Assignments July 3, 2008

1) Review SWOT, Internal Analysis and External Analysis
2) Read on Strategy Formulation
3) Start reading and Researching on Programs and Projects as translations of Strategies
4) Be ready for an Examination

PROGRAMS AND TASKS

PROGRAMS AND TASKS

As previously discussed, strategies can be formulated only after the objectives to be accomplished have been determined. Similarly, programs can only be designed after the strategies have been set because strategies are general in character. Programs are the implementing system and organization to fulfill the strategies. There are a wide variety of uses of the term "program" in organizations. In it's most general use, a major program is a collection of organizational resources that is geared to accomplish a certain strategy which addresses an objective. In the pursuit of strategies, a single program may suffice, but then there are cases where many programs are needed in order to fully effect the strategies. The conceptgram below shows the relationship of programs to strategies and to the objectives.

Program Should Tie to the Organization's Mission

Each program should be strongly associated with the organization's overall mission. That is, the organization's executive leaders should work from the mission to identify several overall, major goals that must be reached and that, in total, reach the mission. If an idea for a program comes up at some time other than during strategic planning, executive leaders must ask themselves if the program is really appropriate for the organization.

Program Planning Should Tie in With Strategic Planning

Depending on the nature of the organization, strategic planning typically includes review of the organization's vision, mission, values, overall strategic issues and strategic goals (each of which, in some organizations, becomes a program) and strategies to reach the goals (strategies to reach the goals often are the roadmap for how the program meets its own goals). Because the program planning must be tied to the nature of the organization's mission, the program planning should be closely tied with the organization strategic planning as well. Typically, at a point right after the strategic planning process has identified strategic goals and issues, a team of planners can draft a framework for how goals can be met. This framework is often the roadmap for a new program.

Elements of a Program

Objectives

People

Resources

Systems/Methods/Technologies

Evaluation

Example:

A company engaged in the manufacture/tolling of food-grade plastic film for packaging has this as one of its objectives:

" To increase annual profit by 20% in the next three years"

An analysis of its operations showed that profits could be increased by reducing costs (in this case high financing costs is the major cost driver) or increasing the production volume in order to increase sales and reduce per unit overhead costs.

The strategies that were identified were:

Equity Augmentation/Loan Restructuring/Retirement of Loans

Production Intensification

To pursue "production intensification" strategy, the company embarked on the following programs:

Equipment and Machinery Enhancement and Maintenance Program which increased production volume from 80MT per month to 130MT per month - almost doubling its previous output without additional acquisition of a new machine. With the corresponding maintenance program, the company experienced substantial reduction in downtime and rate of product rejections. As a result, the company increased its net profit by more than 20% per year.

In the above example, it can be seen that there is consistency and fit, with the program being in conjunction to the strategy and the strategy being supportive of the objective.

Other generic examples may take the following scenarios:

"Objective: Increase Market Share by 30% within three years

Strategy: Geographic Market Expansion

Programs:

Franchising Program

Joint Venture Program

Dealership Development Program

Competitive Pricing Program

"Objective: Company Growth of 50% within 5 years

Strategies:

Capital Expansion

Distribution Outlet Expansion

Product Diversification

Programs:

Acquisition Program

Merger Program

IPO

Franchising Program

Joint Venture Program

Dealership Development Program

Capital Build Up

The more common programs that are implemented by business enterprises include the following:

Marketing:

Advertising Program

Sales and Promotions Program

Customer Relations Program

Dealer Development Program

Production

Research and Development Program

Production Cost Reduction Program

Sub-Contracting Program

Outsourcing Program

Repair and Maintenance Program

Zero Defect Program

Just in Time Program (JIT)

Finance

Capital Build-Up Program

Cost Reduction Program

Acquisitions and Mergers

Joint Ventures

Administration

Personnel Development Program

Training and Career Development Program

Personnel Benefits Program

Automation/Computerization Program

Procurement Program

Guide Questions:

Based on your internal analysis, SWOT and external assessment, you have set your strategies. What specific programs do you intend to develop and pursue for each of the strategies? Describe each program in terms of concept, rationale, participants, client system, schedule, major tasks, major resources needed, implementing schemes, monitoring schemes, evaluation schemes?

What are the programs objectives? How do you intend to measure program accomplishments? (monitoring of inputs and outcome evaluation)

What are the critical components and factors that will make the program successful?

Are there similar or related programs being currently implemented by your company? If so, how would the new programs relate to the existing ones?



TASKS

Tasks are specific actions to be undertaken in order to implement or make the programs operational. It involves the identification of functions, roles and the people who will be implement the program. Within a program lies the various tasks involve, and therefore it is important that the tasks, roles and functions be clearly defined and assigned by the responsible company authorities. Similarly, these should be clearly understood by those who will do the tasks and should be willing to them.

In the "more organized" enterprises, tasks are broken down into specific and detailed actions termed as "procedures". The compilation of the tasks and procedures are usually documented in the forms of policy and procedure pronouncements ( memoranda, policy issuances, circulars and policy/procedure manuals). Tasks and procedures identify what actions and activities to be taken, how they be will be done, who will do them and the sequences of actions.

In programs that require the participation of different functional units such as marketing department, production, finance and administration, coordination is an important element in order to be effective, responsive and efficient.

Program Evaluation

Programs should be evaluated on at least a yearly basis to discern if the programs are reaching their goals, achieving their outcomes and if they are doing so in an efficient manner. Small businesses seldom have the resources to conduct evaluations of a program's goals, outcomes and process. However, they can think about where they have the most concerns about a program and then gear an evaluation to look at that aspect of the program.

Program evaluation holds numerous advantages. It can verify or increase the results/outcomes on customers (internal or external). It can fine tune delivery of program services, which, in turn, saves costs and time. Evaluations often provide wonderful testimonials that can be used for public relations and credibility of the program. In fact, evaluations are often used by program planners to ensure that the program is indeed carrying out the original process planned for the program in the first place. Often, the program plan ends up changing dramatically over time as program employees are overcome by events. Program processes can naturally deviate from the original plan because program plans were flawed in the first place, the program's environment changed a great deal or program employees simply found a much better way to deliver products/services to customers (internal or external).

STRATEGY FORMULATION

STRATEGY FORMULATION


Strategy is a concept that has been borrowed from the military and adapted for use in business. In business, as in the military, strategy bridges the gap between policy and tactics. Together, strategy and tactics bridge the gap between ends and means.

Using the SWOT analysis, internal analysis and external analysis, problems are dissected opportunities are identified and priorities are set. These become the basis of developing strategies.



A good strategic plan must therefore contain the fourteen “F’s” to be effective.

Fourteen F's of Effective Strategies
Good strategies must:

Be Fundamentally Sound and Correct. This means it must be anchored on the realities of the environment or situation the organization is in. It must recognize major trends and directions in this environment. It must take account of what the organization can do and can not do, what it has and does not have.

Have Foresight. It must be able to determine the most likely future scenario in order to properly position the organization.



Take a Favored Course of Action. The implementors of the strategy must empathize with what they are doing. Otherwise, their motivation level would be low. They must actually identify with their strategy based on their vision, values and preferences.

Focus Efforts on a Few but Critical Activities. Effective strategies are rifle shots at a chosen target, not shotgun blasts that scatter the resources of the organization. They choose the few things that would make a big difference.

Have Force behind the Chosen Few Things. Organizations must put their full force and major resources behind the strategies taken. They must “put their money where their mouth is.”

Follow Through. A golfer or tennis player knows that hitting the ball is not enough. There must be a complete swing that directs the ball to its chosen destination. The whole organization must move to support its major thrust all the way to final acceptance by and satisfaction of its client system.

Have a Fit Among the Objectives, Tasks, People and Structure of the Organization. There must be consistently between the type of people operating within certain organizational structures and systems and the defined objectives, the chosen strategies and tasks of the organization. Avoid mismatches.

Have a Finite Time Frame. Unreachable stars have less motivating power than realizable objectives within finite time frames of five, ten to seven twenty years.

Be Feasible. This means that strategies must be do-able by the organization. It must work out in the field and produce good benefit-cost relationship.

Take a Full and Holistic Approach. Compartmentalized approaches lead to partial solutions that often lead to greater problems. Organizations must look at the full implications of relationships among variables reinforce rather than cancel each other out.

Get Feedback through Good Monitoring and Evaluation Systems. Every action produces a reaction and this reaction must be monitored closely and assessed as to whether it is moving towards the desired objectives.

Be Felt with Sufficient Impact by the Intended Targets. Development organizations tend to forget the very purpose of their strategy which is to positively affect the lives of the people they are serving. Strategies must therefore translate into felt impact.

Be Flexible Depending on Environmental Changes. The assumptions governing strategies chosen may change overtime. Hence, there is a need to modify, alter or overhaul strategies in the face of environmental changes.

