Part 2 - Strategy Formulation

Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY

Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.:CBM2-1STSEM-2023-2024
College: College of Business Education

Campus : Bayombong Campus
DEGREE PROGRAM BSBA COURSE NO. CBM 2

SPECIALIZATION Financial Management COURSE TITLE Strategic Management
YEAR LEVEL 3rd Year TIME FRAME WK NO. 5-6 IM NO. 02
I. UNIT TITLE/CHAPTER TITLE: STRATEGY FORMULATION
II. LESSON TITLE:

Lesson 1: Business Strategies
Lesson 2: Corporate Strategies
III. LESSON OVERVIEW
In this module, we discuss the business strategies and corporate strategies commonly
employed by companies to expand their business operations.
IV. DESIRED LEARNING OUTCOMES:
After studying the lesson, the students should be able to:

1. Discuss the component of supply chain management
2. Discuss the importance of inventory management
3. Discuss the significance of integrative strategies
4. Discuss the Boston Consulting Group Model (BCG Model) and General Electric Model
(GE Model)
5. Differentiate horizontal integration from vertical integration.
6. Differentiate backward integration from forward integration.
7. Prepare possible strategies applicable to the entity chosen.
V. LESSON CONTENT
Lesson 1. Business Strategies
Business strategies are an outline of specific activities a company plans to do to achieve its goals and
objectives. Stated differently, business strategies define what the business needs to do to reach its
goals and objectives. Thus, it is a powerful tool that guides business in making strategic decisions.
Value Chain Analysis
The success of an organization can be defined by the sale of something of value to the customers that
is worth paying for. Value chain is defined as the set of interrelated activities undertake by an
organization in producing its goods for the customers.
A value chain analysis is a strategic tool used by organizations to identify and understand the
activities and processes that create value in their business operations. It involves breaking down the
entire production process or business activities into discrete steps and analyzing how each step
contributes to the overall value creation for the organization and its customers.
“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be reproduced for
educational purposes only and not for commercial distribution,”
NVSU-FR-ICD-05-00 (081220) Page 1 of 7
The primary goal of a value chain analysis is to identify opportunities for improving efficiency, reducing
costs, and enhancing the quality of products or services. It helps organizations gain insights into their
competitive advantage and identify areas where they can differentiate themselves from competitors.
The value chain analysis typically consists of two main components:
1. Primary Activities: These are the core activities involved in the creation, marketing, and
delivery of the product or service to customers. The primary activities in a typical value chain
include:
 Inbound Logistics: Activities related to receiving, storing, and distributing raw materials or
inputs for production.
 Operations: Activities involved in converting raw materials into finished products or delivering
services.
 Outbound Logistics: Activities related to storing, distributing, and delivering the final product to
customers.
 Marketing and Sales: Activities involved in promoting and selling the product or service to
customers.
 Customer Service: Activities related to providing after-sales support and assistance to
customers.
 Support Activities: These are the activities that support the primary activities and enable them
to function efficiently. The support activities include:
2. Procurement: Activities related to sourcing and purchasing raw materials and other resources.
 Technology Development: Activities involved in research, development, and innovation to
improve products or processes.
 Human Resource Management: Activities related to recruiting, training, and managing the
organization's workforce.
 Infrastructure: Activities related to general management, finance, planning, and other support
functions.
The value chain analysis provides a comprehensive view of the organization's operations and helps
identify opportunities for cost reduction, process optimization, and value creation. By understanding
how each activity contributes to the overall value chain, organizations can make informed decisions
and allocate resources more effectively to improve their competitiveness in the market.
Supply Chain Management
Supply chain management (SCM) is the strategic and systematic coordination of all activities involved
in the sourcing, procurement, production, and distribution of goods and services from the point of
origin to the point of consumption. It involves the efficient and effective flow of materials, information,
and funds between suppliers, manufacturers, wholesalers, retailers, and end consumers.
The primary goal of supply chain management is to optimize the entire supply chain to maximize
customer value while minimizing costs and risks. SCM involves managing the various processes and
activities within the supply chain to ensure that products or services are produced and delivered in the
right quantity, at the right time, to the right location, and at the right cost.
Specific activities that are usually employed by a company consist of the following:
 Supply management which includes the sourcing, ordering, and inventory storing of raw
materials, parts and services.
 Production and operation, also known as manufacturing and assembly.
 Logistics which is the different warehousing, inventory tracking, order entry management,
distribution and delivery to customers; and
 Marketing and sales which includes promotion and sale to clients.
The whole picture of the supply chain management is shown below:
Supply Management
Supply management, also known as procurement or purchasing management, is the process of

