MGT6370A - Strategic Management

Lesson 1 - Nature of Strategic Management

Strategic Analysis and Making Decisions
• According to Young, F. C. (2015), Strategic Management Made Simple (First), the reality
of dynamism was outlined in the 21st Century. Today's context is in the fluidity state.
Constantly, changes and fluctuations are happening everywhere, characterized by
continuous challenges and triggering forces that provoke similar reactions. Competition is
present everywhere, and together with the expansion of the global economy, every
business needs to have its own impact. Thus, it is a need for every business organization to
strategize.
• Likewise, according to the same source, a basic feature of a new economy is
hypercompetition. According to Contributor, (2017, September 28), “The Big Gorilla in
the Room: Family Firms and Hypercompetition,” hyper-competition refers to a very
competitive environment, which will be rare for leaders in the industry to maintain their
position for a long term.
• Moreover, according to Young, F.C. (2015), Strategic Management Made Simple (First), it
occurs when offerings of products and technologies are very new, which standards become
unstable, and there is no sustainability with regards to competitive advantage. Strategic
maneuverings have built up immense business exposure, aggressive selling, sophisticated
marketing positioning, and innovative products. There is an intense and more deliberate
business venture.
 • Moreover, Young (2015), emphasized that in a situation where hypercompetition is
present, both technology and globalization collaborate so as to create a heightened
cutthroat situation. What does it mean? There is strong competition between and among
businesses with the same and similar products as well as substitute and different products.
To outplay and outsmart each other, competitors continuously strive for the best. To
survive and deal with this turbulent and competitive reality, businesses need to devise ways
and means. Competitive pricing, new value creation, supply chain management innovation,
and quality to high degrees are the logical company responses. Today, the name of the
game is smarter and tougher competition, qualitative and quantitative organizational
changes, and competitive advantage, which is a sustainable one. Only the most agile and
adaptive business organizations will survive, and therefore there is really the need to
strategize.
Nature of Strategic Management
• According to Yousuf, M. (n.d.), “The Nature of Strategic Management I. What is
Strategic Management,” strategic management refers to the science an art of formulating,
implementing, and evaluating cross-functional decisions which enable an organization to
attain its objectives. Another term used for strategic management is strategic planning.
What is the purpose of strategic management? According to the same source. to exploit
and create different and new opportunities for tomorrow while long- range planning tries to
improve for tomorrow the trends of today.
• Likewise, according to the same source, there are stages in strategic management process,
and these are the following:
◦ Strategy Formulation
▪ This stage includes the following steps:
• Vision and Mission Development
• Identification of external opportunities and threats of an organization
• Identification of internal strengths and weaknesses
• Establishment of long-term objectives
• Generation of alternative strategies
• Selecting particular strategies to pursue
◦ Strategy Implementation
▪ In order to execute the formulated strategies, a firm is required to establish annual
objectives, devise policies, motivate employees and allocate resources. The
following are included in this stage:
 • Development of a strategy-supportive culture
• Creation of an effective organizational structure
• Redirection of marketing efforts
• Preparation of budgets
• Development and utilization of information systems
• Linking compensation of employees to organizational performance
◦ Strategy Evaluation
▪ The final stage in the strategic management process. There is a need for managers to
know when particular strategies are not working well; to determine whether those
strategies are working or not, strategy evaluation is the primary means.
▪ Fundamental Activities in Strategy Evaluation:
• Reviewing the internal and external factors which are the basis for current
strategies
• Measuring the performances
• Taking corrective action
Model: Strategic Management
• What is strategic management? According to Young F. C. (2015), Strategic Management
Made Simple (First), Strategic Management is a continuous process of creating strategy.
Strategic processes like strategic analysis and decision making, formulation, and
implementation of strategy and strategy control with the main objectives of achieving and
maintaining better corporate policies, priorities, and success alignment. The following
definitions are important in understanding the term:
◦ Strategic Analysis
▪ Consists of a systematic evaluation of elements existing currently in the internal and
external environment.
◦ Strategic Decision-making
▪ Considerately bringing together the appropriate resources for the appropriate
markets at the appropriate time.
◦ Strategy Formulation
▪ Refers to the planning of strategies on the levels of business and corporate world.
◦ Strategy Implementation
▪ Refers to applying crafted strategies in order to achieve organizational goals and
objectives.
◦ Strategic Control
 ▪ Employment of a suitable system of monitoring and feedback
• Figure 1 below shows the basic strategic management model wherein strategic analysis or
environmental scanning is the starting point followed by strategy formulation. In the said
formulation, planning appropriate strategies is really a need before pursuing strategy
implementation wherein appropriate strategies will be applied. Evaluation and control are
done to check if there is a need to change or enhance the strategy formulated and return to
stage 1, the environmental scanning. And if there is a need to repeat the phases of strategic
management this will happen until the business organization's goals and objectives are
achieved.

• Another meaning of strategic management was also given by Strategic Management (n.d.).
Strategic management refers to the process of identifying, selecting, and implementing the
long-term goals and objectives of an organization. In the same source, the emphasis was
given to strategic choice, which is done under formulating the strategy. This also refers to
generating, evaluating, and selecting strategic options. Inputs to the said process include
the following:
◦ Expectations and aspirations of stakeholders
◦ The strengths of an organization
◦ The business opportunities created by the external environment
◦ The demands which are imposed by the outside influences
• There are different strategic management models, and according to Akanda, A.I. (2019,
February 5), Strategic Management Model with Examples, some of them are the
following:
◦ Balance Scorecard
 ▪ A strategic management model that was created by Dr. David Norton and Dr. Robert
Kaplan in 1990. The model consists of the following parts:
• Objectives
◦ These are the high-level aims of the organization
• Measures
◦ These help the completion of the objectives
• Initiatives
◦ These are the program of actions to achieve the objectives

• Strategy Map
◦ Another model for strategic management which serves as the visual tool that is
designed to communicate a strategic plan clearly as well as to accomplish high level
goals of organization. The main part of the balanced scorecard is the strategy
mapping, which offers a bright way of communicating the high-level data in a
simply-edible format across of organization.
◦ Likewise, the same source emphasized the benefits of the strategy map, and these
are the following:
▪ Consolidates all the objectives into a single strategy
▪ Gives a simple, easy, visual representation that is clearly referred back to
▪ Provides employees a clear goal while accomplishing tasks and measures so as
to keep in mind
 ▪ Aids to determine key goals
▪ Strategy map aids one to see how objectives affect the other ones
▪ It allows a better understanding of the elements of the strategy which need work

• Value Chain Analysis

◦ Two types of activities are included in value chain analysis - primary activities and
supportive activities.
▪ Primary Activities
• Inbound Logistic
• Operation
• Outbound Logistic
• Marketing
• Service
▪ Supportive Activities
• Infrastructure of Firm
• Human Resource Management
• Technological Development
• Procurement of Resources, Finance, Inventory, etc.
• SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats)
◦ SWOT analysis or matrix as a strategic model aids the business organization to
detect where the latter is doing fine and what areas should be developed. SWOT is
an acronym for strengths, weaknesses, opportunities, and threats. Internal issues are
the strengths and weaknesses, while external issues are the opportunities and
threats.
 • PESTEL Model (Political, Economic, Sociocultural, Technological, Environmental,
and Legal)
◦ PESTEL is an acronym for political, economic, sociocultural, technological,
environmental, and legal factors of business analyzed. These factors are used to
look at a business environment and determine what could touch the business
organization’s health. PESTEL analysis is a strategic model usually utilized in
conjunction with the external elements or factors of a SWOT Analysis.

Fundamentals of Strategic Management

• Like other business management fields, strategic management always starts with planning,
but the word strategic planning is more popular than strategic management (Young, 2015).
The same source emphasized that strategic planning and strategic management have
similar goals and objectives: to construct a strategic mode of preparing, addressing, and
leading business organizations to where they want to go. Actually, both undertakings
exercise to understand the organization's strategic positions - their goals, preferred options,
and deliberate and calculated strategies. In addition to that, both strategic planning and
management utilize the same processes to attain the organization’s goals and objectives.
• How about the difference between strategic planning and strategic management? Strategic
management is taken in the context of an academic environment where the approach and
treatment are theoretical, while strategic planning is the buzzword in the business world.
• Let us define the term strategic planning in a detailed manner. According to Young (2015),
it refers to a continuous, competitive, and repetitive goal and objective setting process
which an organization targets to attain, determining the means to achieve them, and
evaluating the best way to materialize them in the prevailing environment context while
measuring performance through set standards, and periodically but continuously
conducting reassessments.
• Likewise, according to Young (2015), the following are the properties of strategic
planning:
◦ It creates a blueprint for what the business organization would like to
accomplish.
◦ It presents the grand design of the business organization and figures all the set activities
that range from the level of organization to the department. It also standardizes all plans
with respect to extent and type.
◦ It is the process of creating a strategic fit between the goals and capabilities of an
organization, which is in the context of changing opportunities.
◦ It is a process that involves explicit steps.
◦ It is proactive; it is written in the anticipated future realistic context. Plans are
developed in advance, which has anticipation of developments and changes.
◦ It is a philosophy because it emanates a powerful way of conducting and managing a
business organization. A unique way of thinking and doing things is involved in
strategic planning.
 ◦ It provides a link between the plan of organization and the operational and functional
plans. It speaks of two plans - the grand plan of the organization and the departments'
tactical plans.
◦ It is elaborately blended within the defined managerial functions of organizing,
staffing, directing, and controlling. Even if strategic planning is strictly formulated and
separate management functions, it is still intertwisted in all the other manager’s
functions and responsibilities. Therefore, a manager should not disregard strategic
planning, or else accomplishing his responsibilities will not be effective.
◦ It demands the support and leadership of top management and at the same time, the
participation and commitment of employees. Successful strategic planning
implementation is really dependent on support, responsibility, and sustained leadership,
coupled with the involvement and acceptance of employees. Synergistic
interrelationships between departments and intra-relationship within the departments
should always be present.
Types of Strategic Plans
• Medium/Long-Range Plan
◦ The major forces or factors that affect the long-term objectives, strategies, and
resources required are described by these types of plans. It is prepared in the context of
the coming 3-5, 10, or more years.
• Annual/Yearly Plan
◦ A short-term plan that briefly describes the organization’s present situation and its goals
and objectives, strategies, monitoring mechanisms, and the budget for the next year.
• Moreover, according to the same source, whether the plan is a medium/long-range or
yearly plan, the said plan can be strategic when the business organization formulates the
action plans and have the opportunities in the business environment while tactical
alignment between the goals, opportunities, and capabilities is present. Strategic planning
involves the following steps:
◦ To ascertain where the business organization is at present, make a situation audit.
◦ To determine where the business organization wants to go, state the respective goals
and objectives, its business definition, values, and value systems it espouses, and its
corresponding strategy statements.
◦ In order to help direct the business organization where it wants to be, outline
appropriate strategies to be carried out.
 ◦ To determine the best way for the business organization to be where it wants to be as
well as to achieve its goals, identity, and then choose the best strategy.
◦ To measure performance, monitor the implementation of strategies.
◦ To apply improvements and suggested changes, conduct periodic and continuous
reassessments.
Advantages and Disadvantages of Strategic Planning
• According to Benedicto, L. M. (2015, August 28), “Strategic Planning Advantages and
Disadvantages,” there are some advantages and disadvantages of strategic planning, and
these are the following:
◦ Advantages:
▪ Strategic planning facilitates the communication and collaboration of functional
managers to achieve oneness between and among the business organization’s
different parts.
▪ It identifies strategic goals and intents.
▪ It reduces the resistance to change.
▪ It enhances the allocation of resources.
▪ It leads to a competitive advantage, which is a sustainable one.
◦ Disadvantages:
▪ Strategic planning is costly to perform for small and medium business
organizations.
▪ The process is very complex.
▪ Low rate of successful implementation.
Vision and Mission of Business
• According to Young (2015), a business organization needs to articulate and have a
commonality in vision, mission, and goals. So as achieving strategic direction may be
achieved. In the organization’s thrust of competitiveness achievement, the interrelationship
between and among the said variables.
• What is the difference between the vision statement and mission statement of an
organization? According to “Mission & Vision Statements: What is the difference between
Mission, Vision, and Values Statements? (2018),” a vision statement looks forward and
makes a mental image of the organization’s ideal state and at the same time, the said
organizations want to achieve. It is an aspirational and inspirational statement that should
challenge the employees of the said organization. In drafting the vision statements, the
following questions should be answered:
 ◦ What issue or problem are we seeking to address?
◦ Where are we headed?
◦ What would we look like ten years from now once strategic goals are achieved?
• Meanwhile, according to the same source, a mission statement is a brief explanation of the
business organization's reasons for existence. The said statement describes the purpose and
overall intention of the organization. The vision is supported by the mission statement and
communicates the direction and purpose to employees, vendors, customers, and other
stakeholders. In drafting statements, the following questions may be considered:
◦ What is the purpose of the business organization?
◦ Why does the business organization exist?

Goals and Objectives

• According to Young (2015), organizational goals and objectives are defined so as to
operationalize the mission statement. All business organizations have set organizational
goals. In making the specified strategies succeed, organizational goals are pursued. The
said goals may differ and are, importantly, dependent on their respective purpose and
direction. Using economic resources efficiently and effectively is one of the implied basic
goals of any business organization. Goals represent the overall vision of an organization.
Goals have the following properties:
◦ Goals give focus and direction to the organization.
◦ Goals make the organization act.
◦ Goals cultivate the trait of persistence in the organization.
• Likewise, according to the same source, they have to be supported by objectives to attain
goals. Objectives are not the same as goals. Goals are macro, encompassing in perspective
and predictable, while objectives are micro and specific in perspective. The following are
the characteristics of objectives:
◦ Objectives need to be defined and formulated clearly, specific, carefully chosen, and
definite.
◦ Objectives may be short-term or immediate.
◦ Objectives should be prioritized based on hierarchy.
◦ Objectives must be attainable and realistic. They need to be consistent, flexible, and
strategic.
◦ Objectives need to be time-bounded.
• Moreover, according to the same source, business organizations are guided by values that
differ from one to another. What are values? These are inherent motivation roots within an
individual, organization, community, or nation. By nature, these are ingrained and stable
and more enduring. Values are both behavioral and intellectual, which serve as basis for an
organization's actions and way of thinking. Through beliefs and attitudes, values are
generally exhibited.
Lesson 2 - External Environment
External Environment
• Developing organizational intelligence should be considered by every business
organization so as to achieve its objectives. What is organizational intelligence? According
to Young, F.C. (2015), “Strategic Management Made Simple (First),” the term refers to the
insight, experience and wisdom possessed by an entity. To become competitive, this serves
as a valuable guide to its journey. To be able to accurately audit the environment and come
up with creative and cutting-edge strategies, organizations need to possess this capability.
• Speaking of environment - both external and internal, environmental scanning is a must.
What is environmental scanning? According to the same source, environmental scanning
refers to the study and interpretation of the elements or forces which exist in the external
and internal environment. What is done in environmental scanning is the careful
monitoring of surroundings to ascertain early prospect and challenge indications which
may influence the present and future plans of the organization.
• Likewise, according to Fordham (n.d.), “Strategic Planning: Local Strategic Planning:
Steps in a Local Strategic Planning Process: Information Gathering: Conducting an
Environmental Scan,” environmental scanning refers to the ongoing tracking of occurrence
and trends in the internal and external environment that currently and in the future success
of a business. The results of the said scanning are significant in shaping the goals and
strategies. Quantitative and qualitative changes are examined through effective
environmental scanning.
• Is environmental scanning an easy task? According to the same source, to conduct
environmental scanning, one should bear in mind that the said scanning is both easy and
difficult. And according to Young, F. C. (2015), “Strategic Management Made Simple
(First),” two processes are involved in environment scanning and these are looking at or
simply viewing the information and looking for or searching for information. The same
source discussed the different modes of environmental scanning, and these are the
following:
◦ Undirected Viewing
▪ Information is exposed to individuals with no specific informational needs in mind.
Information sources are wide, and chunks of information are quickly dropped from
the attention of individuals, leading to general information that may help him spot
early signals of change. It is an important mode of feeling the environment as this
increases the awareness in the business organization to undertake the undirected
environment viewing. This environmental scanning process can save a business
organization from losing out in the game of survival or may be the reason for the
success of the business.
◦ Conditioned Viewing
▪ A mere viewing of information wherein the individual directs information viewing
to specified facts and data so as to be able to assess their general impact on the
business organization. A cue or hint in which more purposive scanning must be
instituted is provided if the effect is evaluated to be sufficiently important.
◦ Informal Search
▪ To increase the knowledge of a particular issue, the individual actively looks for
information. A relatively unstructured effort is essentially involved wherein the
gathering of information to expound on the issue is the objective. A business
organization needs to determine whether a strategic move is really a must. The
business organization will spend more time and resources on formal search if the
need for a decision or action has been established.
◦ Formal Search
 ▪ There is a planned and deliberate effort exerted by the individual. The search is both
structured and focused and the method or research is clearly cited and followed.
Presentation of specific information and environmental scanning through varied
approaches are conducted by business organizations. The said approaches include
market studies, industry analysis, and customer and competitor analyses. Basis for
decision making and courses of action are provided to business organizations
through the formal search results.
• According to Fordham, external factors in the environment outside the business
organization are out of control and these are the following:
◦ Demographics
▪ Demography encompasses the study of the structure, size, and distribution of
population, and spatial or temporal changes in them in response to birth, aging,
migration, and death. Any kind of dynamic living population can be analyzed
through demographics. Demographics are characteristics of a given population that
are quantifiable. Such analysis can cover whole groups or societies defined by
criteria such as nationality, education, ethnicity, and religion.
◦ Politics and Public Policy
▪ These refer to the changes in governmental regulation, federal financial aid policies,
and public attitudes.
◦ Economics
▪ These may be in terms of local, regional, national, or international economic
factors.
◦ Labor Market
▪ This refers to the labor demand in the different fields and skills which are needed by
employers.
◦ Technology
▪ Rapid and increasing changes in technology.
External Environment Assessment
• In assessing the external environment, one assessment tool useful to a business
organization is the SWOT Analysis. Actually, both the external and internal environment of
a business can be assessed with the use of the said tool. Aside from the meaning given in
Chapter 1, SWOT Analysis or a SWOT Matrix refers to a strategic planning technique
utilized to help a business organization identify the strengths, weaknesses, opportunities,
and threats of a business organization. SWOT stands for:
 ▪ Business characteristics which give an advantage over others.
◦ Weaknesses
▪ Business characteristics which place the business at a disadvantage relative to
others.
◦ Opportunities
▪ Environmental elements which the business could exploit to its advantage
◦ Threats
▪ Environmental elements which could cause business trouble.
• Among the four SWOT matrix elements, opportunities and threats should be identified if a
business’s external elements or environment should be evaluated or assessed. Examples of
opportunities and threats of business are given on the figure below:

• Likewise, according to Business Environment Types, external environment has two types,
and these are the external micro and external macro. Micro external forces have a
significant effect on the operations of a business firm. However, micro forces may have a
different effect on business firms in the industry. For instance, the suppliers that are an
important microenvironment element are usually willing to provide materials at relatively
lower prices to big business organizations.
• Types of External Environment
◦ Micro-Level External Environment
▪ Suppliers of Inputs
• Suppliers of business organization's inputs, such as the components and raw
materials, are essential in the external environment. An efficient and smooth
business firm’s working requires that it should have ensured the supply of raw
materials. If the said materials are uncertain, then the business organization will
have to keep a large stock of raw materials so as to have an uninterrupted
transformation process. This will not necessarily raise the firm’s production cost
and reduce its profit margin. Some business firms adopt a backward integration
strategy and set up captive production plants for raw material production
themselves. Furthermore, in the manufacturing business, energy input is
important. In order to ensure a regular supply of electricity for some large
manufacturing businesses, having its own power generating plants is considered.
However, because small firms cannot adopt this vertical integration strategy, the
said firms have to depend on outside supply sources of needed inputs.
• Moreover, depending on a single input supplier is not a good strategy. There will
be an effect on the firm’s production work if there will be disruption in the
supplier production due to lock-out or labor strikes. To reduce the said
uncertainty and risks, business organizations prefer to keep multiple input
suppliers.
▪ Customers
 • An important part of the external microenvironment is the customers or the
people who purchase and utilize the business firm's products and services.
Keeping the customers satisfied is very important since product or service sales
are critical for the business organization's survival and growth. To achieve
success in business, taking care of the sensitivity of customers is essential.
• There are different categories of customers. For instance, individuals,
institutions, companies, and government are the customers of some car
manufacturing firms, and some are just catering to the needs of different types of
customers because they produce different models and varieties of cars.
Nowadays, when there is intense competition, a business organization should
spend money on good advertisements so as to promote products and services,
and that is by creating new customers and, at the same time, retaining the old
ones. With this purpose, a business organization should also consider the
launching of new products or models. Customers’ satisfaction is important
because consumers have the option of purchasing important products because of
increasing globalization and liberalization. Therefore, making ‹continuous effort
to enhance the quality.
▪ Marketing Intermediaries
• Marketing intermediaries play an important role in selling and distributing
products to consumers in a firm’s external environment. These include
merchants and agents such as retailers, wholesalers, and distribution firms.
• These marketing intermediaries are responsible for the process of stocking and
transporting goods from the production site to the final consumers or buyers.
Some of the marketing service agencies are consulting firms, marketing research
firms, and advertising agencies that assist in targeting, promoting, and selling
products.
• An important link between the business organization and its ultimate buyers is
marketing. The company’s fortune will be affected if there is a dislocation of this
link. For instance, because a leading pharma provided a low retail margin a few
years ago, druggists and chemists in India declared a collected boycott of a
leading pharma company that shows that the business organization should take
care of its intermediaries if success in the age of intense competition is needed.
▪ Competitors
 • In product sales and in other areas, business organizations compete with each
other. Absolute monopolies are found only in public utilities such as telephone
service, power distribution, distribution, and the like. In the real world, more
market forms of monopolistic competition and differentiated oligopolies exist.
Different business firms in an industry compete with one another for product
sales in these market forms. This competition may be based on setting the price
for products. Still, competition is frequently not in terms of pricing the products
but engaging in a competition by sponsoring some events, competitive
advertising, and product modelling. Meanwhile, brand competition occurs when
two or more brands of similar products compete in terms of producing and
selling different product brands.
▪ Publics
• Another important force is the public. According to Kotler, as cited by the same
source, the public refers to any group with a potential or actual interest in or
impact its ability to achieve its objectives. Examples of publics that have an
important bearing on the business firm's environment are media groups,
environmentalists, consumer protection groups, women associations, local
groups, and citizens associations.
◦ Macro-Level External Environment
▪ Aside from the microenvironment, business organizations also face a large external
environmental forces. These forces determine the firm's opportunities to exploit for
promoting the business and presents threats that can limit business activity
expansion. The said forces have both positive and negative aspects, and these are
uncontrollable by the firm's management, so the said firm should know how to
adapt or adjust itself.
▪ Economic
• This includes the economic system type in the economy, the structure and nature
of the economy, the business cycle phase, the fiscal, monetary, and government
policies. The said government's economic policies present both the opportunities
and threats for the business organizations. The institutional framework within
which business firms have to work is provided by the type of economic system
(socialist, capitalist, or mixed).
 • Since 1991, there have been significant economic policies changes and have
changed the macroeconomic environment for private sector firms. Except for
only a few strategic importance industries, many industries have been thrown
open for the private sector. there has been a great reduction in import duties
because domestic industries face competition from imported products. To boost
exports, incentives have been given.
▪ Social
• Business activities may have a physical environment and impose high social
costs. Practices in some businesses may violate the cultural ethos of a society.
For instance, business firm advertisements may be bad and hurt the ethical
sentiments of people. Social implications of business decisions should be
considered, which means that business companies should seriously consider the
effect of their actions on society. In a business firm's decision-making process,
social interests should be taken care of, which means being socially responsible.
According to the same source, social responsibility means the felt obligation or
self-enforced business firm’s duty to serve or protect society's interests. By
doing so, business firms promote the well-being of society. Not only by the
productivity and profits earned by a business organization, but good corporate
governance should also be judged by its social-welfare promoting activities.
• In modern management science, a new concept of social responsiveness has
been developed. Social responsiveness is related to ethics. The latter deals with
what are right and wrong, what is good and bad or with moral duty and
obligation.
▪ Technological
• An important factor that is responsible for the business firm’s success is the
nature of technology utilized for the production of goods and services.
Technology consists of machine types and processes available for utilization by
a business firm and the way of doing things. The total factor productivity of a
business firm is raised through technological improvement and, at the same
time, reduces the unit output cost.
 • A competitive advantage over its rival business firms is given to a business
through superior technology. The business firm’s competitive strength is
determined by the use of a particular technology by a firm for its transformation
process. Business firms have to compete in the international markets for product
sales in this age of globalization, but those who utilize outdated technologies, of
course, cannot compete globally. Thus, technological development plays an
important role in improving the competitive strength of business firms.
▪ Political and Legal
• Businesses are related to the government. The political philosophy of
government wields a great influence over business policies. For instance, after
India’s independence, India adopted democratic socialism as its goal.
▪ Demographic
• Demographic includes the population’s growth and size, rural-urban distribution
of population, the people's life expectancy, the technological skills, and
educational levels of the labor force. The said demographic features have a
significant bearing on the business firm’s functioning. Demographic factors are
considered parts of the external environment since new workers are recruited
from the business firm.
• How well the organization can achieve its mission is determined by the workers'
skills and ability in the business firm. Labor force in every country is always
changing and, in return, can cause changes in the firm's workforce. Adjusting to
the requirements of a firm’s employees should be considered by the business
firm.
• Both the supply and demand sides of business organizations are affected by the
demographic environment. Working force are obtained by firms from the outside
labor force. The firm’s workers’ education and technical skills are identified
mostly by human resources available in the economy, which are part of the
demographic environment. On the other hand, the demand for industrial firms’
products is determined by the population size and its rural-urban distribution.
Besides the population growth rate and population age composition, identify the
demand pattern of goods. Therefore, demographic factors play a critical role in
determining the business firm's productive activity.
 ◦ Moreover, according to Young, F.C. (2015), nowadays, the macro external environment
is highly complex. The said macro external forces may be analyzed for the benefit of a
business organization, and nations possess different growth and development levels.
For instance, power relationships have become volatile, dynamic, complex, uncertain,
and threatening. Although distinct multifaceted concerns have become primordial
issues among countries that caused differences in global interrelationships and policies.
When managers constantly develop an audit “intelligence” of the environment,
knowledge of the broad environment is considered an advantage for organizations.
Specifically, the external environment presents varying forces that influence
organization direction and strategic decision making and these are the political, social,
economic, technological, legal, and environmental in perspective. The combination of
these forces can present themselves as challenges and threats to business organizations.
On the other hand, valuable opportunities can be provided. External environment
analysis is referred to as PEST (Political, Economic, Social, and Technological)
Analysis.

