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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
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 2
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
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 3
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
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 4
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?
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
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
answering this question
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
Instructions:Exhibit 8 could providea useful framework for
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?
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
* 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
Instructions:Exhibit 9 could providea useful framework for
answering this question
* Based on latest available, 1-2 year historical financial statements
17
IIC. INTERNAL ASSESSMENT – BACK-UP 2
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
IIC. INTERNAL ASSESSMENT – BACK-UP 3
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
Instructions:Exhibit 12 could providea useful framework for
answering this question
19
III. STRATEGIC DEFINITION AND IMPLICATIONS
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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?
Instructions:The answer to this
overarching questionrequires a recapitulation
of the section’s mainfindings
A.4 How does your chosen strategy exploit industry opportunities and address industry/competitive threats?
Instructions:These subsections
contain a 1-2 sentencesummary of the relevant
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
answering this question
22
IIIA. STRATEGY ARTICULATION – BACK-UP 2
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
IIIA. STRATEGY ARTICULATION – BACK-UP 3
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?
Instructions:Exhibit 15 could providea useful framework for
answering this question
24
IIIA. STRATEGY ARTICULATION – BACK-UP 4
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?
Instructions:The answer to this
overarching questionrequires a recapitulation
of the section’s mainfindings
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?
Instructions:These subsections
contain a 1-2 sentencesummary of the relevant
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
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IIIB. STRATEGIC INITIATIVES – BACK-UP 2
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
IIIB. STRATEGIC INITIATIVES – BACK-UP 3
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
IIIB. STRATEGIC INITIATIVES – BACK-UP 4
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?
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
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
IIIC. FINANCIAL PROJECTIONS – BACK-UP 2
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
IIIC. FINANCIAL PROJECTIONS – BACK-UP 3
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
IIIC. FINANCIAL PROJECTIONS – BACK-UP 4
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?
Instructions:The answer to this
overarching questionrequires a recapitulation
of the section’s mainfindings
D.3 Beyond the 3-year time frame, what breakthrough strategic options may be possible?
Instructions:These subsections
contain a 1-2 sentencesummary of the relevant
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
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 2
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
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 3
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"
Distribution/sales network
Brand/reputation
Patent
Relationship with "license" allocatorInnovation
Cross-functional coordination
Market positioning
Cost/efficiency management
Talent development
Privileged assets
Distinctive competencies
Necessary capabilities in order to succeed in the industry
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"
Distribution/sales network
Brand/reputation
Patent
Relationship with "license" allocatorInnovation
Cross-functional coordination
Market positioning
Cost/efficiency management
Talent development
Privileged assets
Distinctive competencies
Necessary capabilities in order to succeed in the industry
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