acquiring goods, services, or resources from external suppliers to meet the needs and requirements of
an organization. It involves identifying the right suppliers, negotiating contracts, and managing the
purchasing process to ensure the timely and cost-effective delivery of goods and services.
Specifically, it involves the following:

1. Identifying materials and services need
2. Locating and selecting suppliers, negotiating and closing contracts
3. Acquiring the needed materials, services and equipment
4. Monitoring inventory stock keeping units, and
5. Tracking suppliers performance.
Sourcing and Ordering
Following are the steps to take when an organization needs to source out raw materials or parts.
1. Specify the need clearly by writing down the details. (Usually, the Stock Keeping Unit (SKU is
responsible for the complete details of the mat.)
2. Identify and analyze possible suppliers.
3. Ask potential suppliers for their quotation
4. Compare and evaluate submitted documents
5. Prepare, place, follow up the purchase order PO.
6. Confirm that the order place has actually arrived in good condition.
7. Lastly, invoice clearing and payment follows.
Inventory Management
Inventory management is the process of overseeing and controlling the flow of goods and
materials within an organization. It involves the efficient management of inventory levels, ensuring
that the right quantity of items is available at the right time and place, while minimizing carrying
costs and stockouts.
There are four classifications of inventory, namely

 Raw materials
 Work-in-Process
 Finished Goods
 Other supplies
Inventory Models
Inventory management includes the purchase of materials with right quantity and description at
minimum inventory costs. Inventory cost is the sum of ordering cost and carrying costs. Ordering cost
are costs associate with ordering the materials while carrying cost or holding costa are costs of holding
inventory in storage like handling charges, warehousing expense, warehouse insurance, and the like.
The Economic Order Quantity (EOQ Model) seeks to determine an optimal order quantity where the
sum of the annual ordering costs and carrying costs is at minimum.
When applying the EOQ Model, it assumed that the following is known and constant:
 Demand
 Order Lead Time-span of time it takes for the stocks to be delivered from the time it was
ordered
 Price
 Carrying Cost
 Ordering cots
The effective implementation of inventory management policies manifests in the minimum costs of
producing the product.
Just-in-Time (JIT) is an operational strategy whereby the company estimates its demand for raw
materials and makes sure that they are delivered on time. The effective implementation of JIT results
to lower operational costs, particularly on the carrying costs.
Production and Operations
The process that transforms operational input into output is termed production and operations.
Manufacturing is the process of transforming raw materials or components into finished goods through
various production processes. It involves converting inputs into tangible products, often using
machinery, tools, and labor, with the goal of meeting consumer demand and delivering products to the
market. Assembly is a specific stage of the manufacturing process where various components or parts
are put together to create a final product.
The Logistic Cycle
Logistics management is a crucial component within supply chain management. It involves the
planning, coordination, and execution of the movement, storage, and distribution of goods and
materials throughout the supply chain.
1. Warehousing. Packing finished goods scheduled for release to clients.

2. Scheduling. Act of organizing these inventory unit and booking them for delivery.
3. Dispatching. For transfer products, it may include posting, shipping out, forwarding or
releasing commodities.
4. Transportation scheduling and other logistics are necessary to make dispatching cost
efficient.
5. Delivery to specified site is undertaken.
Growth Strategies
Growth strategies are strategic plans and actions that organizations implement to achieve significant
expansion and increase their market share, revenue, and profitability. Growth strategies are adopted
by organizations to achieve its main objectives or increasing volume of sales and turnover. It can be
internal or integrative.
Internal Growth Strategies
This are approaches adopted within the company which can be rooted from any of the following:
market penetration, market development, product development, and diversification. Figure below
shows the interrelationship of these four:
 Market penetration. For an organization to increase its growth, market penetration can be
realized by selling more products to its customers or buyer.
 Market Development. The company sell more of its current products by seeking and tapping
new markets.
 Product Development. Internal growth strategy where the company sell “new” product to an
existing market. There is a need for the company to be more creative in coming up with
differentiated products and services.
 Diversification. Is a market mix growth strategy that involves creating differentiated products
for new customers. An entity may broaden its operation by creating a new product that is
different from its existing production.
Competitive Strategies
These are long-term action plans prepared with the end goal of directing how an organization will
survive and compete. These strategies are formulating to help organizations gain competitive
advantage after evaluating and comparing their strengths and weaknesses against their competitors.
The figure below shows the five generic competitive Strategies.
 Low-Cost Provider Strategy. Strategy that offers products and services at the lowest cost
possible in the industry. This requires the best effort of the company be most cost-effective so
that it can offer low cost of product or service to its clients.
 Broad Differentiation Strategy. Provide a variety of products and services with features that
competitors do not offer or are not ablet to offer. The product will appear better than those that
are offered by competitors.
 Best-cost provider strategy. This is a combination of low-cost provider strategy and broad
differentiation strategies. The end goal is keeping its customers. E.g. Baclaran increase its
customer base by selling varied, wide-ranged numbers and low-cost products in large
quantities.
 Focused Low Cost Strategy. The company concentrates on limited market segment and
creates a market niche based on lower costs. E.g. There are low-cost condominium units that
cater to middle class employees.
 Focused Differentiation Strategy. The company concentrates on a limited market segment

and creates a market niche based on differentiated features like design, utility, and practicality.
Example, Rolex. Rolex has elite clientele base.
Other Competition Strategies

 Innovation Strategy. Producing product that is all new and original.
 Operational Effectiveness Strategy. This makes an organization operate effectively and
efficiently so that waste, downtime, longer operating cycle, complaints, spoilage and losses is
minimized.
 Economies of Scale. Lowers cost because of volume. The higher the production, the lower the
cost, generally.
 Technology Strategy. A company can realize the benefits of going digital. Technology allows
organizations to improve or perfect their products or services with high degree of accuracy and
quality, thus, adding to marketability.
Life Cycle Strategies.
Life cycle of a product refers to the lifespan that a commodity/service undergoes from its introduction
stage to its growth, maturity, and decline stages. The phases in the life cycle of a product/service are
sequential in development. Internal and external forces in the environment affect the product/service
while it undergoes its life cycle.
A picture of the life cycle of a product is provided below:
 The introduction stage. Period of launching the product/service for acceptance of the public.
The product is new, therefore, there is a need to create awareness through promotions, giving
discounts and market developments among others.
 The Growth state. Products is again acceptance by the public and sales slowly increase with
market developed and improved. The company can focus on branding, building customer
loyalty and promoting repeat business through customer patronage since competition on this
stage may be challenging.
 The maturity Stage. Product tends to remain steady and competition tightens. Though sales
and profit generally reach their peak, it is in this phase when the company should restart
inventing new product.
Not all products follow the S- shape life cycle. Some products are briefly introduce but
die quickly. Others stay in the maturity for a long time, and some enter the decline stage
and the recycled back into growth stage through string promotion and repositioning.
Stability Strategies
Some companies that doing fine with their existing business may choose not to implement any growth
strategy. They may not want to implement some strategies. Hence decide to keep the status quo.
Retrenchment Strategies
Retrenchment strategies are challenging and often require careful planning and execution.
Organizations must communicate effectively with stakeholders, including employees, investors, and
customers, to manage the transition and minimize negative impacts. While retrenchment aims to
improve a company's financial health, it should also be seen as a part of a broader strategic plan to
position the organization for long-term growth and sustainability. There are different modes of dealing
retrenchment strategies. They are follows:
1. Liquidation. The most radical action a company takes when the company is losing money and
thus, is further compounded by a disinterest on the part of the stockholders to do anything
more to save it. In this case, the business is terminated.
2. Divestment is implemented when a company consistently fails to reach the set objectives. It is
a strategic corporate action in which a company sells off or disposes of certain assets,
businesses, or subsidiaries. It involves the deliberate and strategic decision to exit specific
operations or investments to reallocate resources, streamline operations, or focus on core

