Strategic Planning Reviewer On How To Make A Paper (Autosaved)

Organize your written case report according to the sections listed below:
1. Case Background
2. Environment Analysis
A. General Environment
B. Operating Environment
C. Internal Environment
D. External Factor Evaluation Matrix
E. Internal Factor Evaluation Matrix
F. Competitive Profile Matrix
G. Assumptions
3. Problem Statement
4. Alternative Courses of Action
A. TOWS Matrix
B. Internal-External Matrix
C. Grand Strategy Matrix
D. Summary of Strategies
5. Recommended Alternative and Action Plan
A. Quantitative Strategic Planning Matrix
B. Action Plan
6. Financial Projections
A. Sales Forecast
B. Income Statement Forecast
C. balance Sheet Forecast
D. Cash Flow Forecast
#1. CASE BACKGROUND:
• Provide a summary of the salient case facts that

indicate the company’s mission, past and current
objectives, strategies, as well as the financial
situation of the company
• Discuss the current issues and concerns being

faced by the company’s management
#2. ENVIRONMENT ANALYSIS:
• SWOT TECHNIQUE – undertake an analysis of the
external and internal environments
•Identify the opportunities and threats in the general and
operating environments
• Determine the strengths and weaknesses of the
company in view of the functional areas
• STRATEGIC FACTOR EVALUATION (EFE/IFE) – conduct an
assessment of the external and internal environments
• COMPETITIVE PROFILE MATRIX – compare and contrast
firm and its competitors
• formulate assumptions vis-à-vis the external and
internal environment analyses
#3. PROBLEM STATEMENT:
• State the most unwanted condition

• Support your problem statement with evidences
Business Policy Case
COMPREHENSIVE
• Global business
COVERAGE
• Management
• Marketing
• Finance
TRANSPORTED • Accounting
TO A • Operations
NEW • Human Resources
ENVIRONMENT
• Research and
“BE FAMILIAR”
development
• Information systems
• Corporate strategy
OBJECTIVE Determine
“BEST STRATEGY”
ATTAIN FIRM’S
SUCCESS
• Sales
• Market share
• Profit
EXTERNAL INTERNAL
CONDITIONS “FIT” CONDITIONS
RULE 1: “STICK TO CASE FACTS”
RULE 2: “USE CASE FACTS TO EXPLAIN ANSWER”
INTERPOLATE
• Between Sales
data points History
NEW INFO
“GROUNDED”
ON CASE
FACTS EXTERPOLATE
• Beyond Recession
meaning of Effect
data
FACTS
• Insufficient data
CASE
• Develop assumptions from data
CONTENT
• use information from tables,
graphs, figures
OPINIONS:
• Consider analysis of persons in
authority
CASE SOLUTION • No single best solution

• Analysis focus on justification,
rationalization, logic
•Relate to firm’s vision, mission,
goals, objectives, strategies
DECISION MAKING:
Define Problem
NO
Establish Criteria RIGHT/WRONG
ANSWER
Compare Alternatives
BUT
RIGHT/WRONG
Make Decision
“JUSTIFICATION”
LIMITED • Within organization’s means

RESOURCES • Reflected in case solution
TIME FRAME • Specific year when the major

problem has occurred
VIEW POINT • Problematic person

• Test for future executives
A NALYSIS OF CASE FACTS Information evidence
E MPHASIS ON JUSTIFICATION Reasoning / explanation
I N VIEW OF TIME/RESOURCES Context / availability
O WNERSHIP OF SOLUTION Decision analysis
U NDERSTAND ROLE Viewpoint (CEO)

#4 ALTERNATIVE COURSES OF ACTION:
• TOWS MATRIX – match the internal and external factors to
determine feasible corporate strategies
• INTERNAL-EXTERNAL MATRIX – locate the appropriate
strategy based from the IFE/EFE total weighted scores
• GRAND STRATEGY MATRIX – determine feasible corporate
strategies based from competitive position and market growth
• SUMMARY OF STRATEGIES – calculate and identify the most
feasible corporate strategies based from the TOWS, IEM, and
GSM
#5 RECOMMENDED ALTERNATIVE AND ACTION PLAN:
• QUANTITATIVE STRATEGIC PLANNING MATRIX – evaluate
each identified corporate strategies to determine the best
course of action
• Compare and contrast the alternative strategies to
determine the most appropriate strategy, in qualitative terms
• Translate into specifics the recommended alternative
strategy
• Present the action plan in terms of the functional area
#6 FINANCIAL PROJECTIONS:
• Prepare a three-year financial projections
• The contents of the action plan should be reflected in the
income statement, balance sheet and cash flow
• Present the technical basis of computations
• Compute and explain relevant financial ratios
Narrative
Report
DIRECTIONS:
Prepare the following visuals for presentation:

1. Case Background
5. Recommended Alternative and Action Plan
Strategy-Formulation Analytical Framework
INPUT STAGE (1) MATCHING STAGE (2) DECISION STAGE (3)
External Factor SWOT TO TOWS Quantitative

Evaluation Matrix Matrix Strategy Planning
Matrix
Internal Factor Internal-External
Evaluation Matrix Matrix
Competitive Grand Strategy

Profile Matrix Matrix
2 N T
# M E
O N S
IR SI
NV L Y
E NA
A
ENVIRONMENT SCANNING
GENERAL ENVIRONMENT
EXTERNAL INDUSTRY ENVIRONMENT
ORGANIZATION
ENVIRONMENT
V
INTERNAL
EXTERNAL SCANNING
Opportunities/Threats outside the

organization and not typically within the
short-run control of top management
GENERAL Influence organization’s

SOCIETAL long-run decisions
MACRO
INDUSTRY
Affect organization’s major
OPERATING
operations
TASK
INTERNAL SCANNING
Strengths/Weaknesses that are within the firm
FUNCTIONAL • Marketing
• Production/Operations
AREA
• Finance
• Organization & Mgt.
• Human Resource
• Research & Dev’t.
• Information Systems
Situation Assessment
OPPORTUNITIES What trends or events, now or in the
future can significantly benefit the
Avenues for growth organization?
THREATS What trends or events, now or in the

future potentially harm the
Hindrances for growth organization?
What activities or conditions within the

WEAKNESSES organization seriously limit or inhibit
Lacks or does poorly overall success?
STRENGTHS What activities within the organization

are performed exceptionally well?
Competitive asset What conditions within the
organization strongly promote overall
success?
Situation Assessment
• Status of the organization
• Source of major problem
• Basis of future operations
• Decision guide for strategies
• Framework of action plan
STRATEGIC FIT
External Situation Internal Capability

SWOT TECHNIQUE
Quick overview of firm’s strategic position
• ATTRACTIVENESS OF
ORGANIZATION’S
SITUATION
• NEED FOR STRATEGIC
ACTION
SWOT TECHNIQUE
• Does the organization have any internal strengths or core

competencies an attractive strategy can be built around?
• Do the organization’s weaknesses make it competitively
vulnerable and/or do they disqualify the firm by pursuing certain
industry opportunities? Which weaknesses does strategy need to
correct?
• Which industry opportunities does the organization have the
skills and resources to pursue with a real chance of success?
Which industry opportunities are best from the firm’s
standpoint?
• What external threats should management be worried most
about and what strategic moves should be considered in crafting
a good defense?
SWOT TECHNIQUE
1. Identify SWOT 2. Determine whether the condition is external or 3. Decide whether condition is an
conditions internal opportunity or threat for external
a. If external, categorize into General or while strength or weakness for
WHAT? Operating; then classify under Forces. internal, based on case facts.
b. If internal, classify under functional areas.
WHY?
Socio-cultural-demographics
HOW? O T
Technological
General Economic
Envi. Environment
Declining Politico-legal
economy External
Rivalry among competing firms –
Potential Entrants Case Fact:
Operating Substitute Products Firm selling
Envi. Bargaining power of suppliers low-priced
Bargaining power of buyers items
Other forces
Marketing S W
Low quality Production Operations
Internal
porduct Finance
Organization & Management
Human Resources
Research & Development
Information Systems
SWOT TECHNIQUE
INTERNAL STRENGTHS: INTERNAL WEAKNESSES:
• Core competencies in key areas • No clear strategic direction

• Adequate financial resources • Lack of management depth and talent
• Well-conceived functional strategies • Poor record in strategy implementation
• Proven management • Plagued with operating problems
• Superior technological skills • Obsolete facilities
EXTERNAL OPPORTUNITIES: EXTERNAL THREATS:
• Emerging new technologies • Adverse demographic changes

• Favorable political climate • Huge government deficit
• Increases in gross national product • Economic depression
• “USE RELEVANT EXTRACTS (WORDS/PHRASES/SENTENCES)”

• Avoid paraphrasing / summarizing / condensing case facts
SWOT ANALYSIS
PROCESS OF ANALYSIS
GENERAL OPPORTUNITIES
THREATS
INDUSTRY
STRENGTHS
INTERNAL
WEAKNESSES
# 2A
2.A – General Environment
• Influence firm’s long-run decisions
• External conditions not under the control of the firm
• Not problem but “given” conditions
• Opportunities or threats
OPPPORTUNITIES - favorable conditions that could affect the strategic

decisions of the company (Avenues for growth)
THREATS – unwanted conditions that could affect the business
+
environment (Hindrances for growth)
-
STEEP Analysis
SOCIO-CULTURAL Values, mores, customs and

DEMOGRAPHIC society composition
TECHNOLOGICAL Problem-solving
interventions
Exchange of materials,
ECONOMIC money, energy, and
information
ENVIRONMENT Natural resources
POLITICO-LEGAL Laws and regulations

Socio-Cultural Demographic Forces
“SAMPLE
• LIFESTYLE CHANGES
CONDITIONS”
• CLIENT ACTIVISM
• RATE OF FAMILY FORMATION
• GROWTH RATE OF POPULATION
• AGE DISTRIBUTION OF POPULATION
• REGIONAL SHIFTS IN POPULATION
• LIFE EXPECTANCIES
• BIRTH RATES
• ATTITUDES TOWARD BUSINESS
• BUYING HABITS
• ATTITUDES TOWARD QUALITY
• LEVEL OF EDUCATION
Technological Forces
“SAMPLE
CONDITIONS”
• GOVERNMENT SPENDING
• FOCUS OF R & D EFFORTS
• RATE OF NEW PRODUCT INNOVATIONS
• PRODUCTIVITY IMPROVEMENTS
• AUTOMATION AND ROBOTICS
• TECHNO-TRANSFER DEVELOPMENTS
Economic Forces
“SAMPLE • GNP TRENDS

CONDITIONS” • INTEREST RATES
• INFLATION RATES
• MONETARY POLICY
• FISCAL POLICY
• UNEMPLOYMENT RATE
• ENERGY AVAILABILITY AND COSTS
• WAGE/PRICE CONTROLS
• CREDIT AVAILABILITY
• LEVEL OF DISPOSABLE INCOME
• CONSUMPTION PATTERNS
• PRICE FLUCTUATIONS
Economic Forces
“SAMPLE
CONDITIONS”
• MONEY MARKET RATES
• PEOPLE’S PROPENSITY TO SPEND
• GOV’T BUDGET DEFICITS
• WORKER PRODUCTIVITY LEVELS
• DOLLAR VALUE IN WORLD MARKETS
• PRICE FLUCTUATIONS
• EXPORT OF LABOR AND CAPITAL
• INCOME DIFFERENCES
• DEMANDS SHIFTS FOR
GOODS/SERVCES
Environment Forces
“SAMPLE
CONDITIONS”
• AVAILABILITY OF RAW MATERIALS
• LIMITATION OF NATURAL RESOURCES
• ENVIRONMENT AND ECONOMIC

DEVELOPMENT
Environment Forces
“SAMPLE
CONDITIONS”
• AVAILABILITY OF RAW MATERIALS
• LIMITATION OF NATURAL RESOURCES
• ENVIRONMENT AND ECONOMIC

