Our Lady of the Pillar College – San Manuel, Inc.

District 3, San Manuel, Isabela

COLLEGE OF ACCOUNTANCY

STRATEGY FORMULATION
Strategic Management
MGT – 03

STRATEGY FORMULATUON
The strategic management process continues with the formulation of strategies. The first step is the
mission/ vision statements.

Both the mission and vision statement identify the direction of the company. They reflect who the owners
are, how they do business, who their customers are and in what direction they want the company to go
into. The mission and vision statements differentiate the company from its competitors. They help in
defining the parameters by which managers formulate their strategic plans.

MISSION
It summarizes the purpose or the reason for the company’s existence. It tells what the company is now
and what it is doing at the present. It tells what types of customers are being served, how the company
does its products or services and its desired level of performance. It defines the products or services
offered and the types of consumers served.

A comprehensive mission statement also identifies the market where the company wants to compete. It
also reflects the commitment of the company to growth and financial soundness. It explains the
company’s philosophy such as the aspirations, beliefs and principles of the firm. It should also answer the
question of the firm’s competitiveness and its responsibility to the community or society at large.

VISION
It is what the company wants to become in the future. It serves as a challenge for the company. It
visualizes the company’s future and takes a glimpse of what the organization will be like in a certain
period. It becomes the company’s inspiration and establishes the framework of action plans to realize it.
It answers the question”: “Where do we want to go?”

A vision statement doesn’t really the strategies on how to get there. But it sets the direction of the
organization’s plans. Usually, the vision statement is the prelude to the mission statement.

THE FIVE POWER Ps

There are five power Ps that spell strategies in the works for a particular organization.

1. Position. It is the advantage that an organization gains in the hands of the consumers. It is a
position that a company should not allow to be snatched by its competitors.

2. Power. A company should enjoy power over its competitors. It is a competitive edge, a following
of some sort that a company should not allow competitors to surpass.

3. Pace. There is timing and intensity of strategy put on the ground. It is the right time for a strategy
to work.

4. Potential. It is the probability of the success element of a particular strategy. It is necessary to know
the important characteristics of a product or service that will spell success.

5. Performance. It is the effective implementation of a particular strategy. Excellent performance

relates to growth strategies.

PORTER’S GENERIC STRATEGIES

1. Cost Approach. It concentrates on keeping costs low. With lower costs, the company can offer
the product or service lower than the competition. This strategy has been employed by Chinese
businessmen and coined the Filipino term, “tubong lugaw”.

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 2. Differentiation Approach. The company makes its products or services unique and distinct. In this
approach, the customer is willing to buy at a higher price as long as it can satisfy his/her taste
based on its quality, uniqueness and distinct appeal or feature.

3. Focus Approach. It is specializing or concentrating in a particular market segment.

POWER STRATEGIES
1. Horizontal Integration. It is the strategy of the company to expand its business into different
products that are similar to current lines. A classic example is the merger of two companies in the
same industry or an acquisition/buy out of a company by another company. This is very common
in the banking industry.

2. Vertical Integration. It has two subtypes:

a. Forward Integration. It is a strategy of the company to control the direct distribution of its
products.
b. Backward Integration. It is a strategy to purchase the suppliers in order to reduce
dependency.

ADAPTIVE METHODS
Miles and Snow discussed the need for a company to adapt to a constantly changing competitive
environment. With this, they created three approaches of creating a competitive strategy:

1. Prospector Approach. This is based on innovation and at the same time exploration of new market
opportunities. Creating new prospects or markets is centered on the development of new
products or service so the company can stand in stronger market base.

2. Defender Approach. It is based on making vast improvements in its present products or services. It
is worth concentrating within a smaller market.

3. Analyzer Approach. It is based on making attempts to copy and thereby make improvements in
the success of product or service offering provided by the competition.

ESSENTIALS OF POTENTIAL STRATEGIES

For a company to be competitive in the market, the product or service should have the potential to
succeed. This potential is expressed in the following characteristics:

1. Transferability. The product or service can be transformed into something highly valued by
customers.

2. Competitive Dominance. The product or service is better than the capabilities of competitors.

3. Uniqueness. The product or service cannot easily be copied by competitors.

4. Substitutability. The product or service cannot be replaced through substitution by competitors.

5. Durability. The product or service does not deteriorate or depreciate quickly.

GROWTH STRATEGIES
1. Diversification. It is the development of new products for new markets. This is risky because both
the product and market are untested yet. It is important for the company to be realistic in facing
this great amount of risk and to be clear about what it hopes to accomplish.

2. Market Development. It is the development of a new market for existing products and services.
This can be in the form of export or tapping an unexplored segment of the market. This can also
be done by making improvements through the product’s packaging and expanding its
distribution channels.