activities.
3. Turnaround strategy. A turnaround strategy is a set of strategic actions and measures
implemented by a company facing financial distress or underperforming conditions to reverse
its decline and return to profitability and growth. It is designed to rescue the company from a
downward spiral and improve its financial and operational performance.
This is adopted when the company has reached a certain level of non-performance,
nonproductivity, demoralization and unprofitability and therefore must implement restorative
strategies. In a turnaround strategy, the company should focus on the following areas: climate
and culture, products and services, production and operations, infrastructure, and finances.
Lesson 2: Corporate Strategies
Corporate strategies are typically formulated at the highest level of an organization and serve as a
blueprint for the company's future actions. They guide decision-making across the entire organization
and help align various business units and functions toward common goals.
Corporate strategy refers to the overall long-term plan and direction that a company's top
management takes to achieve its vision, mission, and objectives. It involves making decisions about
the company's scope of activities, resource allocation, competitive positioning, and growth
opportunities across all business units and markets.
Corporate strategies are dynamic and may change over time in response to changes in the external
environment, market conditions, or internal capabilities. They are influenced by the company's vision
and mission, market analysis, stakeholder expectations, and the competitive landscape.
Integrative Growth Strategies
This involves investing resources of the organization in another company or business to achieve
growth goals. It may also be described as acquisition strategies. There are two types of integrative
strategies, namely:
1. Horizontal Integration;
2. Vertical Integration
 Backward integration
 Forward Integration
1. Horizontal Integration is a strategy where the organization acquires another competing

business. Various reasons for acquiring companies may include the elimination of potential
competitors. E.g., Jollibee acquired Mang Inasal.
Another reason is the company simply expand its reach, expand its market demographically
and maintain its market status as a market leader, market challenger. Lastly, a company may
undergo horizontal integration to increase its revenue.
2. Vertical Integration is the process of consolidating into one organization all aspects of a
product’s or services’ process from raw materials to distribution. Its purpose is to control its
suppliers and distributors, increase the company’s market share, minimize transaction and
inventory costs, and ensure adequate stocks in the retail stores. Vertical integration can either
be backward or forward.
 Backward integration. The company may buy one of its suppliers for the purpose of
having a better control to its supply chain and ensure more reliable, quality and low cost
material inputs.
 Forward Integration. The company buy one of its distribution chain. In effect, the
company were able to eliminate the intermediary, thus eliminating distribution costs.
This allows the company to redesign its marketing strategies.
The Boston Consulting Group Model
The Boston Consulting Group (BCG) model, also known as the BCG matrix, is a strategic
management tool that helps companies analyze their product portfolio and make strategic decisions
about resource allocation. It was developed by the Boston Consulting Group in the early 1970s. The
model is based on the principle that a company's products can be classified into four categories based
on their market growth rate and relative market share.
Figure below shows the BCG Matrix:
Market share is the relative sales percentage of a company in relation to the total sales percentage of
the market in consideration. It gives a general idea as to the status of a company in the industry in
terms of its sales compared to its competitors. Market Growth refers to an increase in demand over
time.
The BCG Model explains as follows:
 A high market share in high market growth defines stars. They are the market leaders and if
the market continues to grow, they likely to become cash cows.
 A high market share in low market growth defines cash cows. Since they are the market
leaders in a mature market growth, establishing a competitive advantage can generate a lot of
cash cow and bring a high profit margin.
 A low market share in a high market growth defines question marks. These essentially new
products need promotional strategies.
 A low market share in a low market growth defines dogs. They should essentially be
minimized, if not avoided because they could be expensive to the company.
The General Electric Model
The General Electric (GE) model, also known as the GE–McKinsey Nine-Box Matrix, is a strategic
business portfolio analysis tool used to assess a company's business units or product lines and make
decisions about resource allocation and strategic priorities. It was developed by McKinsey & Company
in collaboration with General Electric in the 1970s.
The GE model is an extension of the BCG matrix and evaluates business units based on two key
dimensions:
1. Industry Attractiveness: This dimension assesses the overall attractiveness of the industry in
which the business unit operates. Factors considered include market growth rate, market size,
profitability, competitive intensity, regulatory environment, and technological advancements. A
more attractive industry offers better growth prospects and higher returns.
2. Competitive Position or Business Strength: This dimension evaluates the competitive

position and strength of the business unit within its industry. Factors considered include market
share, brand reputation, customer loyalty, product quality, technological leadership, and
financial performance. A stronger competitive position implies a higher ability to capitalize on
industry attractiveness.
The General Electric Model is presented below:
IN the GE model presented above, there are nine squares, the green cells are favorable with relatively
attractive growth opportunities. The Gray squares indicate medium attractiveness and caution must be
made in making additional investments. Lastly, the color red squares are not attractive, and the
company should think of getting out of it.
Example of corporate strategy advise using the GE Model
Global Strategies
There are companies that pursue global strategies for business expansion. Global strategies cover
three main areas: international, multinational, and global. Companies the sell their excess products
outside their home market are pursuing international strategies. On the other hand, a company that is
selling its product to various markets outside its home market is pursuing multinational strategies. The
challenge in going multinational is the production and sale of differentiated products depending on
what is suited and accepted in the said country or market. Thus, the strategy applied to one country
may be different to the other depending on the customer expectation. IN global strategies, the
company treats or considers the world, one market and one source of supply with slight local
variations.
VI. LEARNING ACTIVITIES
VII. ASSIGNMENT
VIII. EVALUATION
IX. REFERENCES
e-RESOURCES
Chappelow, Jim. “Pareto Efficiency”, Investopedia, 25 September 2019,

www.investopedia.com/terms/p/pareto-efficiency.asp

Part 2 - Strategy Formulation

Uploaded by

Copyright:

Available Formats

Part 2 - Strategy Formulation

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Part 2 - Strategy Formulation

Uploaded by

Copyright:

Available Formats

Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

College: College of Business Education

DEGREE PROGRAM BSBA COURSE NO. CBM 2

I. UNIT TITLE/CHAPTER TITLE: STRATEGY FORMULATION

II. LESSON TITLE:

III. LESSON OVERVIEW

IV. DESIRED LEARNING OUTCOMES:

After studying the lesson, the students should be able to:

Lesson 1. Business Strategies

Value Chain Analysis

The value chain analysis typically consists of two main components:

Supply Chain Management

The whole picture of the supply chain management is shown below:

Supply management, also known as procurement or purchasing management, is the process of

Specifically, it involves the following:

There are four classifications of inventory, namely

Production and Operations

The Logistic Cycle

1. Warehousing. Packing finished goods scheduled for release to clients.

Internal Growth Strategies

 Focused Differentiation Strategy. The company concentrates on a limited market segment

Other Competition Strategies

Life Cycle Strategies.

A picture of the life cycle of a product is provided below:

operations or investments to reallocate resources, streamline operations, or focus on core

Lesson 2: Corporate Strategies

Integrative Growth Strategies

1. Horizontal Integration is a strategy where the organization acquires another competing

The Boston Consulting Group Model

Figure below shows the BCG Matrix:

The BCG Model explains as follows:

The General Electric Model

2. Competitive Position or Business Strength: This dimension evaluates the competitive

The General Electric Model is presented below:

Example of corporate strategy advise using the GE Model

VI. LEARNING ACTIVITIES

Chappelow, Jim. “Pareto Efficiency”, Investopedia, 25 September 2019,

You might also like