bu strategic plan template book

CONFIDENTIAL

BU Strategic Plan Template Book

Training materials8 June 2001

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

Jim Ayala – PHOMelissa Gil – PHORegina Manzano – PHOSuresh Mustapha – PHOSteve Shaw – HKOShelly Yeh – PHOChoon-Gin Tan – SIO

2

STRATEGY PLANNING INSTRUCTIONS

• The objective of these templates is to provide completeness and consistency of BU strategic plan submissions. These templates are not intended to replace or constrain BU strategic thinking and should be adapted to reflect a particular BU’s sectoral context as required

• Each section begins with a summary that is based on a synthesis of questions and analyses that follow. The suggested approach would be to first complete the relevant back-up analyses and then work towards the overall synthesis

3

TABLE OF CONTENTS

I. Executive summary

II. Environmental and internal assessmentA. Industry dynamics and its implicationsB. Competitive assessmentC. Internal assessment

III. Strategic definition and implicationsA. Strategy articulationB. Strategic initiativesC. Financial projectionD. Risks/contingencies and strategic

alternatives

IV. Exhibits

4

BU STRATEGIC PLAN DEVELOPMENT

Industry dynamics and implications

Environmental and internal assessment

Competitive assessment

Internal assessment

• What are the major changes in industry dynamics and resulting opportunities and risks?

• What are your competitive strengths and weaknesses?

• How does your current business emphasis fit with industry opportunity and competitive landscape?

Strategy articulation

Strategic definition and implications

Strategic initiatives

Financial projections

• What strategy will your BU pursue over the next 3 years?

• What will be the impact of major strategic initiatives?

• What are the expected financial returns of your strategy?

+

+

+

+

Risk/contingen-cies & strategic alternatives

• What strategic alternatives have you considered?

+

5

I. EXECUTIVE SUMMARY

Instructions:The Executive Summary

provides a synthesis of theEnvironmental and Internal

Assessments and theresultant BU

Strategic Plans

6

II. ENVIRONMENTAL AND INTERNAL ASSESSMENT

7

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – SUMMARY

A. What are the major changes in industry dynamics and the resulting opportunities and risks?

A.2 How is industry structure changing (demand, supply, and industry chain economics)? What are the resulting opportunities and risks?

A.3 What is the expected competitor conduct? What are the resulting opportunities and risks?

A.4 What are the present and future external factors that could present new opportunities and risks?

A.1 What industry are you competing in? What are the various segments in the industry?

Instructions:The answer to this

overarching questionrequires a recapitulation

of the section’s mainfindings

Instructions:These subsections

contain a 1-2 sentencesummary of the relevant

findings

8

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 1

A.1What industry are you competing in? What are the various segments in the industry?

• Industry definition• Industry segmentation

– Definition– Sizing Instructions:

Exhibit 1 could providea useful framework for

answering this questionIndustry definition:

Industry segmentation:

9


A.2How is industry structure changing with respect to demand, supply, and industry chain economics? What are the resulting opportunities and risks?

• Economics of demand– By segment– Substitutes, ability to differentiate– Volatility, cyclicality

• Economics of supply– Producer concentration and diversity– Import competition– Capacity utilization– Entry/exit barriers– Cost structure (fixed and variable)

• Industry chain economics– Customer and supplier bargaining power

Instructions:Exhibit 2,3 or 4 could provide

a useful framework foranswering this question

10


A.3 What is the expected competitor conduct? What are the resulting opportunities and risks?

• Major industry competitor moves– Marketing initiatives– Industry capacity changes– M&As, divestitures– Vertical integration/disaggregation– Alliances and partnerships– Cost control and efficiency improvements

Instructions:Exhibit 2,3 or 4 could provide

a useful framework foranswering this question

11


A.4 What are the present and future external factors that could present new opportunities and risks?

• Impact and likelihood of major industry discontinuities– Changes in regulation/government policy– Technological breakthroughs Instructions:

Exhibit 2,3 or 4 could providea useful framework for

answering this question

12

IIB. COMPETITIVE ASSESSMENT – SUMMARY

B. What are your competitive strengths and weaknesses?

B.1 What are the capabilities required to succeed in this industry?

B.2 How do you compare against these necessary capabilities?






findings

13

IIB. COMPETITIVE ASSESSMENT – BACK-UP 1

B.1 What are the capabilities required to succeed in this industry?

• Privileged assets that create competitive advantage, e.g. physical assets, location/”space”, distribution/sales network, intangible assets (intellectual capital, network, brands, talents)

• Distinctive skills/competencies that create competitive advantage, e.g.innovation, talent development

Instructions:Exhibit 5 could providea useful framework for


14

IIB. COMPETITIVE ASSESSMENT – BACK-UP 2

B.2 How do you compare against these necessary capabilities?

• Strengths and weaknesses of your competitive position vs. necessary capabilities• Benchmark performance against the industry’s relevant key performance indicators (KPIs)*,

with margin and market share as the required minimum

Strengths and weaknesses of your competitive position vs. necessary capabilities:

Benchmark performance against the relevant industry’s KPIs:

Instructions:Exhibits 6 and 7 could

provide a useful frameworkfor answering this question



* KPIs are a handful of levers that drive the value of the industry/business

15

IIC. INTERNAL ASSESSMENT – SUMMARY

C. How does your current business emphasis fit with the industry opportunities and the competitive landscape?

C.1 Which segments of the business are providing the highest returns?

C.2 What have been the performance trends along major BU KPIs?

C.3 Which intangible assets* could be near-term potential sources of value?






findings

* Please refer to Exhibit 12 for further description

16

IIC. INTERNAL ASSESSMENT – BACK-UP 1

C.1 Which segments of the business are providing the highest returns?*

• Relevant BU segments (based on customer, product, geography, channel)• Operating contribution estimates for each segment



* Based on latest available, 1-2 year historical financial statements

17


C.2 What have been performance trends along major BU KPIs?

• KPI performance trends over the last 3-5 years, e.g. return on capital employed (ROCE), operating income, margins, capital employed

• Assessment of underlying trend drivers• Expected evolution

Instructions:Exhibits 10 and 11 could

provide a useful frameworkfor answering this question

ROCE = Operating income x (1- tax rate) All interest bearing debt (short and long) + minority interest + stockholders’ equity

18


C.3 Which intangible assets could be near-term potential sources of value?

• Identification of in-house intellectual property, talent, networks, brand/image• Conversion into sources of value



19

III. STRATEGIC DEFINITION AND IMPLICATIONS

20

IIIA. STRATEGY ARTICULATION – SUMMARY

A. What strategy will your BU pursue over the next 3 years?

A.1 Where to compete?

A.2 What is your customer value proposition for the different segments you are going to serve?

A.3 What is your business model?




A.4 How does your chosen strategy exploit industry opportunities and address industry/competitive threats?



findings

21

IIIA. STRATEGY ARTICULATION – BACK-UP 1

A.1 Where to compete?

• Where are you going to compete along these dimensions and why:– Target market– Distribution channels– Product (breadth and depth)– Geographic scope Instructions:

Exhibit 13 could providea useful framework for


22


A.2 What is your customer value proposition for the different segments you are going to serve?

• Target customer definition• Benefits that you will offer the customers• Product pricing• Position against competition vis-à-vis the benefits provided and the price charged

Who is your target customer?

What are the explicit benefits you provide to your customers?

What perceived value do you provide to the customer better than competition?

How much value do your customers attach to the benefits you provide?

23


A.3 What is your business model?

• Delivery and communication of customer value proposition (value delivery system)• Competitive advantage in delivering these benefits to the customer

How will the value proposition be provided and communicated?

Which of your BU’s existing strengths can be leveraged? What skills/capabilities do you need to build?



24


A.4 How does your chosen strategy exploit the industry opportunities and address the industry/competitive threats?

• Industry attractiveness and implication review• Alignment of strategy and environmental realities

Instructions:A review of the section on Industry

Dynamics and Implications, together with the frameworks used (Exhibit 2,3

or 4) is useful for answering this question

25

IIIB. STRATEGIC INITIATIVES – SUMMARY

B. What will be the impact of major strategic initiatives?

B3. How much value will be created from each strategic initiative?

B4. What resources willeach strategic initiativerequire?




B1. What major strategic initiatives are required to successfully implement your selected business model?

B2. What are the sources of value created from each strategic initiative?



findings

26

IIIB. STRATEGIC INITIATIVES – BACK-UP 1

B.1 What major strategic initiatives are required to successfully imple-ment your selected business model?

• Possible strategic initiatives list

27


B.2 What are the sources of value created from each strategic initiative?

• Sources of value from each strategic initiative (e.g., EBIT, capital employed)

Category of initiatives

Volume increase

EBIT impact via

Price increase

Cost reduction Other

Invest-ment

Capital employed impact via

Divest-ment

Capitalefficiency* Other

•

•

•

•

* E.g. improved working capital employment, increased asset utilization, changes to asset ownership

Specific actionable initiatives

• •

• •

• •

• •

28


Operating income ongoing impact 2001-2004PhP millions

Capital employed ongoing impact 2001-2004PhP billions

Present operating income

Volume increase

Price increase

Cost reduction benefit

Additional costs

Total ongoing operating income

Present capital employed

Improved capital efficiency

Divestments Investments (capex and acquisitions)

Total ongoing capital employed

B.3 How much value will be created from each strategic initiative?

one-time EBIT impact =

one-time costs =

• Financial impact from each strategic initiative• Expected financial outlay for each initiative

+ ++ – =

+– =–

29


B.4 What resources will each strategic initiative require?

• Resources required to make strategy work• Availability of resources in the organization• Plan for filling resource gaps

Categories of initiativesSpecific actionable initiatives People/skills

Resource requirements

Funding Ex-Com involvement

• • •

• • •

• • •

• • •

•

•

•

•

30

IIIC. FINANCIAL PROJECTIONS – SUMMARY

C. What are the expected financial returns of your strategy?

C.3 What is your expected cash generation ability over the medium term?

C.4 What is your expected capital productivity?

C.2 What is your projected net income in the next few years?

C.1 What are the key assumptions?






findings

31

IIIC. FINANCIAL PROJECTIONS – BACK-UP 1

C.1 What are the key assumptions?

• Profit and loss (e.g. revenues, costs, margin)• Balance sheet• Corporate center directives• Corporate center assumptions

BASE CASE

Business unit assumptions

Revenues• Market size• Market share• Price

Costs• Input costs• Production costs• Other costs

(e.g. SG&A)

Margins• Gross margin• Operating

margin

Capital• Planned

investments/divestments

• Changes inworking capital

2002

KEY FORECAST ASSUMPTIONS

2003 2004 Growth rate

Corporate center assumptions

2002 2003 2004

Key economicindicators• GDP growth• Consumer

price index• Exchange rate

(PhP/USD)• 91-day T-bill

rate

Corporate taxrate

Instructions:These are the minimumrequired assumptions. Feel free to add otherassumptions relevant

to your BU

32


C.2 What is your projected net income in the next few years?

• Income statement forecast

BASE CASE

Historical

Sales

Cost of goods soldGross profit

Operating expenses

Operating profit

Other expenses

Taxes

Net profit

1999

FORECASTED INCOME STATEMENT

2000

In PhP million

Forecast

2001** 2002 2003 2004CAGR1999-2004

Growth analysisSales (%)

Gross profit (%)

Operating profit (%)

Net profit (%)

Margin analysis

Gross margin (%)Operating margin (%)

Net margin (%)

*

**

Key assumptions not listed earlier should be detailed at the bottom of the chart. The impact of planned initiativeson the revenues and costs should be established clearly with additional attachments if requiredBest estimates on possible actual results

Instructions:These are the minimum

required income statement accounts and analyses. Feel free to add other

accounts and analyses relevant to your BU

33


C.3 What is your expected cash generation ability over the medium term?

• Cash flow forecast

Instructions:These are the minimum

required cash flow statementaccounts. Feel free to add

other accounts relevant to your BU

BASE CASE

Operating profit

Depreciation and amortization

Other non-cash operatingexpenses

Net operating cash flow

Increase/(decrease) in workingcapital

Other operating cash flow

Total operating cash flow

FORECASTED CASH FLOW STATEMENT

Historical

1999 2000

Forecast

2001** 2002 2003 2004CAGR1999-2004

Capital expenditureOther investing cash flow items

Total investing cash flow

Increase/(decrease) in debt

Dividends

Other financing cash flow

Total financing cash flow

In PhP million

Key assumptions not listed earlier should be detailed at the bottom of the chart. The impact of planned initiativeson the fixed and working capital investments should be established clearly with additional attachments if requiredBest estimates on possible actual results

*

**

34


C.4 What is your expected capital productivity?

• Balance sheet forecast• ROCE computation

ROCE = Operating income x (1- tax rate) All interest bearing debt (short and long) + minority interest + stockholders’ equity

Instructions:These are the minimum required balance sheet accounts and analyses. Feel free to add other

accounts and analyses relevant to your BU

BASE CASE

CashAccounts receivablesInventoriesOther current assets

Total current assetsNet fixed assetsOther assetsTotal assets

FORECASTED BALANCE SHEETHistorical

1999 2000

Forecast

2001* 2002 2003 2004CAGR1999-2004

Accounts payableOther current liabilities

Total current liabilities Short-term loansLong-term loansOther liabilitiesTotal liabilities

Minority interest

Total stockholders’ equity

In PhP million

Capital employedROCE

Total liab. & stockholders’ equity

Ratio analysisWorking capital turnoverDebt-equity ratio

Best estimates on possible actual results *

35

IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES– SUMMARY

D. What strategic alternatives have you considered?

D.1 What are the associated risks to your chosen strategy?

D.2 Re-examining industry opportunities and industry/competitive threats, what alternatives exist to your chosen strategy?




D.3 Beyond the 3-year time frame, what breakthrough strategic options may be possible?



findings

36

IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 1

D.1 What are the associated risks to your chosen strategy?

• Identification of significant potential risks and plans to mitigate

• Sensitivity/scenario financial analysis

Potential risks

• Business risk

• Regulatory risk

• Technology risk

• Integrity risk

• Macroeconomic risk

Impact Likelihood Contingency

• Other

37


D.2 Re-examining industry opportunities and industry/competitive threats, what alternatives exist to your chosen strategy?

• Where to compete?• Value proposition• Business model• Alignment with external realities

Where to compete?:

Alternative value proposition:

Alternative business model:

Alignment with external realities:

Instructions:Based on a review of the section on

Environmental and Internal Assessment, Strategy Articulation,

and the frameworks used (Exhibit 2-4, 13-15), determine other potential

strategic alternatives

38


D.3 Beyond the 3-year time frame, what breakthrough strategic options may be possible?

• “Out-of-the-box” ideas

Instructions:Think radical! Think out-of-the-box!

39

IV. EXHIBITS

Instructions:Please include all relevant supporting documentation

in this section

40

SEGMENT ANALYSISExhibit 1

ILLUSTRATIVE

Industryboundaries

Segments

Industry segments

• Relatively distinct sub-groupings within the industry

• Market is relatively similar within the segment but different across segments

• Different industry dynamics may vary in importance in different segments

41

ProducersIndustry

S

• Technology breakthroughs

• Changes in government policy/regulations– Domestic– International

Economics of demand• Availability of substitutes• Differentiability of products• Rate of growth• Volatility/cyclicalityEconomics of supply• Concentration of producers• Import competition• Diversity of producers• Fixed/variable cost structure• Capacity utilization• Entry/exit barriersIndustry chain economics• Bargaining power of input

suppliers• Bargaining power of

customers

Marketing• Pricing• Volume• Advertising/promotion• New products/R&D• DistributionCapacity change• Expansion/contraction• Entry/exit• Acquisition/merger/ divestitureVertical integration• Forward/backward integration• Vertical joint ventures• Long-term contractsInternal efficiency• Cost control• Logistics• Process R&D• Organization effectiveness

Finance• Profitability• Value creationTechnological progressEmployment objectives

Externalshocks

Feedback

tructure C onduct P erformance

STRUCTURE-CONDUCT-PERFORMANCE (SCP) MODELExhibit 2

42

Exhibit 3

1. Determinants of supplier power• Differentiation of inputs• Switching costs of suppliers and firms in the

industry• Presence of substitute inputs• Supplier concentration• Importance of volume to supplier• Cost relative to total purchases in the industry• Impact of inputs on cost or differentiation• Threat of forward integration relative to threat

of backward integration by firms in the industry

2. Determinants of barriers to entry• Economies of scale• Proprietary product differences• Brand identity• Switching costs• Capital requirements• Access to distribution• Absolute cost advantages

– Proprietary learning curve– Access to necessary inputs– Proprietary, low-cost product design

• Government policy• Expected retaliation

5. Rivalry determinants• Industry growth• Fixed (or storage) cost/value added• Intermittent overcapacity• Product differences• Brand identity• Switching costs• Concentration and balance• Informational complexity• Diversity of competitors• Corporate stakes• Exit barriers

3. Determinants of buying power• Bargaining leverage

– Buyer concentration vs. firm concentration

– Buyer volume– Buyer switching costs relative to firm

switching costs– Buyer information– Ability to backward integrate– Substitute products– Pull-through

4. Determinants of substitution threat• Relative price performance of

substitutes• Switching costs• Buyer propensity to substitute

2. New entrants

3. Buyers

4. Substitutes

Intensity of rivalry

1. Suppliers

• Price sensitivity– Price/total purchases– Product differences– Brand Identity– Impact on quality perception– Buyer profits– Decision makers' incentives

5. Industry competitors

"FORCES AT WORK" FRAMEWORK

43

Opportunities/Threats

• How are demand and supply expected to evolve?

• How do you expect the industry chain economics to evolve?

• What are the potential major industry discontinuities?

• What competitor actions do you expect?

YOUR BU

SWOT ANALYSISExhibit 4

CONVERT OPPORTUNITIES

BUILD ON STRENGTHS

NEUTRALIZE THREATS

ADDRESSWEAK-NESSES

Strengths/Weaknesses

• What are your BU’s assets/competencies that solidify your competitive position?

• What are your BU’s assets/competencies that weaken your competitive position?

Can be used as a thought starter for competitive analysis and internal

assessment

Surfaces potential opportunities/threats arising from factors external to the BU

44

Physical asset

Location/"space"

Distribution/sales network

Brand/reputation

Patent

Relationship with "license" allocator

• BHP’s low-cost mines

• Telecomm/media company with rights radio spectrum

• Avon’s representatives

• Coca-Cola

• Pharmaceutical company with a "wonder drug”

• "Favored nation" status with a key minister in liberalizing economy

Innovation

Cross-functional coordination

Market positioning

Cost/efficiency management

Talent development

• 3M with new products

• McDonald’s with QSC&V

• J&J with branded consumer health products

• Emerson Electric’s Best Cost Producer program

• P&G brand management program

Privileged assets

Distinctive competencies

Necessary capabilities in order to succeed in the industry

Example

CAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE (1/2)

Exhibit 5

45

CAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE (2/2)

ILLUSTRATIVE

Step 1: Ensure that these are the capabilities required to succeed in the industry. Use this list as a thought starter, add and delete as you see appropriate

BU Overall

Segments

A B C

Step 2: Assess your overall position relative to the capabilities required to succeed in the industry. Also, determine if these capabilities are relevant to the segments you serve

Physical asset

Location/"space"


Brand/reputation

Patent

Relationship with "license" allocatorInnovation


Market positioning


Talent development

Privileged assets



Exhibit 6Extremely relevant

Somewhat relevant

Irrelevant

46

COMPETITOR CAPABILITY COMPARISON

BU Overall

Competitors

A B C

Step 3: Compare the strengths and weaknesses of your competitive position vs. the necessary skills

Physical asset

Location/"space"


Brand/reputation

Patent

Relationship with "license" allocatorInnovation


Market positioning


Talent development

Privileged assets



Exhibit 7

ILLUSTRATIVE

• •

• •

47

BENCHMARK PERFORMANCE AGAINST RELEVANT INDUSTRY KPIsExhibit 8

ILLUSTRATIVE

KPIs (examples)

Financial indicators• Margin• Net income• ROCE• •

Operating indicators• Advertising effectiveness• Utilization rate• •

Strategic indicators• Market share• Percent of revenue from new

products• Working capital trend• •

External indicators• Market prices of raw materials• •

BU Competitor A Competitor B Competitor C

48

SEGMENT ANALYSIS

Revenue

Gross profit

Operating profit

Assets employed

People employed

Operatingprofit margin

Gross profitmargin

ROCE

Step 1: Identify the relevant segments

Step 2: Provide a segment analysis based on the following minimum financial metrics: revenue, gross profit and margin, operating profit and margin

Step 3: To the extent assets and people can be disaggregated by segment, deployment of assets against returns can be analyzed

%

PhP% of total

Segment 1

PhP% of total

Segment 2

PhP% of total

Segment 3

PhP% of total

Segment 4

PhP% of total

Total

Exhibit 9

% % % %

Segment 1 Segment 2 Segment 3 Segment 4 Total

49

TREND ANALYSIS – RETURN ON CAPITAL EMPLOYED (ROCE)

NOT EXHAUSTIVE

The ROCE tree can be disaggregated to show the other relevant KPIs of a BU

ROCEPercent

Operating income x (1 - tax rate)PhP million

Capital employedPhP million

÷

RevenuePhP million

Operating marginPercent

x

(1 - tax rate)Percent

x

Market sharePercent

Industry salesPhP million

x

0

10

20

'96 '97 '98 '99 '00

0204060

'96 '97 '98 '99 '00

0200400600

'96 '97 '98 '99 '00

0500

1,0001,500

'96 '97 '98 '99 '00

12

14

16

'96 '97 '98 '99 '00

31323334

'96 '97 '98 '99 '00

0

510

15

'96 '97 '98 '99 '00

0

5,000

10,000

15,000

'96 '97 '98 '99 '00

Exhibit 10

50

TREND ANALYSIS – CASH NOT EXHAUSTIVE

The cash flow tree can be disaggregated to show the other relevant KPIs of a BU

Exhibit 11

Cash flow generatedPhP million

Operating cash flowPhP million

Investing cash flowPhP million

+

Net incomePhP million

Non-cash expensesPhP million

+

Change in working capitalPhP million

+

0204060

'96 '97 '98 '99 '00

0500

1,0001,500

'96 '97 '98 '99 '00

31323334

'96 '97 '98 '99 '00

0200400600

'96 '97 '98 '99 '00

0204060

'96 '97 '98 '99 '00

Financing cash flowPhP million

+

0204060

'96 '97 '98 '99 '00

0204060

'96 '97 '98 '99 '00

51

Exhibit 12

INTANGIBLE ASSET CHECKLIST

• •

Intangible assets Ways to extract near-term value

• •

• •

• •

Talent• Highly motivated and competent workforce leveraging specific

skill sets to– Generate growth– Improve/increase company intangibles

• •

• •

• •

Intellectual property• Patents generating licensing fees• Understanding of customer behavior• Risk management• Software• •

ILLUSTRATIVE

Network• Interconnected webs of parties• Non-exclusive• Additional member lowers costs, increases benefits• •

Brand/image• Inherent image or brand built upon excellent service

and product offerings• Lower search costs for customers• •

• •

• •

52

WHERE TO COMPETE?Exhibit 13

Customers

Channels

Products

Geographic markets

Target customers and segments• Which customers are you trying to target or attract?• Which are you willing to serve, but will not spend

resources to attract?• Which would you prefer not to serve?

How does the entity reach its target customers• Which distribution

channels will you use?• What customer segments

can they reach?

Geographical scope of business activities• Geographic limits to the

business?• Local, regional, multi-

local, national, international, or global player?

• If local, which localities?

Quality and breadth of the product line• Breadth of the product line?• Quality of the product line?• Product bundles or a series of

unrelated products?

53

VALUE PROPOSITION

A company’s specific promise to its target customers of the benefits it will provide at an explicit price

It answer the following questions:

• Who is your target customer?

• What are the explicit benefits you provide to your customer?

• What perceived value do you provide to the customer better than competition?

• How much value do your customers attach to the benefits you provide?

Exhibit 14

54

BUSINESS MODELExhibit 15

UnderstandUnderstandvaluevaluedesiresdesires

SelectSelecttarget target

Chose the value Chose the value

Value proposition

DesignDesignproduct/product/processprocess

Procure,Procure,manu-manu-facture facture

Distri-Distri-butebute

Provide the value Provide the value

ServiceService PricePriceDefineDefinebenefits/benefits/price price

SalesSalesmessagemessage

Communicate the value Communicate the value

Business model:Business model:

• Integrated set of actions to provide and communicate Integrated set of actions to provide and communicate the value proposition to customersthe value proposition to customers

SegmentationSegmentation ValueValuepropositionproposition

Adver-Adver-tisingtising

Promo-Promo-tional/PRtional/PR

Value delivery system (VDS)

Each BU must address these 2 issues to define their business model

Illustration of how the value proposition will be provided and communicated

Identification of existing strengths that can be leveraged and required capabilities that need to be built to be distinctive in chosen value delivery system

1

2

55

Categories of initiatives

1. Capture greater market share

Volume increase

EBIT impact via

Price increase

Cost reduction Other

Invest-ment

Capital employed impact via

Divest-ment

Capitalefficiency* Other

2. Cost reduction (e.g., effective channel management)

3. Obtain higher prices

4. Create new market demand

5. Form strategic alliances/ partnerships

* E.g. improved working capital employment, increased asset utilization, changes to asset ownership

• •

• •

• •

• •

Specific actionable initiatives

• •

STRATEGIC INITIATIVES: SOURCES OF VALUEExhibit 16

ILLUSTRATIVE

56

STRATEGIC INITIATIVES: VALUE QUANTIFICATIONExhibit 17

ILLUSTRATIVE

Estimate of totalongoing operating income andcapital employed impact fromsuccessful implementation of

strategic initiatives

Operating income ongoing impact 2001-2004PhP millions

Capital employed ongoing impact 2001-2004PhP billions

Present operating income

Volume increase

Price increase

Cost reduction benefit

Additional costs

Total ongoing operating income

Present capital employed

Improved capital efficiency

Divestments Investments(capex, acquisitions)

Total ongoing capital employed

one-time operating income impact =

one-time costs =

+ + + – =

– – + =

57

STRATEGIC INITIATIVES: RESOURCING REQUIREMENTSExhibit 18

ILLUSTRATIVE

Categories of initiativesSpecific actionable initiatives People/skills

Resource requirements

Funding Ex-Com involvement

• • •

1. Capture greater market share

• • •

2. Cost reduction

• • •

3. Achieve higher prices

• • •

4. Create new market demand

• • •

5. Form strategic alliances/partnerships

58

DEFINITION OF RISKSExhibit 19

Definition

• Risk of loss due to changes in industry and competitive environment, as well as shifts in customer preferences Business risk

• Risk due to changes in regulatory environment (e.g. deregulation)Regulatory risk

• Risk due to major changes in technologyTechnology risk

• Risk of failures due to business processes and operations or people’s behavior, either intentional (e.g. fraud) or unintentional (e.g. errors)

Integrity risk

• Risk of loss due to changes in the political, social, or economic environmentsMacroeconomic risk

bu strategic plan template book

Documents

industry opportunity

industry structure

industry definitionindustr

strategic alternativesiv

strategic initiativesc

bu strategic thinking

industry chain economics

resultant bu strategic