, such
an investment is more than sufficient.
 Structural Determinant Affected: GOVERNMENT POLICY RESTRICTIONS

 Effect on the Competitive Force/s: INCREASE IN THREAT OF NEW ENTRANTS
2. Increase in Transfer of Technology
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Due to the success of franchisers, more and more Filipinos are engaging in these kinds
of endeavors. In fact, to help Overseas Filipino Workers (OFWs) to reintegrate in the country,
the Philippine Franchising Association is aggressive in enticing them to invest through
franchising. The threat to the industry in this situation is the facilitation of transfer of
technology. Technology transfers can help establish brand identity of existing companies on the
one hand, while on the other, it can also help new entrants to have immediate competitive
advantage. “New entrants” would not have to go through the start-up stage where they just try
to discover to “learn the ropes”. They would be instead entering the industry with established
competitive advantages as they will be coddled by their franchisors. Consequently, competition
will get fiercer.
 Structural Determinant Affected: BRAND IDENTITY

 Effect on the Competitive Force/s: INCREASE IN INDUSTRY RIVALRY
3. Increase in Spending for Advertising
As part of the institutional environment analysis, due to the increasing number of

Filipinos using the internet and mobile phones, companies have increased their spending for
advertising to reach more customers. This can be seen as a threat in the industry as more
companies are beginning to be aggressive to attain market share.
 Structural Determinant Affected: STRATEGIC STAKES

2.4.2 OPPORTUNITIES
1. Decrease in Population Growth Rate
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Due to the decrease in population growth rate, Filipinos have begun to increase their
disposable income. Corollarily, statistics show that more Filipinos are eating outside of their
homes. Spending during special occasions seems to have increased as well. This can be seen as
an opportunity in the industry as consumers become more price-insensitive, especially when
their primary considerations of product quality and taste are met.

2. Increase in the Youth’s Spending Power
The Filipino youth can be considered as another segment or a separate target market
which companies can tap. Thus, it can be seen as a clear opportunity for product
differentiation. Product differentiation is said to create layers of insulation against competitive
warfare because buyers have preferences.
 Structural Determinant Affected): LACK OF DIFFERENTIATION

3. Increase in work-life activities
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The biggest concern of the working population will be work-life balance. This means that
consumers will require more convenience in all services and products. Since Filipino consumers
are beginning to demand certain features, e.g. a comfortable place to stay or to socialize, it can
be said buyers will be less price-sensitive so long as there is increased quality and value for
money. This is an opportunity for the industry.

4. Increase in food quality requirements, food variety, and food sophistication
According to recent studies, Filipino consumers have shifted from price sensitivity to
flavor, taste, and value for money as the most important characteristics in choosing a
restaurant products and services. Increasing globalization has made some Filipinos’ taste more
sophisticated and discriminating. Thus, demand for different kinds of food is also growing. This
can be seen as an opportunity for the industry especially in increasing product differentiation
and quality.

5. Continuous Growth in the Restaurant Industry
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Since the restaurant industry is seen to be rapidly expanding, spearheaded by popularity
of franchising, a decrease the volatility of market share competition can be seen. This can be
seen as an opportunity since market share competition is less volatile during rapid industry
growth as firms can improve results just by keeping up with the industry.

 Effect on the Competitive Force/s: DECREASE IN INDUSTRY RIVALRY
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2.5 INDUSTRY AND COMPETITIVE ANALYSIS
Strategic Group Map
Framework Used: Porter’s Strategic Group Map
As previously discussed, the author will be using Porter’s Strategic Group Map as
framework to conduct industry and competitive analysis. To guide the author in plotting the
strategic group map, he will first refer to the Dimensions of Competitive Strategy. Strategic
dimensions usually capture the possible differences among a company’s strategic options in a
given industry.
In choosing what strategic dimensions to use, three principles will be taken into
consideration. First, the strategic variables used as axes are those that determine the key
mobility barriers in the industry. Second, in mapping groups, variables must not move together.
For example, if all the firms with high product differentiation also have broad product lines,
then both these variables should not serve as axes on the map. Variables that reflect the
diversity of strategic combinations in the industry should be selected. Third, the axis for a map
need not be continuous or monotonic variables.
Strategic Dimensions Used:
1. Product Scope: refers to the degree to which a company focuses its efforts in terms of
the width of its product line
2. Price Policy: refers to company’s relative price position in the market.
Product Scope in the Food Service Industry ranges from broad specialization (full-service
restaurants – establishments offering fine or casual dining with a wide selection of food and
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beverages), to narrow specialization (specialized restaurants – establishments which focus on
providing particular products, e.g. coffee and tea, alcoholic drinks, as well as light snacks). On
the other hand, Price Policy in the Food Service Industry ranges from High Price Policy
(especially with regard to fine-dining restaurants) to Low Price Policy (Cafeterias, Food Carts,
Carinderias). Using the mentioned strategic dimensions, the following are the strategic groups:
GROUP A : (Specialized Product Scope, High-Medium Price Policy) Companies within this
strategic group include specialized restaurants like Starbucks, Coffee Bean and
Tea Leaf Co., Figaro, and Seattle’s Best. This also includes bars, taverns, and
pubs in highly urbanized areas.
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GROUP B : (Specialized Product Scope, Medium Price Policy) Companies within this
strategic group include specialized restaurants that offer mid-level prices like
the Real Coffee Club, and other cafés and coffeehouses in suburban areas. This
also includes bars, taverns, and pubs in suburban areas.
GROUP C : (Limited-Service Product Scope, Medium Price Policy) Companies within this
strategic group include fast-food restaurants (Jollibee, Mc Donalds, Chowking,
etc.) and fast-casual restaurants (Suki, Max’s Restaurant, Tokyo Tokyo, etc.)
GROUP D : (Limited-Service Product Scope, Low Price Policy) Companies within this
strategic group include school and office cafeterias, carinderias (Liempo
Republic), and food carts.
GROUP E : (Full-Service Product Scope, High Price Policy) Companies within this strategic
group include fine dining restaurants like Sala, Cuyere, Le Soufflé, Je Suis
Gourmand, etc.), and lodging/hotel restaurants in highly urbanized areas
(Nielsen, Circles, Spirals, etc.).
GROUP F : (Full-Service Product Scope, High-Medium Price Policy) Companies within this
strategic group include casual dining and family dining restaurants (Sulyap,
Bubba Gump, Banana Leaf, Apartment 1B, Sonya’s Garden, etc.), lodging/hotel
restaurants in suburban areas (Casa San Pablo, Coco Palace San Pablo, etc.)
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2.6 BROADER SOCIETAL EXPECTATIONS
Framework Used: World Economic Forum Framework for Corporate Engagement

Catholic Social Teachings – Laborem Exercens
In conducting this evaluation, the author will refer to the World Economic Forum
Framework for Corporate Engagement as framework in identifying Corporate Social
Responsibility of the food service industry and in guiding the company in developing its
strategy. The author will also refer to Catholic Social Teachings and use the framework of the
Encyclical written by Pope John Paul II: Laborem Exercens in developing its strategy.
2.6.1 Corporate Social Responsibility
Framework Used: World Economic Forum Framework for Corporate Engagement
According to Professors Van den Berghe, Lenssen, and Moir (2004), changing societal
expectations place new challenges on businesses and societies. In the global information
society, a large number of actors outside of business’s traditional stakeholders create an ever-
growing list of expectations towards the business world. For today’s managers, financial results
are no longer the only concern. The power of civil society groups and their effect on the re-
positioning of traditional stakeholders like consumers, governments and trade unions, lead to a
considerably more challenging decision and management environment, certainly in the context
of global competition. Managing complexity is the name of the game. There are increasingly
more voices that are raised and questions asked about the transparency, accountability and
responsibility of these groups. Furthermore, all stakeholders are urged to reconsider their role
in society and create an environment where companies can learn about these broader
expectations and evolve while remaining competitive.
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As maintained by Schwab (2008), the World Economic Forum adopts the five core
concepts in corporate engagement: corporate governance; corporate philanthropy, corporate
social responsibility, corporate social entrepreneurship, and global corporate citizenship.
Corporate Governance means that a company complies with local and international laws,
transparency and accountability requirements, ethical norms, and environmental and social
codes of conduct. Corporate Philanthropy includes cash contributions; grants; donations,
including salary-sacrifice programs and the giving of products; services; and investments.
Corporate Social Responsibility means addressing the wider financial, environmental, and
social impact of all that a company does. It entails minimizing the negative effects of the actions
of a company and maximizing the positive ones on stakeholders as well as on the communities
in which the enterprise operates and the governments with which it must work. Corporate
Social Entrepreneurship is the transformation of socially and environmentally responsible ideas
into products or services. Global Corporate Citizenship means engagement at the macro level
on issues of importance to the world; it contributes to enhancing the sustainability of the global
marketplace.
The author will use the World Economic Forum’s framework on Corporate Social
Responsibility as basis of corporate engagement. According to Professor Cruz (2005), Corporate
Social Responsibility is the obligations and responsibilities of business to society, that in the
pursuit of the profit motive, the basis for its corporate acts and strategies should include its
commitment to protecting the environment, upholding the rights of its workers and
contributing to the improvement of the quality of life of its community and society at large.
The society expects at the minimum that Companies exercise corporate governance.
However, the Real Coffee Club must go a few steps further and develop its strategies in line
with its Corporate Social Responsibilities. This can be achieved by three ways – recognize social
responsibility to its suppliers (since it is engaged in service, then suppliers in this case would
refer to its employees); social responsibility to its customers; and social responsibility to its
community. With regard to the former, the Real Coffee Club should continue giving its
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employees new avenues in learning from their jobs. This can be achieved by giving them an
opportunity: to participate in decision-making; to undergo constant training to improve their
skills; to attend third-party seminars; to continue their studies by offering part-time work or
flexible scheduling; and others. As to its social responsibility towards its customers, since the
Real Coffee Club is marketing itself as a “tambayan”, the company should promote and provide
avenues for productive outputs like reading books, engaging in art, and the like. Lastly, the
company should recognize its social responsibility to the community by actively participating in
educating children. In accordance with its being a “club”, the company can create a “book club”
where customers, the management, and the employees teach children how to read and write.
The management highly values education, and as part of their personal values, teaching
children should be the social responsibility thrust of the company to the community.
2.6.2 Catholic Social Teachings
Framework Used: Laborem Exercens
In his book Setting Frameworks: Family Business and Strategic Management (2005),
Prof. Cruz states that many decisions made by businessmen are based on their moral and
personal values. Most people would prefer to look to some religious source as basis for their
moral framework. For businessmen who profess the Catholic faith and for all men and women
of goodwill, the answers to this dilemma lie in the body of work known as Catholic Social
Teaching. Modern Catholic social teaching is the body of social principles and moral teaching
that is articulated in the papal, conciliar, and other official documents issued since the late
nineteenth century dealing with the economic, political, and social order.
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The Real Coffee Club will adhere to the framework of the Encyclical written by Pope
John Paul II: Laborem Exercens. In it, he develops the concept of man’s dignity in work,
structuring it in four points:
1. The subordination of work to man;

2. The primacy of the worker over the whole of instruments and conditioning that
historically constitute the world of labor;
3. The rights of the human person as the determining factor of all socio-economic,
technological, and productive processes that must be recognized; and
4. Some elements that can help all men identify with Christ through their own work.
The Encyclical teaches the faithful that dignity and respect to employees emanate from
the very realization that a business cannot survive and thrive in a challenging environment
without the productivity of its workers. Employees are the main drivers of success in any
company. It is important therefore that they feel motivated and taken care of not only because
they are seen instruments in the prosperity of the organization, but also by the fact that they
deserve the dignity as working individuals.
In relation to the dignity of working individuals, the Real Coffee Club also believes in the
concept of job security. Employees should not be put in the situation of uncertainty.
Consequently, the Real Coffee Club shall continue to denounce “job contracting” as a means to
lessen costs.
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MODULE 3
INTERNAL ENVIRONMENT ANALYSIS