PEST (Political, Economic, Social and Technological) Analysis

• Political Forces
◦ There are critical concerns confronting nations nowadays. Major political powers have
geopolitical issues as their focus. Some of these issues are changing environment,
political independence, the balance of power, suicide bombing, terrorism, global
alliances, and nuclear and chemical warfare. These crucial problems are affecting the
global political balance.
 ▪ Political Independence/Changing Governments
• The focus and concentration of power-driven and developed countries have
become political sustainability. The call for global balance has challenged
nations to involve themselves in global peace and security attainment. Global
support’s main determinants are global ideologies, while global leadership’s
main ingredient is global power.
• Terrorism/Suicide Bombings
• Global Alliances
• Chemical and Nuclear Threats
• Economic Forces
◦ The growth and development of a nation is greatly affected by economic issues. To
maintain a financial stability cycle, nations are strategizing. To ensure monetary
security, most often, trade and investments are transacted. Economic realities include
the presence of aggressive competitors and suppliers, globalization of products and
services, the fall of large and “supposedly” financially stable organizations, economic
trade agreements, increasing oil prices, the emergence of new markets, and the rise of
China as a major economic player in the world.
▪ Competitors and Suppliers
▪ Globalization of Products and Services
▪ Economic Trade Agreements
▪ Increasing Oil Prices
▪ Emergence of New Markets
▪ Rise of China
• Social Forces
◦ What are the social forces? According to the same source, social forces refer to relevant
issues that are characteristic of local and global societies. Individuals, families, and
communities, including their aspirations, beliefs, practices, and traditions, refer to
society. Important societal factors in the environment create different effects on
business organizations. Some of the more critical concerns today are the world’s aging
population, changing social structures, the great demand for health services, and the
cross-cultural implications of peoples' mobility, including migration and the evolving
sophistication in the people's lifestyles.
▪ World’s Aging Population
▪ Changing Social Structures
 ▪ Great Demand for Health Services
▪ Cross-Cultural Implications of the Mobility of People
▪ Evolving Sophistication in the People’s Lifestyle
• Technological Forces
◦ We are in a digital world. Another important competition catalyst is technology.
Information technology began its journey toward technological growth and radical
communication in the 1980’s. Important changes happening in the world nowadays
have been the rapid development result in information technology. The said
technological advances are observed in business, communication, banking, medicine,
education, security, and all facets of everyday living,
▪ Business
▪ Communication
▪ Banking
▪ Medicine
▪ Education
▪ Security
◦ A good example of a PEST analysis is that specific factors under the basic macro
external forces are listed below:
Competitive Forces Model
• To understand the competitiveness of the business environment, Porter's Five Forces is a
helpful tool. According to Midgie, Jerome, Michele, Mind Tools Content Team, Mind
Tools Content Team, & Mind Tools Content Team, Porter's Five Forces refers to a simple
but powerful tool for understanding the competitiveness of one's business environment and
for determining the potential profitability of a business strategy. To illustrate the five forces
of the micro-level external environment, consider the figure below:
• According to the same source, the tool was created by Harvard Business School professor
Michael Porter, which aims to analyze the attractiveness of the industry and likely its
profitability. Five forces which make up the competitive environment which can break
down one’s profitability are the following:
◦ Competitive Rivalry
▪ These deals with the strength and number of competitors. Companies can attract
customers with aggressive price cuts and high impact marketing campaigns when
rivalry is intense. Likewise, suppliers and buyers can go elsewhere with rivals
around if the latter feel that getting a good deal from your company is possible. On
the other hand, your company will likely have extensive strengths and healthy
profits when there is a minimal rivalry.
◦ Supplier Power
 ▪ This is identified by how easy it is for the suppliers to increase their prices. How
many potential suppliers does a business have? How unique is the product or
service the said supplier provides, and how expensive would it be to switch from
one supplier to another? It will be easier to switch to a cheaper alternative if there is
more to choose from, but the fewer suppliers around, the more one needs the
supplier’s help, and the stronger the latter’s position and their ability to charge a
business firm more. Thus, it can impact the profit of the said business.
◦ Buyer Power
▪ It deals with how easy it is for the customers of a business firm to drive its prices
down. Some questions to consider are: How many buyers are there? How big are
their orders? How much will the cost for buyers to switch from one’s business
firm’s products and services to those of a rival? and are the buyers strong enough to
dictate terms on you as the business owner. When a business firm deals with a few
savvy customers, the said business will have more power, but the said business’s
power will increase if there will be many customers.
◦ Threat of Substitution
▪ Refers to the customers’ likelihood of finding a different way of doing what a
business firm does. For instance, if one supplies a unique software product that
automates an important process, people may substitute it by outsourcing or doing
the process manually. Position can be weakened, and profitability may be threatened
if a substitution is easy and cheap.
◦ Threat of New Entry
▪ A firm’s position can be affected by people's ability to enter the market. Thinking
about how easily this could be done should be considered. Rivals can quickly enter
the market and weaken the business firm’s position if little money and effort are
needed to enter the market and compete effectively if one has little protection for
key technologies.
• How should a business organization use the said tool? According to the same source, the
following steps may be considered:
◦ Look at each of the forces, in turn, to understand your business situation and write
down the observations.
◦ Brainstorm the important factors for one's market or situation, and then check against
the listed factors.
◦ Write the key factors and summarize the size and scale of the force.
 ◦ Look at the situation using the analysis.
◦ Think through how the said forces affect the business.

Lesson 3 - Internal Environment

Internal Environment
• Aside from understanding the changes and development in the external environment,
business organizations need also to understand the internal environment or the local milieu.
What is the internal environment? According to Young, F.C. (2015), internal environment
refers to the setting in which a business organization exists locally.
• Meanwhile, according to 7 Factors Determining the Internal Environment of a Business
(2015, August 26), there are factors which determine the internal environment of a
business organization, and these are the following:
◦ Value System
▪ An organization’s value system refers to the ethical beliefs that guide the business
organization to achieve its mission and objectives. In addition to that, an
organization’s behavior towards employees/workers, customers, and society at large
is determined by the value system of the business organization. Business promoters’
value system has a significant bearing on the business choice and business policy
and practice adoption. Because of the latter’s value system, a business organization
may refuse to produce or distribute products that may be morally wrong to promote
its consumption.
▪ In the business world, the business organization’s value system makes a significant
contribution to its success and prestige in the business world. For instance, in 1999,
Infosys Technologies won the 1st National Corporate Governance award attributes
its success to its high value system because the said system guides the latter’s
corporate culture. A business firm's value system has a significant bearing on its
corporate culture and identifies the latter's behavior towards its employees, workers,
shareholders, and society as a whole.
◦ Mission and Objectives
 ▪ Maximization of long-run profits is assumed to be all business firms' objectives, but
the mission is different from the said objective. What is the mission? According to
the same source, the mission is the overall reason or purpose of existence that
influences and guides business decisions and economic activities. The business
firm's overall mission guides the business domain choice, development choice,
business strategy, and policy choice. For instance, "to become a world-class
company and to achieve global dominance has been the mission of Reliance
Industries of India."
◦ Organizational Structure
▪ According to the same source, organizational structure refers to the composition of
directors, the number of independent directors, the extent of professional
management, and the share-holding pattern. The nature of organizational structure
has an important influence on the decision-making process in a business
organization. Conduciveness to quick decision-making is a requirement for the
efficient operation of business organizations. Delays in decision-making can cost a
business firm a good deal.
▪ In a business organization, the board of directors is the highest decision-making
body. The latter takes decisions on general policy regarding the direction of
business growth and in the supervision of overall functioning. For the business firm
functioning and for the overall mission and objective achievement, the board of
director's capability is crucial.
◦ Corporate Culture and Style of Functioning of Top Management
▪ In identifying the company's internal environment, top managers' corporate culture
and style of functioning consider relevant factors. Corporate culture is either
threatening or closed or a participatory or an open one. In the first type (closed), the
decisions are taken by top-level managers, while the middle and work level
managers have no say in the said decision making. Trust and confidence are
lacking in the company’s subordinate officials, and secrecy transfuses throughout
the business. As a result, there is no sense of belonging among the lower-level
managers and employees/workers in the business firm. On the contrary, in the
second type (open), decision-making is taken at the lower levels, and the top
management has a high degree of confidence and trust in the subordinates. The rule
in this type of corporate culture is free communication between top-level and lower-
level management.
◦ Quality of Human Resources
▪ An important factor in a firm's internal environment is the quality of human
resources. Business organization's success depends to a great extent of the
capabilities., skills, attitudes, as well as commitment of its human resources, which
usually differ with regards to the said characteristics. It is not easy for top
management to deal directly with all the workers or business firm employees.
Therefore, employees may be divided into different groups so as to have efficient
human resource management. The manager may encourage cooperation among the
group members in the company's interest and may pay little attention to the
technical aspects of work done by the said group.
◦ Labor Unions
▪ Another determining factor is the labor unions. The said unions collectively bargain
with top managers regarding the working conditions and wages of different
employee categories. Presence of good relations between management and labor
union is required for a smooth business firm operation. Terms of agreement reached
should be implemented by each side. Sometimes, restructuring and modernization
are required by a business firm. In this regard, the terms and conditions reached
with the labor union should be implemented both letter and spirit of workers'
cooperation to ensure the modernization and reconstruction of business.
◦ Physical Resources and Technological Capabilities
▪ Plant, equipment and technological capabilities of business organizations, which are
considered physical resources, determine the competitive strengths that are a
significant factor in determining its unit cost of production and efficiency. However,
rapid technological progress, especially the unprecedented information technology
growth in recent years, has increased the pertinent importance of “intellectual
capital and human resources” compared to its physical resources. For instance, Bill
Gates Microsoft Company's growth is mostly because of the quality of human
resources and intellectual capital than to any superior physical resources.
Internal Environment Assessment
• According to Young, F.C. (2015), in studying the local environment, some variables should
be understood because the said variables directly affect the business organization. The said
variables are the following:
◦ Culture
▪ A nation’s culture is a collaborative accumulation and meeting of the country’s
philosophy, traditions, beliefs, attitudes, values, aspirations, and practices which
have historically evolved since a nation’s birth. Having its own culture, the
Philippines was greatly influenced by different cultures - Chinese, Spanish,
Japanese, and American. The said culture has been shaped by environmental factors
happening within and outside the country and until now, continuously changing,
maturing, and transforming. The said evolution has nurtured certain distinct beliefs,
practices, and traditions of Filipinos, which may be positive and negative. Some of
these are the following:
• Hospitality
◦ One of the traits which Filipinos are known is being hospitable. Filipinos are
generally warm in dealing with people. Friendly, cordial and accommodating
are some of the characteristic's Filipinos are known. Doors are always open
to friends and relatives, especially during celebrations like birthdays and
“fiestas.”
• Bayanihan Practice
 ◦ Filipinos are generally helpful, especially the ones who live in provinces. The
said practice creates an atmosphere of concern and unity among people in a
town.
• Taking Care of Parents, Old Relatives, and Siblings
◦ Filipinos generally take care of parents, old relatives, and siblings. To send
brothers and sisters to school, the latter work hard. Some Filipinos set aside
their own lives because of the said priority. Likewise, aging grandparents and
parents are taken care of by most Filipinos. Sending to homes for the aged is
a big NO for Filipinos.
• Pakikisama and Utang na Loob
◦ Prioritizing friendship to the point of sacrificing principles sometimes are
very true to many Filipinos. Some develop bad habits like drinking, smoking,
taking drugs, and breaking laws due to pakikisama. Usually, Filipinos tend to
remember the good things done by their acquaintances, which the latter wish
to repay someday, which can be abused.
• Habits of Mañana, Ningas Kugon and “Filipino time”
◦ The first deals with how some Filipinos excitedly begin doing something
without finishing the said project. Sometimes, Filipinos tend to procrastinate
responsibilities and tasks. Cramming makes some of the Filipinos work
better and, generally, come late in attending appointments and meetings.
• Crab Mentality and "Bahala Na"
◦ Some Filipinos tend to bring down other individuals. Leaving lives to the
natural course of events. Sense of urgency is not also applicable to some
Filipinos.
• Resiliency
◦ Filipinos are survivors because of flexibility in spite of difficulties in their
lives. Adjusting and bouncing back is easy for the latter to do in times of
difficult situations.
• “Kanya-Kanya”
◦ There are Filipinos who are individualistic - indifferent to others’ plight and
sometimes selfish.
• The consciousness of being politically involved. Filipinos are always updated
with what is new in terms of political issues.
◦ Government
 ▪ The sole legitimate institution which has the task of overseeing organizational
operations in the country is the government itself. The following are the functions of
the government according to the same source:
• Provides the infrastructure needed:
◦ Physically in the form of bridges, roads, water, and electrical services.
◦ Technologically through information and communication facilities.
◦ Economically by providing loan availability, banking services, tax incentives
and low interest.
◦ Socially through welfare, housing, policies in waste management, societal
responsibilities and community services.
◦ Politically in terms of security, peace, stability, and governance.
• Creates an atmosphere of robust and fair competition among industry and
players of company, does the monitoring and regulation of monopolies and
oligopolies and eradicates illegitimate and unfair practices.
• Formulates policies for business, implements the latter’s operating guidelines,
and regulates business activities like health and safety practices in food, tax
payments, and mandates the minimum salaries of employees as well as the just
and fair treatment of the latter.
◦ Stakeholders
▪ These are the business investors who are willing to invest capital, take risks, and
engage in business in exchange for return or profit. Some investors are actively
engaged in the conduct of business, and some prefer to be silent ones. Stakeholders
are the country ‘s assets and provide opportunities for product and service
exchanges. Business owners are the direct stakeholders, while indirect stakeholders
are the individuals or entities that benefit from owners’ investments – government,
employees, and the community.
◦ Suppliers
 ▪ Suppliers are considered as business partners. Quality products that should be
produced by the business are greatly dependent on the number of factors and one of
which is the supplier. Supplier-customer relationship is involved in doing business.
The term supplier refers to a company or individual which/who is engaged in the
delivery of raw materials, technology, machinery, expertise, labor, skills, and other
forms of services. As business partners, products cannot be produced, and service
cannot be rendered without the said suppliers. Supplier as a component of the
supplier-customer relationship is significant because of the following:
• Supplier component is responsible for the quality of produced products and
rendered services. If the management of the supplier is not done well, delivery
and sale of substandard raw materials, low-quality machinery, and equipment,
diluted admixtures of metals and chemicals, deficiency in size, weight, and
number of units of delivered items and a decrease in the number of delivered
items may happen.
• Supplier components affect the continuity in the process of business operation
(scheduling, production, and delivery). Inventory problems like work stoppages,
stockouts, and workforce-displacement may happen if there are delays in the
delivery schedules.
▪ The “Just-in-Time” (JIT) relationship between Toyota and its suppliers is a good
example of a good customer-supplier relationship because the said relationship is
bonded with a memorandum of agreement between the business partners wherein
the stock items to be delivered and the specifications like weight, quality, and
quantity, ordering lead-time and date of delivery and the respective costs involved
are stated. In the said relationship, the supplier is assured of the right orders while
the customer is assured of delivery of stock. In the said formal arrangement, both
parties’ benefit.
◦ Competitors
▪ Competitors are considered as threats to business. Competition which refers to an
economic scenario where nations, organizations, communities, companies and
individuals offer and sell their products. Competitors who are continuously striving
to outsmart and outplay each other really hope to get a large target market share.
The said competitors fall in the following categories:
• Same Products
 ◦ These are direct competitors - companies who sell exactly offer or sell
products and services. Procter & Gamble and Uniliver are good examples of
this category. The said business firms both engage in the same business line
and, at the same time, sell the same products.
• Similar Products
◦ These are companies which sell similar products such as coffee and tea.
• Substitute Products
◦ Some companies sell substitute products. Fast food centers are examples of
competitors of marketplaces which sell cooked food and convenience to
those who are in the hustle and prefer to be more convenient (buy ready-
cooked food rather than going to market to buy fresh fish, meat and
vegetables).
• Different Products
◦ These are companies which sell dissimilar products compared to what is
offered by other companies but usually market to the same segments.
▪ Likewise, according to the same source, competition may also differ in terms of the
strategies adopted, and these can be:
• Complementary Competition
◦ There are some companies which compete with themselves. The said
companies produce the same products, utilize different brand names, and
target different market segments to capture a larger one. A real estate
company which sells low-cost housing to target markets, classes C and D,
and some sell average cost housing to the families who belong in the middle-
income class.
• Collaborative Competition
◦ There are companies in the business industry whose relationships with each
other are cooperative and strategic. Oil companies are examples of these
because of the “friendly” competition.
• Corrupted Competition
◦ Some business firms or companies produce “fake” products with legitimate
businesses through the bold and unethical transgression of other companies’
intellectual rights through duplication, plagiarism, and false branding. The
said companies produce and sell the said products at low prices.
 ▪ Moreover, the same source cited the different ways of identifying the competitors of
a particular business and these are the following:
• Identifying the similarity in characteristics
◦ Determining the similarity in the products offered, the applied specific
technologies, and the strategies employed whether financial, marketing, and
managerial is one way of identifying competitors.
• Studying Consumers
◦ Identifying competitors can be done by observing and studying consumers or
customers in terms of demographic factors such as sex, age, civil status,
educational attainment, employment, monthly income, and psychographic
factors like needs, attitudes, wants, purchase patterns, perceptions and
buying behavior.
• Researching Company Data
◦ Through hard company data, competitors may also be identified. The said
hard company data are the capitalization outlay, distribution outlets, number
of customers, employees, number of years in the operation, financial
strength, and growth of the company.
• Considering Corporate Success
◦ By studying other companies' sales volume and sales amount, goodwill and
market leadership, companies may identify competitors.
◦ Customers
▪ To capture a bigger share of the market, competitors continuously compete, and the
customers are the ones who make the market. Companies pursue new product
developments and differentiate the latter's existing products and services because of
the said customers. The focus of companies’ business plans and programs and the
thrust of strategies are the customers. Without said customers, there will be no
reason for companies to exist. Because of the changing consumers' needs, demands,
wants and sophisticated lifestyles, there is a critical need to employ to ensure
customers’ loyalty and patronage.
▪ A marketing reality that and understand with definiteness is consumer behavior.
Figure 2 provides a summary of the presentation on how consumer behavior
changes when providing companies/service and/or quality relationships.
◦ Based on the figure, when a consumer is provided with any product or service,
customer satisfaction is being provided to the customer. The said product is
expected to fulfill its intended use to attract customers and gain the customer's
approval. For instance, a bath soap should be able to clean the body. It should meet
the requirements of cleanliness.
◦ In the second level of the same figure, the emphasis is on how to have customer
delight, which according to the same source, refers to a condition where customers
become excited over the products and services offered. Customer delight may come
from experiencing product excellence, quality service, product versatility, or any
characteristics which will greatly gratify and create a unique impact on them.
Customer patronage will be assured once this level is attained. In other words, aside
from the bath soap cleanses the body, the said soap can delight customers with other
added product attributes such as smoothness and fragrance.
 ◦ Customer intimacy is the last level of change in customer behavior. Customer
intimacy deals with the relationship between the customers and the company. This
is best described as supportive, warm, complimentary, and “business” personal. This
can be shown in different forms like sending birthday cards, cakes, or sharing one’s
expertise with a consumer or customer in bad financial situations. Besides the fact
that customers will be pleased with the products and services, customers will surely
continue supporting its products and services. Customer patronage or customer
loyalty is sealed by customer intimacy. To sum up, the relationship shown in Figure
2 becomes the customer strategies which can help keep the staying power and
competitiveness of products.
◦ The emphasis of most companies nowadays is Customer Relationship Management
(CRH). What is customer relationship management (CRM)? It refers to a strategy of
learning more on the needs and behaviors of customers so as to develop stronger
relationships with them. CRM helps business firms gain insight into the customers’
behavior and modify the business strategies to ensure that customers are provided
with excellent products and served in the best possible way.
◦ Likewise. according to the same source. CRM can be achieved by:
▪ Finding out about the purchasing habits, preferences, and opinions of customers.
▪ Profiling individuals and groups to make marketing more effective and to
increase sales as well.
▪ Changing the way one operates so as to enhance marketing and customer
service.
◦ Moreover, according to Young, F.C. (2015), customer relationship management
(CRM) revolves around the interplay of the three important variables - the company
which produces the product or provides services, the product produced/services
provided, and the customers who purchase the products and services. Products and
services should be competitive of good quality, priced, accessible, and ideal to
achieve the optimum level of gain and patronage. Companies should do their best to
satisfy customers’ expectations and delight them with innovations, quality, and
personalized business relationships.
• Community
 ◦ What is a community? According to Young (2015), community refers to the
intermixture of people from all walks of life with different cultures, attitudes,
values, aspirations, traditional beliefs, family backgrounds, standards of living,
religions, and educational attainments. Community is heterogenous but in its goal of
attaining quality life, characteristically homogenous. In principle, the rationale of
the “business framework” is the community. Community provides businesses the
opportunities to thrive. Community is the “suppliers, customers and competitors” all
bundled as one and the government's primary concern. The government,
stakeholders, competitors, customers, and suppliers have a responsibility to society
when a community cannot attain self-sufficiency, which is to help the marginalized
poor and deprived to improve and attain a quality life.
Competitive Advantage
• Competition is really inevitable in the world of business and so every business firm should
also see to it that the company has a competitive advantage. Competitive advantage refers
to the advantage over competitors gained by offering greater value to consumers either by
means of lower prices for the products and services provided or providing greater benefits
and services which justifies higher prices.
• Meanwhile, according to Competitive Advantage: Business, (2020, January 4), competitive
advantage refers to the advantage over competitors gained by offering customers greater
value, either by lower prices or providing better benefits and services which justifies prices
which are higher than others.
• Likewise, according to the same source, Porter (1971) suggested the generic business
strategies which could be embraced so as to gain the said competitive advantage and these
are the following:
◦ Cost Leadership
 ▪ To become the lowest-cost manufacturer in the industry is the business firm's
objective with this strategy. In the industry, market segments are supplied with
minimizing the cost is the emphasis. The lowest-cost producer will enjoy the best
profits when the achieved selling price can at least equal the average for the market.
This strategy is usually associated with a large-scale business that offers standard
with comparatively little differentiation, which is readily acceptable to most
consumers. To maximize sales, particularly if it has an important cost advantage
over the competition, a low-cost leader will occasionally discount its products,
increasing its market share. Close cooperation between all the functional business
areas is required for a cost leadership strategy. Moreover, according to the same
source, a business organization, to be the lowest-cost manufacturer, it should use or
achieve the following:
• High productivity level
• High capacity usage
• Utilization of bargaining power so as to have the lowest price negotiation for
production inputs
• Lean production methods
• Effective utilization of technology in the process of production
• Most effective distribution channel access
◦ Differentiation Focus
▪ In this strategy, a business firm has an objective of differentiating within just one or
a small number of market segments as a target. Ensuring that the customers really
have different wants and needs is a significant issue for any business firm that
adopts it. In other words, there is a rational basis for differentiation, and the existing
competitor products do not meet the said needs and wants of customers. This
strategy is a classic niche marketing strategy. Using this strategy, many small
businesses can establish themselves in a niche market segment by achieving higher
prices than undifferentiated products through specialists’ expertise or other ways to
add customer’s value. A good example is Tyrrells Crisps, which is the smaller hand-
fried, premium segment of the crisps industry is the focus.
◦ Differentiation Leadership
 ▪ The business targets much larger markets with this strategy and has the objective of
achieving a competitive advantage across the whole of an industry. Selecting one or
more criteria utilized by buyers in a market is involved in this strategy and then to
meet the said criteria, positioning the business uniquely is required. This strategy
usually has an association with charging a premium price for the product - usually
to reflect the higher production costs and extra value-added features provided for
the customer. Differentiation is about more premium price charging than covers the
additional costs in the production and provides customers with vivid reasons to
prefer the product over the other (the less differentiated products). Some of the ways
to achieve this are through the following methods:
• Better product quality (benefits, features, reliability, and durability)
• Branding (brand loyalty, strong recognition of customers)
• Across all major channels, industry-wide distribution (ex. Brand or product
which is an important item to be stocked by retailers)
• Consistent support in promotion (often dominated by sponsorship, advertising,
etc.)
▪ Good examples include global brands like Mercedes and Nike. The said brands
achieve important economies of scale, but in competing with other brands, do not
rely on cost leadership only. To become brand loyal and pay a premium for their
products, their brands and business are built to convince customers to buy their
products.
Value Chain
• According to Institute for Strategy & Competitiveness, value chain refers to a powerful
tool for separating a company into its strategically important activities in order to focus on
the competitive advantage sources, which is the specific activities which result in lower
costs or higher prices.
• Likewise, according to Porter’s Value Chain, the value chain value is based on the
organization’s process view, the idea of seeing a manufacturing organization as a system
that is made up of subsystems with inputs, transformation processes, and outputs. The
acquisition and consumption of resources like labor, materials, money, equipment, land,
buildings, administration, and management are involved in inputs, transformation
processes and outputs. Costs are determined by how value chain activities are carried out.
Profits are also affected by how the value chain activities are carried out. In the process of
converting inputs to outputs, most business organizations are engaged in hundreds of
activities. Generally, these activities can be classified as either primary or support activities
which all businesses should undertake in some form.
• According to Porter (1985), as cited by the same source, the primary and secondary
activities involved in the process of converting inputs to outputs (value chain) are the
following:
◦ Primary Activities
▪ Inbound Logistics
• Relationships with the suppliers and including all activities required in
receiving, storing, and disseminating inputs.
 ▪ Operations
• All activities which are required in transforming inputs into outputs.
▪ Outbound Logistics
• Include all activities required in collecting, storing, and distributing output.
▪ Marketing and Sales
• These are activities that keep the buyers informed about the products. These
activities also induce consumers to buy them and facilitate their buying.
▪ Service
• Includes all the activities which are required to keep the products working
effectively for the consumer after selling and delivering the said products to the
buyer.
◦ Secondary Activities
▪ Procurement
• Refers to the activities related to the acquisition of resources (inputs)for the firm.
▪ Human Resource Management
• Includes all the activities related to the recruitment, selection, training,
development, compensating and dismissing employees.
▪ Technological Development
• Refers to the equipment, software, hardware, technical knowledge, and
procedures brought to bear in the transformation of inputs into outputs.
▪ Infrastructure
• Serves the needs of the company and ties into different together. This consist of
departments or functions such as legal, accounting, planning, finance, public
affairs, quality assurance, government relations, and general management.