DEVELOPMENT
Politico-Legal Forces
“SAMPLE
CONDITIONS”
• ENVIRONMENTAL PROTECTION LAWS
• SPECIAL INCENTIVES
• LAWS ON HIRING, PROMOTION AND PAY
• GOVERNMENT STABILITY
• ATTITUDE TOWARDS FOREIGN FIRMS
• CHANGE IN TAX LAWS
• LEVEL OF GOVERNMENT SUBSIDIES
• POLITICAL CONDITIONS
• SIZE OF GOVERNMENT BUDGETS
• LOCATION/SEVERITY OF TERRORISM
• GOVERNMENT PROTESTS
Politico-Legal Forces
“SAMPLE • GOV’T REGULATIONS OR DEREGULATIONS

CONDITIONS” • CHANGES IN TAX LAWS
• SPECIAL TARIFFS
• POLITICAL ACTION COMMITTEES
• VOTER PARTICIPATION RATES
• GOVERNMENT PROTESTS
• CHANGES IN PATENT LAWS
• EQUAL EMPLOYMENT LEGISLATION
• GOVERNMENT SUBSIDIES
• COUNTRY-COUNTRY RELATIONSHIPS
• LOBBYING ACTIVITIES
• WORLD OIL, CURRENCY AND LABOR
MARKETS
• TERRORIST ACTIVITIES
• List ‘opportunities and threats’ conditions
2. ENVIRONMENT ANALYSIS
A. GENERAL ENVIRONMENT
A.1 OPPORTUNITIES
A.1.1 SOCIO-CULTURAL-DEMOGRAPHIC FORCES
• The average US retail purchaser of a motorcycle is a married man in his mid to late
forties.
A.1.2 ECONOMIC FORCES
• The growing upper class in India now warrants opening dealership there.
A.2 THREATS
A.2.1 SOCIO-CULTURAL-DEMOGRAPHIC FORCES
• The average US retail purchaser of a new motorcycle has a median household
income of approximately $87,000
A.2.2 ECONOMIC FORCES
• Discretion spending on high-end consumer goods
• Basic consumer and commercial financing problems
• Economic crisis
A.2.3 POLITICO-LEGAL FORCES
• High import tariffs of 90% on motorcycle
• Not tabular answer
FORCES OPPORTUNITIES THREATS
 
Socio-cultural-
demographic
Technological
 
Economic
Environment

Politico-Legal
 - conditions
# 2B
2.B – Operating Environment
• Influence firm’s major operations
• External conditions not under the control of the firm
• Not problems but “given” conditions
• Opportunities or threats
OPPPORTUNITIES - favorable conditions that could affect the strategic

decisions of the company (Avenues for growth)
THREATS – unwanted conditions that could affect the business
+
environment (Hindrances for growth)
-
Group of firms producing similar product or service
Potential
Entrants
Power of Industry Power of

Suppliers Competitors Buyers
Shareholders, Rivalry Among Community

Creditors Firms Perceptions
Threats of
Substitute
Porter’s 5-Forces
• Rivalry Among Competing

Firms
• Potential Entrants
• Substitute Products
• Bargaining Power Of
Suppliers
• Bargaining Power Of Buyers
Rivalry Among Existing Firms
“SAMPLE
CONDITIONS”
NO. OF COMPETITORS Size and Power
FIXED COSTS Airlines’ cheap fare
PRODUCT Focus on price/service
CAPACITY Production Volume

Potential Entrants
Barriers to Entry
“SAMPLE
CONDITIONS”
ECONOMIES OF SCALE Cost advantage
SWITCHING COSTS Computer software
PRODUCT Customer loyalty

DIFFERENTIATION
CAPITAL REQUIREMENTS Rent or sell photocopier
ACCESS TO DISTRIBUTION Secure distribution

Entry Barriers in Some Industries
“SAMPLE
CONDITIONS”
INDUSTRY BARRIER
Steel High fixed asset requirement
Beer Heavy advertising expenses
Petroleum Scarce raw materials
Electric Difficult government requirements
Appliance Credit sales required
Retail Auto Ability to handle trade-ins
Drug Products protected by patents
Network Television Control of key distribution channels

Substitute Products
“SAMPLE
CONDITIONS”
APPEAR
DIFFERENT
BUT
SATISFY SAME
NEED
Bargaining Power of Suppliers
“SAMPLE
CONDITIONS”
• Supplier industry
dominated by few firms
• Unique product lead to
high switching costs
• Substitutes not available
• Suppliers able to
integrate forward
Bargaining Power of Buyers
“SAMPLE
CONDITIONS”
• Purchase large proportion

of seller’s product
• Potential to integrate
backward
• Plenty of alternative buyers
• Little cost of changing
buyers
Other Operating Environment Forces
• Industry growth
• Shareholders’ actions
• Creditors’ actions
• Community perception
“Operating Forces” ANALYSIS
FORCES OPPORTUNITY THREAT
Rivalry among competing firms Competitors doing bad Competitors doing good
Potential entrants Ease of entry Entry difficult
Substitute products - Threat
Bargaining power of suppliers With control Without control
Bargaining power of buyers With control Without control
Industry growth Increasing Declining
Shareholders’ actions Positive Negative
Creditors’ actions Positive Negative
Community perception Positive Negative
B. OPERATING ENVIRONMENT
B.1 OPPORTUNITIES
B.1.1 RIVALRY AMONG COMPETING FIRMS
• The competitors currently have production and sales volumes that are lower and have
considerable lower US market share.
• Currently, Yamaha has seen decreasing motorcycle sales in Japan, the US, and Europe,
Yamaha recently has undertaken temporary factory shutdown in Japan and bonus pay
reductions at least through 2009.
B.1.2 INDUSTRY GROWTH
• The European heavyweight motorcycle market is roughly 80% of the size of US market.
B.1.3 COMMUNITY PERCEPTIONS
• Customer relate tot and find motivation in this American dream that became a reality.
B.2 THREATS
B.2.1 RIVALRY AMONG COMPETING FIRMS
• Yamaha is faring better in Southeast Asia and Latin America.
• Major competitors are based outside the US and generally have financial and marketing
resources that are higher.

FORCES OPPORTUNITIES THREATS
Rivalry among competing firms  

Potential entrants
Substitute products
Bargaining power of suppliers
Bargaining power of buyers
Industry growth 
Shareholders’ actions
Creditors’ actions
Community perception 
 - conditions
# 2C
2.C – Internal Environment
• Status of the firm’s resources and capabilities
• Conditions under the control of the firm
• Source of major problem (weaknesses)
• Strengths or Weaknesses
STRENGTH – capabilities that enhance the competitive position of the

firm or what the firm is good at doing (Competitive Asset) +
WEAKNESSES – unwanted conditions that weakens its competitive
position or what it lacks or does poorly (Liability) -
Functional Analysis
• MARKETING
• PRODUCTION/OPERATION
• FINANCE
• ORGANIZATION & MANAGEMENT

• HUMAN RESOURCES
• RESEARCH AND DEVELOPMENT

• INFORMATION SYSTEMS
Marketing Analysis
“SAMPLE
CONDITIONS”
Selection of specific areas for
MARKET marketing concentration and
POSITION expressed in terms of market,
product and geographic
Discover which niches to seek,

MARKET which products to develop and
SEGMENTATION ensure the firms products don’t
compete with each other
Combination of key variables to

MARKETING
effect demand and gain
MIX competitive advantage
Production/Operation Analysis
“SAMPLE
CONDITIONS”
QUANTITY
QUALITY
RIGHT COST
TIME
Finance Analysis
“SAMPLE
CONDITIONS”
RAISING OF CASH FROM
INTERNAL AND
EXTERNAL SOURCES
MONITORING OF FLOW
OF FUNDS TO
OPERATIONS
Ascertains the best

sources and use of funds,
and controls their use
Organization & Mgt. Analysis
“SAMPLE
CONDITIONS”
VISION/MISSION
CULTURE/VALUES
ORG’L. STRUCTURE
MANAGEMENT
Human Resource Analysis
“SAMPLE
CONDITIONS”
USE OF TEAMS
UNION RELATIONS
QUALITY OF WORK
LIFE
Research & Dev’t. Analysis
“SAMPLE
CONDITIONS”
• Product development –
improving product quality
• Process development –
improving manufacturing
processes to reduce costs
Information Systems Analysis
“SAMPLE
CONDITIONS”
• System technology –
manual, computer-based
• Office automation system
• Decision support system
• Electronic data sharing
• Internet & world wide web
C. INTERNAL ENVIRONMENT
C.1 STRENGTHS
C.1.1 MARKETING
• Harley’s suggested retail price for its motorcycles is generally higher than
its competitors’.
• In the first half of 2010, Harley-Davidson opened its first five dealerships in
India.
C.1.2 PRODUCTION OPERATIONS
• Harley is closing several facilities
C.1.3 ORGANIZATION & MANAGEMENT
• Harley’s mission statement is: We fulfill dreams through the experiences
of motorcycling, by providing to motorcyclists and to the general public
an expanding line motorcycles, branded products and services in
selected market segments.
C.2 WEAKNESSES
C.2.1 MARKETING
• Its motorcycle sales decreased 13% during the first two months of 2009.
FUNCTIONAL AREA STRENGTHS WEAKNESSES
Marketing  
Production/Operations 
Finance
Organization & Mgt. 
Human Resources
Research & Development
 - conditions
Evaluation of Strategic Factors
Management response to the strategic factors in light of their
perceived importance to the organization
EXTERNAL STRATEGIC EFE

FACTOR ANALYSIS MATRIX
INTERNAL STRATEGIC IFE

FACTOR ANALYSIS MATRIX
Evaluation of Strategic Factors
WEIGHT Perceived importance of

the strategic factor
“Industry-Based”
RATING Management’s response

to the strategic factor
“Company-Based”
Derivation of Strategic Factors
Influencing firm’s
1. Case Background List of SWOT Most Imp’t.
success (sales, mkt.
2. Environment Analysis Conditions Conditions
share, profit)
O/T
“STEEP FORCES”
Key Strategic External
B. Operating “4O/4T” D. EFE Matrix
Factors
Environment “Porter’s O/T
5-Forces”
C. Internal Environment S/W Key Strategic Internal
Factors “4S/4W” E. IFE Matrix
“Functional Areas”
External Factor Evaluation
Identify and prioritize key strategic factors identified in the
analysis of the general and operating environments
1. List the key external factors as identified in the analysis of the external environment.
List the opportunities first and then the threats.
2. Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (very
important). Weight indicates the relative importance of that factor to being
successful in the firm’s industry. Opportunities often receive higher weights, but
threats too can receive lighter weights if they are severe or threatening. Appropriate
weights can be determined by comparing successful with unsuccessful competitors.
The sum of all weights assigned to the factors must equal 1.0.
3. Assign ratings to each key external factor to indicate how effectively the firm’s
current strategies respond to the factor. Use (1) poor response, (2) average response,
(3) above average response, and (4) superior response.
4. Multiply each factor’s weight by its rating to determine a weighted score.
5. Sum the weighted scores for each variable to determine the total weighted score for
the organization.
“Weights are Industry-based whereas ratings are

company based.”
External Factor Evaluation (EFE) Matrix
• Test of present strategy/activities’ appropriateness to key strategic factors
KEY EXTERNAL WEIGHT RATING WEIGHTED RATING VALUES

FACTORS SCORE
OPPORTUNITIES (4) – superior response
1. (3) – above ave.
2. response
3. (2) – ave. response
4. (1) – poor response
THREATS Overall Rating:

1. >2.5 – high response
2. 2.5 – medium response
3. <2.5 – low response
4.
TOTAL (Overall Rating) Conclusion:
WEIGHTED Firm’s strategies
SCORE 1.00 - (responding or not)
External Factor Evaluation (EFE) Matrix
List most important Relative importance Action taken by Explain how
conditions or key of factor to firm’s firm relative to weight and rating
strategic factors (KSF) factor based on were estimated
success
case facts
WHAT? HOW? WHY?
FACTORS SCORE
1. KSF A 0.31 (3) – above ave. response
2. KSF B 0.16 (2) – ave. response
3. KSF C 0.10 (1) – poor response
4. KSF D 0.05

1. KSF E 0.20 >2.5 – high response
2. KSF F 0.08 2.5 – medium response
3. KSF G 0.06 <2.5 – low response
4. KSF H 0.04
TOTAL WEIGHTED (Overall Rating) Conclusion:

SCORE 1.00 - Firm’s strategies
(responding or not)
Industry Company
-based -based
Derivation of Key Strategic Factors
share, profit)
O/T
“STEEP FORCES”
Key Strategic External
B. Operating “4O/4T” D. EFE Matrix
Factors
Environment “Porter’s O/T
5-Forces”
KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED RATING VALUES
SCORE
OPPORTUNITIES:
1. Global markets are practically 0.31 4 1.24 (4) – superior

untapped by smokeless tobacco market response
(3) – above ave.
2. Increased demand caused by public 0.16 4 0.64 response
banning of smoking (2) – ave. response
3. More social pressure to quit smoking, 0.10 4 0.40 (1) – poor response
thus leading users to switch to
alternatives
4. Increasing health consciousness 0.05 3 0.15
THREATS:
1. Legislation against the tobacco 0.20 3 0.60 Overall Rating:

industry >2.5 – high
response
2. Production limits on tobacco output 0.08 2 0.16 2.5 – medium
response
3. Bad media exposure from the Federal 0.06 1 0.06 <2.5 – low response
Drug Administration
4. High taxes on tobacco products 0.04 3 0.12
TOTAL WEIGHTED SCORE 1.00 - 3.37
“Firm’s strategies take advantage of existing opportunities and minimize

potential adverse effects of threats.”
2.D - External Factor Evaluation Matrix
• Prepare proforma table with pre-computed weights

FACTORS SCORE
1. 0.31 (3) – above ave.
2. 0.16 response
3. 0.10 (2) – ave. response
4. 0.05 (1) – poor response

1. 0.20 >2.5 – high response
2. 0.08 2.5 – medium response
3. 0.06 <2.5 – low response
4. 0.04
WEIGHTED Firm’s strategies
SCORE 1.00 - (responding or not)
2 .E
#
Internal Factor Evaluation
Summarizes and evaluates major strengths and weaknesses in the
functional areas of business
1. List the key internal factors as identified in the analysis of company
environment. List the strengths first and then weakness.
2. Assign to each factor a weight that ranges from 0.0 (not important) to 1.0
(very important). Weight indicates the relative importance of that factor to
being successful in the industry. Regardless of whether a key factor is an
internal strength or weakness, factors considered to have the greatest effect
on organizational performance should ne assigned the highest weights. The
sum of all weights assigned to the factors must equal 1.0.
current strategies respond to the factor. Use (1) major weakness, (2) minor
weakness, (3) minor strength, and (4) major strength.
5. Sum the weighted scores for each variable to determine the total weighted
score for the organization.

company based.”
Internal Factor Evaluation (IFE) Matrix
• Test of present strategy/activities’ effect to key strategic factors
KEY INTERNAL WEIGHT RATING WEIGHTED RATING VALUES

FACTORS SCORE
S (4) – major strength
1. (3) – minor strength
2. (2) – minor weakness
3. (1) – major weakness
4.
W Overall Rating:
1. >2.5 – strong internal
2. position
3. 2.5 – average internal
4. position
<2.5 – weak internal
position
WEIGHTED 1.00 - Firm’s internal position
SCORE is (strong or weak)
Internal Factor Evaluation (IFE) Matrix
List most important Relative importance Action taken by Explain how
conditions or key of factor to firm’s firm relative to weight and rating
strategic factors (KSF) factor based on were estimated
success
case facts
WHAT? HOW? WHY?
FACTORS SCORE
OPPORTUNITIES (4) – major strength
1. KSF A 0.30 (3) – minor strength
2. KSF B 0.17 (2) – minor weakness
3. KSF C 0.11 (1) – major weakness
4. KSF D 0.04

1. KSF E 0.21 >2.5 – strong internal
2. KSF F 0.09 position
3. KSF G 0.05 2.5 – average internal
4. KSF H 0.03 position
position
TOTAL WEIGHTED (Overall Rating) Conclusion:
SCORE 1.00 - Firm’s internal position is
(strong or weak)
Industry Company
-based -based
share, profit)
“STEEP FORCES”
B. Operating
Environment “Porter’s
5-Forces”
C. Internal Environment S/W Key Strategic Internal
D. EFE Matrix
KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED RATING VALUES
SCORE
STRENGTHS:
1. Largest casino company in the 0.30 4 1.20 (4) – major strength
United States (3) – minor strength
2. Room occupancy over 95% in Las 0.17 4 0.68 (2) – minor weakness
Vegas (1) – major weakness
3. Increasing free cash flows 0.11 3 0.33
4. Buffets at most facilities 0.05 3 0.12
WEAKNESSES:
1. Little diversification 0.21 2 0.42 Overall Rating:
>2.5 – strong internal
2. Recent loss of joint ventures 0.09 1 0.09 position
2.5 – average internal
3. Most properties location in Las 0.05 2 0.10 position
Vegas <2.5 – weak internal
4. Limited parking space 0.03 1 0.03 position
TOTAL WEIGHTED SCORE 1.00 - 2.97
“Weighted score of 2.97 – firm’s internal position is strong.”

2.E - Internal Factor Evaluation (IFE )Matrix

FACTORS SCORE
OPPORTUNITIES (4) – major strength
1. 0.30 (3) – minor strength
2. 0.17 (2) – minor weakness
3. 0.11 (1) – major weakness
4. 0.04

1. 0.21 >2.5 – strong internal
2. 0.09 position
3. 0.05 2.5 – average internal
4. 0.03 position
position
WEIGHTED 1.00 - Firm’s internal position is
SCORE (strong or weak)
IL E
.F O F
# 2 P R
V E
IT I X
T RI
PE A T
OM M
C
Competitive Profile Matrix
CORPORATE
Company
BUSINESS comparison against
two (2)
major competitors, if
FUNCTIONAL
supported by
qualitative or
quantitative data in
case facts
Weights and total weighted scores in both a CPM
and EFE have the same meaning
CPM Features (different from EFE):

• Critical success factors are broader;
and even focus on internal data
• Critical success factors not grouped
into opportunities and threats
• Ratings and total weighted score for
rival firms can be compared
Identifies a firm’s major competitors and their particular strengths and
weaknesses in relation to the firm’s strategic position
1. List the critical success factors as identified in the analysis of industry
environment.
2. Assign to each factor a weight that ranges from 0.0 (not important) to 1.0
(very important). Weight indicates the relative importance of that factor to
being successful in the industry. Regardless of whether a key factor is an
internal strength or weakness, factors considered to have the greatest effect
on organizational performance should ne assigned the highest weights. The
sum of all weights assigned to the factors must equal 1.0.
current strategies respond to the factor. Use (1) major weakness, (2) minor
weakness, (3) minor strength, and (4) major strength.
5. Sum the weighted scores for each variable to determine the total weighted
score for the organization.

company based.”
Include only critical success Relative importance of Action taken by firm Explain how weight and
factors with qualitative or factor to firm’s success relative to factor based rating were estimated
quantitative data to support on case facts
comparative rating values
WHAT? HOW? WHY?

COMPANY COMPETITOR 1 COMPETITOR 2
CRITICAL SUCCESS
WEIGHT
FACTORS Weighted Weighted Weighted
Rating Rating Rating
Score Score Score
1. CSF A 0.53
2. CSF B 0.24
3. CSF C 0.15
4. CSF D 0.08
OVERALL SCORE 1.00
Industry Company
-based -based
Rating Values: 4 = major strength, 3 = minor strength

2 = minor weakness, 1 = major weakness
• Determine areas for improvement

CRITICAL SUCCESS WEIGHT
Score Score Score
1. MARKET SHARE 0.53 3 1.59 2 1.06 2 1.06
2. PRICE
COMPETITIVENESS 0.24 1 0.24 4 0.96 1 0.24
3. FINANCIAL POSITION 0.15 2 0.30 1 0.15 4 0.60

4. PRODUCT QUALITY 0.08 4 0.32 3 0.24 3 0.24
OVERALL SCORE 1.00 - 2.45 - 2.41 - 2.14

Conclusion: Company is the Strongest.

“Numbers reveal the relative strength of firms, their implied precision is an illusion. The aim is to
assimilate and evaluate information in a meaningful way that aids in decision making.”
• Consider critical success factors with case facts
Critical Success Factors

MANUFACTURING-RELATED • Low-cost production efficiency
• Quality of manufacture
• High utilization of fixed assets
• Low-cost plant locations
• High labor productivity
• Manufacturing flexibility
DISTRIBUTION-RELATED • Strong network of distributors/dealers

• Ample sample on retailers shelves
• Company-owned retail outlets
• Low distribution costs
• Fast delivery
MARKETING-RELATED • Well-trained effective sales force

• Dependable service/technical assistance
• Breadth of product line and product selection
• Merchandising skills
• Attractive styling/packaging
• Customer guarantees and warrantees
• Consider critical success factors with case facts
Critical Success Factors

TECHNOLOGY-RELATED • Scientific research expertise
• Production process innovation capability
• Product innovation capability
SKILLS-RELATED • Superior talent

• Quality control know-how
• Design expertise
• Ability to come up with clever, catchy ads
• Ability to get newly R&D developed products into market
very quickly
ORGANIZATIONAL CAPABILITY • Superior information systems

• Ability to respond quickly to shifting markets
• More experienced and managerial know-how
OTHERS • Favorable image/reputation with buyers

• Overall low cost, convenient locations
• Pleasant, courteous employees
• Access to financial capital
2.F - Competitive Profile Matrix

CRITICAL SUCCESS
WEIGHT
Score Score Score
1. 0.53
2. 0.24
3. 0.15
4. 0.08
OVERALL SCORE 1.00

2 . G S
# I ON
P T
U M
S
AS
Assumptions
• Conditions based on case facts that must exist for firm to succeed
• Assumptions formulated as positive conditions
“Assumptions”
GENERAL General Environment
Stability
OPERATING
Industry Growth
Prospects
INTERNAL Company’s Competitive

Position
Positive conditions:
Assumptions
OPPORTUNITIES/
STRENGTHS
“STEEP” Forces
Socio-Cultural-Demographic, General Environment
Technological, Economic, Stability
Environment, Politico-Legal
“Porter’s 5 & Other Forces”

Rivalry of competitors, Potential
entrants, Substitute products, Industry Growth Prospects
bargaining power of suppliers/buyers,
Industry growth,
Shareholders/Creditors’ actions,
Community perception
Marketing, Production, Finance, Company’s Competitive
Orgn. & Mgt., Human Resources, Position
Research & Devt., Accounting,
Information Systems
1. Case Background List of SWOT Most Imp’t. Influencing firm’s
2. Environment AnalysisConditions Conditions success (sales, mkt.
share, profit)
“STEEP FORCES” O/T
B. Operating Environment Key Strategic External
“4O/4T” D. EFE Matrix
“Porter’s 5-Forces” O/T Factors
“Functional Areas” S/W Key Strategic Internal
G. Assumptions
G.1 General Environment stability:
The __(STEEP)__ environment/s is/are stable since ___ (EFE KSF –Gen. “O”)___.
G.2 Industry Growth Prospects:

The market presents a promising opportunity due to __(EFE KSF-Oper. “O”)___.
G.3 Company’s Competitive Position:

The competitive strengths of the company are ___ (IFE KSF – “45”)_____.
2.G – Assumptions
• Develop assumptions based on SWOT - EFE/IFE findings
G.1 General Environment Stability

The __(STEEP)__ environment/s is/are stable since ___ (EFE KSF –Gen. “O”)___.
The economic and political environments are stable since the China’s economy
is growing and there are favorable regulations.