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3.1 COMPANY OVERVIEW
3.1.1 History and Development
History
The Real Coffee Club is a start-up company founded by spouses Robert Sr. and Criselda
Real in September 2007. Initially, they thought of opening a barbershop at a commercial
establishment being offered to the family just across a medical hospital and a medical school.
The family was already fine with this business proposal. However, an opportunity came when
one of Robert Jr.’s friend made an interesting business proposal.
Ms. Joshua Ann Nava at the time was working for an advertising firm which handles the
promotion of Nestlé’s Nescafé brand. She mentioned that Nescafé was then entering into
partnerships with small businesses to promote their coffee brand by helping entrepreneurs to
open their own coffee shops. Robert Jr. then agreed with the proposal as he was a frequent
visitor of Starbucks Coffee. He noticed how coffee shops are popular among students and
professionals, and how they would use it as a place to socialize, to conduct business meetings,
or to study. Because of this, he convinced his parents to introduce the “coffee shop culture” in
their hometown. Eventually a partnership was forged with Nestlé were the Real Coffee Club
would become one of the pioneer Nescafé Points in the country.
The Real Coffee Club
The Real Coffee Club specializes in the sale of coffee and other beverages in suburban
San Pablo City. It also sells a selection of teas, home-baked cakes and pastries, light snacks, and
other food items. In 2008, it proudly introduced one of the most exquisite and luxurious coffee
in the market – the Civet Coffee. The Caffè di Classe, as the company calls this world renowned
coffee, is a blend of the Philippines’ finest coffee beans – Arabica, Liberica, and Exelsa. It has a
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"sweet, dark chocolatey aroma” that heightens the senses. It is strong and naturally sweet,
which has a fine and smooth taste, perfect for a good morning start. It is particularly popular
and rare as it comes from wild civet cat droppings on the different forest floors of Philippine
mountains. The Paradoxorus Philippinensis is a civet which belongs to the mongoose family – a
nocturnal animal which uses its nose to choose the ripest and sweetest coffee cherries and
relentlessly eats them during coffee season. Gathered very early in the morning usually before
the sun rises, the forest dwellers climb the mountain and pick the civet droppings on the forest
floors. In the United Kingdom, a cup of civet coffee would sell for £50 or roughly PhP.4,500.
Due to the success of the Caffè di Classe, in November 2009, the Real Coffee Club
became the exclusive and only distributor in the province of Laguna of the Civet Coffee.
3.1.2 Geographic Scope
At present, the Real Coffee Club’s pioneer store is located in San Pablo City, Laguna.
Although there are no concrete plans of expansion in the near future, the company aims to
open two branches in the CALABARZON area, and one flagship store in Metro Manila within the
next eight years.
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3.1.3 Organizational Structure
General
Manager
(Robert Real Sr.)
Consultant
(Robert Real Jr. )
General Human Research and

Finance Marketing
Operations Resources Development
(Reginald Real) (Robert Real Jr.)
(Reginald Real) (Jaymee Real) (Reginald Real)
Store Supervision R&D for Food

Accounting Promotions
(Jhayel Isip) (Robert Real Sr.)
Kitchen Mgmt.
R&D for Drinks
(Christopher de Disbursement Events
(Jaymee Real)
Mesa)
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3.2 FINANCIAL ANALYSIS
Financial Ratios
Framework Used: Financial Ratio Analysis
Financial ratios are tools used to analyze financial statements, evaluate the operating
performance of the firm and determining the health of a company. Financial ratios are classified
into liquidity ratios, profitability ratios, financial leverage or solvency ratios and asset
management or efficiency ratios.
RATIOS NUMERATOR DENOMINATOR NUMERATOR DENOMINATOR RESULT

1 Current Ratio Current Assets Current Liabilities 292,638 21,350 13.71 :1
2 Quick Ratio Quick Assets Current Liabilities 257,453 21,350 12.06 :1
3 Gross Revenue Gross Profit Net Sales
Margin 936,000 1,800,000 52.00%
4 Operating Profit Operating Net Sales
Margin Profit 198,041 1,800,000 11.00%
5 Net Profit Margin Net Income Net Sales 198,041 1,800,000 11.00%
6 Return on Assets Net Income Average Total
Assets 198,041 503,960 39.30%
7 Return on Equity Net Income Average Equity 198,041 482,610 41.04%
8 Debt Ratio Total Liabilities Total Assets 21,350 503,960 0.04 :1
9 Debt-Equity Ratio Total Liabilities Total Equity/Fund
Balances 21,350 482,610 0.04 :1
10 Cash Flow to Net Operating Total Liabilities
Debt Ratio Cash Flow 210,958 21,350 9.88 :1
11 PPE Turnover Net Sales Ave. PPE 1,800,000 108,740 16.55 Times
12 Operating Cash Net Operating Net Sales
Flow to Sales Cash Flow
Ratio 210,958 1,800,000 0.12 :1
Current Ratio
The current ratio is a liquidity ratio that indicates the organization's ability to pay short-
term obligations. Current ratio provides the best single indicator of the extent to which the
claims of short-term creditors are covered by the assets that are expected to be converted to
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cash fairly quickly. The higher the current ratio, the more capable the organization is paying of
its obligations. A ratio under 1 suggests that the organization would be unable to pay off its
obligations if they came due at that point. Here, the analysis shows that the current ratio of the
Real Coffee Club is very high, which means that it can very much pay its short-term obligations
in time.
Quick Ratio
The quick ratio, also a liquidity ratio, measures an organization's ability to meet its
short-term obligations with its most liquid assets; the higher the quick ratio, the better the
position of the organization. Here, the Real Coffee Club’s quick ratio is very high, indicating that
the organization is able to meet its short-term obligations with its most liquid assets.
Gross Revenue Margin
Gross revenue margin is a profitability ratio that is used to assess a firm's financial
health by revealing the portion of money left over from revenues after accounting for the cost
of goods sold. Here, it can be seen that the gross profit margin is substantial, showing that the
establishment is in good financial condition.
Operating Profit Margin
Operating margin gives an idea of how much an organization makes (before interest and
taxes) on each peso of sales and what portion of an organization’s revenue is left over after
paying costs of sales and operating expenses to cover its other expenses such as interest on
debt. The increase in the operating profit margin means that it is earning more per peso of
sales. The higher the margin the better it is for the organization. Here, it can be seen that the
Real Coffee Club makes “11 centavos on the peso”, which is not good for the company.
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Net Profit Margin
Net profit margin measures how much out of every peso of sales an organization
actually keeps in earnings. A high profit margin indicates a profitable organization that has
control over its costs. Here, we can see that the Real Coffee Club’s net profit margin is at 11%
which means that only a fraction of what the organization earns constitutes its net income.
This is not ideal for the company.
Return on Assets (ROA)
ROA gives an idea as to how efficient management is at using its assets to generate
earnings. The ROA figure gives investors an idea of how effectively the organization is
converting the money it has to invest into net income. The higher the ROA number, the better,
because the organization is earning more money on less investment. Here, the Real Coffee
Club’s ROA is at 39.3%, which shows that the management is not effective in using its assets to
generate earnings.
Return on Equity (ROE)
ROE measures a corporation’s profitability by revealing how much profit an organization

generates with the money shareholders have invested. Here, the ROE is at almost 41%, which
means that for every peso of investment, 41% of such investment is being earned as profits.
This is merely substantial for the company.
Debt Ratio
Debt ratio indicates what portion of debt an organization has relative to its assets. The
measure gives an idea to the leverage of the organization along with the potential risks the
organization faces in terms of its debt-load. A debt ratio of greater than 1 indicates that an
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organization has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that an
organization has more assets than debt. Here, the Real Coffee Club’s debt ratio is below 1,
which means that the establishment faces less risk in terms of its debt-load.
Debt-Equity Ratio
Debt-equity ratio is a measure of an organization’s financial leverage. It indicates what

portion of equity and debt the organization is using to finance its assets. A high debt-equity
ratio generally means that an organization has been aggressive in financing its growth with
debt. This can result in volatile earnings as a result of the additional interest expense. This can
lead to bankruptcy, which would leave shareholders with nothing. Here, debt-equity ratio is far
below 1, which means that the organization virtually DOES NOT rely on debt instruments and
more on capital and retained earnings to finance its assets and operations.
Cash Flow to Debt Ratio
This ratio is a measure of how well current liabilities are covered by the cash flow
generated from an organization’s operations. It can gauge organization’s liquidity in the short
term. Using cash flow as opposed to income is sometimes a better indication of liquidity simply
because cash is how bills are normally paid off. Here, it appears that the Real Coffee Club has
more cash inflow than cash outflow in operations.
PPE Turnover
This ratio measures an organization’s ability to generate earnings from fixed asset (PPE)
investments. A higher PPE turnover ratio shows that the organization has been more effective
in using the investment in PPE. Here, it shows that the Real Coffee Club is effective in using its
fixed assets to generate earnings.
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Operating Cash Flow to Sales Ratio
This ratio is a measure of a firm’s ability to convert sales into cash, and an important
indicator of its creditworthiness and productivity. A high number means the firm will be able to
grow because it has sufficient cash flow to finance additional production, a low number
indicates the opposite. Here, it can be seen that the ratio is very low, which shows that the
organization is not able to finance additional production.
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3.3 VALUE CHAIN ANALYSIS
Framework Used: Porter’s Value Chain
In his book Competitive Advantage, Porter (1980) states that competitive advantage
cannot be understood by looking at a firm as a whole. Every firm must be viewed as a collection
of activities that are performed to design, produce, market, deliver, and support its products. It
is from these activities that competitive advantage arises.
A systematic way of examining all the activities a firm performs and how they interact is
Porter’s Value Chain. This framework disaggregates a firm into its strategically relevant
activities in order to understand the behavior of costs and the existing potential sources of
differentiation. Then, a firm gains competitive advantage by performing these strategically
important activities more cheaply or better than its competitors.
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The value chain consists of two broad categories of activities: the primary activities that
are foremost in creating value for customers and the requisite support activities that facilitate
and enhance the performance of the primary activities. In defining the specific activities under
the sub-categories of primary and support activities, the following basic principles were used:
1. Activities that have different economics should be isolated and separated

2. Activities that have a high potential impact of differentiation should be isolated and
separated; and
3. Activities that represent a significant or growing proportion of cost should be
isolated and separated
According to Porter (1980), in using the value chain, successively finer desegregations of
some activities are made as the analysis exposes differences important to competitive
advantage; other activities are combines because they prove to be unimportant to competitive
advantage or are governed by similar economics. Also, value activities should be assigned to
categories that best represent their contribution to a firm’s competitive advantage.
3.3.1 Primary Activities
Primary activities are the activities involved in the physical creation of the product and
its sale and transfer to the buyer as well as after sale assistance.
1. Supply Chain
Supply Chain Management is the system of activities, costs, and assets associated with
purchasing fuel, energy, raw materials, parts and components, merchandise, and consumable
items from vendors; receiving, storing, and disseminating inputs from suppliers; inspection; and
inventory management.
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The success in the food service industry hinges on the procurement procedure.
Ingredients must stay fresh and of high-quality. However outstanding the food preparation or
cooking may be, if the ingredients are not of high quality, then the taste will be severely
compromised.
The Real Coffee Club, as a start-up company, is still in the process of further improving
its procurement and inventory management procedures. At present, the company is using the
“two-compartment system”. This system serves as a framework in determining the “re-ordering
point” and the “order quantity” for the ingredients and stocks. The purpose of this system is to
allow the company to know when to order the ingredients and the quantity of ingredients to
order. In this way, ingredients are maintained fresh, food exposure is lessened, and timely
supply of ingredients is obtained.
With regard to quality control, the management has pre-qualified suppliers so as to

ensure that the high-standard of freshness is met. Inspection is made both by the supplier and
the company, which was specifically made redundant to make sure that no low-quality
ingredient gets through. Suppliers are also required to indicate when the products or
ingredients were made, and when it will perish. To ensure quality, the company has set a shelf-
life at least 35% earlier than its actual estimated time of spoilage. Daily inventorying is also
made to ensure freshness and ingredients availability. Ordering or procurement is made daily,
depending on the ingredients that need to be supplied.
2. Operations
Operations are activities, costs, and assets associated with converting inputs into final
products. Being engaged in the service industry (food preparation), operations is perhaps the
most important and crucial activity in Real Coffee Club’s Value Chain. The success in this stage
determines the fate of the organization since it is the output of this activity (taste) that is the
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driving factor of costumers in buying Real Coffee Club products. Specific activities under
operations include: inspecting; mixing and blending; cooking and warming; preparing,
garnishing, and packaging; and cleaning and dishwashing.
At the risk of being repetitive, to ensure freshness and quality, the crew of the Real
Coffee Club once again inspects the ingredients before they are used. With regard to drinks,
mixing and blending techniques are based on intensive research and development both of
Nestlé and the Real Coffee Club to ensure that customers are able to enjoy the full taste that
the ingredients have to offer. As regards the light snacks, warming and cooking techniques are
based on the almost 30 years of cooking experience of one of San Pablo City’s top chefs (Robert
Sr.). To add final touches and to ensure that the food and drinks being served are as appetizing
as they are delicious, the Real Coffee Club crew performs garnishing techniques as if the food
and drinks are works of art.
3. Distribution
Distribution is defined as the process where the products have been manufactured and
are ready to be dispersed to distribution centers, wholesalers, retailers or customers. Since the
Real Coffee Club is a service firm that provides the service on its premises, distribution or
outbound logistics activities only composes of order processing and delivery from the counter
to the customer’s table.
4. Sales and Marketing
Is defined as activities associated with providing a means by which buyers can purchase
the product and inducing them to do so. The main activities of Real Coffee Club under the
category of Sales and Marketing involve three major tasks – advertising, promotion, and
pricing.
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Most advertising activities of the company involve the new media – the internet. This is
done through e-mail updates, and through the online communities Facebook, Friendster, and
Multiply. The Real Coffee Club also advertises on the clickthecity.com and on other free online
advertisers. On-site and near-site advertising are also used with the use of banners, posters,
and flyers. With regard to promotion, the Real Coffee Club’s main activity involves the
participation in the city fiesta celebrations. The Real Coffee Club has been hosting or sponsoring
events like dance competitions. Lastly, as regards pricing activities, the Real Coffee Club makes
it a point to offer products that are priced competitively with fast food chains and nearby
establishments. This is done mainly in consideration of the earning capacity and disposable
income of San Pablo City residents. During special events, special discounts or freebies are
being offered to entice customers to celebrate momentous occasions with the Real Coffee Club.
5. Service
Is defined as activities associated with providing service to enhance or maintain the

value of the product, such as installation, repair, training, parts supply and product adjustment.
Since the products of Real Coffee Club are consumed immediately, service activities are
inexistent.
3.3.2 Support Activities
1. Product R&D, Technology, and Systems Development
These refer to activities, costs, and assets relating to product R&D, process R&D, process
design improvement, equipment design, computer software development, telecommunications
systems, computer-assisted design and engineering, database capabilities, and development of
computerized support systems.
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As previously discussed, the main technology being used by the company in terms of
inventory management is the “two compartment system”. The Real Coffee Club also uses Food
Preparation and Beverage Mixing Technologies which were perfected after years of research
and development.
2. Human Resource Management
Although not a strict qualification, the Real Coffee Club highly considers past experience
in the food service industry in hiring its employees. Periodic trainings and seminars are also
made to refresh and update the knowledge of employees in food preparation, and to reinforce
camaraderie and rapport among the employees and the management.
3. General Administration
General administrative works includes accounting and finance, quality management,

compliance with laws and regulations, and other overhead functions. This usually supports the
entire and not individual activities. General administration of the Real Coffee Club is done
through basic book-keeping and accounting, filing of legal documents to appropriate
government agencies, and periodic quality management evaluations with the entire
organization.
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3.4 STRENGTHS AND WEAKNESSES
In his book Competitive Strategy, Porter (1980) states that the strength or weakness of a
company is the presence or absence of capability or resources to exploit an opportunity or
counter a threat offered or posed by the firm’s external environment. The broadest guidance
for the formulation of strategy is stated in terms of matching a firm’s strengths and
weaknesses, particularly its distinctive competence, to the opportunities and risks of the
environment. These capabilities or absence of capabilities can be observed through the discrete
activities in the company’s value chain or through the financial ratios. In this section, the author
will discuss the following through this logical framework:
1. Identification of threats and opportunities relevant to the firm;

2. Identification of needed capabilities to exploit or counter a threat or opportunity;
and
3. Identification of capabilities (strengths) or absence of capabilities (weaknesses) of
the firm to exploit or counter a threat or opportunity.
3.4.1 STRENGTHS
1. RELEVANT OPPORTUNITY: Decrease in Intensity of Rivalry; Due to the increase in

youth’s spending power, opportunity for product differentiation is seen to increase in
response thereto.
NEEDED CAPABILITY: An organization must have the capability to provide a

product/service that has value to young consumers.
EXISTING CAPABILITY: Fortunately, the Real Coffee Club has the capability to exploit this
opportunity. Due to periodic systems and processes evaluation, experience of the R&D
team, and the lack of red tape in the company, the Real Coffee Club can timely develop
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new products and services that can cater to the food requirements of young consumers
(it is presumed that generally, young Filipino consumers do not require highly
sophisticated products). Consequently, this capability can be seen as STRENGTH of the
company.
BASIS: Value Chain, Product R&D, Technology, Systems Development
2. RELEVANT OPPORTUNITY: Decrease in Buyer’s Bargaining Power; Due to the increase in

food quality requirements, food variety, and food sophistication, Buyer’s Price
Sensitivity is seen to decrease as more and more Filipinos have rising disposable income.
This is a clear opportunity for the industry and for the company.
NEEDED CAPABILITY: Considering that product quality and taste is highly regarded by
Filipino consumers, an organization must have the capability to introduce a more varied
and sophisticated products/services.
EXISTING CAPABILITY: Fortunately, the Research and Development Team of the

company has extensive experience in food preparation and cooking, as well as beverage
mixing. The author sees that the R&D Team is capable of creating new products using
different cooking styles, and is capable of concocting new beverages for the customers
to enjoy. The increasing requirements of sophistication and foreign influence in cooking
styles of Filipino consumers can be exploited by the company. This should be seen as
STRENGTH of the company.
BASIS: Value Chain, Product R&D, Technology, Systems Development
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3.4.2 WEAKNESSES
1. RELEVANT THREAT: Increase in Threat of New Entrants; Due to the increase in SME
Initiative Programs, government policies that are threats to existing industry players are
seen to increase.
NEEDED CAPABILITY: An organization must have sufficient resources to engage in

aggressive marketing and promotions to maintain/increase its market share. The
organization should also consider investing in product differentiation and even product
line expansion.
EXISTING CAPABILITY: Unfortunately, the Real Coffee Club may not be able to counter
this threat. Although there is more cash inflow than outflow, the net income of the
company is barely sufficient to engage in this endeavor. Consequently, this shortcoming
can be seen as WEAKNESS of the company.
BASIS: Financial Ratios, Operating Cash Flow to Sales Ratio and Net Profit Margin
2. RELEVANT THREAT: Increase in Industry Rivalry; Due to the increase in Transfer of

Technology, brand identity is seen to also increase, which is a clear threat to small
players like the Real Coffee Club.

aggressive marketing and promotions to establish its brand identity. The organization
should also consider investing in product differentiation and even product line
expansion.
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3. RELEVANT OPPORTUNITY: Decrease in Buyer’s Bargaining Power; Due to the increase in

disposable income of Filipino’s associated with decrease in Population Growth Rate,
Buyer’s Price Sensitivity is seen to also decrease. This is a clear opportunity for the
industry and for the company.

aggressive marketing and promotions to maintain/increase its market share. The
organization should also consider investing in product differentiation and even product
line expansion.
4. RELEVANT OPPORTUNITY: Decrease in Industry Rivalry; Due to the continuous growth

of the restaurant industry, Volatility of Market Share Competition is seen to decrease.
This can be considered as an opportunity since market share competition is less volatile
during rapid industry growth as firms can improve results just by keeping up with the
industry.
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NEEDED CAPABILITY: An organization must have sufficient resources to engage in future
expansion and/or to conduct aggressive marketing and promotions to maintain/increase
its market share.
EXISTING CAPABILITY: Unfortunately, the Real Coffee Club may not be able to exploit
this opportunity. Although there is more cash inflow than outflow, the net income of
the company is barely sufficient to engage in this endeavor. Consequently, this
shortcoming can be seen as WEAKNESS of the company.
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3.5 PERSONAL/FAMILY VALUES
Frameworks used: Three-Circle Model of Family Business

Three Dimensional Developmental Model
Spranger’s Value Orientation of Persons
Aristotle’s Fairness or Justice Approach
In his book Setting Frameworks: Family Business and Strategic Management (2005),
Prof. Cruz states that family values form a critical basis for strategy. Thus, he asserts that
Filipino management practitioners must learn to harness – not to change – these same values
in order to professionalize their management and develop sustainable competitive advantages
for family firms.
According to Gersick, Hampton, Lansberg, and Davis (1996), companies owned and
managed by families are a special organizational form whose “specialness” has both positive
and negative consequences. Family businesses draw special strength from the shared history,
identity, and common language of families. When key managers are relatives, their traditions,
values, and priorities spring from a common source. On the other hand, this same intimacy can
also work against the professionalism of executive behavior. Consequently, in evaluating the
family values of the key implementers in the Real Coffee Club, the author will first refer to the
Three-Circle Model of Family Business. The first model is said to be a very useful tool for
understanding the source of interpersonal conflicts, role dilemmas, priorities, and boundaries in
family firms. Specifying different roles and subsystems helps to break down the complex
interactions within a family business and makes it easier to see what is actually happening and
why. As can be seen in most family businesses, it is prevalent that major players are responding
to more than one powerful agenda at a time. Each participant sees all the others as parents or
children, co-workers, and co-investors simultaneously. All of these dynamics are said to
complicate the tasks of any of the circles – family, business, or ownership.
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Three-Circle Model of Family Business
The key implementers in the Real Coffee Club belong to either sector 7 (the General
Manager), or sector 6 (Division Heads). Those belonging to sector 7 are owners who are also
family members and employees of the company, while those belonging to section 6 are family
members who are also employees of the company. The rest of the members of the organization
belong to sector number 3 or those purely employees.
The author will next relate the above framework to the Three Dimensional
Developmental Model, which is best used to provide a predictable framework for the
development of family businesses over time in each dimension, and to suggest how a
recognition of the current stage – and the combination of stages across ownership, family, and
businesses – helps managers to analyze the dynamics of any family firm. In their book
Generations to Generations (1996), Gersick, Hampton, Lansberg, and Davis state that many of
the most important dilemmas that family businesses encounter are caused by the passage of
time. They involve changes in the organization, in the family, and in the distribution of
ownership. They involve changes in the organization, in the family, and in the distribution of
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ownership. As the family business moves to a new stage on any of the dimensions, it takes on a
new shape, with new characteristics.
The Three-Dimensional Developmental Model
Ownership Axis
This dimension describes the development of ownership over time. The different forms
of family ownership result in fundamental differences in every aspect of the family business.
The Real Coffee Club has only been in existence for two years. Although the owner of the Real
Coffee Club is the spouses Robert and Criselda Real, those in actual control of the company
include the Real Family siblings. Consequently, it can be said that the Real Coffee Club has a
hybrid ownership form. It is both at the Controlling Owner and Sibling Partnership Stages. Key
challenges of this ownership form include:
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 Capitalization;
 Balancing unitary control with input from key stakeholders;
 Choosing an ownership structure for the next generation;
 Developing a process for shared control among owners;
 Defining the role of unemployed owners;
 Retaining capital; and
 Controlling the factional orientation of family branches.
Family Axis
This dimension describes the development of the family over time. This dimension
captures the structural and interpersonal development of the family, through such issues as
marriage, parenthood, adult sibling relationships, in-laws, communication patterns, and family
roles. Working Together families try to manage complex relations of parents, siblings, cousins,
and children of their own and their siblings' of various ages. In this stage, two or more
generation are fully involved in the family business together. The Real Coffee Club is in the
Working Together Stage. Key challenges of family businesses in this stage include:
 Fostering cross-generational cooperation and communication

 Encouraging productive conflict management
 Managing the three-generation Working Together family
Business Axis
This dimension describes the development of the business over time. The development
of the business can be divided into three stages: Start-Up, Expansion/Formalization, and
Maturity.
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The Start-Up stage involves the periods that the company or new business units are
founded. There are two common characteristics of family firms in this stage: (1) the ownership
is the center of any activities, investing a great deal of time, energy and often, most of
resources; and (2) the company is usually focused on a single product or service, hoping to find
niche where it can build up enough resources to get established for the long run.
The Real Coffee Club is in the Start-Up Stage. The company is still in the pursuit of
positioning itself in the market, hoping to find its niche. Key challenges include:
 Survival (market entry, business planning, financing)

