STRATEGIC MANAGEMENT HANDOUT 5
supply, and disruption through emerging technologies that may drive products or services
Aspect of Environmental Scanning
Environmental scanning refers to an in-depth examination of key factors that influence the business
operations of a firm. It involves carefully studying a firm’s external environment to predict environmental
B. PESTEL Analysis. It is a tool to identify the external forces that may affect an organization
changes and detect changes already underway.
Natural environment. It includes physical resources, wildlife, and climate that are an inherent part of
existence on Earth.
Societal environment. It is mankind’s social system that includes general forces that do not directly
affect the short-run activities of the firm but can influence its long-term decisions.
Economic forces. These regulate the exchange of materials, money, energy, and information.
Technological forces. These generate problem-solving inventions.
Political-legal forces. These allocate power and constrain and protect laws and regulations.
Sociocultural forces. These regulate the values, morals, and customs of society.
Task environment. It includes elements or groups that directly affect a firm and, in turn, are affected by
it.
Customers. They have the power to create or reduce the demand for a product or service.
Suppliers. They provide a product or service to another business.
Competitors. They provide a better or similar product to the same target segment.
Employees. They directly participate in activities that help fulfill the firm’s goals.
Government Regulations. Any change in tax law will impact the business operation.
Special Interest Groups. They bring attention to the firm and could affect the operation in either
a positive or negative way.
Industry Analysis: Analyzing The Task Environment
C. Porter's Five (5) Forces. It is developed by Michael E. Porter as a framework for assessing
Part of the industry analysis examines the important stakeholder groups, like suppliers and customers, in
a particular corporation’s task environment.
A. SWOT Matrix. It is a framework used to evaluate a firm’s competitive position by listing the
conditions inside and surrounding it. SWOT assesses internal, external, current, and future
potential factors that may affect the market position of a particular organization.
Strengths. These are the internal areas where an organization excels and factors that
separate an organization from its competitors. These include a strong brand image, loyal
customer base, a strong balance sheet, and unique technology.
Weaknesses. These are the internal areas that hinder an organization from performing at its
optimum level. The business needs to make improvements to remain competitive in these
areas. These include a weak brand, higher-than-average turnover, high levels of debt, an
inadequate supply chain, or lack of capital.
Opportunities. These are favorable external factors that could give an organization a
competitive advantage. For instance, if a country cuts tariffs, a car manufacturer can export its
cars into a new market, increasing sales and a larger market share.
Threats. These are the factors that may pose potential harm to an organization. For instance,
a drought threatens a wheat-producing company as it may destroy or reduce the crop yield.
Other common threats include rising costs for materials, increasing competition, tight labor
obsolete.
positively and negatively.
Political. These factors determine the impact of government and government policy on a
particular organization or a specific industry. It includes trade, fiscal, and taxation policies,
among others.
Economic. These factors determine the impact of the economy and its performance on an
organization and its profitability. These include interest rates, employment or unemployment
rates, raw material costs, and foreign exchange rates.
Social. These factors determine the impact of the social environment and emerging trends on
the business profitability of an organization. These also help marketers to understand the
changing preferences of the customers further. These include changing family demographics,
education levels, cultural trends, attitude changes, and changes in lifestyles, among others.
Technological. These factors determine the impact of technological innovation and
development on a particular market or industry. These include digital or mobile technology
changes, automation, research, and development. Moreover, these also include technological
influence on distribution, manufacturing, and logistics methods.
Environmental. These factors determine the influence of the surrounding environment and
ecological aspects' impact on a market or industry. These include climate, recycling
procedures, carbon footprint, waste disposal, and sustainability.
Legal. These factors determine the importance of understanding legal laws and procedures in
a given territory where a business operates. These include employment legislation, consumer
law, health and safety, and international and trade regulations and restrictions.
and evaluating the competitive strength and position of a business organization.
Supplier power. This force analyzes how suppliers can easily influence price increases. This is
driven by the following factors: number of suppliers of each essential input; uniqueness of
their product or service; relative size and strength of the supplier; and cost of switching from
one supplier to another.
Buyer power. This force analyzes how buyers can easily influence price decreases. This is
driven by the number of buyers in the market, the importance of each buyer to the
organization, and the cost to the buyer of switching from one supplier to another. For
instance, a few powerful business buyers can often dictate terms.