The market presents a promising opportunity due to __(EFE KSF-Oper. “O”)___.
The market presents a promising opportunity due to the 5% projected industry
growth and the closure of competitors.
G.3 Company’s Competitive Position:

The competitive strengths of the company are ___ (IFE KSF – “45”)_____.
The competitive strengths of the company are high quality products, affordable
price, accessible and with aggressive promotions.
3 e n t
# e m
t a t
m S
b l e
P r o
Problem Statement
• Identify the major problem supported with evidence
MAJOR PROBLEM • An unsolved difficulty or obstacle

encountered in reaching objectives
or optimizing performance
Problem Source:
• Recognition of
performance gap
Problem Statement
• Purpose – Why is there an inquiry?
• Subject – What is to be investigated?
• Place – Where did the problem occur?
• Time – when did the problem occur?
• Person – Who will be responsible?
Where? ---------- Company

Who? ------------- Viewpoint
Why? ------------- Best Strategy
When? ----------- Year
What? ------------ Major Problem
Problem Statement
Process of Analysis • List all problems and other issues in the
different functional areas
• Analyze cause-and-effect interactions to
reveal and delimit the specific minor
problems
• Group the relevant minor problems into
a single category – major problem
• State the problem in the declarative
form
• Use the listed problem issues as
evidences of the existence of the major
problem
• Only ‘ONE MAJOR PROBLEM’ validated
from the list of weaknesses
Problem Statement
CAUSES EFFECTS NOT PROBLEMS
BUT EFFECTS:
• Low sales
• Low market share
• Low profit
EVIDENCES
(Problem Issues)
Customers
3-Cs
of
MKTG
Company Competition
Major Problem
• PRESENTED IN THE INITIAL PARAGRAPHS OF THE FIRST
PAGE
• REITERATED IN THE FINAL PARAGRAPHS OF THE LAST
PAGE
HARLEY-DAVIDSON, INC - 2009
CASE Title
reflect the
“TIMEFRAME”
3. – Problem Statement
• State the major problem in the business
policy case and support with evidences
The major problem of the business policy case is

(negatively-worded phrase), as evidenced by the
following:
a.
b.
c. List of Problem Issues and IFE KSF – 4 weaknesses
d.
e.
on
4 A cti
# e s o f
ur s
C o
t ive
r na
lt e
A
Alternative Courses of Action
CORPORATE
CORPORATE STRATEGY
BUSINESS
(ACA)
FUNCTIONAL ACTION PLAN

• Potential solutions to major
problem
• Able to stand alone as
possible solution
• Align with the firm’s vision,
mission, goals, objectives
• Formulated as a
‘CORPORATE STRATEGY’,
not a functional strategy “Formulation of the
• Suggest at least three (3) appropriate ACA should be guided
alternative courses of action by the Strategic Factor Evaluation”
Derivation of ACAs
1. Case background
A. General Environment List of SWOT
B. Operating Environment Conditions
D. EFE Matrix
Key Strategic External Internal
E. IFE Matrix
Factors/Scores (4O/4T) (4S/4W)
G. Assumptions “DERIVE”
H. TOWS Matrix Potential ACAs
I. Internal-External Matrix (Strategies)
J. Grand Strategy Matrix
K. Summary of Strategies
3 ACAs
e s
t e gi
S t ra
e s s
s i n
Bu
Business Strategies
INTEGRATION • Allow firm to gain control over
distributors, suppliers and competitors
INTENSIVE • Require intensive efforts to improve
firm’s competitive position with
existing products
DIVERSIFICATION • Becoming less popular as organizations

are finding it more difficult to manage
diverse business activities
DEFENSIVE • Protective strategies
Business Strategies
FORWARD Distributors
OWNERSHIP BACKWARD Suppliers

AND CONTROL
HORIZONTAL Competitors
FORWARD • Gaining ownership or • Computer company opening

increased control over its chain of retail computer
distributors or retailers stores
HORIZONTAL • Gaining ownership or • Readers Digest acquired

increased control over Reiman Publication
competitors
BACKWARD • Gaining ownership or • Financing firms are

increased control of a firm’s outsourcing their technology
suppliers operations to firms such as
IBM
Integration Strategies
OWNERSHIP
AND CONTROL Distributors
FORWARD
HORIZONTAL
Company Acquire/Merge
(Manufacturer) Competitors
BACKWARD
Suppliers
Integration Strategies
Conditions for effective implementation
FORWARD BACKWARD HORIZONTAL

• Expensive, unreliable • Expensive, unreliable • Gain monopolistic edge in
distributors suppliers an area
• Limited availability of • Few suppliers, many • Competing in a growing
quality distributors competitors industry
• Capability to manage • Capability to manage • Capability to manage an
distribution system procurement system expanded organization
• Advantages of stable • Advantages of stable • Advantages pf increased
production prices economies of scale
• High profit margin of • High profit margin of • Possess a resource that
distributors suppliers competitors need
Intensive Strategies
MARKET Market share for
PENETRATION present products
PRODUCT’S
COMPETITIVE MARKET New area for
POSITION DEVELOPMENT present products
PRODUCT Improved or new

DEVELOPMENT products
MARKET • Seeking greater market share • American Express launched a

PENETRATION for present products through $100M advertising campaign
greater marketing efforts
MARKET • Introducing present products • African Breweries is trying to

DEVELOPMENT in new geographic area acquire a foreign brewing
company for $5B
PRODUCT • Seeking increased sales by • Brewing company developed

DEVELOPMENT improving present products vodka-flavored beverage
or developing new ones
PRODUCT’S
COMPETITIVE
POSITION
PRODUCT
EXISTING NEW
MARKET PRODUCT
EXISTING PENETRATION DEVELOPMENT
MARKET MARKET Diversification
NEW DEVELOPMENT
MARKET MARKET PRODUCT
PENETRATION DEVELOPMENT DEVELOPMENT
• Current market not • Reliable, inexpensive • Successful products in
saturated with products channels of distribution the maturity stage
• Potential increase of • Efficient company • Rapid technological
customer’s usage rate operation developments in industry
• Declining shares of rivals • New untapped or • Competitors offer better
but increasing industry unsaturated markets quality products
sales exist • Competing in a high-
• Historically high dollar • Capability to manage growth industry
sales and marketing expanded operations • Strong research and
expenditures • Excess production development capabilities
• Advantages of increased capacity and
economies of scale globalization of
industry
Diversification Strategies
Add new related
CONCENTRIC products
NOT SINGLE
INDUSTRY- New, unrelated
HORIZONTAL products to present
DEPENDENT
buyers
CONGLOMERATE Add new,
unrelated products
CONCENTRIC • Adding new but related • Hotels selling time shares to

products and services fill rooms – selling two floors
HORIZONTAL • Adding new, unrelated • Baseball team merging

products or services to business operations with
present customers basketball team
CONGLOMERATE • Adding new, unrelated • Telecommunications firm now

products own operations in cable, real
estate, publishing
NOT SINGLE
INDUSTRY-
DEPENDENT
NEW PRODUCT
RELATED UNRELATED
CONCENTRIC HORIZONTAL
EXISTING
MARKET - CONGLOMERATE
NEW
CONCENTRIC HORIZONTAL CONGLOMERATE
• Competing in a no- • Competing in a • Declining sales and
growth or slow-growth competitive and/or no- profits of basic industry
industry growth industry • Opportunity to purchase
• Enhance sales of current • New, unrelated an attractive new
products products increased firm business
• New, related products revenues • Existing markets for
offered at competitive • Distribution system can present products
prices market new products saturated
• Present products in the • Counter-cyclical sales • Financial synergy
decline stage patterns of new between acquired and
• Strong management products acquiring firms
team • Has capital and
managerial talent
Defensive Strategies
Form separate firm for
JOINT VENTURE
cooperative purposes
Regroup by cost and

RETRENCHMENT
asset reduction
PROTECTIVE
DIVESTITURE Sell a division or part of
an organization
LIQUIDATION Sell all of the company’s

assets
JOINT VENTURE • Two or more sponsoring firms • Include R&D partnerships, cross-
forming a separate company manufacturing, joint bidding
RETRENCHMENT • Regrouping through cost and asset • Netphone cut 110 jobs, as part of
reduction to reverse declining sales restructuring plan
and profits
DIVESTITURE • Sell a division or part of an • Tyco Intl. selling off its plastics
organization division, accounting 4% of Tyco’s
sales
LIQUIDATION • Sell all of the company’s assets, in • Merchandise closing all its 216
parts, for their tangible worth stores in 30 states
Defensive Strategies
JOINT VENTURE RETRENCHMENT DIVESTITURE LIQUIDATION
• Competencies of • With • Failure in • Failure in
firms competence but retrenchment retrenchment
complement failed to meet strategy and divestiture
each other goal • Division affects strategies
• Domestic firm • A weaker poor • Minimize losses
with a foreign competitor in performance of by selling assets
company the industry firm • Firm’s only
• Two or more • Failed to use • Division misfit alternative is
firms competing opportunities/ with rest of firm bankruptcy;
with a large firm strengths and in terms of liquidation means
• Project requires minimize different markets, of obtaining the
resources threats/ customers, needs greatest possible
weaknesses • Division’s needs cash
• Large more than • Raise capital by
organization company’s liquidating
capacity divisions
Business Strategies (ACAs)
INTEGRATION • Forward, backward, horizontal
integrations
INTENSIVE • Market penetration, market

development, product development
DIVERSIFICATION • Concentric, horizontal, conglomerate

diversification
DEFENSIVE • Joint venture, retrenchment,

divestiture, liquidation strategies
REFERENCE TABLE OF STRATEGIES:

STRATEGY DEFINITION CONDITIONS FOR EFFECTIVE
IMPLEMENTATION
A. Integration
1. Forward
2. ………………..
ie s
t e g
t r a
t e S n
r a a t i o
rp o u l
Co r m
Fo
Strategy Formulation
Development of long-range
plans for effective management
of environmental variables
VISION
MISSION
GOALS
OBJECTIVES
STRATEGIES
POLICIES
Developing Strategy Vision
Vision – dream created during
waking hours
“THE WHAT”
• What do we want to
create?
• What is the realistic,
credible, attractive
future for our
organization?
• What recognizable
conditions will be in
place several years
from now?
Strategy Vision
• What we want to become
• Articulation of destination
• Better, more successful future
• A word picture of what we stand for
• How we want to work with our clients
• How we want to work with each other
“Elements of Strategic Vision”
CHANGE
GOAL
PEOPLE
Developing Strategy Mission
“THE WHy”
• Why do we exist?
• Who are our primary clients?
• What are their needs and demands which
we are attempting to fill?
• What are our major products or services?
• What technologies or methods will we
use?
• What are our core competencies?
• What contribution is our organization
making to society?
• What is the core purpose for which we
were created?
Mission Statement
Declaration of attitude and outlook
NARROW Defines organization’s

primary business but limits
scope of activities
ELECTRONIC DATA SYSTEMS:

Designing and operating
information systems for both
public and private organizations
Mission Statement
BROAD Widens the scope in products,

markets, technologies but no
clear business emphasis
GENERAL MOTORS:
To provide products and services
of such quality that our customers
will receive superior value, our
employees and business partners
will share in our success and our
stockholders will receive a
sustained, superior return on their
investment.
Mission Statement
Good statement generates the impression that a firm is successful, knows
where it is going, and is worthy of one’s time, support and investment
CUSTOMERS Who are the organization’s clients?