 Rational analysis versus the dream
VALUES AND ETHICS
According to Cruz (2005), personal values of decision makers are considered part of the
basis for strategies, and are critical determinants in the choice of strategies. He also asserts that
ethical issues play a critical role in strategic management. Thus, in the words of Mr. Jaime Zobel
de Ayala, “one has to be even stronger in the ethical and values foundation that you have in the
corporate setting” (Yuson, A. “The Ayala Way of Doing Things”).
Rokeach (1960) explains that a personal VALUE is an enduring belief that a specific
mode of conduct or purpose of existence is preferable to an opposite mode of conduct or
purpose of existence. For example, a person may believe that happiness cannot be attained
without a certain degree of material possession. It is, therefore, impossible to be happy if a
person is poor. This personal value will become critical factor in determining the person’s
choices and behavior (Cruz 2005)
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Using Eduard Spranger’s Value Orientation of Persons as framework, the key
implementers of the Real Coffee Club can be seen to posses varying degrees of theoretical,
economic, aesthetic, and social values. They exhibit the following specific core values:
Appreciation, Commitment, Humor, Rational, Respect, and Quality. In handling the business,
these are prevalent especially when the key implementers deal with the employees, when they
deal with the customers, when they introduce new products, and when they may managerial
decisions.
ETHICS is the study of moral principles and how individuals and organizations should
conduct themselves in social affairs. It is primarily concerned with the right moral actions in
particular contexts. Its focus falls more on what we are doing rather than on who we are. It is
said that ethics is seen as universal and absolute, as compared to morality which is founded and
came to mean the good or proper behavior according to custom, tradition, and beliefs.
The Real Coffee Club believes in Aristotle’s Fairness or Justice Approach as a

framework for moral decision-making based on ethics. The basic moral question in this
approach is, “how fair is an action?” “Does it treat anyone in the same way or does it show
favoritism and discrimination?”. Both favoritism and discrimination are unjust and wrong.
Family Institution
The process and mechanism for putting into practice an evolving family value system is
the family institution, which may vary over time from an informal to a highly formal body,
depending on the firm’s stage in its life cycle. In his book Setting Frameworks: Family Business
and Strategic Management (2005), Prof. Cruz states that for very small businesses, like the Real
Coffee Club, informal family meetings will do.
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MODULE 4
STRATEGIC PLAN

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4.1 VISION
VISION
Through our products and services, we will become every

Filipino’s partner in enjoying everyday experiences and
celebrating momentous occasions. We are guided by the values
of high-quality service to customers, respect for individuals,
responsibility to the community, and the recognition of the
Filipino culture.
CORE IDEOLOGY
Core Values
 Promotion of positive thinking, good vibes, and cheerful thoughts
 Dedication for customer service above all others
 Recognition of social responsibility
Core Purpose
 To provide the Filipino people a reason to celebrate and enjoy their everyday lives through
our products and services.
ENVISIONED FUTURE
Big Hairy Audacious Goal/s (BHAG)
 Become every Filipino’s choice in celebrating momentous occasions and creating the most
cherished memories
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Vivid Description
 We will cook and prepare with passion and bliss to produce the most enjoyable and the
most cheer-inducing food every customer has ever tasted. Our food will make our
customers happy and satisfied. We will create an ambiance conducive for socialization and
celebration. We will create euphoria which will make every Filipino go out of their homes to
join us in celebrating the joys of life and experiencing good food and pleasant company. We
will be the first choice of every person seeking to escape and relieve stress. We will be the
company known to have created a new culture where Filipinos are confident yet reserved,
festive yet responsible.
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4.2 OBJECTIVES
Framework used: SMART (specific, measureable, attainable, results-focused, and time-

bound)
1. To have yearly net income of at least 5 Million Pesos starting year 5 (2014).
2. To open two branches in the CALABARZON area, and one flagship store in Metro Manila
within the next five years.
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4.3 EVALUATION OF PRESENT CORPORATE STRATEGIES
Framework Used:
GENERIC STRATEGY
There are countless variations in the competitive strategies that companies employ
mainly because each company’s strategic approach entails custom-designed actions to fit its
own circumstances and industry environment. According to Porter (1980), however, when one
strips away the details to get at the real substance, the biggest and most important differences
among competitive strategies boil down to (1) whether a company’s market target is broad or
narrow, and (2) whether the company is pursuing a competitive advantage lined to low costs or
product differentiation. Five distinct competitive strategy approaches stand out:
1. A low cost provider strategy

2. A broad differentiation strategy
3. A best-cost provider strategy
4. A focused (or market niche) strategy based on lower cost
5. A focused (or market niche) strategy based on differentiation
The Real Coffee Club can be seen to be employing generic competitive strategy of a
FOCUSED STRATEGY BASED ON DIFFERENTIATION. Focused strategies are those that
concentrate attention on a narrow piece of the total market. The target segment, or niche, can
be defined by geographic uniqueness, by specialized requirements in using the product, or by
special product attributes that appeal only to relatively small numbers of buyers. A focused
strategy based on differentiation aims at securing competitive advantage by offering niche
members a product they perceive as well suited to their own unique tastes and preferences.
Successful used of a focused differentiation strategy depends on the existence of a buyer
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segment that is looking for special product attributes or seller capabilities and on a firm’s ability
to stand apart from rivals competing in the same target market niche.
The target market of the Real Coffee Club consists mostly of college students and young
professionals. It specifically targets those who love coffee, and those who are looking for a
place to hang-out or to socialize. As to specific strategies, it is unfortunate that no specific
framework is yet being utilized as the company is still at the start-up stage. In the alternative,
the author would like to present the different approaches being implemented by the Real
Coffee Club based on Porter’s Strategic Dimensions.
STRATEGIC DIMENSIONS
Specialization
This dimension refers to the degree to which the company focuses its efforts in terms of
the width of its line, the target customer segments, and the geographic markets served. At
present, the degree to which the Real Coffee Club seeks specialization is HIGH. It offers a
narrow product line, focusing only on hot and cold beverages (coffee and other flavors). The
company also offers a limited line of sandwiches, pasta, cakes, and pastries. Its target customer
segment is also narrow, focusing on college students and young professionals. With regard to
geographic markets, the company focuses only on suburban markets.
Brand Identification
Brand identification refers to the degree to which the company seeks brand
identification rather than competition, based mainly on price or other variables. Brand
identification can be achieved via advertising, sales force, or a variety of other means. At
present, the degree to which the company seeks brand identification is LOW. Although the
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company advertises, this is merely done on occasion. The company can be seen to be engaging
competition based mainly on price.
Push versus Pull
This dimension refers to the degree to which the company seeks to develop brand
identification with the ultimate consumer directly versus the support of distribution channels in
selling its product. The Real Coffee Club’s product is consumed/served within the place of its
business. Consequently, the company seeks to develop brand identification DIRECTLY towards
its ULTIMATE CONSUMER.
Channel Selection
This refers to the choice of distribution channels ranging from company-owned channels
to specialty outlets to broadline outlets. As mentioned above, the products being offered by the
Real Coffee Club are consumed within its place of business. Thus, the extent to which the
company chooses its distribution channel is NARROW, as it chooses only its own distribution
channel.
Product Quality
This dimension refers to the company’s level of product quality, in terms of raw
materials, specifications, adherence to tolerances, features, and so on. It can be seen that the
Real Coffee Club adheres to a HIGH level of product quality. Since it is engaged in the food
service industry, its raw materials (ingredients) are highly controlled to maintain its freshness
and taste.
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Technological Leadership
This dimension refers to the degree to which the company seeks technological
leadership versus following or imitation. At present, it can be seen that the degree to which the
company seeks technological leadership is HIGH. The Real Coffee Club’s processes and
procedures, especially when it comes to food preparation and cooking, are neither imitated nor
copied. Its food preparation and cooking technology has been developed after years of training
and experience.
Vertical Integration
This refers to the extent of value added as reflected in the level of forward and
backward integration adopted, including whether the firm has captive distribution, exclusive or
owned retail outlets, an in-house service network, and so on. At present, it can be seen that the
extent of value added by the company in terms of vertical integration is that of an ASSEMBLER.
The Real Coffee Club is at the Start-Up stage and is still positioning itself in the market.
Cost Position
This dimension refers to the extent to which the company seeks the low-cost position in
manufacturing and distribution through investment in cost-minimizing facilities and equipment.
At present, it can be seen that the extent to which the company seeks the low-cost position is
HIGH. The Real Coffee Club has been gradually acquiring better equipments to make
procedures faster and the cost of making products cheaper.
Service
This dimension refers to the degree to which the company provides ancillary services
with its product line. Ancillary services refer to the additional services being offered by the
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company which is not part of its products, but as a supplement thereto. At present, it can be
seen that the degree to which the Real Coffee Club provides ancillary services is LOW. It is not
yet offering payment through credit. Aside from the delivery of food (a service) as the main
product of the company, no other services are being offered.
Leverage
This refers to the amount of financial leverage and operating leverage the company
bears. Debt-equity ratio is a measure of an organization’s financial leverage. At present, the
Real Coffee Club uses its earnings from sales to finance operations and other necessary
investments. Debt-to-equity ratio is at 0.04:1. This means that the Company uses debts 0.4
times more than it uses its equity to support the operations. Financial leverage is therefore
LOW.
Product Scope
This dimension refers to the degree to which a company focuses its efforts in terms of
the width of its product line. At present, it can be seen that the degree to which the company
seeks width of product line is NARROW. The Real Coffee Club specializes on particular products
such as hot and cold beverages (coffee, tea, and other flavors), sandwiches, pasta, cakes, and
pastries.
Geographic Scope
This dimension refers to the extent to which the company focuses its efforts in terms of
geographical locations served. At present, the Real Coffee Club is focusing its efforts in San
Pablo City, Laguna.
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4.4 PROPOSED CORPORATE STRATEGIES
Framework Used: Porter’s Framework for Competitive Strategy
In his book Competitive Strategy (1980), Michael Porter states that the factors that set
the limits to the formulation of strategies are:
1. the strengths and weaknesses of the company;

2. the threats and opportunities to the industry;
3. the personal values of the key implementers; and
4. the broader societal expectations.
Collectively, this has become known as the basis for corporate strategies. This
framework shall be used by the author in proposing corporate strategies to the company.
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4.4.1 CORPORATE STRATEGY ONE
Using Porter’s Dimensions of Competitive Strategy, it is proposed that the Real Coffee
Club use the framework under the strategic dimension of SPECIALIZATION. In particular, it is
proposed that the company:
 Broaden the customer segment it serves, shifting from a highly-specialized coffee-