Competitive rivalry. This force examines the intensity of competition in the marketplace. This
is driven by the number and capability of competitors in the market. Rivalry competition is
high when there are few businesses equally selling a product or service, when the industry is
growing, and when consumers can easily switch to a competitor's product for a cheaper cost.
When rivalry among competitors is intense, advertising and price wars can ensue, negatively
impacting the business in the long run.
Threat of substitution. This force is threatening when buyers can easily find substitute
products with attractive prices or better quality and when buyers can switch from one
 product or service to another with little cost. For example, switching from coffee to tea does
5. Direct Sales A company's employee will be the one to demonstrate Avon, Herbalife,
not cost anything, unlike switching from car to bicycle. and sell the product or service being offered directly to Mary Kay
Threat of new entrants. This force determines how easy or difficult it is to enter a particular the intended consumer.
industry. If an industry is profitable and there are few barriers to enter, rivalry soon
intensifies. When more organizations compete for the same market share, profits start to 6. E-Commerce A business model in which companies and individuals Lazada, Shopee,
fall. It is essential for existing organizations to create high barriers to enter to deter new buy and sell products and services online. Because the ebay, Metrodeal,
entrants. business is entirely online, the products and services Zalora, Shein
D. Ecosystem Assessment Tool. The business ecosystem is demonstrated by a network composing offered are nearly limitless.
four (4) types of players in the industry: customers, suppliers, competitors, and complementors. The
term "ecosystem" is derived from the concept of the biological system in the environment. 7. Affiliate A commission-based business model by advertising Youtube, Clickbank,
Customers. These are the people or parties that buy the products and services of an Marketing products or services of other companies on their Affliaxe, Facebook
organization. websites.
Suppliers. These parties provide the resources to produce or sell finished products or services. 8. Razor and Blade Where a product is sold at a much lower price to make Playstation, Xbox,
Competitors. These parties fight over an organization's market share by offering similar the consumer buy higher-priced items later. Gilette
products or services and targeting similar customers.
Complementors. These organizations offer complementary or harmonizing products or
9.Consultation Companies use the consulting business model by hiring Law Firms, I.T.
services that could work well with a company’s products to make the result more attractive to
subject-matter experts who can offer advice to clients on Supports, Private
consumers. specific organization areas. Tutors
10. Lock-In This is done by locking customers into a company’s Apple, Microsoft
STRATEGIC MANAGEMENT HANDOUT 6 product or service, making it difficult to abandon the Office Suite
company without dealing with negative consequences.
Business Models
A business model is a company’s method of making money relevant to its business environment. It 11. Multi-brand The parent company will offer similar products with Maybelline, Procter
involves the key structural and operational characteristics of a firm considering its target market, product different brand names to increase its market share. & Gamble, Unilever
offerings, competitive advantage, and after-sales services.
12. Pay-as-you-go There is no recurring bill or subscription necessary. This AT&T, Smart, and
model should entice those who do not like to be tied Globe telco.
down.
Business Models Description Examples
1. Freemium Offers the basic version of the product or service for free Dropbox, Spotify,
Value Chain Analysis (VCA)
to entice customers to purchase the more advanced Canva, Linkedin
Value chain represents a firm's internal activities when transforming inputs into outputs. Value Chain
features and add-ons.
Analysis (VCA) is a process that involves identifying the primary and support activities of a particular
2. Subscription- Companies charge customers monthly or yearly fees to Xbox Game Pass, organization or industry and capitalizing on these activities to reduce costs or increase differentiation.
Based access their products or services. This model depends on Streaming Services, Primary Activities
loyal customers. S&R membership
supermarket • Inbound logistics. It involves raw materials handling and warehousing.
• Operations. It involves machining, assembling, and testing.
3. Peer-to-peer This model allows two (2) individuals to buy/sell Grab, Airbnb, eBay
• Outbound logistics. It involves warehousing and distribution of finished products.
products or services directly with each other without an
intermediary third-party. • Marketing and sales. It involves advertising, promotion, and pricing channel relations.
• Service. It involves installation, repair, and parts.
4. Franchise A franchisee grants another person or business a license McDonald's,
to use its trademarks and products in exchange for Jollibee, 7-11 Secondary Activities
paying a royalty fee.