3. Product Development. It is the development of new products to existing markets. It requires some
form of creativity or ingenuity to develop new products. It is also costly. This needs continuous
innovation and patience to adapt the products in existing markets until they achieve market
success.

4. Market Penetration. It is the desire to achieve greater percentage of the market share through the
company’s existing products in existing markets. The company is involved in building competitive

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 edge through marketing such as pricing, promotion, packaging, etc. It is also the development
of customer loyalty and patronage.

Balanced Scorecard
It is a system that measures the organization’s progress in accomplishing its strategic objectives.

In 1992, Robert Kaplan and David Norton developed the balanced scorecard which incorporates
financial indicators as well as three other aspects: customers, internal business and learning/innovation.

The balanced scorecard is a strategic planning system that is now used extensively by different types of
organization worldwide. Its purpose is to align the company’s vision and strategies to the activities of the
organization.

This strategy uses four key processes in order to put short-term activities in the long-term objectives of the
organization. It is used in all levels in predicting what should be done and measured in the future. To work,
there are four implementing strategies:

1. Developing a clear-cut strategy. This is a direct conversion of strategic objectives into measurable
quantifiable terms. This needs the consensus of the management team.

2. Communicating the strategic objectives. The next step is to communicate the strategy to the
entire organization.

3. Planning strategies. Targets are set and efforts are aligned to reach the planned targets.

4. Monitoring strategic implementation. After the implementation of the strategies, top

management monitors and receives feedback.

In line with the above strategies are four basic processes:

1. Financial perspective. It includes financial measures such as operating income, return on

investment and economic value. It measures the flow of funds in a timely and consistent manner.
Managers analyze the costs and how the funds can realize customer satisfaction.

2. Customer perspective. It includes measures on customer satisfaction, customer loyalty and market
share. Business processes are aligned to achieve customer satisfaction.

3. Business process perspective. It includes procurement of materials, production and order

fulfillment. Managers see to it that the products and services conform to customer requirements
and standards.

4. Learning and growth perspective. It includes measure of employee satisfaction and retention. This
includes employees training and improvement since employees are considered as the main
resource when it comes to knowledge. Employees should continuously learn.

The Balanced Scorecard also emphasized learning as an everyday thing. It also shapes mentoring,
communicating and performing outstanding work.

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CASE ANALYSIS #1

National Book Store’s Socorro Ramos (Rags to Riches Story)

Read on the whole story of Socorro Ramos through the internet and answer the accompanying questions.

It has been the philosophy of Socorro Ramos to sell books. The Philosophy is the very reason for the
establishment of National Book Store.

At an early age, she worked as a salesgirl in Goodwill Bookstore in Escolta. It was owned by her brother
and his wife.

Because of her marketing skills, she was given the task of managing the store. Then in 1942, she and her
husband established their very own bookstore, National Book Store.

Despite the obstacles that came their way, amidst fire, storms and other difficulties, they have made
National Book Sore into a multimillion enterprise.

It now operates more than a bookstore. It is also selling other types of merchandise. Socorro also
successfully obtained the licenses to reprint international brands such as Hallmark Greeting Cards,
Prentice Hall, McGraw-Hill and Addison-Wesley books.

In 1996, Powerbooks, an affiliate of National Book Store for the more specialized lineup of book titles was
born.

QUESTIONS FOR ANALYSIS

1. What virtues did Nanay Coring show as an entrepreneur?

2. Trace the rags to riches story of Socorro Ramos.

CASE ANALYSIS #2

The Most Admired Companies

Read the article and evaluate strategies used by the most admired companies. Browse the internet for
more information on these companies.

In the latest survey of Wall Street Journal Asia, Jollibee is the most admired company in the Philippines. In
terms of innovation and reputation, Jollibee toppled down Ayala Corporation to second spot.

Jollibee is also singled out for its affordability of products and accessibility. As of June 2009, Jollibee has
1,825 stores, including 307 overseas. It is also the top choice among consumers, thus, giving up other more
expensive restaurants. It is also chosen for its quick service.

This most admired company has recently opened a store in Queens, New York with upcoming branches
in Asia and Middle East.

Jollibee registered a 17.2& rise in earnings for the 1 st quarter of 2009 and its system wide sales are 13.8% to
P15.1 billion.

Aside from Jollibee and Ayala Corporation, the third spot went to Ayala Land, Inc., followed by San Miguel
Corporation. On the 5th spot is Bank of the Philippine Islands, the Globe Telecoms. On the 7 th place is
Banco De Oro, 8th is the Philippine Long Distance Telephone Co., and 9 th and 10th spots to SM Prime
Holdings and Metropolitan Bank and Trust Co., respectively.

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