drinker segment to the kids, students, and young-professionals customer segments;
 Broaden its product line/scope, shifting from a specialization in coffee- and
chocolate- based beverages and light snacks to full lunch and dinner meals, and
other different flavored beverages.
Description
Independent surveys conclude that the Real Coffee Club is the highest-selling coffee
shop in San Pablo City. Despite this, sales of coffee and non-coffee beverages remain modest.
Consequently, the proposed strategy seeks to tap additional sources of revenue for the
company to sustain its business and to reach its income goals.
The author proposes that the Real Coffee Club shift its strategy from specializing on the
needs of coffee-drinkers, to offering the needs of more customer segments, which include kids,
students, and young-professionals customer segments. This will be done by offering a broader
product line that would cater to the different needs of the specific customer segments.
Kids Segment
The Real Coffee Club should re-package its existing products to entice the kids segment.
This includes offering exciting product mixes (kiddie meals) popular to kids: Rocky Road Freeze
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and Spaghetti; Brownies and Choco-Banana Freeze; and Chicken Asparagus Sandwich and
Strawberry Freeze. Popular kids toys should also be offered as part of the kiddie meals for the
kids to collect.
Students Segment
Bringing of packed meals to school has become less popular among high-school and
college students. Fortunately, there are two medical schools and nursing schools within 50
meters of the establishment. This opportunity must be tapped by the Real Coffee Club by
offering lunch and dinner value meals. Such proposed meals must be easy to cook, considering
that students need to go back to school in time for their classes. To maintain product
differentiation, food preparation and cooking techniques must use local, foreign, and modern
influences. Since the target of the value meals are college students, the company must consider
the daily allowances of students in suburban areas. To ensure that the meals would remain
affordable, costs must be maintained at a minimum. It must be sellable within the 50 pesos to
70 pesos price range.
Young Professional Segment
Bringing of packed meals is also becoming less popular among young professionals in
suburban San Pablo City. Although majority of them still brought packed meals, there is an
increasing trend of eating out for lunch and dinner. This opportunity must be tapped by the
Real Coffee Club by offering lunch and dinner value meals. In line with the growing trend of
food preferences among Filipinos, such proposed meals include more sophisticated Filipino and
Foreign dishes. This however should still consider the salary range in the area. Consequently,
the new products must be sellable within the 80 pesos to 150 pesos price range.
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Objectives Attained
 To have net income of at least 3 Million Pesos at the end year 5 (2014).
Basis of Strategy
1. STRENGTH of the Company:
The Real Coffee Club can maximize its strength in terms of R&D experience and
expertise in coming up with high-quality products through this strategy. Especially since
majority in the R&D Team are below 29 years old, the author is confident that the new products
will be a hit amongst the kids and the teens.
The author also sees that the R&D Team is capable of creating new products using
different cooking styles, and is capable of concocting new beverages for the more sophisticated
consumers.
2. OPPORTUNITY to the Industry:
The opportunity due to the increase in youth’s spending power can be exploited by the
Real Coffee Club through this strategy. Product differentiation is said to create layers of
insulation against competitive warfare because buyers have preferences and loyalties to
particular sellers. By offering a broader product line, the company will be able to increase its
competitiveness in terms of product differentiation. More buyer preferences can be satisfied,
which can create customer loyalty and increase sales.
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The opportunity due to the increase in food quality requirements, food variety, and food
sophistication and the increase in disposable income, both of which resulted to a decrease in
Buyer’s Price Sensitivity can be exploited by the Real Coffee Club through this strategy. By
offering a broader product line, the company can now offer “gourmet” products at affordable
prices. The company can now also introduce “healthy” meals, specifically targeting the
increasing number of health-conscious buyers.
4. PERSONAL VALUES of the Key Implementers:
The commitment of the key implementers to provide every Filipino products and
services that will enhance their everyday experiences is in line with this strategy that will seek
to serve more customer segments, young or old, sophisticated or traditional.
5. Broader SOCIETAL EXPECTATIONS:
This strategy is consistent with the mandate of Catholic Social Teachings on providing
dignity to labor. The strategy will create more sources to increase the benefits of the Real
Coffee Club employees. The company would also be able to reinforce its policy against laboring
contracting.
4.4.2 CORPORATE STRATEGY TWO
Club use the framework under the strategic dimension of GEOGRAPHIC SCOPE. In particular, it
is proposed that the company increase its efforts in terms of geographical location served by
establishing two more stores in the CALABARZON area (Dasmariñas, Cavite and Sta. Rosa,
Laguna) and a store in a key area in Metro Manila (Makati City).
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Description
Adding store locations is one of the most effective ways in increasing the profitability of
a food service company. This is because in the restaurant industry, sales are limited to the
number of potential buyers within its general business area willing to eat outside of their
homes. The less potential buyers there are, the less sales there would be, even if the company
is able monopolize all the sales in the area. Thus, it is said that the continuous growth of a food
service company highly depends on the market size in which it operates. To counter this
limitation, the author proposes that the company increase its store locations in key areas to
maximize potential profits in the rapidly growing restaurant industry.
Metro Manila
According to recent studies, the popularity and the success of a food service company in
the country’s capital is a driver for potential buyers in suburban areas to buy their product.
Thus, in the proposed strategy, Real Coffee Club must establish a flagship store in a key area in
Metro Manila. To ensure success, this flagship store must be located in a high pedestrian traffic
and high-visibility location. It must offer convenient access for pedestrians and drivers. Since it
targets the ABC markets, Real Coffee Club stores should be located in either near an office
building, a call-center office, or a university campus.
It must be understood however that competition is already tough in the Metro Manila
area. High-levels of customer loyalty and brand identification are being enjoyed by long-time
players such as Starbucks, Coffee Bean and Tea Leaf, Figaro, and Seattle’s Best. To counter this
disadvantage, the author proposes that the Real Coffee Club reinvent its image by using a
theme for its flagship store.
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According to a recent survey, there is an increasing trend of using coffee shops as a third
place where students can study and young professionals can work. This is said to be
attributable to the increase in foreigners seeking education in the country’s highly-urbanized
areas, and the increase of purchasing power and disposable income of students and young
professionals. Having this in mind, the author proposes that the Real Coffee Club adopt the “a
touch of a book store and an art gallery setting” as a theme for the flagship store. In designing
this theme, students and young professionals must be comfortable in using the store as a third
place. The company must also carefully lay-out and choose the designs and artworks so as to
stimulate the customers intellectually and creatively. It must have a general feel of having fun
while studying.
CALABARZON Area
Dasmariñas, Cavite and Sta. Rosa, Laguna are rapidly becoming highly-urbanized cities.
This is due to the increase in industrial and commercials areas, school campuses, and office
buildings in the said cities. The Real Coffee Club must take advantage of this opportunity,
especially when the strong coffee shop players in Metro Manila has not yet penetrated this
area. Since it targets the ABC markets, the Real Coffee Club store should be located near an
office building or within an accessible commercial complex where foot traffic is high.
Objectives Attained
 To open two branches in the CALABARZON area, and one flagship store in Metro Manila
within the next five years (2014).
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Basis of Strategy
1. WEAKNESS of the Company:
One of the weaknesses of the company is the lack of additional sources of income. Such
weakness can be overcome by the Real Coffee Club through this strategy. By establishing
additional stores, the company will be able to broaden its market size. This therefore can be
equated to broadening its potential buyers’ pool, and increasing its potential sources of
revenue.
The opportunity due to the increase in youth’s spending power can be exploited by the
Real Coffee Club through this strategy. By establishing additional stores in key areas, the
company will be able to tap additional sources of revenue by enticing potential buyers to spend
their everyday experiences with the Real Coffee Club.
The opportunity to the Industry due to the continuous growth of the restaurant industry
can be exploited by the Real Coffee Club through this strategy. It must be emphasized that a
decrease in Industry Rivalry is seen which in the same way decreases the volatility of market
share competition. Thus, since there is no fierce competition in market share, it would be
beneficial if the company enter at this stage as the risk of retaliation from the industry leaders
is low.
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to serve more customers in more areas.
dignity to labor. The strategy can be seen to have to effects: First, it would create more sources
of funds to increase the benefits of the Real Coffee Club employees; and Second, it would
create more jobs for the Filipinos.
4.4.3 CORPORATE STRATEGY THREE
Club use the framework under the strategic dimension of leverage. In particular, it is proposed
that the company manage its FINANCIAL LEVERAGE by increasing its reliance on debt-
instruments to finance its planned product scope expansion and geographic scope expansion.
This is proposed to be done by borrowing money / obtaining loan from the bank.
Description
The Debt to Equity Ratio of the Real Coffee Club is 0.04:1, which means that the
company virtually DOES NOT rely on debt instruments to finance its assets and operations.
According to Groppelli and Nikbakht (2006), up to a certain point, debt financing is beneficial to
a firm because it provides financial leverage. That is, the tax deductibility feature of interest
paid to creditors enable a firm to achieve higher earnings per share when debt is issued than
would be possible by issuing equity. In other words, by issuing debt, the firm achieves higher
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earnings per share as a result of tax benefits obtained from the deductibility of interest. This
boost in earnings per share is called financial leverage.
Financial leverage related to the practice of using debt securities to finance investments
and consists of the relationship between EBIT (earnings before interest and taxes) and EPS
(earnings per share). When debt is issued, the firm commits itself to pay interest and repay
principal sometime in the future. Because this interest is a tax-deductible expense, more of the
operating income flows through to investors.
Loan from a Bank
There are existing banks that specifically tailor their products for small businesses. The
Real Coffee Club must consider obtaining a loan from GE Money Bank – San Pablo City Branch.
This bank offers low interest rates especially for small business.
Objectives Attained
 To open two branches in the CALABARZON area, and one flagship store in Metro Manila
within the next five years (2014).
Basis of Strategy
1. WEAKNESS of the Company:
The weakness due to the lack of funds to finance investments, operations, and
expansions can be overcome by the Real Coffee Club through this strategy. By managing its
financial leverage through an increased reliance on debt instruments, the company will be able
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to invest in efforts to increase brand identification. Such investments that the Real Coffee Club
should engage on include aggressive advertising and increased efforts to improve customer
service, processes, and procedures.
2. THREAT to the Industry:
The threat to the industry due to the increase in Transfer of Technology can be
countered by this strategy. With more funds for investment, the Real Coffee Club can further
improve customer service, processes, and procedures. Even if new franchisees enter the
industry, due to the increase in development funds, the company will be able to compete with
them neck and neck.
The opportunity due to the continuous growth of the restaurant industry, can be
exploited by the company through this strategy. Since the volatility of Market Share
Competition is low, this will be an opportune time for the Real Coffee Club to add new stores
and to establish its market share and brand identity. The risk of retaliation from key players is
seen to be low at this stage in the industry.
to serve more customers in more areas.
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dignity to labor. The strategy can be seen to have to effects: First, it would create more sources
of funds to increase the benefits of the Real Coffee Club employees; and Second, it would
create more jobs for the Filipinos.
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4.5 COMPETITIVE ADVANTAGE
Framework Used: Wharton Model of Competitive Advantage Cycle

Porter’s Value Chain
In his article Maintaining the Competitive Edge: Creating and Sustaining Advantages in
Dynamic Competitive Environments (1997), George Day states that within a given arena of
competition, companies seek to build and sustain competitive advantages over rivals. According
to him, competitive advantages result from either (1) the firm’s position in the industry, or (2)
its resources and capabilities. With regard to the first perspective, it is said that advantages
result from securing a defensible cost or differentiation position in the most attractive
segments of the total market. In contrast, the second perspective states that advantages result
from distinctive, hard-to-duplicate resources of the firm. Such resources – comprising
integrated combinations of assets and capabilities – are cultivated slowly over time, cannot be
readily traded, and limit the firm’s ability to adapt to change.
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It is asserted that to get a full picture, the mentioned sources of competitive advantage
must be viewed together so as to see the state of advantage and how it was gained. The
position and performance of the firm in the industry may describe the state of advantage;
however, this positional superiority is a consequence of relative superiority in the resources a
business deploys. In turn, these resources are the result of past investments made to enhance
the competitive position. The creation and maintenance of advantages is thus a continuous
cycle.
Using the Wharton Model of Competitive Advantage Cycle as framework, the author
will: (1) assess the cycle of competitive advantage in relation with the company; (2) identify the
nature and magnitude of the present advantages of Real Coffee Club; and (3) propose the
creation and a way of sustaining competitive advantage.
4.5.1 Present Competitive Advantage
The Real Coffee Club is seen to be pursuing differentiation as its strategy for attaining
competitive advantage. At present, the author believes that the company has attained the
stage of being able to realize positional advantages.
Location
One of the competitive advantages of the Real Coffee Club is its location. The store is
situated in a relatively higher pedestrian traffic and higher visibility commercial complex
compared to the other coffee shops in the city, as it is between two medical and nursing
schools, two hospitals, and two offices. It has a parking space that would fit six cars. It can also
be conveniently accessed by pedestrians. As it stands, only the Real Coffee Club has these
conveniences. The source of this advantage is its geographic coverage, which is considered as
the company’s superior asset.
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Innovativeness
Another competitive advantage of the Real Coffee Club is the ingenuity and creativity of
its R&D Team. They are able to come-up first with exciting new flavors for the beverage line and
delicious new snacks for the food line. This would include its Rocky Road Freeze, and the
exquisite Caffè di Classe (Civet Coffee). It is also the first to offer the Cheese French Toast, Basil
Sardinae Sandwich, and California Sandwich. The source of this advantage is its R&D Team’s
accumulated knowledge and skills.
4.5.2 Proposed Competitive Advantage
Positional Advantage
According to Gray (1997), positional advantage can be achieved either by differentiation

through providing superior customer value or by achieving the lowest delivered cost. This view
suggests that the mentioned two generic strategies involve fundamentally different routes to
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competitive advantage, and firms must make a choice between them because they are usually
incompatible. However, companies who have tried to pursue both strategies simultaneously
proved that it is possible for firms to be the low-cost leader while differentiating themselves.
For example, superior product quality can indirectly lower costs. Higher quality leads to higher
market shares, and this, in turn, reduces total costs due to experience effects and scale
economies.
A firm differentiates itself from its competitors if it can be unique at something that is
valuable to buyers (in contrast with firms which are simply “different” but not differentiated as
they pursue forms of uniqueness that buyers do not value). For the Real Coffee Club, the author
proposes that it seeks to achieve competitive advantage in:
1. Ambiance
The most successful coffee shops in the world have adopted the “third place” strategy in
order to attract more customers. A third place is defined as a place outside of home and work,
where people can meet and talk, gather together and relax while enjoying their favorite cup of
coffee. The author proposes that in seeking to attain this strategy, the company must not fall
into the same trap that the other coffee shops did. Following suit from Starbucks, most coffee
shops have designed their stores with a similar concept. It is the author’s belief that to
differentiate itself from the rest, it must use a more exciting theme in designing its stores to
create the perfect ambiance for customers. The author proposes that the Real Coffee Club
adopt the “a touch of a book store and an art gallery setting” as a theme. Here, the designs and
artworks of the store are carefully laid-out and chosen so as to stimulate the customers
intellectually and creatively. It must also have a general feel of having fun while studying.
 Source in the Value Chain: Marketing, Promotions