• Firm infrastructure. It involves general management, accounting, finance, and
strategic planning.
 • Human resource management. It involves recruiting, training, and development.
• Technology development. It involves research and development and product or
process improvement.
• Procurement. It involves purchasing raw materials, machines, and supplies.
Type of competitive advantage:
Cost advantage. This approach is used when organizations compete to achieve lower product and
service costs. It involves understanding the sources of cost advantage or disadvantage and identifying the
factors which drive those costs. A firm has to undertake five (5) analysis steps to gain cost advantage:
Identify the firm’s primary and support activities. It requires adequate knowledge of the
company’s operations because value chain activities are not organized similarly to the
company itself.
Establish the relative importance of each activity in the total cost of the product. It involves
identifying the total costs of producing a product or service. These costs must be broken down
and assigned to each activity.
Identify cost drivers for each activity. It involves understanding the factors which drive costs
and focusing on improving them. Costs for labor-intensive activities are driven by work hours,
work speed, and wage rate, among others.
Identify links between activities. It involves reducing costs in a particular activity, which may
lead to further reductions in subsequent activities.
Identify opportunities for reducing costs. It involves improving inefficient activities and cost
drivers. For instance, high wage rates can be reduced by increasing production speed,
outsourcing jobs to low wage countries or installing more automated processes.
Differentiation advantage. This approach is driven by a firm’s desire to create superior products and
services using innovation. Global companies like Apple, Google, and Starbucks use this approach.
Steps in attaining a differentiation advantage:
Identify the customers’ value-creating activities. It involves identifying all value chain
activities and improving those that contribute the most to creating customer value.
Evaluate the differentiation strategies for improving customer value. It involves using
strategies that increase product differentiation and customer value. These strategies include
adding more product features, focusing on customer service and responsiveness, increasing
customization, and offering complementary products.
Identify the best sustainable differentiation. It combines interrelated activities and strategies
to create superior differentiation and customer value.
Basic Organizational Structure
Simple structure. It has no functional or product categories and is appropriate for a small, entrepreneur-
dominated company with one (1) or two (2) product lines that operate/s in a reasonably small, easily
identifiable market niche.
Functional structure. It is appropriate for a medium-sized firm with several product lines in one
industry. Employees here tend to be specialists in the business functions important to that industry,
such as manufacturing, marketing, finance, and human resources.
Divisional structure. It is appropriate for a large corporation with many product lines in several related
industries. Employees here tend to be functional specialists organized according to product/market
distinctions.
Strategies to Competitive Advantage
A. Cost leadership. This strategy aims to increase profits by reducing costs while charging industry-
standard prices or increase market share by lowering the sales price while retaining profits.
B. Product Differentiation. This strategy aims to create products that are significantly different from
the competition. In addition, the products and services must have a greater value to the public.
C. Cost Focus. This strategy aims to select a niche market to sell a company’s products and services.
A
niche is a small but profitable market segment suitable for marketers' focused attention.
D. Blue Ocean Strategy. This strategy aims to create new demand for a particular product. Companies
that use this approach develop uncontested market space rather than fight over a shrinking profit
pool.
E. Information Advantage. This strategy seeks the latest technology, strategies, and data to outpace
your rival.
STRATEGIC MANAGEMENT HANDOUT 7
Vision, Mission, and Objective
Strategy formulation is the investigation, analysis, and decision-making by outlining the company's
competitive advantages, finding areas of weakness that limit its ability to expand, creating the
corporate mission, outlining realistic goals and establishing policy standards.
Vision. It refers to the desired future state or “big picture” of what an organization desires to achieve. A
vision is a goal that is massively inspiring, in-depth, and long-term. It represents a destination that is
driven by and evokes passion. It communicates a company's beliefs and governing principles to the
community and the members of its organization.
“Leading Change” all the characteristics that should be included in an effective vision:
1. Imaginable: A good vision conveys a picture of what the future will be.
2. Desirable: It appeals to the long-term interests of employees, customers, stockholders,
and others who have a stake in the enterprise.
3. Feasible: It comprises realistic and attainable goals.
4. Focused: It Is clear enough to guide decision-making.
5. Flexible: It is general enough to allow individual initiative and alternative responses in
light of changing conditions.
6. Communicable: Is easy to communicate; can be successfully explained within five (5)
minutes.