PRODUCTS/SERVICES What are the major products/services?
MARKETS Where does the organization compete geographically?
TECHNOLOGY What is the basic technology?
CONCERN What is the attitude towards economic/higher goals?
PHILOSOPHY What are the fundamental beliefs, values, aspirations?
SELF-CONCEPT What are the major strengths and competitive advantage?
PUBLIC IMAGE What is the desired public image?
EFFECTIVENESS Does the mission address the desires of stakeholders?
INSPIRING QUALITY Does the mission motivate and stimulate its reader to
action?
Mission Statement
Our mission is to advance the quality of life by delivering the best solutions to the
communications-based needs of out subscribing public.
We take the lead of the industry as the service provider of choice. We secure our competitive
advantage by packaging solutions enhanced by pioneering innovations in service delivery,
customer care and best appropriate technologies.
We acknowledge the importance of our key stakeholders. In fulfilling our mission we create value
for:
Customers: Customer Satisfaction is the key to our success. We help individuals improve their way
of life and organizations do their business better.
Stakeholders: Our business is sustained by the commitment of Ayala Corporation and Singapore
Telecom International. We take pride and build on the value of shareholders provide. In return,
we maximize the value of their investments.
Employees: Our human resources are our most valuable assets. We provide gainful employment
that promotes the dignity of work and professional growth and thus attract and retain best-in-
market talent.
Community: Community support is vital. We will act as a responsible citizen in the communities in
which we operate.
Government: We are the partners of government in nation building. We support and participate
in the formation of policies, programs and actions that promote fair competition, judicious
regulation and economic prosperity.
The pursuit of our mission is guided by the company’s vision and actualizes our corporate values.
Setting Goals
What one wishes to accomplish with no quantification of what is to
be achieved, and no time horizon for completion
OPEN-ENDED STATEMENT
• What long-term results do we want to achieve?
• In what critical areas do we want to produce
results?
• What will be the potential results that will move
the organization closer to its vision and mission?
Setting Goals
• Performance targets
relating to long-term
endeavors
• What organization want to
have and become in the
future
• Broad, general statements PROFITABILITY
of what the organization is EFFICIENCY
trying to attain GROWTH
SHAREHOLDER WEALTH
RESOURCE UTILIZATION
EMPLOYEES’
CONTRIBUTION
SOCIETY’S CONTRIBUTION
MARKET LEADERSHIP
Setting Objectives
What is to be accomplished by when, and should
be quantified
END RESULTS OF
PLANNED ACTIVITY
(SMART)
Setting Objectives
NET PROFITS
LOW COSTS
INCREASE IN SALES
DIVIDENDS
ROI
WAGES
TAXES PAID
MARKET SHARE
Crafting Strategies
Comprehensive plan how the
organization will achieve its mission,
goals and objectives
• Means by which long-
“THE HOW” term goals will be
• How do we intend to achieved
• Series or groups of
get there?
activities that are carried
• How are we going to
out by organization
achieve our purpose? members to reach the
• What will be the desired goals
means for producing • General approach or
the long-term results? major course of action for
achieving the purpose of
the organization
Strategy Evaluation
Is it right to use this kind of

APPROPRIATENESS
strategy?
Will this strategy make enough of a

ADEQUACY difference to make it worth doing?
How successful will this strategy be in

EFFECTIVENESS reaching the stated goals?
How costly is the strategy compared

EFFICIENCY to the benefits obtained?
What good or bad side effects might

SIDE EFFECTS occur as a result of this strategy?
Strategy Evaluation
Is it right to use this kind of

APPROPRIATENESS
strategy?
External Internal
Conditions STRATEGY
Conditions
Derivation of Potential Strategies
1. Case background
D. EFE Matrix
E. IFE Matrix
3 ACAs
. A
#4 TR IX
M A
WS
TO
TOWS Matrix
Matching of key internal and external factors
STRENGTHS WEAKNESSES
(S) (W)
OPPORTUNITIES SO Strategies: WO Strategies:

(O) Use strengths to take Take advantage of
advantage of opportunities opportunities by
overcoming weaknesses
THREATS ST Strategies: WT Strategies:

(T) Use strengths to avoid or Defensive tactics directed
reduce the impact of to minimize weaknesses
threats and avoid threats
TOWS Matrix
• Matching of EFE?IFE key strategic factors
• Open-ended strategy formulation
“IFE KSF”
1. 1.
2. 2.
3. 3.
4. 4.
OPPORTUNITIES
1.
2.
3.
4. FORMULATE 2-3
“EFE KSF” THREATS
STRATEGIES
1. ONLY
2.
3.
4.
1. Case background
D. EFE Matrix
E. IFE Matrix
3 ACAs
1. Strong brand image 1. Too many brands
2. Strict quality control 2. Different level franchisers
3. Strong culture of 3. Lack of global marketing
innovation experience
4. Good corporate image 4. Limited promotion
OPPORTUNITIES SO Strategies: WO Strategies:
1. Growing China economy 1. Expand domestic market 1. Improve product structure
2. Unique brewing processes (S1, S2, O3, O4) to gain more market shares
3. Political stability 2. Introduce new product (W1, O4)
4. Large population for regional market (S1,
S3, O1)
THREATS ST Strategies: WT Strategies:
1. Rising costs of raw 1. Improve products’ cost by 1. Strengthen promotion to
materials combining traditional with absorb and educate excellent
2. Environment/water modern technology (S3, T1) franchisers (W2, T4)
pollution
3. Local protectionism
4. Increased competitors ads
TOWS STRATEGIES
NOT TO BE PRESENTED IN
DETAILS
OPPORTUNITIES
1. Growing China economy MARKET DEVELOPMENT
2. Unique brewing processes (S1, S2, O1, O4)
MARKET PENETRATION
3. Political stability (W1, O4)
4. Large population PRODUCT DEVELOPMENT
(S1, S3, O1)
THREATS
1. Rising costs of raw
materials
PRODUCT DEVELOPMENT MARKET PENETRATION
2. Environment/water
(S3, T1) (W2, T4)
pollution
TOWS STRATEGIES
NOT TO BE PRESENTED IN
DETAILS
TOWS Matrix
• Prepare proforma table
1. 1.
2. 2.
3. 3.
4. 4.
OPPORTUNITIES
1.
2.
3.
4.
THREATS
1.
2.
3.
4.
. B a l
#4 t e r n
l - E x
r n a x
t e t r i
In M a
Internal-External Matrix
Key Dimensions:
• IFE total weighted score on the x-axis
• EFE total weighted score on the y-axis
• Recommended strategies at intersection point
1. Grow and Build
2. Hold and Maintain
3. Harvest and Digest
IFE TOTAL WEIGHTED SCORE

Strong Average Weak
(3.0-4.0) (2.0-2.99) (1.0-1.99)
High I II III
EFE (3.0-4.0)
TOTAL Medium
IV V VI
WEIGHTED (2.0-2.99)
SCORE Low
VII VIII IX
(1.0-1.99)
Grow and Build (cell I, II, IV) – intensive, integrative

Hold and Maintain (cell III, V, VII) – market penetration, product dev’t.
Harvest and Digest (cell VI, VIII, IX) – retrenchment, divestiture
1. Case background
D. EFE Matrix
E. IFE Matrix
3. Problem Statement EFE = 3.37
4. Alternative Courses of Action IFE = 2.97
3 ACAs
• Plotting of EFE/IFE total weighted score EFE = 3.37
• Close-ended strategy formulation IFE = 2.97

Strong Average Weak
(3.0-4.0) (2.0-2.99) (1.0-1.99)
High
I II III
(3.0-4.0)
EFE
TOTAL Medium IV V VI
WEIGHTED (2.0-2.99)
SCORE
Low
VII VIII IX
(1.0-1.99)

4.B - Internal-External Matrix

Strong Average Weak
(3.0-4.0) (2.0-2.99) (1.0-1.99)
High I II III
EFE (3.0-4.0)
TOTAL Medium IV V VI
WEIGHTED (2.0-2.99)
SCORE Low
(1.0-1.99) VII VIII IX

. C tr i x
# 4 M a
e g y
r a t
St
a n d
Gr
Grand Strategy Matrix
• Tool for formulating alternative strategies based on two evaluate
dimensions – competitive position and market growth
QUADRANT II RAPID MARKET GROWTH QUADRANT I
1. Market development 1. Market development

2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION 1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification POSITION
3. Horizontal diversification 3. Conglomerate diversification
4. Conglomerate diversification 4. Joint venture
5. Divestiture
6. Liquidation
QUADRANT III QUADRANT IV

SLOW MARKET GROWTH
• X-axis determined the IFE score
• Y-axis decided thru Assumption G.2 Industry Growth Prospects’ effect to product demand
• Close-ended strategy formulation

WEAK STRONG
POSITION 1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification POSITION
5. Divestiture
6. Liquidation
QUADRANT III QUADRANT IV

SLOW MARKET GROWTH
1. Case background
D. EFE Matrix
E. IFE Matrix
3 ACAs
The market presents a promising opportunity due to the 5% projected industry growth and the close of
competitors.
“Analyze and decide effect of assumption to product’s demand

RAPID MARKET GROWTH
QUADRANT II QUADRANT I

WEAK STRONG
POSITION POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
5. Divestiture
6. Liquidation
QUADRANT III SLOW MARKET GROWTH QUADRANT IV

• Firms need to evaluate present approach • Firms in excellent strategic position

• Although industry growing, unable to • Strategy on continued concentration on
compete effectively, thus need changes in current markets and products
competitiveness • Unwise to shift from established competitive
• First option is intensive strategy due to rapid- advantages
market growing industry • If excessive resources, integration effective
• If lacking competitive advantage – horizontal • If committed to single product, may be take
• Last resort is divestiture or liquidation to concentric to reduce risk with narrow
provide funds need to acquire other product line
businesses, buy stocks
WEAK STRONG
COMPETITIVE
COMPETITIVE
POSITION
POSITION
• Firms compete in slow-growth industries and • Firms in strong competitive position but are in
weak competitive positions slow-growth industry
• Must make drastic changes quickly to avoid • Have strength to launch diversified programs
further decline and possible liquidation into more promising growth areas
• First pursue extensive cost and asset • Have high cash-flow levels and limited internal
reduction (retrenchment) growth needs
• Alternative is to shift resources away from the • Pursue diversification strategies
current business into different areas • May also undertake joint venture
(diversify)
• If all fails, final option are
divestiture/liquidation

4.C – Grand Strategy Matrix

WEAK STRONG
POSITION 1. Retrenchment 1. Concentric diversification POSITION
5. Divestiture
6. Liquidation

. D i e s
# 4 t e g
t r a
r y S
m a
Su m
Summary of Strategies
• Identify 3 ACAs with highest totals
STRATEGY OPTIONS TOWS IEM GSM TOTAL
A. INTEGRATION STRATEGIES
1. Forward Integration
2. Backward Integration
3. Horizontal Integration
B. INTENSIVE STRATEGIES
1. Market Penetration
2. Market Development
3. Product Development
C. DIVERSIFICATION STRATEGIES
1. Concentric Diversification
2. Conglomerate Diversification
3. Horizontal Diversification
D. DEFENSIVE STRATEGIES
1. Joint Venture
2. Retrenchment
3. Divestiture
4. Liquidation
1. Case background
D. EFE Matrix
E. IFE Matrix
3 ACAs
TOWS Matrix
OUTPUT OF ANALYSIS
OPPORTUNITIES
1. Growing China economy MARKET DEVELOPMENT
2. Unique brewing processes (S1, S2, O1, O4)
MARKET PENETRATION
3. Political stability (W1, O4)
4. Large population PRODUCT DEVELOPMENT
(S1, S3, O1)
THREATS
1. Rising costs of raw
materials
2. Environment/water PRODUCT DEVELOPMENT MARKET PENETRATION
pollution (S3, T1) (W2, T4)
Internal-External Matrix OUTPUT OF ANALYSIS

