CONFIDENTIAL
BU Strategic Plan Template Book
Jim Ayala – PHO
Melissa Gil – PHO
Regina Manzano – PHO
Suresh Mustapha – PHO
Steve Shaw – HKO
Shelly Yeh – PHO
Choon-Gin Tan – SIO
Training materials
8 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.
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
1
TABLE OF CONTENTS
I. Executive summary
II. Environmental and internal assessment
A. Industry dynamics and its implications
B. Competitive assessment
C. Internal assessment
III. Strategic definition and implications
A. Strategy articulation
B. Strategic initiatives
C. Financial projection
D. Risks/contingencies and strategic
alternatives
IV. Exhibits
2
BU STRATEGIC PLAN DEVELOPMENT
Environmental and internal assessment
Industry
dynamics and
implications
Strategic definition and implications
• What are the major
• What strategy will your BU
Strategy
articulation
changes in industry
dynamics and resulting
opportunities and risks?
+
+
• What are your competitive
Competitive
assessment
• What will be the impact of
Strategic
initiatives
strengths and
weaknesses?
+
major strategic initiatives?
+
• How does your current
Internal
assessment
pursue over the next 3 years?
• What are the expected
business emphasis fit with
industry opportunity and
competitive landscape?
Financial
projections
financial returns of your
strategy?
+
Risk/contingencies & strategic
alternatives
• What strategic alternatives
have you considered?
3
I. EXECUTIVE SUMMARY
Instructions:
The Executive Summary
provides a synthesis of the
Environmental and Internal
Assessments and the
resultant BU
Strategic Plans
4
II. ENVIRONMENTAL AND INTERNAL
ASSESSMENT
5
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – SUMMARY
A. What are the major changes in industry dynamics and the resulting opportunities and risks?
Instructions:
The answer to this
overarching question
requires a recapitulation
of the section’s main
findings
A.1 What industry are you competing
in? What are the various segments
in the industry?
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?
Instructions:
These subsections
contain a 1-2 sentence
summary of the relevant
findings
A.4 What are the present and future
external factors that could present
new opportunities and risks?
6
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 1
A.1 What industry are you
competing in? What are
the various segments in
the industry?
Industry definition:
• Industry definition
• Industry segmentation
– Definition
– Sizing
Instructions:
Exhibit 1 could provide
a useful framework for
answering this question
Industry segmentation:
7
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 2
A.2 How 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 for
answering this question
8
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 for
answering this question
9
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 provide
a useful framework for
answering this question
10
IIB. COMPETITIVE ASSESSMENT – SUMMARY
B. What are your competitive strengths and weaknesses?
Instructions:
The answer to this
overarching question
requires a recapitulation
of the section’s main
findings
B.1 What are the capabilities
required to succeed in
this industry?
B.2 How do you compare
against these necessary
capabilities?
Instructions:
These subsections
contain a 1-2 sentence
summary of the relevant
findings
11
IIB. COMPETITIVE ASSESSMENT – BACK-UP 1
• Privileged assets that create competitive advantage, e.g. physical assets, location/”space”,
B.1 What are the
capabilities required to
succeed in this
industry?
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 provide
a useful framework for
answering this question
12
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:
Instructions:
Exhibits 6 and 7 could
provide a useful framework
for answering this question
Benchmark performance against the relevant industry’s KPIs:
Instructions:
Exhibit 8 could provide
a useful framework for
answering this question
* KPIs are a handful of levers that drive the value of the industry/business
13
IIC. INTERNAL ASSESSMENT – SUMMARY
C. How does your current business emphasis fit with the industry opportunities and
the competitive landscape?
Instructions:
The answer to this
overarching question
requires a recapitulation
of the section’s main
findings
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:
These subsections
contain a 1-2 sentence
summary of the relevant
findings
* Please refer to Exhibit 12 for further description
14
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 provide
a useful framework for
answering this question
* Based on latest available, 1-2 year historical financial statements
15
IIC. INTERNAL ASSESSMENT – BACK-UP 2
• KPI performance trends over the last 3-5 years, e.g. return on capital employed (ROCE),
operating income, margins, capital employed
C.2 What have been
performance trends
along major BU KPIs?
• Assessment of underlying trend drivers
• Expected evolution
ROCE = Operating income x (1- tax rate)
All interest bearing debt (short and long) +
minority interest + stockholders’ equity
Instructions:
Exhibits 10 and 11 could
provide a useful framework
for answering this question
16
IIC. INTERNAL ASSESSMENT – BACK-UP 3
C.3 Which intangible
assets could be nearterm potential sources
of value?
• Identification of in-house intellectual property, talent, networks, brand/image
• Conversion into sources of value
Instructions:
Exhibit 12 could provide
a useful framework for
answering this question
17
III. STRATEGIC DEFINITION AND
IMPLICATIONS
18
IIIA. STRATEGY ARTICULATION – SUMMARY
A. What strategy will your BU pursue over the next 3 years?
Instructions:
The answer to this
overarching question
requires a recapitulation
of the section’s main
findings
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:
These subsections
contain a 1-2 sentence
summary of the relevant
findings
A.4 How does your chosen
strategy exploit industry
opportunities and address
industry/competitive threats?
19
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 provide
a useful framework for
answering this question
20
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?
21
IIIA. STRATEGY ARTICULATION – BACK-UP 3
• Delivery and communication of customer value proposition (value delivery system)
• Competitive advantage in delivering these benefits to the customer
A.3 What is your business
model?
How will the value proposition be provided and communicated?
Instructions:
Exhibit 15 could provide
a useful framework for
answering this question
Which of your BU’s existing strengths can be leveraged? What skills/capabilities do you need to
build?
22
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
23
IIIB. STRATEGIC INITIATIVES – SUMMARY
B. What will be the impact of major strategic initiatives?
Instructions:
The answer to this
overarching question
requires a recapitulation
of the section’s main
findings
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?
B3. How much value will be created
from each strategic initiative?
Instructions:
These subsections
contain a 1-2 sentence
summary of the relevant
findings
B4. What resources will
each strategic initiative
require?
24
IIIB. STRATEGIC INITIATIVES – BACK-UP 1
B.1 What major strategic
initiatives are required
to successfully implement your selected
business model?
• Possible strategic initiatives list
25
IIIB. STRATEGIC INITIATIVES – BACK-UP 2
• Sources of value from each strategic initiative (e.g., EBIT, capital employed)
B.2 What are the sources
of value created from
each strategic
initiative?
Category
of
initiatives
•
•
•
•
EBIT impact via
Specific
actionable Volume
Price
initiatives increase
increase
Cost
reduction
Other
Capital employed impact via
Invest- Divest- Capital
ment
ment
efficiency*
Other
•
•
•
•
•
•
•
•
* E.g. improved working capital employment, increased asset utilization, changes to asset ownership
26
IIIB. STRATEGIC INITIATIVES – BACK-UP 3
B.3 How much value will
be created from each
strategic initiative?
• Financial impact from each strategic initiative
• Expected financial outlay for each initiative
Operating income ongoing impact 2001-2004
PhP millions
+
+
+
–
=
one-time EBIT impact =
one-time costs =
Present
operating
income
Volume
increase
Price
increase
Cost
reduction
benefit
Capital employed ongoing impact 2001-2004
PhP billions
–
–
Present capital
employed
Improved capital Divestments
efficiency
Additional
costs
+
Total ongoing
operating
income
=
Investments
(capex and
acquisitions)
Total ongoing
capital employed
27
IIIB. STRATEGIC INITIATIVES – BACK-UP 4
B.4 What resources will
each strategic initiative
require?
Categories of initiatives
•
•
•
•
• Resources required to make strategy work
• Availability of resources in the organization
• Plan for filling resource gaps
Specific actionable
initiatives
Resource requirements
People/skills
Funding
Ex-Com involvement
•
•
•
•
•
•
•
•
•
•
•
•
28
IIIC. FINANCIAL PROJECTIONS – SUMMARY
C. What are the expected financial returns of your strategy?
Instructions:
The answer to this
overarching question
requires a recapitulation
of the section’s main
findings
C.1 What are the key
assumptions?