Mission. A mission statement is more specific and action-oriented than a vision. It outlines the
organization’s primary purpose and the basis of competition and competitive advantage. Effective
mission statements have the greatest impact when it reflects an organization’s enduring,
comprehensive strategic priorities and response to multiple primary stakeholders (customers,
employees, suppliers, and shareholders).
 The following are the general characteristics of a good mission statement:
1. Concise. It must be short so that everyone can remember and understand.
2. Outcome-oriented. It should be measurable so that the company can visibly see progress.
3. Inclusive. It must include all the stakeholders involved in implementing a company’s
strategy.
Strategic Objectives. These are the specific and measurable results focused on achieving an
organization's mission. The strategic objectives generally guide how the organization can fulfill or move
toward the higher goals (mission and vision) in a more specific and well-defined time frame.
For objectives to be meaningful and effective, they must possess the following criteria:
1. Measurable. At least one indicator must measure progress against fulfilling the objective.
2. Specific. This means providing a clear message as to what needs to be accomplished.
3. Appropriate. It must be consistent with the organization’s vision and mission.
4. Realistic. Given the organization’s capabilities and environmental opportunities, it must be
an achievable target. In essence, it must be challenging but doable.
5. Timely. There must be a time frame for achieving the objective.
Corporate Strategy
Corporate-level strategy is primarily about the choice of direction for a firm and the management of its
various product lines and business units for maximum value. It includes decisions regarding the flow of
financial and other resources, transfer of skills and capabilities developed in one unit to other units that
need such resources, and synergy among multiple product lines and business units.
The three (3) key issues that corporate strategy addresses are the following:
• Directional strategy. It refers to the firm’s overall orientation toward growth, stability,
or retrenchment.
• Portfolio analysis. It includes the industries or markets in which the firm competes through its
products and business units.
• Parenting strategy. It is how the management coordinates activities, transfers resources, and
cultivates capabilities among product lines and business units.
Directional Strategy
• Growth strategies. These refer to the firm’s actions to expand its activities. It is the most
widely pursued corporate directional strategy due to its design to achieve growth in sales, assets,
and profits.
The two (2) basic growth strategies involve:
1. Concentration (Vertical Growth). It can be achieved through considerable growth in your
respective industry. It means expanding supply chains to reach more outlets, adding new
features to existing products, and offering new products in the same market. Companies may
take this initiative to reduce costs, gain control over scarce resources, guarantee key input
quality, or obtain access to potential customers. Vertical growth is divided into two (2) types:
• Backward integration. It refers to the process in which a company purchases or internally
produces certain inputs of its supply chain that could be utilized in production. This
backward movement strategy is initiated to ensure supply, bargaining leverage with
suppliers, and bring down production costs.
• Forward integration. Forward integration is a strategy where the company gains control of
the business activities ahead in the value chain. The ultimate goal is to increase power and
ownership over their value chain, synergize the operations, reduce total expenses, and
become closer to the end consumer in the value chain.
2. Diversification (Horizontal growth.) It can be achieved by expanding a company’s operation
into other geographic locations or increasing the range of products and services offered to
current markets.
The diversification strategies involve the following:
• Concentric diversification. It can be achieved by expanding the production portfolio by
adding new products to fully utilize the potential of existing technologies and marketing
systems. It occurs when the organization adds related products or markets to its existing
product line.
• Conglomerate diversification. It can be achieved by moving new products or services that
have no technological or commercial relations with current products, equipment, or
distribution channels but may appeal to new customers.
• Stability strategies. These refer to the firm’s actions to make no changes in its current activities.
The following are the types of stability strategies:
1. Pause/Proceed-with-Caution Strategy. It is typically conceived as a temporary strategy to be
used until the environment becomes more hospitable or to enable a company to
consolidate its resources after prolonged rapid growth.
2. No-Change Strategy. It is a decision to do nothing new. It is demonstrated by a
management's choice to continue current operations and policies for a company's
foreseeable future.
3. Profit Strategy. It is a decision to do nothing new in a worsening situation but act as though
the company’s problems are only temporary. The profit strategy attempts to artificially
support profits when a company’s sales decline by reducing investment and short-term
discretionary expenditures.