 Driver/s of Uniqueness: Policy Choices
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2. Wider Selection of Products
Most coffee shops offer only coffee based drinks and light snacks. This must be taken
advantage of by the Real Coffee Club, especially since recent studies show that Filipinos order
more non-coffee based drinks than coffee-based drinks. Such products include meals and more
non-coffee based drinks.
 Source in the Value Chain: Food Preparation and Beverage Mixing

Technologies
 Driver/s of Uniqueness: Policy Choices, Learning and Spillovers, Linkages
3. Location being at the Center of Commerce
Although the store is situated in a higher pedestrian traffic and higher visibility
commercial complex compared to the competing coffee shops within the city, the emergence
of commercial complexes in a better location can still be expected. To ensure the continuance
of its competitive advantage, the author proposes that the company opens another store in the
town proper (“bayan”). Similarly, it must be near the two schools (Laguna College and San
Pablo Central School), and the office buildings (BPI, Banco Filipino, etc.). It should have a
parking space, and must be conveniently accessed by pedestrians.
 Source in the Value Chain: Marketing, Promotions

 Driver/s of Uniqueness: Location
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Investment in Renewal
The company needs to invest in renewing advantages to sustain its positional

advantage. As in this case, in order for the Real Coffee Club to attain its new positional
advantages and retain its present positional advantages, it needs to invest in the development
of employee skills through training and seminar, and to invest in Research and Development
Team training to learn new trends and styles of preparing / cooking food. It also needs to invest
in design consultants to ensure that the costumers are able to enjoy the Real Coffee Club
experience.
Sources of Advantages
Underlying a positional advantage is a distinctive set of assets and capabilities. Superior

Assets are tangible endowments that the business has accumulated. The most valuable assets
that need development to enable the company to reach the proposed positional advantage are:
 brand equity;
 expenditures on advertising and promotion support; and
 financial capacity and cost of capital
On the other hand, Distinctive Capabilities refer to the glue that holds these assets
together and enable them to be deployed advantageously. Capabilities differ from assets in that
they are so deeply embedded in the organizational routines and practices that they cannot be
traded or imitated. The most distinctive capabilities that need development to enable the
company to reach the proposed positional advantage are:
 accumulated employee knowledge and skills

 knowledge in the food preparation and beverage mixing technologies
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Competitive Dynamics Erode Advantages
Competitive advantages of companies erode through time due to changes in the

macroenvironment. In the case of the food service industry, cooking and food preparation
techniques can be easily imitated. That is why with the continued investment in the R&D team
and the continuous innovation of its members, the Real Coffee Club aims to invest in the
renewal of competitive advantage.
Performance Rewards
Performance rewards are the awards generated by the company because of the
positional advantage it has realized. The Real Coffee Club will know if it has gained competitive
advantage through the generation of the following performance rewards:
 Customer Satisfaction and Loyalty, which is evidenced by capturing 70% share of the
target market;
 Yearly profits of at least 5 Million Pesos starting year 5 (2014).
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MODULE 5
FUNCTIONAL AREAS STRATEGIES

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5.1 MARKETING
Framework Used: McCarthy’s Marketing Mix (Four Ps of Marketing)
According to Kotler and Keller (2006), the marketer’s task is to devise marketing
activities and assemble fully integrated marketing program to create, communicate, and deliver
value for consumers. For this functional area, the author will refer to McCarthy’s Marketing
Mix or more popularly known as the Four Ps of Marketing as framework to pursue its
marketing objectives.
Market Definition and Identification
A market is a group of potential customers that is interested in the product or service

being offered, has the resources to purchase the product or service, and is permitted by law
and other regulations to acquire the product or service. The market or potential customers in
the food service industry are composed of all household population, both male and female.
The Philippine household market is segmented into five income groups (A, B, C, D and
E). The market for the food service industry mainly belongs to the A, B, C, and D income groups.
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Household is defined by the National Statistical Coordination Board (NSCB) as a social unit
consisting of a person living alone or a group of persons who: a) sleep in the same housing unit;
and b) have a common arrangement for the preparation and consumption of food.
With reference to its task environment, the market or potential customers of the Real
Coffee Club is composed of all household population, both male and female, belonging to the A,
B and C income groups situated in San Pablo City, Laguna.
Market Size
Final results of the latest Census of Population (POPCEN 2007) conducted by the
National Statistics Office (NSO) placed the Laguna population at 2,473,530 persons, while the
San Pablo City at 237,259 as of August 1, 2007. Household population in San Pablo City is
estimated at almost 247,000 people. Household Population is defined as the aggregate of
private household population. Compared to total population, this excludes population
enumerated in institutional households such as national/provincial/municipal/city
jails/detention centers, military camps, tuberculosis pavilions, mental hospitals,
leprosaria/leper colonies or drug rehabilitation centers.
Market Segments
According to Kotler and Keller (2006), a market segment consists of a group of

customers who share a similar set of needs and wants. The marketer does not create the
segments; the marketer’s task is to identify the segments and decide which one/s to target.
Buyers can be classified according to the benefits they seek. The market in the food service
industry can be segmented as follows:
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Targeted Segment Customer Need
6-12 year-olds (Kids) Kiddie Treats
13-18 year-olds (Teens) Treats
18-22 year-olds (college students) Value for money meals
23-35 year-olds (young professionals) Value for money but more
sophisticated meals
35-45 year-olds (adults) Sophisticated; Foreign
Influence; Fine Dining
Marketing Objectives
 To increase its market share to 70% of its target market;

 To change its image from a coffeehouse to a café; and
 To develop its brand equity
Four Ps
Product: The Real Coffee Club must continuously develop innovative products that will
cater to the changing needs of its potential buyers. This includes healthier
options such as low-sugar or fruit based beverages. Since the company is
proposed to offer full meals, its products must cater to the budget-conscious
students, and the health-conscious consumers. It should also develop low-cost
and low-priced gourmet meals to ensure that customers enjoy the Real Coffee
Club experience.
Price: Although the competitive advantage of Real Coffee Club is focused

differentiation, it must still take into consideration that its products are offered
at “best-price”. Since the company operates in a suburban area, premium pricing
is highly discouraged and will not be implemented. Drinks will be priced below
the PhP.100 mark.
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Place: Choosing a location and enhancing the ambiance of Real Coffee Club stores are
essential factors in the success of the marketing strategy and the attainment of
competitive advantage. Locations must be chosen based on the level of
pedestrian traffic in the area. In choosing a theme, the company must ensure
that the design would be comfortable and cozy yet engaging and stimulating.
Promotion: The Real Coffee Club must be more aggressive when it comes to advertising and
promoting its products. As part of its marketing strategy, the author proposes
that it change its image from being a coffeehouse to a café. The first step for this
is to change its name from Real Coffee Club to its more popular name RCC. As
part of its promotions, it must continue to engage in activities, especially during
the town fiesta and school foundation days. The company should also conduct
in-store sampling of food and beverage, especially for its new products.
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5.2 OPERATIONS
The purpose of an operations strategy is to increase or improve the efficiency of the

company’s workforce by improving the quality of its products and services and simultaneously
reducing costs.
Objective
To continuously improve the products and services offered by the Real Coffee Club by
conducting periodic systems and processes evaluation, and developing food preparation and
beverage mixing technologies.
Plan
Capacity: Workforce is essential in the food service industry. Since the company’s
product is a service, the Real Coffee Club cannot afford its personnel to
look exhausted and tired every time they meet deal with customers.
Thus, with due regard to the optimum efficiency of the crew, the
company should not give them work hours beyond 8 hours.
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Standards: Product quality is how the food service industry competes. Consequently,
the Real Coffee Club must continuously conduct product standards
evaluation to ensure that only fresh ingredients are served. This includes
ingredients screening upon delivery and upon use. These standards must
be strictly enforced to ensure maximum customer satisfaction.
Inventory: Managing inventory is one of the most crucial areas in the food service
industry. Ingredients must be maintained fresh and at its best stage. To
ensure this, inventory is checked daily, while delivery is made every other
day. Ingredients are also ordered in reasonable amounts.
Scheduling: For the Real Coffee Club, scheduling covers two aspects – scheduling as
to the ingredients, and scheduling as to the food preparation/cooking
and beverage mixing. The first aspect is the area to improve on for Real
Coffee Club. It is often that deliveries are not made just in time when it is
needed. To lessen late delivery, the management must take into
consideration the delivery lead time of suppliers. This must then be
synchronized with the “two-container” system. With this simple process,
the Real Coffee Club crew will be able to know the best time to order. As
regards the second aspect, the company should assign crews into
different tasks. Then, per task, orders must be made on a first-come first-
serve basis. In this way, those who ordered simple products (e.g.
beverages) need not wait for the crew to finish cooking the prior-
received order before they attend to the order of the subsequent
customer.
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Control: Control should be done through random checks and periodical
monitoring of key areas such as in the inventory management and in the
operations.
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5.3 FINANCE
The purpose of a financial plan or strategy is to optimize the value of the firm through
the balancing of its financial ratios.
Objective
The Real Coffee Club must increase its profits by at least 40% every year for the next five years
in order to attain the corporate objectives of expansion in the CALABARZON area and in Metro
Manila.
Plan
It has already been determined that it will be more strategic for the company to expand its
product scope to increase its revenue. This will be the foundation of the company’s financial
plan. Through its new products, it must raise a yearly increase of at least 40% in profits through
aggressive sales and marketing. Since at present, the Real Coffee Club has not been able to
raise substantial retained earnings, to finance the expansion project which is expected to
produce additional revenues, the company should obtain a loan from GE Money Bank. The said
banks offer very low rates especially for small businesses seeking expansion.
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5.4 INFORMATION
Information technology is a set of procedures for processing data necessary for making
decisions when needed. The purpose of the information technology strategy is to guide top
managers and ordinary employees in making sound decisions just in time
Objective
To make use of information technology so as to allow key decision makers to have

readily available information when needed for management decisions.
Plan
IT programs need not be complicated. Investing in POS machines and other

sophisticated machineries are impractical especially for small businesses like the Real Coffee
Club. Consequently, it is the proposal of the author that instead of investing in these items, the
company should instead acquire open source softwares that integrate all needed information.
In fact, simple programs like the Open Office can help generate useful information for decision-
making.
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5.5 HUMAN RESOURCES
Framework Used: Human Resource Cycle
The purpose of a human resource strategy is to improve the performance of employees

and managers, especially to help attain the new strategies to be implemented. For the Real
Coffee Club, being in the food service industry, employees should continue to be its most
important “asset” and “resource”. Human Resources must also help align the goals of the
employees with the company’s goals.
Objectives
1. To drive organizational and operational effectiveness to support growth

2. To make the Real Coffee Club as the “Best Place to Work”
Plan
Recruitment / Hiring
The company believes in providing opportunities for every individual. Thus, Real Coffee
Club does not strictly require that an employee be a college graduate in order to join the
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organization. Indeed, the most important factor in hiring should be the employee’s dedication,
willingness to learn, belief in the core values of the company, and drive for excellence.
Performance of People
Being in the food service industry, the performance of the employees must be
constantly observed and documented. This is because it is in the operations that companies
compete to attain competitive advantage. Any performance that requires immediate attention
because of its detrimental effect to the business must be promptly addressed. Constant training
and review must also be employed by the company to ensure that processes are updated and
remembered
Measuring Performance
Performances must be evaluated periodically. This is to help both the employee so that
they will be able to know the areas that they need to improve on, and the company, so that
they know if the performances of the employees are in keeping with the goals of the Real
Coffee Club. In evaluating performances, there must be a defined rubric which is made know to
the employees.
Reward
Although the Real Coffee Club is not a big enterprise that will be able to afford huge
rewards, this does not mean that small businesses should not engage in rewarding its
employees for their exemplary performance. One such way is employee recognition. At the
Real Coffee Club, employees are allowed to suggest new products and services. Such efforts,
when proven to be successful are publicly recognized. They are also given monetary rewards for
the creativity and innovation in imparting such knowledge. Also, the company must consider
rewarding employees through the “Employee of the Month” Awards. Here, employees are
known of the criteria in judging who the best performer of the month was.
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Development
Opportunity for continued development is crucial in this area, for it is not always money
that drives the motivation of individuals. Consequently, the management must open up training
opportunities for the employees. Also, in line with the personal values of the Real Coffee Club
management, the company must also give utmost accommodation to those who would like to
continue their education. This can be done by giving them the option to choose their shifts and
the number of days in a week they can work.
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MODULE 6
IMPLEMENTATION