Objective Setting and Formulation of Strategy - I

Objective Setting
• Aside from assessing the external and internal business environment, setting objectives
should be done by all business organizations. Objectives are the steppingstones toward a
program goal achievement. The said objectives are specific and concise statements that
indicate what and why an organization is seeking to change, in what target group, and by
how much. Likewise, according “The Importance of Setting Objectives and Sticking to
Them,” (2016, September 6), setting objectives is critical for every business. Objectives
will provide every business organization a very vivid picture of what to work on and which
will determine the difference between a company nose-diving or thriving, most especially
in economic certainty periods. Likewise, according to the same source, setting objectives is
important because of the following reason:
◦ Objectives will provide guidance and direction to the business.
▪ In making difficult decisions, a business organization and its employees will look to
the objectives, and such objectives will provide a kind of “road map” to pilot with
so that there is an assurance that the business is heading in the right direction.
◦ Objectives will motivate and inspire employees of a business organization.
▪ Objectives will give the business organization’s workforce a target and the drive the
said workforce needs to deliver results. If the said workforce understands the
business’s needs, what are they working, and what is in it for the said members of
the organization, there will be a great chance for success.
◦ Objectives will help a business organization evaluate its performance.
▪ Through the objectives set by the business, actual performance will be compared to
what the latter would like to achieve.
• Indeed, before a business organization can formulate and implement strategies that can be
the key to its success, setting objectives should be done well. According to “What are
objectives?,” in setting objectives, a business organization should make their Specific,
Measurable, Achievable, Realistic, and Time-specific (SMART).

• Specific
 ◦ Objectives should be detailed, concrete and well defined. What should a business
organization need to achieve should be specified? Specific language should be used
- what is the specific issue, who is the target group, when and where the program
will be done - being action- and result-oriented means that the objectives are also
specific.
• Measurable
◦ In setting objectives, a business organization should be able to quantify or measure
whether the objective is met or not. Precise units and figures should also be
included in the objectives to be set. Setting good objectives also means that points
of reference which a business can make an actual measurement should also be
considered.
• Achievable
◦ Aiming high is a good idea, but in setting objectives, one should see to it that there
is the possibility to achieve them. Some of the things that should be considered are
whether the objectives will be achieved in the proposed time frame and
understanding the constraints and limitations in achieving them.
• Realistic
◦ Resources should be considered by business organizations in setting and
realistically achieving the objectives. The said achievement of objectives can be
staged. Aside from the resources available, revisiting the objectives should be
considered.
• Time-Specific (Time-Bounded)
◦ Time frame in which the expected program changes will occur should be clear in
the objectives to be set. As to when one wants to achieve the said objectives and
well will the latter be accomplished should also be taken into consideration. There
should be a stated deadline also for achieving objectives.
Formulation of Strategy
• According to Yodico, J. M. (2015, January 8), formulation and implementation of major
goals and initiatives are involved in strategic management. What is strategy? According to
the same source, a strategy is an extensive plan developed by a business firm so as to take
the said organization from where it is at present and at the same time where the said
business wants to be. Reaching the business firm's maximum effectiveness level in
reaching its goals while constantly allowing to monitor the environment to adapt the
strategy as necessary becomes possible through the help of a well-designed strategy. How
about strategy formulation? The same source gave the meaning of the term, to wit, strategy
formulation refers to the process of developing the strategy. Likewise, the term refers to
the process by which the business organization selects the best courses of action to achieve
its defined goals and objectives. This process is important to an organization's success
because a framework of the action leading to the anticipated results is provided.
• Strategy formulation or strategic formulation is sometimes called strategic planning.
Through a strategic plan, a business organization is enabled to assess the resources,
allocate budgets, and identify the most effective plan for maximizing the return of
investment (ROI). Moreover, the same source cited that a defined set of six steps for
effective implementation is required by strategy formulation, and these are the following:
◦ Defining the business organization.
▪ The best way to define a business organization is to determine the latter’s
customers. A business organization will not be successful without a strong customer
base whose needs and wants are being filled. The business firm should identify
factors that are valued by its customers. Some of the ways in which business
organizations can define themselves are the following:
• End Benefits
◦ Aside from the features, the business firm should remember which people are
buying benefits.
• Target Market
◦ Identifying business firms with a particular target group can make the said
firm become successful. The said focus should not be limited only to
demographic segmentation (income, age, education, gender, culture, family
life cycle) but also by psychographic indicators.
• Technology
 ◦ Medical research, computer and other companies that can identify
themselves with the world of technology will find which the latter should
adapt to changes quickly in the marketplace.
◦ Defining the strategic mission.
▪ The organization’s strategic mission is to offer a long-range perspective of what the
business organization strives for going forward. A clearly stated mission will
provide a guide to carrying out the business firm’s plans. A strong strategic mission
statement elements should include special abilities or positions that the business
organization holds in the marketplace, values that hold the organization holds the
business nature, and the vision for where the said organization wants to be in the
future.
◦ Defining the strategic objectives.
▪ Identifying the performance targets needed to reach clearly stated objectives by the
business organization is required in the third step in strategic formulation. Strategic
objectives may include the following:
• Production of goods and services
• Market position relative to the competition
• Corporation expansion, technology advances, and sales increases
• Desired market share, improved customer services
▪ In order to ensure success, strategic objectives should be communicated with all
stakeholders and all employees. Business organizations’ members should be made
aware of their role in the process and how the latter's effort contributes to meeting
the business firm's objectives. In addition to that, for a business organizations’
member’s individual roles, the latter should have their own set of objectives and
performance targets.
◦ Defining the competitive strategy.
▪ Determining where the business fits into the marketplace is required in a business
organization. Throughout the business enterprise, the said requirement should be
applied.
▪ To maintain the business organization's competitive position, each area should be
aware of its role within the said organization and how those roles enable the latter.
ln determining the overall competitive strategy, three factors should be considered,
and these are the following:
• Industry
 ◦ In evaluating the industry, the following factors should be looked:
▪ Market Size
▪ Market Growth (past and potential)
▪ Competitive Profitability
▪ Entries of new market
▪ Industry Threats
• Competition
◦ Unless the business organization has a full understanding of other
marketplace players, the latter cannot be successful. Competitors' strengths
and weaknesses should be identified and how the competition’s products
meet the needs of its customer base should be analyzed by the business
organization.
• Strengths and Weaknesses
◦ Strengths or what the business organization has, which will benefit them and
the weaknesses or the factors or elements which will make the business have
some disadvantages should be analyzed also to determine the overall
competitive strategy.
◦ Implementing the Strategy
▪ If the strategy is put into place, developing the said strategy is effective. Without the
implementation of strategies formulated, the business organization’s work will have
little or no value at all. Tactics are methods employed for implementing the
strategies formulated. Building a foundation for implementation will be enabled by
business organizations through these individual actions.
◦ Evaluating the progress
▪ A regular process and result evaluation are important to ongoing success in any
plan. As defined by its strategic plan, a business organization should keep track of
progress.

Growth Strategies
• According to Young, F. C. (2015), one of the most important considerations for every
business organization is the adoption and implementation of a growth strategy. There are
reasons why growth strategies are carefully studied and deliberately carried out by
business organizations, and these are:
◦ To increase income;
 ◦ To survive the hypercompetitive environment and stay in the industry;
◦ To create competitive advantage;
◦ To increase market leadership in a given industry
• What is a growth strategy? According to the same source, growth strategy refers to the
mode adopted by the business organization so as to achieve objectives of increasing
volume and turnover. Growth strategies can be internal or integrative. This module will
focus on the discussion of internal growth strategies.
• Internal Growth Strategies
◦ These are approaches that are adopted within the company.

• Market Penetration
◦ Market penetration can be actualized by selling more current products to current
buyers or customers. It should be done by business organizations to increase their
growth. For any company, market penetration is the least risky to pursue. For
instance, a company selling a six-pack of drinks can push for a 12-pack, 24-pack,
and so on.
• Market Development
◦ In this process, the business organization can sell more current products by new
market seeking and tapping. For the company, this serves as a little more
challenging. For instance, if a company has a fast-food chain in Luzon that serves
burgers, then the said company can open new outlets in the Visayas and Mindanao.
• Product Development
 ◦ The company sells new products to an existing market. A need to be more creative
in coming up with differentiated products is a must in this strategy. There is no need
for a product to be new in its truest essence but maybe results of product redesign,
enhancement, or reinvention. For instance, a company develops a versatile hair
conditioner that can be used without wetting the hair at all.
• Diversification
◦ Creating differentiated products for new customers is involved in this growth
strategy, which means new products are provided to new customers. Oftentimes,
this is going to another product area which is not related to one’s current operations
or business. For instance, a machine manufacturer can diversify and go into the cafe
restaurant business, or an advertising firm can manufacture a new robot pilot for
airline companies.
• Competitive Strategies
◦ Business organizations cannot avoid the pervading competition which exists in the
business environment. According Young, F. C. (2015), competitive strategies are
really designed to deal with the reality of hyper competition. What are the competitive
strategies? According to the same source, competitive strategies are critically long-term
action plans prepared to direct how the business organization will compete and survive.
To help the latter to gain competitive advantage is the reason why these strategies are
formulated. That is, after the evaluation and comparison of the company’s strengths and
weaknesses compared to their competitors.
◦ There are different forms of competition. These may be in the company's product or
services like functionality, design, versatility, benefits accompanying the product or
service offerings like after-sales services and warranties and pricing of
products/services offered. Likewise, according to the same source, the different types of
competitive strategies are the following:
▪ Low-Cost Leadership Strategy
• To offer products and services at the lowest possible cost in the industry is the
objective of this type of competitive strategy. When the business organization
makes every effort to be the most effective, if not the overall, low-cost provider
of products, this strategy is implemented. For instance, through offering airfares
at low prices, Cebu Pacific Airlines utilizes a low-cost leadership strategy to
capture the broadest reach of air travelling customers.
▪ Broad Differentiation Strategy
 • To provide a variety of products, services, or product and service features that
competitors do not offer or cannot offer to consumers is the objective of the
broad differentiation competitive strategy. When a business organization offers a
unique product with diverse features and traits which will appeal better to its
buyers/customers, this strategy is implemented. A good example of a broad
differentiation strategy product is a mobile phone with the same features as
others and with an addition of television features.
▪ Best-Cost Provider Strategy
• In this strategy, low-cost leadership and broad differentiation strategies are
combined. When the business organization provides its customers more value
for money through emphasizing both low- cost products with unique features,
this strategy is implemented. Keeping the
company's customers are the end goal. For instance, Baclaran and Divisoria
increase their customer base by selling different, wide-ranging numbers and
low-cost products in substantial quantities.
▪ Focused/Market-niche Lower-cost Strategy
• When the business organization concentrates on a limited market segment and
creates a market niche based on lower costs, this strategy is implemented. For
instance, there are low-cost housing that caters to middle-class employees.
Another good example is a specialized video and audio equipment store which
sells only these two types of products. Being dedicated, the store can avail itself
of price discounts, buy stocks in bulk and, therefore, sell at low prices.
▪ Focused/Market-niche Differentiation Strategy
• When the business organization concentrates on a limited market segment and
creates a market niche based on differentiated features like utility, design, and
practicality, this strategy is implemented. A good example of this is Rolex,
which has an elite clientele base and sells editions of limited watches. Distinct
features of Rolex watches are the design, cost, branding, and quality.
◦ Moreover, the same source enumerated other types of competitive strategies, and these
are the following:
▪ Technology Strategy
 • Through digital integration, technology can be applied. Business organizations
aggressively pursue the said thrust as the latter realize the benefits of going
digital. Functional activities like marketing, accounting, purchasing, production,
human resource management and operations are interconnected using business
resource planning.
▪ Innovation Strategy
• This strategy is difficult to apply. To radically leapfrog or launch the business
organization by introducing completely new and highly differentiated products
which give the latter competitive posturing is the goal of this strategy. A concrete
example is robotics, where engineering science, automation, manufacturing, or
computing are collaboratively utilized to create cybernetics products.
▪ Economies of Scale
• Economies of scale lowers cost when applied as a competitive strategy because
of volume. In short, the more a product or service is manufactured or produced,
the lower the costs are for manufacturing the product and rendering the service.
▪ Operational Effectiveness Strategy
• Some business organizations operate with a high inefficiency degree in their
integral business processes like downtime, wastes, longer cycle times, rejection,
losses, complaints, absences, and others. The said forms of wastefulness,
incompetence and inadequacies translate into financial reduction and leaks in
potential profits. To make the business organization perform better by making
the structure streamlining wasteful and inefficient processes, harnessing better
equipment and facility maintenance, and increasing workforce productivity is
the objective of an operational effectiveness strategy.
• Stability Strategies
◦ For business organizations which are doing fine or presently doing better may choose
not to implement any growth strategy. Keeping the status quo usually is the decision of
business organizations that are stable in their current position. Some said organizations
are comfortable with their current market niche, and competitors' attention may be
attracted if any loud strategy is implemented. For instance, businesses that are
successful monopolies in their own right with no new entrants continue to enjoy profits.
On the other hand, some have not decided to expand and become big while being
content with their own.
• Life Cycle Strategies
◦ Product life cycle is worth reviewing in the context of the horizontal boundaries of the
business organization. According to Young, F. C. (2015), the life cycle of any product
or service refers to the lifespan which a product or service undergoes from its
introduction state to its growth, maturity, and decline stages.
◦ According to Claessens, M. (n.d.), the product life cycle contains five distinct stages,
namely Product Development, Introduction, Growth, Maturity, and Decline. In the first
stage, product development starts when the company finds and develops a new product
idea. Sales are zero, and the investment costs of the company increase during product
development. For the second to fifth stages (introduction, growth, maturity, and
decline), specific product life cycle strategies can be identified. The said strategies are
based on the characteristics of each product’s life cycle stage. In order to manage the
product life cycle, it is important to know which product life cycle strategies should be
applied in each stage. And so, the focus in this part of the module will be in the
introduction, growth, maturity and decline stages.
▪ Introduction Stage
• The new product is first distributed and made available for purchase after its
development during the introduction stage. The product’s first launching is the
start of the introduction stage but can be too long, and sales growth tends to be
slow and even negative because of low sales and high expenses in promoting
and distribution. To attract distributors and build their stocks, obviously, much
money is needed. The focus in the introduction stage is on selling to those
consumers who are innovators or the readiest to buy. A proper launch strategy
can be considered wherein the business firm should choose a launch strategy
which is consistent with the product positioning the said firm would like to have.
The said strategy should be considered the first step in a more splendid
marketing plan for the product's entire life cycle. To create awareness of
consumers to the product and to let the said consumers try the product is the
main objective of this stage. To be more accurate, the business firm
manufactures basic versions of the product. To recover the costs incurred, cost-
plus pricing should be utilized. Building awareness of the product among the
early adopters and innovators should be the aim of advertising. To attract more
consumers to try the product, heavy sales promotion is needed. Once the said
strategies for the introduction stage are followed, the new product and the
company will be ready for the next stage.
▪ Growth Stage
• In this stage, sales of the product start climbing quickly - the early adopters will
continue to purchase and the ones who are just buying will start following the
latter's lead especially if favorable word of mouth will be heard. More
competitors will be attracted because of the said rise in sales because new
product features will be introduced at this stage. There will be more distribution
outlets and sales will improve because resellers build inventories. Maximizing
the market share is the main objective of the growth stage. With regards to
strategies that may be applied during this stage, what should be improved is the
product quality and new features of the product and models should be added.
Entering new market segments and new distribution channels with the product
may be considered. Business firms may maintain prices or make a decrease to
have market penetration. Promotion should also be considered. Aside from
educating the market, competition should be met. From product awareness,
some advertising should be shifted to building product conviction and purchase.
A good example of demonstrating the life cycle strategies, which are
interrelated, is the growth stage. The business firm should choose between high
current profits and a high market share. Likewise, the said firm can reach a
dominant position by considering product improvements, promotion, and
distribution.
▪ Maturity Stage
 • There is a slowdown or level-off of product sales growth after reaching a peak at
this stage. This stage lasts longer than the first stages discussed. There are strong
challenges in managing marketing and careful product life cycle strategies are
needed. Most of the products in the market are at this stage. There is a slowdown
of sales growth because many manufacturers have many products to sell. Greater
competition is realized because of that. A drop in profit occurs because
competitors happen to start to mark down prices while increasing the sales
promotion, advertising activities and product development initiatives. To
maximize profit while defending market share is the main objective of the
business firm. To attain the said objective, there are strategies which should be
considered and implemented. Modifying the market, product and marketing mix
should be considered. Modifying the market means to try to increase
consumption by finding new users and new market segments. The second one,
which is modifying the product, means changing the attributes such as features,
quality, style, or packaging to attract new consumers and inspire more usage.
Improving sales by changing one or more marketing mix elements is involved in
modifying the marketing mix. For example, to attract new consumers or
competitor's customers, prices may be cut. Better advertising campaigns may
also be launched by the business firm or relying on aggressive sales promotion is
also advised. Sales may drop to zero or may drop to a low level for the following
years.
▪ Decline Stage
 • In this stage, sales of products decline. The said decline may be either slow or
rapid. One of the reasons for the decline is the shift in the taste of consumers and
increased competition. With the decline of sales and profits, withdrawals of
some competitors from the market may happen. A careful choice of strategies
for this stage is required. To identify products in the decline stage early, the
company needs to have more attention to aging products. The firm should then
make a decision whether the declining product will be maintained, harvested, or
dropped. To reduce expenses and “milk” the brand should be the main objective
in the decline stage. Some of the general strategies in this stage are choosing
selective distribution by phasing out unprofitable outlets, cutting prices and
reducing sales promotion as well as advertising to the level needed to retain only
the most loyal consumers. Reinvigorating or repositioning may be an alternative
if management decides to maintain the product or brand. The reason for this is to
move the product back into the growth stage. If harvesting the product will be
considered, reducing the cost is needed and only the last sales need to be
harvested. However, the company's profits will only increase in the short term.
Selling the product to another firm or simply liquidating the said product at
salvage value is involved in the dropping of product from the product line.
• Retrenchment Strategies
◦ There are times when companies encounter serious problems and that is why reviewing
current positions or situations is a must. What are the retrenchment strategies?
According to Rungta College of Science, and Management Department, (2016, May
16), retrenchment strategies are utilized to reduce the overall size or diversity of the
companies. The said strategies are utilized to cut expenditures with the goal of
becoming a more stable business, especially with regards to finances. Normally, the
strategy involves withdrawal from certain markets or the discontinuation of selling a
particular product so as to make a beneficial turnaround. This strategy is considered
and followed when the firm decides to eliminate its activities through a considerable
reduction in business operations, in the customer group perspective, technology
alternatives, and customer functions either collectively or individually.
◦ Likewise, according to “What are the different types of Retrenchment Strategies of
Business? (2015, September 2), there are different types of retrenchment
strategies, and these are the following:
▪ Turnaround Strategies
 • Turnaround strategy means withdrawing, retreating, or withdrawing from a
wrongly taken decision to reverse the decline process. Turnaround is needed if
the business organization has to survive, and the danger signs are:
◦ Consistent negative cash flow and continuous losses
◦ Declining market share
◦ Physical facility deterioration
◦ High employee turnover, over manpower and low morale
◦ Uncompetitive products
◦ Mismanagement
▪ Divestment Strategies
• The sale or liquidation of a portion of a business or a major division, profit
center are involved in the divestment strategy. A restructuring plan and adopted
when after attempting to use turnaround and turned out to be unsuccessful. The
following might be reasons for adopting a divestment strategy:
◦ A business cannot be integrated within the business firm
◦ Consistent negative cash flows from a specific business which creates
problems in the financial aspect of the whole company
◦ Inability of the firm to face competition
◦ Requirement for technological up-gradation if the business is to survive
which company cannot afford
◦ A better option may be available for investment
▪ Liquidation Strategies
• Liquidation strategy refers to closing the entire company and selling the latter's
assets because the said strategy leads to serious consequences such as
opportunity termination where a business could pursue any future activities, load
of employment for employees, and the failure stigma. Generally, proprietorship
firms, small-scale, and partnership frequently liquidate but companies rarely
liquidate. The government, company management, financial institutions,
suppliers, trade unions, and other agencies do not prefer liquidation.
• Likewise, according to the same source, as a strategic option, liquidation
strategy is unpleasant but a good proposition if the business which is dead
already is worth more than alive. A good example is that a business firm’s real
estate may fetch more money if it is liquidated than the actual returns of doing
the business Some reasons for liquidation are:
 ◦ Obsolescence of process or product
◦ High competition
◦ Business becoming not profitable at all
◦ Failure of strategy
◦ Industry overcapacity

Lesson 5 - Formulation of Strategy II

Formulation of Strategy
• According to Ordenes, P. (n.d.), strategy comes in different sizes and shapes. A multi-
national company strategy will contrast one from a startup, but still, the principles remain.
Strategy can be at three levels - functional level, business level and corporate level.

• Functional Level
◦ A strategy level at the business organization’s operating end. In this level,
employees’ decisions are usually described as tactical decisions and concerned with
how different business organization’s functions contribute to the other levels of
strategy. The said functions may include finance, marketing, human resources,
manufacturing, and others. Functional strategy deals with a fairly restrictive plan,
which gives the objectives for each specific function. Informing the day-to-day
employees’ work and ultimately keeping the business organization moving in the
right direction become possible because of the strategic level.
• Business Level
 ◦ In the hierarchy of strategy, the business level strategy is the second tier. This level
is under the corporate strategy and a means to goal achievement of a specific unit in
the business organization. Implementation of this strategy level is only significant
for business firms with multiple business units that may sell products and render
services or may sell multiple products and services in different business industries.
A good example is a large bank that sells multiple services in different industries,
with business units in wealth management, corporate banking, capital raising, and
risk management. Business unit heads and other middle managers within each unit
are the ones who construct the business-level strategies. There are reasons why a
range of managers from each unit should participate in the business level strategy
process because of the following reasons:
▪ Increases Buy-in
• Having a chance for managers to contribute to creating strategies feels
included in making decisions. Because of that, the latter will more likely
accept the business level strategies and jump on board with the execution.
▪ Improves Ownership
• Employees take ownership rather than completion because the opportunity is
given to them in the formation of the strategy.
• Corporate Level
◦ The top strategy level in a business organization. The overall direction that the
business organization will move in, and the high-level corporate strategy plans will
be defined. A select strategy group such as the top management and CEO creates
these plans. The said group is involved because of the possession of a deep
company understanding and the necessary strategic business knowledge so as to
steer the business firm in the right direction. Generally, this strategy is broader in
nature compared to other levels of strategy. In this level, strategies are more
futuristic and conceptual than the functional/business level strategies and usually
span a 3–5-year period. A corporate strategic plan will entail:
▪ An overall business organization’s vision
▪ Focus Area
▪ Corporate Values
▪ Strategic Objectives
Strategies in Corporate Level
• According to Nishikantwar Follow, (2018, August 10), corporate strategy serves as a
blueprint for the business firm’s growth. The overall direction to follow for the said firm is
set through these strategies.
• According to the same source, corporate level strategies have different types, and these are
the following:
◦ Stability Strategy
▪ In this strategy, the business organization retains its present strategy (corporate
level) and continues to focus on its present markets and products. The said business
organization also has satisfaction in its incremental growth. Likewise, according to
the same source, stability has three types, and these are:
• No Change Strategy
◦ Consciously, the business firm decides to do nothing and to continue with the
current business definition. Usually, many small and medium organizations
that operate in a familiar market and offer produce through technology that is
time tested rely on this strategy.
• Profit Strategy
◦ This strategy is adopted by the business organization after assessing the
situation if there is a situation of lowering its profitability. In the said case,
the said business firm undertakes measures to cut costs, reduce investments,
increase productivity, raise prices, or adopt some measures for tiding over
temporary problems or difficulties.
• Pause/Proceed with Caution Strategy
 ◦ A temporary strategy wherein the ground is tested before moving ahead with
a full-merged strategy at the corporate level. When there is a need for
consolidation intervening, this strategy is essential. Letting the strategic
changes emanate down the organization levels, make the system adapt to the
new strategies, and let the changes in structure occur are the reasons for
considering this strategy.
◦ Expansion Strategy
▪ This strategy is also known as Intensification Strategy or Growth Strategy and is the
most popular corporate strategy. Activities of the company are expanded using this
strategy. When a business organization wants to have high growth by broadening
one of its businesses' scopes in terms of customer function, respective customer
groups, and alternative technologies to enhance its overall performance, this
strategy is considered. This kind of strategy is chosen by the business organization
when its past financial performance and resource availability are high. For instance,
to include old and middle-aged people in its existing customers, which comprise
children and teenagers, a chocolate producer opted to expand his business. Another
example is a printing company that changes from traditional letter press printing to
desktop publishing to increase efficiency and increase production. Likewise,
according to the same source, expansion strategy has sub-types, and these are the
following:
• Expansion Through Concentration
◦ Market Penetration
▪ The business firm seeks to sell more goods produced to the same market.
This strategy is considered by the said firm when existing opportunities
are present, and exploiting its current markets and current products is a
good choice. The said strategy is adopted, and growth is achieved through
existing products by:
• Motivating present customers to purchase their products in larger
quantities and more frequently. This is done through giving bonus
cards, volume discounts, and other techniques to retain customers.
• Increasing efforts to make the customers of competitors attracted to
their products by providing quality products, giving attractive prices,
and attractive product design.
 • Targeting new customers in its present market through better customer
services, price concessions, and increasing publicity.
◦ Market Development
▪ In this strategy, the business firm sells the same products to a new group
of customers. Through this, sales increase and some of the methods
employed are:
• The business firm moves its current produce into new geographical
areas by appointing new channel partners, manufacturing
representatives or sales agents, increasing the sales force, and
franchising its operation.
• The business firm attracts new market segments that make the
expansion of sales realized - minor modifications are made in the
existing products, making new market segments attracted and
convinced to buy the said products.
▪ Product Development
• In this strategy, the business firm sells new products to the same
customer group. Development and improvement of new products for
its present markets are involved in this strategy. The possible methods
for this strategy are the following:
◦ Development of new products.
◦ Create improved or different current product versions.
◦ Make necessary changes in its existing products so as to suit the
likes and dislikes of consumers.
▪ Expansion Through Integration
• Integration, according to the same source refers to combining different activities
related to the business firm's activities. The said combination may be done on
the value chain analysis basis; likewise, according to Young, F. C. (2015),
integrative growth strategies involve the business organization's resource
investment in other business firms to achieve growth goals. The said strategies
are critically acquisition strategies, and these are also the first two types of
expansion through integration:
◦ Horizontal Integration
 ▪ Refers to a strategy where the business firm acquires another dynamic
business. There are different reasons for undertaking horizontal
integration, and these are the following:
• Elimination of the potential or real competitors (Jollibee purchased
Mang Inasal for fear of losing their fast-food industry market share).
• The desire of business firms to simply expand its market
demographically, expand its reach and maintain their status in the
market as leader, market follower and market challenger.
• Increase the revenues of a business firm.
◦ Vertical Integration
▪ Refers to the consolidation process of other companies that are involved
in all product and service processes from raw materials distribution into
an organization. An integrated growth strategy adopted by a business
organization to gain control over its distributors and suppliers, minimize
transaction and inventory costs, increase the company’s market share and
ensure retail stores’ adequate stocks. There are two subtypes of vertical
integration, and these are the following:
• Backward Integration
◦ In this vertical integration, a business firm purchases one of its
suppliers. A business organization can better control its supply
chain and a more cost-effective or reliable input supply can be
ensured by carrying out backward integration. Inefficiencies can
be eliminated by a business organization to secure quality output,
which is according to standards. Business firms can apply process
and product strategies so that the right goods will be produced, and
the right services will be rendered.
• Forward Integration
 ◦ This vertical integration is carried out when a business firm
purchases distribution companies that are part of its distribution
chain. Because of this, the business firm is able to eradicate the
intermediary, which in turn eliminates costs related to distribution.
Reinvention of the business organization’s marketing outlook and
redesigning its marketing strategies will be possible through this
vertical integration. For instance, a business firm that manufactures
garments can purchase retail outlets that display and sell their
clothing lines to increase sales.
▪ Expansion Through Diversification
• According to Nishikantwar Follow, in diversification, moving into new business
lines and a distinctive business definition change is involved. Diversification
takes place when new products are made for new markets. There are two types
of diversification, and these are the following:
◦ Related (Concentric) Diversification
▪ Happens when the business organization does an activity in a manner
related to the existing definition of business. Sub-types of this
diversification according to the same source are the following:
• Marketing Related Diversification
◦ A company which produces sewing machines diversifies into
household appliances and kitchen.
• Technology Related Diversification
◦ Insurance companies which offer insurance to institutional
customers also start to offer insurance to individual customers.
• Marketing and Technology Related to Diversification
◦ A company which manufactures synthetic water tank produces
other synthetic items such as synthetic windows and doors through
its hardware suppliers’ network.
◦ Unrelated (Conglomerate) Diversification
▪ A strategy wherein a business organization takes up activities that are not
related to the existing business definition. Entirely unrelated product and
markets are added to its existing business, and products are generally
introduced using different new market technologies:
• Examples:
 ◦ ITC group operated the following businesses: agribusiness, hotels,
IT, tires, and hotels.
◦ Aditya Birla Group operates different unrelated activities such as
outsourcing, chemicals, aluminum, cement, gas, copper, mining,
software, retail, textile, and telecommunication.
▪ Expansion Through Cooperation
• There is a term which refers to this type of expansion, and this is “co-opetition,”
which expresses the simultaneous competition and cooperation idea among the
competing business firms for mutual benefit. Likewise, in this strategy, mutual
cooperation among competitors and at the same time competing with them is
considered so the expansion of market potential becomes possible and
materialized. Cooperative strategy has different sub-types according to the same
source, and these are:
◦ Mergers and Acquisition (Takeovers)
▪ A merger refers to the combination of two or more business organization
in which one acquires all the other's assets and liabilities in exchange of
cash or shares, or both the business firms are dissolved, and their assets
and liabilities are combined, and new stock is issued. An organization that
acquires another company is an acquisition and for the business company
which is acquired refers to a merger. Likewise, sub-types of mergers and
acquisition were given by the same source, and these are:
• Horizontal Merger
◦ Happens when two merging companies are of the same business
industry and similar manufacturing produce.
▪ Example:
▪ Garments company merging with another garments company.
• Vertical Merger
◦ When two business organizations are manufacturing the same
products but are at different stages.
▪ Example:
▪ Garments company merging with a fabric tinting company.
• Concentric Merger
◦ When two business organizations are related to each other in terms
of customer groups or customer functions.
 ▪ Example:
▪ Garments company merging with another specialty garments
company.
• Conglomerate Merger
◦ When two business organizations operate in different industries.
▪ Example:
▪ Garments company merging with pharmaceutical company.
◦ Joint Venture
▪ The joint venture can be considered an entity resulting from a long-term
agreement between two or more parties. An entity is formed between
parties to perform a specified activity together. Through contributing
equity and sharing of expenses, revenue and enterprise control, parties
create a new entity. The venture may be for a specific project or a
continuing relationship in business. An example is Sony Ericsson.
Likewise, according to the same source, there are some conditions for
joint ventures, and these are the following:
• When a business activity is not economical for a business organization
to do it alone.
• When the business risk has to be shared and the said risk is reduced
for the participating business firms.
• When the different competence of two or more business organizations
can be brought together.
• When setting up a business organization requires surrounding barriers
like tariffs, nationalistic-cultural roadblocks, import quota and
political interests.
▪ Moreover, there are five triggers for a joint venture, and these are the
following:
• Intellectual exchange
• Geography
• Regulation
• Technology
• Sharing of Capital and Risk
◦ Strategic Alliances
 • According to the same source, strategic alliance refers to a form of
affiliation that involves mutual resource sharing or “partnering” to
improve efficiency. This happens when two or more business firms
unite to pursue a mutual goal but independence remains to the alliance
formation. There are sharing of alliance and control benefits between
partner firms. Firm partners contribute continuously to key strategic
areas like products and technology. Some reasons for strategic
alliances are: Ease of entry into a foreign market.
◦ Example:
◦ Strategic alliance between American Airlines and British Airways.
◦ Sharing of expenses and risks
▪ In early 1990s film manufacturers Fuji and Kodak join with
camera manufacturers Canon, Nikon, and Minolta to create
film and cameras for an “Advanced Photo System.”
◦ Synergistic effects of shared expertise and knowledge.
◦ Gaining competitive advantage.
◦ Reducing costs in manufacturing.
▪ Expansion Through Internationalization
• International strategies require business firms to market products and services
beyond the national or domestic market. There are two sets of factors which
affect the decision of the business firm to adopt international strategies, and
these are the following:
◦ Cost Pressure
▪ It signifies the demand for a business company to minimize its unit costs.
◦ Pressure for Local Responsiveness
▪ It makes the business firm adopt its strategies so as to make a response to
national-level differences in terms of factors like customer tastes and
preferences, business practices or government policies. The different
types of international strategies are:
• International Strategy
◦ In this strategy, the business organizations create value by
transferring products to foreign markets where the said products
are not available. Standardized products in different countries that
have no, or little differentiation are offered too.
 • Multi-Domestic Strategy
◦ A high level of local responsiveness is likely to try to achieve by
business organizations. How is it done? Produce and service
offerings are matched to the national conditions which are
operating in the countries the business firms operate in. With this
strategy, differences among national markets are recognized and
emphasized by managers, which results in allowing subsidiaries to
different management practices and products by country.
• Global Strategy
◦ A low-cost approach which is based on reaping the experience
curve effect benefits and location economies and offering
standardized products across different countries is adopted by
business firm in this strategy. Industries such as automobiles,
aerospace, metals, telecommunications, computers, industrial
equipment, and chemicals are examples of global industries where
there is a regional or a worldwide scale of competition.
• Transnational Strategy
◦ This strategy refers to a coordinated approach to
internationalization in which the business organization strives to be
more responsive to the local needs while retaining enough central
operation control so as to ensure learning and efficiency. The
major advantages of global and multi-domestic strategies are
combined in transnational strategy, while the disadvantages of the
said strategies are minimized. It is a combined approach of high
local responsiveness, and the business firms adopt low cost.
◦ Retrenchment Strategy
▪ This strategy is a response to industry and market decline. It aims at activity
concentration through one or more important business scope reduction. In this
strategy, an attempt to determine the root and cause of the problems and steps is
taken to solve them. Some factors lead to decline, and these are the following
according to the same source:
• Internal Factors:
◦ Excess assets and high costs
◦ Ineffective management
 ◦ Not appropriate strategies
• External Factors:
◦ Demand saturation
◦ New business models
◦ New technologies
◦ Unfavorable policies in government
◦ Changing needs of customers
◦ Combination Strategy
▪ A combination strategy is an approach wherein the business organization adopts a
mixture of stability, expansion, and retrenchment strategies. This is done either
simultaneously in different businesses or at different periods in the same business
with business improvement as its aim.
Global Environment Strategy
• According to Young, F. C. (2015), business firms pursue global strategies for expanding
business externally in some instances. Global strategies cover three main areas, and these
are international, multinational, and global. International strategies are pursued by business
companies that may want to sell excess products outside the country. Multinational
strategies may be engaged by a business company when the said business is involved in a
number of markets outside the home country. Selling distinct and competitive products and
services suited to customers’ demands in different countries is challenging in undertaking
multinational strategies. The company considers or treats the world as a whole, one market
and one supply source with slight local variations in global strategies. Likewise, same
source cited the benefits of global environment strategy, and these are the following:
◦ Larger earnings and sales
◦ Global branding
◦ Increase savings
• Moreover, according to the same source, in building and adopting global strategy, there are
some resources that should be considered so as to establish competitiveness level, and
these are the following:
◦ Big capitalizations because of the fact that requirements for funding can be demanding.
◦ Strategic and managerial leadership so as to come up with the appropriate strategies to
attain success.
◦ Management and employees' capabilities and expertise
◦ Differentiated
Strategy and Technology
• In adopting the strategies in making the business successful, technology plays an important
role. According to Nishikantwar Follow, (2018, August 10), the said internet strategies are
e-business, e-commerce, e-communication through video conferencing, web publishing,
internet and telephone and e-collaboration.
• Technology strategy refers to the set of decisions that are related to the utilization and
development of strategy and intended to confer an advantage to the business organization.
Technologies are the focus of this strategy and, in some cases, the people who directly
manage the said strategies. The formal vision guides acquisition, allocation, and IT
resource management so as to help in fulfilling the objectives of business organization.
Documentation of planning assumptions and success metric development are involved in a
successful technology strategy. A mission-driven strategy is established by the said
documentation, which gives assurance that there will be an alignment of initiatives with
the business organization's goals and objectives. With this aspect, the primary objective of
developing a technology strategy is to make sure there will be a realization of business
strategies and through technology will be achieved. Of course, investing in technology will
be aligned with the business.

Lesson 6 - Implementation of Strategy

Organizational Systems
• The organizational structure should support its unique system while the entire company
machinery should be aligned in the proper direction to successfully implement its
strategies. There should be a fit between and among the organization elements, including
the department and small business units because a business firm's functional strategies
should be complementary to its desired goals.
Organizational Structure
• According to Young, F.C. (2015), organizational structure refers to the mode or system by
which a group of people is able to achieve its goals and objectives. Many factors have a
great effect on organizational structure and these are the changes in the lifestyles of
customers, technological breakthroughs by competitors, and those which are
environmental in nature. Some examples of internal factors that affect business
organizations are the suppliers, customers, society, government, employees, and
management. In order for the product and servicing companies to stay in the mainstream of
business, the latter should be dynamic.
• Likewise, according to the same source, there are different types of organizational
structures, and these are the following:
◦ Functional Organizational Structures
▪ Business organizations adopt a specific structural arrangement for a reason. An
effective organization structuring requires that the management know the
organizational goals, goals and needs of its subordinates, the skills of its people, the
available resources, and the cost, time, and environmental challenges existing.
Bringing together the human, marketing, technical and organization’s financial
resources is also required to have an effective organization structure.
▪ In particular, human resources (R&D) are brought together in units, project, or
teams so that there will be optimization of job specialization while special skills will
be best managed. The finance department allocates funds efficiently so as to achieve
the set objectives of the organization. There is a need for the marketing department
to coordinate and interact with the personnel in other major functional areas while
the manufacturing department follows the set requirements of the marketing
department.

• Territorial Organizational Structure

◦ A territorial structure becomes a feasible design when a business firm begins to
serve its customers who are from different geographical areas. In this system,
according to certain criteria, the target market is divided into geographical units.
Likewise, according to the same source, there are advantages of territorial structural
arrangements, and these are the following:
 ▪ Staff are familiar with the customers' history in the area. Their preferences,
culture, expectations and living habits can cultivate the local market.
▪ The business firm and its sales force can have a quick response to changes in the
competitive environment.
▪ Closer contact between managers familiar with the territory and their
subordinates is present.
▪ Quicker strategic decisions can be made.
◦ However, there are also some disadvantages of territorial structure, and some of
them are the following:
▪ The territory structure becomes more troublesome as the product line becomes
more varied.
▪ Duplication of services and the possible appointment of less qualified staff to
supervisory positions may have resulted from multiple territory office creation.
▪ There is an increase in expenses.
▪ Sales may be affected, and a damaged public image may lower morale among
employees. It can be created because of weak or unprepared managers.

• Product Organizational Structure

 ◦ Product structure is usually considered by organizational divisions traditionally. In
some business organizations, product group managers are assigned in sub-
businesses and given key operating and staff functions. As long as the product,
markets and customers are different and mutually exclusive, there is no limit to the
number of product management systems utilized. Divisions are likely to include
research and development and engineering departments when different product
types are involved. These make managers operate independently. Since the long-
term goal is to increase and not just to maintain the current market, they are
responsible for both current and future decisions about the product market.
◦ Business firms can have four courses of action to implement so as to enhance or
replace any product management structure, and these are the following:
▪ To improve the product managers’ ability to do the job, training programs in
forecasting, planning, interpersonal skills, motivation, and control can be
conducted.
▪ To have an effective marketing of product, switching from a marketing manager
to a marketing team which implement activities may be considered.
▪ Product managers of minor brands may be eliminated and consolidated with
other products. When product line appeals to similar industrial user or
consumers, this will be feasible.
▪ Establishment of divisions around the major company products and utilization of
functional structural arrangements within divisions. This organizational form can
be successful in spite of the problems involved in the product structure.

• Market-Centered Organizational Structure

◦ Companies, to fit their markets, can structure their businesses. A market-centered
organizational structure can describe a wide range of structural forms which center
on a group of customer needs rather than a region, function, or product line. A
market-centered business firm is decentralized by the market. A market center is a
profit center. There are situations which are suited for the market-centered structure
according to the same source and these are the following:
▪ When competitive advantage can be restored through market centering by
improving knowledge of distributor, customer and needs of retailer.
▪ When the company is affected of the introduction of new product in a certain
extent and new ideas can be stimulated through a market-centered approach
because the business firm’s technical specialist receives more market
information.
▪ When high profit can be achieved by a product manufacturer through
diversifying into services with larger return margins.
▪ When so-called marketing intelligence though conduct or implementation of
smart customer strategies is required by marketing-related products.
▪ When a manufacturer wants to feature the customer’s profit improvement
financial benefits, marketing centering will make it easier to gather information
on how customers make their profit.
▪ When attracting more entrepreneurial managers is wanted by a marketer, market
centering offers a variety of supervisory duties and wide responsibilities to
managers.
◦ A market-centered organizational structure groups company activities around
relevant criteria and strategic business units (SBUS) formulating marketing
strategies. Each business unit is accountable arid responsible for profits. Usually,
large divisions have their own marketing departments. Division marketing may also
be structured by market, product, customer, or any combination of these factors. In
most eases, a new division starts with a functional organization and in the long-run
changes to one that is structured by product, market, or customer as the business
increases.
▪ Strategic Business Unit (SBU) Organizational Structure
 • The division structure raises the issue of whether any marketing functions
should be performed at the corporate staff level. Some business firms
maintain a minimum marketing services structure at the corporate level. For
instance, advertising market research and media planning services are
provided to each territorial division in Visayas, Luzon and Mindanao from
Manila corporate staff group. Primarily, the decision on whether to maintain
some corporate-level marketing staff services or otherwise depends on the
division size. If the division is large enough, they will have their own
marketing structure.