• Retrenchment strategies. These refer to the firm’s actions to pursue cutback or ultimate
divestment when it has a weak competitive position in some or all of its product lines resulting in
poor performance. The following are the types of retrenchment strategies:
1. Turnaround Strategy. It emphasizes improving operational efficiency and is most appropriate
to implement when a corporation’s problems are pervasive but not yet critical. Companies
improve their performance by cutting costs or selling off assets. This strategy involves three (3)
phases: Contraction, Consolidation, and Rebirth.
• Contraction is the initial effort to quickly “stop the bleeding” with the general purpose of
cutting back on company size and costs.
• Consolidation implements a plan to reduce unnecessary expenses.
• Rebirth happens if the company is successful with its efforts and starts growing profitably
again.
 2. Captive Company Strategy. It involves giving up independence in exchange for security. In this
way, the corporation may reduce the scope of some of its functional activities to reduce costs
significantly.
3. Sell-out/Divestment Strategy.
• A sell-out involves selling the entire company to another firm at a good deal, given that the
shareholders and the employees can keep their jobs.
• A divestment, on the other hand, involves selling a division of a company with low growth
potential.
1. Bankruptcy/Liquidation Strategy.
• Bankruptcy involves giving up management of the firm to the courts in return for some
settlement of the corporation’s obligations.
• Liquidation involves the termination of the whole firm. When the industry is unattractive,
and the company is too weak to be sold, management may choose to convert as many
saleable assets as possible to cash, to be distributed to the shareholders after all obligations
are paid
Portfolio Analysis
In portfolio analysis, top management views its product lines and business units as a series of investments
from which it expects a profitable return. A strategic business unit is a single business or a collection of
related businesses that can be planned separately from the rest of the company. It has its own
competitors and a manager responsible for strategic planning and profit performance.
Strategic Business Unit (SBU) aims to develop different strategies and assign appropriate funding. Once
it has defined SBUs, management must decide how to allocate corporate resources to each.
• Stars. These are products within a company’s product line, which can be considered a market
leader since they generate enough cash to maintain their high share of the market and usually
contribute to the company’s profits.
• Question marks. These are new products with the potential for success but need a lot of cash
investments for development. These suggest that if a product is perceived to gain enough market
share to become a market leader, money must be taken from more mature products and spent on
the question mark.
• Cash cows. These typically bring in far more money than is needed to maintain their market share.
In this maturing or even declining stage of their life cycle, these products are “milked” for cash that
will be invested in new question marks.
• Dogs. These have a low market share and do not have the potential to bring in much cash for the
company.
Corporate Parenting
Corporate parenting generates corporate strategy by focusing on the core competencies of the parent
corporation and the value created from the relationship between the parent and its businesses. In the
form of corporate headquarters, the parent has great power in this relationship.
The following are the steps involved in developing a corporate parenting strategy:
1. Examine each business unit in terms of its strategic factors. Corporate headquarters must
establish centers of excellence across the corporation. A center of excellence is an organizational
unit that embodies a set of capabilities that has been explicitly recognized by the firm as an
important source of value creation, with the intention that these capabilities be leveraged or
disseminated to other parts of the firm.
2. Examine each business for performance improvement. Corporate headquarters must consider
parenting opportunities for the organization.
3. Analyze how well the parent corporation fits with the business unit. Corporate headquarters
must be aware of its own strengths and weaknesses in terms of resources, skills, and capabilities.
The corporate parent must assess whether it has the characteristics that fit the parenting
opportunities in each business unit. It must also assess whether there is a misfit between the
parent’s characteristics and the critical success factors of each business unit.
STRATEGIC MANAGEMENT HANDOUT 8
Functional Strategy
Functional strategy is the short-term game plan for key functional areas within a company. It is an
approach to achieving corporate and business unit objectives and strategies by maximizing resource
productivity. Functional strategies are at the heart of the competitive advantage of any firm and are
formed in correlation with the changing competitive environment. Functional strategies also vary from
region to region.
Types of functional strategy are as follows:
A. Marketing Strategy. It deals with pricing, selling, and distributing a product or service. The
marketing strategy can be classified as follows:
• Market development strategy. It is a strategy that falls under the category of business
growth. This strategy helps companies and businesses approach new customers properly
by introducing new or existing products to penetrate the market and gain a dominant
market share.
• Product development strategy. A company or business unit can develop new products or
services for existing markets or new ones for new markets.
• Brand extension. A company or business unit may use a successful brand name to market
other products.
• Push strategy. A company or business unit may engage in trade promotion to gain shelf
space in retail outlets. Trade promotion includes discounts, in-store special offers, and
advertising allowances designed to “push” products through the distribution system.
 • Pull strategy. A company or business unit may engage in wide consumer advertising a. Quality. Service-oriented firms must ensure that they deliver error-free services that
designed to build brand awareness so that shoppers will ask for the company's products match customers’ needs based on standard requirements. It may also pertain to the
and services. quality of the delivery process, which establishes a reliable image to the clients

b. Flexibility. Service-oriented firms must ensure that their service design can handle the
B. Financial Strategy. It examines the financial implications of corporate and business-level strategic
multiple demands of the clients. They must also anticipate unexpected circumstances
options and identifies the best financial course of action. It also provides a competitive advantage
based on changing consumer preferences, which may require adjusting or completely
through a lower cost of funds and a flexible ability to raise capital to support a business strategy.
modifying their service design.
This strategy can be classified as follows:
c. Speed. Service-oriented firms must pay attention to their scheduling and capacity
• Equity financing. A corporation can raise capital by selling company stock to investors. In planning management to deliver their services at an acceptable time.
return for the investment, the shareholders receive ownership interests in the company.
• Debt financing. A corporation can raise capital by borrowing money to acquire an asset. d. Dependability. Service-oriented firms must be consistent in the value that their service
The capital sources in debt financing include financial institutions such as banks and provides. They must forecast possible future problems and lay down preventive
insurance companies. measures that will solve the issues identified.
C. Research and Development Strategy. It deals with product and process innovation and
e. Cost. Service-oriented firms must maintain reasonable prices for their services by
improvement. It also concerns how new technology should be accessed through internal
analyzing where their operations costs are incurred and cutting down on unnecessary
development, external acquisition, or strategic alliances.
expenses.
• Technological Leader. Focuses on pioneering innovation.
E. Purchasing Strategy. It deals with obtaining the raw materials, parts, and supplies needed to
• Technological Follower. Deals with imitating the products of competitors. perform the operations function. The Internet has changed the ability of procurement managers
• Open Innovation. A newer approach in which a firm uses alliances and connections with
to compare and source supplies for their organization. Research indicates that companies using
corporations, governments, academic labs, and consumers to develop new products and
Internet-based technologies can lower administrative costs and purchase prices.
processes.
F. Logistics Strategy. Logistics strategy deals with the flow of products into and out of the
D. Operations Strategy. It determines how and where a product or service is to be manufactured or manufacturing process. To gain logistical synergies across business units, corporations began
delivered, the level of vertical integration in the production process, deployment of physical centralizing logistics in the headquarters group to aggregate shipping volumes across the entire
resources, and relationships with suppliers. It also deals with the optimum level of technology corporation and gain better contracts with shippers.
the firm should use in its operations processes. G. Human Resources Management Strategy. Companies find that having a diverse workforce is a
competitive advantage. Research reveals that firms with a high degree of diversity following a
1. The operations strategy for manufacturing firms can be classified as follows: growth strategy have higher productivity, employee satisfaction, and commitment than firms with
a. Job shop. In this strategy, a small manufacturing system handles customized production less diversity. Diversity in terms of age and national origin also offers benefits.
using skilled labor. Products are customized based on customer specifications.
H. Information Technology Strategy. Corporations have always used an information technology
b. Connected line batch flow. In this strategy, each machine functions like a job shop but
strategy to give their business units a competitive advantage. Multinational corporations use
is positioned in the same order as the parts are processed. It is used when product
sophisticated intranets to allow employees to practice follow-the-sun management. Project team
components are standardized.
members living in one country can pass their work to team members in another country where the
c. Flexible manufacturing systems. In this strategy, parts are grouped into
workday is just beginning.
manufacturing families to produce a wide variety of mass-produced items.
d. Dedicated transfer lines. In this strategy, highly automated assembly lines create a
single mass-produced product using little human labor.
e. Mass-production system. In this strategy, many low-cost, standardized goods can be
produced.
f. Mass customization. In this strategy, people, processes, units, and technology
reconfigure themselves to give customers exactly what they want when they want it.
2. The operations strategy for service-oriented firms can be classified as follows: