STRATEGIC MANAGEMENT

CHAPTER 1: THE CHALLENGE OF THE NEW CENTURY

STRATEGIC MANAGEMENT PROCESS

Strategic management is the dynamic process that is full of commitment to decisions and actions
to deliver strategic competencies to achieve the desired results in terms of corporate profitability and
growth. The strategic competitiveness is the result of the internal and external analyses of the corporate
environment for the formulation of the strategy and action plans that are directed to set goals and
targets. Effective strategic actions are prerequisites to achieving the desired corporate profit goals and
above average return on investments.

The strategic process is used to match the ever-changing market environment and the competitive
structure of the business involving material and production resources. The changing technology and
resource capabilities of companies are competing with the local and the global market for greater market
share. The desired outcome is the product of a carefully conceived plan of actions and concerted
strategy formulation in the context of its corporate objective.

The world of business in the new century is full of uncertainties, and some companies achieve
competitive success while others fail to achieve the desired return on investments. The corporate
achievements of successful firms are the result of strategic competitiveness of the managers, employees
and their organization towards continuous improvement and commitment to corporate goals and targets.

The corporate competitiveness in the new century is created primarily by the emergence of the
global economy and the rapid technological changes in the production of goods and services. New and
innovative products are tactical strategies in the globalization of trade and business where countries are
geared towards the exchanges of more goods and services with less barriers. This prevailing business
landscape provides the context of opportunities and threats within, which corporate organizations must
strive to meet the global challenge of competitiveness.

The competitive advantage could be divided into two different strategies;

1. Industry-Based Model
It refers to the analyses of the prevailing industry where the firm has its competitive advantages
over other firms in the environment. The corporate strategy must be focused on industry search
and scanning of the most profitable business activities that would give the best returns on
investments. The external environment is full of unexplored opportunities for corporate
investments. These opportunities are open not only to big corporations but also to small
enterprises that must develop strategic competences on the vast areas of the business
landscape.

2. Resource-Based Model
It refers to the analyses of the prevailing resources available to the firm that are present in the
internal environment which could then be utilized in the development of competitive advantage.
This may refer to the capabilities of the human resources that could be linked to the need of the
 present technological development as highly trained manpower could develop new products. This
may also refer to the available material resources that are present in the environment which could
be developed into new products that could be the sources to exports to the global market.

STRATEGIC MANAGEMENT CHALLENGES

Earning above the average return on investments and achieving the desired competencies are
challenges that the business must be able to contain in the world of competition. The challenges are
substantial in the economic global arena not only for big corporations operating in multi-national
environment but also for small firms that need to innovate in order to survive the challenges of
competition. The business war-games could be won with the participation of executive generals
equipped with the knowledge of strategic management.

Strategy is an integrated management challenge as the top executive formulates policies and
programs that will bring the company to its desired direction. It is the integrated and coordinated set of
actions designed to exploit core competencies that were developed overtime and revised with new
strategic actions fitting in to the new and changing environment. Strategic adaptation is scanning the
present business scenario and is making amendments to operational programs. Forecasting and
planning strategies must be put in place with pertinent data analyses of the present business conditions.

Research and development of new products that will satisfy customer needs and wants are
strategic action plans that must be pursued if the company wants to survive the new business
environment. Companies should not rely on their present successes, as other companies would like to
take over the laurels that they once had. Visioning and foresight, together is not the monopoly of one
organization. Many executives are studying the move of its competitors and their weaknesses become
their strength.

The corporate profitability hinges on the development of customer satisfaction and a well thought
of strategy. It must be directed to the development of new or innovative products that will satisfy the
ever-changing needs of the customers. Maximizing customer satisfaction and loyalty develops business
leadership. Quality products and services are the major concern of the management organization to earn
the desired profit. It must be consistent with the view that no matter how good a product or service is, the
firm must select the right strategy and then implement it effectively. No company can set on its laurels all
the time. Other firms are on their tails to get it. Companies need to introduce new and innovative strategy
consistent with the prevailing market condition.