• Matrix Organizational Structure

◦ SBU’s creation introduces effective integration at the expense of resources
specialization. The matrix organizational structure seeks the best of both. Business
firms such as Shell, Unilever, Texas Instruments, and Dow Chemical Company
utilize different matrix organizational structure forms. To understand more, let's
define first the term matrix. According to the same source, Matrix refers to any
organization that employs a multiple “boss” arrangement. For instance, an
individual may have two bosses, one for the functional aspect and the other for the
product aspect. Manufacturing professionals, service and the non-profit organization
adopted the matrix structure. A marketing specialist is usually a member of two
units - a less permanent home and another one is a temporary home. The idea of
specialized departments with self-sufficient and somewhat autonomous units is
combined in the matrix structure.
◦ In a business organization that utilizes a matrix structure, an individual must cut
across departmental boundaries to get a job done. A working team of a specific job
consists of a group of specialists so that the ability to work harmoniously is very
important. In the given sample matrix organizational structure in Figure 5, both the
product and functional lines of authority overlap where both the product and
functional managers share managerial authority over the people in each cell.
◦ Moreover, some factors which may influence the business organization’s decision to
adopt the appropriate organizational structure type to its needs were cited by the
same author, and these are the following:
▪ The Size of the Business Firm
• Generally, the business organization's complexity can be indicated through
its size. A business firm that produces and sells in a restricted territory may
consider the functional organization the best form of attaining its objectives.
In contrast, a larger business company that manufactures different products
and sells to a wider market may choose for a regional form of organization so
as to maximize the selling efforts.
▪ The Nature of the Products Sold also influences the Products
• The choice of organizational structure. Industrial and consumer goods may
require different types of services from the producer. Marketing organization
structure can take care of the task of extensive after-sale servicing to
customers when the products require one.
▪ The Market
 • In organizing the market unit, market characteristics like income class,
geographic dispersion, and buyer behavior should be considered. If markets
are concentrated, selling directly to the consumers will be the best option,
and if the markets are dispersed or if customers purchase in small quantities,
the producer may choose to use intermediaries so that the efforts of
producers will be concentrated on selecting the middlemen and in devising
ways in assisting them rather than the total sales operation supervision.
▪ Competition
• A business firm may find it important to organize its marketing efforts
following its requirements.
▪ Management Philosophy
• Management philosophy in the business firm is also a factor that affects the
organizational structure. Likewise, the business unit structure differs. There
are business firms that are more business-oriented than others and usually
have a business unit involved in a wider scope of activities. If the business
management strongly believes in centralization, most of the responsibilities
will be borne by the home office rather than by regional or district offices.
◦ Organizational structure may be evaluated using the following criteria:
▪ Facilitating Control
• What is involved in organization control is the comparison of actual
performance with pre-established plans or standards. If the business
organizational structure enables a manager to determine challenges and take
necessary corrective actions, then the business firm may be considered to
have a control mechanism. The company has a solid framework for
management control if each individual understands the areas of responsibility
and scope of his authority and if the business firm provides suitable
communication channels.
▪ Coordination
• Team effort is the coordination of individual actions. A well-organized and
efficient marketing operation has resulted from the presence of effective
teamwork in an organization.
▪ Providing Information
 • Gathering information about the market is a necessity for managers because
it can enable them to anticipate changes and make decisions effectively. A
good business firm should have an adequate information system and proper
channels through which information flows.
▪ System Cost
• Business inefficiency may result from both understaffing and overstaffing. It
is the top manager's responsibility to evaluate the organization's performance
continually. A basic procedure in the said evaluation is weighing or gauging
the performance against its costs.
▪ Flexibility
• A business firm should have an organization which can adjust to changes so
as to be able to cope with the changing and dynamic environment. To attain
good performance, flexibility is necessary.
Organization Components
• After discussing the different types of organizational structures which provides an input to
future businessmen like you to weigh and choose the appropriate structure for your future
business, let us now focus on the components of an organization so that you will be
oriented of the things that you should consider in handling your own organization in the
future. This will also serve as a foundation on your part on how you will implement
strategies in dealing with the organization’s significant components so that achievement of
goals and objectives will be possible.
• According to Young, F.C. (2015), organization refers to a business entity composed of
managed and structured people so that achievement of its goals and objectives is possible.
The same author also gave organizational components, and these are the following:
◦ Management
▪ According to the same source, management refers to the organization's
administrative supervision. It includes leadership, vision-mission of organization,
goals, and objectives so as to attain success in organization.
• Leadership
◦ Always in the management of any business. Regardless of whether one owns
or works for a business organization, a good leader is someone who inspires
his staff/employees and, at the same time, stretches the said employees to
their optimum productivity. A leader is the prime mover and is expected to
lead his staff in attaining the firm’s set goals and objectives. Likewise, the
same author cited the different tasks and roles of a leader, and these are the
following:
▪ Tasks of a Leader
• Planning
◦ A leader sets the goals and objectives as well as the means to
achieve them.
• Organizing
◦ Identifying, dividing, grouping, and coordinating different
activities to achieve the set goals.
• Staffing
◦ Recruiting, selecting, hiring, and developing human resources.
• Directing
◦ Leading and communicating with employees to attain the
objectives.
• Controlling
◦ Monitoring processes and functions and instituting corrective
actions when needed.
▪ Roles of a Leader
• A facilitator, strategist, and an administrator.
• A leader who motivates and inspires employees to achieve quality and
productivity.
• An information man who understands critical issues, facts, problems,
and other concerns about the industry and business environment.
• A conceptualizer who concretizes the mission, vision and enterprise's
plans in accordance to set goals and objectives.
• A liaison officer who serves as channel for the employees who belong
to different business groups or units.
• A mediator who settles issues, concerns, and other problems between
labor and management.
 • A facilitator who negotiates the resource allocation
• A delegator who empowers employees, assigns responsibilities, and
monitors them efficiently and periodically.
• A problem solver who tackles concerns in the organization and
provides adequate solutions.
• A decision-maker who makes appropriate quantitative and qualitative
decisions.
▪ Skills of a Leader
• Technical Skills
◦ Being competent in performing his tasks effectively and playing
his role adequately.
• Human Skills
◦ Being an expert in dealing with personal and interpersonal
relationships with people. most especially with the employees.
• Other Skills
◦ Other required skills in attaining success in business.
• Vision-Mission
◦ According to the same source, vision refers to the image which a business
organization aims to establish and project to both its employees and the
public while the term mission refers to the organization's purpose. This is
definitely stated in the organization's mission statement. Likewise, the same
source emphasized that the organization's mission statement may include any
or all of the following:
▪ The organization's image, which the business firm would like to project to
the public, should be expressed in the statement.
▪ Objectives
▪ Fundamental Values and Beliefs
▪ Products and Services
▪ Description of customers it serves
▪ The technology or process being adopted by the business firm
• Goals and Objectives
 ◦ These refers to to what the business firm aims to achieve. What makes goals
and objectives differ from one another? According to the same source, goals
generally are long-term in nature and macro, while objectives are short-term,
micro, and specific. Specifically, objectives should have the following
qualities:
▪ Short-term or immediate
▪ Carefully chosen and specific
▪ Prioritized
▪ Attainable
▪ Quantifiable
▪ Flexible
▪ If possible, consistent and aligned to the organization's vision and mission
▪ Realistic
◦ Employees
▪ These are the people who work, support, and gain profits for the business
organization. These people work in different areas of finance, marketing, and
production, whether formally or informally structured. There are factors which
affect the employees' productivity, which are defined as the output ration with
respects to the input. The said factors are the following:
• Salary
• Fringe Benefits
• Organizational Climate
• Work Environment
▪ There are three levels which the business management expects employees to
experience and graduate through three relationship levels, and these are the
following:
• Employee Satisfaction
◦ An emotional state where the employee experiences a feeling of contentment
in the workplace, maybe because of the following: salary, incentives and
fringe benefits, acceptable workplace conditions, and positive interpersonal
relationships between and among the employees and management.
• Employee Involvement
◦ The employees are more participative in the organization's activities where
they belong and, most importantly, contribute to the firm's growth.
 • Employee Commitment
◦ The highest level wherein there is an employees' sense of commitment. An
attitude and a “sense of ownership” are present to employees where they treat
the business enterprise's welfare and interest as if they own it.
◦ Facilities and Equipment
▪ Another significant organizational environment component that may be simple and
crude as long as they are functioning well and producing the firm's desired output.
Facilities include the following:
• Management of Buildings and Site Maintenance
◦ These should be appropriate for the business type which an organization is
engaged in. Proper maintenance, safety, and security, and optimizing layouts
should be considered and ensured in physical structures.
• Management of Machinery
◦ This means that the right equipment type or machinery is in place and should
include the right quantities are ensured. Part of efficiently increasing
productivity is the regular maintenance scheduling and replacement of
dysfunctional and old equipment.
• Management of Facilities
◦ This means that good and in a healthy condition of amenities such as
canteens and washrooms are ensured.
• Application of Technology
◦ This has become the unifying force in the management of facilities and
equipment. Technology asset management, which refers to the process in
business and enabling information system which supports the management of
an organization’s physical and non-physical assets, should be ensured.
◦ Financial Resources
▪ Every business organization should have sufficient financial resources to identify
the organization’s direction in realizing its goals and objectives. The said goals and
objectives may include the following:
• Upgrading or purchasing new facilities and equipment
• Spending on strategies pertaining to the promotion
• Developing new products
• Hiring additional workforce
• Increasing employees’ salaries and wages
 • Training of employees
• Ensuring continued organization’s existence
◦ Organizational Policies
▪ These include policies of the company which serve as the organization’s lifeblood
because they put the organizational system and structure in place. Order, delineation
of functions, hierarchy of authority, productivity, efficiency, and good interpersonal
relationships are ensured through these policies. Smooth actualization of functions,
operations and facilitation of the attainment of goals and objectives are made
possible by the said policies.
Managing Asset Strategically
• Strategies, as discussed, are the appropriate courses of action formulated by the business
organization so as to attain set objectives in the light of the firm's vision and mission
statement. Planning, selection, and analysis are included in strategies. In formulating and
implementing business strategies, consistency in the firm's direction, responsiveness to
local, global, and organizational environments and agreements, and conformity with the
business's functional strategies should be considered. The said strategies should be
flexible, feasible, smart, and competitive. Regarding business organization assets,
competitive assets are the talents, resources, abilities, properties, and other endowments
that provide plus points to business firms. Competitive assets may be in the form of
intellectual property assets, human resource assets, marketing assets, and infrastructure
assets.
◦ Intellectual Property Assets
▪ What are intellectual property assets? According to Young, F. C. (2015), intellectual
propel assets refer to the assets which resulted from mind activities. These
properties may be products or research like outcomes of persons' brilliance,
ingenuity, and creativity or may just be accidentally discovered. These are in the
form of the following:
• Trademarks
◦ These can include all trade names, service marks, logos, designs, seals and
symbols which are uniquely developed by individuals or organizations.
• Software
◦ Refers to organized information in the form of utilities, programs, operating
systems, and applications which enable computers to work.
• Original Literacy, Art, and Music Composition
 • Trade Secret
◦ Refers to all kinds of information, technical or non-technical, like
organizational programs, philosophy, strategies, financial data, processes,
transaction data, and suppliers and customers’ lists.
▪ Likewise, according to the same source, when a business firm possesses the
intellectual property assets, the business entity is said to have created a competitive
edge called an “organizational monopoly.” Through this organizational monopoly:
• The organization carries the reputation to have conceptualized/invented an idea,
service, product, process, a distinct way of doing things, technology, a novel
approach, or an inimitable mindset.
• A legal mechanism for brand protection, protection of trade secrets and
provision for patents and copyright is provided, which makes the safeguarding
of corporate assets ensured.
• Business organizations enjoy low-cost leadership, and their competitive strength
is increased.
◦ Human Resource Assets
▪ These are the organizations’ strengths which consist of collective expertise, creative
and problem-solving capabilities, personal traits, entrepreneurial, managerial, and
competency asset skills and organizational human-centered assets. Leverage and a
competitive edge are created when human resource assets are possessed. Business
firm generally benefits from this asset ownership. Some benefits may include:
• Business firms with employees owning remarkable “expertise” assets will no
doubt put the said firm in the forefront.
• Good personal qualities of employees can create a positive impact to business.
• Effectiveness and organizational success can be shored up through the
entrepreneurial, managerial, and competency asset skills, which creates a
comparative advantage in relation to other business organizations.
• More windows to organizational realization, opportunity, and achievement will
be opened through organizational human-centered assets like the presence of
employees with high synergy, emotional quotient, and employee involvement.
◦ Marketing Assets
 ▪ These are results of market-related intangibles like company names, brands, repeat
business, customer loyalty, contracts, distribution channels, and agreements.
Competitive edge or dominance is achieved through these marketing assets and may
include the following:
• Less expensive and effective product and service identification medium.
• Financial worth of a business organization is increased because of a company
name that is well-known, established, recognized, and reputable.
• Repeat business is a by-product of customer loyalty.
• There is an increase of product and service sales, which resulted from efficient
and well-organized modes of bringing goods and services to the public.
◦ Infrastructure Assets
▪ Infrastructure assets include positive organizational features like structure,
organizational culture, management philosophy, high involvement practices,
technology, and quality standards, enabling the business organization to establish its
competitive advantage. Organizations with the said infrastructure assets achieve
comparative advantage, and some of them are the following:
• Communication between management and employees become easier is made by
a streamlined organizational structure because of bureaucracy elimination.
• Organizational cultures create infrastructure advantages.
• The business organization will inevitably possess intellectual capital because of
high involvement practices, functional and managerial processes that are guided
by quality management systems.
• Radical transformations in the global skyline are materials through information
technology which is a principal catalyst of change.
Asset Management Strategies
• After learning the different forms of business assets that will help formulate and implement
business strategies effectively and can make the business successful, the next things that
should be learned are the asset management strategies to be implemented. According to the
same source, managing the said strategic assets of a business firm means optimizing its
valued resources. Three distinct but interrelated approaches can be considered and utilized
in managing the said strategic assets according to Young, F. C. (2015), and these are:
◦ Competency Learning (“Laying the Groundwork”)
 ▪ Let us first define the term competency. According to the same source, competency
refers to the knowledge, skills, and attitudes expected of an individual to carry out
his job tasks. The said competency is aligned in the business organization’s vision-
mission and a necessary tool for organizational plan actualization and strategy
implementation. The said competency emphasizes performance evaluation and
accountability. It is important and needed in the optimum productivity attainment.
Examples of competencies are business orientation, analytical thinking,
commitment to excellence, presentation, and decision-making skills. Specific
competencies are required in every job task. The said competencies should be based
on specific job descriptions that clearly delineate functions, tasks and
responsibilities expected of an individual.
▪ To attain a high level or success in a business organization, its people should
possess consistent and aligned competencies with their respective job descriptions.
Required competencies differ with respect to classification, ranking, and level of
mastery. Competencies can be classified according to:
• Core Competencies
◦ These are basic competencies. All fundamental competencies expected of
every employee are included in this type and are minimum requirements set
by the business organization. For instance, integrity and honesty, which are
core competencies. Core rank-and-file employees should possess
competencies as a whole.
• Functional Competencies
◦ These are competencies which are expected of employees performing job
functions in production, marketing, technology, human resources, and
finance. Possession of functional competencies assume having the core
competencies too.
• Managerial Competencies
◦ These are competencies in planning, organizing, delegating, staffing, and
controlling as well as leadership, people skills, and behavior maturity. For
those with managerial competencies and occupying managerial positions,
they should also possess both core and functional competencies.
◦ Strategic Enhancement ("Widening the Horizon")
 ▪ Strategic enhancement is another facet of successful intellection management of
capital. Business organizations today should uniquely knowledgeable to compete
and survive in the world of business. Likewise, according to the same source, the
different ways on how to enhance the memory-based system of an organization
strategically are the following:
• Maximize the reach of the infrastructure technology of business organization.
• Appreciate the value of knowledge, communication technology, and information
in business.
• Conduct formal and informal types of training continuously.
• Systematize an enriching job pathing process of employees from being starters
with zero or negligible knowledge to becoming learners through supervised
apprenticeship.
• Empower employees to reach sustainable self-development by giving promotion
to valuable knowledge, giving rewards to those who unselfishly share their
knowledge to others and the business firm.
• Have an interaction with experts who have proven their expertise and worth in
their specialized fields.
• Prepare employees’ programs leading to attitudinal change.
• Provide access to resources needed in the organization.
• Through strategic alliances, broaden networking which can come from outside
or within the organization.
• Analyze cultures.
◦ Competitive Innovation ("Creating Bargaining Power")
▪ The best assurance in achieving competitive advantage, business sustainability and
creating bargaining power is innovation. What is the meaning of the term
“innovation”? According to the same source, innovation refers to:
• Creating, conceptualizing, or inventing new ideas. It is re-engineering new
knowledge and insights. Business firms should determine employees who come
up with new concepts, plans, propositions, proficiencies, capabilities,
techniques, processes, and presentations.
• Bringing a model shift from the usual mindset, which is conservative to that of
aggressiveness, openness, willingness, focus, initiative, and adaptability to
changes which is needed in the context of changing organizational and
environmental variables.
 • “Revolutionizing” the willingness to invent a new perspective, unique
knowledge, and insights between and among organizational departments and
units.
▪ Likewise, there are different scenarios which signify innovation in business and
according to tire same source, these are the following:
• Differentiating current products and services
• Reinventing products and services
◦ ln the product itself like colors, logos, size, texture, attributes and purpose, or
in service like quality, nature, productivity and efficiency
◦ In pricing plans like “opportunity” offers
◦ In attractive promotions which have unique appeal in the market
◦ In supplier-customer good relationships like performance
◦ Management, cost-effectiveness and after-sales service
◦ In the distribution channels, like minimum transportation costs and efficient
scheduling.
• Continuously experimenting
• Applying existing and new technologies in communication or information which
will significantly change organizational systems and structures for optimality.
• Changing business models
• Creating new products and services to “futurize” the business organization
• Widening the depth and breadth of intellectual capital found in individuals,
departments and teams, particularly intellectual property ownership and assets
Corporate Performance, Governance, and Business Ethics
• What do we mean by corporate or business firm performance? According to Bartoli and
Blatrix, (2015), as an important concept in strategic management, corporate performance
can be achieved through piloting, evaluation, efficiency, effectiveness, and quality. Quality
corporate performance can signify business success. Part of the keys on how to achieve
quality corporate performance is corporate governance. What is corporate governance?
According to Icsa, corporate governance refers to the system of practices, rules, and
processes by which a business organization is directed and controlled. It is the way in
which business firms are governed and to what purpose. It determines who has
accountability and power, and who makes decisions. Through corporate governance, there
is an assurance that businesses have appropriate processes and controls of decision-making
so that the interest of all stakeholders, including employees, shareholders, customers,
suppliers, and community, is balanced.
• Likewise, according to Good Corporate Governance and Its Principles, (2015, August 26),
the different principles in corporate governance are the following:
◦ Rights of Shareholders and Fair Treatment of Them
▪ Protection of Rights of Shareholders
• Fair treatment of all stakeholders, including the minority and foreign
shareholders.
• Opportunity for effective redress of grievances on the violation of rights,
including right to information.
• Recognition of shareholder’s rights in the value creation, employment, and the
working of enterprises in a financially sound manner.
◦ Corporate Transparency
▪ Accurate and timely disclosure of information by a corporate company on all
matters about the corporation which includes its performance, financial situation,
and ownership. There is a big need for transparency in the conduct of business by
corporates in order to abolish poor and ineffective corporate governance. Several
initiatives have been taken in the past so as to make the work of corporates
transparent and effective. Some of them are the following:
• Rules of business ethics to be self-imposed by companies so as to supply
complete information
• Codes of conduct
• Company's performance regarding its ownership, profitability, and the
company's governance to its shareholders and other stakeholders
 • Disclosures regarding the financial position
▪ According to Carbaal, as cited by the same source, transparency involves the
identification of data and information in as a complete manner as possible with the
objective of providing, furnishing, and transmitting data and information in a timely
manner and in a knowledgeable and understandable form to shareholders about an
important system. Likewise, the same source cited the two reasons why
transparency is important, and these are the following:
• The board of directors and corporate enterprise’s top management will become
more conscious in ensuring that their business transactions are above board and
proper because they are required to give pre-determined information.
• The stakeholders who have gained access to the required data and information
will be able to evaluate better which firm to invest to have a good return from
their investment.
▪ Business firms will not only attract domestic investors but foreign capital inflows
too. Thus, good governance can be attained with transparency, which will help
promote long-term investment and sustain corporate company growth.
◦ Corporate Accountability
▪ According to this principle, the corporate governance system as shaped by the board
of directors should ensure effective management monitoring by the board and the
board and top management’s responsibility to the shareholders. Likewise, their
responsibility to other shareholders for any transaction made and productive
company performance should also be considered in ensuring effective management
monitoring.
▪ The principle of accountability refers to the responsibility assigned to specific
persons or groups within the corporate enterprise for undertaking definite tasks to
produce certain outcomes and hold such individuals or groups responsible for
performing the assigned tasks properly.
▪ In winning investors’ confidence, the accountability of a corporate company to its
shareholders, investors, and financiers is of vital importance. The top managers and
the board of directors are the ones who are accountable for any mistakes committed
in financial reporting, disclosures, and business decisions taken by them.
▪ Moreover, the same source provided some important changes in the principles of
good corporate governance, and these are the following:
• Social responsibility for companies
 • Independent directors
• Tightening of rules for auditors
• More powers to shareholders
• Measures to check corporate frauds
• Employees protection in failed companies
• Strict rules for raising funds
• Transparency in the managerial remuneration
• Part of good governance is considering business ethics. What do we mean by business
ethics? According to Moriarty, J. (2016, November 17), business ethics refers to the study
of ethical measurements of commercial activities and productive business organizations.
This includes ethical analyses of the production, marketing, distribution, sale and
consumption of products, goods, and services.
• What makes business ethics important in business? According to Role of Business Ethics
and Corporate Governance in Business Success, the link between profitability and
business ethics is present for so many years. Through business ethics, higher levels of
commitment, higher efficiency level in operations, loyalty from employees, higher levels
of customer loyalty and retention, higher levels of perceived product quality, and better
financial performance can be ensured if the business firm will consider business ethics in
dealing with the stakeholders in the said firm such as the employees, customers, suppliers,
and the public.
• These three important things - corporate performance, governance, and business ethics are
always and should always be together because there will be no quality corporate
performance if there will be no good corporate governance and part of it is considering and
practicing business ethics in dealing with the company’s shareholders/stockholders.