Strong Average Weak
(3.0-4.0) (2.0-2.99) (1.0-1.99)
High
I II III
(3.0-4.0)
EFE
TOTAL Medium
IV V VI
WEIGHTED (2.0-2.99)
SCORE
Low VII VIII IX
(1.0-1.99)

RAPID MARKET GROWTH
QUADRANT II QUADRANT I

WEAK STRONG
POSITION POSITION
1. Retrenchment 1. Concentric diversification
5. Divestiture
6. Liquidation

Summary of Strategies
• Identify 3 ACAs with highest totals
1. Forward Integration 1 1 2
2. Backward Integration 1 1 2
3. Horizontal Integration 1 1 2
1. Market Penetration 1 1 1 3
2. Market Development 1 1 1 3 3 ACAs
3. Product Development 1 1 1 3
1. Concentric Diversification 1 1
SUMMARY
RESULTS:
3. Horizontal Diversification • Less 3 ACAs –
D. DEFENSIVE STRATEGIES add in TOWS
1. Joint Venture • More than 3
ACAs –
2. Retrenchment delete
3. Divestiture
4. Liquidation
4.D - Summary of Strategies
1. Forward Integration
2. Backward Integration
3. Horizontal Integration
1. Market Penetration
2. Market Development
3. Product Development
1. Concentric Diversification
3. Horizontal Diversification
D. DEFENSIVE STRATEGIES
1. Joint Venture
2. Retrenchment
3. Divestiture
4. Liquidation
• Discussion guide for the formulation of the appropriate courses of action
The proposed courses of action (ACA) were identified based from the
Strategic Factor Analysis, Competitive Profile Matrix, TOWS Matrix,
Internal-External Matrix and further validated through the evaluative
dimensions of the Grand Strategy Matrix. The Strategic Factor Analysis
revealed that ________. The Competitive Profile Matrix indicated that
_____. TOWS Matrix pointed out that _______. The Internal-External
Matrix revealed that ________. Moreover, the analysis of the market
growth and competitive position of the company from the Grand
Strategy Matrix indicated that the appropriate strategies that must be
pursued by the company fell under Quadrant (?). Theses findings could
be attributed to the _________ (results of the analysis of the market
growth and competitive strength of the company) _________. In
totality, the Summary of Strategies Matrix confirmed that the most
feasible alternatives are A, B, and C. therefore strategies A, b & c woud
be best addressed the major problem of the firm under study.
#5 R N ATIV
E &
ALT E
DE D N
M E N P LA
O M O N
REC AC T I
Strategy Evaluation
STAGE 1:
• Strategic Factor Evaluation (EFE/IFE Matrix)
• Competitive Profile Matrix
STAGE 2:
• TOWS Matrix
• Internal-External Matrix
• Grand Strategy Matrix
STAGE 3:
Quantitative
Strategic Planning
Matrix
# 5. A lan n in g
gi c P
r
t a te
i v e S
ti t a t ri x
n Ma t
Qua
#5.A – Quantitative Strategic Planning Matrix
• Determine the relative attractiveness of feasible alternative actions
STRATEGY A STRATEGY B STRATEGY C
KEY STRATEGIC FACTORS WEIGHT
Rating Weighted Rating Weighted Rating Weighted
Score Score Score
OPPORTUNITIES:
1.
2.
3.
4.
THREATS:
1.
2.
3.
4.
SUB-TOTAL 1.00
STRENGTHS:
1.
2.
3.
4.
WEAKNESSES:
1.
2.
3.
4.
SUB-TOTAL 1.00
OVERALL SCORE - - - -
1. Case background
D. EFE Matrix
E. IFE Matrix
K. Summary of Strategies 3 ACAs
5. Recommended Alternative & Action Plan
L. Quantitative Strategic Planning Best ACA
Matrix
M. Action plan
Quantitative Strategic Planning Matrix
1. Make a list of the firm’s key external opportunities/threats and internal
strengths/weaknesses. Information should be taken directly from the
Strategic Factor Evaluation.
2. Assign weights to each key external and internal factor. These weights are
identical to those in the Strategic Factor Evaluation.
3. Identify corporate strategies that eh firm should consider implementing.
Consider the results of the Summary of Strategies Matrix.
4. Determine the Attractiveness Score Rating, which is the numerical value
that indicate the relative attractiveness of each strategy. Analyze by asking
“Does this factor affect the choice of strategies being made?” If answer is
‘yes’ assign rating but if ‘no’ don’t assign rating. The range for
attractiveness score: (1) not attractive, (2) somewhat attractive, (3)
reasonably attractive, and (4) highly attractive.
5. Compute the Total Attractiveness Score, or weighted score.
6. Obtain the Sum Total Attractiveness Score, or the overall weighted score.
Weighted Weighted Weighted
Rating Score Rating Score Rating Score
OPPORTUNITIES:
1.
2.
3.
EFE external factors ? ? ?
4. and weights
THREATS:
1.
2.
3.
EFE external factors
4. and weights
SUB-TOTAL 1.00
STRENGTHS:
1.
2.
3.
IFE internal factors
4. and weights
WEAKNESSES:
1.
2.
3.
IFE internal factors
4. and weights
SUB-TOTAL 1.00
Rating Values: 4 = highly attractive, 3 = reasonably attractive

2 = somewhat attractive 1 = not attractive
• Test of ACA’s appropriateness to key
strategic factors
“BEST”
External Internal
STRATEGY
Conditions Conditions
“APPROPRIATE”
EFE KSF: IFE KSF:
“O/T” “S/W”
Descriptive Rating:
Attractive = Appropriate
= Suited
= Fit
Strategic alternatives
4. Determine the WEIGHT
KEY FACTORS Market Penetration Market Development
Attractiveness Score
Rating Weighted Rating Weighted
Rating, which is the Score Score
numerical value that OPPORTUNITIES:
indicate the relative
1. Growing China economy 0.21 4 0.84 2 0.42
attractiveness of each 2. Unique brewing processes 0.13 4 0.52 2 0.26
strategy. Analyze by 3. Political stability 0.12 - - - -
4. Low liquor consumption 0.08 4 0.32 3 0.24
asking “Does this
factor affect the THREATS:
choice of strategies 1. Rising costs of raw materials 0.19 - - - -
being made?” If 2. Environment/water pollution 0.11 - - - -
3. Local protectionism 0.09 4 0.36 2 0.18
answer is ‘yes’ assign 4. Increased competitors ads 0.07 3 0.21 3 0.21
rating but if ‘no’ don’t
SUB-TOTAL 1.00 - 2.25 - 1.31
assign rating. The
STRENGTHS:
range for
attractiveness score: 1. Strong brand image 0.30 4 1.20 3 0.90
2. Aggressive advertising 0.15 3 0.45 3 0.45
(1) not attractive, (2) 3. Strict quality control 0.12 - - - -
4. Strong culture of innovation 0.10 4 0.40 3 0.30
somewhat attractive,
(3) reasonably WEAKNESSES:
attractive, and (4) 1. Too many brands 0.14 2 0.28 2 0.28
2. Different level franchisers 0.10 1 0.10 2 0.20
highly attractive. 3. Lack of global mktg. 0.07 2 0.14 1 0.07
experience 0.02 2 0.04 1 0.02
4. Limited promotion
Note: If factor is SUB-TOTAL 1.00 2.61 2.22
irrelevant assign a OVERALL SCORE - - 4.86 - 3.53
rating of “1”
Market Penetration Market Dev’t Product Dev’t
Key Strategic Factor WEIGHT
RATING WT. S RATING WT. S RATING WT. S
OPPORTUNITIES:
1. The European heavyweight motorcycle market is roughly 80% of the size of the US 0.29 2 0.53 4 1.16 1 0.29
market
2. Traditional US-style ?ouring moorcycle represent less than 5% of the European 0.20 3 0.60 4 0.80 1 0.29
heavyweight motorcycle market
3. Growing upper class in India 0.08 3 0.24 4 0.32 1 0.29
4. Competitors are diversified in the automotive market 0.06 4 0.24 3 0.18 1 0.29
Threats:
1. Hundreds of buyers and dealers cannot obtain financing and hundreds more default 0.14 1 0.14 4 0.56 2 0.28
on loans.
2. Discretionary spending on high-end consumer goods. 0.10 2 0.20 4 0.40 3 0.30
3. High import tariffs of 90% on motorcycle 0.07 1 0.07 4 0.28 2 0.14
4. The heavyweight (651+cc) motorcycle market is highly competitive 0.05 3 0.15 4 0.20 2 0.10
Sub-Total 1.00 - 2.08 - 3.90 - 1.98
Strengths:
1. American icon 0.22 3 0.66 4 0.88 1 0.22
2. With international distribution channels 0.18 3 0.54 4 0.72 1 0.18
3. Licensed products 0.12 3 0.36 4 0.48 1 0.12
4. Suggested retail price for its motorcycles is generally higher than its competitors’ 0.08 3 0.21 4 0.32 1 0.08
Weaknesses:
1. Its motorcycle sales decreased 13% during first two months of 2009 0.21 3 0.63 4 0.84 2 0.42
2. Credit losses have risen to 3.41% 0.08 2 0.16 4 0.32 1 0.08
3. Its 2nd quarter 2009 profits declined 91% 0.06 2 0.12 4 0.24 1 0.06
4. Stock declined per share 0.05 3 0.15 4 0.20 1 0.05
Sub-Total 1.00 - 2.86 - 4.00 - 1.21
Overall score - - 4.94 - 7.90 - 3.19
• Prepare a proforma table with pre-computed weights
Rating Weighted Rating Weighted Rating Weighted
Score Score Score
OPPORTUNITIES:
1. 0.31
2. 0.16
3. 0.10
4. 0.05
THREATS:
1. 0.20
2. 0.08
3. 0.06
4. 0.04
SUB-TOTAL 1.00
STRENGTHS:
1. 0.31
2. 0.17
3. 0.11
4. 0.04
WEAKNESSES:
1. 0.21
2. 0.09
3. 0.05
4. 0.03
SUB-TOTAL 1.00
Recommended Alternative
• Guide to discussion for the evaluation of the ACAs in view of the

Quantitative Strategic Planning Matrix outcome
The Quantitative Strategic Planning Matrix results indicated that

ACA ____ obtained the highest overall score which means that this
is the best alternative course of action that could significantly
address the identified major problem. Evaluation indicated that
______ (justification of best ACA in qualitative form) _______.
#5. B
PL A N
TI ON
A C
Action Plan
• Best ACA should be transformed into reality through the

Action Plan
• Objective/s per functional unit should be in accordance
with the realization of the best ACA
• Strategies to operationalize the functional objectives
should be aligned with the best ACA
• Time frame should consider a period of not less than 3
years
• The budget should be linked to the values of items listed in
the financial statements
Action Plan
• Develop an Action Plan Matrix
TIME
FUNCTIONAL AREA OBJECTIVE STRATEGIES BUDGET
FRAME
Marketing
Production/Operations
Finance
Org’n & Mgt.
Human Resources
Research & Dev’t
Information Systems
Action Plan
Directed to From forecasted

realization of financial
best strategy statements
TIME
FUNCTIONAL AREA OBJECTIVE STRATEGIES FRAME BUDGET
Marketing Attain obj. 3 years Selling expenses

Production/Operations Cost of sales
Finance Addt’t fund req’d.
Org’n & Mgt.
Human Resources
Research & Dev’t
Information Systems
Functional Strategies
Goal-directed decisions and actions
of the organization’s functional units
based on resources, capabilities and
competencies
• Marketing
• Production Operations
• Finance
• Human Resources
• Research & Development
• Information Systems
Marketing Strategies
• Satisfy needs and wants

PRODUCT
of target market
• Make product affordable and

PRICE reflect value
• Make product available and

PLACE accessible
• Build and improve consumer

PROMOTION demand
Production/Operations Strategies
• Size of facility
CAPACITY • Efficient use of facility
• Job specialization
• Work methods
WORK DESIGN • Motivation-incentive systems
• Standard-output levels
• Purchasing procedures
PRODUCTION • Inventory management
MANAGEMENT • Maintenance management
Finance Strategies
FINANCE MIX • Sources of funds
DECISIONS • Control of costs

Human Resources Strategies
• Organize for efficiency,

WORK FLOWS control and flexibility
• Internal or external
STAFFING recruitment
• Hiring decisions
• Buy or develop skills

• Individual or team-based
TRAINING
• On-the-job or external
R & D Strategies
• Process development
EMPHASIS • Product development
• Separate R&D
FOCUS department
• Cross-functional team
Information Systems Strategies
SYSTEM • Manual or computer-

TECHNOLOGY based
• Office automation system

• Management info system
INFORMATION • Decision support system
SYSTEMS • Electronic data sharing
• Internet & world wide
web
Action Plan
BEST ACA: LOW-COST STRATEGY
FUNCTIONAL TIME
OBJECTIVE STRATEGIES BUDGET
AREA FRAME
Marketing Low cost Reduce cost in

advertising and
distribution
Production/ Efficiency in Capital-labor

Operations operation substitution
Finance Low financial cost Borrowing when

credit costs are low
R&D Reduce operations’ Process R&D aimed

cost at lowering cost
Information Cheap information Timely and relevant

Systems transfer info on costs of
operations
Action Plan
TIME
FUNCTIONAL AREA OBJECTIVE STRATEGIES BUDGET
FRAME
Marketing
Production/Operations
Finance
Org’n & Mgt.
Human Resources
Research & Dev’t
Information Systems
#6 t i o n s
r o je c
ia l P
n a n c
F i
Financial Projections
• Formulate a 3-year financial forecasts

• Present the financial assumptions that will
support the projections
• The forecasted sales level must have a valid
basis vis-à-vis the case facts
• Budget in the action plan should be reflected in
the financial statements
• Line items in the financial statements should
be closely linked to the given financial position
of the company
• Compute the financial ratios of the forecast in
terms of profitability, liquidity, activity,
leverage, and market ratios whenever
applicable
Business Performance
• Financial performance measures by area and viewpoint
MANAGEMENT OWNERS LENDERS

Assess the efficiency and Key interest on returns Assess the risk or recovering
profitability of operations; achieved on funds invested; the original funds extended
judge how effectively the and how much is reinvested in
firm’s resources are used business and paid as
dividends
Operational Analysis – Profitability – watches the Liquidity - test the degree of

percentage analysis of income relationship of profits earned protection of lenders; focus
statement to shareholders’ stated on short-term credit
• Gross margin investment • Current ratio
• Profit margin • Return on total net worth • Acid test (quick ratio)
• Operating expense • Return on common equity • Inventory to net working
analysis • Earnings per share capital
• Share price appreciation
• Cash flow per share
Business Performance
MANAGEMENT OWNERS LENDERS
Assess the efficiency and Key interest on returns Assess the risk or recovering the
profitability of operations; achieved on funds invested; original funds extended
judge how effectively the firm’s and how much is reinvested in
resources are used business and paid as dividends
Resource Management – judge Disposition of Earning – assess Financial Leverage – measure

the effectiveness of asset the periodic separation of lenders’ risk exposure in relation
utilization earnings into dividends paid to available asset values against
• Asset turnover and earnings retained which all claims are valid
• Working capital • Dividends yield per share • Debt to assets
management • Dividends yield • Debt to capitalization
• Inventory turnover • Payout/retention of • Debt to equity
• Accounts payable patterns earnings
• Accounts receivable patters • Dividends to assets
Profitability – relate net profit Market Indicators – evaluate Debt Service – debt proportion
to the assets utilized in stock market values analysis
generating the profit • Price/earnings ratio • Interest coverage
• Return on assets • Market to book value • Cash flow analysis
• Return before interest taxes
at io s
ia l R
a n c
Fin
Profitability Ratios
• Measure the overall effectiveness of management to generate a profit
RATIO FORMULA DESCRIPTION

Gross Profit Margin Sales (IS) – Cost of Goods Sold Indication of total margin available to cover
- Industry average (IS)/ Sales (IS) operating expenses and yield a profit
Operating Profit Margin Profits Before Taxes and Indication of firm’s profitability from
(Return on Sales) Before Interest (IS)/ Sales (IS) current operations without regard to the
- Industry average interest charges accruing from capital
structure
Net Profit Margin Profits After Taxes (IS)/ Sales Shows after tax profits per dollar of sales.
(Net Return on Sales) (IS) Subpar profit margins indicate that the
- Industry average firm’s sales prices are relatively low or that
costs are relatively high, or both
Return on Total Assets Profits After Taxes (IS)/ Total Measure of the return on total investment
- Equal to or higher than Assets (BS) in the firm. Sometimes desirable to add
the market rate of return Or interest to after tax profits to form the
on treasury bills during the Profits After Taxes (IS) + numerator of the ratio since total assets
time period in questions Interest (IS)/ Total Assets (BS) are financed by creditors as well as by
stockholders, hence it is accurate to
measure the productivity of assets by the
returns provided to both classes of
investors
• Measure the overall effectiveness of management to generate a profit

Return on Stockholder’s Profits After Taxes (IS)/ Total Measure of the rate of return on
Equity Stockholder’s Equity (BS) stockholders’ investment in enterprise
(Return on Net Worth)
- Higher than ROI
Return on Common Equity Profits After Taxes (IS) – Measure of the rate of return on the
Preferred Stock Dividends/ investment which the owners of the
Total Stockholder’s Equity common stock have made in the enterprise
(BS) – Par Value of Preferred
Stock
Earning per Share Profits After Taxes (IS) – Shows the earnings available to owners of
- Industry Average Preferred Stock Dividends/ each share of common stock
Number of Shares of
Common Stock Outstanding
(BS)
Liquidity Ratios
• Measure the ability of the company to meet its short-term debts

Current Ratio Current Assets (BS)/Current Indicates the extent to which the claims of
- At least 2:1 but ratio Liabilities (BS) short-term creditors are covered by assets
above 4 would indicate that are expected to be converted to cash
ineffective utilization of in a period roughly corresponding to the
short-term assets maturity of the liabilities
Quick Ratio Current Assets (BS) – Measure of the firm’s ability to pay-off
(Acid Test Ratio) Inventory (BS)/Current short-term obligations without relying on
- At least 1:1 Liabilities (BS) the sale of its inventories
Inventory to Net Working Inventory (BS)/Current Assets Measure of the extent to which the firm’s
Capital (BS) –Current Liabilities (BS) working capital is tied up in inventory
Leverage Ratios
• Measure the relative amount of long-term debt the firm carries and its ability to service it

Debt-to-Asset Ratio Total Debt (BS)/ Total Assets Measure the extent to which borrowed
- Industry Average funds have been used to finance the firm’s
operations
Debt-to-Equity Ratio Total Debt (BS)/ Total Measure of the funds provided by creditors
- Less 1 means Stockholders Equity (BS) versus the funds provided by owners
stockholders’ remain
major source
Long-Term Debt-to-Equity Long-Term Debt (BS)/ Total Measure of the balance between debt and
Ratio Shareholders Equity (BS) equity in the firm’s long-term capital
- At least 2:1 structure
Times-Interest-Earned Profits Before Interest and Measure the extent to which earnings can
Ratio Taxes (IS)/Total Interest decline without the firm becoming unable
- At least 2:1 Charges (IS) to meet its annual interest costs
Fixed-Charge Coverage Profits Before Interest and Indications of the firm’s ability to meet all
Taxes (IS) + Lease Obligations of its fixed-charge obligations
(BS)/Total Interest Charges
(IS) + Lease Obligations (BS)
Activity Ratios
• Measure how efficiently the firm’s resources are being utilized; focus on the generation of
sales with given asset base
Inventory Turnover Cost of Goods Sold Indication of whether a firm has excessive of
- Industry Average (IS)/Inventory of Finished perhaps inadequate finished goods inventory,
Goods (BS) when compared to industry averages
Fixed Asset Turnover Sales (IS)/Fixed Assets (BS) Measures of the sales productivity and
- High value preferred utilization of plant and equipment
Total Asset Turnover Sales (IS)/Total Assets (BS) Measure of the authority of all the firm’s
- Industry Average assets; ratio below the industry average
indicates firm is not generating a sufficient
volume of business given the asset investment
Accounts Receivable Annual Credit Sales Measure of the average length of time it takes
Turnover (IS)/Accounts Receivable the firm to collect the sales made on credit
- Equal to credit period (BS)
Average Collection Period Accounts Receivable Indicate the average length of time the firm
- Equal to or less than (BS)/Average Daily Credit must wait after making a sale before it
credit period extended to Sales (IS) receives payment
customers
Market Ratios
• Measure the performance of the common stock of a firm

Dividend Yield on Annual Dividends per Measure of the return to owner’s received in
Common Stock Share (BS)/ Current Market the form of dividends
- Industry Average Price per Share (BS)
Price-Earnings Ratio Current Market Price per Faster-growing or less-risky firms tend to have
- High value indicate firm Share (BS)/ After Tax higher price-earnings ratio than slower
is growing and stable Earnings per Share (BS) growing or more risky firms
Dividend Payout Ratio Annual Dividends per Indicate amount of common share available
- Low value preferred Share (BS)/ After Tax to stockholders if firm’s assets are sold at their
Earnings per Share (BS) book value, and firm’s liabilities are paid off
Price to Book Value Price per Share (BS)/Book Amount stockholders are willing to pay for
Value per Share (BS) each dollar of common stock book value
Cash Flow per Share After Tax Profits (IS) + Measure the discretionary funds over and
- Industry Average Depreciation (IS)/ Number above expenses that are available for use by
of Common Shares the firm
Outstanding (BS)
a t io s
i a l R
n a n c n s
Fi t a t io
e r p r e
I n t
Ratio Interpretations
• Relate to acceptable values
• Compare with industry averages
• Match with similar companies
MOODY’S – data provided by industry

and include income statements, ratio’s
capital stock and long-term debt
STANDARD & POOR’S CORP. RECORDS

– same as Moody’s but includes one-
page fact sheet for each company
RATIO FORMULA INTERPRETATION RULE OF THUMB
Gross Profit Margin Gross Profit (IS) amount if gross profit Industry average,
----------- generated per dollar when applicable
Total Sales (IS) sales
Operating Profit Operating Income (IS) Amount of profit from Industry average,
Margin -------------- operations generated when applicable
Total Sales (IS) per dollar sales
Net Profit Margin Net Income After Taxes (IS) Amount of after tax Industry average,
--------------- profit per dollar sales when applicable
Total Sales (IS)
Return on Net Income After Taxes (IS) Rate of return on total Should be equal to, or
Investment ---------------- assets employed – mgt.’s higher than market
Total Assets (BS) overall performance in rate of return on
generating a profit Treasury bills during
the time period
Return on Equity Net Income After Taxes (IS) Rate of return on Should be higher than
----------------- --- stockholders’ investment return on investment
Stockholder’s Equity (BS) in firm – mgt.’s
performance in
generating a profit for
the owners of the
company
Liquidity Ratios

Current Ratio Current Assets (BS) Ability to cover short- At least 2:1, but a ratio
----------- term debt as it comes above 4 would indicate
Current Liabilities (BS) due that firm may not be
using its short-term
assets effectively
Quick Ratio Current Assets (BS) – Expresses degree to At least 1:1

Inventories (BS) which a firm’s current
-------------- liabilities are covered by
Current Liabilities (BS) the most liquid current
assets
Activity Ratios

Average Collection Accounts Receivable (BS) Average collection Equal or less than
Period ----------- period per accounts credit period extended
Ave. Daily Credit Sales (IS) receivable to customers by firm
Average Payment Accounts Payable (BS) Average payment period Equal to credit period
Period -------------- per accounts receivable extended to the firm
Ave. Daily Credit Purchases by its creditors
(IS)
Inventory Turnover Cost of Goods Sold (IS) Indicates liquidity or Industry average,
---------------- activity of firm’s when applicable
Inventories (BS) inventory
Total Asset Turnover Sales (IS) Indicate how efficiently Industry average,
----------- firm is utilizing its assets when applicable
Total Assets (BS) to generate sales
Fixed Asset Turnover Sales (IS) Extent to which fixed High value indicates
----------- assets are used in productive use of fixed
Net Fixed Assets (BS) generating sales assets
Leverage Ratios
Debt-to-Assets Total Liabilities (BS) Extent to which funds are Industry average,
----------- provided by creditors when applicable
Total Assets (BS)
Long-Term Debt to Long-Term Debt (BS) Extent to which funds are Historical norm
Equity -------------- provided by long-term basis tends to be 40:60
Stockholders’ Equity (BS) by creditors versus owners
Debt to Capital Long-Term Liabilities (BS) Percentage of firm’s Industry average,

--------------- capitalization package that when applicable
Long-Term Debt + is made up of long-term
Stockholders’ Equity (BS) debt
Short-Term Current Liabilities (BS) Percentage of total debt Industry average,

Liabilities to Total ----------- borrowed from short-term when applicable
Debt Total Liabilities (BS) creditors
Times Interest Earnings Before Interest and Extent to which earnings At least 2:1
Earned Taxes (IS) can decline without firm
----------- becoming unable to meet
Interest (IS) the interest expense –
measure of degree of
security to bondholders
Market Ratios
Earnings per Share Net Income Available to Common Net income per share available to Industry average, when
Stockholders (IS) common stockholders applicable
----------------------
No. of Common Stock Shares
Outstanding (BS)
Dividend Payout Dividend per Share of Common Stock Percentage of net earnings paid out Growth companies have
(BS) to common stockholders generally low payout
---------------------- ratios because they
Earnings per Share (BS) reinvest most of their
earnings
Dividend Yield Dividend per Share of Common Stock Shows rate or return stockholders will Industry average, when
(BS) receive from their investment in the applicable
---------------------- short-run
Price per Share (BS)
Price/Earnings Price per Share (BS) Measure of current price of stock to High value indicates that
Ratio ---------------------- earnings per share firm is growing and/or is
Earnings per Share (BS) a stable enterprise
Book Value per Common Stockholders’ Equity (BS) Indicate amount of common share None exists
Share ---------------------- available to stockholders if firm’s
No. of Common Stock Shares assets are sold at their book value
Outstanding (BS) and firm’s liabilities are paid off
Price to Book Price per Share (BS) Amount stockholders are willing to None exists
Value ---------------------- pay to each dollar of common stock
Book Value per Share (BS) book values
Compre Solution Guide
1. Case background
D. EFE Matrix
E. IFE Matrix Key Strategic External Internal
F. Competitive Profile Matrix Factors/Scores (4O/4T) (4S/4W)
G. Assumptions
“DERIVE” EFE = 3.37
K. Summary of Strategies 3 ACAs
5. Recommended Alternative & Action Plan
L. Quantitative Strategic Planning Matrix
M. Action plan Best ACA
N. Sales Forecast
O. Income Statement Forecast
P. Balance Sheet Forecast
Q. Cash Flow Forecast
.A st
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6.A – Sales Forecast
• Based on case facts
CASE SCENARIO 1:
• Sales forecast given as case facts
• Ex. 10% for next 3 years
Year Sales, US$ million
2010 34
2011 40
2012 46
Forecast:
2013 46 x 1.10 = 51
2014 51 x 1.10 = 56
2015 56 x 1.10 = 62
CASE SCENARIO 2:
• Sales forecast not given as case fact with One-Period Present - Past
increasing sales trend Growth = -----------
• Use one-period growth rate Rate Past
Year Sales, US$ million Growth Rate

2010 34 (40-34)/34 = 0.18
2011 40 (46-40)/40 = 0.15
2012 46
Forecast: Ave. Growth Rate = 0.17

2013 46 x 1.17 = 54
2014 51 x 1.17 = 63
2015 56 x 1.17 = 74
CASE SCENARIO 3:
• Sales forecast not given as case fact
with decreasing sales trend
• Refer to other relevant case facts such
as:
a. Industry growth
b. Economic growth
c. Other sales-related information
(tables/figures)
Sales History:
2010 46
2011 40
2012 34
.B nt
#6 m e
a te
S t t
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In c Fo
6.B – Income Statement
Sales (Revenues) Tips:
a. Understand basic
Cost of Sales (Cost of Goods Sold) (-) format of income
statement;
Gross Profit (Gross Contribution Margin) (=) b. Compare basic format
and case-given income
Operating Expenses: (-) statement;
General & Administrative Expenses c. Re-compute given
Selling and Marketing Expenses values;
Research & Development d. Expense items to be
Salaries & Wages deducted;
Employee Benefits e. Gains (other income)
Utility Services from non-primary
Repairs & Maintenance business to be added;
Total Operating Expenses f. Income tax rate
derived from dividing
Tax by Income Before
Operating Income (Income from Operations) (=) Tax.
Interest Expenses (-)
Other Income (+)
Income Before Tax (=)
Tax (-)
Net Income (=)
Forecast Basis 1:
• Item proportional to sales

• Use percentage of sales method (ratio)
SALES forecast
ITEM Forecast = - - - - - - - - - - - - x ITEM present
SALES present
Forecast Basis 2:
• Item not proportional to sales, but

with reference values
• Use one-period growth rate (rate
increase/decrease)
ITEM forecast = ITEM present + [ITEM present x (growth rate)]
Where:
ITEM present – ITEM past
Growth Rate = - - - - - - - - - - - - - - - - - - - - - - -
ITEM past
Forecast Basis 3:

without reference values
• Use as value in present year
“NO CHANGE”
Income Statement ($000)
2001 Forecast Basis 2002
Net Sales 7781 Given 20% growth rate 9337
Cost of Goods Sold 3155 Ratio of CGS/Sales 3786
Gross Profit on Sales 4626 5551
Operating Expenses 3290 Ratio OE/Sales 3948
Income from Operations 1336 1603
Other Income 694 Same as 2001 694
Interest Expense 10 Rate increase = 0.25 13
Income Before Tax 2020 2284
Provision for Tax 707 Tax rate = (707/2020) = 0.35 799
Net Income After Tax 1313 1489
Reference Value:
Interest Expense = US $8,000 for year 2000
. C e t
#6 She
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la n as
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6.C – Balance Sheet
ASSETS: TIPS: LIABILITIES & OWNER’S
a. Understand basic format EQUITY
of balance sheet;
Current Assets b. Compare basic format Current Liabilities
Cash and case-given balance Accounts Payable
sheet;
Accounts c. Re-compute given Accrued Expenses
Receivables values; Income Tax Payable
Inventories d. Funds required for Short-Term Debt
Prepaid Expenses forecast year derived by
(Rent) subtracting last year’s
total assets;
e. Fund requirement to be
Fixed Assets sourced-out from Non-Current Liabilities
Land & Building current liabilities. Bonds Payable
Equipment Long-Term
Borrowings
Investments Owner’s Equity

Common Stock
Goodwill Retained Earnings
6.C – Balance Sheet Forecast
Forecast Basis 1:
• Item proportional to sales

• Use percentage of sales method (ratio)
SALES forecast
ITEM Forecast = - - - - - - - - - - - - x ITEM present
SALES present
Forecast Basis 2:

with reference values
• Use one-period growth rate (rate
increase/decrease)
ITEM forecast = ITEM present + [ITEM present x (growth rate)]
Where:
ITEM present – ITEM past
Growth Rate = - - - - - - - - - - - - - - - - - - - - - - -
ITEM past
Forecast Basis 3:

without reference values
• Use as value in present year
“NO CHANGE”
Balance Sheet ($000)
2001 Forecast Basis 2002
ASSETS:
Cash 1292 20% growth rate 1550
Accounts Receivables 1392 Ratio of Receivables/Sales 1670
Inventory 1218 Ratio of Inventory/Sales 1462
TOTAL CURRENT ASSETS 3902 4682
Other Noncurrent Assets 1796 No change over 2001 1796
Fixed Assets 869 Reduced by dep. (5%) 826
TOTA ASSETS 6567 7304
LIABILITIES:
Current Liabilities 333 Financing source 1070
Networth 6234 Same as 2001 6234
TOTAL LIABILITITES & NETWORTH 6567 7304
------- NOTHING FOLLOWS -------

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Organize your written case report according to the sections listed below:

• Provide a summary of the salient case facts that

• Discuss the current issues and concerns being

• State the most unwanted condition

RULE 1: “STICK TO CASE FACTS”

RULE 2: “USE CASE FACTS TO EXPLAIN ANSWER”

CASE SOLUTION • No single best solution

LIMITED • Within organization’s means

TIME FRAME • Specific year when the major

VIEW POINT • Problematic person

A NALYSIS OF CASE FACTS Information evidence

E MPHASIS ON JUSTIFICATION Reasoning / explanation

I N VIEW OF TIME/RESOURCES Context / availability

O WNERSHIP OF SOLUTION Decision analysis

U NDERSTAND ROLE Viewpoint (CEO)

Prepare the following visuals for presentation:

INPUT STAGE (1) MATCHING STAGE (2) DECISION STAGE (3)

External Factor SWOT TO TOWS Quantitative

Competitive Grand Strategy

EXTERNAL INDUSTRY ENVIRONMENT

Opportunities/Threats outside the

GENERAL Influence organization’s

Strengths/Weaknesses that are within the firm

THREATS What trends or events, now or in the

What activities or conditions within the

STRENGTHS What activities within the organization

External Situation Internal Capability

• Does the organization have any internal strengths or core

• Core competencies in key areas • No clear strategic direction

EXTERNAL OPPORTUNITIES: EXTERNAL THREATS:

• Emerging new technologies • Adverse demographic changes

• “USE RELEVANT EXTRACTS (WORDS/PHRASES/SENTENCES)”

OPPPORTUNITIES - favorable conditions that could affect the strategic

SOCIO-CULTURAL Values, mores, customs and

ENVIRONMENT Natural resources

POLITICO-LEGAL Laws and regulations

“SAMPLE • GNP TRENDS

• AVAILABILITY OF RAW MATERIALS

• LIMITATION OF NATURAL RESOURCES

• ENVIRONMENT AND ECONOMIC

• AVAILABILITY OF RAW MATERIALS

• LIMITATION OF NATURAL RESOURCES

• ENVIRONMENT AND ECONOMIC

“SAMPLE • GOV’T REGULATIONS OR DEREGULATIONS

OPPPORTUNITIES - favorable conditions that could affect the strategic

Power of Industry Power of

Shareholders, Rivalry Among Community

• Rivalry Among Competing

NO. OF COMPETITORS Size and Power

FIXED COSTS Airlines’ cheap fare

PRODUCT Focus on price/service

CAPACITY Production Volume

ECONOMIES OF SCALE Cost advantage

SWITCHING COSTS Computer software

PRODUCT Customer loyalty

CAPITAL REQUIREMENTS Rent or sell photocopier

ACCESS TO DISTRIBUTION Secure distribution

Steel High fixed asset requirement

Beer Heavy advertising expenses

Petroleum Scarce raw materials

Electric Difficult government requirements

Appliance Credit sales required

Retail Auto Ability to handle trade-ins