C.2 What is your projected
net income in the next
few years?
C.3 What is your expected
cash generation ability
over the medium term?
Instructions:
These subsections
contain a 1-2 sentence
summary of the relevant
findings
C.4 What is your expected
capital productivity?
29
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
KEY FORECAST ASSUMPTIONS
Business unit assumptions
Corporate center assumptions
2002
2002
Revenues
• Market size
• Market share
• Price
Costs
• Input costs
• Production costs
• Other costs
(e.g. SG&A)
Margins
• Gross margin
• Operating
margin
BASE CASE
2003
2004
Growth rate
Key economic
indicators
• GDP growth
• Consumer
price index
• Exchange rate
(PhP/USD)
• 91-day T-bill
rate
2003
2004
Instructions:
These are the minimum
required assumptions.
Feel free to add other
assumptions relevant
to your BU
Corporate tax
rate
Capital
• Planned
investments/
divestments
• Changes in
working capital
30
IIIC. FINANCIAL PROJECTIONS – BACK-UP 2
• Income statement forecast
C.2 What is your projected
net income in the next
few years?
FORECASTED INCOME STATEMENT
BASE CASE
In PhP million
Historical
Forecast
1999
2001**
2000
2002
2003
2004
CAGR
1999-2004
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Other expenses
Taxes
Net profit
Growth analysis
Sales (%)
Gross profit (%)
Operating profit (%)
Net profit (%)
Instructions:
These are the minimum
required income statement
accounts and analyses.
Feel free to add other
accounts and analyses
relevant to your BU
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 initiatives
on the revenues and costs should be established clearly with additional attachments if required
** Best estimates on possible actual results
31
IIIC. FINANCIAL PROJECTIONS – BACK-UP 3
• Cash flow forecast
C.3 What is your expected
cash generation ability
over the medium term?
FORECASTED CASH FLOW STATEMENT
In PhP million
Historical
Forecast
1999
2001** 2002
2000
BASE CASE
2003
2004
CAGR
1999-2004
Operating profit
Depreciation and amortization
Other non-cash operating
expenses
Net operating cash flow
Increase/(decrease) in working
capital
Other operating cash flow
Total operating cash flow
Instructions:
These are the minimum
required cash flow statement
accounts. Feel free to add
other accounts relevant
to your BU
Capital expenditure
Other investing cash flow items
Total investing cash flow
Increase/(decrease) in debt
Dividends
Other financing cash flow
Total financing cash flow
* Key assumptions not listed earlier should be detailed at the bottom of the chart. The impact of planned initiatives
on the fixed and working capital investments should be established clearly with additional attachments if required
** Best estimates on possible actual results
32
IIIC. FINANCIAL PROJECTIONS – BACK-UP 4
• Balance sheet forecast
• ROCE computation
C.4 What is your expected
capital productivity?
ROCE = Operating income x (1- tax rate)
All interest bearing debt (short and long) +
minority interest + stockholders’ equity
FORECASTED BALANCE SHEET
In PhP million
Cash
Accounts receivables
Inventories
Other current assets
Total current assets
Net fixed assets
Other assets
Total assets
Accounts payable
Other current liabilities
Total current liabilities
Short-term loans
Long-term loans
Other liabilities
Total liabilities
BASE CASE
Historical
Forecast
1999
2001*
2000
2002
2003
2004
CAGR
1999-2004
Instructions:
These are the minimum
required balance sheet
accounts and analyses.
Feel free to add other
accounts and analyses
relevant to your BU
Minority interest
Total stockholders’ equity
Total liab. & stockholders’ equity
Ratio analysis
Working capital turnover
Debt-equity ratio
Capital employed
ROCE
*
Best estimates on possible actual results
33
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES– SUMMARY
D. What strategic alternatives have you considered?
Instructions:
The answer to this
overarching question
requires a recapitulation
of the section’s main
findings
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:
These subsections
contain a 1-2 sentence
summary of the relevant
findings
D.3 Beyond the 3-year time frame,
what breakthrough strategic
options may be possible?
34
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 1
D.1 What are the
associated risks to
your chosen strategy?
Potential risks
• Identification of significant potential risks and plans to mitigate
• Sensitivity/scenario financial analysis
Impact
Likelihood
Contingency
• Business risk
• Regulatory risk
• Technology risk
• Integrity risk
• Macroeconomic risk
• Other
35
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?:
Instructions:
Based on a review of the section on
Environmental and Internal
Assessment, Strategy Articulation,
and the frameworks used (Exhibit 24, 13-15), determine other potential
strategic alternatives
Alternative value proposition:
Alternative business model:
Alignment with external realities:
36
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!
37
Instructions:
Please include all relevant
supporting documentation
in this section
IV. EXHIBITS
38
Exhibit 1
SEGMENT ANALYSIS
ILLUSTRATIVE
Industry segments
Industry
boundaries
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
39
Exhibit 2
STRUCTURE-CONDUCT-PERFORMANCE (SCP) MODEL
Industry
External
shocks
S
tructure
Producers
C
onduct
P
erformance
Feedback
• Technology
•
breakthroughs
Changes in
government
policy/regulations
– Domestic
– International
Economics of demand
• Availability of substitutes
• Differentiability of products
• Rate of growth
• Volatility/cyclicality
Economics of supply
• Concentration of producers
• Import competition
• Diversity of producers
• Fixed/variable cost structure
• Capacity utilization
• Entry/exit barriers
Industry chain economics
• Bargaining power of input
suppliers
• Bargaining power of
customers
Marketing
• Pricing
• Volume
• Advertising/promotion
• New products/R&D
• Distribution
Capacity change
• Expansion/contraction
• Entry/exit
• Acquisition/merger/ divestiture
Vertical integration
• Forward/backward integration
• Vertical joint ventures
• Long-term contracts
Internal efficiency
• Cost control
• Logistics
• Process R&D
• Organization effectiveness
Finance
• Profitability
• Value creation
Technological progress
Employment objectives
40
Exhibit 3
"FORCES AT WORK" FRAMEWORK
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. New entrants
5. Industry competitors
1. Suppliers
3. Buyers
Intensity of rivalry
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
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
4. Substitutes
4. Determinants of
substitution threat
• Relative price performance of
substitutes
• Switching costs
• Buyer propensity to substitute
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
• Price sensitivity
– Price/total purchases
– Product differences
– Brand Identity
– Impact on quality perception
– Buyer profits
– Decision makers' incentives
41
Exhibit 4
SWOT ANALYSIS
Opportunities/Threats
NEUTRALIZE
THREATS
BUILD ON
STRENGTHS
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?
YOUR
BU
ADDRESS
WEAKNESSES
CONVERT
OPPORTUNITIES
• 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?