Lesson 7 - Strategic Control and Monitoring

Strategic Control Mechanism
• Let's begin with the meaning of strategic control. There are so many ways of viewing
strategic control. According to Young, F. C. (2015), strategic control refers to the
monitoring process of the different organization’s strategies and determining whether there
is a parallelism between the organizational climate and that of the environment. The said
strategic control should be discussed and actualized in the environment context.
• Likewise, the same source cited the different types of strategic control according to
purpose and according to process. These are the following:
• Types of Strategic Control according to Purpose:
◦ Presupposition Control
▪ Designed to regularly check whether the set arguments which were done during the
process of planning and implementation are still binding because in formulating
strategies, the process is based on certain assumptions or premises. However, there
is a need to closely monitor the set strategies and make changes when needed
because external environments are continuously changing.
◦ Implementation Control
▪ Applied to assess if there is a consistency on the intermediate strategies with the
overall strategy. In many cases, a strategy consists of small activities that
complement each other, leading to the attainment of the mother strategy. In cases of
misalignment of the said activities, a review of the reasons for such occurrence is
needed.
◦ Strategic Surveillance
▪ Monitoring system whereby a wide range of occurrences inside and outside the
business organization threatens an organization’s strategy implementation. The term
surveillance refers to the process of shadowing, observing, and scrutinizing context.
Constant consciousness, awareness, and knowledge of how the strategy
implementation is succeeding.
◦ Vigilance Control
▪ A special type of strategic control which is applied when an organization’s strategy
reconsideration is pursued. Such action is pursued when unusual events happen and
there is no choice for the business organization to attend to it and make the needed
changes.
• Types of Strategic Control according to Process:
◦ Sequential Strategic Control
▪ A traditional approach to strategic control which is sequential wherein strategy
formulation is followed progressively by implementing the designed strategies.
When the strategies have been implemented, strategic monitoring is carried out. The
approach does not lend itself to versatility and change.
◦ Interactive Strategic Control
 ▪ A more suitable approach for strategic control wherein there are communication and
collaboration of the different processes - strategy formulation, strategy
implementation and strategy control. In this type, formulation of strategies is done,
and implementing the said strategies is constantly evaluated. Immediate suggestions
and improvements are applied to improve better what has been formulated before.
Simultaneously, strategic control is being carried out so as to determine whether the
strategy formulation and implementation are thoroughly and systematically
evaluated. Interactive strategic control is better and more advantageous than
sequential strategic control in all aspects. Some of its advantages are:
• The approach is open.
• Interactive strategic control is flexible.
• The approach minimizes the so-called “time leaks.”
• Better strategic options can be crafted when needed.
◦ Feedback Strategic Control
▪ A combination of sequential and interactive approaches. In this approach, the
strategy formulation, implementation, and monitoring are done in sequence but
there is a feedback loop which is essentially interactive.
▪ How can strategic feedback control be measured? According to the same source,
feedback control can be accurately measured by performance. Performance refers to
the ratio of the results which is derived from the resources invested by business
organization. In short,
• Performance = Results/Resources
Four Categories of Performance
• Likewise, the same source discussed the four categories of performance and the metrics for
each type of performance, and these are as follows:
◦ Financial Performance
▪ Financial performance is the most important for all business organizations which
have the intention of making profit or at least, continue to exist. In measuring
financial performance, there are different ways that can be utilized, and these modes
can be expressed through financial metrics and some of them are the following:
• Profitability Measures
◦ Indicators that show the business firm’s ability to generate profit or earnings
compared to its expenses and other significant costs incurred during a
specific period.
 ▪ Gross Profit Margin
• Turnover percentage wherein a high gross profit margin is desirable.
Results will show either the sales prices are high or production costs
are low.
•

▪ Net Profit Margin

• Turnover percentage less all expenses. It shows either that sales prices
are high or that all cost are well kept under control.
•

▪ Return on Capital Employed (ROCE)

• This metric shows net profit generated from Php1 of assets employed.
Capital employed is total assets less current liabilities.
•

▪ Asset Turnover
• Turnover generated from every Php1 of asset employed is shown here.
A high asset turnover is desirable.
•

• Liquidity Measures
◦ Financial indicators which measure the extent to which the business firm has
the cash to meet the short-term and immediate obligations or the ability of its
current assets to meet the current liabilities.
▪ Current Ratio
• The company's ability to meet its short-term liabilities as they fall due
is measured using this. A ratio in excess of 1 is desirable.
•

▪ Inventory Holding Period

 • The average number of days which inventory items were held is
indicated using this measure. Inventory holding period decrease is
desirable, which means that the business organization is able to sell or
turn over its stock keeping units (SKUs).
•

▪ Receivables (Debtor) Collection Period

• The average period it takes customers to pay their debts. Collection
period decrease is desirable.
•

▪ Payables (Credit) Period

• With this measure, the average period that it takes a business
organization to pay its debts is shown. A decrease in the payment
period is desirable which means that the said organization is able to
pay for its purchases.
•

• Gearing (Risk) Measures

◦ These are determinants of financial leverage.
▪ Gearing Ratio
• Long-term debt as an equity percentage is shown using this measure.
A low level of gearing is desirable where the risk level is minimized in
terms of debt payments.
•

▪ Interest Cover
• The operating profit is equal to the profit before finance charges and
tax divided by the finance cost. Interest cover decrease is desirable
where operating profit is higher than the finance cost.
•
 • Other Investor's Measures
◦ Earnings per Share (EPS)
▪ The profit attributable to each share is measured here. Ideally, there
should be an increase in earnings per share.
▪

◦ Dividend Cover
▪ Increase in the dividend cover indicates that the business organization is
more able to make payments to shareholders.
▪

◦ Dividend Yield
▪ Dividend yield increase means an increase in returns to shareholders.
▪

◦ Efficiency and Productivity Performance

▪ These are the emphasis of every business firm that aims to achieve success.
Measures of the said success are quantitative in nature.
• Productivity of Resources
◦ The output over input ratio helps to identify how a business firm can
maximize its resources to the fullest extent possible to achieve higher
revenues and sales.
◦

• Employee Labor Productivity

◦ The ratio of the entire plant productivity (total number of products
manufactured) by the total number of hours worked by workers for a specific
period.
◦

• Individual Employee Sales Productivity

◦ The ratio of individual net sales over the number of hours worked.
 ◦

• Efficiency Ratio
◦ Expense percentage over revenues.
◦

• Operating Profit Margin

◦ A measurement of what proportion of the revenues of business organization
is left after paying for variable costs of production such as raw materials,
wages, and others.
◦

• Defect Age
◦ The number of days since the defect is not fixed and open.
• Defect/Reject Rate
◦ The ratio of the number of rejects/defects over the total number of items
produced.
◦

• Defect Resolution Rate

◦ The rate of closing the open defects over a period.
◦

◦ Market Performance
▪ Through market performance metrics, feedback can be adequately actualized in
addition to financial performance.
• Market Growth Rate
◦ The increase in size, sales, or demand observed within a consumer group
over a specified period.
◦

• Market Share
 ◦ The percentage that the business firm has of the total units (market) or sales
for a specific product or service in a given period.
◦

• Net Marketing Contribution

◦ A financial measure of marketing profitability.
◦

• Marketing Return on Sales (ROS)

◦ A marketing profitability metric which is simple that allows a business firm
to compare the performance across the business organization and other
companies.
◦

• Marketing Return on Investment (ROI)

◦ A marketing profitability metric which shows the ratio of marketing
contribution to sales and marketing expenses.
◦

• Customer Retention
◦ Customer relationship percentage that once established, a business can
maintain on a long term basis.
◦

◦ People Performance
▪ Productivity/efficiency and effectiveness are relevantly correlated and interrelated
because productivity/efficiency is essentially measurable. Effectiveness is basically
descriptive and qualitative. The focus here is on people and how they uniquely and
operationally do things. Measuring and analyzing differentiated people’s
performance are expressed through indices.
• Employee Engagement Index
 ◦ Measures workplace approach in a business firm, which is designed to ensure
that its employees are motivated to contribute to the success of the business,
committed to the goals and values of the organization and at the same time,
are able to improve their own sense of well-being.
• Employee Satisfaction Index
◦ Measures satisfaction among employees in terms of whether the said
employees are content and happy and whether the business firm is able to
fulfill their needs, desires, and expectations at work.
• Leadership Index
◦ Measures leadership in the management’s ability to inspire others to perform
well and make sound decisions.
• Effective Communication Index
◦ Measures communication effectiveness as a two-way process that involves
sending right messages that are being correctly received and understood by
other persons.
• Health Profile Index
◦ Measures the individual’s health lifestyle which means individual practice
pattern and personal behavior choices which are related to elevated or
reduced health risk.
• Quality of Life Index
◦ Measures the quality of life from both subjective and objective perspectives.
• Motivation Index
◦ Measures the motivation degree by which an individual or the entire business
organization is inspired to do their best in all undertakings.
Strategic Incentive Management
• One way to ensure quality people’s performance is through effective and efficient strategic
incentive management. There are different types of incentives that can motivate people in a
business organization. According to Incentive Management Strategies and Employee
Performance: A Study of Manufacturing Firms in Port Harcourt (2017), these are the
following:
◦ Employee's Salaries and Wages
▪ Salary
 • In attracting, retaining, and motivating people in the organization, salary is an
important factor. Employees/workers in an organization be compensated in
relation to their work/performance.
▪ Premium Payments
• Another form of incentive which is given to employees/workers in recognizing
them for taking up additional work or in working in an unfavorable
environment.
▪ Payment for Time Not Worked
• This includes sick leave, vacation leave, lunch period and paid time off
programs. The said payment is usually given to employees or workers after a
specific period of time. Employees with families value this incentive. Because of
this incentive, the said employees or workers have the opportunity to have time
with their families while still being paid.
▪ Short-term Incentive
• These are usually called bonuses or commission, which are paid either monthly
or weekly. Workers or employees are given this incentive when they are able to
meet certain criteria.
◦ Non-monetary
▪ Flexible Work Schedules
• In this incentive, the employer gives the employees or workers the opportunity
to change work hours considering the latter’s personal schedule but still
maintaining the pay and position.
▪ Organizing Activities
• Business firms can give this type of incentive by organizing activities like yearly
parties, company functions, or holiday parties. Through the said activities,
employee morale is enhanced and can feel they are appreciated.
▪ Promotion
• Before recruiting qualified persons for vacancies, promotion from within is
considered wherein the business firm designs programs for employees to be
promoted to higher positions. This is important for employees in the lower level,
especially those who have a desire to have increased pay and responsibilities.
▪ Verbal Praise and Positive Feedback
 • These can be done by praising and giving positive feedback for a job well done
by employees or workers in a gathering or program. Likewise, sending a thank
you call or email to the person may be done. Through these acts, employees feel
they are valued and appreciated by the business organization where they belong.
▪ Educational Reimbursement
• This incentive is given to workers or employees who prefer to have further
education. Here, the business organization reimburses the workers or employees
for expenses on their educational qualification improvement. This is important
and a big help for employees who love to improve education for increased
positions and pay and be an asset to the organization where they belong.
• Likewise, the same author emphasized that there are studies that showed that incentives are
related to employees' job satisfaction. Incentives can motivate employees to work well and
have a quality performance and further result in employees' commitment to the company.
Incentive systems play an important part in human resource management. Incentive design
process always begins with a goal and expected outcome recognition, which is usually
known as incentive philosophy. The said philosophy is formed by the balance of rewards -
direct and indirect, the job role and the employee, and the external-internal equity. The
culture of business organizations should entail adaptivity, consistency, mission, and
involvement. To experience productivity, manufacturing companies have to be consistent
and involved with incentive practices. Managing incentives strategically will ensure
productivity among the workers or employees and in turn, will make the business
successful. Effective incentive management always results to improved quality of work
among workers and employees. Incentive is the center of the employment process between
the employee and employer because the former depends on salaries and wages and for the
employers, remuneration decisions affect the business cost and its competitive capacity.
Strategy Analysis
• What is the purpose of considering business analysis? According to Strategy Analysis
Chapter Study Group Learning Materials (2015), business analysis which includes
analyzing the strategy should be considered so as to collaborate with stakeholders to have
the following: identification of the business needs, addressing the said need by the said
business organization, and to have alignment of the rebuffing strategy with other strategies.
In addressing the said needs, defining the future and any states of transition are needed.
Through business analysis, possible solutions can be discovered so that the business firm’s
capabilities can be applied to reach the desired set of goals and objectives. Through
business strategy, the present strategy can be analyzed and measured, and if there is a need
to adjust, the business firm should consider the process of changing the present strategy.
Likewise, same source discussed the different tasks involved in strategy analysis, and these
are the following:
◦ Analyze the Current State
▪ Involves understanding the needs of business and the context for change. A definite
reason for the need for such changes should be determined. In the context of
existing stakeholders, technology, processes, and enterprise's policy, change occurs.
The current state of the business firm can be described on different levels. While a
change is being developed, the current state is rarely static. In changing the current
state, alterations in the desired future state may be forced, have a change in strategy
or requirements and design. Aside from the business needs, in analyzing the current
state of the business, some things should be considered, and these are the present
organizational structure and culture, capabilities and processes, technology and
infrastructure, policies, business architecture, and the external influencers such as
the customers, competitors, suppliers, technology, political and regulatory
environment, and the macroeconomic factors. In analyzing the current state,
different techniques may be utilized, and these are the following:
• Benchmarking and Market Analysis
• Business Capability Analysis
• Business Model Canvas
• Business Cases
• Concept Modeling
• Data Mining
• Document Analysis
• Financial Analysis
 • Focus Group
• Functional Decomposition
• Item Tracking
• Lessons Learned
• Metrics and Key Performance Indicators (KPIs)
• Mind Mapping
• Observation
• Organizational Modeling
• Process Analysis
• Process Modeling
• Risk Analysis and Management
• Root Cause Analysis
• Scope Modeling
• Survey or Questionnaire
• SWOT Analysis
• Vendor Assessment
• Workshops
▪ By considering the given factors and the techniques used for analyzing the current
state of the business organization, current state and business requirements will be
determined.
◦ Define Future State
▪ Involves identifying the goals and objectives. It also involves determining what
needs to change to realize the achievement of those goals and objectives. In
defining the future state, there are techniques which can be utilized, and these are:
• Acceptance and Evaluation Criteria
• Balanced Scorecard
• Benchmarking and Market Analysis
• Brainstorming
• Business Capability Analysis
• Business Cases
• Business Model Canvas
• Decision Analysis
• Decision Modeling
• Financial Analysis
 • Functional Decomposition
• Interviews
• Lessons Learned
• Metrics and Key Performance Indicators (KPIs)
• Mind Mapping
• Organizational Modeling
• Process Modeling
• Prototyping
• Scope Modeling
• Survey or Questionnaire
• SWOT Analysis
• Vendor Assessment
• Workshops
◦ Assess Risks
▪ Involves understanding the risks and recommending actions to address the said
risks. In assessing the risks, understanding the undesirable internal and external
force consequences on the business during the transition to or within the future state
should be done to do the course of action effectively. In this task, risks related to the
current and future state, the change itself, a change strategy or any activity done by
the enterprise should be analyzed and managed - the consequences, the impact,
likelihood of the risk and the potential time frame when such risks occur.
Identification, analysis, and management of such risks will be utilized as input to
determine the change strategy. In analyzing and management of the risks, the
following techniques may be utilized:
• Brainstorming
• Business Cases
• Decision Analysis
• Document Analysis
• Financial Analysis
• Interviews
• Lessons Learned
• Mind Mapping
• Risk Analysis and Management
• Root Cause Analysis
 • Survey or Questionnaire
• Workshops
◦ Define Change Strategy
▪ Involves identifying alternatives for reaching the desired state in the future. It also
involves determining any required transitional states. Business organizations'
capacity should also be assessed to make and sustain the change in the future state.
In this stage, the preferred change strategy from several options will be identified
through a business case. Likewise, requirements to be included in each phase,
release, or iteration of change should be determined if the future state will be
achieved over time. The following techniques may be used in defining the change
strategy:
• Balanced Scorecard
• Benchmarking and Market Analysis
• Brainstorming
• Business Capability Analysis
• Business Cases
• Business Model Canvas
• Decision Analysis
• Financial Analysis
• Focus Groups
• Functional Decomposition
• Interviews
• Lessons Learned
• Mind Mapping
• Organizational Modelling
• Process Modelling
• Scope Modelling
• SWOT Analysis
• Vendor Assessment
• Workshops
▪ Outputs of this phase will be the approach or strategy which the business
organization will follow or apply to guide change. Likewise, the scope of the
solution that will be achieved will be determined by executing the said change
strategy.
Organizational Issues and Contingency
• Once in a while, business organizations meet problems or issues, and some contingencies
can be considered to address the said issues and according to Four Most Common
Organizational Problems: Organizational Development (2019, May 16), the four common
problems encountered by a business firm or organization are the following:
◦ Vague or Lack Directions
▪ There are times when a business organization's leader fails to give employees a
definite and clear direction on what the business wants to achieve. Because of that
the employees are left scattered and sometimes the said talents of employees are
wasted and not utilized property to achieve the goal of making the business
successful. Having a goal that will be common to all will prevent the company from
deviating from its path. And so, to address the said issue, the business leader should
see to it that the said goals and objectives will be communicated clearly to all
members of the business organization for long-term growth and sustainability.
◦ Poor Communication and Feedback
▪ Another problem or issue that occurs in an organization is poor communication and
feedback. An important element in effective collaboration is communication. A
good business leader should know how to communicate well with all the people
involved in the said organization - either through oral, written, or body language.
Effective communication ensures an understanding of goals and other matters which
will make the business successful. Aside from communication, feedback is also as
important as communication. Through effective feedback, all members of the
organization will be more motivated to work effectively and efficiently. As much as
possible, constructive feedback should always be done by the business leader so as
to have a good employer-employee relationship.
◦ Ineffective Teams
▪ Another common issue which a business organization meets is ineffective teams.
Having multiple personalities in an organization may result in conflict. If that
conflict will not be settled, there is a tendency that there will be ineffective teams,
which may result in failure of achieving the business organization’s s goals and
objectives. In this regard, leaders in business organizations should consider
providing activities that promote camaraderie, unity, and cooperation among its
members. A good example is team building.
◦ Lack of Awareness
 ▪ The last issue, which is common to business organizations, is the lack of awareness.
Each member of the organization has his job to do, which is why the big picture of
the said organization is sometimes set aside and overlooked. Ineffective
communication and the absence of clear direction are some of the said reality
results. How can this be addressed? As a business leader, one should take aside time
to review processes, practices, strategies, and other relevant things pertaining to
business operations. Communicating and asking feedback from the members of the
organization will be a great help. Everyone should consider the business
organization as a work in progress and constant assessment and development are
needed.

Lesson 8 - Balanced Scorecard

Balanced Scorecard
• What is a balanced scorecard? According to Burton, B., Boo, M., & Borissov, T., balanced
scorecard refers to a strategic planning and management system which business
organizations utilize to:
◦ Communicate what the business organization is trying to accomplish.
◦ Make an alignment of the day-to-day work which everyone is carrying out with
strategy.
◦ Rank products, projects, and services.
◦ Evaluate and monitor advancement towards strategic targets.
• Other sources gave another definition of a balanced scorecard and according to What is a
Balanced Scorecard? A balanced scorecard pertains to a management system that gives
feedback on internal business processes and external results to improve strategic
performance and results continuously. A balanced scorecard supports continuous
improvement by bringing together means around internal processes and external outcomes
at a level of strategic performance and results.
• According to the same source, through a balanced scorecard, articulation and action on
one's vision and strategy becomes possible. Specifically, the balanced scorecard is utilized
to:
◦ Facilitate consistent and effective communication because everyone speaks a shared
metric language.
◦ Carry on focus around the critical requirements.
◦ Facilitate regular performance review.
 ◦ Ensure alignment of organizational activities.
• According to Balanced Scorecard (Kaplan & Norton): Business. (2019, November 8), a
balanced scorecard aims to make the business activities aligned to the business vision and
strategy, improve external and internal communication, and monitor business performance
against the strategic goals. An important range of financial and non-financial data and
information that supports the balanced scorecard provides effective business management.
• The same author gave the background to the balanced scorecard, and these are the
following:
◦ There are no single measures that can give a wide picture of the health of a business
organization.
◦ Instead of utilizing a single measure, why not utilize a composite scorecard involving
different measures.
◦ Kaplan and Norton developed a balanced scorecard, a framework which is based on
four perspectives - financial, customer, internal (business processes), and learning and
growth.
◦ The business organization should select critical measures for each of the said
perspectives.
Benefits and Drawbacks of a Balanced Scorecard
• Likewise, according to the same source, using a balanced scorecard has main benefits, and
these are the following:
◦ Aids business organization focuses on what needs to be done so as to create a
refinement in performance.
◦ Acts as a device which integrates diverse corporate programs.
◦ By translating strategy into targets and performance measures, a balanced scorecard
makes strategy operational.
◦ In order to enable the employees and local managers to see what they need to do well if
they want to enhance organizational effectiveness. Balanced scorecard aids in breaking
down corporate level measures.
◦ Gives a thorough view that overturns traditional organization ideas as a collection of
isolated, independent functions and departments.
• However, the same source cited some drawbacks of the balanced scorecard, and these are
the following:
◦ A risk that the business will have so many performance indicators.
◦ It is not easy to have a balance between the four perspectives.
 ◦ Management at the senior level may still be too concerned with the performance of the
financial aspect.
◦ There is a need for regular updating so as to make it useful.
• Aside from these, according to Wright, T. (n.d.), some challenges encountered by some
implementers of the balanced scorecard are the following:
◦ Too much is taken to set up across one’s business organization.
◦ There is no full understanding of a balanced scorecard which cause failure to benefit
from it.
◦ Balanced scorecard is inflexible and doesn't account for business landscape changes.
Some find it too focused on financial measures compared to other perspectives.
◦ The focus is more on internal aspects, ignoring competitive and macro-economic
aspects of the business.
• Any business strategy tool like a balanced scorecard can be considered an excellent tool
when properly implemented and truly will give benefit to business organizations. Most of
the problems occurred in using the balanced scorecard when it is often viewed and
considered as a mere reporting framework rather than a true and good way of managing
one's business.
History of Balanced Scorecard
• According to the same source, a balanced scorecard is more than a measurement system,
but a management system was developed in the early 1990s by Robert Kaplan and David
Norton. A balanced scorecard was described as an important move away from over-
reliance on financial measures in Kaplan and Norton’s book entitled, “The Balanced
Scorecard - Translating Strategy into Action.” According to Kaplan and Norton (1990) as
cited by What is a Balanced Scorecard? In the past, report on financial measures was all
about offering enough story for industrial age companies but not story about information
age companies. For them, business organizations should create future value through
investment in customers, employees, supplies, technology, processes, and innovation. For
better management, organizational performance evaluation in a balanced manner on the
parameters should influence one’s business.
• Likewise, according to The Balanced Scorecard, Kaplan and Norton asserted in 1996 that
the balanced scorecard can be utilized as strategic management system which gives
support to four processes of management namely:
◦ Translating the Vision
 ▪ Through balanced scorecard, the management is forced to further clarify the
business organization’s vision until translation of vision into a set of objectives and
performance measures on the said tool which will enable the people in the
organization to understand deeply which results to realization and valuing of the
said vision.
◦ Communicating and Linking
▪ Communicating the strategy up and down the business organization and giving
education to those who have to execute the said strategy is the beginning of the
strategy implementation. The said strategy should also be translated into goals and
performance measures for individuals and operating units on the balanced
scorecard.
◦ Managers Set Business Planning
▪ Targets for the long-term objectives for all four scorecard perspectives. Managers
determine the strategic initiatives required and allocate needed resources to those
initiatives in order to achieve the said long-term objectives. Towards achieving the
long-term objectives, managers establish milestones or short-term goals.
◦ Feedback and Learning
▪ Based on certain hypotheses about cause-and-effect relationships, managers
formulate a strategy. Examples of the said hypotheses are the following:
• A higher customer satisfaction (customer perspective measure) is correlated with
faster invoices (financial perspective measure) and the result of faster payment
in a bigger capital return (another financial perspective measure).
• Enhanced information systems (Internal business processes perspective
measure) result in higher sales (financial perspective measure).
• When the company has implemented the strategy, it might be discovered that certain
cause-and-effect relationships are not found over time. In that case, a business organization
should have a reconsideration on the theory about the unit’s strategy and might even have a
conclusion that there is a need for a different strategy and that process is called “strategic
learning.” According to the same author, strategic learning refers to the process of
feedback gathering and hypothesis testing on which the strategy was based, and necessary
adjustment making. Moreover, they emphasized that business organizations should utilize
balanced scorecard as the management process center and not budgets.
Four Perspectives of a Balanced Scorecard
• According to “What is a Balanced Scorecard?” the balanced scorecard is a tool for
strategic management which views the business organization from different perspectives
like:
◦ Financial
▪ Shareholders’ perspectives.
◦ Customer
▪ What the customers of the company perceive and experience.
◦ Business Process
▪ The key processes one uses to encounter and surpass shareholder and customer
requirements.
◦ Learning and Growth
▪ How one promotes ongoing change and continuous improvement.
• For each of the said perspectives, the balanced scorecard catalyzes one to create metrics,
set a target for performance and collect and analyze data. The balance scorecard offers an
efficient mechanism for reviewing the implementation of strategy based on measurement.
• The balanced scorecard according to Balanced Scorecard (Kaplan & Norton), produces a
balance between:
◦ Four key perspectives in business: customer, financial, internal processes, and
innovation.
◦ How the business organization sees itself and how other people see it.
◦ The long run and the short run
◦ The status at the present time and change over time.
• Summary of BSC Method by Kaplan and Norton, emphasized that the Balanced Scorecard
method of Kaplan and Norton is actually a strategic approach and a system for managing
performance which enables business organizations to have a translation of the vision and
strategy of the company into implementation through working from the following
perspectives:
◦ Financial Perspective
▪ According to Kaplan and Norton, as cited by the same source, the traditional need
for financial data is not disregarded, but aside from enough handling and processing
of financial data, it is hoped that with the corporate database implementation, there
will be centralized and automated processing. There is a need to include additional
financial-related data such as cost-benefit and risk assessment data in this category.
◦ Customer Perspective
▪ Developing metrics in evaluating customers' satisfaction to products and services
provided by a certain business firm should be considered here because poor
performance from this perspective may result in the present or future decline. Thus,
in the said development of metrics, the kind of customers and types of processes for
which a business firm is providing products either in a form of goods and services
to the said customer groups.
◦ Business Process Perspective
▪ It pertains to internal processes in the business. The managers are allowed to know
well if their business is winning smoothly or not through the metrics based on this
perspective. Likewise, the conformance of the company's products and services
with customer requirements or mission is determined. An intimate and careful
designing of the said metrics should be done by knowing the said processes. Aside
from the process regarding strategic management, two kinds of business processes
may be determined: the mission-oriented process and support process. The former
are the government offices' special functions, and many unique challenges are
encountered in these processes while the latter is more repetitive, which with the
use of generic metrics, are easier to measure and benchmark.
◦ Learning and Growth Perspective
 ▪ This includes training of employees and corporate cultural attitudes related to
improvement - both for individual and corporate enhancement. For Kaplan and
Norton, learning is more than training and things like mentors and tutors within the
business organization as well as communication among employees, which allows
them to get help on a problem once it is needed. Technological tools like the internet
are also included.
• Typical scorecard metrics for each perspective were given by Wright, T., and these are the
following:
◦ Financial Perspective
▪ Sales Performance
▪ Cash Flow
▪ Return on Equity
▪ Operating Income
◦ Customer Perspective
▪ On-time delivery
▪ Percentage of Sales from new products
▪ Share of Wallet
▪ Net Promoter Score
◦ Internal Business Process
▪ Cycle Times
▪ Unit Costs
▪ Error Rates
▪ Yield
◦ Learning and Growth
▪ Rate of Retention of High Performing Staff
▪ Employee Engagement Score
▪ Skill Increases of Staff
• How should a balanced scorecard be implemented effectively? According to the same
source, instead of looking at a balanced scorecard as a simple and series of equally-
weighted perspectives in its usual diagram, it should be considered a process whereby,
from the bottom, the business organization has to work its way upwards through each
perspective to have financial gain. Each perspective unlocks the businessman’s ability to
deliver effectively against the one above it. Figure 2 should be the model to be utilized in
implementing the balanced scorecard.
• If the diagram on Figure 2 will be considered in utilizing the balanced scorecard, one will
see that the end of the process will increase profit (Financial profitability). The ability to
manage a business’ internal processes will be dictated directly by the ability to learn and
grow, which will result in the improvement of internal processes. The said improvement
will surely have a positive impact on customers and at the same time will reduce business
costs. A combination of lower costs and higher customer engagement in the business firm’s
product will lead to the end goal - increased profit and financial return.
• The same source also emphasized that when a balanced scorecard is be implemented as
discussed in the previous paragraph, it will be a powerful tool in helping the business
organization to do the following functions:
◦ Create a tangible roadmap.
◦ Determine major areas and roadblocks where the business firm lacks the critical
competencies to proceed in the next phase.
 ◦ Express how the business goals will directly aid the business firm to move upwards
through the stages.
◦ Prioritize business activities in order that they need to be tackled to allow the most
rapid progression through phases.
• In short, the chief benefit of the balanced scorecard is not really the creation of the
perspectives but rather from the process of strategic management using the four
perspectives as phases to undergo to achieve success.
• Why should a business firm utilize a balanced scorecard? According to “Should Your
Business Use a Balanced Scorecard Approach? (2019, January 15), the balanced scorecard
should be utilized by business firm because it gives a framework for the entire business
organization to guide performance. The same source cited specific reasons why a business
organization should use a balanced scorecard, and these are the following:
◦ Communicate the vision and strategy of the business.
◦ Share goals and objectives which support the vision and strategy of the business.
◦ Show how these strategic objectives have an impact on long-term objectives and
strategy.
◦ Create budgeting, tracking, and system of reward based on business goals.
◦ Facilitate organizational changes at the operational level.
◦ Compare performance among different business units.
◦ In terms of strategy and performance, tighten up gaps.
◦ Take action to close unfavorable gaps.
• According to “Describe the Balanced Scorecard and Explain How It Is Used - Principles of
Accounting, Volume 2: Managerial Accounting,” in general, managers, as well as their
employees, strive to create and work in an ethical business environment. In order to
develop the said business environment, the employees need to be informed of the values
and ethical standards of the business firm where they belong and have an understanding of
the laws and regulations under which the business organization operates. What will happen
if the said employees do not have knowledge of the standards by which they will be
measured, there might be no awareness if their behavior is ethical or not. Employees are
enabled to understand their obligations to the business organization where they belong and
assess their own obligations.
 • Business organizations can hold meetings to evaluate their ethical environment. Such
meetings use ethical analysis metrics. A good example is the strategy review meeting that
companies usually conduct to discuss the indicators and initiatives from the balance
scorecard of a certain unit and evaluate the progress of, and hindrances to, the execution of
the strategy. In the said meeting, the metrics to be analyzed should include the employee
participation in the ethics training, the availability of a hotline, the satisfaction of
employees, customers, and other stakeholders, regulation compliance, employee turnover,
environmental awareness, community involvement, diversity, efficient usage, legal
expenses, condition of assets and social responsibility. Metrics should be crafted to the
business organization’s values and desired results. The utilization of a balanced scorecard
helps lead to the employees’ and managers’ ethical environment.

Lesson 9 - Strategy from a Deeper Perspective

Framework of a Strategy
• Schemes and tactics were informally implemented when a person joined in a game, when a
government went to war or when a business organization engaged in business. Their
actions indicate an approach that is called as a strategy. Strategy took a more formal
character through individuals who studied its varied forms and nature and modes of
implementation through the years.
• Individuals implement strategies in their personal lives and in the workplace. Individuals,
organizations, groups, communities, and governments devise strategies It was stated and
discussed in the previous module that strategies are plans which are formulated and
implemented with the purpose of attaining the set goals and objectives of an organization.
Likewise, the term is also associated with the map to chart, a plan to be executed, and a
follow-up path. Moreover, it in an approach, a policy, a tactic, or a line of attack. In this
module, we will seek to dig deeper into the term strategy’s essence and diverge a little or
importantly, away from how it has always been treated and considered. This module will
focus on the viewpoint of strategy as a concept, as a tool, and as people.

Strategy as a Concept
• Through the years, the word strategy, due to its popularity, thoughts and perceptions
evolved. Some management gurus consider strategy as an idea, concept, a model, a theory,
or beliefs and views. Concepts related to strategy according to Young, F. C. (2015), are the
following:
◦ Strategy is Intellectual Elasticity
▪ This concept came from a management guru from Japan in the name of Kenichi
Ohmae, who wrote “The Mind of the Strategist” in 1982. For him, strategies
originate from creative minds and not from rote memory. Ohmae is also known for
developing a curious mode of thinking called strategic thinking which underscores
that the strategist’s mind is characteristically intellectual. What is intellectual
elasticity? According to the same source, intellectual elasticity refers to the
adaptability and flexibility in coming up with realistic responses to changing
situations. Three main players should be taken into account in designing business
strategy and these are the customers, the company, and the competitors. Strategy as
intellectual elasticity can be best portrayed according to Ohmae in the following
situations:
• Strategy is referred to as creativity in radical initiative launching.
• Strategy may refer to an investment of additional time, effort, and money in the
factors that have the greatest potential to identify the business's key success
factors.
• Strategy has the flexibility to adapt and study to the environment, segment, and
specify improvement strategies in matching the company's unique skills to
customers' needs.
• Strategy refers to comparing the company's strengths with those of competitors
and exploiting the advantages of building on superiority. For Ohmae, the human
mind has the infinite potential of achieving a creative mode of strategic thinking.
◦ Strategy is a Mindset
 ▪ Richard Pascale, a faculty of the Graduate School of Business at Stanford
University and an associate professor at Oxford University, in his book, “Managing
the Edge,” considers strategy as a frame of attitude and mind. For him, an outlook
that is deliberate and monitored should be developed within the business
organization's system. Any business cycle begins with the business organization
coming up with a strategic concept which is of product - product or service,
organizes itself around the basic product and in the process, creates a personality
and culture for itself. Then the business enjoys success for a while but begins to
falter. The business organization goes back to basics naturally and tires of
rediscovering its old formula of success. Developing a different mindset is Pascale's
strategy concept. For him, business management should be the future from the past,
but the present should be managed from the future. In other words, the strategies
that should be adopted by companies are those which are realistic but anticipatory
and visionary. A strategic mindset is always innovative and active. It should be alive
and filled with ideas. It is more on looking at the future to deal with the present.
◦ Strategy is Learning
 ▪ In the organizational learning model, change demands learning and the latter refers
to continuous change. Likewise, the model refers to the process of maintaining and
enhancing performance experientially. Learning is not an accidental activity based
on facts and data although it may happen consciously or unconsciously. What is
learning? According to the same source, learning refers to any knowledge and
competencies that may be old and new, gained or improved from persons, books,
institutions, training, experiences, etc. This comes in the form of data, information,
facts, skills, attitudes, values, or philosophies. Learning is not limited to personal
learning, but its center is in organizations. An organization’s learning is easily
determined and distinguished in activities. Moreover, according to the same source,
there are forms of learning domains, and these are continuous improvement,
innovation and differentiation, benchmarking, and continuous adaptation.
Continuous improvement refers to the constant ongoing process of doing things
better. Life cycle improvement never ends. Innovation refers to learning new
concepts and new ways of doing things - new knowledge, new modes of thinking,
and new products. Differentiation is a shade of innovation - enhancing, improving,
and enriching what is existent. Benchmarking is the combination of continuous
adaptation which refers to responding to environmental changes and continuous
improvement. The former also implies resilience, flexibility, and a spirit of openness
to change.
◦ Strategy is Natural Capital
▪ For Hawken et. al. (1999), a strategy is natural capital. Natural capital components
include natural resources, ecosystem services, and living systems. The same source
also states natural capitalism central strategies, and these are the following:
• Shift to biologically-inspired model to eliminate waste.
• Moving to a model of a solution-based business where value is delivered as
service flow.
• Reinvesting in natural capital to reverse planetary destruction.
▪ It was emphasized that both economic and environmental priorities are compatible
with one another. Natural capital creates a competitive advantage when taken in this
light - considering strategy as natural capital.
◦ Strategy is Intellectual Capital
 ▪ Strategy is an intellectual capital in a closer perspective. Two categories of
knowledge are considered in the book, Intellectual Capital which is published in
2004 and these are common knowledge and intellectual capital. The first one refers
to stale and ordinary because minimum expectations and knowledge are satisfied by
this knowledge category. A knowledge that is important and outstanding which is
over and above this category is called intellectual capital. Intellectual capital refers
to synergistic convergence and interrelationships of the valued resources of a
business organization. It is intangible and can be felt. It creates an impact and can
be assessed. In attaining success in business, it is critical.
Strategy as a Tool
• Strategic guru also considers strategy as a tool, an approach mode by which goals and
objectives can be achieved. Strategy as a method, process or technique relevantly catalyzes
the growth and success of an organization. Some of these strategy tools are the information
technology and a balanced scorecard which was discussed fully in the previous module.
◦ Strategy as Information Technology
▪ Radical development of information technology has been seen for the past 30 years.
Things that have received impact of the said information technology are designing
products and services, doing things, and manufacturing. Work becomes easier,
simpler, and more efficient because of information technology. According to
Hammer and Champy (1993), technology is a significant strategy to move business
organizations toward the fast achievement of corporate and entrepreneurial success.
According to the same source, there are steps to be taken in optimizing technology
and these are the following:
• Initially, a business organization begins on process improvement. Here, in
initiating changes within the organization, the entire workforce is empowered.
The said changes are minute enhancements that are confined to specific
functions. It created a unique effect on work culture, although this approach
brings little progress since all are involved in the process.
 • Process redesign follows when process improvement is in place. This step goes
beyond just initiating changes that involve a more thorough and serious study of
the goals, directions, and plans in the light of business profitability and customer
expectations. In this step, there is a greater need for information technology and
at the same time, a high degree of change is present. In pursuing process
redesign and resistance to change, there are more risks because the common
issue here is keeping the status quo.
• The business organization can pursue business process re-engineering when the
process redesign is in place. What is the business process re- engineering?
According to Hammer and Champy (1993), business process re-engineering
(BPR) refers to the fundamental rethinking and radical redesign of business
processes so as to achieve dramatic enhancements in contemporary critical
measures of performance such as quality, costs, quality, speed, and service.
Technology’s role here is important. Expectations of results are higher, costs for
improvement are bigger and time for a substantial redesign to materialize is
longer in business process re-engineering
◦ Strategy as a Balanced Scorecard
▪ The ability to quantify performance is a competitive strategy. Real measurement
figures are given by that competitive strategy wherein business organizations are
allowed to plan and devise ways of achieving their set goals and objectives. A
balanced scorecard is one of the most recent developments in measuring
performance. In the book, “The Balanced Scorecard,” written by two management
gurus in the name of Robert Kaplan and David Norton, balanced scorecard as a
strategy tool was introduced. What is a balanced scorecard? According to Kaplan
and Norton, as cited by Young, F. C. (2015), a balanced scorecard refers to a
strategy template that illustrates four significant perspectives for performance
measurement - learning and growth, customer, internal process and financial.
• Learning and Growth
◦ These measures are the engines of other measures. In actualizing other
measures, learning and growth measures motivate employees, otherwise, the
business firm will find difficulty in translating strategies to workable
performance.
• Customer
 ◦ These measures are utilized by business organizations so as to increase
customer reach and satisfaction.
• Internal Process
◦ Important measures are in supply chains for operationally excellent
organizations. The measures are on innovation for product leader
organizations, while focus is on customer satisfaction for customer intimate
organizations.
• Financial
◦ The need to determine a mechanism that measures growth and profitability is
stressed from this perspective.
▪ The said perspectives need to be aligned to the vision and mission of the
organization. It includes the business functions of finance, accounting management,
marketing, human resources, and production. Strategy maps were introduced by
Kaplan and Norton, as cited by Young, F. C. (2015), so as to concretize the balanced
scorecard and make it workable. Strategy maps refer to visual tools utilized in
determining strategic goals, designing strategies, and implementing them. They are
utilized to connect the value-creating processes to the intangible assets. Strategy
maps show four perspectives of the balanced scorecard. Learning and growth are at
the bottom, consisting of information capital, human capital, and organization
capital. It is followed by the internal process perspective where customers,
operations innovation and regulatory processes are emphasized. Product and service
attributes, image and relationships are emphasized by the customer perspective. The
last one, which is productivity and growth strategies, makes up the financial
perspective. Activities are mapped and linked by cause-and-effect arrows so as to
achieve strategic goals. The process is sequential. Utilizing the balanced scorecard
is a strategy and allows for accurate assessments of organizational indicators, raw
data and specific measurements and the results of which are helpful in planning and
running a company.
People: Strategy
• Aside from being a concept and a tool, strategy is also people. People are strategies in
themselves. People are individuals who possess effective management and leadership,
monopolistic intellectual capital, and creativity. They are managers, executives,
supervisors, subordinates, and anyone who directs, leads, and supports the business firm
toward realizing goals and objectives. They are strategy personified.
◦ Strategy is Effective Management and Leadership
▪ Effectiveness is the common denominator of effective management and leadership.
Peter Drucker, who has been considered the “guru of all management gurus” has
placed management’s study and practice to a level of great relevance. The same
source cited examples of individuals who exemplify strategy as both effective
management and leadership, and these are the following:
• Alfred Sloan
◦ He was a professional manager and well known for his service at General
Motors in the 1950s and 1960s. For him, a manager should be a decision-
maker and a leader. He has a belief that a chief executive should not have
friends on the job and studied management as a discipline. Some of his
teachings are the following:
▪ Management is a profession and usually, people in the management
preach but fail to practice it.
▪ The professional should lessen his own interests and consider more on the
interest of customers.
▪ Professionals should make decisions according to facts but not by
preferences and opinions.
▪ A professional manager should see in it that only performance matters
and not to change or like people.
▪ Performance is above the “bottom line,” and professional managers
should set examples like tolerance for diversity and integrity.
▪ Division and conflict are desirable and necessary because these bring
about consensus, understanding, and commitment.
▪ Leadership is performance, trustworthiness and consistent behavior and
not public relations, charisma, and showmanship.
▪ Professionals are servants.
• Harold Geneen
 ◦ After Sloan, Geneen is said to be the greatest business manager. He became
an excellent symbol in business management and was called the
“Michaelangelo of Management.” His growth and acquisition policies made
the International Telephone and Telegraph Company (ITTC) the biggest
empire in the 1960s. He is an ultimate and genius manager and remembered
with deep appreciation and fondness for impact on his people’s careers and
lives. He had a natural enthusiasm, high energy level, and a quick mind.
Some of his teachings or strategy lessons are the following:
▪ One cannot run anything, even business, on a theory. There is no formula,
secret and no theory.
▪ In running a business, one should start with the end and do everything
one must do to reach it.
▪ Everyone is paid in two coins: experience and cash. Take the former first
and the latter will come later.
▪ Every business firm has two organizational structures. The first one is the
formal one which is written on the charts and the other one is shown in
the everyday living relationship of people in the organization.
▪ Management should manage.
▪ Leadership can only be learned and cannot be taught.
▪ Egotism is the worst disease which can affect business executives in their
work and not alcoholism.
▪ The toil of numbers will make you free.
▪ Develop a spirit of corporate entrepreneurship.
▪ There is a need for an independent and free board of directors.
▪ Emotional attitude is the key element in good business management.
• Lee Lacocca
◦ In management and leadership, Lacocca is one of the most widely read
biographies. He worked for Henry Ford and Mustang is one of his beat car
products. He had amazing ideas on administration which are workable. For
him, customers are very important. Lacocca conducted a management
system, which is the quarterly review system. Some of his teaching or
strategy lessons are the following:
▪ When one borrows something, it is advised to write it down so as not to
forget it.
 ▪ Use knowledge in fighting back and not your fist.
▪ Establish priorities.
▪ Utilize time well.
▪ Managers are motivators and decision-makers with a team spirit.
▪ People are the key to success and not information.
▪ Do not waste.
▪ Run instead of just walking.
▪ Never make the same mistake twice.
▪ Get a good liberal arts education. The key is to get a solid grounding in
writing, reading, and psychology.
▪ Do not fight back with your fist when he in bigger than you.
▪ Be friendly and shake hands. It is a significant lesson on leadership.
▪ For some people, learning salesmanship takes time. One should practice it
repeatedly.
▪ Unless one has something to compare to happiness, you will never know
it.
▪ Bankers will end up owning an individual when he engages in a capital-
intensive business.
• Jack Welch
◦ Known as the “Tiger Woods of Management” who succeeded Reginald Jones
as CEO of General Electric. Welch also created a learning enterprise wherein
he emphasized that there is a philosophy on management and no gospel.
When he became the CEO of General Electric, there are several
organizational realities he fixed, according to Young, F.C. (2015), and these
are the following:
▪ He went on to create a flat management hierarchy because he saw that GE
had too many organizational layers. He was abolished in various
positions.
▪ He dealt with the reality that superficial congeniality was on the surface;
people in the company were pleasant but in fact, distrustful and beneath
it, with savagery boiling beneath it.
 ▪ He challenged his members to action. He created a vision, which is to be
number one or number two, to be the leanest and lowest in cost and to
excel in producing quality products and services. He coupled the said
vision with excellence, quality, and human element. He propagated the
strategy, “fix it, sell it, or close it” which means if small business units
were not in rank 1 or 2, the said businesses should be sold or closed
down.
▪ He called GE a people factory where he created the vitality curve which
is like a normal curve where employees were classified into A (the top
20), B (the vital 70) and C (the bottom 10). The A people possess the 4Es
of GE leadership, namely: ability to energize, high energy levels, ability
to energize other around the common goals and the edge to make tough
yes-and-no decisions and the ability to execute and deliver on their
promises consistently. All of this need passion. The Bs are the heart and
passion of the company. The Cs are those who cannot get the work done
so must be removed.
▪ He pursued four major initiatives: engaging in services of their products,
globalization and collaborating in Japan, adopting Six Sigma, and
pursuing E-business. Six Sigma refers to a statistical quality tool which
espouses 0/034% waste reduction.
◦ Strategy is Monopolistic Intellectual Capital
▪ As mentioned in the precious module, the strategy is intellectual capital and
competitive advantage, which is created by business organizations to be in the
forefront of business and industry. When this intellectual capital is one-of-a-kind,
monopolistic, and only one, then it is a unique strategy.
◦ Strategy is Creativity
 ▪ Creativity is the challenge today for every business organization. Creativity means
that people should have unique attributes: imagination or a mind's eye which
generates bright ideas; inspiration which motivates people; originality which
innovates products, plans and processes ingenuity which is markedly resourceful;
foresight which is strategic and prudent and highly competent expertise. People
with these qualities drive their organizations to reach broader and higher
perspectives. This kind of person creates a pulsating accomplishment environment
and pride in the organization. Creativity is the mind of the strategist. Creativity is
strategy and strategy is creativity.
Different Perspectives of Strategy
• Aside from considering strategy as a concept, tool, and people, there are also other ways of
looking at strategy. Some managers consider doing business like engaging in a war; others
consider it as playing a game wherein one aims to win.
◦ Military Perspective of Strategy
▪ Business boardrooms are like battlefields, according to Young, F. C. (2015).
Engaging in business is like fighting in a war where guns and ammunition are used
as their strategies during any engagement. To further understand this perspective, let
us consider the contents of two popular books written on warfare, which will enable
us to relate business strategy to military strategy. According to the same author,
these are the following:
• The Art of War
◦ This book is written by Sun Tzu who is Chinese in origin. The oldest military
classic in Chinese literature in 400 to 320 BC. Sun Tzu is the commander-in-
chief of Ho Lu, the King of Wu of China in 500 BC. Based on this book, Sun
Tzu waged and won many battles. Some pieces of advice which Sun Tzu
gave to his military leaders which made them won in the said battles
wherein present business managers can relate and consider in winning their
own business, according to the same author, are the following:
◦ In Planning
▪ Sun Tzu's Writing
• War is a matter of importance to the State. It concerns the lives and
deaths of people and affects the survival or demise of the State. It
needs careful and detailed planning to win.
▪ Present-Day Strategy
 • In doing business, it is necessary to have thorough planning. If there
will be no planning, it will be difficult to attain success.
◦ On the Business Environment
▪ Sun Tzu's Writing
• Victory will not be threatened if one knows his enemy and himself.
One should know the terrain and weather and thee will be a complete
victory.
▪ Present-Day Strategy
• In any business venture, business organizations should competently
familiarize with its external and internal environment.
◦ On Measurement
▪ Sun Tzu's Writing
• Environment gives birth to measurement and measurement produces
the force estimation. Force estimation provides rise to calculating the
number of men, which gives rise to weighing strength. Thus, weighing
strength gives birth to victory.
▪ Present-Day Strategy
• It must have an accurate measurement of performance such as sales
figures, precision in productivity, business expenses and investments
in facilities, technology, and others. Knowing its resources will ensure
the achievement of set goals and objectives.
◦ On Competence
▪ Sun Tzu's Writing
• Generals should have the following strengths: knowledge, wisdom,
strictness, credibility, courage, benevolence, skillful, unconcerned by
punishment, unconcerned by fame, tranquil, place army first, obscure,
self-discipline, upright, and clever with all-encompassing talents.
▪ Present-Day Strategy
• Business executives and managers should possess qualities that
epitomize expertise, strong character, leadership, good values,
management skills, and ethical standards. Convergence of traits
enables business organizations to attain success.
◦ Other Lessons from Sun Tzu
▪ Sun Tzu's Writing
 • “Compare the army of your enemy with yours so as to know your
strengths and weaknesses.”
▪ Present-Day Strategy
• Change your strategies continuously. There should be predictability.
▪ Sun Tzu's Writing
• “Whoever is the first in the field will be fresh to await the enemy. The
second will hasten and arrive exhausted.”
▪ Present-Day Strategy
• All men can see tactics whereby one conquers but none can see
strategy out of which victory evolved.
▪ Sun Tzu's Writing
• The result is insubordination when the common soldiers are too
strong, and their officers are too weak but the result is collapse when
the common soldiers are too weak and their officers are too strong.
▪ Present-Day Strategy
• If you attach places which are not defended, you can be sure of
victory.
• The Book of Five Rings
◦ This book is written by Miyamoto Musashi who is Japanese in origin. The
way of strategy was discussed in this book. According to the author, there are
four ways by which men pass through life, and these are the following:
▪ Gentlemen and Samurai
• Belonged to highest category and included wealthy people and
officials.
▪ Farmers
• Next in rank because they provided rice crops.
▪ Artisans or Carpenters
▪ Merchants
• Later rose to prominence because of the wealth they accumulated.
◦ Musashi considered the said ways by which men pass through life in giving
points on how to run a business, specifically in using business strategies to
attain success and according to the same source, these are the following:
▪ The Way of the Gentlemen Warrior
 • "To master the virtue of his weapons is the way of the warrior. The
gentleman will not appreciate the benefits of weaponry if he dislikes
the strategy."
▪ Present-Day Strategy
• Businessmen and executives should learn how to appreciate the worth
of his skills, capabilities, and expertise. He should value resources like
capital, people, facilities, technology, equipment, and other assets at
his disposal. This is what value means.
▪ The Way of the Farmer
• "Farmer sees springs through autumns with an eye on the changes of
the season using agricultural instruments."
▪ Present-Day Strategy
• A businessman or executive can successfully manage a business
organization by being attuned to the environment's changes with
adequate and valuable information. This is what observing means.
▪ The Way of the Carpenter
• "To become proficient of his tools is the way of the artisan. First, to
lay his plans with a true measure and then to perform his work
according to plan."
▪ Present-Day Strategy
• Business organizations have to be expert in using business models,
tools, and resources such that plans are achievable and accurate. Thus,
goals can be concretized and achieved. This is what doing means.
▪ The Way of the Merchant
• “The winemaker obtains his ingredients and puts them to use to make
his living. To live by making profits is always the way of the
merchant.”
▪ Present-Day Strategy
• Every businessman or executive should optimize his human resources
and potentials. His goal is to create growth opportunities, make profit,
and gain every benefit or advantage available. This is what creating
means.
◦ Game Perspective of Strategy
▪ Strategy can be viewed from the standpoint of playing games which is based on the
mathematical model called game theory. What is game theory? According to Game
Theory, game theory refers to the study of strategy from a mathematics perspective.
In a game, decision-makers are called game players. Strategies are the alternatives
or options from which the players must choose from. Meanwhile, according to
Young, F. C. (2015), game theory is essentially linked to neoclassical economics.
The concept of rationality is their commonality. Based on the assumption of
neoclassical economics, human beings are logical when making economic choices
which means that a person makes a decision in the light of targeting to maximize his
rewards. The said rewards may be in the form of returns or income. Through game
strategies, a framework for a reality check is given. Games may be classified into
those which are played with different moves and according to the same author these
are the following:
• Games with Sequential Moves
◦ Sequential moves refer to the steps taken chronologically where an action is
a consequence of a previous move.
• Games with Simultaneous Moves
◦ These are taken concurrently under conditions of imperfect or incomplete
information. Here, movement should be done by the players without the
knowledge of what their co-players have decided to do.
• Games with Strategic Moves
◦ These are devices that are applied to work to one’s advantage. The action
should be irreversible and observable to adopt this mode. Three types of
strategic moves can be a commitment, threats, and promises. This principle
may be applied in situations like markets, bargaining auctions, competition,
labor arbitration, and policy setting which are all important in making the
business successful.
▪ There are certain styles in undertaking game strategies, and these include rational
irrationality, use of surprise, deliberate study of previous moves undertaken,
collection of information, an earnest move to go back to the root problem,
collaborative action, effort to monitor moves, sometimes not doing anything, and
abandonment.
 ▪ In essence, winning and achieving a reward is the focus of the game’s perspective of
strategy. In winning a game, information is a critical component. Game moves can
follow one another, be at the same time or simply smart which are all applicable to
business, wherein different strategies can be formulated, implemented, and
evaluated using the said game moves. Dominant strategies give the highest payoff.
Therefore, applying game strategies to business necessitates intuitive skills,
consideration of the environment, and utilization of surprise.
◦ Economics Perspective of Strategy
▪ Analysis of business strategy from the angle of economics should also be
considered. There are durable principles that are applicable in business nowadays,
although different strategic solutions continually evolve due to inevitable growth
and change variables. The said theories or principles can guide business strategists
to understand better how business firms compete, thereby providing them bases
when making decisions strategically. According to the same author, economists
emphasized some adaptive strategy principles in dealing with the different
parameters in economics, and these are the following:
• Conditions
◦ There is a continuous change in environmental conditions. The said
conditions affect the business evolution from simple to the more
complicated. The product of development is growth so strategies should be
sensitive to developing business conditions.
• Transportation
◦ The need to transfer products, services, and people accelerated mobility and
development. In any business activity, efficiency delivery, shipping, hauling,
storage of goods, money, and services should be considered in the formulated
strategy.
• Communication
◦ In bringing ideas and information to business entities, markets, and agents,
communication plays an important role. Strategies should make provisions
for efficient interaction, transmission, and exchange of business information
and ideas.
• Financing
 ◦ The role of financing dictates the strategies to be adopted by firms. The
degree, depth, and extent of business strategies are dependent largely on the
business entity's financing component.
• Production Technology
◦ Strategies for competitiveness, profitability, and cost effectiveness are largely
dependent on the expertise’s sophistication equipment, process, and tool
while technology has catalyzed production.
• Government
◦ As the business grows in operations and size, the government regulates its
activities. Great consideration of government laws, policies, and regulations
should be included in strategies.
Horizontal and Vertical Boundaries
• Vertical Boundaries
◦ A whole range of activities are involved in the production of any product or operation
of any service. It starts with the raw material acquisition and ends with the finished
good distribution and sale. According to Young, F.C. (2015), This is referred to as
Supply Chain Management or Vertical Chain. Major and support tasks are present in
the vertical chain. Examples of major activities may include production, sales, and
distribution, while support activities may include a promotion, market research, and
janitorial and security services. The said activities may be classified as upstream
activities which are conducted in the early process of vertical chain and under
downstream activities when conducted in the latter stages. There are two choices
available for a business firm: to perform the activity or buy specialized providers in the
market called market firms.
• Horizontal Boundaries
◦ There are parameters that consider the horizontal boundaries of a company. The
horizontal boundaries of business include two things and these are the variety of
products and services and the quantity of the products produced and services rendered.
One reason why companies produce the same products but sell them at different prices
at reasonable margins of profits may be in the quantity of products sold. Both
economies of scale and scope are generally present whenever there is large-scale
production and marketing due to cost advantage, affecting and even shaping strategy
decisions in business.
 ◦ What is economies of scale? According to the same source, economies of scale pertain
to a condition exhibited when the average cost (AC) or the cost per unit of output
declines over a range of output which can be product or service. For an average cost to
decline as output increases, the marginal cost or the cost of the last unit produced
should be less than the overall average cost.

Lesson 10 - National Development Strategic Perspective/Case Analysis

National Development and Strategy
• If the emphasis is given to strategies by business organizations, individuals, and
communities, the nation should also give great emphasis to strategies. First, what is a
nation? According to Young, F.C. (2015), a nation refers to a community of people with
similar or different traditions, beliefs and aspirations who live in the same geographic
area. The said nations’ population engages in different activities like agriculture, trade,
mining, education, and research to sustain the everyday living conventional routine. Good
governance is necessary so as to lend order and direction to these pursuits. Government is
the institution that is tasked and responsible for doing this job. As a fundamental unit with
given control, ascendancy, and dominance, it declares regulations, rules, and policies with
the earnest effort to bring about national development.
• According to the same source, national development may mean growth and progress,
maturity or simply improvement. It is largely dependent on how a country is thrust and
pushed toward the positive nationwide changes which lead to a better life for its people
and competitiveness. Therefore, every country’s success depends on a conjunction of two
significant basic components that, according to same source are the structure and the
strategy.
◦ Structure
 ▪ According to the same author, in governance, structure pertains to the operational
framework which will serve as a basis for national growth and development.
Context is set and the said structure outlines the agenda on which a nation can drive
itself toward national wealth and prosperity. Plans and programs will be difficult to
actualize without structure. There will be uncertainty in understanding,
implementation, direction, allocation, and resource utilization. With structure, action
plans or strategies can be formulated and designed. These schemes are implemented
in the light of spearheading the journey of a country toward economic wealth and
progress. Likewise, the different kinds of structure in any country were given by the
same author, and these are the following:
• Political Structure
◦ Pertains to the political system which exists in the country. When social
equality exists, there is a democracy, when dictators rule a nation, there is an
autocracy, and when control is socialist or collective, they’re communism.
• Economic Structure
◦ Pertains to how business is conducted in a nation. On a macro level, this
includes investment, consumption, trade, and government. Consumption is
more than 50% of the gross domestic product in some developed countries
like Europe and United States, and in Japan's trade in terms of import and
export is more than 100% of GDP.
• Institutional Structure
◦ Reflected in the banking system of a country, its military power, the justice
system and the rule of law.
◦ Strategy
▪ To achieve national advancement, nations need strategies. To achieve this
successfully, a national structure is needed. Both strategy and structure should
preferably be intercorrelated to create a good fit. In other words, correct and
appropriate correspondence plus accurate combination can create the best outcomes
which can lead to positive national gains. On a national scale, strategies for
development include the country's policies, resources, and the government, which
sets the goal. In achieving the set goal, policies have to be formulated and enforced.
Ground rules should be set for the people to follow and that is why the policy is
needed. In this way, order and efficient policy implementation are ensured. Policies,
according to Young, F. C. (2015), are both macro and micro in perspectives.
• Macro Policies
◦ Fiscal Policy
▪ The government's fiscal policy can be any of the following:
• Balanced Budget
◦ There is enough budget.
• Surplus
◦ There is an excess in budget
• Deficit
◦ There is a shortfall in the budget
▪ Surpluses are achieved and deficits are incurred by the government
depending on their policies on spending. There are governments which
misallocate, mismanage, or misspend their funds. They prioritize projects
which do not generate fiscal gains sometimes. Governments can reduce
spending, generate higher incomes through business investments or
increase taxes. For instance, the Philippine government asked the
Congress to pass a law that would increase the value-added tax from 10%
to 12% to reduce its budget deficit. Likewise, all governments would like
to have a surplus in their budgets so that health care systems,
infrastructure projects, education and other important government
services can be provided to the people.
◦ Monetary Policy
▪ This is fiscal policy’s important complement. The purpose of setting
monetary policies by the country’s central bank is to possibly make the
supply of money at a given rate grow. One way of generating enough
money to finance the nation's economic growth is by government
engagement in buying and selling treasury bills to the public. The
government makes sure that the inflation rate is managed properly and
maintained at single digit.
◦ Policy on Exchange Rate
 ▪ Another macro concern is the policy on the exchange rate. Some
countries allow their currency to float at market rates freely, but others fix
or control their currency rates to prevent depreciation or undue
appreciation. There are reasons for some nations adopting either market
or fixed based exchange rates. Appreciating the exchange rate may mean
making commodities more expensive, exports less profitable and higher
demands for wages. How about depreciating the currency rate? It may
mean purchasing expensive raw materials and imported goods.
◦ Income Policy
▪ Prices and wages are directly affected by the country’s income policy. A
direct correlation between prices and wages is present. When there is a
price increase, a demand for higher wages is present. When there is a
wage increase, an increase in the prices of goods is present too. This
situation is a chicken-and-egg cycle where nobody can pinpoint which of
the two comes first. Therefore, the government should reach a level
where both wages and prices are managed in such a way that no
destabilizing impact is minimized or created. In many cases, the
government subsidizes the price differences. For instance, 1 kilo of rice is
sold to customers at Php35 when in fact the current price ranges from
Php40-45.
• Micro Policies
◦ Trade Policy
▪ Use of tariffs, quotas, and other trade contracts that may carry certain
restrictions and limitations make up a country’s trade policy. The more
popular trade agreements are the AFTA (Asean Free Trade Area), NAFTA
(North American Free Trade Agreement) and WTO (World Trade
Organization). Tariffs were to be gradually lowered on imported products
in the said agreements. 100-200% tariffs were gradually decreased to 10-
5% and eventually will end up to zero. The said trade policies are
attractive to developed nations but more disadvantageous to developing
counties like the Philippines. For instance, some imported goods come in
less expensive to the point of “killing” local goods. As a result, some
local companies will opt to close shop because of the inability to compete
with the imported good pricing.
◦ Foreign Direct Investments
▪ Economic development has brought about foreign direct investments or
investments from sources outside a nation. Jobs are generated and
business is energized because of infused capital. Almost all counties
welcome the said financial outlays. To entice foreign investors to engage
in business activities and financial infrastructure projects and other
national undertakings, attractive business packages and financial
incentives are given. To achieve this, trade exhibits are set up, trade
missions are sent, and trade negotiations are closed.
◦ Policy on Privatization or Nationalization
▪ With regards to privatization, the government may come up with the said
policy if the acquired business of the government were not managed
effectively and efficiently by civil servants. Privatization pertains to the
selling of government-owned business to individuals other than the
government. Meanwhile, a government may also decide to buy, take over,
or confiscate an enterprise and manage it. This is what nationalization
means. There are specific reasons for nationalization, and these include
making sure there is equity, and controlling or seeing to it that there is no
shortage.
◦ Economic Policies
▪ To ensure that the nation’s financial system is sound and that it is able to
provide education, livelihood, welfare, and quality of life for its people.
Food security is the reason why nations invest in agriculture. Other
strategies include investing in alternative sources of power, creating
economies in different regions, using RORO boats, promoting
entrepreneurship, and searching for new markets for overseas
employment.
◦ Competition Policy
 ▪ This policy emphasizes the development of natural and human resources.
In a nation, people are the greatest source of productivity and to make
sure that they are competitive, a country should make sure that quality
education is provided to its people. Intelligent, hardworking, and
nationalistic people drive a country toward material prosperity. Thus, the
emphasis is on knowledge workers, information technology competence,
speaking of global language, seafaring and tourism skills, competence,
leadership, and managerial effectiveness and positive personal qualities.
A degree of competitive advantage is created in people through this
policy.
◦ Subsidy Policy
▪ To help the population, subsidy policy is used. To make prices affordable,
the government shoulders a part of it. In certain instances, when the
country has surplus or it has funds for such support, a country can do it.
◦ Resources
▪ Resources are the most important competitiveness supply. Resources can make or
unmake a nation and at the same time can bring them to prosperity and dearth,
according to Young, F. C. (2015):
• Natural Resources
◦ Consist of arable land, energy fuels, minerals aside from forest land and
aquatic life. To give people a better life, the said resources should be
harnessed.
• Human Resources
◦ Include a population with adequate education and are healthy and highly
skilled.
• Technology
◦ Another resource that contributes to national advancement and may include
advances in science, research and development, information technology,
communication, medicine, and manufacturing.
• Capital
 ◦ Capital, which is according to Capital: Definition in the Cambridge English
Dictionary, refers to possessions and money used in producing wealth or
used in starting and operating a business and should be invested wisely. If
invested wisely, according to Young, F. C. (2015), it can provide a better
standard of living, can generate more employment, and being about an
efficient exchange of goods, wealth, and series.

Writing and Conducting Case Analysis

• Let us begin with the term “case.” According to Young, F.C. (2015), a case refers to a
situation which requires a decision. This may be technical, business, or administrative in
nature. Cases may be a presentation of interrelated information, an enumeration of factual
data, an indication of pressing problems or pointing out critical issues and urgent concerns.
To resolve a case, a method that involves a logical, formal, and systematic process called
“case method” is considered to resolve a case. In said method, various cognitive activities
are involved, and these are the analysis, interpretation, and synthesis of situations and
facts. Specifically, the same source emphasized that the case method strives to do the
following:
◦ Develop the individual's ability to investigate minute details which are important to the
organization.
◦ Improve the individual's analytical adeptness, problem-solving skills, and critical
thinking.
◦ Develop the ability of the individual to make relevant decisions which are based on
factual data in the context of the environment - organizational, local, and global.
◦ Provide the opportunity to make competent and proactive plans.
• Moreover, according to the same source, there are important points to consider so as to
come up with a good case analysis, and these are the following:
• Clearly understand what the case is all about. It is essential to identify the basic concerns,
issues, or problems.
◦ Careful investigation of the supporting facts, exhibits, and appendices should be
considered.
◦ Case analysis should be conducted in the content of the prevailing situation.
◦ In the solution of a case, objectivity is required.
◦ It helps underline important facts and take down notes to aid the individual in
understanding and analyzing the case.
Components of Case Analysis
• The different components of case analysis, according to Young, F.C. (2015), are the
following:
◦ Title of the Case
▪ The name of the case.
◦ Time Content
▪ This refers to the duration of the case. All cases have to be probed and solved with
time as a significant consideration. In some situations, what is considered as
advantageous, practical, significant, and best today may not have been 25 years ago.
In solving a case, stating the specific period is necessary.
◦ Perspective
▪ One should state specifically whose point of view he/she is looking at the case in
analyzing and solving the case. The standpoint chosen by an individual should be
someone competent, credible and with the rightful power and authority to make
decisions. The outlook of an outsider will never be acceptable.
◦ Central Issue
▪ Every case involves a situation or problem which requires a corresponding course
of action or solution. In clearly identifying the root or real issue, care should be
taken because there are many issues that may be trivial or insignificant. A central
issue pertains to a condition which necessitates a resolution. It may be an
uncertainty, dilemma, or simply a major concern that needs to be solved, but not
necessarily corrected. Sometimes, only enhancements, realignments, and
improvements are needed. In taking a course of action, there are steps to follow and
according to the same source, and these are the following:
• Analyze the central issue. Facts which brought about this concern should be
looked into, and one way of doing this is by discovering obvious signs which are
worth analyzing like increase in the number of complaints and rejects, decrease
in the number of customers and sales, outmoded equipment and facilities, lack of
financial resources, the inefficiency of employees and other concerns in the
organization. Likewise, the same source cited the five major aspects of the said
organizational concerns, and these are the following:
◦ Labor
▪ Refers to human resources of business organization.
◦ Materials
 ▪ Refers to supplies and raw materials.
◦ Methodology
▪ Pertains to process.
◦ Machinery
▪ Refers to facilities and equipment.
◦ Money
▪ Refers to compensation, incentives, and benefits.
• Look for other related details - the people involved, the cost considerations,
gravity/degree of the issue or problem, the operational, managerial, financial,
technological, human resources, or environmental implications.
• Prioritize problems or issues according to impact on the business
organization and according to the degree of urgency, importance, and criticality.
Same source name the different classifications of impact and these are:
◦ 5 - very great extent
◦ 4 - great extent
◦ 3 - moderated extent
◦ 2 - least extent
◦ 1 - very least extent
• Concerns or issues are urgent when there is a need to attend to the said issues
immediately. Problems are considered as important because they have to be
addressed and finally, issues are considered critical when the organization,
department, or individual is less or not capable of addressing them all.
◦ Statement of Objectives
▪ This part enumerates the specific intentions to be achieved. It aids in identifying the
alternative courses of action that may be taken to solve the case. Set objectives
should be SMART - specific, measurable, attainable, realistic, and time-bound.
◦ Areas of Consideration: Internal and External Environment
▪ These pertain to the facts of the case. These are the paramount elements in the
environment - organizational, local, and even global - which may have contributed
to the issue or may have been the root cause of the central issue itself. These are
related in one way or another to any of the different organizational, functional areas
like production, finance, marketing, operations, or human resources. A SWOT
analysis is recommended to make the analysis more complete and comprehensive.
◦ Alternative Courses of Action
 ▪ One comes up with alternative courses of action once the areas of consideration
have been analyzed. An alternative refers to a choice to make or option to take.
According to the same author, the following are the characteristics of alternative
courses of action:
• These are mutually exclusive. No over overlaps or redundancies. These are
independent of each other.
• These specify the period.
• These are relevant, realistic, and appropriate.
◦ Decision Matrix
▪ After enumerating the alternative courses of action, one may come up with a
decision matrix wherein a decision which refers to resolution, judgment, or
conclusion to make should be seen after accomplishing the decision matrix. To
justify the conclusion, a standardized point of reference can be applied,
incompetently arriving at a decision. A good criterion is a combination of relevant
measures like the risk involved if one has to choose a particular course of action, the
cost involved in implementing the decision, the benefits derived, and the ease of
implementation. A rating scale from 1 to 5 is utilized with the five being the highest
and one, the lowest in assessing each alternative course of action.
• For risks, 5 is the least and 1 is the riskiest.
• For costs, 5 is the least and 1 is the costliest.
• For benefits derived, 5 is the most and 1 is the least beneficial.
• For ease of implementation, 5 is the easiest and 1 is the most difficult.
◦ Conclusion
▪ The one that yields the highest accumulated point score should be chosen and
implemented as the solution to the issue or problem in the case study.
◦ Recommendations
▪ The corresponding recommendation should begiven and stated clearly after
completing the evaluation and arriving at a conclusion. According to
Recommendation: Definition in the Cambridge English Dictionary,
recommendation refers to advice what is the best thing to do or consider making a
particular conclusion more effective and efficient.
◦ Action Plan
 ▪ Your recommendation should have an accompanying action plan. According to
Young, F.C. (2015), action plan refers to a program of activities which includes the
following:
• Activities to be implemented
• Objectives to attain
• Department, division, or unit involved
• Person/s responsible
• The cost involved
• Other resources needed
• Timetable
▪ Gannt Chart should be considered too in preparing an action plan. It is an
operational calendar of activities which shows the specific time frame for each
activity. The said activities are expressed in terms of the number of days, weeks,
months, and even years. Through Gantt chart, concrete time-bound monitoring of
progress, concrete evaluation, and stated activities are ensured. The inefficiencies
and bottlenecks which cause non-completion can be pinpointed through the Gantt
Chart. Likewise, successful advancement and conclusion of jobs well done can be
shown too through Gantt Chart.
Strategic Analysis
• Aside from understanding the basic concepts of strategic management, one should also
learn how to apply its approaches and principles. Strategic analysis is a powerful tool of
competitiveness when smartly and appropriately applied. Doing strategic analysis should
be holistic. According to Young, F.C. (2015), there are phases or steps involved in doing
strategic analysis, and these are the following:
◦ Industry Analysis
▪ It is a cognitive approach wherein the business environment where the company is
part of is evaluated. Using Porter’s Five Forces of Competition is the best way to
conduct an industry analysis. The bargaining power of customers, bargaining power
of suppliers, ease of entry of new firms, availability of substitute products, and
rivalry among existing firms are the parameters of the said tool. There are some
issues which can help one make a significant industry analysis and according to the
same source, these are the following:
• Who are the consumers? In terms of their buying capabilities, have they
changed?
 • Do you have very powerful suppliers? Did they change their prices or depreciate
in quality, making their products and services less attractive to customers?
• Who are the competitors and what are their present market shares? Are you a
challenger, a market leader, or a follower?
• Is there anyone who easily engages in the same business line as yours? Does the
industry have trade associations that can help, if not protect, the smaller ones?
• Are your products and services still important or have they outgrown their
significance?
• Is the industry regulated to prevent competition which is unethical one?
• As a whole, is the industry growing? How fast is it growing? Can industry
supply the demand for such products?
• What are the steps to take so as to address this dismal situation if the industry is
declining?
▪ Likewise, key success factors refer to variables that are important in realizing a
company’s set goals. The said key factors, according to the same source, are the
following:
• Satisfying Customer Requirements
◦ Customer requirements should be satisfied. The wants, needs and even
demands continue to become challenging and mature. Because of that fact,
companies have to be proactive and alert to these changes. The most needed
to get the feel of changing breaking point is the external intelligence.
• Meeting Competitive Factors
◦ Customers in a customer-oriented environment expect more than minimum
requirements. They expect efficient service, quality goods, speed in serving
customers, attractive packaging, lower prices, and valuable after-services that
will promote better relationships with customers.
• Obeying and Respecting Business Regulations/Industry Standards in the
Business
◦ In doing business, it is important that the government procedures and
industry directives are followed.
• Satisfying Resource Requirements to Implement Competitive Strategy
 ◦ Resource requirements are becoming more difficult to satisfy because of
business demands. For instance, due to global demands, labor resources are
harder to find. More capital investments are required by competition, the
economies of scale bring prices down, and policies on expansion have
become more urgent. Doing business becomes tougher in one global market
because of the reality of hyper competition.
• Technical and Technological Requirements
◦ Requirements on technical and technological aspects place undue demands
on doing business. Information technology has become commonplace, and
product development has become faster. In business, research development
has become a necessary component.
◦ Strategic Analysis
▪ According to the the same author, strategic business analysis refers to the reviewing
process of the strategic goals set by the company, the skills and capabilities of its
people resources, the strategies formulated, and the performance metrics
established.
◦ External Audit of the Environment
▪ External environments of business such as the social, economic, political,
environmental, and technological forces or factors may or may not have an
influence on a company. That is why PEST analysis can be undertaken to have the
said external audit of the environment. Those forces which affect the company
should be taken into consideration.
◦ Strategy Evaluation
▪ It refers to the assessment of the strategies implemented including the enumeration
of critical issues and determination of competitive advantage of a company, if
possible. There are ways on how to evaluate according to the same author, and these
are the following:
• Application of SWOT Analysis
• Balanced Scorecard
• Determination of the Competitive Advantage of Company.
◦ Recommendation
▪ It refers to rewriting, reformulating, or reinforcing the company’s objectives,
followed by the respective strategies that will bring about a more competitive and
consequential company.