Bu Strategic Plan Template Book

CONFIDENTIAL

BU Strategic Plan Template Book Jim Ayala – PHO Melissa Gil – PHO Regina Manzano – PHO Suresh Mustapha – PHO Steve Shaw – HKO Shelly Yeh – PHO Document Choon-Gin Tan – SIO Date 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 Unit of measure

• 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

* Source:

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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

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3

BU STRATEGIC PLAN DEVELOPMENT Unit of measure Environmental and internal assessment Industry dynamics and implications

Strategic definition and implications

• What are the major

Strategy articulation

changes in industry dynamics and resulting opportunities and risks?

+

• What are your competitive strengths and weaknesses?

+

Strategic initiatives

• What will be the impact of major strategic initiatives?

+

Internal assessment

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

Risk/contingencies & strategic alternatives Source:

pursue over the next 3 years?

+

Competitive assessment

*

• What strategy will your BU

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Financial projections

• What are the expected financial returns of your strategy?

+

• What strategic alternatives have you considered?

4

I. EXECUTIVE SUMMARY Unit of measure

* Source:

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Instructions: The Executive Summary provides a synthesis of the Environmental and Internal Assessments and the resultant BU Strategic Plans

5

Unit of measure

II. ENVIRONMENTAL AND INTERNAL ASSESSMENT

* Source:

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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 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? * Source:

Footnote Source

7

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 1 Unit of measure 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:

* Source:

Footnote Source

8

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 2 Unit of measure A.2 How is industry structure changing with respect to demand, supply, and industry chain economics? What are the resulting opportunities and risks?

* Source:

Footnote Source

• 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

9

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 3 Unit of measure A.3 What is the expected competitor conduct? What are the resulting opportunities and risks?

* Source:

Footnote Source

• 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

10

IIA. INDUSTRY DYNAMICS AND IMPLICATIONS – BACK-UP 4 Unit of measure A.4 What are the present and future external factors that could present new opportunities and risks?

* Source:

Footnote Source

• 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

11

IIB. COMPETITIVE ASSESSMENT – SUMMARY Unit of measure 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? * Source:

Footnote Source

Instructions: The answer to this overarching question requires a recapitulation of the section’s main findings

Instructions: These subsections contain a 1-2 sentence summary of the relevant findings

12

IIB. COMPETITIVE ASSESSMENT – BACK-UP 1 Unit of measure B.1 What are the capabilities required to succeed in this industry?

* Source:

Footnote Source

• 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 provide a useful framework for answering this question

13

IIB. COMPETITIVE ASSESSMENT – BACK-UP 2 Unit of measure 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

* 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? 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? * Footnote * Please refer to Exhibit 12 for further description Source: Source

Instructions: These subsections contain a 1-2 sentence summary of the relevant findings

15

IIC. INTERNAL ASSESSMENT – BACK-UP 1 Unit of measure 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

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

Instructions: Exhibit 9 could provide a useful framework for answering this question

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

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

* Source:

Footnote Source

17

IIC. INTERNAL ASSESSMENT – BACK-UP 3 Unit of measure C.3 Which intangible assets could be nearterm potential sources of value?

* Source:

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• 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

18

Unit of measure

III. STRATEGIC DEFINITION AND IMPLICATIONS

* Source:

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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 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? * Source:

Footnote Source

20

IIIA. STRATEGY ARTICULATION – BACK-UP 1 Unit of measure

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

* Source:

Footnote Source

21

IIIA. STRATEGY ARTICULATION – BACK-UP 2 Unit of measure 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?

* Source:

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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?

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?

* Source:

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23

IIIA. STRATEGY ARTICULATION – BACK-UP 4 Unit of measure A.4 How does your chosen strategy exploit the industry opportunities and address the industry/competitive threats?

* Source:

Footnote Source

• 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

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 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? * Source:

Footnote Source

25

IIIB. STRATEGIC INITIATIVES – BACK-UP 1 Unit of measure B.1 What major strategic initiatives are required to successfully implement your selected business model?

* Source:

Footnote Source

• Possible strategic initiatives list

26

IIIB. STRATEGIC INITIATIVES – BACK-UP 2 Unit of measure B.2 What are the sources of value created from each strategic initiative?

Category of initiatives

• • • •

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

EBIT impact via Specific actionable Volume Price initiatives increase increase

Cost reduction

Other

Capital employed impact via Invest- Divest- Capital 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 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 * Source:

Improved capital Divestments efficiency

Footnote Source

Additional costs

+

Total ongoing operating income

=

Investments (capex and acquisitions)

Total ongoing capital employed

28

IIIB. STRATEGIC INITIATIVES – BACK-UP 4 Unit of measure B.4 What resources will each strategic initiative require?

Categories of initiatives

Specific actionable initiatives

Resource requirements People/skills Funding

Ex-Com involvement

• • •

•

• • • • • • • • •

• • •

* Source:

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

Footnote 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 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? * Source:

Footnote Source

30

IIIC. FINANCIAL PROJECTIONS – BACK-UP 1 Unit of measure • • • •

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

BASE CASE

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

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

* Source:

Footnote 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

2001**

2000

2002

2003

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 (%)

CAGR 1999-2004

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

* Source:

Footnote 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 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

* Source:

Footnote 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 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

*

Source:

Footnote 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? 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? * Source:

Footnote Source

35

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

* Source:

Footnote 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? 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: * Source:

Footnote Source

37

IIID. RISKS/CONTINGENCIES & STRATEGIC ALTERNATIVES – BACK-UP 3 Unit of measure D.3 Beyond the 3-year time frame, what breakthrough strategic options may be possible?

* Source:

Footnote Source

• “Out-of-the-box” ideas

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

38

Unit of measure

Instructions: Please include all relevant supporting documentation in this section

IV. EXHIBITS

* Source:

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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

* Source:

Footnote Source

40

Exhibit 2

STRUCTURE-CONDUCT-PERFORMANCE (SCP) MODEL Unit of measure

Industry

External shocks

S

tructure

Producers

C

onduct

P

erformance

Feedback

• Technology breakthroughs • Changes in government policy/regulations – Domestic – International

* Source:

Footnote Source

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

41

Exhibit 3

"FORCES AT WORK" FRAMEWORK

Unit of measure

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

* Source:

Footnote Source

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

42

Exhibit 4

SWOT ANALYSIS Unit of measure

Opportunities/Threats

NEUTRALIZE THREATS

Strengths/ Weaknesses

BUILD ON STRENGTHS

• 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 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

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

* Source:

Footnote Source

44

Exhibit 6

CAPABILITY PLATFORM: ASSESSMENT OF Unit of measure 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

* Source:

Footnote Source

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 45

Exhibit 7

COMPETITOR CAPABILITY COMPARISON

ILLUSTRATIVE

Unit of measure

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

* Source:

Footnote Source

46

Exhibit 8

BENCHMARK PERFORMANCE AGAINST RELEVANT INDUSTRY KPIs Unit of measure KPIs (examples)

ILLUSTRATIVE 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

• •

Source:

*

Footnote Source

47

Exhibit 9

SEGMENT ANALYSIS Unit of measure

Segment 1 % of total

PhP

Segment 2 % of total

PhP

Segment 3 PhP

% of total

Segment 4 PhP

% of total

Total

% of total

PhP

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 Segment 1

Segment 2

Segment 3

Segment 4

%

%

%

%

Operating profit margin Gross profit margin ROCE Source:

*

Step 1: Identify the relevant segments

Footnote Source

Total %

Step 3: To the extent assets and people can be disaggregated by segment, deployment of assets against returns can be analyzed 48

Exhibit 10

TREND ANALYSIS – RETURN ON CAPITAL Unit of measure(ROCE) EMPLOYED Operating income x (1 - tax rate) PhP million 60 40 20 0

ROCE Percent

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

* Source:

Footnote Source

49

Exhibit 11

TREND ANALYSIS – CASH Unit of measure

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

* Source:

Footnote Source

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

'96 '97 '98 '99 '00

50

Exhibit 12

INTANGIBLE ASSET CHECKLIST Unit of measure

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 • * Footnote • Source: Source

51

Exhibit 13

WHERE TO COMPETE? Unit of measure

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

* Source:

Footnote Source

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?

* Source:

Footnote Source

53

Exhibit 15

BUSINESS MODEL Unit of measure Value proposition

Value delivery system (VDS)

Chose the value Understand value desires

Provide the value

Select target

Segmentation

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

* Source:

Footnote Source

54

Exhibit 16

STRATEGIC INITIATIVES: SOURCES OF VALUE

ILLUSTRATIVE

Unit of measure

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

• •



Capital employed impact via Investment

Divestment

Capital efficiency*

Other







 

 

 



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



55

Exhibit 17

STRATEGIC INITIATIVES: VALUE QUANTIFICATION Unit of measure

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 * Source:

–

Improved capital Divestments efficiency

Footnote Source

+

Investments (capex, acquisitions)

Total ongoing operating income

=

Total ongoing capital employed 56

Exhibit 18

STRATEGIC INITIATIVES: RESOURCING REQUIREMENTS Unit of measure

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

• • •

* Source:

Footnote Source

ILLUSTRATIVE

Resource requirements People/skills

Funding

Ex-Com involvement

57

Exhibit 19

DEFINITION OF RISKS Unit of measure

Definition

Business risk

Regulatory risk

Technology risk

Integrity risk

Macroeconomic risk

* Source:

Footnote Source

• 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

58