Surfaces potential
opportunities/threats
arising from factors
external to the BU
Can be used as a thought
starter for competitive
analysis and internal
assessment
42
Exhibit 5
CAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF
COMPETITIVE ADVANTAGE (1/2)
Example
Physical asset
• BHP’s low-cost mines
Location/"space"
• Telecomm/media company with rights
radio spectrum
Distribution/sales network
• Avon’s representatives
Brand/reputation
• Coca-Cola
Patent
• Pharmaceutical company with a "wonder
drug”
Relationship with "license"
allocator
• "Favored nation" status with a key minister in
liberalizing economy
Innovation
• 3M with new products
Cross-functional coordination
• McDonald’s with QSC&V
Market positioning
• J&J with branded consumer health products
Cost/efficiency management
• Emerson Electric’s Best Cost Producer program
Talent development
• P&G brand management program
Privileged assets
Necessary
capabilities
in order to
succeed in
the industry
Distinctive
competencies
43
Exhibit 6
CAPABILITY PLATFORM: ASSESSMENT OF
SOURCES OF COMPETITIVE ADVANTAGE (2/2)
Extremely relevant
ILLUSTRATIVE
Somewhat relevant
Irrelevant
Segments
BU Overall
A
B
C
Physical asset
Location/"space"
Privileged
assets
Distribution/sales network
Brand/reputation
Necessary
capabilities
in order to
succeed in
the industry
Patent
Relationship with "license" allocator
Innovation
Cross-functional coordination
Distinctive
competencies
Market positioning
Cost/efficiency management
Talent development
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
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
44
Exhibit 7
COMPETITOR CAPABILITY COMPARISON
ILLUSTRATIVE
Competitors
BU Overall
Physical asset
A
•
•
B
C
Location/"space"
Privileged
assets
Distribution/sales network
•
•
Brand/reputation
Necessary
capabilities
in order to
succeed in
the industry
Patent
Relationship with "license" allocator
Innovation
Cross-functional coordination
Distinctive
competencies
Market positioning
Cost/efficiency management
Talent development
Step 3: Compare the strengths and weaknesses of
your competitive position vs. the necessary skills
45
Exhibit 8
BENCHMARK PERFORMANCE AGAINST RELEVANT INDUSTRY KPIs
ILLUSTRATIVE
KPIs (examples)
BU
Competitor A
Competitor B
Competitor C
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
•
•
46
Exhibit 9
SEGMENT ANALYSIS
Segment 1
Segment 2
Segment 3
Segment 4
% of
total
% of
total
% of
total
% of
total
PhP
PhP
PhP
PhP
Total
% of
total
PhP
Step 1: Identify the
relevant segments
Revenue
Step 2: Provide a
segment analysis
based on the
following minimum
financial metrics:
revenue, gross
profit and margin,
operating profit and
margin
Gross profit
Operating
profit
Assets
employed
People
employed
Operating
profit margin
Gross profit
margin
ROCE
Segment 1
Segment 2
Segment 3
Segment 4
%
%
%
%
Total
%
Step 3: To the
extent assets and
people can be
disaggregated by
segment,
deployment of
assets against
returns can be
analyzed
47
Exhibit 10
TREND ANALYSIS – RETURN ON CAPITAL
EMPLOYED (ROCE)
Operating income x (1
- tax rate)
PhP million
ROCE
Percent
60
40
20
0
0
'97
'98
'99
'00
x
x
16
'96 '97 '98 '99 '00
15
10
5
0
'96
1,500
1,000
500
0
Operating margin
Percent
10
Market share
Percent
Revenue
PhP million
'96 '97 '98 '99 '00
'96 '97 '98 '99 '00
20
NOT EXHAUSTIVE
Industry sales
PhP million
15,000
10,000
5,000
0
'96 '97 '98 '99 '00
14
÷
12
'96 '97 '98 '99 '00
x
(1 - tax rate)
Percent
34
33
32
31
'96 '97 '98 '99 '00
Capital employed
PhP million
600
400
200
0
The ROCE tree can be
disaggregated to show the
other relevant KPIs of a BU
'96 '97 '98 '99 '00
48
Exhibit 11
TREND ANALYSIS – CASH
Operating cash flow
PhP million
60
40
20
0
Net income
PhP million
1,500
1,000
500
0
'96 '97 '98 '99 '00
'96 '97 '98 '99 '00
Cash flow generated
PhP million
NOT EXHAUSTIVE
+
Non-cash expenses
PhP million
60
40
20
0
+
600
400
200
0
'96 '97 '98 '99 '00
+
'96 '97 '98 '99 '00
Investing cash flow
PhP million
60
40
20
0
'96 '97 '98 '99 '00
Change in working capital
PhP million
34
33
32
31
'96 '97 '98 '99 '00
+
Financing cash flow
PhP million
60
40
20
0
The cash flow tree can be
disaggregated to show the
other relevant KPIs of a BU
'96 '97 '98 '99 '00
49
Exhibit 12
INTANGIBLE ASSET CHECKLIST
ILLUSTRATIVE
Intangible assets
Ways to extract near-term value
Intellectual property
• Patents generating licensing fees
• Understanding of customer behavior
• Risk management
• Software
•
•
•
•
Talent
• Highly motivated and competent workforce
leveraging specific skill sets to
– Generate growth
– Improve/increase company intangibles
•
•
•
•
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
•
•
•
•
•
•
•
•
•
•
•
•
50
Exhibit 13
WHERE TO COMPETE?
