LESSON TWO: SCANNING THE ENVIRONMENT

OVERVIEW

Business environment in the third world wherein unemployment, high inflation rate currency
devaluation, etc. are normal occurrences, mandates constant policy review especially if the
firm has substantial interest in the local market. But taken for granted that the country serves
only as a manufacturing base; still a constant review of policy has to be initiated especially on
matters relating to government‘s economic and monetary policies. When the government is
posturing control over the foreign exchange market, the company may have to revise its
policy on dollar accounts; that maintaining huge amount of dollars in its own vault rather than
relying on banks would be highly preferable.

Moreover, having stake in the local market requires adoption of stringent measures design to
safeguard possible losses from economic uncertainties. These include a review of credit,
production, personnel, and investment policies (Edwards and Thomas, 1982).

Learning Outcomes:
• Identify and discuss the opportunities and threat of the industry
• Explain the industry life cycle, Porter‘s five forces model and the new force‘s.
• Discuss and explain the competitive advantage, value chain, building block of
competitive advantage, generic distinctive competencies and durability of competitive
advantage
• Explain and discuss achieving superior efficiency, quality, innovation and
responsiveness to customer
Macro and Micro Scanning are tools used in environmental scanning to assess external and
internal factors that can impact an organization’s strategy and operations. They are often
applied in strategic management and business planning.

Macro scanning refers to analyzing the broad external environment that affects all
industries and businesses. These are factors that the company cannot directly control but
must adapt to.
• Common Tools:
• PESTLE Analysis (Political, Economic, Social, Technological, Legal, Environmental
factors).
• Global and national economic trends (e.g., inflation, trade policies).
• Demographic shifts (e.g., aging population, urbanization).
• Cultural and social trends (e.g., consumer behavior changes).
Micro scanning involves examining the immediate and internal environment that directly
impacts a company’s ability to compete. These are often industry-specific factors and internal
organizational aspects.
• Common Tools:
• Porter’s Five Forces (competition, suppliers, buyers, substitutes, new entrants).
• Porter’s Value Chain Analysis
• SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats).
• Customer and competitor analysis.

I. ORGANIZATIONAL OPPORTUNITIES AND THREATS

These can be examined in two areas, the level of resources and competencies, and the
opportunities and threats that affect the firm‘s business activities. With opportunities knocking
at its door, a review of policy regarding a shift is appropriate. Since business opportunities as
in any other cases may come only once, immediate action should be made whether
committing company‘s resources is advisable. The firm has to asses the resources needed
including the required competencies, and possible sources of drawbacks or its weaknesses.
To safeguard the company against imminent failure appropriate policies have to initiate. If a
company is considering a shift into ship building because of enormous opportunities from a
liberalized business environment, a policy review for investment priority must be undertaken.

Questions to emerge would be the available resources to finance the project including
manpower requirement. Normally, the investment requirements of such a scale need
substantial funding. If the firm is a closed corporation, it should make the necessary
adjustment in policy and open the firm to outside ownership.
Perceived threat must also be taken into account like the possible slump in demand for ships,
including the level of unionism in the industry. Policies to be considered are strong research
department which the firm has to fund massively in order to attain good quality production,
and strict hiring policy that would encourage the formation of union.

Primarily the intentof a strategicpolicy analysis is to specify appropriate strategic option that
can optimize the use of resources in achieving desired goals. The firm may employ various
methods to identify the strategic policy; these include;SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis, PESTLE (Political, Economic, Social, Technological,
Legal and Environmental) analysis, and decision tree analysis. These techniques basically
employ graphical methods to evaluate policy considerations appropriate to attain strategic
goals.

San Miguel Corporation (SMC) has ventured into infrastructure projects such as airports, toll
roads, and energy, recognizing opportunities from the government’s "Build, Build, Build"
program and the liberalized infrastructure environment. By reviewing its investment priorities
and leveraging its strong financial resources, SMC successfully diversified beyond its
traditional food and beverage business.

Maersk Group, the world’s largest container shipping company, shifted its focus from oil and
gas to logistics and integrated shipping services to capitalize on globalization and the surge of
e-commerce-driven trade.

If the firm is a closed corporation, it should make the necessary adjustment in policy and
open the firm to outside ownership. Converge ICT in the Philippines expanded rapidly by
partnering with foreign investors and private equity firms to finance infrastructure projects in
response to rising demand for high-speed internet.

SWOT Analysis

SWOT analysis is a simple technique which can provide a comprehensive method of

assessing a particular situation which is instrumental in the consideration of
strategies/policies. It is seen to be effective for strategies/policies consideration in both the
corporate level and business unit level which usefulness is mostly seen in the formulation of
marketing plans. The origin of this method may be traced from the work of Edmund P.
Learned, C. Roland Christiansen, Kenneth Andrews and William D. Guth in the late
1960‘[Link] relevance of this method to analyze crucial factors in business decision-making
earned credibility when General Electric used it in the 1980's. Because the SWOT method
aims for a complete dimension to analyze the firm‘s net capabilities vis-à-vis hindrances
against an opportunity; and that its simplicity may require less time to mobilize to address a
complex strategic situation. The suitability of SWOT analysis to address a certain strategic
situation may be explained by the following diagram.
 Situation Analysis

Internal Analysis External Analysis

Strength Weakenesses Opportunities Threats

SWOT Profile

When conducting the situation analysis, basically crucial information is needed that can
provide us more concrete information about a particular situation. The situation being studied
can be supplied with sufficient information by conducting external and internal analysis. Since
there could be voluminous information gathered as this would always be the case; the
manager shall only consider the ones that may have strong bearing on the situation being
studied. We can consider internal analysis as means to uncover and measure the firm‘s
strength and weaknesses; basically in terms of its technological, financial, and managerial
capabilities. While the external analysis deals with environmental factors that may comprise
the firm‘s opportunities and threats. Analyzing the firm‘s position in the context of these
factors is termed as SWOT analysis.

INTERNAL ANALYSIS
This is a method to profile the elements of the firm‘s internal environment which should be
done extensively to identify probable strengths and weaknesses. Factors which can influence
in one way or the other firm‘s level of strength and weaknesses are identified as follows:

Company’s Orientation.
This has something to do with firm‘s vision, mission statement and core values it
practiced. But why these may have some sort of implications on its strength and
weaknesses?

Precisely, because everything the firm does is based on its vision and mission and for as long
as it lived with it and practiced it; the probability to succeed in its goal would be greater. But of
course the theme of the mission must embody sentiments of stakeholders more particularly
consumers and the external environment. For example, if we look at the way small players
compete in the oil industry, their mission is basically to seize up more market share through
low pricing, and it seems that they are succeeding.

• Company image – the way the public perceived about a company can create
enormous impact on its operation more specifically economic viability. If perception of
the buying public is good, then it enjoys bigger support and so with its products. For
 example San Miguel Corporation is successful in building a good image to the buying
public by creating good quality products at affordable prices so that the public pictures
the company as one which is reputable, trustworthy and customers‘ friendly.

• Managerial competency –is the ability of top management primarily to steer the
company towards achieving its goals and objectives more specifically financial goals.
This is mostly done through effective and efficient use of its resources by rendering
good strategic decisions on all aspects of management; especially one that induces
profitability like customers‘ satisfaction, good HR policies, and effective investment
policies.

• Production and operating costs – costs are determinant of the firm‘s profitability. The
extent by which firms can reduce its costs would constitute a sort of strength and can
make it more competitive.

Resources and Strategy

Strategic resources are the building blocks of competitive advantage in business. Three
standard company resources that combine to create competitive advantage are a company‘s
financial strength, its enterprise knowledge and its workforce. If financial resources are weak,
the company is not able to produce enough to grow. Without enterprise knowledge such as
proprietary processes or patents, the company cannot differentiate itself from its competition.
Without a skilled workforce, the operations and management of the company is inefficient.

Competitive Advantage
This results from the combination of a company's resources with its capabilities. When these
are optimally combined, they produce either a price-based competitive advantage or a
differentiation-based advantage. When resources are used optimally, the company is likely to
be operating at peak efficiency. This efficiency either creates a lower cost of producing a
product or differentiates the company product by superior quality, enhanced availability or
greater brand awareness. Competitive advantage is particularly important in small business
where the competition is intense for a larger share of a limited marketplace.

Superior performance relative to other competitors in the same industry or the industry
average:
1) being different
2) creating value
3) what to do and what not to do
4) set of activities to stake out a unique position
5) requires long-term commitments that are often not easily reversible

Financial Resources
In small business, obtaining bank funding can be difficult. A company that has sufficient
revenue to support the development of new products and revenue streams has a significant
advantage over one that must finance every project. When such a company needs funding for
a large project, it has the credit quality to make the task of finding funding somewhat easier
than competing companies that carry a higher debt load. A strong financial position allows a
company to take advantage of opportunities that arise, which contributes to its competitive
advantage.
Intellectual Property.
Patents, trademarks and proprietary processes are what helps a company out-produce its
competition. Intellectual property also adds to asset value and makes obtaining financing
easier. A company that has developed a more efficient and cost-effective way of producing a
better product than its competition captures a strong market position because customers
favor the product that represents the best quality for the money. A reputation for high quality
also enhances a company's brand recognition, giving it further competitive advantage.

Human Capital.
In a small business, management can't make mistakes or the company will flounder and
possibly fail. Competitive advantage doesn't depend on good management alone, though.
The workforce must be skilled, loyal to the company and stable. A company that is always
looking to replace key workers spends valuable time training new hires. This presents
significant opportunity cost as production slows to enable the new hires to develop the skill to
work at peak production.

The SWOT analysis summarizes the internal factors of the firm as a list of strengths and
weaknesses.

EXTERNAL ANALYSIS
An opportunity is the chance to introduce a new product or service that can generate superior
returns. Opportunities can arise when changes occur in the external environment. Many of
these changes can be perceived as threats to the market position of existing products and
may necessitate a change in product specifications or the development of new products in
order for the firm to remain competitive. Changes in the external environment may be related
to:
• Customers
• Competitors
• Market trends
• Suppliers
• Partners
• Social changes
• New technology
• Economic environment
• Political and regulatory environment

SWOT PROFILE
When the analysis has been completed, a SWOT profile can be generated and used as the
basis of goal setting, strategy formulation, and implementation. The completed SWOT profile
sometimes is arranged as follows:
When formulating strategy, the interaction of the quadrants in the SWOT profile becomes
important. For example, the strengths can be leveraged to pursue opportunities and to avoid
threats, and managers can be alerted to weaknesses that might need to be overcome in order
to successfully pursue opportunities.

Multiple Perspectives Needed

The method used to acquire the inputs to the SWOT matrix will affect the quality of the
analysis. If the information is obtained hastily during a quick interview with the CEO, even
though this one person may have a broad view of the company and industry, the information
would represent a single viewpoint. The quality of the analysis will be improved greatly if
interviews are held with a spectrum of stakeholders such as employees, suppliers, customers,
strategic partners, etc.

SWOT Analysis Limitations

While useful for reducing a large quantity of situational factors into a more manageable
profile, the SWOT framework has a tendency to oversimplify the situation by classifying the
firm's environmental factors into categories in which they may not always fit. The classification
of some factors as strengths or weaknesses, or as opportunities or threats is somewhat
arbitrary. For example, a particular company culture can be either a strength or a weakness. A
technological change can be a either a threat or an opportunity. Perhaps what is more
important than the superficial classification of these factors is the firm's awareness of them
and its development of a strategic plan to use them to its advantage. SWOT is a method of
analysis that surveys an organization's internal and external environment. Under this process,
the organization classifies internal factors as either strengths or weaknesses. Analysts then
classify external factors as opportunities or threats. After assessing and classifying internal
and external factors, analysts construct a 2-by-2 matrix with the following four cells: strengths-
opportunities (S-O), weaknesses-opportunities (W-O), strengths-threats (S-T), and
weaknesses-threats (W-T). This analysis helps organizations match their capacities to the
environment in which they operate.

SWOT ANALYSIS OF JOLLIBEE FOODS CORPORATION (JFC)

Situation Analysis
Jollibee Foods Corporation (JFC) is the largest fast-food chain in the Philippines and a strong
player in the global food service industry. With over 1,500 stores in the country and presence
in the U.S., Middle East, Asia, and Europe, JFC is known for its unique menu that caters to
Filipino tastes. The company continues to expand internationally through acquisitions of
global brands such as The Coffee Bean & Tea Leaf and Smashburger. However, JFC faces
challenges from intense competition with global brands like McDonald’s and KFC, rising raw
material costs, and shifting consumer preferences toward healthier options.

Strengths
• Strong brand recognition and loyalty among Filipino consumers.
• Wide local and international store network.
• Diverse product line catering to Filipino tastes (e.g., Chickenjoy, Jolly Spaghetti).
• Aggressive expansion through acquisition of global brands (The Coffee Bean & Tea
Leaf, Smashburger).
• Efficient supply chain and franchising model.

Weaknesses
• Heavy reliance on the Philippine market for revenues.
• Limited menu appeal in some international markets compared to local preferences.
• High operating costs and sensitivity to rising food and labor costs.
 • Quality control challenges due to rapid expansion and multiple franchisees.

Opportunities
• Expansion in high-growth international markets, especially in Asia-Pacific and the
Middle East.
• Growing demand for delivery and online food services (via Foodpanda,
GrabFood).
• Product innovation to introduce healthier menu options or plant-based alternatives.
• Strategic partnerships and acquisitions to strengthen its global footprint.
• Leveraging digital marketing and loyalty programs to reach younger customers.

Threats
• Intense competition from global fast-food giants (McDonald’s, KFC, Burger King).
• Economic downturns affecting consumer spending.
• Supply chain disruptions and rising raw material costs (e.g., chicken, oil).
• Changing consumer preferences toward healthier and organic food.
• Currency fluctuations that impact international earnings.
A PESTLE analysis (also known as PESTEL) is a strategic management tool used
to analyze the external macro-environmental factors that can impact an organization.
The acronym stands for:
1. P – Political:
Factors related to government policies, political stability, tax regulations, trade policies,
labor laws, and overall government influence.
Example: Changes in food safety regulations or government support for the local food
industry.
2. E – Economic:
Factors involving the economic environment such as inflation, exchange rates,
unemployment rates, GDP growth, and consumer purchasing power.
Example: A rise in raw material costs due to inflation affecting Jollibee’s pricing
strategy.
3. S – Social:
Factors involving cultural trends, demographics, consumer behavior, and lifestyle
preferences.
Example: Increasing health consciousness may lead to demand for healthier menu
options.
4. T – Technological:
Factors relating to technological innovations, automation, digitalization, and online
platforms.
Example: Adoption of online ordering apps and delivery platforms like GrabFood or
Foodpanda.
5. L – Legal:
Factors concerning laws, regulations, labor rules, health standards, and consumer
protection.
Example: Compliance with food safety laws and franchise regulations.
6. E – Environmental:
Factors related to sustainability, climate change, environmental protection laws, and
waste management.
Example: Pressure on Jollibee to use eco-friendly packaging to reduce plastic waste.

PESTLE Analysis of Jollibee Foods Corporation

1. Political Factors
• Government Policies and Food Regulations:
In the Philippines, Jollibee must comply with strict regulations on food safety and labor
 laws enforced by agencies such as the Food and Drug Administration (FDA) and the
Department of Labor and Employment (DOLE).
• Taxation and Incentives:
Corporate tax reforms (e.g., CREATE Act) impact Jollibee’s profitability, while tax
incentives from local governments can encourage store expansion.
• Global Political Risks:
In countries where Jollibee operates (e.g., the U.S., Middle East), political tensions or
trade restrictions could affect supply chains and franchise operations.
• Example: Expansion in China faced operational challenges due to changing foreign
investment regulations.

2. Economic Factors
• Consumer Purchasing Power:
Jollibee’s success depends on the disposable income of middle-class consumers.
Economic downturns (e.g., during COVID-19) affected sales as customers cut back on
dining out.
• Exchange Rate Fluctuations:
As a global company, JFC faces currency risks that affect revenues from international
branches.
• Rising Raw Material Costs:
Inflation and supply chain disruptions increase the prices of chicken, oil, and flour,
which impact profitability.
• Global Expansion:
JFC continues to invest abroad, and its acquisition of The Coffee Bean & Tea Leaf and
Smashburger positions it for growth in foreign markets despite economic risks.

3. Social Factors
• Changing Consumer Preferences:
Consumers are becoming more health-conscious, creating demand for healthier or
plant-based menu options.
• Cultural Relevance:
Jollibee’s menu (e.g., sweet-style spaghetti) resonates strongly with Filipino tastes, and
its emotional advertising ("Kwentong Jollibee") connects deeply with local culture.
• Global Taste Adaptation:
Jollibee modifies its menu in international markets (e.g., offering halal products in the
Middle East) to suit cultural and religious preferences.
 • Demographics:
A growing population of young and urbanized Filipinos increases fast-food
consumption.

4. Technological Factors
• Digital Ordering and Delivery Platforms:
Jollibee has invested in online apps, self-service kiosks, and partnerships with
delivery platforms (GrabFood, Foodpanda) to meet consumer demand for
convenience.
• Automation and AI:
Kitchen automation and data analytics help improve operational efficiency and forecast
demand.
• Marketing Innovations:
Digital and social media campaigns (e.g., viral video ads) play a key role in brand
promotion.
• E-commerce Integration:
Jollibee also leverages loyalty apps and digital payment systems to enhance the
customer experience.

5. Legal Factors
• Franchise Regulations:
Jollibee must comply with franchise and labor laws both in the Philippines and abroad.
• Food Safety and Quality Standards:
Compliance with international food handling and safety certifications is necessary to
maintain customer trust.
• Employment Laws:
JFC must adhere to minimum wage laws, labor rights, and fair employee treatment
regulations.
• Global Compliance:
Different countries have unique consumer protection and advertising standards, which
JFC must follow.
6. Environmental Factors
• Sustainability Efforts:
Increasing pressure to reduce plastic waste has pushed Jollibee to consider eco-
friendly packaging solutions and sustainable sourcing.
• Climate Change Impact:
Supply chain disruptions (e.g., due to typhoons or global shipping issues) can affect
ingredient availability and costs.
• Corporate Social Responsibility (CSR):
Jollibee Foundation promotes social programs such as feeding initiatives and
disaster response efforts, which boost its brand image.
• Global Environmental Trends:
International operations face stricter regulations on carbon emissions and waste
management.
Decision Tree Analysis is a decision-making tool that helps organizations
evaluate different options, their possible outcomes, and associated risks by visually
mapping decisions in the form of a tree-like diagram. It is commonly used in strategic
planning, project evaluation, and risk management.

Key Features of Decision Tree Analysis:

1. Tree Structure:
• Starts with a root node (a decision point).
• Branches represent possible actions or alternatives.
• Leaf nodes represent outcomes or results of those actions.
2. Probability & Risk:
• Each branch can be assigned a probability of occurrence.
• Helps in quantifying risk and comparing expected values of decisions.
3. Cost and Benefit Analysis:
• Each path in the tree can have associated costs, revenues, or payoffs.
• The best path (decision) is determined by the highest expected value or
lowest risk.
4. Visual Representation:
• Provides a clear and visual method to compare multiple decision alternatives
and their consequences.
By calculating the expected value:
(₱10M × 0.6) + (₱2M × 0.4) = ₱6M + ₱0.8M = ₱6.8M.
Since ₱6.8M > ₱0, Jollibee would decide to open the branch.
• The industry life cycle refers to the evolution of an industry or business based on its
stages of growth and decline.
• The four phases of the industry life cycle are the introduction, growth, maturity, and
decline phases.

• The industry life cycle ends with the culmination of the decline phase, a period when
the industry or business is unable to sustain growth.

• Mature industries include food and agriculture, mining, and financial services.

• Investors can make better-informed investment decisions once they understand

industry life cycles.
II. PORTER’S FIVE FORCES

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape
every industry and helps determine an industry's weaknesses and strengths. Five Forces
analysis is frequently used to identify an industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy to understand the level of
competition within the industry and enhance a company's long-term profitability. The Five
Forces model is named after Harvard Business School professor, Michael E. Porter.

Porter's Five Forces is a business analysis model that helps to explain why various industries
are able to sustain different levels of profitability. The model was published in Michael E.
Porter's book, "Competitive Strategy: Techniques for Analyzing Industries and Competitors" in
1980. The Five Forces model is widely used to analyze the industry structure of a company
as well as its corporate strategy. Porter identified five undeniable forces that play a part in
shaping every market and industry in the world, with some caveats. The five forces are
frequently used to measure competition intensity, attractiveness, and profitability of an
industry or market. Five Forces analysis can be used to guide business strategy to increase
competitive advantage.

1. Competition in the Industry. The first of the five forces refers to the number of
competitors and their ability to undercut a company. The larger the number of competitors,
along with the number of equivalent products and services they offer, the lesser the power of
a company. Suppliers and buyers seek out a company's competition if they are able to offer a
better deal or lower prices. Conversely, when competitive rivalry is low, a company has
greater power to charge higher prices and set the terms of deals to achieve higher sales and
profits.
2. Potential of New Entrants into an Industry. A company's power is also affected by the
force of new entrants into its market. The less time and money it costs for a competitor to
enter a company's market and be an effective competitor, the more an established company's
position could be significantly weakened. An industry with strong barriers to entry is ideal for
existing companies within that industry since the company would be able to charge higher
prices and negotiate better terms.

3. Power of Suppliers. The next factor in the five forces model addresses how easily
suppliers can drive up the cost of inputs. It is affected by the number of suppliers of key inputs
of a good or service, how unique these inputs are, and how much it would cost a company to
switch to another supplier. The fewer suppliers to an industry, the more a company would
depend on a supplier. As a result, the supplier has more power and can drive up input costs
and push for other advantages in trade. On the other hand, when there are many suppliers or
low switching costs between rival suppliers, a company can keep its input costs lower and
enhance its profits.

4. Power of Customers. The ability that customers have to drive prices lower or their level of
power is one of the five forces. It is affected by how many buyers or customers a company
has, how significant each customer is, and how much it would cost a company to find new
customers or markets for its output. A smaller and more powerful client base means that each
customer has more power to negotiate for lower prices and better deals. A company that has
many, smaller, independent customers will have an easier time charging higher prices to
increase profitability.

5. Threat of Substitutes. The last of the five forces focuses on substitutes. Substitute goods
or services that can be used in place of a company's products or services pose a threat.
Companies that produce goods or services for which there are no close substitutes will have
more power to increase prices and lock in favorable terms. When close substitutes are
available, customers will have the option to forgo buying a company's product, and a
company's power can be weakened.

The Five Forces model can help businesses boost profits, but they must continuously monitor
any changes in the five forces and adjust their business [Link] Porter's Five
Forces and how they apply to an industry, can enable a company to adjust its business
strategy to better use its resources to generate higher earnings for its investors.
Porter’s Five Forces Analysis of Jollibee Foods Corporation

1. Competitive Rivalry (High)

• Jollibee faces strong competition from global fast-food chains like McDonald’s, KFC,
Burger King, and local brands like Mang Inasal (which Jollibee now owns), Chowking,
and Greenwich.
• The fast-food market in the Philippines is highly saturated, with many brands
offering similar products (fried chicken, burgers, pasta).
• Price wars and aggressive marketing campaigns among competitors increase rivalry.
• Jollibee, however, maintains a competitive edge through Filipino-centric menus and
strong brand loyalty.

2. Threat of New Entrants (Moderate to Low)

• While the food business has relatively low barriers to entry, building a strong brand
and large-scale operations like Jollibee requires huge capital investment and an
established supply chain.
• New entrants would struggle to match Jollibee’s brand equity, extensive branch
network, and economies of scale.
• However, smaller local restaurants and online food startups can still compete in niche
markets, which creates moderate risk.

3. Threat of Substitutes (High)

• Consumers can easily switch to home-cooked meals, convenience stores (e.g., 7-
Eleven), or healthier food options.
• Increasing health awareness pushes customers toward organic and healthier food
alternatives, which could substitute traditional fast-food products.
• Food delivery apps also expand the variety of substitutes by giving customers easy
access to competitors.

4. Bargaining Power of Suppliers (Low to Moderate)

• Jollibee has long-term contracts with local and international suppliers and owns part
of its supply chain, reducing dependency on single suppliers.
 • Due to Jollibee’s size, suppliers have limited bargaining power as JFC can negotiate
favorable terms.
• However, global price fluctuations (e.g., chicken, wheat, oil) can increase costs and
exert some pressure on Jollibee’s margins.

5. Bargaining Power of Buyers (High)

• Customers have high bargaining power because of many fast-food alternatives.
• Price sensitivity is high in the Philippines, where consumers are quick to switch
brands for better promotions, discounts, or deals.
• To counter this, Jollibee maintains competitive pricing, value meals, and brand
loyalty programs.
III. ORGANIZATIONAL COMPETENCIES AND PROFITABILITY

Starting on distinctive competencies, we can differentiate its products from its rivals, in order
to determine our/them strengths, including two complementary sources: tangible resources
and intangible resources, which in turn are referred to the assets of a company; following this
complementary sources, are the capabilities of the company, which coordinates the
company‘s skills, the resources, capabilities and competencies, which in turn generates the
true distinctive competency. Now, all this distinctive competencies shapes the strategies that
the company pursues; however, is critical to realize that the strategies a company adopts can
build brand new resources.

The firm‘s competitive advantage refers to factors that allow a company to produce goods or
services better or more cheaply than its rivals. These factors allow the productive entity to
generate more sales or superior margins compared to its market rivals. Competitive
advantages are attributed to a variety of factors including cost structure, branding, and the
quality of product offerings, the distribution network, intellectual property, and customer
service.

There are three main reasons for failure over time, which are inertia, prior strategic
commitments. The first one is related to the problematic situation changing their strategies for
new and fresh ones, even more, to adapt the whole company or vision of the company, to the
new competitive and environmental conditions; the second one is referring to the actual
market‘ limitations of the company to compete with its rivals is the main cause of competitive
disadvantage, so the main point on this is timing; and the last one, is referring to the paradox
of the greatest company assets, are the main cause of failure, if is not updated over time .
Danny Miller, author of this statement, refers that many companies can become overwhelmed
by their early success, as a result, they become so specialized that mislead the time-changing
markets, leading to failure in most cases.

Talking now about the lower-cost producers, I would like to add the Toyota case, not because
is referred on the text book, but mainly due that I am currently involved on automotive market,
so this case of success, is a great example of how a company can be a lower cost producer
and at the same time can have an output for the final client, the customers. Offering
customers value they cannot get elsewhere, this advantage can be economic or
psychological such as better customer services, better after sale services, also, subsequent
purchasing parts, maintenance and services by calling to remind customers for follow-up (the
Chrysler is doing it now).

The drivers of profitability have to be well known by all the managers who leads its
departments or operations, managers needs to be able to compare, benchmark and
performance the company against its competitors, and internally against the own historic
performance itself; thus, will help to determine where and how the deterioration is, how the
strategies are managed and/or maximized, how the cost structure is, and so on. According to
the chapter, and other related articles, profitability it can be resumed as the net result of a
number of policies and decisions made by the management; and to obtain a narrow ratio of
profits we have to exclude the discontinued operations and the extraordinary items, because
these does not represent the daily operations of a company. The insights provided by Du Pont
model are valuable, and it can be used for ―quick and dirt, estimates of the impact that
operating changes have on returns.
The Return on Investment, helps to evaluate companies‘ performances, and measures the
ability of the companies to reward funding-providers and to attract new ones for future
funding; also, it evaluates the performance of the company and how is the company.
IV. BUILDING COMPETITIVE ADVANTAGE

Competitive advantage results from the combination of a company's resources with its
capabilities. When these are optimally combined, they produce either a price-based
competitive advantage or a differentiation-based advantage. When resources are used
optimally, the company is likely to be operating at peak efficiency. This efficiency either
creates a lower cost of producing a product or differentiates the company product by superior
quality, enhanced availability or greater brand awareness. Competitive advantage is
particularly important in small business where the competition is intense for a larger share of
a limited marketplace. To have superior profitability, a company must lower its costs or
differentiate its product, or do both simultaneously, so that it creates more value and can
charge a higher price.

The four building blocks of competitive advantage are efficiency, quality, innovation, and
customer responsiveness.

Superior efficiency enables a company to lower its costs;

superior quality allows it to charge a higher price and lower its costs; and

superior customer service lets it charge a higher price.

Superior innovation can lead to higher prices, particularly in the case of product innovations,
or to lower unit costs, particularly in the case of process innovations. Innovation can result in
new products that better satisfy customer needs improve the quality of existing products.
Innovation can be imitated so it must be continuous. Successful new product launches are
major drivers of superior profitability.

Jollibee’s competitive advantage comes from its Filipino-centric menu, which appeals
strongly to local tastes, emotional and family-oriented branding that builds customer
loyalty, and a wide store network both locally and globally. Its efficient supply chain and
franchise model ensure consistent quality and cost control, while digital innovations like
delivery apps and loyalty programs help it stay ahead of competitors such as McDonald’s and
KFC.

McDonald’s competitive advantage lies in its strong global brand recognition, consistent
quality and taste, and efficient operations through its franchise model. It benefits from
economies of scale, allowing competitive pricing and a reliable supply chain. McDonald’s
also invests heavily in innovation, including digital ordering (apps, self-service kiosks),
delivery services (McDelivery), and localized menu adaptations to suit regional tastes. Its
iconic branding, marketing campaigns, and customer loyalty programs give it a strong
edge over other fast-food competitors.
Shopee’s competitive advantage lies in its mobile-first platform, which offers a seamless
and user-friendly app experience tailored for Southeast Asian markets. It leverages localized
marketing strategies, such as collaborations with local celebrities and events like “9.9 Super
Shopping Day,” to drive engagement. Shopee also benefits from free shipping promotions,
integrated digital payments (ShopeePay), and a wide seller network, allowing it to offer
competitive prices and a broad product selection. Its strong logistics support (Shopee
Xpress) ensures fast and reliable delivery, giving it an edge over competitors like Lazada.

Lazada’s competitive advantage comes from its strong backing by Alibaba Group, giving it
access to advanced e-commerce technology, AI-driven recommendations, and a robust
logistics network (Lazada Express). It offers a wide product assortment, competitive pricing,
and trusted payment solutions (Lazada Wallet). Its fast delivery services, frequent
promotional campaigns (e.g., “11.11 Sale”), and data-driven marketing strategies make it a
dominant player in Southeast Asia’s online retail market, competing effectively with Shopee
and other e-commerce platforms.

GMA Network’s competitive advantage stems from its strong free-to-air presence and
reputation as the “Kapuso Network,” with high-rating programs and trusted news
coverage that appeal to Filipino audiences. Its cost-efficient production strategies, wide
reach through regional stations, and strong digital transformation efforts (GMA Now,
GMA Affordabox, and GMA Pinoy TV for overseas markets) further strengthen its position.
Additionally, its award-winning journalism and consistent leadership in television ratings
give it an edge over competitors like ABS-CBN.

ABS-CBN’s competitive advantage lies in its strong brand recognition, high-quality

entertainment content, and extensive library of shows and movies that resonate with
Filipino audiences worldwide. Despite losing its free-to-air franchise, it has successfully
transitioned to digital platforms (Kapamilya Online Live, iWantTFC, partnerships with
TV5 and A2Z), expanding its reach through streaming and global markets. Its large talent
pool, innovative content creation, and international distribution give it a strong foothold
compared to other media networks.
The term value chain refers to the idea that a company is a chain of activities for
transforming inputs into outputs valued by customers. The process of transforming inputs into
outputs is composed of a number of primary activities and support activities. Each activity
adds value to the product. Actions taken by functional managers at every step in the value
chain---functional-level strategies---can increase the efficiency, quality, innovation, and
customer responsiveness of a company.

What is value chain analysis?

Value chain analysis is a strategic process that can increase profit margins and provide a
competitive advantage for companies of all sizes. Within this analysis, businesses identify
areas where the value of specific production and sales activities can be increased. By
discovering opportunities for cost reduction and/or improved customer value, businesses can
decrease production costs and increase revenue.
Strong value chain strategy is your path to outperforming the competition and becoming the
leading company in your particular field. Just as sales metrics and analysis indicate trouble
spots in your sales process , value chain analysis indicates the trouble spots in your
production process. You can’t fix what you can’t see.
The VCA chart is broken into two sections: primary activities and supportive (or secondary)
activities. Primary activities focus on the manufacturing of goods and services, while
secondary activities back up primary activities.
Primary activities include:
• Inbound logistics: availability of raw materials, warehousing, and distribution
• Operations: creating products from raw materials
• Outbound logistics: delivery of products to customers, including warehouse,
transportation, and distribution
• