CONFIDENTIAL

Strategic Plan
Template
Document
Date

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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
Unit of measure

• The objective of these templates is to provide completeness and

consistency of Business Unit (“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

* Footnote
Source: Source 2
TABLE OF CONTENTS
Unit of measure

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

* Footnote
Source: Source 3
BU STRATEGIC PLAN DEVELOPMENT
Unit of measure
Environmental and internal assessment Strategic definition and implications

Industry • What are the major • What strategy will your BU

changes in industry Strategy pursue over the next 3 years?
dynamics and
dynamics and resulting articulation
implications
opportunities and risks?

+ +
• What are your • What will be the impact of
Competitive competitive strengths and Strategic major strategic initiatives?
assessment weaknesses? initiatives

+ +

• How does your current • What are the expected

Internal business emphasis fit Financial financial returns of your
assessment with industry opportunity projections strategy?
and competitive
landscape?
+

Risk/contingen- • What strategic alternatives

cies & strategic have you considered?
alternatives
* Footnote
Source: Source 4
I. EXECUTIVE SUMMARY
Unit of measure
Instructions:
The Executive Summary
provides a synthesis of the
Environmental and Internal
Assessments and the
resultant BU
Strategic Plans

* Footnote
Source: Source 5
Unit of measure

II. ENVIRONMENTAL AND INTERNAL

ASSESSMENT

* Footnote
Source: Source 6
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – SUMMARY
Unit of measure
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 Instructions:
chain economics)? What are the
resulting opportunities and risks? These subsections
contain a 1-2 sentence
A.3 What is the expected competitor summary of the relevant
conduct? What are the resulting
findings
opportunities and risks?

A.4 What are the present and future

external factors that could present
new opportunities and risks?
* Footnote
Source: Source 7
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 1
Unit of measure
A.1 What industry are you • Industry definition
• Industry segmentation
competing in? What are – Definition
the various segments – Sizing Instructions:
in the industry? Exhibit 1 could provide
a useful framework for
Industry definition: answering this question

Industry segmentation:

* Footnote
Source: Source 8
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 2
Unit of measure
• Economics of demand
A.2 How is industry – By segment
structure changing with – Substitutes, ability to differentiate
respect to demand, – Volatility, cyclicality Instructions:
• Economics of supply
Exhibit 2,3 or 4 could provide
supply, and industry – Producer concentration and diversity
chain economics? – Import competition a useful framework for
– Capacity utilization
What are the resulting – Entry/exit barriers answering this question
opportunities and – Cost structure (fixed and variable)
risks? • Industry chain economics
– Customer and supplier bargaining power

* Footnote
Source: Source 9
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 3
Unit of measure
A.3 What is the expected • Major industry competitor moves
– Marketing initiatives
competitor conduct? – Industry capacity changes Instructions:
What are the resulting – M&As, divestitures
Exhibit 2,3 or 4 could provide
– Vertical integration/disaggregation
opportunities and – Alliances and partnerships a useful framework for
risks? – Cost control and efficiency improvements
answering this question

* Footnote
Source: Source 10
IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 4
Unit of measure
A.4 What are the present • Impact and likelihood of major industry discontinuities
– Changes in regulation/government policy
and future external – Technological breakthroughs Instructions:
factors that could Exhibit 2,3 or 4 could provide
present new
a useful framework for
opportunities and
risks? answering this question

* Footnote
Source: Source 11
IIB. COMPETITIVE ASSESSMENT – SUMMARY
Unit of measure
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 Instructions:
this industry? These subsections
contain a 1-2 sentence
summary of the relevant
B.2 How do you compare findings
against these necessary
capabilities?

* Footnote
Source: Source 12
IIB. COMPETITIVE ASSESSMENT – BACK-UP 1
Unit of measure
• Privileged assets that create competitive advantage, e.g. physical assets, location/”space”,
B.1 What are the distribution/sales network, intangible assets (intellectual capital, network, brands, talents)
• Distinctive skills/competencies that create competitive advantage, e.g.innovation, talent
capabilities required to development
succeed in this
industry?
Instructions:
Exhibit 5 could provide
a useful framework for
answering this question

* Footnote
Source: Source 13
IIB. COMPETITIVE ASSESSMENT – BACK-UP 2
Unit of measure
• Strengths and weaknesses of your competitive position vs. necessary capabilities
B.2 How do you compare • Benchmark performance against the industry’s relevant key performance indicators (KPIs)*,
with margin and market share as the required minimum
against these
necessary
capabilities?