STRATEGIC VISION AND INTENT

Strategic vision is the advantage of the firm's resources and core competencies to accomplish its
goals in the competitive environment. Strategic vision and intent exist when all employees and its
executives are committed to the pursuit of a specific performance criterion. Strategic vision provides the
manpower resource with the commitment to remain the best in the industrial world and unseat the best in
their ranks of competitors. It is the power to effectively and fervently believe that they produce and
market quality products as they focus their firm's ability to outperform their industry competitors.

It is concerned with identifying the resource capabilities and core competencies on which the firm
can base its strategic action. It reflects what the firm is capable of doing and the unique ways to utilize its
competitive advantage. It is not enough for the company to know its strategic intent. Performing well
demands that the firm also identifies the competitor's intent as their strategies may counterbalance their
own intent and operational strategies. The firm's success may also be grounded in the keen and deep
understanding, not only of the competitors but also of the customers, suppliers, stockholders and the
different corporate stakeholders.

STRATEGIC MISSION

Strategic mission flows from strategic vision and intent. It is the statement of the firm's direction in
the pursuit of its operation in the production and marketing of its products and services. Strategic mission
provides general description of the products and services that the firm offers to its various stakeholders
based on its own core competencies. An effective mission establishes the firm's individuality, and it is
inspiring and relevant to the making of great stakeholders for greater patronage that will form the
required insights and strategic actions.

An effective mission is formed by the company with the strong sense of what it wants to do with all
ethical standards guiding the behavior of its corporate resources in the pursuit of its goal and profitability.
An effective vision and mission when properly implemented with strategic actions develop positive effect
on performance that can be measured in terms of increased sales and market growth.

THE LANDSCAPE OF BUSINESS IN THE NEW CENTURY

The competitiveness of the world's market is in the continuous process of change whose pace is
relentless and increasing over time. The industrial boundaries have become challenges as corporate
directions change. New opportunities are taken over by big companies as they spread their resources
into new ventures that would generate greater return on investments.

We consider, for example, San Miguel Corporation has ventured now on infrastructure
development and construction as the opportunity in this area has a greater promise of increased
revenue. The billions of government expenditures for the development of the skyways and other
infrastructures are opportunities for new industrial ventures.

A new mindset is necessary to cope with the ever-increasing competition as the old economies of
scale and intensive advertising are not as effective as it was before. Managers and corporate leaders
need new orientation in terms of flexibility and foresight. Managers must be able to think the foregoing
development in their area of operations. They must see the future with clear vision of what is going to
happen in 5 to 10 years ahead. Forward planning must be put in the drawing board ahead of time and
make amendments as the new landscape develops in the new business horizon.

The business landscape in the new century is a combatant of giant corporations. The changing
conditions and competitiveness needs new values of flexibility, speed, innovation and integration. The
changing conditions evolved from the challenges of the new market needs and wants. This is brought
about by the advancing economies of the world markets. The development of new technology and the
advancing changes in customer preferences are opportunities for innovative companies and a threat to
the traditional players in the industry.

The new century business is the field of hyper-competition that results from the dynamics of
strategic maneuvering of global and innovative combatants. The rapid competition is in terms of
innovative products and price-quality positioning. Product specifications and information could be revised
and modified and create new product design that is superior to the once in the market without violating
existing patent aws. New product positioning and marketing strategy will be developed to invade
established product and geographic markets.

In the hyper-competitive market, companies are aggressively challenging their competitors in the
hope of improving their competitive advantage and product positioning, thereby ultimately improving their
performance. This rapid hyper- competitive environment is the result of the rapid change in technology
that is usually the monopoly of the big industries and innovative young corporations with new visions and
foresight.

THE GLOBAL ECONOMIC SCENARIO

The new global economic scenario is the result of the new borderless flow of foods, services,
people, skills and ideas that are relatively unfettered by artificial constraints. The global economy
significantly expands across borders and complicates the corporate competitiveness as opportunities
and challenges become new playing fields for those with foresight and vision for expansion.

The United States and Japan that used to be the hub of economic development with its billions in
foreign investments and market leadership have slowed down significantly with the development of the
European market and some countries in the Asian Region. The economic crunch in the last decade
affected the advanced countries while the Asian region suffered less devastation.

Singapore, Malaysia, Indonesia, Vietnam and the Philippines continue to grow economically. China
with its new policy of changing from total communist philosophy to capitalist-socialist economy with less
government control for new investments became the new economic hub of the Asian region. The
groupings of economic regions continue to devise new cooperative undertakings for the exchange of
goods and resources among member countries with lesser control in the flow goods and services.

The achievement in economic regional development could be use result of cooperative

undertakings and competitiveness in terms of the countries' effort in putting its resources and manpower
into the production of more goods and services. The infrastructures for development such as roads,
bridges, airports, and landing ports are factors that will contribute immensely in the competitive
advancement of the country's economy.

THE NEW HORIZON FOR THE PHILIPPINES' STRATEGIC COMPETITIVENESS

The Philippines is in the center in the Asian region which could serve as the transient point in the
flow of goods and resources for its neighboring countries. The development of new infrastructures and
the liberalization of trade and commerce will create new investments for its vast natural and human
resources. It is only through the development of our natural resources and the development of new work
values and skills of our manpower that we could achieve the creation of new investments that will create
new job opportunities.

New investments create new businesses that will generate employment sustaining the economic
well-being of the Filipino people. Changing the Philippine scenario for business development is the
creation of more honest governance and the development of more attractive investment policy without
sacrificing the opportunity of its people for growth and economic development. The country's economic
development and global competitiveness are not the makings of its people alone but of the more sincere
and honest commitment to the achievement of good governance and transparency in the conduct of
business.

THE DEVELOPMENT OF STRATEGIC COMPETITIVENESS

The borderless flow of goods, services, knowledge and ideas, and the financial capital for
investments plus the economic interdependence of the worlds' countries is the effect of the marching
orders for globalization. Globalization has the view that the flow of capital may buy the natural resources
of one country to be developed into new finished products and exported to another country. The flow of
capital may be put in infrastructure development, and the use of new machinery and technology in
another country as a new center of development. It is viewed that globalization will increase the range of
business opportunities of companies competing in the global market.

Global competition has increased the standards in product quality, cost of production, productivity
levels and the operational efficiency. Continuous improvement is not static as firms and companies seek
operational innovations and new marketing strategies. Firms and companies in the global economy need
to improve the skills of the workers and increase managerial innovativeness in order to survive the
increased competitiveness. Exceeding the capabilities in the global standards is the rallying point to stay
in business.

The development of transitional and emerging economies in the Asian region is an opportunity for
the Philippines to actively participate competitively by increasing the opportunity for new investments.
Local and foreign investment in capital must be attractive to develop economically and generate the
needed employment for our people. The development of its capital based of human resources through
skills training for competitive world standards is in the right direction. The Technical Education and Skills
Development Authority, more commonly known as TESDA, should actively pursue more training
programs to invite foreign capital investments in new technology. While skills development is the
foundation of good workers, the attitude of work values must conform to world ethics of good
performance.

The country's rich natural resources must be top for investments in the field of mining, forest
development and the vast resources of Mindanao for agricultural development. Sustainable development
could be the result of putting infrastructure in place for the development of efficient and low-cost power
generation by utilizing the natural energy of hydropower which could in turn develop the agricultural
sector for irrigation. The government must institute reforms in the bureaucracy to deliver more efficient
service to the industrial sector and the business community attracting more business opportunities for
new entrepreneurs.

The global market is not dominated by the big players alone. Small entrepreneurs could be given
the opportunity to enter the world market if given the right support and incentive by the government.
Entrepreneurship in the rural areas must be developed and explored as the economic base of the
country is more in rural areas. The spread of infrastructure development should cascade down the rural
sector as we develop the foundation of development in the metropolitan community. Small players could
be the next giant in the global market if given the right boost and incentives.

THE TRENDS AND CONDITION THAT ALTER COMPETITION

1. The Increased Rate of Technological Change

 The present rate of technology change has gone too fast during the last decade. This diffusion in
technology has created a new challenge for companies to innovate or perish in the world of
business. Perpetual innovation is the byword of advancing companies for supremacy especially
in the electronic industry and the invention of new machinery that will produce more products or
services.

The shorter product life cycles resulting from the rapid innovation and the diffusion of new
technology place a competitive premium on being able to quickly introduce new goods and
services into the market place. The speed of the market with new product satisfying the human
needs and wants is one of the great competitive advantage for a company that innovates
consistently with the need of the time.

Innovations, even covered by patent, could be copied within a three-month period after its
introduction into the market. This innovative diffusion becomes not a monopoly of one company.
Marketing and new strategy could be another factor in the competitive advantage. T..e internet
age also plays a great role in the marketing of products or services.

2. The Advancement in Information Linkages

The advancing technology in the exchange of information in recent years is brought about by the
presence of new computers and the wireless transformation of messages across countries.
Personal computers, cellular phones, artificial intelligence, virtual reality, and massive databases
are used by competitive persons and companies to communicate effectively with their markets
and business partners. With the efficient and effective use of this technology, the resultant factor
is the progressing of competitive advantage by most industries.

For companies and industries to advance ahead of others in their line of business, they need to
build electronic linkages with their markets, suppliers. vendors and even to their employees and
managers. The speed of technological linkages and interconnections reduces the cost of
message transformation, hence making business connection more efficient and effective.

The declining cost of information technologies and the increasing accessibility in the present
decade are evident of competitive advantage as producers and sellers of goods could be linked
in a matter of seconds. The global proliferation of relatively inexpensive computing power and its
linkage on the global scale via computer networks combined increase the speed and diffusion of
information technologies.

3. Knowledge-Based Intensity

The computer age has increased the competitive knowledge base of the company as they invest
in information intelligence, technology and its application. In the new century, knowledge based
on new technology and its application is the organizational corporate resource that develops
greater competitive advantages. The investment in individual talents is transformed into corporate
assets by combining the knowledge base into productive development of new products that
would satisfy the changing customer demands.

Corporate organizations that employ people with intangible assets for inventiveness of products
increase its market share and increase its stockholders equity in terms of investments. The
 probability of achieving strategic competitiveness is enhanced in the new century as they realize
that the corporate survival in the information landscape depends on their ability to capture new
intelligence, transform it in new usable knowledge, and diffuse it throughout the company. Firms
accepting this challenge shift their focus from merely obtaining information to its exploitation gain
competitive advantage over rival firms in the corporate arena.

The corporate objective of greater return on investments should adapt quickly to change their
competitive advantage by developing strategic flexibility. Strategic flexibility is the ability to respond to
various demands and opportunities existing in the dynamic and uncertain competitive environment. The
accompanying risk in the uncertain environment could be overcome with strategic foresights and plans
that work effectively.

Strategic competitiveness is the development of flexibility in all areas of operation, from product
planning, sourcing of materials as inputs in production, product ideation, to development and production.
Firms must be able to take advantage of slack resources that allow flexibility to respond to the
ever-changing environment. When embarking on major changes, the firm must conduct reorientation of
its corporate strategy to avoid major setbacks that would defuse their corporate earnings.

The capacity to learn is another strategy to develop competitive advantage. Continuous learning
provides the company with new and up-to-date sets of knowledge and skills that would be necessary to
the ever-changing environmental condition. Failure to update the firm's capability would mean being left
out in the advancing changes in technology and innovations that will be the competitive advantage of the
competitors in the industry.

Continuous learning is the product of innovativeness. Innovativeness is the injection of new ideas and
knowledge in products or marketing strategies that will develop new competitive advantage. Learning
while being flexible is difficult but they is necessary for the continuous growth and survival in the
competitive landscape of business in the new century.

THE EXTERNAL INFLUENCE IN ABOVE RETURN ON INVESTMENTS

The success of the firm's objective in the increased return on investments is primarily the
determinants of strategic competency. The dominant influence of the external environment of business is
the focal point on the firm's strategic action that will bring in the desired return on invested capital. The
competition within the industry that it chooses to compete exerts greater pressure on the firm's managers
and executives to perform with greater performance and accept the challenges of competitiveness.

The firm's performance is believed to be determined primarily by the range and availability of the
resources of the firm in terms of the following:

1. The Availability of Fixed Assets

The firm that has a well asset managenient could compete with other firms within the industry as
they have the capital base to mobilize these resources to take advantage of the prevailing
opportunities within the business environment. The competitiveness of the Camella Properties in
the real estate business is brought about by many real properties that were in their inventory for
development when the housing boom became the new landscape in the Philippine business.
 San Miguel Corporation has diversified in other areas of business and accumulated assets that
that they used as investments in other profitable ventures that generated substantial returns on
investments. The corporation is in food and beverages, meat and processed products, wine and
beer, energy and power generation, construction and development both in vertical and horizontal
integration of business activities.

2. The Economies of Scale

The firm that produces more products not only for local market but for the global supply has the
greater advantage of the economies of scales. The more products that the firm produces, the
lesser are the cost of production as the fixed cost is maximized and the marketing strategy is
spread to the greater market niche. The material input for production is put into greater use, and
the more volume ordered the more discounts are availed by the using firm.

Competitive strategic alliance could be developed with the supplier of inputs that would generate
the greater number of products produced. This could be true to consumer products like those
produced by Nestle that they penetrate not only the local market but also the other countries that
depended on quality affordable products. While Nestle Philippines import some of its inputs, their
economies of scales put them in great advantage. They also capitalized on the stable labor
market conditions after the turbulent battles with the activist labor unions.

3. Barriers to Market Entry

The competitive advantage is developed by the firm with vast resources to deter other firms from
entering the market that they dominate. The fast food industry is dominated by Jollibee
Corporation by buying all the other possible major competitors as Mang Inasal, Chowking,
Greenwich and other smaller fast food outlets and putting in one basket the supply chain under
one roof, thereby maximizing the economies of scales.

While other smaller businesses in the fast food industry are trying to capture the other market,
their market shares could not overcome the dominated clientele of Jollibee as they expand not
only in the local market but also in the foreign market. The capital base became too huge that the
entry to this market becomes barriers to other entrants as they also accept franchising of their
operations in the urban provinces and cities throughout the country and other parts of the world.

Smart and Globe Communications dominate the telecommunication industry with the introduction
of new marketing strategy of electronic loading system with their prepaid clients. The introduction
of the cellular phone as a means of communications develops a new landscape of business for
the enterprising small entrepreneurs by availing of the promotional strategies of the two giant
service providers. Smart Communication bought the giant PLDT to dominate the
telecommunication network, making other entrants difficult to penetrate the other market share.

4. Corporate Vertical and Horizontal Diversification

The strategy for growth and expansion is the major role of competitive major corporations to
increase their return on investments. Once they have saturated the market with their products
and brands, the next step is to expand horizontally or vertically and integrate the resource base
 of operation. San Miguel Corporation makes its own bottles for its beers and soft drinks at the
time when they dominate the bottling industry through backward integration.

When the feed industry for poultry and meat products became the new business venture, they
went into poultry growing to meet their supply needs for their magnolia chicken that became the
byword name in chicken products. San Miguel Corporations is in meat processing through its
Monterey Farms and Pure Foods canned products and vertically expand in other new meat
products. The strategic competitive advantage of vertical and horizontal integration was the result
of the making of giant corporations.

It is not only in this venture that makes San Miguel Corporation of what it is now today as they are
also in energy development, power generation, constructions, airlines, real estate development
and infrastructure, and many other corporate ventures that increase their stockholders equity and
investments. They expand into global market through joint ventures and investments in new
product development.

5. Degree of Market Concentration

Companies that acquire and develop skills needed to implement strategies required to succeed in
their chosen field of operation, developed competitive advantage by concentrating on their field of
expertise. Again, the example of Jollibee Foods Corporation develops new taste buds for fried
chicken that appeals to both children and adults makes the company the leader in the fast food
industry.

Concentrating on this market niche and developing other new competencies through the
introduction of other new product lines increases the market foothold and increases their return
on investments. Marketing strategies of making children's parties and birthday occasions make a
new twist for more product patronage and making the place a center for family occasions.
Jollibee characters become an added attraction with the twist of fun games for children making it
a unique marketing strategy.

The spread in corporate strategy must be studied very carefully as competitive advantage is done
by not putting the eggs in too many basket at a time. Let the eggs hatch in the incubator and
make more hens that lay the golden eggs before venturing on other business activities where the
corporate expertise lies in the pipeline.

Expertise and market concentration are two important ingredients that will generate increase in
return on investment and gradually expand to other markets and products through diversification
and integration. The corporate strategic growth should concentrate on related products and
services where the company has developed their line of expertise.

THE INFLUENCE OF INTERNAL ABOVE RETURN ON INVESTMENTS

The corporate achievements in greater return on investments are the makings of people and
executives with an eye for competitive strategic competencies. They see the future scenario and make
steps towards the direction of success while they foresee and avoid failures as they step forward with
risk and cautions.
The following strategies are common to people with higher achievements for greater return on
investments:

1. Study the business environment

2. Locate the industry with high potential for above average returns
3. Identify the strategy needed by the industry that will generate greater returns
4. Develop and acquire the needed assets and skills to implement the strategy
5. Use the corporate skills that were developed, and implement the strategy

ENVIRONMENTAL SCANNING OF INDUSTRY

The internal environment is managed by executives and managers with an eye for the profitability
and growth of their firm. Their focus of attention is not only the internal operation of the business but also
the prevailing environment where the firms operate within the industrial landscape. Environmental
scanning is the process of seeing the whole scenario of business operation in terms of the general
business activities prevailing within the industry and the competitors' strategies that may affect the
present market share of the firm.

Success in business operation is seeing the future with an eye that could penetrate miles ahead
and foresee the business condition with the advancing technological changes and the product shorter life
cycles. The internal capabilities of manpower skills and knowledge base must be updated and respond
to changes in product development that becomes obsolete overtime. Product innovation in the new
century is the competitive advantage of the firm that makes new or innovative products as customer
satisfaction is the foundation for greater return on investments.

Horizontal and Vertical Expansion

While corporate organizations may succeed in one line of operation, corporate growth and
expansion need to integrate related industry and products that may supplement business investments
and generate the greater return on investments. This refers to seeing the firm's expansion on related
business within the environment that is either making the product inputs related to their operation or new
attractive industries where the corporate capabilities have earned the competitive advantage.

Horizontal expansion is either the backward integration or forward expansion. Backward integration
is the processing of the material inputs that are sourced outside the firm's operation. When the
economies of scale become evident due to manufacturing expansion and marketing strategies that
generate greater sales, the integration of material inputs could earn savings that will add to increased
return on investments.

On the other hand, forward expansion is taking over the marketing of the products that were
produced and used to be channeled to distributors and dealers. It could also be the acquisitions of
related industries or firms that used to be competitors in the same business, San Miguel bought Pure
Foods that used to be owned by Robina Foods Corporation and integrate its operation with Monterey
Farms that is also in the processing industry. On the other hand, Robina Foods Corporation used the
added capital in expanding their operation on more profitable investments in consumer snacks food
products that are related to their integral flour processing operation.