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?
Customers
Geographical scope of
business activities
• Geographic limits to the
business?
• Local, regional, multilocal, national,
international, or global
player?
• If local, which localities?
Geographic
markets
Channels
How does the entity reach
its target customers
• Which distribution
channels will you use?
• What customer segments
can they reach?
Products
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?
51
Exhibit 14
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?
52
Exhibit 15
BUSINESS MODEL
Value proposition
Value delivery system (VDS)
Chose the value
Understand
value
desires
Select
target
Segmentation
Provide the value
Define
benefits/
price
Value
proposition
Design
product/
process
Procure,
manufacture
Distribute
Service
Communicate the value
Price
Sales
message
Advertising
Promotional/PR
Business model:
• Integrated set of actions to provide and communicate
the value proposition to customers
Each BU must address these 2 issues to define their
business model
1 Illustration of how the value proposition will be provided
and communicated
2 Identification of existing strengths that can be leveraged
and required capabilities that need to be built to be
distinctive in chosen value delivery system
53
Exhibit 16
STRATEGIC INITIATIVES: SOURCES OF VALUE
Categories
of initiatives
EBIT impact via
Specific
actionable Volume
Price
Cost
initiatives increase increase reduction Other
1. Capture
greater market
share
•
•
2. Cost reduction
(e.g., effective
channel
management)
•
•
3. Obtain higher
prices
•
•
4. Create new
market
demand
•
•
5. Form strategic
alliances/
partnerships
•
•

ILLUSTRATIVE
Capital employed impact via
Investment
Divestment
Capital
efficiency* Other











* E.g. improved working capital employment, increased asset utilization, changes to asset ownership
54
Exhibit 17
STRATEGIC INITIATIVES: VALUE QUANTIFICATION
Estimate of total
ongoing operating income and
capital employed impact from
successful implementation of
strategic initiatives
Operating income ongoing impact 2001-2004
PhP millions
+
+
–
+
ILLUSTRATIVE
=
one-time operating
income impact =
one-time costs =
Present
operating
income
Volume
increase
Price
increase
Cost
reduction
benefit
Additional
costs
Capital employed ongoing impact 2001-2004
PhP billions
–
Present capital
employed
–
Improved capital Divestments
efficiency
+
Investments
(capex,
acquisitions)
Total ongoing
operating
income
=
Total ongoing
capital employed
55
Exhibit 18
STRATEGIC INITIATIVES: RESOURCING REQUIREMENTS
ILLUSTRATIVE
Resource requirements
Categories of initiatives
Specific actionable
initiatives
1. Capture greater
market share
•
•
•
2. Cost reduction
•
•
•
3. Achieve higher prices
•
•
•
4. Create new market
demand
•
•
•
5. Form strategic
alliances/partnerships
•
•
•
People/skills
Funding
Ex-Com involvement
56
Exhibit 19
DEFINITION OF RISKS
Definition
Business risk
Regulatory risk
Technology risk
Integrity risk
Macroeconomic risk
• Risk of loss due to changes in industry and competitive
environment, as well as shifts in customer preferences
• Risk due to changes in regulatory environment (e.g.
deregulation)
• Risk due to major changes in technology
• Risk of failures due to business processes and operations or
people’s behavior, either intentional (e.g. fraud) or
unintentional (e.g. errors)
• Risk of loss due to changes in the political, social, or
economic environments
57