Book Summary
competitive advantage, resource must have
Chapter 2: Schools of Thought
Prescriptive Approach-Emphasizes long-term
planning designed to achieve a "fit" between
organization's strategy and its environment,
and strategic management viewed as highly
systematized and deterministic process
Emergent or Learning Approach-is better suited
to dynamic and hypercompetitive environments
-strategy making is dynamic and interactive, in
real time, iterative, and trial-and-error-based
Competitive Positioning Approach-To achieve
superior performance, a business positions
itself within its competitive environment where
it could best defend against or influence its
forces
-"outside-in" approach-focus on the
environment
-frameworks: five forces, generic strategies,
value chain
Resource-based view of the firm-uses the
concept of competitive advantage that arises
from an organization's internally developed
"core competences or distinctive capabilities"
harnessed from the firm's resources
Resources include all assets, capabilities,
organizational processes, firm attributes,
information, knowledge, etc. controlled by the
firm that enables it to conceive and implement
strategies
Sustained competitive advantage-when firm is
implementing a value creating strategy not
currently being implemented by any current or
potential competitors and when these other
firms are unable to duplicate the benefits of this
strategy
To become a potential source of sustained
four VRIN:
 Valuable
 Rare
 Inimitability
 Non-Substitutability
Reasons for Inimitability
 unique historical conditions or path
dependency
 causal ambiguity
 social complexity
Institution-Based View-particular institutional
framework directly determines the firm
trajectory in strategy formulation and
implementation
-where formal constraints are unclear or fail,
informal constraints will play a larger role in
reducing uncertainty, providing guidance, and
conferring legitimacy and rewards to managers
and firms
Chapter 3: Two Views on Firm Strategy
Business strategy-defines the way a firm
chooses to compete in a given industry or
product market
Corporate strategy-defines the portfolio of
businesses or product markets which a firm
chooses to compete in
Positional View-firm’s strategy defines the way
it is competitively positioned vis a vis
competitors in its product market
Cost leadership-create advantage by offering
the company’s products at a lower price than
competing products
-firm is cost-effective and can under cut its
competitors in price and remain profitable
Differentiation-builds competitive advantage by
incorporating valued characteristics into a
company’s products or services which are not
to be found in competitor’s offerings
Portfolio Management-firm’s individual
businesses were treated as unrelated and
autonomous businesses managed with
minimum interference from headquarters
Restructuring-also implied a portfolio of
unrelated businesses but with central
headquarters adopting a more interventionist
posture in the management of business units
Transferring Skills-was a strategy that implied a
portfolio of businesses that were related to
some degree such that the management skills
of corporate management (e.g. in consumer
marketing, financial management, etc.) could
be brought to bear on the operations of the
subsidiaries
Sharing Activities-portfolio of businesses that
are related enough to allow synergies and
economies through sharing of activities (e.g.
R&D, engineering, distribution system)
Resource-Based View
Tangible Assets-resources such as plant and
equipment, finances, land, and so on, which are
conventionally reported as assets in a firm’s
financial statements
Intangible Resources-include company, brand
reputation, brand names, patents, and
accumulated learnings and knowledge,
corporate culture
Organizational Capabilities-refer to firm’s
systems and processes which are used to
transform various inputs into outputs
Characteristics of resource to be a source of
value creation:
 Needed in the market
 Scarce or difficult to acquire
 Appropriable by the firm
Chapter 4: The Evolution of Strategic Planning
Strategic planning- process of setting the long
term objectives of the firm as well as the
strategies for achieving them
Four stages of development
1. Budgeting and Financial Planning-starts
with sales forecast. Short-term
approach.
2. Long Range Planning (LRP)-multi-year
budgets. Historical projection.
3. Strategic Planning-business strategy
supported by strategic programs.
Portfolio planning.
Strategic posture management-
development of new corporate
capabilities to position the firm in
promising new industries and markets.
4. Strategic Management-strategic
planning linked with operational
decision. Done through:
 A planning framework that cuts across
the normal organizational boundaries
and different planning units
 Flexible multi-level planning process
 Development of organizational values
and culture
Other Planning Systems
Strategic Issues Management (SIM)-system of
surveillance of selected sectors in the firm’s
environment where certain developments may
have strategic impact on the firm
Weak Signals and Graduated Response-
designed for environmental areas of high
turbulence where developments can proceed
rapidly so as to leave the firm little time to plan
its response
Strategic Surprise Management-system for
coping with developments which constitute a
total surprise to management
Lesson: Choose the planning system
appropriate to the size of the firm and the level
of complexity which it must deal with
Chapter 5: A Survey on Strategic Planning
Practices
Advantage of strategic planning over annual
budgeting:
 Use of longer planning time horizons
 Explicit and more systematic
assessment of future external
conditions as a basis for current
planning decisions
Large size appears to lead to earlier adoption of
strategic planning and to the use of more
comprehensive planning processes.
Lower environmental uncertainty may imply
late adoption of strategic planning.
Geographic concentration of competition may
explain why Financial Services firms appear
more restrictive in disseminating strategic plans
within the organization.
Length of economic lives of fixed asset
investments may affect length of planning
horizons.
Chapter 6: Sustaining Competitive Advantage
1. Branding-creating brand equity.
2. Patents-protect benefits of successful
inventions
3. Trade Secrets
4. Research and Development-creating
new products and processes which can
be commercialized. Requires strong
national scientific culture.
5. Incremental Innovation. Areas
commonly applied to: product, process,
packaging, pricing, delivery, payment,
order taking, servicing.
Chapter 7: Foreign Diversification of Philippine
Firms
Some reasons for foreign diversification:
 Respond to increased competition in
the home market
 Search for growth
 To establish supply chains
 To achieve backward integration
 To take advantage of lower labor costs
 To search for strategic assets
 To take advantage of favorable
macroeconomic fundamentals in
destination countries
 To take advantage of regional
integration
General observations:
 Most belong to 11 Philippine business
groups-among largest in capitalization
and market position in Philippines and
are engaged in multiple related and
unrelated businesses
 Firms tend to diversify into business
domains where they feel they have the
competitive competencies and know
how
 Target destinations are mainly within
ASEAN
 Recent diversifiers form joint ventures
with local firms
Philippine banks have not yet diversified in
foreign countries since banking in most
countries remain a highly regulated industry.
Reasons to target ASEAN countries:
 Large market size
 Geographic proximity
 Cultural similarities
 More favorable regulatory treatment as
members of the bloc
 Favorable growth prospects
Chapter 8: Diversification Strategies of Large
Business Groups in the Philippines
Reasons for unrelated diversification:
1. Major changes in government’s policy
environment:
 Deregulation in the 1990s
 Privatization in the late 1990s-
2000s
 Public Private Partnership (PPP)
Program
2. Growth of the Philippine capital and
financial markets since the end of
Martial Law-PSE and access to local and
foreign funds provider
3. Able to form joint ventures to obtain
lacking strategic competencies
Reasons for investing in service industries:
1. Service industries tend to be
fragmented and thus, can put local
firms on a less unequal competitive
footing against foreign multinationals
2. Typically do not require large
investments
3. No competitive disadvantage vs
entering manufacturing
4. Regulated industries-advantage in
dealing with regulatory
Diversification patterns which conforms to
strategy literature:
1. Large business groups tend to pursue
unrelated or less focused forms of
diversification in newly developing
countries
2. Firms will tend to adopt strategies
which fit the institutional context in the
environment
3. Firms will tend to enter industries
where their capabilities and resources
are most suited and will avoid those
where they are not
Chapter 9: Issues on Philippine National
Competitiveness
Lessons of the Japanese Success
 Export-led growth
 Focus on manufacturing industry due to
higher income elasticity of demand
Reasons manufacturing did not developed their
own technology post-WWII
 Historical-traders did not understand
concept of investing
 Lack of technological mastery-lack of
national investment in Science and
Technology
Even with the continuous growing Philippine
economy, level of poverty had not decreased.
ADB suggested to pursue manufacturing and
exporting of products like machineries, food,
jewelry, musical instruments, and fabrics. One
program is Comprehensive Automotive
Resurgence Strategy (CARS).
Chapter 10: Regional Economic Integration and
the ASEAN Economic Community:
Opportunities for the Philippines
Benefits of Regional Economic Integration
 Stimulates economic growth
 Increases foreign direct investments
 Political cooperation and reduces
potential for violent conflict
Five levels of integration:
1. Free trade area-free trade among
members but each have its own trade
policies with nonmembers
2. Customs union-free trade among
members and members adopt common
external trade policy
3. Common market-free trade among
members, common external trade
policy, factors of production allowed to
move freely between members
4. Economic union-same as common
market but requires common currency,
 harmonization of tax rates and common
monetary and fiscal policy
5. Political union-central political
apparatus coordinates the economic,
social and foreign policy of the
members states
AEC Blueprint 2015 characteristics:
1. Highly integrated and cohesive
economy
2. A competitive, innovative and dynamic
ASEAN
3. Enhanced connectivity and sectoral
cooperation
4. A resilient, inclusive, people oriented,
and people-centered ASEAN
5. A global ASEAN
Why Economic integration at AEC is slow:
 Uneven levels of economic
development across members
 Needs consensus in most decisions
 Big cultural and language differences
remain
 Wide variation in political structures
and governance practices
Chapter 11: Corporate Social Responsibility:
Who Should Benefit?
Shareholder perspective-the purpose of the
corporation is to realize the specified ends of
shareholders
Stakeholder theory-organizations would try to
maintain relationships with key identified
groups that can influence or are affected by the
organizations’ decisions
Stakeholders: Shareholders, government,
competitors, customers, employees, civil
society, suppliers
Ways CSR programs may provide value to firm:
 CSR activities which directly lead to cost
efficiencies such as energy saving
programs
 CSR activities that bring reputational
benefits or goodwill
 CSR activities that discourage other
agencies from imposing added costly
regulations
Limitations of stakeholder theory:
 It has imperfections due to vagueness
and ambiguity
 Temptation to use it as a theory of the
firm
 It has an ambiguous position when it
comes to pressure groups and
regulators
 It needs a better methodology for
identifying and selecting stakeholder
groups
CSR can serve as “insurance” in order to deflect
potential social risks in the future.
PART 2
Chapter 12: Strategy Implementation Concerns
of the General Manager/Chief Executive
Officer
1. Human Resource Development-ensure
that employees and management staff
have the appropriate skills and training
required to accomplish corporate
strategies
Issues: short-term vs long-term needs,
globalization of business, technological
2. Organizational Structure
M-form-multidivisional. Corporation
has operating divisions that are
responsible for profits and at the
corporate level, there are
organizational units or departments
that provide centralized organizational
functions.
 Holding companies-own shares in
subsidiaries and control is done through
board members and appointed
corporate officers of subsidiaries such
as the president and treasurer.
Benefits of consolidating:
 Facilitates the raising of funds
through loans
 Facilitates raising of equity
funds through stock market
 Availment of tax benefits for
intercompany transactions and
tax shields from losing divisions
 Results in greater efficiency
through sharing of corporate
resources
3. Organizational Change and Renewal
Reengineering-rethinking and radical
redesign of business process to achieve
dramatic improvements
Incremental
4. Organizational Culture
Key functions:
 Provide solutions to problems
of external adaptation or
external survival of the firm
 Manages internal integration
problems
 Provides a sense of identity for
the firm
5. Management Control Systems-designed
to address agency problems. Consists of
management control structure, and
process. Structure classifies key units
into responsibility centers.
Responsibility Centers
Type Performance
measure
Revenue center Revenues or
market share
Discretionary cost Costs vs.
center accomplishments
Engineered cost Actual costs vs
center standard costs
Profit center Sales minus costs
and expenses
Investment Return on
center investments
Process consists of the following:
 Determination of criteria or
measures
 Measurement, reporting, and
review of performance
 Rewarding of managers based
on performance
6. Power and politics
Sources of power:
 Legitimate power-powers as
defined by position
 Expert power-arises from
expert knowledge
 Referent power-results from
some personal characteristics
of a person (e.g. charisma)
 Reward power resources-power
to give or withhold
 Punishment power-capacity to
deprive a person of something
of value
 Relationship power-comes from
a system of informal personal
obligations which has been built
up between people
Chapter 13: Strategy and
Organizational Structure: The
Multidivisional Form
M-form-decentralized organizational
structure composed of different
operating divisions where each division
represents a semi-autonomous unit
that basically performs all the functions
of a centralized unitary form (U-form)
type of companies
Advantages:
 Improves effectiveness of
company
  Provides higher level of control is both distinct from the parent and
to divisional managers giving integral to the overall performance of
them more incentives to be the enterprise
efficient and cooperative with Appropriate for related-linked
other product divisions diversification.
 Allows corporate managers to 3. Competitive type-appropriate for
identify which divisions unrelated diversification strategy that
generate the highest return on create value through efficient allocation
invested capital of capital and by restructuring,
acquiring, and disposing of businesses
Disadvantages: Divisions are completely independent
 Poses problems in striking a of each other.
proper balance between Advantages:
centralization and  Creates flexibility
decentralization  Challenges the status quo
 Intensifies competition and  Motivates effort
rivalry among divisions, too
Structural Cooperat SBU Competiti
much of which may eventually characteri ive type ve
be counter-productive stics
 Raises problems in setting Centralizat Centraliz Partially Decentrali
transfer prices ion of ed at centralize zed to
 May increase operating costs operation corporat d divisions
 May make the monitoring of e office
division managers’ performance Use of Extensive Moderat Non-
by corporate managers more integratin e existent
difficult as division managers g
may have more room to mechanis
ms
conceal the real operating
Divisional Emphasiz Uses a Emphasiz
performance of their divisions
performan es mixture es
Types of M form ce subjectiv of objective
appraisal e criteria subjectiv (financial
1. Cooperative type-horizontal integration e and or ROI)
is used to enhance cooperation among objective criteria
divisions criteria
Integrating mechanisms: centralization Divisional Link to Mixed Linked to
of some organizational functions, incentive overall linkage to divisional
constant communication among compensa corporat corporat performa
division managers, sharing of tion e e, SBU, nce
competencies or resources that will give performa and
nce divisional
the company more competitive
performa
advantage
nce
2. Strategic Business Unit (SBU)-separately
managed division or unit of an
enterprise with strategic objectives that
Chapter 14: Holding Companies: A Structure industries only. Limit risk exposure of
for Managing Diversification investors.
 Tax benefits-dividends from subsidiaries
Disadvantages of Holding Companies:
are not subject to income tax
 Cash flows are automatically returned  Establishment of service units for
to sources-which could have been re- conglomerate
allocated to high-yield users
Control Issues:
 Salaries and bonuses of managers are
not easily adjusted to incentivize  Appointment of key officers
performance  Control mechanisms and decision-
 Audit of subsidiaries is not easily making
implemented  Coordination meetings with subsidiary
 Holding company management are not heads
actively involved in subsidiaries’  Monitoring inter-company transactions
operations
Chapter 15: Strategies for International
 Holding companies’ role is restricted
Expansion
only to the disposal of unprofitable
business units Objectives for international expansion:
 Holding company costs (e.g. taxes,
operating costs) 1. To expand the firm’s market coverage
in foreign markets
 Lack of liquidity of its investments
2. To conduct R&D in foreign countries
Advantages:  Locate to be near foreign
universities
 Leverage, ownership control, fund
 Locate to be near competitors
access- limit risk exposure by entering
 Locate in countries where new
into joint venture. Banks prefer to lend
products can be moved rapidly
to subsidiaries because use of loan is
from development stage to
traceable to projects. Minimize risk
commercial stage
exposure of parent if subsidiary
3. To build plants or factories where
borrows.
product costs are lower or where
 Regulatory environment-operations
distribution to final markets is more
regulated by government agencies
efficient
 Compensation and personnel issues-
 To serve as an offshore or
prestigious titles. Subsidiary
source factory-lower product
performance under direct control of
costs
manager. Negotiating with unions.
 To serve as contributory
Stock options.
factory-to supply particular
 Expansion in international markets-
products
partnerships with other firms
 To serve as lead factory-creates
 Expansion in local markets-subsidiaries
new processes, products and
to manage large scope of business
technologies
 Joint ventures for specialized-industry
projects-investors interested in specific Modes of foreign expansion:
 1. Exporting and licensing controlled by Filipinos
2. Franchising-a company receives royalty Mining and Logging Constitution-all lands
or fee in exchange for the right to use of the public domain,
its intellectual property minerals, coal,
3. Strategic alliances petroleum, water and
4. Joint ventures-third party firm is other mineral oils and
created as legal entity. Used to mitigate other natural
resources are owned
barriers associated with marketing.
by the state
5. Wholly-owned subsidiary-acquire
Banking RA 8791-vital role of
existing company or develop a totally banks in national
new operation economy and the
Chapter 16: Redesigning Business Models and fiduciary nature of
banking that requires
Reengineering Business Processes
high standards of
Cases integrity and
performance
SM-From shoe store to malls to international Insurance RA 10607-ensure
expansion obligations are met
and risks are
Las Vegas Hotels-From casinos to family-
mitigated. Fiduciary.
oriented resorts

Amway (China)-from direct selling to retail

Regulators: SEC, LGU, Regulatory Agencies
outlets since the government banned direct
selling Issues

Starbucks Mobile Order and Pay App-use of app  Over-regulation-ownership restriction,

to order drink and pay using preloaded money pricing. May hamper foreign
in Starbucks card investments, and competition
 Cost of regulation
Direct distribution channel for Starbucks
 Ambiguity of some laws and conflicting
consumer-packaged goods-Via Frappuccino and
interpretations by regulatory agencies
other consumer-packaged products were sold
 Conflict of national and local
or distributed in retail outlet channels, in new
regulations
markets and channels
How to cope with regulations and regulators
Regionalizing Coffee Production of Starbucks-to
reduce transportation costs and lead times  Arbitration process-voluntary dispute
Chapter 17: The Impact of Regulations on resolution process where an arbitrator
Business Operations or panel of arbitrators settles the issue
between parties
Industry Justification for  Lobbying by firms-exerting influence
regulation over regulators for them to act
Public utilities Constitution-to according to the interests of the firm
develop a self-reliant Regulatory capture-regulatory agencies
and independent eventually come to be dominated by
economy effectively
 the industries they were charged to expenses
regulate
 Minimize gray provisions-engage
Limitations of Financial Measures
service of lawyers in drafting and
reviewing contractual stipulations  May not be directly attributable to
 Form industry associations department or division
 Induces managers to make short-run
Chapter 18: Organizational Performance
decisions since metrics are taken from
Measures
periodic financial reports
Financial measures  Danger of window-dressing of financial
statements
Earnings Per Share (EPS) = (Net Income –
Preferred Dividends)/weighted average number Non-Financial Measures
of common shares outstanding
Total Quality Mangement (TQM)-product
Return on Assets (ROA) = Operating quality, customer focus, employee involvement,
Income/Average Total Assets continuous improvement, and culture at the
work place
Return on Equity (ROE) = Net Income/Average
Total Stockholders Equity Malcolm Baldrige National Quality Award
(MBNQA)-seven areas assessed: leadership,
Economic Value Measures
strategic-planning, customer and market focus,
EVA = Net Profit – Capital Charge information and analysis, human resource
focus, process management, and business
Capital Charge = cost of capital (or WACC) x
results.
capital employed
Balanced Scorecard Measurement System
Types of Operating Budgets
Financial Perspective
Revenue or Sales Forecasted sales
budget volume multiplied by
selling prices Customer Perspective
Internal Business
Perspective
Production budget Breakdown of
manufacturing costs
Cost of sales budget Manufacturing cost of Innovation and
units sold learning Perspective
Marketing expense Estimates for
budget marketing expenses How do customers see the firm?
General and Expense estimates for
Administrative budget finance, accounting, Where should the firm excel at?
legal, corporate, How does the firm look to shareholders?
planning, IT, and other
operating expense for Can the firm continue to improve and create
administrative or value?
service units
Budget Profit Budget Revenue European Foundation for Quality Management
minus budget cost of (EFQM) Excellence Model
sales and operating
Criteria:
Results Enablers
Business results Leadership
Customer results People
People results Strategy
Society results Partnerships and
Resources
Processes, Products &
Services
Chapter 19: Stock Options: An Incentive
Compensation Scheme for Managers
Accounting for stock options-Use Option Pricing
Model. Expense the fair value of employee
stock options.
Advantages of Stock Options to Employer
1. Allow unlisted companies to compete
with listed ones in recruiting highly
skilled executives and staff
2. It provides more powerful incentive
than bonuses/salaries
3. May act as selecting tool in executive
recruitment and retention
4. Top executives will be concerned with
long-term strategy of business
5. Reduce agency problem since
management also benefit from
dividends and stock price appreciation
Problematic Practices
 Backdating-pre-dates the grand date for
the options earlier than the real issue
date, at more favourable prices to the
optionees
 Re-Pricing-if share price falls below the
stock option price, companies lower the
stock option price
 Re-loading-a person who exercises
share options automatically gets
replacements which carry the same
expiry but at the current market price
 Company-financed stock option-Firm
advances to eligible employees the
purchase price for the stock options and
sells the share in behalf of the
employees
Implementation Issues
1. Vesting schedule will encourage
retention of option grantees.
2. Determine the total option plan shares
that should be granted.
3. Determine the allocation between
directors and employees.
4. Determine the allocation among key
employees.
5. Reserve shares for future option
incentives.
6. Exercise period should not be too long
to impede the issuance of more
options.
7. Award option shares on a regular basis
to help maintain employees’ interest in
the option program.
Disadvantages:
 Dilution of control
 Conflict of interest in the determination
of exercise price by management
Chapter 20: Corporate Culture
Primary mechanisms for culture embedding:
1. What leaders pay attention to, measure
and control
2. Leaders’ reactions to critical incidents
and organizational crises
3. Deliberate role modelling, teaching, and
coaching by leaders
4. Criteria for allocation of rewards and
status
5. Criteria for recruitment, selection,
promotion, retirement, and
excommunication
Secondary mechanisms:
 1. Organizational design and structure
2. Organizational systems and procedures
3. Design of physical space, facades, and
buildings
4. Stories, legends, myths and parables
about important events and people
5. Formal statements of organizational
philosophy, creeds and values
Cultures are transmitted to new members
through socialization-orientation programs.
Chapter 21: Descriptions of Corporate Cultures
in Some Well-Known Companies: Global and
Local
Microsoft-survival of the fittest
Toyota-Toyota precepts
Metroabank-hard work, discipline, teamwork,
service to customers, integrity, dedication,
commitment, professionalism
Google-informal culture
 Conflict between minority and majority
stockholders
 Conflict among partners of partnership
doing accounting/auditing services on
expansion strategies
 Conflict between regulatory agency and
regulated firms
Chapter 24: Power, Politics, and Conflict and
their Impact on Organization’s Strategy
Power games and political dynamics among
CEOs, the founders and boards are inevitable.
Building power and using it properly can lead to
better performance and lesser turbulence at
the top.
To get things done, power and politics usually
come into play. Hence, it makes sense that
power and political dynamics should be
managed well in order for organizations to
function productively and effectively.

Keeping culture alive

 Leadership succession
 Human resource practices-selection and
training, performance evaluation and
reward system
 Socialization-helping employees adapt
to the organization’s culture to instill in
them the organization values. Stages:
learning, adjustment, internalization.

Preserving culture

Stories, rituals, and material symbols help

preserve culture.

Chapter 23: Conflict, Power and Politics in

Organizations

Cases/conflicts between:

 Conflicts between management and

stockholders