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

* Footnote
* KPIs are a handful of levers that drive the value of the industry/business
Source: Source 14
IIC. INTERNAL ASSESSMENT – SUMMARY
Unit of measure
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?

Instructions:
C.2 What have been the These subsections
performance trends
contain a 1-2 sentence
along major BU KPIs?
summary of the relevant
findings
C.3 Which intangible assets*
could be near-term
potential sources of
value?
* Footnote
* Please refer to Exhibit 12 for further description
Source: Source 15
IIC. INTERNAL ASSESSMENT – BACK-UP 1
Unit of measure
• Relevant BU segments (based on customer, product, geography, channel)
• Operating contribution estimates for each segment
C.1 Which segments of the
business are providing Instructions:
the highest returns?* Exhibit 9 could provide
a useful framework for
answering this question

* Footnote
* Based on latest available, 1-2 year historical financial statements
Source: Source 16
IIC. INTERNAL ASSESSMENT – BACK-UP 2
Unit of measure
• 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
C.2 What have been • Expected evolution
performance trends
along major BU KPIs?
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

* Footnote
Source: Source 17
IIC. INTERNAL ASSESSMENT – BACK-UP 3
Unit of measure
• Identification of in-house intellectual property, talent, networks, brand/image
C.3 Which intangible • Conversion into sources of value
assets could be near-
term potential sources Instructions:
of value? Exhibit 12 could provide
a useful framework for
answering this question

* Footnote
Source: Source 18
Unit of measure

III. STRATEGIC DEFINITION AND

IMPLICATIONS

* Footnote
Source: Source 19
IIIA. STRATEGY ARTICULATION – SUMMARY
Unit of measure
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 Instructions:
segments you are going to
serve? These subsections
contain a 1-2 sentence
A.3 What is your business summary of the relevant
model? findings
A.4 How does your chosen
strategy exploit industry
opportunities and address
industry/competitive threats?

* Footnote
Source: Source 20
IIIA. STRATEGY ARTICULATION – BACK-UP 1
Unit of measure
• Where are you going to compete along these dimensions and why:
– Target market
– Distribution channels
A.1 Where to compete? – Product (breadth and depth)
– Geographic scope
Instructions:
Exhibit 13 could provide
a useful framework for
answering this question

* Footnote
Source: Source 21
IIIA. STRATEGY ARTICULATION – BACK-UP 2
Unit of measure
• Target customer definition
A.2 What is your customer • Benefits that you will offer the customers
value proposition for • Product pricing
the different segments • Position against competition vis-à-vis the benefits provided and the price charged
you are going to
serve?

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?

* Footnote
Source: Source 22
IIIA. STRATEGY ARTICULATION – BACK-UP 3
Unit of measure
• 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? Instructions:
Exhibit 15 could provide
a useful framework for
answering this question
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?

* Footnote
Source: Source 23
IIIA. STRATEGY ARTICULATION – BACK-UP 4
Unit of measure
A.4 How does your chosen • Industry attractiveness and implication review
• Alignment of strategy and environmental realities
strategy exploit the
industry opportunities Instructions:
and address the A review of the section on Industry
industry/competitive Dynamics and Implications, together
threats? with the frameworks used (Exhibit 2,3
or 4) is useful for answering this
question

* Footnote
Source: Source 24
IIIB. STRATEGIC INITIATIVES – SUMMARY
Unit of measure
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 Instructions:
initiative? These subsections
contain a 1-2 sentence
B3. How much value will be created summary of the relevant
from each strategic initiative? findings

B4. What resources will

each strategic initiative
require?

* Footnote
Source: Source 25
IIIB. STRATEGIC INITIATIVES – BACK-UP 1
Unit of measure
• Possible strategic initiatives list
B.1 What major strategic
initiatives are required
to successfully imple-
ment your selected
business model?

* Footnote
Source: Source 26
IIIB. STRATEGIC INITIATIVES – BACK-UP 2
Unit of measure
• 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 Specific EBIT impact via Capital employed impact via

of actionable Volume Price Cost Invest- Divest- Capital
initiatives initiatives increase increase reduction Other ment ment efficiency* Other
•
• •
•
• •
•
• •
• •
•

* Footnote
* E.g. improved working capital employment, increased asset utilization, changes to asset ownership
Source: Source 27
IIIB. STRATEGIC INITIATIVES – BACK-UP 3
Unit of measure
• Financial impact from each strategic initiative
B.3 How much value will • Expected financial outlay for each initiative
be created from each
strategic initiative?

Operating income ongoing impact 2001-2004

PhP millions + – =
+ +
one-time EBIT impact =

one-time costs =

Present Volume Price Cost Additional Total ongoing

operating increase increase reduction costs operating
income benefit income

Capital employed ongoing impact 2001-2004

PhP billions
– – + =

Present capital Improved capital Divestments Investments Total ongoing

employed efficiency (capex and capital employed
acquisitions)

* Footnote
Source: Source 28
IIIB. STRATEGIC INITIATIVES – BACK-UP 4
Unit of measure
• Resources required to make strategy work
B.4 What resources will • Availability of resources in the organization
each strategic initiative • Plan for filling resource gaps

require?

Specific actionable Resource requirements

Categories of initiatives initiatives People/skills Funding Ex-Com involvement

•
• •
•
•
• •
•
•
• •
•
•
• •
•

* Footnote
Source: Source 29
IIIC. FINANCIAL PROJECTIONS – SUMMARY
Unit of measure
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
Instructions:
few years? These subsections
contain a 1-2 sentence
C.3 What is your expected summary of the relevant
cash generation ability findings
over the medium term?

C.4 What is your expected

capital productivity?

* Footnote
Source: Source 30
IIIC. FINANCIAL PROJECTIONS – BACK-UP 1
Unit of measure
• Profit and loss (e.g. revenues, costs, margin)
• Balance sheet
• Corporate center directives
C.1 What are the key • Corporate center assumptions
assumptions?

KEY FORECAST ASSUMPTIONS BASE CASE

Business unit assumptions Corporate center assumptions

2002 2003 2004 Growth rate 2002 2003 2004
Instructions:
Revenues Key economic
These are the minimum
• Market size
• Market share
indicators
• GDP growth
required assumptions.
• Price • Consumer
price index
Feel free to add other
Costs
• Input costs
• Exchange rate
(PhP/USD)
assumptions relevant
• Production costs
• Other costs
• 91-day T-bill
rate
to your BU
(e.g. SG&A)
Corporate tax
Margins rate
• Gross margin
• Operating
margin

Capital
• Planned
investments/
divestments
• Changes in
working capital

* Footnote
Source: Source 31
IIIC. FINANCIAL PROJECTIONS – BACK-UP 2
Unit of measure
• 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 2000 2001** 2002 2003 2004
CAGR
1999-2004
Instructions:
Sales These are the minimum
Cost of goods sold
Gross profit required income statement
Operating expenses
Operating profit
accounts and analyses.
Other expenses Feel free to add other
Taxes
Net profit accounts and analyses
Growth analysis relevant to your BU
Sales (%)
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 initiatives
on the revenues and costs should be established clearly with additional attachments if required
** Best estimates on possible actual results

* Footnote
Source: Source 32
IIIC. FINANCIAL PROJECTIONS – BACK-UP 3
Unit of measure
• Cash flow forecast

C.3 What is your expected

cash generation ability
over the medium term?

FORECASTED CASH FLOW STATEMENT BASE CASE

In PhP million
Historical Forecast
CAGR
1999 2000 2001** 2002 2003 2004 1999-2004

Operating profit
Instructions:
Depreciation and amortization These are the minimum
Other non-cash operating
expenses required cash flow statement
Net operating cash flow
Increase/(decrease) in working
accounts. Feel free to add
capital
Other operating cash flow
other accounts relevant
Total operating cash flow 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

* Footnote
Source: Source 33
IIIC. FINANCIAL PROJECTIONS – BACK-UP 4
Unit of measure
• 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 BASE CASE

In PhP million Historical Forecast
CAGR
1999 2000 2001* 2002 2003 2004 1999-2004
Cash Instructions:
Accounts receivables
Inventories These are the minimum
Other current assets
Total current assets required balance sheet
Net fixed assets
Other assets accounts and analyses.
Total assets
Accounts payable
Feel free to add other
Other current liabilities
Total current liabilities
accounts and analyses
Short-term loans relevant to your BU
Long-term loans
Other liabilities
Total liabilities

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

* Footnote
Source: Source 34
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES– SUMMARY
Unit of measure
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?
Instructions:
D.2 Re-examining industry These subsections
opportunities and contain a 1-2 sentence
industry/competitive threats,
what alternatives exist to your summary of the relevant
chosen strategy? findings

D.3 Beyond the 3-year time frame,

what breakthrough strategic
options may be possible?

* Footnote
Source: Source 35
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 1
Unit of measure
• Identification of significant potential risks and plans to mitigate
• Sensitivity/scenario financial analysis
D.1 What are the
associated risks to
your chosen strategy?

Potential risks Impact Likelihood Contingency

• Business risk

• Regulatory risk

• Technology risk

• Integrity risk

• Macroeconomic risk

• Other

* Footnote
Source: Source 36
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 2
Unit of measure
D.2 Re-examining industry
opportunities and
industry/competitive
threats, what
alternatives exist to
your chosen strategy?
Where to compete?:
• Where to compete?
• Value proposition
• 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

Alternative value proposition:

Alternative business model:

Alignment with external realities:

* Footnote
Source: Source 37
IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 3
Unit of measure
• “Out-of-the-box” ideas
D.3 Beyond the 3-year time
frame, what
breakthrough strategic
options may be
possible? Instructions:
Think radical! Think out-of-the-box!

* Footnote
Source: Source 38
Unit of measure Instructions:
Please include all relevant
supporting documentation
in this section

IV. EXHIBITS

* Footnote
Source: Source 39
Exhibit 1
SEGMENT ANALYSIS ILLUSTRATIVE
Unit of measure
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

* Footnote
Source: Source 40
Exhibit 2
STRUCTURE-CONDUCT-PERFORMANCE (SCP) MODEL
Unit of measure
Industry Producers

External S tructure C onduct P erformance

shocks

Feedback
• Technology Economics of demand Marketing Finance
breakthroughs • Availability of substitutes • Pricing • Profitability
• Changes in • Differentiability of products • Volume • Value creation
government • Rate of growth • Advertising/promotion Technological progress
policy/regulations • Volatility/cyclicality • New products/R&D Employment objectives
– Domestic Economics of supply • Distribution
– International • Concentration of producers Capacity change
• Import competition • Expansion/contraction
• Diversity of producers • Entry/exit
• Fixed/variable cost structure • Acquisition/merger/ divestiture
• Capacity utilization Vertical integration
• Entry/exit barriers • Forward/backward integration
Industry chain economics • Vertical joint ventures
• Bargaining power of input • Long-term contracts
suppliers Internal efficiency
• Bargaining power of • Cost control
customers • Logistics
• Process R&D
* Footnote • Organization effectiveness
Source: Source 41
Exhibit 3
"FORCES AT WORK" FRAMEWORK
Unit of measure
1. Determinants of supplier power 2. Determinants of barriers to entry
• Differentiation of inputs • Economies of scale
• Switching costs of suppliers and firms in the • Proprietary product differences
industry • Brand identity
• Presence of substitute inputs • Switching costs
• Supplier concentration • Capital requirements
• Importance of volume to supplier • Access to distribution
• Cost relative to total purchases in the industry • Absolute cost advantages
2. New entrants – Proprietary learning curve
• Impact of inputs on cost or differentiation
• Threat of forward integration relative to threat – Access to necessary inputs
of backward integration by firms in the industry – Proprietary, low-cost product design
• Government policy
5. Industry competitors • Expected retaliation
1. Suppliers
3. Buyers
Intensity of rivalry 3. Determinants of buying power
5. Rivalry determinants • Bargaining leverage
• Industry growth – Buyer concentration vs. firm
• Fixed (or storage) cost/value added concentration
• Intermittent overcapacity 4. Substitutes – Buyer volume
• Product differences – Buyer switching costs relative to firm
• Brand identity switching costs
• Switching costs 4. Determinants of – Buyer information
• Concentration and balance substitution threat – Ability to backward integrate
• Informational complexity • Relative price performance of – Substitute products
• Diversity of competitors substitutes – Pull-through
• Corporate stakes • Switching costs • Price sensitivity
• Exit barriers • Buyer propensity to substitute – Price/total purchases
– Product differences
– Brand Identity
– Impact on quality perception
– Buyer profits
* Footnote
– Decision makers' incentives
Source: Source 42
Exhibit 4
SWOT ANALYSIS
Unit of measure
Opportunities/Threats

• How are demand and

NEUTRALIZE supply expected to
THREATS evolve?
• How do you expect the
industry chain
economics to evolve?
• What are the potential
major industry
discontinuities?
BUILD ON CONVERT • What competitor
STRENGTHS YOUR OPPORTUNITIES actions do you expect?
Strengths/ BU
Weaknesses

• What are your BU’s

assets/competencies Surfaces potential
ADDRESS
that solidify your opportunities/threats
WEAK-
competitive position? arising from factors
NESSES
• What are your BU’s external to the BU
assets/competencies
that weaken your
competitive position?

Can be used as a thought

starter for competitive
analysis and internal
* assessment
Footnote
Source: Source 43
Exhibit 5
CAPABILITY PLATFORM: ASSESSMENT OF SOURCES OF
Unit of measure
COMPETITIVE ADVANTAGE (1/2)
Example

Physical asset • BHP’s low-cost mines

Location/"space" • Telecomm/media company with rights

radio spectrum
Privileged assets
Distribution/sales network • Avon’s representatives

Brand/reputation • Coca-Cola

Patent • Pharmaceutical company with a "wonder

Necessary drug”
capabilities
in order to Relationship with "license" • "Favored nation" status with a key minister in
succeed in allocator liberalizing economy
the industry

Innovation • 3M with new products

Distinctive Cross-functional coordination • McDonald’s with QSC&V

competencies
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

* Footnote
Source: Source 44
Exhibit 6
Extremely relevant
CAPABILITY PLATFORM: ASSESSMENT OF ILLUSTRATIVE
Unit of measure Somewhat relevant
SOURCES OF COMPETITIVE ADVANTAGE (2/2) Irrelevant
Segments
BU Overall A B C
Physical asset

Location/"space"
Privileged
assets Distribution/sales network

Brand/reputation
Necessary
Patent
capabilities
in order to
Relationship with "license"
succeed in
allocator
the industry
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
* Footnote starter, add and delete as you see
appropriate
Source: Source
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
45
Exhibit 7
COMPETITOR CAPABILITY COMPARISON ILLUSTRATIVE
Unit of measure

Competitors
BU Overall A B C
•
Physical asset •
Location/"space"
Privileged
•
assets Distribution/sales network •
Brand/reputation
Necessary
Patent
capabilities
in order to
Relationship with "license"
succeed in
allocator
the industry
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
* Footnote
Source: Source 46
Exhibit 8
BENCHMARK PERFORMANCE AGAINST RELEVANT INDUSTRY KPIs
Unit of measure
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
•
• * Footnote
Source: Source 47
Exhibit 9
SEGMENT ANALYSIS
Unit of measure
Segment 1 Segment 2 Segment 3 Segment 4 Total

% of % of % of % of % of
PhP total PhP total PhP total PhP total PhP total Step 1: Identify the
relevant segments
Revenue

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

Segment 1 Segment 2 Segment 3 Segment 4 Total Step 3: To the

extent assets and
% % % % % people can be
Operating disaggregated by
profit margin segment,
deployment of
Gross profit
margin assets against
returns can be
ROCE analyzed
* Footnote
Source: Source 48
Exhibit 10
TREND ANALYSIS – RETURN ON CAPITAL NOT EXHAUSTIVE
Unit of measure(ROCE)
EMPLOYED Market share
Percent
15
10
Revenue 5
Operating income x (1
PhP million 0
- tax rate)
1,500 '96 '97 '98 '99 '00
PhP million 1,000
60 500 x
40 0 Industry sales
20 '96 '97 '98 '99 '00
ROCE PhP million
0
Percent x 15,000
'96 '97 '98 '99 '00
20 10,000
Operating margin 5,000
10
Percent 0
0 16 '96 '97 '98 '99 '00
'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
The ROCE tree can be
400
200
disaggregated to show the
0 other relevant KPIs of a BU
'96 '97 '98 '99 '00

* Footnote
Source: Source 49
Exhibit 11
TREND ANALYSIS – CASH NOT EXHAUSTIVE
Unit of measure
Net income
Operating cash flow PhP million
1,500
PhP million 1,000
60
500
40
0
20
0 '96 '97 '98 '99 '00
'96 '97 '98 '99 '00 +
Non-cash expenses
PhP million
Cash flow generated 60
PhP million + 40
600 20
400 0
200 '96 '97 '98 '99 '00
0
'96 '97 '98 '99 '00 +
Change in working capital
Investing cash flow PhP million
PhP million 34
60
33
40
32
20
31
0
'96 '97 '98 '99 '00
'96 '97 '98 '99 '00

Financing cash flow The cash flow tree can be

PhP million
60 disaggregated to show the
40
20
other relevant KPIs of a BU
0
'96 '97 '98 '99 '00
* Footnote
Source: Source 50
Exhibit 12
INTANGIBLE ASSET CHECKLIST ILLUSTRATIVE
Unit of measure
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
• * Footnote
•
Source: Source 51
Exhibit 13
WHERE TO COMPETE?
Unit of measure
Geographical scope of
business activities
• Geographic limits to the
business?
• Local, regional, multi-
local, national,
international, or global
player?
• If local, which localities?
* Footnote
Source: Source
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
How does the entity reach
its target customers
Geographic • Which distribution
Channels channels will you use?
markets
• 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?
52
Exhibit 14
VALUE PROPOSITION
Unit of measure

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?

* Footnote
Source: Source 53
Exhibit 15
BUSINESS MODEL
Unit of measure
Value proposition Value delivery system (VDS)

Chose the value Provide the value Communicate the value

Understand Define Design Procure,

Select Distri- Sales Adver- Promo-
value benefits/ product/ manu- Service Price
target bute message tising tional/PR
desires price process facture

Segmentation Value Business model:

proposition
• 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

* Footnote
Source: Source 54
Exhibit 16
STRATEGIC INITIATIVES: SOURCES OF VALUE ILLUSTRATIVE
Unit of measure

EBIT impact via Capital employed impact via

Specific
Categories actionable Volume Price Cost Invest- Divest- Capital
of initiatives initiatives increase increase reduction Other ment ment efficiency* 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 •

* Footnote
* E.g. improved working capital employment, increased asset utilization, changes to asset ownership
Source: Source 55
Exhibit 17
STRATEGIC INITIATIVES: VALUE QUANTIFICATION ILLUSTRATIVE
Unit of measure
Estimate of total
ongoing operating income and
capital employed impact from
Operating income ongoing impact 2001-2004
successful implementation of
PhP millions
strategic initiatives
+ + + – =

one-time operating
income impact =

one-time costs =
Present Volume Price Cost Additional Total ongoing
operating increase increase reduction costs operating
income benefit income

Capital employed ongoing impact 2001-2004

PhP billions
– – + =

Present capital Improved capital Divestments Investments Total ongoing

employed efficiency (capex, capital employed
* Footnote acquisitions)
Source: Source 56
Exhibit 18
STRATEGIC INITIATIVES: RESOURCING REQUIREMENTS ILLUSTRATIVE
Unit of measure

Resource requirements
Specific actionable
Categories of initiatives initiatives People/skills 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
•

* Footnote
Source: Source 57
Exhibit 19
DEFINITION OF RISKS
Unit of measure

Definition

• Risk of loss due to changes in industry and competitive

Business risk environment, as well as shifts in customer preferences

• Risk due to changes in regulatory environment (e.g.

Regulatory risk deregulation)

• Risk due to major changes in technology

Technology risk

• Risk of failures due to business processes and operations or

Integrity risk people’s behavior, either intentional (e.g. fraud) or
unintentional (e.g. errors)

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

Macroeconomic risk economic environments

* Footnote
Source: Source 58