Be Final Results Oriented. At the end of the day, the development organization must be responsible for its intended results and be accountable to the beneficiaries for such results. They should not concentrate on inputs or tasks only but should make sure that these inputs or tasks lead to the desired outputs and outcomes.

Other Concepts on Strategy

Strategy is about means. It is about the attainment of ends, not their specification. The specification of ends is a matter of stating those future conditions and circumstances toward which effort is to be devoted until such time as those ends are obtained. Strategy is concerned with how you will achieve your aims, not with what those aims are or ought to be, or how they are established. If strategy has any meaning at all, it is only in relation to some aim or end in view. Example: The objective is to increase profit by 20% annually in the next five years. The determinant factors for increasing profits would be a) increase sales with proportionately less cost b) reduction in costs without decrease in sales c) increase price to increase profit margin.The strategies therefore will have to be along these factors. Should the enterprise adopt reduction in cost as the core strategy, the programs and tactics could be those that will improve production costs such as 1) production intensification to reduce per unit overhead costs 2) JIT production in order to reduce inventory costs, handling costs and storage costs . Sales Efficiency Improvement Program could support the "increase in sales strategy. This will increase sales outputs of sale personnel. Should the company decides to pursue increasing margins as a strategy, then re-pricing program will have to be implemented. This will have to consider the price-sensitivity of the market, because undue price increases may affect sales volume.
Strategy is one element in a four-part structure. First are the ends to be obtained. Second are the strategies for obtaining them, the ways in which resources will be deployed. Third are tactics, the ways in which resources that have been deployed are actually used or employed. Fourth and last are the resources themselves, the means at our disposal. Thus it is that strategy and tactics bridge the gap between ends and means.
Establishing the aims or ends of an enterprise is a matter of policy (setting vision, missions, objectives and policies) is a matter of governance and not of management and, conversely, achieving them is mostly a matter of management and supervision and not of governance.
Those who govern are responsible for seeing to it that the ends of the enterprise are clear to the people who people that enterprise and that these ends are legitimate, ethical and that they benefit the enterprise and its members.
Strategy is the joint area of those who govern and those who manage. Tactics (programs and projects) belong to those who manage and supervise. Means or resources are jointly controlled. Those who govern and manage are jointly responsible for the deployment of resources. Those who manage are responsible for the employment of those resources—but always in the context of the ends sought and the strategy for their achievement.
Over time, the employment of resources yields actual results and these, in light of intended results, shape the future deployment of resources. Thus it is that "realized" strategy emerges from the pattern of actions and decisions. And thus it is that strategy is an adaptive, evolving view of what is required to obtain the ends in view.
Regardless of the definition of strategy, or the many factors affecting the choice of corporate or competitive strategy, there are some fundamental questions to be asked and answered. These include the following:

Related to Mission & Vision

Who are we?
What do we do?
Why are we here?
What kind of company are we?
What kind of company do we want to become?
What kind of company must we become?
Related to Corporate Strategy

What is the current strategy, implicit or explicit?
What assumptions have to hold for the current strategy to be viable?
What is happening in the larger environments?
What are our growth, size, and profitability goals?
In which markets will we compete?
In which businesses?
In which geographic areas?
Related to Competitive Strategy

What is the current strategy, implicit or explicit?
What assumptions have to hold for the current strategy to be viable?
What is happening in the industry, with our competitors, and in general?
What are our growth, size, and profitability goals?
What products and services will we offer?
To what customers or users?
How will the selling/buying decisions be made?
How will we distribute our products and services?
What technologies will we employ?
What capabilities and capacities will we require?
Which ones are core?
What will we make, what will we buy, and what will we acquire through alliance?
What are our options?
On what basis will we compete?

Cost of Doing Business

EXTERNAL ANALYSIS

Cost of Doing Business

Cost of doing business is oftenly left out in the analysis of external environment as they are not traditionally considered to be part of business planning. However, studies made on SMEs reveal that the cost of doing business is a significant cost factor in their operations. The "costs of doing business" are the costs that are not normal in the course of doing business and "illegitimate" but necessary. While the costs of doing business vary from industry to industry or enterprise to enterprise, nevertheless, they should be substantially considered.

Added costs of doing business oftentimes are results of the enterprise's inability to do honest and prudent practices.Penalties, fines are common. Others include bribes and gifts to get contracts. Extorsion from government authorities as well as from bandits are also included.

It is important that enterprises should avoid these as much as possible since they add to expenses and drain company resources. Since they are also unprogrammed, they may disrupt expense budgets.

Guide Questions:

Identify the sources of added costs of doing business in your company. Describe them.

Quantify these costs.

Compare your added costs of doing business with similar companies?

How can you reduce the costs of doing business. Explain..

Technological Status

ENVIRONMENTAL ANALYSIS

Technological Status

"Technology, general term for the processes by which human beings fashion tools and machines to increase their control and understanding of the material environment. The term is derived from the Greek words tekhnç, which refers to an art or craft, and logia, meaning an area of study; thus, technology means, literally, the study, or science, of crafting" [Encarta Encyclopedia,2001] . In business, technology is often associated with machines, equipment, software and methods that are oftenly related to production. While it is so, they are also used to describe processes and methods such as marketing technology (multi-level marketing technology and internet web marketing) or financial technology ( computerized accounting system).

In this time characterized by fast development of technologies and their introduction for use in industries, the ability of the enterprise to acquire and employ improved technologies provide them with superior advantage. Improved technologies would have effects on product quality, production volume/outputs, product/service delivery and should eventually reduce costs thus making it more competitive.

A thorough understanding of the status of technologies used in the industry shall provide the enterprise the proper information which can aid in the enterprise's decision. The information can include what the technologies are, who supplies the technologies, what are the comparative costs, what are the comparative qualities and extra capabilities. It is important to know these sets of information since acquisition of technologies specially for small and medium sized enterprises is relatively expensive.

Some examples of these technologies that are now generically used by business enterprise would include internet web marketing - where an enterprise can sell to the global markets; cellular phone technology - where the enterprise's executive can be contacted to make decisions even if he is out their in the golf course in Boracay. Computer simulation programs can do designs and test quality without destruction; lathe can do machining very fine settings to the levels of microns;

Social, Demographic, Cultural Trends and Patterns

EXTERNAL ANALYSIS

Social, Demographic, Cultural Trends and Patterns

Industries are affected by changes in social, demographic, cultural trends and patterns. In other industries, politics even interfere. These changes have effects on market tastes, purchasing power, purchase decision patterns, needs, wants and consumption behavior. These translates to new products demanded, volume of consumption, quality standards and the like. Being sensitive to these changes, enterprises could anticipate and appropriately respond to the market.

In the Philippines the more specific changes include lowering of purchasing power by the majority of the population (due to inflation and currency devaluation), the decrease in population rate thus increasing the proportion of the older population, rapid urbanization, family independence, increasing tolerance towards foreign culture, popularity of high technology consumer goods, internationalization of fashion and food tastes,increasing time for leisure, women's liberation and reduction in family size among others. These changes would naturally result in the alteration of usual demand and consumption patterns.

As a reaction industries will start discarding "old products and services " and begin to produce new ones.The degree of competitiveness of business enterprises therefore, would highly depend on their abilities to anticipate and respond to the changes. Some of the examples of the effects on these changes are the following:

"As a result of decrease in income and purchasing power, cost consideration has become a major determinant for buying non-essential goods ".

"The reduction in the size of family household shifts the demand from large houses to compact and smaller houses".

"The general feeling of future financial insecurity and stability pushes the demand for pre-need services such as educational plans and memorial plans".

"The internationalization of tastes in fashion and food increases the acceptaility of foreign brands like Versace, Louis Vitton, Feragammo and food such as pizza, shwarma, lasagna, sashimi, sushi etc."

"The increasing time for leisure increases demand for travel vacation, sports and hobbies".

"The high rate of urbanization decreases land area thus housing developers are forced to construct high rise dwelling units". A condominium living culture begins to develop".

Guide Questions

What social changes affect your markets buyers behavior ?

Are your products and services appeal to a specific demographic sector ?

How do changes in cultural trends and patterns affect the enterprise.

POLICIES AND REGULATIONS

EXTERNAL ANALYSIS

POLICIES AND REGULATIONS

Business enterprises operate within the policies, laws, rules and regulations set by the government. As such, business enterprises have to consider the legal aspects of running a business. Such common legal requirements include business registration, permits and licenses, payment of fees, environmental clearance certificates and payment of taxes. Others are more business-specific such as BFAD clearance for drugs and food manufacturing; pollution controls for such industries like breweries, alcohol derivatives, oil repacking and other related chemical industries. Importation of agricultural products which affect local production such as rice, corn, meat and poultry do have implications on raw materials for the food processing industry.