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6.1 ANALYSIS OF COMPANY’S CAPABILITIES TO IMPLEMENT
Framework Used: McKinsey’s 7s Framework
According to Waterman, Peters, and Phillips (1980), an effective organizational change is

the relationship between structure, strategy, systems, style, skills, staff and superordinate
goals. Because of such relationship, it asserted that a change in one of the said elements (e.g.
strategy) must necessarily have a corresponding change in the remaining elements in order to
effectively implement change. In relation to this, the author will use McKinsey’s 7-S Framework
as framework to determine what changes to be made to make the company capable of
strategy execution.
The 7-S Framework comprises the following:
a. Structure – this element concerns emphasis and coordination – how to make the whole
thing work.
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b. Strategy – refers to those actions that a company plans in response to or anticipation of
changes in its external environment – its customers, its competitors. Strategy is the way
a company aims to improve its position vis-à-vis competition.
c. System – means all the procedures, formal and informal, that make the organization go,
day by day and year by year: capital budgeting systems, training systems, cost
accounting procedures, budgeting systems.
d. Style – this refers to the pattern of actions of the management team. One element of
style is how the manager chooses to spend time. Skillful management of his/her
fragmented time is an immensely powerful change lever. Another aspect of style is
symbolic behavior. Another aspect of style is symbolic behavior.
e. Staff – this refers to the process of developing managers, and shaping the basic values
of their management cadre, and providing management training programs.
f. Skills – refer to those what the company does best. Thus, organizations facing big
discontinuities in business conditions must do more than shift strategic focus.
Frequently, they need to add a new capability, that is to say, a new skill.
g. Superordinate Goals – refer to fundamental ideas around which a business is built.

These are guiding concepts – set of values and aspirations, often unwritten, that goes
beyond the conventional formal statement of corporate objectives. They are the broad
notions of future direction that the top management wants to infuse throughout the
organization.
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6.1.1 Corporate Strategy One
Club use the framework under the strategic dimension of SPECIALIZATION. In particular, it is
proposed that the company:
 Broaden the customer segment it serves, shifting from a highly-specialized coffee-drinker

segment to the kids, students, and young-professionals customer segments;
 Broaden its product line/scope, shifting from a specialization in coffee- and chocolate-
based beverages and light snacks to full lunch and dinner meals, and other different
flavored beverages.
Change Involved: Strategy
a. Structure – since the products of the Real Coffee Club will now include meals,
operations must now be divided into two – kitchen team (those responsible for cooking
the meals) counter team (those responsible for preparing beverages and lights snacks).
To ensure coordination between the two teams on the one hand, and between the
teams and the management on the other, an operations head must be designated. The
operations head shall be responsible for the management of the two teams, and for the
coordination with the Research and Development Team.
b. System – the change in strategy requires the development of the training system. Since
new products will be served, there must be coordination with the R&D Team to ensure
the quality of the new products to be offered. There must also be training as to the
procedure in processing orders, especially when
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c. Style – since the General Manager is also the head of Research and Development for
Food, he should be hands on with regard to the training and the monitoring of the new
products to be offered. It is important for the manager to show this to the crew to give
the message that the management believes in the new product, and that it is important
for the company to make the new offering successful.
d. Staff – it is important for the head of operations to know of the processes involving the
new product offerings. Thus, in cooperation with the R&D Team, the company should
train the operations head to ensure that the new food preparation and beverage mixing
technologies are made know to him.
e. Skills – the employees must also be trained in order for them to acquire the new skill of
food preparation involving full meals.
f. Superordinate Goals – service to customers is the primary consideration of the Real

Coffee Club. Customers must always enjoy their everyday experience in the store.
6.1.2 Corporate Strategy Two
Club use the framework under the strategic dimension of GEOGRAPHIC SCOPE. In particular, it
is proposed that the company increase its efforts in terms of geographical location served by
establishing two more stores in the CALABARZON area (Dasmariñas, Cavite and Sta. Rosa,
Laguna) and a store in a key area in Metro Manila (Makati City).
a. Structure – the author anticipates concerns regarding the coordination of the branches
with the management. Consequently, to ensure smooth operations, the Real Coffee
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Club must designate a branch manager for all the branches. They will then answer
individualy to the general manager.
b. System – to eliminate miscommunication, systems will be implemented independently

per branch. They will be treated as separate entities, with separate accounting, capital
budgeting, and inventory systems.
c. Style – each branch manager is required to frequent their designated branches. They
must be hands on. To show to the employees that all branches are equally important,
the general manager must at least visit each branch once a week.
d. Staff – to ensure continuity and uniformity, managers must be trained together. The
company must inculcate in them the company values, its mission, and its vision.
e. Skills – training for all the employees of all the branches must be done at the same time.
This is to ensure continuity and commonality in action. Each branch must have the same
skills, same ideals, and same high-quality of service.
f. Superordinate Goals – service to customers is the primary consideration of the Real

Coffee Club. Customers must always enjoy their everyday experience in the store.
6.1.3 Corporate Strategy Three
Club use the framework under the strategic dimension of leverage. In particular, it is proposed
that the company manage its FINANCIAL LEVERAGE by increasing its reliance on debt-
instruments to finance its planned product scope expansion and geographic scope expansion.
This is proposed to be done by borrowing money / obtaining loan from the bank.
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a. Structure – a new position must be created that would specifically handle and manage
the debts of Real Coffee Club. This is to ensure that debts are paid on time, or when it is
most viable.
b. System – the company must create a capital budgeting system to ensure that only the
best options are availed of by the company. Also, this is to manage debts, to know when
is the best time to borrow, and to regulate loaning activities.
c. Style – the management team should show that it is not the policy of the company to
keep on borrowing at every opportunity that it gets. The management should show that
loans and debts should be managed.
d. Staff – the company must inculcate in the management the principles and policies of the
company involving loaning a bank. They must know when to borrow, and how to
manage loans.
e. Skills – the new skill that the management must obtain is the skill in understanding and
managing the financial leverage of the company. Managers must be conversant and
knowledgeable especially with regard to obtaining loans, understanding interests, and
the like.
f. Superordinate Goals – the fundamental idea regarding this matter is that the company
shall maintain reliance on loans at a minimum to ensure that it is not at risk of failing to
pay debts.
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6.2 MANAGING INTERNAL ORGANIZATION FOR STRATEGY EXECUTION
Framework Used: 8 Strategy Implementation Tasks (8-SIT) Framework

Hirano’s 5-S Framework
The conceptual framework in executing strategy known as the 8 Strategy

Implementation Tasks (8-SIT) shall be used by the author as guide in implementing the 7-S
framework discussed above. The 8-SIT complements the 7-S framework in evaluating the
capabilities of the firm in successfully implementing its strategy. The 8-SIT tells us how to fill the
necessary gaps for implementing the strategy as provided and revealed by the 7-S framework.
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1. Building an organization with the competencies, capabilities, and resource strengths
to carry out the strategy successfully
Person Responsible for the Task: Jaymee Real (Head of HR)

Jaymee Real (Head of R&D for Drinks)
Robert Real Sr. (Head of R&D for Food)
Proficient strategy execution depends heavily on competent personnel, better-than

adequate competitive capabilities, and effective internal organization. Building a capable
organization is always a top priority in strategy execution.
a. The HR Team should create additional standards and qualifications which would be
necessary in the new strategy of the Real Coffee Club. Such qualifications include
experience and/or competency in food preparation and cooking. During the application
process, the Recruitment Officer should evaluate each applicant based on the standards
and qualifications set and select only those who satisfactorily meet these standards and
qualifications.
b. The Head of HR Team must update its current training program to include the new food
preparation and beverage mixing techniques. It shall be conducted in coordination with
the R&D Team, which developed the new techniques. All the employees of Real Coffee
Club, newly-hired and currently-working, must participate in this training program.
c. The Human Resource Manager should evaluate each of the employees regularly and
determine their skills and capabilities. Employees with greater skills should be given
more challenging jobs which include heading a team or giving them an opportunity to
make decisions.
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d. To develop the skills of the employees and to make them well-rounded, the HR Team
should introduce a job rotation scheme. The employees must be designated in different
tasks such as in food cooking, food preparation, beverage mixing, and attending to the
cashier. This is to keep the workers motivated as well as to take care of contingencies
such as in cases of absent employees or insufficient manpower.
e. Since the Real Coffee Club employees are the front-liners in operating the store, both
the HR and the R&D Teams must give them an opportunity to make suggestions with
regard to the processes and the techniques.
f. The Human Resource Manager should provide incentives and rewards for excellent
performances of employees. Rewards such as employee of the month award, will keep
the employees motivated.
g. Those who perform well in their jobs should be commended. Those who are average
performers should be provided with additional trainings for them to develop their skills
and capabilities. Those who cannot meet the standard of performance required of their
job should be either transferred to a less demanding position or ask them to leave.
2. Establishing strategy-supportive policies and procedures.
Person Responsible for the Task: Reginald Real (General Operations Head)
 The key decision makers / owners must review the activities in the value chain. They
should evaluate each activity and determine which of the activities are best performed
internally and which activities should be outsourced.
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 The organization structure should be developed based on the internally performed
strategy-critical activities.
 The key decision makers should discuss which strategy they will adopt, whether
centralization of authority at the top or delegate some authority to managers and
employees.
 The General Manager should assign the operations head who will be in charge with
dealing with suppliers. He or she should be one who has people skills in order for him to
get the best deals possible.
 The Real Coffee Club must codify all these policies and procedure.
3. Developing budgets to steer ample resources into those value chain activities critical
to strategic success.
Person Responsible for the Task: Reginald Real (Head of Finance)
The Real Coffee Club shall continue to evaluate favorable loans in order to finance
expansions and development. It must also create new sources of revenue to increase its net
income.
4. Instituting best practices and pushing for continuous improvement in how value chain
activities are performed.
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The best practices instituted by Starbucks, Figaro, and Coffee Bean and Tea Life shall be
used as benchmarks. Benchmarking is about doing what great companies do in performing
certain activities like R&D, Product Development, Recruitment and Operations.
5. Installing information, communication, and operating systems that enable company

personnel to carry out their strategic roles successfully day in and day out.
IT programs need not be complicated. Investing in POS machines and other

sophisticated machineries are impractical especially for small businesses like the Real Coffee
Club. Consequently, it is the proposal of the author that instead of investing in these items, the
company should instead acquire open source softwares that integrate all needed information.
In fact, simple programs like the Open Office can help generate useful information for decision-
making.
6. Tying rewards and incentives to the achievement of performance objectives and good
strategy execution.
Person Responsible for the Task: Jaymee Real (Head of HR)
Strategy-Facilitating Motivational Practices
a. Providing attractive perks and fringe benefits. Monetary or in-kind (free meals) bonuses
must be given to the employees for exceptional performances particularly to those
services that significantly contributed to the success of the company.
b. Relying on promotion from within whenever possible. As part of professionalizing the

business, promotions for key positions such as operations head, store manager, human
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resource manager, marketing manager, should be, as far as possible, from within. This
will ensure that the employee will have enough knowledge about the operations of the
company.
c. Making sure that the ideas and suggestions of employees are valued and that those with
merit are promptly acted on. In line with the values of the company of respect for
individuals, ideas, opinions and suggestions of employees must be respected and heard.
Employees should be given recognition based on their contributions. This may be in the
form of bonuses of public recognitions.
d. Creating a work atmosphere in which there is genuine sincerity, caring, and mutual
respect among workers and between management and employees. Employees should
be treated in a way that family members are treated.
e. Stating the strategic vision in inspirational terms that make employees feel they are a
part of doing something very worthwhile in a larger social sense. The Real Coffee Club’s
core purpose is for the customers to be able to enjoy their everyday experiences. This is
a good motivation for employees to perform their job well.
f. Sharing information with employees about financial performance, strategy, operational

measures, market conditions, and competitors’ actions. It is important that in policies
and decision involving matters that concern the rights and benefits of the employees
that they should be given the opportunity to participate and air their view. This would
be beneficial for the company in the long run as employees will know how the company
is doing and how important they are in its success and continued existence.
g. Having knockout facilities. Since of the strategies of Real Coffee Club is to make its store
as a “third place”, there is no reason why this same principle cannot be applied to their
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work place. Thus, the employees must remain comfortable in their workplace. This is
said to improve worker productivity.
h. Being flexible in how the company approaches people management (motivation,

compensation, recognition, recruitment) in multinational, multicultural environments.
Discrimination based on race, sex or religion should be absolutely avoided.
Guidelines for Designing Incentive Compensation Systems
a. Make the performance payoff a major, not minor, piece of the total compensation
package. Rank-and-file workers, especially those in the food service industry, prefer
value monetary benefits because these can augment their minimal income. The rewards
for good performance therefore should be considered in monetary terms.
b. Have incentives that extend to all managers and all workers, not just top management.
Significant business achievements should be shared by all members of the organization
and not just the top management.
c. Administer the reward system with scrupulous objectivity and fairness. The human
resource manager should provide standards for evaluation of performances. The
standards should be applied equally to all employees.
d. Tie incentives to performance outcomes directly linked to good strategy execution and
financial performance. Rewards must be distributed when strategic and financial
objectives set are achieved.
e. Make sure that the performance targets each individual or team is expected to achieve
involve outcomes that the individual or team can personally effect. Targets for
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performance must be achievable; else, the employees will see the target as attainable
and therefore not motivation may result.
f. Some employees also value non-monetary and qualitative rewards. The Real Coffee Club
must therefore determine a good mix of monetary and non-monetary rewards.
7. Creating a strategy-supportive work environment and corporate culture.
Openness to change must be one of the key values that must be promoted by the
owners as well as the managers in each functional area. Also, the company must inculcate the
core values of the company, as it reflects the company’s culture. Management will promote:
Appreciation, Commitment, Humor, Rational, Respect, and Quality to all of its employees. It
shall be posted to bulletin boards, and other peripherals so as to constantly remind the
employees of the values the company holds.
8. Exerting the internal leadership needed to drive implementation forward and to keep
improving on how the strategy is being executed.
Person Responsible for the Task: Robert Real Sr. (General Manager)
Leadership by example. The owners must be involved in the execution of the strategy
and in embracing the changes in the company. The employees must feel how important it is for
the company to implement such change. They must know that it is only by working together
the they can achieve the new strategies of the company.
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6.3 MANAGING STRATEGIC CHANGE
Dear Mr. Real:
The proposed strategies will naturally lead to changes in the organization. To

successfully implement such changes, I would like to refer to the 8-Steps Framework for
Leading Change in the organization to guide the company in implementing the proposal.
Step 1: Establishing a Sense of Urgency. This stage requires a great deal of cooperation,
initiative and willingness to make sacrifices from many people. Communicating a sense of
urgency through regular weekly meetings with teams and establishing a “perpetual crisis”
culture by committing with deadlines can push employees towards the achievement of
strategic change.
Step 2: Creating a Guiding Coalition. Establishing a sense of urgency is not enough; it is

important for management to show that it is serious in achieving company objectives. This
stern commitment in implementing strategy and attaining the goals of the company can be
shown through actions or examples led by management. It is suggested therefore that a group
of skilled, competent and able people should be formed into a team to undertake or initiate the
change. The key decision-makers alone cannot execute the changes. The group must be
committed to the change for the achievement of the common goal. They must be composed of
individuals who are respected in the organization.
Step 3: Developing a Vision and Strategy. The vision of the company must excite and stir
passion of employees. This is one of the motivating forces of an organization in reaching
objectives. The vision of the company must always give employees a sense of purpose in doing
their everyday work. Developing a vision requires combining core ideologies and the envisioned
future. Strategies are based on 4 factors: 1) the strengths and weaknesses of the company; 2)
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the threats and opportunities to the industry; 3) personal values of the key implementers; and
4) the broader societal expectation; d) communicating the changed vision. The vision must be
communicated to the employees and that their commitment to the achievement of the vision
must be obtained.
Step 4: Empowering Broad-Base Action. Empowerment means letting employees exercise

decision making skills on critical matters within their area of jurisdiction. However, such
discretion must be within the prescribed limitations.
Step 5: Generating Short-Term Wins. Employees must feel rewarded for short-term wins since
these are successes that bring the company closer to attaining their objectives and hence,
closer to reaching the company’s vision. This could motivate employees to go on despite any
challenges that come on the way.
Step 6: Broadening the Transformation. Transformation is not only applicable to employees. It

also applies to the whole company and to some extent to its suppliers or channels as well. It
must be understood that to effect change, the participation of all the stakeholders in the
company is essential.
Step 7: Consolidating Gains and Producing More Change. The company must constantly review
how far or near it is from achieving its goals. It is thus important for it to assess its position and
realign or readjust its strategies whenever necessary to achieve the company goals.
Step 8: Anchoring New Approaches in Culture. The company must promote the culture of
“embracing change” among its employees. They must understand that necessary and beneficial
changes would be advantageous to both the company and the management.
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MODULE 7
FINANCIAL PROJECTIONS

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7.1 FINANCIAL PROJECTION
(Opening of First (Opening of Second (Opening of

CALABARZON CALABARZON Flagship MANILA
Branch) Branch) Branch)
2010 2011 2012 2013 2014
Sales 5,040,000.00 8,640,000.00 10,800,000.00 13,260,000.00 16,560,000.00
Less: Cost and Expenses
Cost of Ingredients
Used / Items Sold As Is 2,016,000.00 3,456,000.00 4,320,000.00 5,304,000.00 6,624,000.00
Salaries and Benefits 672,000.00 1,008,000.00 1,008,000.00 1,344,000.00 1,344,000.00
Taxes, Licenses, and
Other Government
Fees 16,706.34 25,059.51 25,059.51 33,412.68 33,412.68
Travel and
Transportation 6,000.00 7,500.00 6,000.00 8,000.00 8,000.00
Office Supplies 6,056.00 9,084.00 9,084.00 12,112.00 12,112.00
Kitchen Supplies 24,331.00 36,496.50 36,496.50 48,662.00 48,662.00
Spoilage and breakage 10,000.00 13,500.00 12,000.00 16,000.00 16,000.00
Advertising and
Promotion 20,360.00 30,540.00 30,540.00 40,720.00 40,720.00
Light, Water, and
Communication 349,531.20 524,296.80 524,296.80 699,062.40 699,062.40
Rent Expense 480,000.00 900,000.00 1,080,000.00 960,000.00 960,000.00
Packaging Materials 504,000.00 864,000.00 1,080,000.00 1,326,000.00 1,656,000.00
Deprecation:
Furnitures, Fixtures,
and Equipment 2,596.00 3,894.00 3,894.00 5,192.00 5,192.00
Leasehold
Improvements 9,825.56 14,738.34 14,738.34 19,651.12 19,651.12
Kitchen Equipment
and Utensils 6,980.00 10,470.00 10,470.00 13,960.00 13,960.00
Dining Wares 6,432.00 9,648.00 9,648.00 12,864.00 12,864.00
Total Costs and Expenses 4,130,818.10 6,913,227.15 8,170,227.15 9,843,636.20 11,493,636.20
Net Income PHP. 909,181.90 PHP. 1,726,772.85 PHP. 2,629,772.85 PHP. 3,416,363.80 PHP. 5,066,363.80
7.2 NOTES TO THE INCOME STATEMENT
Sales
The company is forecasted to reach a yearly Net Income of PhP. 5M starting on the 5 th
year from the date of the strategies’ implementation. The increase is expected to come from
the sales of the broader product line, coupled with the establishment of additional branches.
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Spoilage and Breakage
Due to the continuous improvements in the management of inventory, costs associated

with spoilage and breakage can be seen to decrease.
Advertising and Promotion
Due to establishment of additional branches, advertising and promotions expense can

be seen to substantially increase. Such increase corresponds to the number of increase in the
market size.
Light, Water, and Communication
A forecast of 5% increase in the electricity and water rates are made considering the
increases that happened during the year.
Rent Expense
Rent expense is expected to have 10% increase every year. Also, rent expense in Metro
Manila was seen to be double the rent expense compared to the CALABARZON Area.
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REAL COFFEE CLUB

A Strategic Management paper

John Roy Robert G. Real, Jr.

2. Broaden GEOGRAPHIC SCOPE by increasing the company’s efforts in terms of

3. Manage the company’s FINANCIAL LEVERAGE by increasing its reliance on debt-

MODULE 2 EXTERNAL ENVIRONMENT ANALYSIS................................................. 1

2.3 ANALYSIS OF POTENTIAL CHANGES IN THE MACROENVIRONMENT .................................... 15

2.4 EVALUATION OF THE THREATS AND OPPORTUNITIES IN THE INDUSTRY .............................. 31

2.5 INDUSTRY AND COMPETITIVE ANALYSIS ............................................................................ 36

2.6 BROADER SOCIETAL EXPECTATIONS ................................................................................... 39

MODULE 3 INTERNAL ENVIRONMENT ANALYSIS ............................................... 43

3.2 FINANCIAL ANALYSIS ......................................................................................................... 47

3.3 VALUE CHAIN ANALYSIS .................................................................................................... 52

3.4 STRENGTHS AND WEAKNESSES .......................................................................................... 58

3.5 PERSONAL/FAMILY VALUES ............................................................................................... 63

MODULE 4 STRATEGIC PLAN ............................................................................. 69

4.5 COMPETITIVE ADVANTAGE................................................................................................ 90

MODULE 5 FUNCTIONAL AREAS STRATEGIES .................................................... 97

MODULE 6 IMPLEMENTATION ........................................................................ 110

6.2 MANAGING INTERNAL ORGANIZATION FOR STRATEGY EXECUTION .................................. 117

MODULE 7 FINANCIAL PROJECTIONS .............................................................. 127

BIBLIOGRAPHY .................................................................................................. 130

And most especially to God… For the gift of life.

The Real Coffee Club is a family-owned-and-controlled specialty coffee shop, located in

External Internal Functional

Evaluate Broader Evaluate Threats and

Definition of the Industry

According to Porter (1998), the essence of formulating competitive strategy is relating a

Analysis of the Present Task Environment

Analysis of Potential Changes in the Macroenvironment

Evaluation of Threats and Opportunities in the Industry

Conduct Industry and Competitive Analysis

Evaluate Broader Societal Expectations

Framework Used: Philippine Standard Industrial Classification

Framework Used: Porter’s Five Competitive Forces

2.2.1 Threat of Entry (Medium)

1. Economies of Scale (High)

2. Product Differentiation (High)

3. Capital Requirements (Low)

4. Switching Costs (Low)

5. Access to Distribution Channels (Low)

6. Cost Disadvantages Independent of Scale (High)

7. Government Policy (Low)

2.2.2 Intensity of Rivalry Among Existing Competitors (Medium)

1. Numerous or Equally Balanced Competitors (High)

2. Slow Industry Growth (Low)

4. Lack of Differentiation or Switching Costs (Low)

5. Capacity Augmented in Large Increments (Low)

There is no strong requirement of additions in capacity in large increments. Although

6. Diverse Competitors (Low)

7. Strategic Stakes (Medium)

8. Exit Barriers (Low)

2.2.3 Pressure from Substitute Products (Low)

There is no existing substitute to the services provided by the restaurant industry

2.2.5 Bargaining Power of Suppliers (Low)

Frameworks Used: Model of the Macroenvironment

1. Decrease in Population Growth Rate

 Effect on the Competitive Force/s: DECREASE IN BUYER’S BARGAINING POWER

In addition, based on a study conducted by Synovate, commissioned by the Cartoon

 Effect on the Competitive Force/s (1): DECREASE IN BUYER’S BARGAINING POWER

 Structural Determinant Affected (2): COMPETITOR DIVERSITY

 Effect on the Competitive Force/s (2): INCREASE IN INTENSITY OF RIVALRY

1. Increase and work-life activities

 Structural Determinant Affected (1): BUYER PRICE SENSITIVITY