CHAPTER 1

STRATEGIC MANAGEMENT THE NEW

CHALLENGE OF THE NEW CENTURY

OBJECTIVES:

After this lesson, you should be able to:

1. Understand the strategic management process;

2. Formulate strategic vision and mission of the company;

3. Know the landscape of business in the new century;

4. Know how the Philippines will be able to develop competitive advantagefor its products;

5. Understand the trends and condition after competition;

6. Know how the internal and external factors affects the condition ofbusiness;and

7. Develop environmental scanning strategies of the industry as factor inreturn on investments.

STRATEGIC MANAGEMENT PROCESS

Strategic management is the dynamic process that is full of commitment todecisions and actions to
deliver strategic competencies to achieve the desiredresults in terms of corporate profitability and
growth. The strategic competitivenessis the result of the internal and external analyses of the corporate
environmentfor the formulation of the strategy and action plans that are directed to set goalsand
targets. Effective strategic actions are prerequisites to achieving the desiredcorporate profit goals and
above average return on investments.

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

The world of business in the new country is full of uncertainties, and some companies achieve
competitive success while others fail to achieve the desired return in 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 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 if 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 coiled be the sources to exports to the global market.

STRATEGIC MANAGEMENT CHALLENGES

Earning above the average return of 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 challenges of competition. The businesses
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 formulated 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 develops overtime and revised with the new strategic
actions fitting into 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 are 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 t 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 cans et
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 of effectively and fervently believe that they produce market
quality products as they focus their firm's ability to outperform their industry competitors.
It is concerned with the 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 be 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 stockholders.

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 challenge as corporate
directions change. New opportunities are taken over by big companies as the 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 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 the 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 need 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 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 laws. 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 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 goods, services, people,
skills and ideas that are relatively unfettered by the 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 Stated 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 Asia regions 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 of goods and services.

The achievement in economic regional development could be the result of cooperative undertakings
and competitiveness in terms of the counties' 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 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 world's countries is the effect of the marching orders for
globalization. Globalization has the view that the flow of capital may but 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 seek operational
innovations and 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 human resources through skill
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 place for 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 now 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 diffusion of technology place a
competitive premium on being able to quickly introduce new good and services into the marketplace.
The speed of the market with new product satisfying the human needs and wants is one of the
competitive advantages 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. The internet age also plays 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 stockholder's 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 us 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 are 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 management 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 the 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 they used
as investments in other profitable ventures that generated substantial returns on investments. The
corporation is in food and beverages, meat and processed, 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 using firm.
Competitive strategic alliance could be developed with the supplier of inputs that would generate the
greater number 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 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 become too huge that the entry to the
market becomes barriers to other entrant 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 communication 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 of 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 is in meat processing through 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 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. Jollibee characters become an
added attraction with the twist of fun games for children making it unique marketing strategy.

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 achievement 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 or 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 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 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 competitor's 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 of 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 re 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.

CHAPTER 1: TEST QUESTIONS

Name:

Section:

Date:

Score:

TEST I-TRUE OR FALSE

1. The world of business in the new century is full of uncertainties.

2. Companies should rely on their present success as they are getting their above return.

3. An effective mission statement develops positive effect on corporate performance.

4. The rapid hyper-competitive environment is the result of rapid changes in technology.

5. The Philippines could be the transshipment in the flow of products in the Asian region.

6. A small entrepreneur has no place in the world's competition in new business system.

7. Strategic competitiveness is the adaption of flexibility in all area of operation.

8. The more products the firm produces the greater is the cost of production per unit.

9. Suppliers of production inputs are no partners in the development of better products.

10. Success in business operation is seeing the future with an eye that could penetrate miles ahead.

TEST II - IDENTIFICATION

1. It refers to the analysis of the prevailing industry where the firm has its competitive advantage with
another firm in the environment.

2. It refers to the analysis of the resources available that is present in the internal environment that
could be used as competitive advantage.
3. It hinges on customer satisfactions and based on a well- developed marketing strategy.

4. It flows from strategic mission and intent that define the firm's direction in the pursuits of its
operation and corporate expansion.

5. It is the development of the fast changes in the production of products that affect competition in the
new world of business.

6. It refers to the presence of new computers that makes communication within the tip of the fingers in
business transaction.

7. It refers to innovativeness by injecting new ideas and knowledge in product development and new
marketing strategies.

8. It refers to the production of more products that reduces the cost of production per unit.

9. It refers to the strategy of developing new business enterprise by integrating its operation with
related industry.

10. It refers to the corporate strategy where the major firm buyout small competitors and integrate
them with their major operating units.

TEST III-DISCUSSION

Develop a new vision and mission statement for a business activity that you would like to form as a
business manager of a new small enterprise.