CB101: Strategic Management and Its Nature

Definition of Strategic Management

According to Fred David and Forest David (2017), they define strategic management as “the art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization to achieve its objectives.”

 Strategic management does not cover a single department of an organization, rather it implies the application of management in different
departments to achieve the organizational goal.
 Take note that, strategic management does not exist because it is what is in the business textbook. It exists because it is about managing the
step-by-step process of achieving the organizational goal. If a certain strategy does not have any goal at all, you can never apply strategic
management anymore. A strategy without a goal can no longer be called a strategy rather just an aimless move.
 Strategic management is also a science. Meaning, it is not something a person comes up with without really a ground of facts and logic
behind it. Just like any branch of science that follows through certain steps and uses facts, management as well follows through the process.
 In addition, according to that definition, it says there that strategic management is a form of art. According to en.wikiversity.org,
management “...is called an art because managing requires certain skills which are personal possessions of managers”. It is personal and
something that is within the manager that also needs an expression just like any other form of art.

Stages of Strategic Management

According to David and David (2017), strategic management has three steps namely: Step (1) strategy formulation, Step (2) strategy
implementations, Step (3) strategy evaluation.
Step (1) Strategy Formulation - According to David and David (2017), it is about “developing a vision and mission, identifying an organization’s
external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative
strategies, and choosing particular strategies to pursue".

 This is where managers are studying and evaluating things as to think what is best for the organization that has long-term competitive
advantages. Managers are checking facts, looking into different angles, then formulating strategies.
 This step serves as the foundation of strategic management, this is where managers are determining the things that they have limited and
what are the things that are outside the organization that they need to pay attention to and/or take advantage of
 One of the main things in this step is to determine what action a business should take. Should they change their product line? Should the
business tap the other market? Should the business just focus on their main product and innovate it?
 The stage where organizations really must answer the question “What is our vision?” “What is our mission?”. In other words, “who we
want to become and what steps we should take to be that business?”. This is where the business builds its own identity which is important
to all organizations. Without this, the organization would never know where their strategies should go through and what strategies they
should work to.
  Another thing in strategic management aside from doing the main strategy this is also the stage where the organization should be thinking
as “If our strategy doesn’t work, what’s our alternative on doing this?”. Every plan A should have a plan B and C and so on. If the
organization would not be able to formulate this now. There can be wasted resources in the process which can be avoided if everything is
planned out ahead of time.

Step (2) Strategy Implementation - According to David & David (2017), it includes “developing a strategy-supportive culture, creating an
effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking
employee compensation to organizational performance”.

 Strategy formulation serves as the blueprint of the organization while strategy implementation is the stage where the management has to do
an action over the strategy they have previously formulated.
 Strategy implementation, it’s about optimizing and mobilizing the whole organization whether from rank-and-file, supervisor to managerial
positions. In some cases, strategy implementation involves all the departments of an organization.
 This stage is more difficult than the strategy formulation, simply because no matter how good and well planned is the blueprint of the
strategy if the other departments are not cooperating and there is a lack of commitment for the organization’s goal then definitely it will not
go the way it was planned.
 Every manager of a department should ask themselves “what is our involvement in this organization strategy?”. By answering this,
managers would be able to know what steps he should take internally within his department. Hence, they would be able to help the
organization in attaining the strategy’s primary purpose.
Step (3) Strategy Evaluation - this is the stage where an organization is checking into the strategy as to whether successful or not.

 But what is the clear line that would separate success strategy and unsuccessful strategy? The answer here is the comparison of the result
over the objective of the strategy and does this objective truly helps the organization. No matter how the whole organization follows this
strategy it all comes down as to whether they were able to hit the objective and received a benefit of the strategy or not.
 From this moment on, the organization should be able to identify the answer to the question “what have we done that is wrong?”. If the
organization would be able to answer this, they could come up with better strategies.
 On the other hand, if the strategy works as intended by the objective of the strategy and benefitted organization, take note that they should
not slack. Environment (or the external factors) are ever-changing so is the organization (internal factors). Hence, organization strategy
should be able to adapt to these changes from time-to-time.

Key Terms in Strategic Management

1. Strategists - According to David and David (2017), “strategists are the individuals who are most responsible for success or failure of an
organization”. They are the mind behind of where the business is now. Companies nowadays the strategists are the managers or the CEO. They
are the ones who constantly formulate ideas to bring the company to its next level. Jay Congres said that “All strategists have to be chief learning
officers”. Because if the strategists are not adaptable with the environment the organization itself will not be able to adopt. For this reason, it is a
must for an organization's strategists to constantly learn new things since the environment is continuously changing.
(example)

Some companies assigned their strategists alone in a certain department like marketing. On this setup, the marketing
department is expected to deliver new ideas that are in line with the current business opportunities outside the organization.
During the process before a strategy can be implemented, some approvals need to be done first on the higher-ups of the
organization like the CEO. But then again, this differs as to what kind of strategy an organization needs to formulate

 
2. Vision Statement - In vision versus mission, vision is the first one to be done before the mission, simply because vision gives the question of
“What do we want to become?” (David and David, 2017). According to the Queensland Government, vision is “a vivid image of what you want
your business to be at some point in the future, based on your goals and aspirations”.
(example)

McDonald’s Vision Statement:

“First to respond to the fast-changing needs of the Filipino Family. First choice when it comes to food and dining
experience…”

 
3. Mission Statement - According to David and David (2017), this is an “enduring statement of purpose that distinguish one business from other
similar firms”. This answers the question as “why our business is existing”. Even though there are businesses that have the same product and
service yet still the reason for the business existence is different. They vary even though they are on the same line of business.
(example)

Mc Donald’s Mission Statement:

“To serve the Filipino community by providing great-tasting food and the most relevant customer delight experience.”

 
4. Internal Strengths and Weaknesses - Internal strengths and weaknesses are controllable variables of an organization that are used to identify
the characteristics of an organization as a whole or departments as an individual. If we are going to say this in a form of question, internal
strength can be like “what are the things we are good at?”, and weakness is “what are the things that need improvement?”. It is about describing
the things about the business internally. 

 Some managers tend to identify the strength based on the competitive advantage within its competitors. On the other hand, some managers
also use this kind of comparison to identify the organization’s weakness by stating the things their competitors are ahead of them. Through
this, you can use your competitor as a benchmark as to whether you would consider a certain factor of the organization as strength or
weakness.
 Another way of identifying the strengths and weaknesses is by comparing the organization’s previous performance versus its current
performance. Using this, you would be able to identify clearly if the business improves or not. You can also describe the business assets
and the needed assets of the business.
 In doing a strategic case analysis, always remember that in identifying the strength and weaknesses it should be in detail, with numbers,
ratios, amount, and figures. Because by having something like this. It helps the manager to formulate more accurate strategies. Instead of
saying “We are the no. 1 food cart business in the Philippines” it is better to say that “We have 85% of the market share”. If we will stick to
the first statement, which is the no.1 food cart business in the Philippines, managers may be restrained in doing or suggesting some
strategies that would benefit the business, since the manager only knows that they are the no. 1 without any figure and how. Decisions can
be complacent because of this. On the other hand, the statement “85% increase in market share” gives the manager the perspective of the
magnitude in making a move.
 Things in the organization can be used as to what specific area should be grade into as strengths and weaknesses like company asset or
property; location, factory, brand, manpower, technology, etc.

(example)

Uper Crust Pie Internal Assessment:

Strength - Our first location downtown will draw in visitors and downtown shoppers
Weakness - We have not established ourselves as reputable meat pie provided yet
The strength of UPer Crust Pies is that their first location is in downtown where visitors and downtown shoppers can be attracted.
On the other hand, one of their weaknesses is that they do not yet have a reputation as a reputable meat pie provider. Because they
are just a newly opened business and their customers have been loyal to their competitor’s brand.

 
5. External Opportunities and Threats - According to David and David (2017), “external opportunities and external threats refer to economic,
social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could
significantly benefit or harm an organization in the future”. These are the things that business does not have any control.

 One thing to describe the external factors is that it is always changing from time-to-time, it is an uncontrollable variable. Changes can either
bring an opportunity for the business or can either harm the business. Consequently, organizations should also pay attention to its outside
environment while improving its controllable internal strengths and weaknesses.
 External environment changes are not always in favor of the business. The organization's strengths can be something not parallel with the
external opportunity, while the organization’s weaknesses can also be something parallel to the external threats.
 External opportunities, these are the events in the outside environment of the organization that can favor the business. In which
organization should always take advantage.
 External threats, these are the events in the outside environment of the organization that can hinder or stop an organization from doing its
full potential in the market.

(example)

Uper Crust Pie External Assessment:

Threat - One competitor sells similar pies and has loyal customers as well as a relationship with businesses that regularly buy from
them
Opportunity- Yubtchatown is growing by 8.5% annually.
Yubtchatown is the place where their store is nearly located. In other words, as Yubtchatown visitors grow, the consumers who can
see their products also grow. While on the threat, knowing that they have the same product as their competitor, customers tend to
patronize the known brand of pies rather than them that is new to the market.

6. Competitive Advantage - According to David and David (2017), competitive advantage is “anything that a firm does especially well compared
to rival firms”.

 When an organization does something better than the other organization that does almost the same thing then that is a competitive
advantage. It is about answering the question “What makes our business unique from others?”. This is what makes the business
continuously survive in the ever-changing and ever-competitive environment.
 Take note that, in terms of competitive advantage, an organization can only maintain its advantage only for a certain period of time. For the
reason that it’s common to businesses for things to be copied and duplicated. Hence, organizations should seek to attain sustained
competitive advantages.
 Most companies do have their own Research and Development (R&D) department, a group of employees that are fully committed to
creating and developing new things for the organization.

(example)

7-Eleven and their CLiQQ Kiosk Machine

 7-Eleven has been unique for a long time against its competitors like Ministop, Family Mart, and Alfa Mart because of its CLiQQ
Kiosk Machine which you can find in all its branches. CLiQQ Kiosk Machine allows the customers to pay their bills, reload their
mobile phones, pay their monthly dues, pay their government transactions, pay their airline tickets, send money and so much more.
This made 7-Eleven a one-stop-shop where almost all the needs of a usual Filipino people can be found. This has been their
advantage against their competitor for a period of time.

Sustained Competitive Advantage

According to David and David (2017), for the business to attain sustained competitive advantage, is to (1) continually adapting their inner
strengths and weaknesses and external opportunities and threats. Because again, firms will be able to survive this ever-changing business
environment and (2) application of the stages of strategic management on those factors. Because areas of business that are relevant for its
survival are being paid attention to. In other words, those areas are closely monitored.

CB101: 02 VISION AND MISSION

Nature of Vision and Mission Statement
Vision Statement - According to David (2011), vision answers the question of what the organization what to become.

 Vision talks about what to attain some-time in the future, it’s a distant goal of the organization.
 Every organization should have a crystal-clear vision statement simply because it serves as a guideline to formulate their mission
statements. A vision statement comes first before a mission statement (David and David, 2011).
 Organization can measure their success as to how close their current state to their vision.

(example)

 PUP’s Vision Statement:

“Clearing the paths while laying new foundations to transform the Polytechnic University of the Philippines into an epistemic
community”

Mission Statement - According to David (2011) organization’s ‘...mission statement is a declaration of an organization’s “reason for being”’. It
is what separates your business from the rest.

  Ducker explains the mission statement as “…foundation for priorities, strategies, plans, and work assignments. It is the starting point for
the design of managerial jobs and, above all, for the design of managerial structures. Nothing may seem simpler or more obvious than to
know what a company’s business is. A steel mill makes steel, a railroad runs trains to carry freight and passengers, an insurance company
underwrites fire risks, and a bank lends money. Actually, “What is our business?” is almost always a difficult question and the right answer
is usually anything but obvious. The answer to this question is the first responsibility of strategists. Only strategists can make sure that this
question receives the attention it deserves and that the answer makes sense and enables the business to plot its course and set its objectives.”

(example)

LinkedIn's Mission Statement:

“Connect the world’s professionals to make them more productive and successful”

Importance of Vision and Mission

 According to the book Strategic Management Concepts and Cases by David, “Rarick and Vitton found that firms with a formalized mission
statement have twice the average return on shareholders’ equity than those firms without a formalized mission statement have” In other
words organizations who had a vision and mission and followed it benefited shareholder’s equity greatly by doubling their average return.
 According to King and Cleland organizations who develop a mission statement can reap the following benefits: “To ensure unanimity of
purpose within the organization”. The word unanimity means the state of being one opinion about something. In other words, having a
mission that organizations studied about and adhere to ensures that everyone would have the same opinion about their purpose and why
they are doing what they are doing. It unifies different people inside the organization that results in hitting the organizations objective
without getting sidetracked of other things around their business environment.
 According to King and Cleland organizations who develop a mission statement can reap the following benefits: “To provide a basis, or
standard, for allocating organizational resources”. Knowing that all organizations have only limited resources, by looking into the mission
of the business, this can be used as to what they should be prioritized within their business.
 From that same book, “BusinessWeek reports that firms using mission statements have a 30 percent higher return on certain financial
measures than those without such statements.
 Some studies have found that having a mission statement does not directly contribute positively to financial performance.” This statement
sound contradicting to Businessweek reports that adhering to mission statements impact the organization financially, while on the other
hand there are studies that have found that it does not affect at all. The line that can separate these two as to why things work while for
others to does not work is the “content of the mission”. There are organizations that have not been updating their mission according to what
is needed in the market. They are sticking to their old self which can be outdated by the environment. Below is an example of a failure story
of a business because of sticking to their old self

(example)

Kodak’s Failure:
Before, Kodak was known for its brand as film-based photography. They are a major holder of market share. But during the 1980s,
Sony introduced its first electronic camera. Kodak made a study about this, and it turns out that this business can throw down
totally their filmed photography. But on the other hand, they have 10 years to prepare before this digital camera can take hold of the
market totally. So in other words, they have much time to do it. But during those 10 years, Kodak only did a little and continuously
declined the digital camera business. As a result, people embraced digital photography and causes a big decline for Kodak in the
competition

Characteristics of a good vision and mission statement

1. Not too broad and not too specific - According to David (2011), achieving the balance between specificity and generality is hard to achieve in
formulating a mission for an organization. But in the end, formulating one at the center of these two is what makes a flexible mission to follow.

 Vision and mission statements should not be too specific as it can limit the potential creative growth of business, according to David
(2011), this can hinder the growth of the business in tapping new things within their business or tapping new things outside their business.
If an organization is living into too narrow vision statement it can close the mind of its internal stakeholders (employees, managers, etc.)
and considers exploring things outside their box as an offense or not something they be bothering themselves.
 Having a broad statement can create confusion and vague ideas in the mind of the stakeholder as to what the business really is all about.
 Employees of a business might be thinking and doing things according to the organization’s mission statement but quite far from the
strategists who made that.
  Customers who might be seeing a certain organization’s vision that has a too broad meaning can create the wrong impression due to the
scope of the statement.

(example)

Broad statements:
Mission - “To make every brand more inspiring, and the world more intelligent”
Vision - “To be the No.1 source of adhesive material”
These statements sound confusing as their statement is too broad “to make every brand more inspiring”, what do they mean by that?
Just to elevate the brand or something? Do they modify brands of companies to make it better? The business of this organization are
adhesive materials, branding labels and tags, etc. Their statement is too broad and vague for a stakeholder like the customer to
understand who they are.

2. Inspiring - A mission is what the business is all about. The Mission statement tells the reader what they are doing as a business. It tells the
customers “Hey this is what we are doing for you”, on the side of its employee “Hey this is what we have been doing”.
 Mission statement invokes a thought of actions on the side of the employee since it tells them who they are as a business.
 Mission statement should be inspiring in a way that it can arouse positive feelings and emotions according to David (2011). Because this
can affect the performance of an individual for better since emotion is involved. That individual is not just merely going to their job just to
wait for their next payout. Rather, they are doing their job with inspiration.
 Relating this to our personal life, when we are inspired we are at best to do things. It brings out the best in us.
  On the other hand, if a mission statement wasn’t constructed in a way that inspires it would be just merely a design on the wall of the
organization’s premises. Because it doesn’t touch an individual emotionally. This thing can result in an individual not adhering to the
organization's mission statement.
  On the part of the vision statements, according to David it’s about what the business would want to become. Something that the
organization hasn't reached yet. For this reason, this statement logically needs to be inspiring simply because it can be linked to the
individual’s performance.
  People should see their organization's vision as too far from where they are now because it inspires them to do more.
 According to Edwin Locke’s Setting Goals in Life Theory, the goal setting is linked to task performance, the higher and complicated the
goal the better the performance of an individual which is something that can be applied to an individual who’s a part of the organization.

3. Identify the Utility of the Firm’s Products - According to David (2011), “Good mission statements identify the utility of a firm’s products to
its customers”.

 Utility of a firm's product means the benefit that customers received from purchasing the product. For example, what did you get by
subscribing to a telephone service for your home? You get to communicate right? How about if you buy a white fluffy pillow, what did you
get in buying it? You get comfort in sleeping.
 Mission statement should be about directly answering the question “what does this product do to the customer?”
 The main reason for doing this is to make it more attractive to the customer. Not in a sense that the customer would read it because it is
attractive. Rather in a sense, it helps the organizations and customers to have a clear understanding as to what they should truly give with
their customers and the market. Because at the end of the day, customers are the main purpose of business. They are the one who gives
meaning to business.

4. Mission Statement Includes Nine Components - According to David (2011), it should include the following: (1) customers, (2) products or
services, (3) markets, (4) technology, (5) concern for survival/growth/ profits, (6) philosophy, (7) self-concept, (8) concern for public image,(9)
concern for employees. Answering the following question:

 Customers—Who are the firm’s customers?

 Products or services—What are the firm’s major products or services?
 Markets—Geographically, where does the firm compete?
 Technology—Is the firm technologically current?
 Concern for survival, growth, and profitability—Is the firm committed to growth and financial soundness?
 Philosophy—What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
 Self-concept—What is the firm’s distinctive competence or major competitive advantage?
 Concern for public image—Is the firm responsive to social, community, and environmental concerns?
 Concern for employees—Are employees a valued asset of the firm?”

5. Reconciliatory - Let us first define who a stakeholder is. A stakeholder is someone or a group of people who is involved or has a role in
affecting or being affected by an organization.

 Stakeholder is not just a person who owns stock in a company, rather it also pertains to the employees, the managers, suppliers, directors,
third party services providers, even the government, customers, consumers, other businesses inside or outside the country.
 Stakeholders affect the organization and at the same time, these stakeholders are being affected by the organization.
 The main concern of reconciliatory is balancing the differences of the stakeholders. Knowing that each stakeholder does have a different
background and purpose for getting involved in an organization directly or indirectly.
  Every organization should always be reconsidering the different aspects of its stakeholders in formulating and applying their vision and
mission statement because they are the lifeline of the organization.
 CB101: 03 EVALUATION OF EXTERNAL FACTORS

Nature of External Audit

According to David (2011), the main “purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats
that should be avoided.”
Listing the opportunities and threats does not mean that organization should list down everything they have known or gathered. That is why as
per the external audit purpose, it's finite, only limited.
On the other hand, doing external audits should only aim to identify variables that organizations need an actionable response. Because any
organizations if they are not careful in doing their external audit, there are things that they would have read or considered for their auditing but it
doesn’t directly concern their business or its something outside the purpose of their external audit.
Organizations should not just know those important factors rather formulate strategies that capitalize on those factors.
According to David (2011), external forces are categories in five: (1) economic forces; (2) social, cultural, demographic, environment natural
forces; (3) political, legal, governmental forces; (4) technological forces; (5) competitive forces.

Process of External Auditing

There are five steps on how an organization can do an external auditing: 
Step (1) assigning the task of gathering information; 
Step (2) gathering of information and intelligence about 
(A) economic forces, 
(B) social, cultural, demographic, and natural environment forces, 
(C) political, governmental, and legal forces, 
(D) technological forces, and 
(E) competitive forces; 
Step (3) - reporting; 
Step (4) assimilated and evaluated;
Step  (5) Communication and distribution.
 
Step (1) Assigning the Task of Gathering of Information - This is where the main leader of the auditing assigns the tasks to a specific person or
department.
Organizations do have different ways of doing this, some companies do want to leave out the external auditing solely to a specific department
where not all the managers and its department are involved.
On the other hand, there are organizations that want to maximize their employees, so they give tasks to almost everyone. This strategy is much
more beneficial because organizations can have a wider perspective and could gather more. But on the other hand, having a lot of people
involved requires more time of evaluation eventually.
 
Step 2 Gathering of Information and Intelligence About the External Factors - This is where individual checks into different resources for the
economic, social, cultural, demographic, natural environment forces, political, governmental, legal forces, technological forces, and competitive
forces.
In gathering information, assigned people should be careful as to what they should be only looking into. There can be a chance that an individual
will look into something that is no longer the scope of what they should be searching. Especially nowadays, everyone is bombarded with a lot of
information.
Some example of resources where an organization can look into for information are news that provides a timely information on what’s new in
different topics; articles which are timeless documents that are research based and done by a credible professionals; supplier, distributor,
customers which are an individual's that employees are encountering on their daily business; internet that has a lot of information that are
available to humankind; and competitors etc.
In gathering information regarding competitors, there are organizations that they will send out people from their firm that will act as if they are a
real customer just to gather information. There are times where they go beyond in just acting, rather truly purchase their competitor products and
services just to gather real and actual information.
 
Step (3) Reporting - According to David (2011), “individuals can monitor various sources and can submit periodically to managers”.
By means of this, the manager received steady and timely information.
Managers should set a deadline for reports, so that their employees will not slack on doing research and would require each individual to have
something to present to the manager.
 
Step (4) Assimilated and Evaluated - Managers or even a regular employee that is relevant in strategic planning meet. Each one lay down
everything they have gathered in line with what is assigned to them.
Information and data can be pretty overwhelming at this stage since it came from a greater number of people. Though managers could’ve
scanned it beforehand which makes it easier for them to evaluate.
Since tons of information could’ve been involved, managers should only focus on the things that are important and remove from the list that are
irrelevant to save time and effort.
According to David (2011), managers should only identify the most important opportunities and threats, it’s also highly suggested that to make it
collaborative as the more managers involved in identifying it the better since they have different kinds of expertise. This strategy also makes the
manager also to be aware of the other side of the perspective due to its personal involvement which can result for them to formulate better
strategies within their scope of work.
Freund emphasized that these key external factors should be 
(1) important to achieving long-term and annual objectives, 
(2) measurable, 
(3) applicable to all competing firms, and (4) hierarchical in the sense that some will pertain to the overall company and others will be
more narrowly focused on functional or divisional areas.
 
Step (5) Communication and Distribution - This is where the output of the meeting shall be scattered to the appropriate people and departments
Any organization that does an external auditing without communicating the result to its whole organization will do them no good.
This is relevant as this is what will determine how the departments in the organization should respond to the external factors. The more a
department knows the better.
 
External Factors
Economic Force - According to David (2011), “an economic variable of significant importance in strategic planning is gross domestic product
(GDP)”.
According to investopedia, “Gross Domestic Product (GDP) is the monetary value of all finished goods and services made within a country
during a specific period.
GDP provides an economic snapshot of a country, used to estimate the size of an economy and growth rate. Its an indicator that shows how well
does the economy of a country.
GDP can be calculated in three ways, using expenditures, production, or incomes.”
Lower GDP means, only few jobs are available because few productions were made; retrenchment of employees become a norm; businesses are
closing; investors are reluctant to invest money in the country, citizens have lower income and spending less etc.
On the other hand, if GDP is higher, it indicates that a lot of jobs are currently rolling because a lot of products were produced, citizens have
higher income and are spending a lot. This can be an opportunity for businesses to invest.
 
(situational example)

If a company is thinking to invest and expand their business abroad, though there are a lot of indicators before deciding, one thing
this business will surely look into is the countries’ GDPs. The lower the GDP can mean two things for the organization, they need
to answer the question “will it be more beneficial for us to invest in that country since power to buy our products is also low?” not
that those people of that country cannot afford to buy products they are just thinking as to whether they will be able to get a return
of investment fast enough to cope up their expectation or will there be really a return of investment. Another question to answer is
“will there be a potential for their market to grow?” businesses can take the opportunity while the country is on its GDP down low
because things can be much cheaper in that country rather than a country with a higher GDP. In which, in the long run, if that
country's economy rises, they make a small investment and get a big return in return

 
Social, Cultural, Demographic, and Natural Environment Forces - According to David (2011), “social, cultural, demographic, and environmental
changes have a major impact on virtually all products, services, markets, and customers”
Some of the key variables in demographic are childbearing rates, number of special-interest groups, number of marriages, number of divorces,
number of births, number of deaths, immigration and emigration rates, sex roles etc.
 
(situational example)

As of 28 June 2020 according to Worldometers, the population of the Philippines hits 109,563,304. It is expected to reach roughly
142 million by 2045 with average annual growth by 1.21% from 2010 as projected by Philippine Statistics Authority. This growing
population of the Philippines can be beneficial for school entrepreneurs. The more people there are in a country, the more schools
are needed to educate its citizens. Philippine government has been open in commercializing the education of the Philippine, though
there are state colleges and universities, yet still we cannot deny the fact that government funded schools are not enough to cater
everyone due to limited resources of the government and the increasing population of the country. Another point as well is that
some parents are also willing to pay a big amount of money for their children's education so long as their children would
experience comfort in studying in private schools.

 
Political, Governmental, and Legal Forces - According to David, “Local, state, and federal laws; regulatory agencies; and special-interest groups
can have a major impact on the strategies of small, large, for-profit, and nonprofit organizations”.
Evidently, every organization that wants to do business, whether tangible or intangible products, whether online or offline services, whether
micro or a big company; they all need to be registered first.
In the Philippines, there are five to six steps you need to go through and transact to different government agencies to formally register your
business.
Aside from licensing, the government also regulates and deregulates any form of business and its stakeholders during its business. For this
reason, according to David (2011), “political, government, and legal forces can be a source of threats and opportunities for both small and large
organizations”.
 
 
 
(situational example)

In dealing with COVID-19, last 15 June 2020, President Duterte announced that the Metro Manila shall be put to “General
Community Quarantine” from its previous state “Enhanced Community Quarantine” effective from June 1 to June 30. This act
allows the malls to be more open to public and even restaurants to accommodate dine-in customers with certain restrictions. In this
situation, this kind of move will affect the high soaring state of the food delivery business. Instead of ordering food online, some
people will now choose to eat their food in a dine-in setup since they have been in quarantine for a long time even though there’s a
risk of getting a COVID-19. People tend to choose this even though it wasn’t that 100% safe compare to food delivery simply
because they wanted to break from their usual setup at home. On the other hand, this kind of regulation that impacts restaurants
gives another reason for health material suppliers to increase their productions. As restaurants comply with health regulations
given by the national and local government, more businesses would be needing their product.

 
Technological Forces - According to David (2011), “revolutionary technological changes and discoveries are having a dramatic impact on
organizations”.
 
(situational example)

The way of purchasing and accessing products or services using the medium of the internet is now on demand, this is called e-
commerce. Before e-commerce comes, businesses are required to maintain a physical store to allow their customers to see and
avail their product or service. But nowadays, due to the convenience of the internet, a lot of businesses are now more focused on
showing and giving an experience to purchase their goods at their website. Because of this, there are some businesses who no
longer have their own physical store to sell their products, everything they sell are already posted on the internet. It lessens their
expenses because they don’t have to pay anymore a rent fee for their store. In addition, there are a lot of free platforms that are
available to build your business online presence. Some of them are Facebook and Instagram. These platforms are like a physical
marketplace, customers are just in one place.

 
Competitive Forces - Any business that battles a certain business in terms customers and supplies are considered competitor. Basically,
businesses that have the same market or same customers are battling over market share.
Competitors do have a direct impact on how organizations do their business. Either competitor can be an opportunity to expand your market
share or they are taking away market share on your end.
Identifying major competitors is not that easy, though there are things that are too obvious in the naked eye as to know which business is the
major competitor.
However, getting facts and real data is a different story than just merely an observation. Because it gives you a real figure who really is your
major competitor.
Initially business due to competition, business does not blatantly bring out their data into wide open but there are instances that they must. Like
in the Philippines, corporations need to submit on a yearly basis their financial statement in the Securities and Exchange Commission. Once a
business submits, it becomes a public document in which anyone could have access.
But on the other hand, information inside such as how the products of a certain business were made, their marketing information, and what the
business' future plans are is considered strictly confidential. Because of this, it becomes hard for a lot of businesses to identify who is their major
competitor right at the moment.
 
Industry Analysis: The External Factor Evaluation (EFE) Matrix
This matrix allows the organization to summarize and evaluate the external factors that can affect the organization. According to David (2011),
this matrix can be developed in five steps:
 
Step 1 List key external factors as identified in the external-audit process - Include a total of15 to 20 factors, including both opportunities and
threats, that affect the firm and its industry.
List the opportunities first and then the threats.
Be as specific as possible, using percentages, ratios, and comparative numbers whenever possible.
 
Step 2 Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (very important) - The weight indicates the relative importance
of that factor to being successful in the firm’s industry.
Opportunities often receive higher weights than threats, but threats can receive high weights if they are especially severe or threatening.
Appropriate weights can be determined by comparing success with unsuccessful competitors or by discussing the factor and reaching a group
consensus. The sum of all weights assigned to the factors must equal 1.0.
 
Step 3 - Assign a rating between 1 and 4 to each key external factor to indicate how effectively the firm’s current strategies respond to the factor,
where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor.
Ratings are based on effectiveness of the firm’s strategies. Ratings are thus company-based, whereas the weights in Step 2 are industry-based.
It is important to note that both threats and opportunities can receive a 1, 2, 3, or 4.
 
Step 4 Multiply each factor’s weight by its rating to determine a weighted score.
 
Step 5 Sum the weighted scores for each variable to determine the total weighted score for the organization.
 
It does not matter how many key opportunities and threats there are in EFE Matrix, the highest possible total weighted score for an organization
is always 4.0 and the lowest possible total weighted score is 1.0. The average total weighted score is 2.5. A total weighted score of 4.0 indicates
that an organization is responding in an outstanding way to existing opportunities and threats in its industry. In other words, the firm’s strategies
effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats. A total score of 1.0 indicates
that the firm’s strategies are not capitalizing on opportunities or avoiding external threats.
 
 
(example)

EFE Matrix done for Local Ten-Theatre Cinema Complex:

External Factor Evaluation Matrix

Key External Factors Weight Rating Weighted Score

Opportunities

1. Rowan County is growing 8% annually in population 0.05 3 0.15

2. TDB University is expanding 6% annually 0.08 4 0.32

3. Major Competitor across town recently ceased operations 0.08 3 0.24

4. Demand for going to cinema is growing 10% annually 0.07 2 0.14

5.  Two new neighborhoods being developed within 3 miles 0.09 1 0.09

6.  Disposable income among citizens grew 5% in prior year 0.06 3 0.18

7.  Unemployment rate in county declines to 3.1% 0.03 2 0.06

Threats

8. Trend toward healthy eating eroding concession sales 0.12 4 0.48

9. Demand for online movies and DVDs growing 10% annually 0.06 2 0.12

10.  Commercial property adjacent to cinemas for sale 0.06 3 0.18

11.  TDB University installing an on-campus movie theatre 0.04 3 0.12

12.  County and city property taxes increasing 25% this year 0.08 2 0.16

13.  Local religious groups object to R-rated movies being shown 0.04 3 0.12

14.  Movies rented from local blockbuster store up 12% 0.08 2 0.16

15.  Movies rented last quarter from Time Warner up 15% 0.06 1 0.06

Total 1.0 2.28

Interpretation and Recommendation:

“Note that the most important factor to being successful in this business is “Trend toward healthy eating eroding concession sales”
as indicated by the 0.12 weight. Also note that the local cinema is doing excellent in regard to handling two factors, “TDB
University is expanding 6 percent annually” and “Trend toward healthy eating eroding concession sales.” Perhaps the cinema is
placing flyers on campus and adding yogurt and healthy drinks to its concession menu. Note that you may have a 1, 2, 3, or 4
anywhere down the Rating column. Finally, note that the total weighted score of 2.58 is above the average (midpoint) of 2.5, so this
cinema business is doing pretty-well, taking advantage of the external opportunities and avoiding the threats facing the firm. There
is room for improvement, though, because the highest total weighted score would be 4.0. As indicated by ratings of 1, this business
needs to capitalize more on the “two new neighborhoods nearby” opportunity and the “movies rented from Time Warner” threat.

 
The Competitive Profile Matrix (CPM)
CPM Matrix is about identifying major competitors and their strengths and weaknesses in relation to the firm’s strategic position.
Step 1 – Identify the critical success factor. In the table, the critical success factors are the viable factors that can contribute for a business firms
to be successful in their own industry. Take note that, the critical success factors are different for different industry. For instance, part of critical
success factors of food business are the food quality and supply of ingredients. On the other hand, the critical success factors of a salon industry
include the service quality and level of the skill of the workers.
Step 2 – Identify the weight of each critical success factor. Note that, the higher the factor’s weight means that this factor contributes greatly to
the success of a business in the industry. On the other hand, the lesser the factor’s weight means that this factor is less valued or only has a less
impact in terms of the success of a business in the industry. In doing this it should be always remember that the total of all the weight should be
1.0.
Step 4 - Once the critical success factor and its specific weight are determined the subject business is then evaluated based on their current
standing on the different critical success factors. Whereas 4 = if the factor is their major strength, 3 = if their minor strength, 2 = if minor
weakness, and 1 = if major weakness.
Step 5 – Compute the score of each factor based on the subject business standing. This is done by multiplying the weight of the certain factor to
its subject business corresponding rating. For instance, if Advertising has 0.20 weight and the rating the strategist gave for Business #1 is 3
because it is considered as minor strength the score is 0.60. Whereas 0.20 x 3 = 0.60. Another example, if the Business #2 has a rating of 2 on
the Advertising that has a weight of 0.20 the score is then 0.40. Whereas 0.20 x 2 = 0.40.  
Step 6 – Add all the score of each subject business to know the total score.
 
(example)

Competitive Profile Matrix

Business 1 Business 2 Business 3

Critical Success Factors Weight
Rating Score Rating Score Rating Score

1. Advertising 0.20 1 0.20 4 0.80 3 0.60

2. Product Quality 0.10 4 0.40 3 0.30 2 0.20

3. Price Competitiveness 0.10 3 0.30 2 0.20 4 0.40

4. Management 0.10 4 0.40 3 0.20 3 0.30

5. Financial Position 0.15 4 0.60 2 0.30 3 0.45

6. Customer Loyalty 0.10 4 0.40 3 0.30 2 0.20

7. Global Expansion 0.20 4 0.80 1 0.20 2 0.40

8. Market Share 0.05 1 0.05 4 0.20 3 0.15

Total 1.0 3.15 2.50 2.70

Interpretation and Explanation:

In this example, the two most important factors to being successful in the industry are “advertising” and “global expansion,” as
indicated by weights of 0.20. If there were no weight column in this analysis, note that each factor then would be equally important.
Thus, having a weight column makes for a more robust analysis, because it enables the analyst to assign higher and lower numbers
to capture perceived or actual levels of importance. Note that Company 1 is strongest on “product quality,” as indicated by a
rating of 4, whereas Company 2 is strongest on “advertising.” Overall, Company 1 is strongest, as indicated by the total weighted
score of 3.15. Other than the critical success factors listed in the example CPM, factors often included in this analysis include
breadth of product line, effectiveness of sales distribution, proprietary or patent advantages, location of facilities, production
capacity and efficiency, experience, union relations, technological advantages, and e-commerce expertise. A word on
interpretation: Just because one firm receives a 3.2 rating and another receives a 2.80 rating in a Competitive Profile Matrix, it
does not follow that the first firm is 20 percent better than the second. Numbers reveal the relative strengths of firms, but their
implied precision is an illusion. Numbers are not magic. The aim is not to arrive at a single number, but rather to assimilate and
evaluate information in a meaningful way that aids in decision making”

CB101: EVALUATION OF INTERNAL FACTORS

Nature of Internal Audit

In strategic management, an internal audit determines the organization’s position within its industry. This process gathers information about key
internal factors to ascertain the strengths and weaknesses of the organization in different areas.

 Internal audit requires gathering and assimilating information about the firm’s management, marketing, finance, production, operations,
research and development and MIS operations.

 Performing an internal audit provides more opportunity for participants to understand how jobs, departments, clusters, and divisions fit into
the whole organization. Which greatly benefits managers and employees in performing better when they have a thorough understanding on
how their work affects other areas of the firm.
 There are certain strengths and weaknesses in different functional areas of almost every organization. That is why there’s no single
organization that can be completely equal in its all functional areas. Indeed, the internal strategic management audit is essential for the
success of the organization.

 The process of internal auditing starts with identifying the strengths and weaknesses of the organization by the managers and employees.
Certain information from different functional areas are collected and arranged so that members of the organization better understand the
tasks of different departments and divisions of the firm. This understanding helps managers and employees to perform their duties and
responsibilities more effectively because their works will influence other functional areas of the organization.

 An organization that does not perform Internal Strategic Management Audit lacks interaction and understanding of its finances and issues
arising within the organization. 

Resource-based View (RBV)

RBV is an approach to achieving competitive advantage that emerged between 1980s and 1990s after the major works published by Wernerfelt,
B., Prahalad and Hamel and Barney, J. The supporters of this approach argue that organizations should look inside the company to find the
sources of competitive advantage instead of looking at its competitive environment.

 According to RBV, it is much more feasible to exploit external opportunities using existing resources in a new way rather than trying to
acquire new skills for each different opportunity. The basic premise of RBV is that the nature of a firm’s internal resources should be
considered first and foremost in devising strategies which leads to sustainable competitive advantage. 

 The approach asserts that it is advantageous for a firm to pursue a strategy that is not currently being implemented by any competing firm.
For a resource to be valuable, it must be either rare, hard to imitate and organized to capture its value. These characteristics enable the firm
to implement strategies that improve its efficiency and effectiveness to lead to a more sustainable competitive advantage. Hence, RBV has
continued to grow in popularity and continues to seek a better understanding of the relationship between resources and sustained
competitive advantage in strategic management.

 
(illustration)
Internal Departments
·         Management - According to Kreitner (n.d.), “management is the process of working with and through others to achieve organizational
objectives in a changing environment. Central to this process is the effective and efficient use of limited resources”. According to David (2011),
management has different functions such as planning which is part of strategy formulation; organizing, motivating, staffing as part of strategy
implementation; and controlling as part of strategy evaluation

 Planning - According to David (2011), “Planning consists of all those managerial activities related to preparing for the future. Specific tasks
include forecasting, establishing objectives, devising strategies, developing policies, and setting goals”. 

o By means of this, organizations can calculate and see the risk of making a decision ahead of time before the actual implementation.

o If carefully studied, it can utilize resources and avoid undesirable expenses on the part of the organization.

o In doing a planning, managers should be open in receiving data and information around their environment as there can be some things
that are essential to what he/she is planning. Hence, managers should be open to communicate and collaborate with the employees, as
these people are doing jobs differently and have been exposed to different areas of the business. In which at times, managers tend to
be overlooked. 

 Organizing - According to David (2011), “Organizing includes all those managerial activities that result in a structure of task and authority
relationships. Specific areas include organizational design, job specialization, job descriptions, job specifications, span of control, unity of
command, coordination, job design, and job analysis”.

o The main reason as to why management needs to organize the organization is for everyone or all the employees to know as to what
their specific involvement is in attaining the organizational goal. It answers the questions, who will be the person in command? Who
 decided over this situation? With this function, it creates the organization to have a chain of command, guided with each individual
job description.

o The people who are doing a combining job are called departments.

o Organizations should always make clear to each employee what are only their tasks. In addition, managers as well should watch
themselves as to whether they go beyond their boundary of giving tasks to the unassigned employee. 

 Motivating - According to David (2011), “Motivating involves efforts directed toward shaping human behavior. Specific topics include
leadership, communication, work groups, behavior modification, delegation of authority, job enrichment, job satisfaction, needs fulfillment,
organizational change, employee morale, and managerial morale”.

o Some managers overlooked the importance of motivating their teammates within their departments. They tend to work daily without
considering whether the other employees still have the will to work harder.

o Some tend to disregard this one thing that can push an employee to go further. Motivation can also explain why if there are two
employees doing the same job why one of them is giving such hard effort and the other is not.

 Staffing - According to David (2011), “Staffing activities are centered on personnel or human resource management.. Included are wage
and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, affirmative
action, equal employment opportunity, union relations, career development, personnel research, discipline policies, grievance procedures,
and public relations.

 Controlling - According to David (2011), “Controlling refers to all those managerial activities directed toward ensuring that actual results
are consistent with planned results. Key areas of concern include quality control, financial control, sales control, inventory control, expense
control, analysis of variances, rewards, and sanctions”.

o This function includes for the manager to check as to whether currently applying strategies are conforming to their intended outcome.
On the note that it does not, managers should make amendments within their scope of management.

 
 
·         Marketing is the process of defining or fulfilling a customer's needs and wants. It is guided by its seven basic functions; (1) customer
analysis, (2) selling products/services, (3) product and service planning, (4) pricing, (5) distribution, (6) marketing research, and (7) opportunity
analysis.

 Customer Analysis - this is the process of knowing your customer, by identifying who they really are; what are their wants, needs, and
desires; what are they doing in life; what are their ages; what are their buying patterns and behavior etc.

o Most likely analysis of customer are done grounded on researches about the customers like customer surveys, data bank of the
business, public documents, marketing research etc.

 Selling products/services - this activity is about how the organization should make their customer buy the product and services. According
to David, F., selling “includes many marketing activities, such as advertising, sales promotion, publicity, personal selling, sales force
management, customer relations, and dealer relations”.

 Product and Service planning - According to David F., “product and service planning includes activities such as test marketing; product and
brand positioning; devising warranties; packaging; determining product options, features, style, and quality; deleting old products; and
providing for customer service”.

o This is important as this describes the present and future of the product/service. It’s a fact that a business will not be able to run
without a product or service.
 o Product defines the business product/service current state as what it is in the market and what is their product in the market.

o Furthermore, by studying its details, businesses would be able to understand what they should do in the future.

 Pricing - this is the area that is being affected by different stakeholders from time-to-time, in some selected commodities, government gave
an “SRP” or selling retail price, in which, business who sell those products must adhere to that SRP or else, they would be considered as
violators of law.

o Consumers also affect the pricing in a way that there are products in the market nowadays that tend to become higher because people
are consuming it in an increasing manner.

o Suppliers can also affect the pricing of a business’ product and services, like, every time a certain supplier increases their price, some
businesses tend to think that if their supplier’s price changes so does their product price should also change in order to cover this
increase. By means of this, their additional expenses for the supplier are being covered by the customers.

o Marketing tends to investigate these areas carefully as pricing really does have a significant effect over the customer’s decision
making on choosing the product.

 Distribution - According to David, F., “distribution includes warehousing, distribution channels, distribution coverage, retail site locations,
sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing”.

o Businesses always looking into this distribution as to whether things are going smoothly in these areas. This is vital for business
because this affect the flow of their service and results to customer’s satisfaction or dissatisfaction.

 Market Research - According to David F., “Marketing research is the systematic gathering, recording, and analyzing of data about problems
relating to the marketing of goods and services. By means of doing this, businesses can identify their strengths and weaknesses.

o Marketers use different kinds of presentation of the gathered data that can be used in formulating business strategies.

 Opportunity Analysis - According to David F., “involves assessing the costs, benefits, and risks associated with marketing decisions”.

o This can be done by first computing the cost of how much a strategy would cost an organization, next step is assessing the benefit they
could get with it. Then, lastly, comparison of the two to see the opportunity analysis.

o Most likely if the firm gets more of cost rather than benefit it tends organizations may find this strategy unattractive. On the other
hand, if the benefit is greater than the costs, organizations tend to follow that strategy.

 
·         Finance/Accounting - According to James Van Home, “factors concerning finance and accounting comprises three decisions namely
investment decisions, financing decisions and dividend decisions”. In order to come up with such decisions, an organization must use a method
called financial ratio analysis.

 Ratio analysis can be used both by profit and non-profit organizations. Because this can determine the business’ strengths and weaknesses.
This concerns about where to allocate or reallocation the resources whether tangible asset or cash budget

 Financing decisions focuses with the capital structure the methods of how business can raise the capital. This kind of decisions must be
both determined in short-term and long-term needs as for the capital needed for the organization to work, issuance of stocks, increasing of
debts and even selling the organization’s assets.

 According to David (2011), “dividend decisions determine the amounts of funds that are retained in a firm compared to the amount paid out
to the firm’s shareholders”. This decision is concerned with issues such as issuance of stocks, stability of dividends, and percentage
earnings.
 
·         Production/Operations - According to David, “this consists of all those activities that transform inputs into goods and services”. This area
of business deals with inputs, processes and outputs that vary across industries.

 Production planning allows managers to decide on details of the plan as to how production will be done, where site locations should be and
what resources will be needed.

 Production control concerns with the control of schedules, quality and costs of products or services that are being made or delivered.
Continuous improvement allows the managers to analyze data and develop more efficient ways of producing goods or delivering services.

 
·         Research and Development - includes activities that companies undertake to innovate and introduce new products and services. It allows
the organization to stay ahead of its competition.

 Without and R&D program, a company may not survive on its own and may have to rely on other ways to innovate. With the help of R&D,
organizations can design new products and improve their existing offerings.

 The overall mission of R&D includes supporting existing businesses, helping launch new businesses, developing new products, improving
product quality and manufacturing efficiency as well as broadening the technological capacity of the organization.

 R&D in organizations can take two basic forms such as Internal R&D and External R&D. But many companies use both approaches to
develop new products and formulating and implementing strategies.

 Internal R&D in which an organization operates its own R&D department. On the other hand, external R&D in which an organization hires
independent researchers to develop specific products.

 
·         Management Information System - MIS’s purpose is to improve the performance of an enterprise by improving the quality of managerial
decisions. MIS collects, stores, and presents information that answers important operating and strategic questions.

 MIS receives raw materials from the external and internal evaluation of an organization then gathers data about marketing, finance,
production, demographics, socio-cultural and etc. These data are integrated in ways needed to support managerial decisions.

 MIS allows data to be evaluated, filtered, condensed, analyzed and organized for a specific purpose, problem, individual and time.

 
Value Chain Analysis
According to David (2011), this is a process where a firm refers to the process whereby a firm determines the costs associated with
organizational activities (e.g. from purchasing raw materials to manufacturing product(s) to marketing those products). VCA aims to identify
where low-cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities.
·         Its goal is to recognize which activities are the most valuable to the organization and which could be improved to provide competitive
advantage.
·         This analysis reveals where the firm's competitive advantage or disadvantage are.
·         To know if a firm’s VCA is competitive enough, a tool called Benchmarking is used. According to David (2011), “Benchmarking entails
measuring costs of value chain activities across an industry to determine “best practices” among competing firms for the purpose of duplicating
or improving upon those best practices”.
·         According to David (2011), there are several steps in doing a VA, 
step (1) divide the organization’s operations into specific activities or business process, 
step (2) an analyst attached a cost to each discrete activity. Take note that, costs should be in terms of both time and money. After these, 
step (3) convert the cost data into information by checking for competitive strengths and weaknesses that might relate to competitive
advantage and disadvantage
(example)

Value Chain for a Manufacturing Firm:

OPERATIONS MONTHLY CONSUMPTION COST PER CONSUMPTION

Supplier Costs

Raw Materials 4  Php 50,000.00

Fuel 6 Php 5,000.00

Energy 30 Php 3,000.00

Truck Driver 4 Php 3,000.00

Warehouse 30 Php 1,000.00

Production Costs

Inventory System 30 Php 1,000.00

Computer 30 Php 1,000.00

Maintenance 1 Php 3,000.00

Plant Location 30 Php 1,500.00

Distribution Costs

Loading 4 Php 500.00

Shipping 8 Php 5,000.00

Trucking 22 Php 2,000.00

Explanations:
1. The time consumption varies depending on how relatable and measurable each activity is in terms of time. As much as
possible choose only time consumption based on the related able time for all activities. They should have an equal measurement
of time to see it’s significance to each other. The reason why on our example it was measured based on monthly basis simply
because all the mentioned activities are relatable and measurable only on monthly basis.
2. There are activities that organization consume every day like plant location, inventory system, computer etc. yet still daily
basis cannot be use as a basis in measuring consumption. Because most of the activities are not a type of activity that they are
doing daily. Hence, it is not advisable and impossible to measure it on a daily basis.
3. Weekly basis type of measurement consumption is also not applicable because there is a specific activity that only happens
once a month like the maintenance under production cost. Weekly basis cannot be used a way to measure a once-a-month
activity of an organization.
4. For clarification, cost per consumption only is the reflection of how much money the organization spend every time they are
doing a certain activity. In line with our example, the actual cost for using and maintain a warehouse in supplier costs is
roughly total of Php 30,000 per month and the number of days they are using this on a monthly basis or thirty (30) days
equivalent. Meaning, every day they are spending Php 1,000 to operate in this warehouse.

Php 30,000 (total cost monthly)

30 Days (no. of days)

 
Internal Factor Evaluation Matrix
This tool summarizes and evaluates major strengths and weaknesses in the functional areas of business and used as a basis for evaluating
relationships among those areas. Introduced by Fred R. David, this tool is used to summarize information gained from an organization’s analyses
and then it will be evaluated and used to build SWOT analysis.
 
·         Step 1 Identify 10-20 key internal factors and each key factor should be assigned a weight ranging from 0.0 (low importance) to 1.0 (high
importance).

 The sum of all weights must equal to 1.0.

 The number indicates how important the factor is if a company wants to succeed in an industry.

 If there were no weights assigned, all the factors would be equally important.

 
·         Step 2 rate how strong or weak each factor is in a firm.

 The numbers range from 4 to 1, where 4 means a major strength, 3 for minor strength, 2 for minor weakness and 1 for major weakness.

 
·         Step 3 - Get the weighted scores and total weighted score. This result from weight multiplied by rating.

 Each key factor must receive a score.

 Total Weighted Score is simply the sum of all individual weighted scores.

 The total score of 2.5 is an average score. A low total score indicates that the company is weak against its competitors.

(example)

IFE Matrix done for Retail Computer Store:

Internal Factor Evaluation Matrix

Key Internal Factors Weight Rating Weighted Score

Strengths

1. Average customer purchase increase from $97 to $128 0.07 4 0.28

2. Employee morale is excellent 0.10 3 0.30

3. In-store promotions resulted in 20% increase in sales 0.05 3 0.15

4. Revenues from repair/service segment of store up 16% 0.15 3 0.45

5. Revenue per employee up 19% 0.02 3 0.06

6. Inventory turnover increased from 5.8 to 6.7 0.05 3 0.15

7. Newspaper advertising expenditure increased 10% 0.02 3 0.06

8. Store’s debt-to-total assets ratio declined to 34 percent 0.03 3 0.09

9. In-store technical support personnel have MIS college degrees 0.05 4 0.20

Weaknesses

1. Often customers have to wait and check out 0.1 1 0.05

2. Store has no website 0.07 2 0.10

3. Bathroom in store need refurbishing 0.02 1 0.02

4. Supplier on-time delivery increased to 2.4 days 0.2 1 0.03

5. Carpet and paint in store somewhat in disrepair 0.01 1 0.02

6. Revenues from software segment of store down 12% 0.10 2 0.20

7. Location of store negatively impacted by new Highway 34 0.15 2 0.30

8. Revenues from businesses down 8% 0.04 1 0.04

Total 1.0 2.5

Interpretation and clarification:

“In IFE Matrix is provided in Table 4-10 for a retail computer store. Note that the two most important factors to be successful in
the retail computer store business are “revenues from repair/service in the store” and “location of the store.” Also note that the
store is doing best on “average customer purchase amount” and “in-store technical support.” The store is having major
problems with its carpet, bathroom, paint, and checkout procedures. Note also that the matrix contains substantial quantitative
data rather than vague statements; this is excellent. Overall, this store receives a 2.5 total weighted score, which on a 1-to-4
scale is exactly average/halfway, indicating there is definitely room for improvement in store operations, strategies, policies,
and procedures.”

CB101: 05 STRATEGIES IN ACTION

Long Term Objectives

According to David (2011), “Long-term objectives represent the result expected from pursuing certain strategies.” It usually includes specific
improvements in the organization’s competitive position, profitability, employee relations, as well as return on investment.
·         Businesses come up with a long-term objective in order to measure the managerial performance of the firm because this guides the
leadership to its vision and without it, an organization may drift into the wrong path that will lead to certain losses
·         Objectives should be SMART which stands for (1) Specific, (2) Measurable, (3) Attainable, (4) Relevant, and (5) Time-bound.
·         Having a clear objective provides direction by revealing expectations, allows teamwork and establishes priorities. In this way uncertainty
will be reduced, conflicts can be minimized, and consistent decision making would have a basis.

Types of Strategies
An organization could pursue different types of strategies with different variations. However, most firms pursue a combination of two or more
strategies that can be risky if carried too far.
·         Organizations cannot afford to pursue all strategies even though it will greatly benefit the firm that’s why difficult decisions must be made
in prioritizing which strategies will be pursued first.
(illustration summary)

Type of Strategy Strategy Definition

Integration Strategy Forward Integration Gaining ownership or increased control over distributors or retailers.

Backward Integration Seeking ownership or increased control of a firm’s suppliers.

 Horizontal Integration Seeking ownership or increased control over competitors.

Seeking increased market share for present products or services in

Market Penetration
present markets through greater marketing efforts.

Intensive Strategy Market Development Introducing present products or services into new geographic areas.

Seeking increased sales by improving present products or services or

Product Development
developing new ones.

Related Diversification Adding new but related products or services.

Diversification Strategy Unrelated
Adding new, unrelated products or services.
Diversification

Regrouping through cost and asset reduction to reverse declining sales

Retrenchment
and profit.
Defensive Strategy
Divestiture Selling a division or part of an organization.

Liquidation Selling all of a company’s assets, in parts, for their tangible worth.

·         Integration Strategy - Integration strategies include forward, backward and horizontal strategies.

 This strategy allows a firm to gain control over distributors, suppliers, or competitors.

 This strategy aims to expand its capacity so that it will gain control of different factors that affect the profitability of a firm such as
distributors, suppliers, and competitors.

 Forward Integration - This is a strategy in which business activities are expanded to control direct distributors and retailers.

o There are businesses nowadays that outsource the transportation of bringing their product to customers to a logistics company; in
applying forward integration, that company could take over the distribution of their product. In which, a business could have more
control as to how many products they should deliver, timing of the delivery, replenishment within their retailers etc.

o Further, forward integration can also be applied in taking more over the retailer's store.

(example)

 In supermarkets, the slots in the supermarket rack are for lease, in other words, businesses are renting those spaces in order for
them to show and to sell their products. Businesses can buy more of those slots in the supermarket; they can take over more of
those spaces depending on their budget.

 Backward Integration - this is a strategy in which a business purchases or produces segments of its supply chain.

o This strategy can allow business to bring down costs and guarantees access to key materials.

(example)

 For instance, a company who outsourced their supply of chicken from a farmer can also build and buy their own farm and
supply themselves with the amount of chickens they need.

·         Horizontal Integration - a strategy in which businesses increase production of goods and services by expansion or merger.

o This way the firm strengthens its position against its competitors.

(example)
 Like last 2018, Grab Philippines bought their major competitor Uber. In which, Grab had most of the market share in the
Philippines.

·         Intensive Strategy - Intensive strategies include market penetration, market development and product development.

 This strategy requires marketing efforts in a firm’s competitive position with existing products by improving them or introducing them to a
new market.

 This strategy aims to broaden its market capacity which will help in increasing its profits.

 This is possible by making existing products or services more effective or introducing new variations of products.

 Market Penetration – this is a strategy in which a firm attempts to grow by maximizing its products or services being offered to its existing
markets. This is about a battle of market share among businesses in business in which they are in.

o Market penetration can be applied by improving the business competitive advantage, addressing directly the problem of other
competitor’s customers within your product so that businesses can choose you.

o Another way of applying market penetration is to increase production. Given that all businesses do have a competitor, everyone of
them controls a portion of the market share. By producing more they could sell more.

However, this strategy requires a strong execution when it comes to pricing, promotion, and distribution. Merely just doing more than the usual
production of business does not mean that they could penetrate the market instantly. It still comes down to the question of how many among
their market they could have even more.
(example)

 A soft drink company produces 100 Million bottled soft drinks every year. By doing market penetration, this soft drink company
increases its production more than its usual amount. On this, they could have a chance to sell more to the market and increase
their market share.

·         Market Development - This is a strategy in which firms develop new market segments for its current products or services. Since this
strategy targets new market segments it simply means that the business will gain new customers.
(example)

 Tim Horton’s, a well known Canadian brand of coffee shop brought their business here in the Philippines in the year 2016.
Canadian people and Filipino people are different in terms of behavior and taste in coffee and both do have a different market.
So in terms of moving it to the Phlippines, Tim Horton applied the market development.

·         Product Development - This is a strategy in which a firm conceptualizes new designs and developments in their products as well as
marketing of newly produced or rebranded goods or services.

 With this strategy, business focuses on doing research and development within their existing product. Since the customer’s behaviour is
changing from time-to-time, businesses do this to cope with the environment.

(example)

 Apple has been doing a yearly development over their products like their cell phone brand iPhone. Their habit is to always
improve their previous year model from software to hardware, it’s capability etc. Giving their customers always a new taste of
Apple products every year.

·         Diversification Strategy - Diversification strategies include related diversification and unrelated diversification. This strategies are used to
expand firms’ operations by adding new markets, products or services in a new product line or new industry.
 Related Diversification – this is a strategy in which an organization expands its activities into different product lines that are similar to the
goods or services that they offer.

(example)

 One example of this is what Apple does within their new Airpods. Though essentially, earphones always come with a phone. But
concentrating on it and doing more upgrades within that accessory it's already a related diversification. Primarily, they are
doing it to enhance the experience of their iPhone users. Not that they want to penetrate the market of music equipment but to
make their main product (iPhone) be more exciting.

 Unrelated Diversification – a strategy in which organizations enter an entirely new industry that is not similar to the industry that an
organization affiliated with.

(example)

 Samsung's first product was black-and-white television, but eventually, they started to create cell phones, computers, etc. Which
is a whole new different product unrelated to their first product.

·         Defensive Strategy - This include retrenchment, divestiture and liquidation. These strategies consist of the company's actions to protect its
competitive advantage.

 Companies use these strategies primarily to lower the risk of being attacked and influence the competitors to aim their efforts at other
competitors.
 This strategy aims to protect the business’ share in the market to keep the customers satisfied and profits to be stable.

 Retrenchment - This is a strategy in which businesses reduce costs or assets such as employees due to ineffective management systems, low
productivity or other factors that leads to loss of sales.

o But retrenchment is not something an organization can usually do because they thought they should for their major advantage.
Retrenchment has been guided by the rules of implementation of DOLE, and companies who do this incorrectly can result in receiving
a certain deal from the law of the country.

(example)

 Due to the Covid-19, a lot of companies are removing employees within their responsibility. For the reason that the company
can no longer support them financially since businesses are not 100% open for the market. Expenses of the company becomes
higher more than the income. Before this businesses retrench employees, they go through the passing of requirements of DOLE
before they execute this retrenchment.

·         Divestiture - This is a strategy of a firm in which it disposes its assets or part of its business lines or subsidiaries to another company so
that the business will obtain funds to finance its other assets or subsidiaries. Some companies in order to survive do this kind of strategy.
(example)

 Some big and stock corporations sold their stock to investors just to fuel up their business and eventually been able to survive in
the current market state. This has been a practice for some businesses. But there are some who intentionally expands their stock
within their corporation, so that they would have something they could offer for their investors. Hoping eventually, someone
would invest and they would have more capital to use to expand their business.

·         Liquidation - This is a strategy of an organization in which it sells off parts of its company’s assets such as inventories and property, plant
and equipment to generate cash. This strategy is usually applied if a company is insolvent or cannot pay its obligations.
(example)

 There are business that going through a really dark times where their sales is neglecting and they had few of debt that they need
to pay, in which they would not be able to keep up with. To survive in the business, company may sell their spare equipment and
machineries to their competitors just to cope up. This may sound absurd, but this helps the business to survive their current
situation

Michael Porter’s Five Generic Strategy

Porter’s Generic Strategies are defined as “a useful framework for organizations to identify a potential niche in which they can give a
competitive advantage in any industry”. This framework is used for planning the strategic directions of a business considering the advantages in
the marketplace over the competitors.

(illustration)

·         Cost Leadership (Type 1 and Type 2) - This strategy attempts to gain market share by appealing to cost-conscious customers which allows
the organization to sell products or services for around or below the average price for the industry among competitors (Type 1) or offering a
products or services that is of a quality and at the same time affordable.

 This is possible by increasing productivity and efficiency while eliminating wastes and controlling costs.

 According to David and David (2017), Type 1 and Type 2 are effective based on the following conditions:

"1. Price competition among rival sellers is especially vigorous.

2. Products of rival sellers are essentially identical and supplies are readily available from any
of several eager sellers.
3. There are few ways to achieve product differentiation that have value to buyers.
4. Most buyers use the product in the same ways.
5. Buyers incur low costs in switching their purchases from one seller to another.
6. Buyers are large and have significant power to bargain down prices.
7. Industry newcomers use introductory low prices to attract buyers and build a customer base.”
                        (Source: Quoted directly from Strategic Management – Concepts and Cases page 136)

·         Differentiation (Type 3) - This strategy allows firms to make products different or more attractive than any other within the industry to
achieve a competitive advantage.

 Firms uses this strategy to provide customers with something unique or different from what their competitors offer. This is made possible
by analysing the strengths and weaknesses of the firm and the needs of its customers.
 According to David and David (2017), Type 3 is effective based on the following conditions:

"1. There are many ways to differentiate the product or service and many buyers perceive these
differences as having value.
2. The buyer’s needs and uses are diverse.
3. Few rival firms are following a similar differentiation approach.
4. Technological change is fast paced and competition revolves around rapidly evolving product features.”
(Source: Quoted directly from Strategic Management – Concepts and Cases page 137)
 
·         Focus (Type 4 and Type 5) - This refers to an organization who seeks to develop a lower-cost advantage, but only within a smaller market
segment.

 This strategy provides an option to develop uniquely low-cost products for the market.

 This allows organizations to build strong brand loyalty among their customers.

 According to David and David (2017), Type 4 and Type 5 are effective based on the following conditions:

“1.  The target market niche is large, profitable, and growing.

 2. Industry leaders do not consider the niche to be crucial to their own success.”
(Source: Quoted directly from Strategic Management – Concepts and Cases page 137)
 
Means of Achieving Strategies
·         Cooperation Among Competitors - According to David (2011), “Strategies that stress cooperation among competitors are being used
more. Collaboration among competitors may succeed if both firms will contribute something distinctive.”

 Between competitors who agreed to cooperate is a formal agreement, where statement like exchanging of information will be required.

 One thing a business should be careful in entering this kind of activity is not to share too much. Given that each parties’ responsibilities are
mentioned in the agreement, other employees might go too far on what they should always share. If not carefully watched, increase the gap
of your competitor’s advantage more than your business.

(example)

 In airline industry, there’s a term called airline alliances where different airlines cooperate together in what they called
“codesharing”. Codesharing means that airlines will share their one flight schedule to each other as needed arise.

·        Joint Venture - According to David (2011), “Joint venture is defined as “a popular strategy that occurs when two or more companies form
a temporary partnership for the purpose of capitalizing on some opportunity.”
·         This strategy involves an agreement between two or more parties to pool their resources for the purpose of accomplishing a task such as
new projects or other business activities.
·         This venture can combine small or large companies to take on projects regardless of size or level of difficulty.
 
·         Merger/Acquisition - According to David (2011), “Merger occurs when two equal sized organizations united to form one enterprise. An
acquisition occurs when a large organization purchases smaller firms or vice versa.”

 On this, firms that acquire a business have the full authority over all the data and property that purchased business. On the other hand,
during merging of businesses, it’s the same way as being open to each other businesses without holding back any property or information.
 The goal of this strategy is to create more value. When a merger or acquisition is not desired by both parties it is called hostile takeover but
if acquisition is desired by both firms then it is termed as friendly merger. However, not all mergers are effective and successful because
some companies failed in doing so. Factors such as integration difficulties, inadequate evaluation of targets, large debts, too much
diversification, different cultures and or reduced employee morale due to relocations or layoffs are common reasons why Merger and
Acquisition fails.

 Other firms adopts the First Mover Advantages. First Mover Advantages refers to the benefits a firm may achieve by entering a new market
or developing a new product or service prior to rival firms.

o First mover includes securing access to rare resources, gaining new knowledge of key factors and issues, and carving out market
share.

o This strategy also includes unexpected and unanticipated problems and costs that occur from being the first firm doing business in the
market. That’s why when taking advantage of such a strategy, a thorough feasibility is required.

 
·         Outsourcing – This is the process where a functional operations of a firms tend to Outsourcing allows companies to take over the
functional operations of other firms such as human resources, information systems, payroll, accounting, customer services, and marketing. It is
beneficial for some companies to do outsourcing since it is less expensive and it allows the firm to focus on its core business which enables the
firm to provide better services.