While there is not much import controls, procedures may hamper acquisition of imported raw materials. Those that are involved in jewelry manufacturing, policies on precious metals and stones, could find restrictions on importation of these materials. Similarly, those involved in the retail of gasoline products, basic commodities may find pressures in their selling prices.

The government's participation in world organizations such as ASEAN, WTO and others paves the way for opening the country's business economy to global competition.

The effects of these policies, rules and regulations put pressure to local enterprises. Competition would be more intense thus forcing local enterprises to be more price and quality-competitive. Similarly, laws on environment would require enterprises to install anti-pollution devices and other environment control devices that could add up to operating costs.

While most of rules and regulations are mostly added costs, there are also positive aspects that these laws create. Some of these are financial and non-financial incentives given to enterprises. These include privileges such us tax holidays, tax exemptions and others for BOI registered companies, economic zone locators and other special government projects.

The aforementioned effects of government policies, rules and regulations have effects on the enterprise. It is therefore important for the enterprise to know these and be aware on how it will affect business.

The following guide questions could provide the policy and legal environment aspects concerning the enterprise:

What are the local ordinances and programs that affect your business and to what extent ?

in terms of business start-up (formation, registration, location, zoning, permits, etc.

in terms of local taxation

in terms local assistance (business promotions, incentives

in terms of environmental controls

What are the national policies and programs that affect your business and to what extent ?

in terms of business start-up (registration, location, zoning, permits, etc.)

in terms of income taxation

in terms of assistance (business promotions, incentives)

in terms of environmental controls

currency policy

import restrictions

export incentives

What are the current policy and legal issues that might affect your business ? How will they affect your business ?

To what extent will these affect your business ?

What future policy and legal issues do you see that will greatly affect your business ?

What are your alternatives should these policy and legal issues be adopted ?

ANALYZING THE COMPETITION

EXTERNAL ANALYSIS

ANALYZING THE COMPETITION

Competitive Position


It is important that enterprises are able to know where they stand against their competitors. No business is an island. For success, the business will need to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organisations offering similar products to similar customers. Competitors include those enterprises that offer the products and services and serving the same markets that the enterprise has. It may also include those that produce substitute products and services as well as those enterprises that have the capabilities to produce similar products. Competitive position is the degree to which the enterprise fare vis a vis other competitors. It is usually manifested in the market share of the enterprise. Probably no enterprise can be classified as being in a strong competitive position unless it has some clear basis for declaring superiority over all competitors in that category. Their objective is the same as yours - to grow, make money and succeed. Effectively, the businesses are at war - fighting to gain the same resource and territory : the customer. And like in war, it is necessary to understand the enemy. It is therefore important that the entrepreneur must know his competitor on

how he thinks;



what his strengths are;



what his weaknesses are;



where he can be attacked;



where the risk of attack is too great....



Criteria for a strong competitive position include:

good location and logistical delivery system;

large reservoir of client, or support group loyalty;

superior track record (or image) of service delivery;

large market share of the target clientele currently served;

gaining momentum or growing in relation to competitors;

better quality service and/or service delivery than competitors;

superiority of technical skills needed

ability to conduct needed research and development and/or properly monitor enterprise performance;

superior ability to communicate to stakeholders; and

most cost effective delivery of service.

The following are some of the areas that you should cover in this section of your business plan:

A. Description of Competitors

Identify those businesses that are or will be competing with you. If the number is few, list them by name. If there are many, then describe the group without naming them individually (for example, 47 Filipino restaurant operators or company A, B,C, D for toll food packaging companies ). List any expected or potential competitors. Competitors can be classified as direct competitors (those that are within the enterprise's geographic market area, market segment, existing markets) and indirect competitors (those that are beyond the enterprise's geographic market area, other market segments that vacillate or shift to the enterprise's market segment and those that produce substitute products and services).

B. Size of Competitors

Estimate the size of the assets and sales volume of the major competitors. Will you be competing against firms whose size is similar to yours, or will you be competing against giant corporations? If assets and sales volume cannot be determined, try to find other indications of size, such as number of employees, number of branches, etc.

C. Profitability of Competitors

Estimate how profitable the business is for those companies already in the industry. Which firms are making money? Losing money? How much? This is important to determine your relative performance in terms of profitability. It is also important to know the reasons for their profitability - the revenue and cost factors.

D. Operating Methods

For each of the major competitors, try to identify the relevant operating methods. For example, what pricing strategy does each firm use? Are they using cost plus pricing ? or competitive pricing or set pricing, or mark-up pricing etc. Compare them against the enterprise's practices. Other operating methods, besides price, that you may consider are· quality of product and/or service

· hours of operation

· ability of personnel

· servicing, warranties, and packaging

· methods of selling—distribution channels

· credit terms—volume discounts

· location—advertising and promotion

· reputation of company and/or principals

· inventory levels

Many of the above items will not be relevant to all businesses. Location will not be relevant, perhaps, to an internet service provider or hours of operations for a printing press. Location however will be very relevant to a theatre snack bar or a pawnshop. On the other hand, there are many items that are not listed above that may be very relevant to your business. In fashion garments material and styling may be as relevant as the price.



It is useful to summarize the findings in tabular form after completing the research on competitors. Relevant characteristics that will go into the table will then have to be decided.

After completing the table, an analysis will have to be done to reach conclusions. Is there a correlation between the methods of operation and other characteristics, and the size and/or profitability of the competitors? A thoughtful analysis is essential, because there may be many patterns shown. For instance, it could be deduced that all the profitable companies are large, and all the unprofitable companies are small. Similarly, appliance retailers with repair services sell more that those that are not. Those differences would be easy patterns to spot (and an important one, as well) because they involve only few factors, profitability, size and added service. However, it is more common that success and failure correlate with a number of factors that are not always so easy to discern, even when the findings are summarized.

Looking for patterns is not the only type of analysis that is needed. One may find that an enterprise is very successful, even though its characteristics are completely different from the other profitable firms. What factors apparently contribute to its success? Or one may find that a company is losing despite the fact that its operational characteristics are similar to those of the profitable firms.

Once a conclusions is reached about the competition, it is important that these be related to the enterprise.

What is the competitive situation in the market?

Is everyone making money and expanding, or is it a dog-eat-dog situation?

Are competitors likely to be much larger than the enterprise ? If so, what effect will this have?

Are there some operating methods that appear critical to success in this market? If so, will the enterprise be able to operate in the necessary fashion?

Are there operating methods or characteristics not being widely used in the market that have merits? If so, why are they not found at present? Is it because they have been overlooked or because they have problems that have not been foreseen?

CONSUMER VALUES, INTERESTS AND ATTITUDES

External Assessment

CONSUMER VALUES, INTERESTS AND ATTITUDES

It is important that consumer values, interests and attitudes are analyzed in order to have a clear understanding of the industry's market thus enterprise is able to predict and anticipate the market wants, needs and peculiarities. The following data and information need to be known:

A. Principal Customers

Who your principal customers are, or if you are launching into new areas, who they are likely to be. Determine in as much detail as you think appropriate the income, age, sex, education, interests, occupation, and marital status of your potential customers, and name names if at all possible.

B. Customer Purchasing Considerations

What factors are important in the customer's decision to buy or not to buy your product and/or service, how much they should buy, and how frequently?

Many factors probably have an influence, and it is often not easy to identify all of them. These are some of the common ones that you should consider investigating:

C. Product Considerations

· Price

· Quality

· Appearance (color, texture, shape, materials, etc.)

· Packaging

· Size

· Fragility, ease of handling, transportability

· Servicing, warranty, durability

· Operating characteristics (efficiency, economy, adaptability, etc.)

D. Business Considerations

· Location and facilities

· Reputation

· Method(s) of selling

· Opening hours, delivery times, etc.

· Credit terms

· Advertising and promotion

· Variety of goods and/or services being offered

· Appearance of company's property and/or employees

· Capability and attitude of employees

E. Other Considerations

· Weather, seasonality, cyclicality

· Changes in the economy (recession, depression, boom)

Since many of these factors relate to the attitudes and opinions of the potential customers, it is likely that answers to these questions will only be found through interviews with customers. It is also important to note that many factors that affect buying are not easily researched and are even less easy to act upon. For example, the amount of light in a store or the position of a product on the shelves can influence buying decisions.

You could perhaps best use the above list to rate what potential customers see as your strengths and weaknesses. Then see if you can use that information to make your offering more appealing to them.

F. Market Research Data

In addition to knowing something of the characteristics of the likely buyers of your product or service, you also need to know how many of them there are and whether their ranks are swelling or contracting. Overall market size, history, and forecasts are important market research data that you need to assemble—particularly data that refer to your chosen market segments, rather than just to the market as a whole.

Satisfying customers' needs or solving customers' problems must be the primary focus of any new or growing business. Customers change, and companies must adapt to these changes; recent research has revealed that the major reason for companies losing customers was indifference to customer complaints—not price, not quality, but indifference! You should try to view each of your customers as a potentially valuable asset; for example, if they spend P100 a week with you for the next 10 years, that would make each one an asset worth P50,000.

WHAT DO CUSTOMERS NEED?

Business people usually define their business in physical terms. Customers, on the other hand, see businesses as satisfying their needs. Compare a quartz watch with a Rolex . Basically they are very similar: they both give you accurate time. One costs P700.00, the other perhaps P200,000. Customers pay the extra P199,300.00 for largely intangible benefits, such as status or the pleasure the watch will bring as a gift. The makers of each watch both have successful businesses, but the needs they satisfy are poles apart.

Until you have clearly defined the needs of your potential customers, you cannot begin to assemble a product to satisfy them.

American psychologist Abraham Maslow says that "all customers are goal seekers who gratify their needs by purchase and consumption." He classifies consumer needs in a five-stage pyramid, called the hierarchy of needs (Maslow's Theory of Needs):

· Self-realization (highest)

· Self-esteem

· Social needs

· Safety

· Physiological needs (lowest)

Every product or service is bought to satisfy one or more of these needs. So, for example, as people's hunger and thirst needs are satisfied, they move up the hierarchy to satisfy other needs.

Try interesting someone who is starving and cold in "higher" things, or see how much more food you buy if you shop when you are hungry than when you have just consumed a large meal.

Where are your customers on the needs hierarchy, and how can your product or service help them to achieve their goals?

It may also help to shape your business to distinguish between the needs of consumers of your product (for example, children who eat the candy) and the needs of customers who make the buying decision (for example, parents who pay for the candy).

MARKET SEGMENTATION

Market segmentation is the name given to the process whereby customers and potential customers are organized into clusters or groups of similar types. For example, a store or restaurant has regular customers and passing sales. The balance between the two is a fundamental issue that affects everything the business does. Also, each of these customer groups is motivated to buy for different reasons, and the selling message has to be modified accordingly. These are some of the ways that markets can be segmented:

A. Demographic Segmentation

This groups customers together by such variables as age, sex, education, and income. One owner of a corner store identified two particular groups of customers: children and local adult residents who had run out of products they would normally buy from a supermarket. For the former, the products offered are candy, comics, pencils, and cheap games. For the latter, small sizes of such items as butter, cereal, and detergent.

B. Benefit Segmentation

This recognizes that different people get different satisfaction from the same product or service. Most toothpaste manufacturers stress the benefit of decay protection, such as the claim, "Look mom, no cavities." However, others reach a quite different market with their "whitening" message. White teeth, with the implied attractiveness to the opposite sex, is a more important benefit to some customers.

C. Geographic Segments

These arise when customer preferences vary by location. For example, the photocopy center and the bicycle courier service are very much products of a city environment.

The owners of a dried flower shop segmented the market in two ways:

1. By type of sales outlet, for example flower shops, farm suppliers, garden centers, supermarkets, garages, airports, and street markets

2. By type of end use, for example commercial displays (restaurants, hotels), shop window decoration, exhibition, display, and educational courses at colleges

Such segmentation enabled the shop to focus its selling efforts on specific outlets and users that could be located and quantified, enabling the owners to set realistic sales goals.

Industrial markets can be similarly segmented by size and location of company (number of employees, sales volume, geographic concentration), by category of merchandise (furniture, glass, ceramics), or by level of technology and production process (types of buyer, service requirement).

There are useful rules to help you decide on whether a market segment is worth trying to sell to.· Measurability. Can you estimate how many customers are in the segment?

· Accessibility. Can you communicate with these customers? Just knowing they are out there somewhere is not much help.

· Size. A segment has to have a large number of customers, although exactly what constitutes "large" will be relative to your business.

· Open to Practical Development. Just being a large segment is not enough. The customer must have money to spend and be able to spend it. Some government departments, for example, are restricted to buying from approved suppliers only. So they may be large but are of no interest at all if you cannot sell to them.



One example of a market segment that has gone undeveloped for a long time is the sale of goods and services to retired people. Several factors made this a particularly difficult segment to develop. Firstly, retired people were perceived as less adventurous. Secondly, they were considered less likely to make expensive purchases at their stage in life. And finally, they were thought to have less money. In recent years, all those perceptions have changed; people retire earlier, live longer, and many have relatively large pensions. The result is that travel agencies, contractors, magazine publishers, and insurance companies have rushed out a stream of products and services aimed particularly at this market segment.

Segmentation is an important marketing process because it helps to bring customers more sharply into focus, and it classifies them into manageable groups. It has wide-ranging implications for other marketing decisions. For example, the same product can be priced differently according to the intensity of customers' needs. Peak-season travel and off-season travel is an example. Segmentation is also a continuous process that needs to be carried out periodically, for example when strategies are being reviewed.

Market Characteristics, Needs, Gaps and Opportunities

EXTERNAL ANALYSIS

Market Characteristics, Needs, Gaps and Opportunities

A vital component of industry analysis is to get a good profile of the industry’s markets. These markets can be industrial users or product/service consumers. They can be reached directly or through distribution channels.

Industrial users are those who utilize raw or semi-processed materials for conversion into other industrial products or consumer goods. Their purchasing patterns are highly determined by the availability of sufficient volumes at specified quality levels within an acceptable price range and time frame. Investment levels, technology adopted, production processes applied, people productivity and delivery efficiency are therefore essential to the industry that caters to industrial users. If they were deficient in these attributes, their competitiveness would be impaired in what is essentially a mass production game.

Product or service consumers are office and home-use buyers. They purchase in smaller quantities. Their quality needs and price sensitivities are affected by their purchasing power and their tastes. Their values, customs, mores, attitudes, interests and buying behaviors are watched carefully by market analysts. These factors may differ from country to country and even village to village. They may differ according to sex, religion or race. They swing from fad to fad and fashion to fashion. They are influenced highly by seasons of the year and particular dates of the month. In order to monitor these myriad factors, many producers of consumer goods or services conduct meticulous market studies of consumer behavior. They have to ensure that their products or services meet the grade as to the functionality, aesthetics and price parameters of the customers.

Market needs on the other hand expand as consumers become more and more sophisticated in their tastes and wants. In many cases, the industries are unable to immediately respond to these new needs. Other industries however are more advanced and pro-active and are able to anticipate the needs of the market

EXTERNAL ASSESSMENT

EXTERNAL ASSESSMENT
INDUSTRY ANALYSIS

I. INDUSTRY TAXONOMY
A. The Problem of Classification

The most confusing aspect about industry analysis is defining what constitutes an industry in the first place. A development manager looking at the agricultural sector might define industries according to crops produced (e.g., rice, corn, coconuts, sugar) and regard all downstream activities as tributaries of those industries. A businessman in the food business might regard that same agricultural sector merely as the provider of ingredients to his culinary delights and define his enterprise to be in the restaurants industry. Within this food industry, businessmen might differentiate their companies as belonging to the fast food industry, or to the raw food wholesaling and retailing industry, or even to the gourmet industry. Still another group of food businessmen might be into the dehydration, pureeing or squeezing of various food products and identify themselves with the cereal, soup or juice industries. Some businessmen who buy agricultural crops might not even be in the food industry at all. For example, coconuts could be converted to cooking oil, soap, activated carbon, coir mattresses, handicrafts and a myriad other things which have nothing to do with food nutrition as such.

Industries could therefore be defined according to raw material supply sources (basic ingredients like crops or chemicals), according to intermediate products processed (like flour which can come from various crops like wheat, rice cassava) and according to end consumer usage (e.g., wallets, umbrellas, tables) or consumer satisfaction (e.g., relaxation, enjoyment).

Industries also include types of service establishments such as the hotel or hospital industries. A hotel may even refuse to define itself as being in the hotel business. It might prefer to be under the “leisure” industry classification especially if it is located in some tropical island complete with a golf course, sailboats, tennis courts, bowling alleys, health spas, fine restaurants and tourist sceneries. Certainly, that differentiation would be in stark contrast to a lodging motel which just provides nocturnal sleeping quarters sans all the frills and service amenities.

The classification of industries is important if one’s intention is to define who are the relevant customers, who are the competitors, what are the critical characteristics or attributes that make the industry tick and what are the expectations of the market as to the quality of products or service to be delivered. A business hotel, for example, would require specific services quite distinct from those demanded by the lodging or the leisure hotels. Consumer needs would simply be different.

In defining an industry, there would be also some difficulty in having a very broad or a very narrow scope of industry classification. On the other hand, defining an airline company as being in the broader transportation industry would not be as useful as classifying that company in the narrower airline industry. Trains and cars (or even boats) would not be considered competition at all by airlines if people are deciding about trans Pacific travel. On the other hand, narrowly defining an industry might have very limiting effects. For example, to simply classify all those using coconuts in their production process as being in the coconut industry per se might not be too useful. The reason is that most of the coconuts harvested are processed into coconut oil which is just one of the many substitutes in the fats and vegetable oils industry trade worldwide. In fact, while the Philippines controlled two-thirds of the world coconut oil traded in 1986, it only comprised 4% of the vegetables oil and fats trade. Classifying coconut oil into its own industry would make one erroneously conclude that it has a virtual monopoly position. However, classifying it into the fats and oil industry would suggest that coconut oil is just a minor player in the bigger scheme of things.

An Illustrative Industry Classification Process: Coconut

For purposes of illustrating an industry taxonomy process, let us continue to use the “coconut industry.” Classifying the coconut industry according to the tree crop itself is about the simplest one can go. Beyond that, the industry diverges into as many different taxonomies as there are parts of the coconut tree. The “tree of life” indeed has the potential for a thousand industries to bloom. However, given its present position as just one of the many substitutes in the fats and vegetable oils industry, it has become a sunset industry that has forsaken millions of Philippine coconut farmers to lives of relative and absolute poverty. In a way, one could hypothesize that the actual consumption of coconut products and by-products is still way below its full potentials. However, tapping those potentials might be easier hypothesized than done. There are problems of technology, problems of market and product development and problems of economics and financial viability in those potentials. The coconut industry has always been one of those "promising"” prospects that has somehow managed to remain just a promise.

Breaking down the coconut tree into its parts – the most commercially exploited is the fruit itself. The coconut meat from the fruit is dried into “copra” which is converted into coconut oil. It is also processed into dessicated coconut for use by the confectionary industry. As coconut oil, it is transformed into edible oil while its residue, copra meal, is used as feeds for livestock. The coconut oil is also used for soap making. Other applications of the meat include conversion into coconut milk which is used for cooking or for drinking purposes, especially if mixed with other fruit juices.

Coconut water can be drunk as “juice” or made into vinegar. The coconut shell is used as fuel either directly or converted into activated carbon. The husk is made up of fibers and dust. The former is used for coir and the latter for wallboards.

The coconut fruit can also be the ingredients for various chemical products including “coco diesel,” glycerine, etc. Last but not the least, the coconut meat is eaten as a tropical fruit or frozen into ice cream products.

The coconut tree trunk is used for construction and furniture, while the leaves are used for brooms, roofing, handicraft and the like.

The chemicals and materials extracted from coconuts comprise the ingredients for a host of other products too numerous to mention.

What this “dissection” of the coconut industry does is illustrate the complexities and potentials of the products derivable from the tree. Obviously, analyzing it as “an industry” by itself cannot find merit from the perspective of the end consumers who see the different coconut parts transformed into their final products. The “coconut industry” as such only becomes analyzable as a separate industry from the point of view of the farmers who rely on the coconut tree and the traders who exploit the marketing of its parts. It also becomes relevant as a separate industry to the Philippine coconut processors who have no alternative major sources of raw materials for oils and fats since the country does not really have coconut substitutes in large quantities like soybeans, palm oil, ground nuts, olive oil, and others. These are grown by other countries.

For the purpose of the industry analysis, coconuts are the main supply ingredients of the local coconut oil/soap manufactures but not so for the world market. Coconut are just minor supply ingredients for the world vegetable oils and fats industry. The two markets (local and international) would therefore have to be realized separately if one is to assess the demand and supply situation attendant to the “coconut industry.”


II. MARKET ANALYSIS OF AN INDUSTRY

A. Actual Supply and Demand Analysis
Measuring the demand and supply of any product is easiest when there are only a few manufacturers who can be monitored as to what they actually produce, how much of that production remains in their own inventory or in their distributors’ warehouse and how much they sell in any given period. With almost perfect information from these few manufacturers, there is a clearly definable supply (what is produced) and quantifiable demand (what is sold). When the producers experience excess inventory, there is an oversupply and when they experience stockout, there is an unmet demand or a demand supply gap. Using the often-used phrase of “ceteris paribus” or “all things being equal”, the manufacturers can plot their supply and demand conditions to project future requirements. (Care should be taken to make sure that wastage or losses are factored in to the computations). However, nothing ever remains equal. Tastes of consumers change. Substitutes come along. Economic cycles, booms and recessions alter the situation significantly. Competitors forge ahead technologically or close shop. All these change the demand and supply parameters.

If the manufacturers or producers are many, then it is more difficult to quantify the production and consumption of a product unless the consumers source most of the product through large wholesalers who funnel the goods through their warehouses. Then these wholesalers or “product funnel” can be used to measure the flow of goods from suppliers to consumers. Beyond these wholesalers, there may be large retailers (like supermarkets) who account for most of the products sales. Supply and demand monitoring can then be done through these large retailers.

Sometimes, the product’s production and consumption cannot be measured through any of the means cited above. The producers, distributors and consumers may just be too numerous to monitor. The next best thing is to conduct a survey of either producers or consumers or both and use extrapolation mechanism to estimate supply and demand. Survey and extrapolation techniques will not be discussed here. However, an example will be given. The producers of the product (like rice) are oftentimes concentrated in certain areas of the country. Agriculture production surveyors can focus on these areas, knowing that they account for a certain percentage of total production historically. The surveyors can interview farmers (who should be randomly selected) as to their yields, given the hectarages that they till. The weighted average yield of all the farmers interviewed could then be extrapolated over the estimated total hectarage planted to rice. The estimation of the total hectarage planted has to be verified also by physical survey and audit.

Next to be interviewed are the distributors both for verification purposes (as to supply of rice received) and to find out how much of the rice delivered to them got sold and how much was retained as inventory. Lastly, the end-consumers can be surveyed as to how much they have actually consumed. This is difficult because rice consumers may vary in their daily consumption but, on the whole, they can ascertain how many kilos of rice they have bought from the market over a certain period of time.

On a rapid appraisal basis, we can look at how rice prices have been moving vis-a-vis other commodities. If rice prices are rising faster than the others, then there would be a high probability of rice shortage. If prices are falling, then there may be a glut or over supply. As to what extent, the analysts can use past data (if available) of how prices moved in relation to shortages or gluts. Usually there is a pattern, provided of course that there are no price manipulators who are artificially restricting supply or distributors who are deliberately dumping goods in the market to drive prices down. (This is likely if competitors are being eased out of the market.) Unfortunately, in the Philippines, the large rice traders do control the rice market and have been known to resort to hoarding or dumping practices.

B. Potential Supply and Demand Analysis
Going beyond actual production and consumption, there is the need to measure potential supply and demand. A lot of creativity and critical thinking goes into this because the variables that effect supply and demand can be many.

To begin with potential supply, one could start looking at short run and long run production capacities and capabilities. Manufacturers may be operating at less than full capacity or farmers may not be selling all the available hectarage due to certain constraints. This undercapacity represents potential supply that could be harnessed. Additional supply can also come from new producers entering the industry. Sometimes, this information is known, sometimes not. The new ones would add to total capacity, and hence to supply. Supply potential could also be enlarged by the advent of new technologies. A process might be discovered that would reduce previous supply constraints (i.e., producers need lesser raw materials or incur less costs thereby encouraging them to manufacture more). More difficult to measure, potential supply can come from substitute products, especially those newly discovered.

Potential demand can be influenced by several key factors. The first is income. A rise in the income of consumers would increase their ability to consume more and might increase their demand. Some products experience faster increases in demand than the rise in consumer’s income. Some rise proportionately with income increase and some do not rise as much as income. Some products are even not consumed when income becomes very high. At the other extreme, certain products only get consumed when income is very high. This behavior of demand vis-à-vis income is known as the income elasticity of demand. The second factor that influences potential demand is price. Movements in the prices of goods affect demand in the same way income does. This is called the price elasticity of demand. A third factor that determines potential demand is “taste”, whether acquired through consumer sophistication or mass media advertisements, whether developed through improved product quality or reduced resistance. Technology, culture, fads and fashion all affect consumer tastes, therefore potential demand. A fourth factor is availability and accessibility of the product demanded due to sheer abundance, effective distribution systems and low cost (time, money and effort) of securing the supply. Pizzas delivered at your front door and ordered easily by telephone would increase the demand for the product. One product may suddenly experience high demand because the substitutes are made obsolete, banned or discredited. Thus, the status of product substitutes also influences demand.

Given the dynamics involved in assessing potential supply and demand, it would be naïve to say that there is one true figure in calculating the demand-supply gap. Many industry or market analysis fall into this convenient trap in their feasibility studies. Like economists who simplify their economic models by assuming “ceteris paribus”, which never happens, they jump to tenuous conclusions. Even if these analysis conduct sensitivity analyses to measure varying gaps, they do so mechanically by adding or subtracting percentage points from supply and demand without really analyzing the key factors that affect them. As they say, garbage in, garbage out. If the assumptions are faulty, then the conclusions are not worthy.

C. Product Substitutes and Market Implications
Going back to the coconut industry, its biggest setback is the presence of many substitutes, hence its rather volatile and unreliable performance. Its price is not determined by demand and supply in the Philippines but the demand and supply for vegetable oils and fats in the world. Leading the pack, in terms of production output, is soybean oil. In terms of world trade, Malaysia’s palm oil has the largest market share. A good or bad year of soybean harvest in the United States could send vegetable oil prices skyrocketing or plummeting. In fact, the prices of all vegetable oils and fats in the world are very highly correlated (i.e., They move in the same direction at roughly the same degree of downward or upward mobility).

In the long run, the competitiveness of the coconut industry is going to be eroded further by the rapid advances in bio-genetics which could dramatically change the productivity of soybeans. Being an annual crop, soybean farmers could well shift to better and better hybrids every year while coconut farmers are stuck with their trees for decades. The Philippines spends very little on research and development to do the farmers any good.

Obviously, if the Philippines merely relied on world trade to catapult the coconut industry back to its former years of plenty, the future would be dim. The answer seems to lie in for alternatives: 1) shifting away from coconuts; 2) maximizing the inter-planting of other crops and the raising of animals in coconut lands; 3) developing new but large markets for various coconut products; and 4) developing new commercial products out of coconuts. At this point, planting more and more hectarages of coconuts would not really save the Philippines from the threat of robust substitutes which would tend, in the long run, to wipe out their weaker competitors.

The stark lesson provided by the coconut industry highlights the importance of product substitutes and their demand-supply implications. For far too long, the government and the industry participants have neglected to confront the real issues quite apparent in the world marketplace. Instead, they have focused on internal bickering to solve what is basically an external problem.

D. Trend Analysis and Determination of Critical Variables
From the previous discussion, it is quite easy to conclude that the most critical variable determining the performance of the coconut industry is the status of soybean crop production in the United States. An industry analyst could very well concentrate on charting this variable and predict what would happen to the Philippine coconut industry.

For other industries, one should search for the variables that affect industry performance the most. The furniture industry, for example, relies on the level of housing investments made, which in turn relies on the availability of long term credit at low interest rates. The toy industry finds its biggest sales during Christmas while school supplies surge when schools open their semestral offerings. Ice cream sells on hot days and umbrellas on rainy days. If one were successful in isolating these variables and determining their impact on an industry, then one could easily make a forecast of the future.

Most trend analyses use historical data on which they apply mathematical models to come up with projects. The basic consumption is that the conditions of the past will remain valid for the future. Therefore, plotting past trends and trending into tomorrow becomes a mechanical exercise. The more astute industry analysts would examine the critical variables first and assess how they would vary. They would then try to estimate the degree of change such variations would produce. Finally, they would make a calculated guess. If the variations in the variables were not all that predictable or precisely quantifiable, the analysts could intuitively draw “freehand” projections, which might turn out to be more accurate than any sophisticated mathematical model.

E. Market Characteristics and Consumer Behavior
A vital component of industry analysis is to get a good profile of the industry’s markets. These markets can be industrial users or product/service consumers. They can be reached directly or through distribution channels.

Industrial users are those who utilize raw or semi-processed materials for conversion into other industrial products or consumer goods. Their purchasing patterns are highly determined by the availability of sufficient volumes at specified quality levels within an acceptable price range and time frame. Investment levels, technology adopted, production processes applied, people productivity and delivery efficiency are therefore essential to the industry that caters to industrial users. If they were deficient in these attributes, their competitiveness would be impaired in what is essentially a mass production game.

Product or service consumers are office and home-use buyers. They purchase in smaller quantities. Their quality needs and price sensitivities are affected by their purchasing power and their tastes. Their values, customs, mores, attitudes, interests and buying behaviors are watched carefully by market analysts. These factors may differ from country to country and even village to village. They may differ according to sex, religion or race. They swing from fad to fad and fashion to fashion. They are influenced highly by seasons of the year and particular dates of the month. In order to monitor these myriad factors, many producers of consumer goods or services conduct meticulous market studies of consumer behavior. They have to ensure that their products or services meet the grade as to the functionality, aesthetics and price parameters of the customers.

III. INDUSTRY STRUCTURE

Industry structure can be looked at from several points of view. One could determine its chain of products, tracing the industry from its most basic raw material down to its various consumer applications. We saw how this can get rather complicated in the coconut industry. The coconut tree divides into very many components (trunk, shell, meat, husk, leaves) that find their way to all types of products (edible oil, soap, handicraft, oleochemical oils, furniture, wallboards, coir, etc.) In the product chain the volume produced (or converted) at each link of the chain is determined.

Another way of tracing industry structure is through its value added and earnings chains. The two follow the product chain but concentrate on examining the money rather than the volume aspect. Value added from one stage of the product to the other is given by the market price differential between stages. The differential would include the additional costs of processing the product from one stage to the next and the profit margins slapped at each stage by the processor (or distributor).

A third way of analyzing industry structure is to focus on the business earnings of each participant in the product chain. Usually, those who control the economic “choke points” (i.e., where the demand and/or supply are primarily determined by the decisions of a particular participant in the industry) earn the most money. Earnings are defined here as the profit margins per transaction multiplied by the number of transactions during a given period of time. One group (say, farmers) may earn a lot per harvest when compared to the investment they made but the “velocity” or number of transactions per year may be low, resulting in poor annual income on the whole. Another group (say, traders) may earn a little per transaction when compared to investments made but the velocity of their transactions may be very high, leading to large returns on investments for the year.

A fourth method of industry structure analysis is to gauge the relative bargaining power and competitiveness of various participants in the industry. Within an industry, any one participant’s relative strength or weakness is dependent upon the power of importance of other forces affecting that participant.

According to Michael E. Porter [1] of the Harvard Business School, “the nature and degree of competition in an industry hinge of five forces: the threat of new entrants [to the industry], the bargaining power of customers [buyers and users], the bargaining power of suppliers, the threat of substitute products or services (where applicable) and the jockeying among current contestants.”


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[1] Michael E. Porter, How Competitive Forces Shape Strategy, Harvard Business Review.

Porter claims that the “essence of strategy formulation is coping with competition….. The corporate strategist’s goal is to find a portion of the industry where his or her company can best defend itself against these forces or can influence them in its favor.” He goes on to say that “knowledge of these underlying sources of competitive pressure provides the groundwork for a strategic agenda of action. They highlight the critical strengths and weaknesses of the company … clarify the areas where strategic changes may yield the greatest payoff…..”


The first force is the threat of entry of new competition. The higher the barriers to entry, the less competitive pressure on the industry and its players. There are six major barriers to entry: the cost deterrence of economies of scale; existing customer loyalties brought about by high product differentiation; the intimidating burden of large capital requirements; the built-in advantages provided by experience, proprietary technology, access to raw materials, subsidies, rights patents, et al; crowding out by closely-guarded distribution channels; and, regulatory impediments imposed by government.

The second force is the power of suppliers who can achieve greater bargaining power if they are: composed of a few companies (cartel); possess “unique” product characteristics; are not forced to compete with other products available to their buyers; can integrate forward as their own buyers; and have many other buyers aside from just one industry grouping.

Buyers’ power is the third force. They can be strong if: they procure in very large, concentrated volumes; they purchase undifferentiated products; the supplier provide only a small fraction of their input costs and which costs do not produce much savings for them; make too little money to get fleeced; the items that they purchase would not seriously affect their quality; and they can easily integrate backward.

Substitute products compose the fourth force. The more substitutes there are (in terms of both number and degree of substitutability) to any industry’s product, the lesser the industry’s competitiveness.

Lastly, there is the intensity of rivalry among existing competitors. The less the rivalry, the more “cartelized” and oligopolistic the behavior can become. Rivalry is a function of the presence of numerous competitors of roughly equal size and power. It is also influenced by: lack of differentiation (as in staple products); slow industry growth (leaving little room for maneuvering); high exit barriers (forcing many to keep on competing); chronic oversupply due to huge investments in large capacity increments; the need to sell the product fast (due to perishability); and personalities involved in the industry, their relationships, character traits and competitiveness.

Using Porter’s model, it would not be too difficult to see why coconut traders possess considerable power. The supplier (farmers) are many compared to a few traders. The farmers’ products are undifferentiated and have many substitutes. It is quite easy to enter coconut farming. The farmers have very few alternative markets for their products given their location, financial capabilities and indebtedness to the traders. What can increase the power of the farmers is if they could aggregate in associations or federations and find new alternative markets with cheap financing provided by government or other private sources. But this is easier said than done because the solution requires massive mobilization of people and resources.

IV. INDUSTRY STATUS
Industry analysis also entails an examination of its current condition, state of the art and various measures of performance. This analysis of the industry status could follow the following checklist:

A. Technology Levels and Processes Utilized

Within an industry there would be micro, small, medium and large enterprises employing various processes and different technology levels. In the food processing industry for example, the very small firms use pans and kettles and rely mainly on labor for many of the food preparation and packaging phases. As firms become bigger, larger steel-jacketed kettles are employed along with more mechanized processes of preparation and packaging. Finally, fully automatic and aseptic cleaning, slicing, grinding, pureeing and vacuum-packing technologies are adopted with minimal usage of labor.

B. Investments, Capital Intensity and Employment

The investments made, capital intensity and employment per unit of investment generated can be monitored to gauge new entrants, existing players and departees from an industry. Industry usage of fixed assets versus working capital and ability to generate jobs are other status parameters.

C. Operating Costs, Profitability Indeces and Efficiency Measures

The fixed and variable costs (total, percentage or unit costs) of an industry or firms within the industry (according to size or performance) can be evaluated to determine contribution margins and economies of scale. On profitability, various return measures like profits as a percentage of sales, of total assets, of fixed assets, of project investments and of equity can be made the basis of performance. Gross and operating margins can be evaluated. Discounted cash flow, internal rates of return or net present values in relation to cost of capital measures can be used. On gauging efficiency, capacity utilization, product input-output transformations (conversion and extraction rates), capital to sales ratios, wastage and reject levels, power consumption rates and others can be employed.

D. Product Quality, Attributes, Characteristics

The products of an industry can be classified and assessed according to their ability to meet local or international standards (quality specifications); attractiveness, taste and appearance, storage and shelf life; weight, size and shape; and other attributes/characteristics sought by the market.

E. Capital Structure and Financial Leverage

Different industries exhibit different capital structures and usage of financial leverage depending on business and other risks involved. Utilities, for example, usually have more debt than less predictable industries. The availment of various financing schemes like suppliers’ credit, short term credit, long term loans and preferred or common stock likewise vary from industry to industry.

F. Market Status and Sophistication

As discussed earlier, both the volume (supply and demand) and price trends of industries can be monitored. Consumer tastes, preferences, values, attitudes and interests are also important parameters of current market conditions.

V. STRATEGIC DIMENSIONS

The strategic dimensions and policy implications of industry analysis depend on the point of view taken. Top public officials may have to balance conflicting interests of farmers, traders, processors and other industry participants. What is needed by the macro-intervenor is a highly-developed sense of what is good for the many for both the present and the future. Sometimes, certain groups may lose out in the interim while a long term perspective is being taken. The greater problem actually lies in succumbing to immediate concerns without considering long run consequences. Opting for one strategy or another should be premised on the preferred development objectives (pro-agricultural versus pro-industrial, pro-equity versus pro-growth, pro-environment versus pro-exploitation) and on available resources, existing constraints, viability standards and potentials manifested.

Industry intervention at the strategic or policy level may have implications on other industries and sectors of the economy particularly if the industry has high linkages to others. This is true for the energy, chemical, machinery, equipment and food industries. Chain reactions and repercussions should be assessed to avoid creating problems greater than the solutions the strategic intervention sought to realize.

At the micro or business level of industry strategizing, there should be full appreciation of prevailing competitive forces and forthcoming scenarios in order to position the firm (or groups of firms) at a clear vantage point. Critical factors, such as market, technological and economic forces impinging upon the industry’s performance should be watched carefully. In the end, the industry battle may not even be won by the fittest today but the strategist who anticipates, creates and innovates for tomorrow.

VI. GUIDE QUESTIONS FOR INDUSTRY EVALUATION
In analyzing an industry, one can go through a few process questions that may be helpful in providing a deeper understanding of the industry, its logic, dynamics and directions.
A. Industry Definition

What business is the firm or the enterprise really in? How should we define its industry? What constitute the industry’s basic logic or essence? How does the industry survive and thrive?

B. Critical Thinking Questions

What are the relative magnitudes of the different market segments of the industry? Where are these magnitudes headed? Determine the actual and potential supply and demand for particular products or market segments.
What market segments in the industry would be the most relevant or appropriate for a particular industry participant given the objective of becoming a more viable competitor or collaborator?
What critical variables have the most important influence on the industry? Enumerate and defend.
In the immediate future, what are the most urgent concerns/prospects that an industry participant (or participants) must address in order to survive or prosper?

C. Problem Identification and Analysis, Risk Assessment

Define the issues,problems and confronting the industry. What are the causes or underlying factors behind them? How can they be overcome ?

D. Examine the traits and characteristics of the industry’s consumers or users. Trace and extrapolate any changes in behavior and preferences. What are the biggest opportunities and threats in the industry? How can one participant best tap those opportunities and overcome/prevent those threats?
F. Using the Porter model, evaluate the five industry forces that affect the bargaining power and competitiveness within an industry, taking the point of view of a particular manufacturer or distributor (or manufacturers/distributors).

Who has relative power? Relate this power to the performance of a participant (or participants).
Analyze and form conclusions. Where are the economic choke points?
G. Industry Status

Go to checklist provided in assessing industry status. What are the trends? What are your significant observations? What are your conclusions on the industry’s future prospects? Who will survive and who will die among the industry participants?

ENVIRONMENTAL ASSESSMENT

ENVIRONMENTAL ASSESSMENT

Industry Analysis, Trends and Potentials

Market Characteristcis, Needs, Gaps and Opportunities

Consumer Values, Interests, Attitudes

Competitors and Competitive Positioning

Policies and Regulations

Social, Demographic, Cultural Trends and Patterns

Technological Status

Cost of Doing Business

Environment Analysis
Environmental assessment or analysis should recognize four general areas of concern. These are the social, the political, the economic and the ecological factors.

Social factors include the demography of the society under study like its population, age, morbidity and gender parameters. They look at the education and skills levels of the populace, their health and their state of physical as well as psychological security. Social factors necessarily entail an appreciation of religious values as well as cultural customs and mores. They take into account the structure of society, the relationship and interaction of one social group to the other and the general “pecking order” of societal authority.

Political factors have to do with power structures and forces which influences an environment’s internal governance and its external linkages. These structures and forces include the existing government power elite and their oppositionist, religious sects, anarchists, business tycoons, activists, reactionaries, the military, revolutionaries, landlords, peasants, management, labor unions, the voting masses, etceteras. These factors weave a web of protagonists, a pattern of collaborations and conflicts. They are founded on certain constitutional or legal frameworks which most follow but other seek to destroy. They have to do with the control and management of vital internal resources including human, natural, physical and monetary. Political forces also seek to attract augmentative resources from the outside environment while striving to prevent destructive elements from entering its internal boundaries.

Economic factors involve all productive forces generated by capital, land and labor from both the formal and the informal sectors of the economy. Investments in various forms of assets with their corresponding financial sources are the foundations of economic wealth generation and distribution. They are shaped by technology sourcing and usage, management expertise, manpower skills, savings realized, consumption patterns, investment level, financing raised and production realized. Economic factors determine the general quality of life of the people living in the environment under evaluation.

Ecological factors situate how the different parts of the ecosystem or ecological environment affect one another. They assess how these parts tend to build or destroy, enhance or degrade other parts. They, therefore, determine the environment’s ability to continually provide sustenance and well-being to its living inhabitants, be they men, animals or plants. Ecological factors define the quality of life produced by the environment due to productivity or conservation programs. Ecological factors dictate the condition of the environment’s natural resources and degree of utilization or exploitation of these resources. They establish the pollution levels regurgitated by economic and social activities.

The social, political, economic and ecological factors are the parameters by which one evaluates the past, present and future performance of the environment. These factors can be viewed from different perspectives depending on one’s interests and concerns.

INTERNAL ANALYSIS

INTERNAL ANALYSIS


Over-all Enterprise Performance versus Benchmarks and Targets

Effectiveness, Efficiency and Economy of Resource Utilization

Organizational Capabilities and Competencies

Status of Major Programs and Projects

Functional Performance

Management and Leadership Aspects

State of Physical Assets

Organizational Linkages

Liabilities and Risks

Prospects of Potentials in Future

Technological Advantages and Intellectual Property Rights

SWOT ANALYSIS - WHERE ARE WE NOW

SWOT ANALYSIS - WHERE ARE WE NOW

Environmental Analysis is an evaluation of internal conditions and external data and factors that affect the enterprise. Before an enterprise attempt to chart its future, it must determine where it currently stands. The mechanism used to gauge the conditions inside and outside of the enterprise, answering the question " Where are we now ?" is the internal/external assessment. It is a basic management tool that is not only used in strategic planning, but also in problem solving. It provides a baseline assessment of the organization. The process of conducting an assessment is often referred to as SWOT analysis because it involves reviewing the enterprise's Strengths and Weaknesses and the external environment's Opportunities and Threats. The data gathered during the assessment will often lead to the identification of strategic issues.

Conducting the Internal Assessment and Analysis

Internal analysis is an evaluation of the enterprise's position, performance, problems and potentials. Sometimes this is called a situation inventory- where the enterprise identifies its strengths and weaknesses and evaluates its capacity or capability to respond to issues, problems and other scenarios. It also reveals the paradigms that comprise the enterprise's current principles that drive or disrupt current operations. It throws light on administrative or managerial policies and procedures that enhance or inhibit quality.

The initial step in conducting the internal assessment portion of SWOT analysis is to find out how your enterprise has been performing.

Where has the enterprise been?

Have the products and services been of the highest quality?

What has changed internally. Has the enterprise been reorganized ? Have improvements been made or has the enterprise been stagnant or in decline ? Why

What has been accomplished ? What remains to be accomplished.

Where is the enterprise now ?

Identify current programs or activities. Does the existing structure of programs and projects make sense ? is there fit ?
Do existing programs or department activities support one another within the enterprise. Are their any conflict ? Are all the programs and activities needed ?
What are the accomplishments of current programs or activities ? What is being done well, poorly?
Are current (baseline) performance measures established ? If so, are expected levels of performance being met ? Why or why not ? If baseline have not been established, what plan is in place to do so ?
What do the customers think of the current program? How successful are consumer needs being met ?
What benchmarking information can be utilized to compare the quality and cost of the enterprise's program with those of other enterprises? How does the enterprise compare with recognized standards?
Are planning, budgeting, quality and other management efforts integrated?
Programs may take the forms of sub-contracting program in the case of garments, furniture and electronics assembly or vehicle maintenance programs in the case of car rental, taxi operations or trucking services. Sub-programs, projects or tasks may take the form of quality control and inspection in the case of sub-contracting and parts fabrication and rehabilitation for vehicle maintenance. The performance of the enterprise in running these programs should be evaluated using own existing company existing standards, against targets and benchmarks.



What are the Strengths and Weaknesses?

What is the enterprise's capacity to act?
What advantages or strengths exist ? How can the strengths be built on ?
What disadvantages or weaknesses exist ? How can the weaknesses be overcome ?
How are the needs and expectations of customers changing ? What opportunities for positive change exist ? Does the plan accommodate that change ?
Examples

Strengths
R and D complete
Possesses copyrights, patents,
Well established market
Initial product can evolve into range of offerings
Located near a populated area as market
Very focused management/staff
Complete line of products
Flexible decision-making systems
Possession of improved technology
Trained Personnel
Committed personnel
Financial stability
Strong and established brands/products
Strong ties and linkages with suppliers


Weaknesses
Overdependent on borrowings - Insufficient cash resources
Absentee Board of Directors
Management by unqualified family members
Small business premises
Absence of strong sales/marketing expertise
Overdependence on few key staff
Emerging new technologies may move market in new directions
No formal organizational structure
Unskilled labor, lack of employment commitment
Inferior technology
Weak brand name



External Analysis

External analysis or assessment identifies the opportunities and threats present in the current environment and anticipates changes in the future environment. This portion of the SWOT provides an essential backdrop for strategic planning and policy development.. It is an analysis of the key external elements or forces that affect the environment in which the organization functions.

The first step in conducting the external assessment is to analyze the environment

What elements of the current external environment are relevant to the organization ? How ?

What elements are most critical ? Which are likely to facilitate or impede the organization?

What are the major current issues or problems? Are these local, regional or national or global in scope? Why are these issues or problems of such importance?

What current events or policy issues have captured the attention of the public? How do these affect the enterprise?



Using a plastic film for food packaging industry as an example, the relevant elements could include the 1) number and volume of demand for product packaging, 2) Sources of plastic pellets as raw materials 3) Foreign currency exchange rates 4) number and volume of production outputs of toll packaging companies 5) New production technologies 6) Financing costs and others.

In terms of the critical elements, items 1,2,4 and 5 are the most critical. These involve markets and production. Since the raw materials are basically imported, its availability is major determinant to produce the plastic film sheets. Similarly since imports require foreign exchange, the rate of currency exchange substantially determine production costs and eventually selling prices. relatively high prices would force its market to seek for cheaper substitutes. Items 3,5 and 6 can be dealt more easily by the enterprise because they affect costs which can be passed on to the customers. Likewise, production arrangements such as tolling services could be done to share in added costs.

A trucking or a bulk hauling container transport enterprise on the other hand could have relevant elements such as 1) Volume of exports and imports 2) Cost of truck acquisition 3) Foreign currency exchange rates 4) Cost of truck fuel 5) Labor costs 5) Road Traffic conditions and others. In terms of critical elements, volume of exports, cost of truck and fuel are the most critical elements.

In both of the enterprises mentioned, environmental issues are common. In the case of the plastic film manufacturing, the use of recyclable material is an issue. In the trucking business, smoke belching is an issue. Both issues are national in scope and this will have to be taken into consideration by both enterprises.

The second step is doing a "what if" scenario of the environment

What forces are at work that might affect or alter the key elements of the environment ? Are trends likely to continue or are reversing ?

What major issues or problems are anticipated ? What affects could they have on the enterprise?

What implications do these future forces and environmental changes (trends and issues) hold for the enterprise ?

What are the most likely scenarios for the future ?

Forces such globalization, recession, depression, economic boom, political turmoil, environmental ideological movements, war and others of global nature could affect the smallest of the enterprises. These forces affect business. In both mentioned enterprises, alterations of the order could simultaneously or sequentially affect the critical elements of the enterprises. War in the Middle East and global terrorism could affect the supply and prices of plastic resins and oil prices which the Philippines basically imports. Similarly, these could push prices up. On the other hand the resulting economic degradation could reduce incomes and affect the markets. In view of these an understanding of the scenarios and ability to forecast trends could prepare the enterprises for possible downsizing or expansion depending on the forecasted scenario. It is therefore important that enterprises are aware of the forces that affect their enterprises' key elements.

By gaining a thorough understanding of both the internal and external environment, the enterprise will be in a better position to respond to the environment. When preparing a SWOT analysis, consider that the strategic plan will be a document that other people may someday see. Although it is important to be factual in listing the enterprise's weaknesses, care should be taken in how these statements are worked so that this information will not be misinterpreted. [Pro-labor may use this for other purposes.] For instance, statements summarizing problems or weaknesses can be written to stress opportunities for improvement.

Enterprises may find the following list helpful. These factors are representative of relevant or appropriate issues to consider during an Internal and External Assessments.

INTERNAL: STRENGTHS AND WEAKNESSES EXTERNAL: OPPORTUNITIES AND THREATS
1. Overview of the Enterprise Scope

Historical Perspective and Significant Event

Customer expectations/public image

Structure of Programs, Projects

Enterprise Accomplishments

Examination of existing performance measures as the ideal gauge of success

2.Oganizational Aspects

Size/composition pf work force (number of employees, professional, technical, clerical etc.)

Organizational structure and processes (divisions, departments, units, quality of management styles, key management and policy/operating characteristics)

Location of enterprise's office/s

Human resources (training, experience, compensation, benefits, turnover rates, morale)

Capital assets, capital improvements needs

Information technology; degree of automation, telecommunication, ITt plans, data collection, tracking and monitoring system

Key organizational events, areas of change, impact on organization, enterprise's responsiveness to change

Labor

3)Financial Aspects

Size of Budget, Cash Position, Equity, Financial management

Comparison of operating costs














1. Demographics Focus on Customers

Characteristics (age,education,geographic, special needs)

Trends and their impact (population, shifts, emerging demographic characteristics

2. Economic Variable

Unemployment rate, interest rates, etc.

Extent to which customers and service population are affected by economic conditions

Expected future economic conditions and impact on the enterprise and customers

Enterprise response to changing economic conditions

Currency exchange rates

3) Impact of Government Laws and Regulations

Current Legislations

Anticipated impact of future legislations and regulations

Impact of current and outstanding court cases

Local government requirements ]

Environmental regulations

4)Technological Development

Impact of technology on current enterprise's operations (products and services in the market place, telecommunications etc.

Impact of anticipated technological advances

5)Public Policy Issues

Current Events

War and Terrorism

Ideological Movements











Data Sources for the Internal and External Assessments

There are hundreds of sources where enterprises can find useful information. The following list of sources may be useful:

Internal Assessment

Annual Reports

Employee Surveys

Annual Progress Review Meetings

Customer Surveys/Feedback

Program Evaluation

Internal Data Bases

Internal Plans

Performance Measurements

Production Outputs

Sales Volumes

Production Cost Data

Quality Assessment Surveys

ISO Reports

External Assessment

Statistical Reports and Databases (NCSO)

Local government legislations, National Laws, Congress and Senate

Government Agencies and Departments (Finance, Customs, CB, DENR)

Court Decisions (SCRA, OG)

National Professional Organizations, Business Clubs, Business Schools

Interest and Advocacy Groups

University and College Libraries (Theses and MRR collections, Researches)

Agency Advisory and Government Boards

Key Resource Persons and Industry Experts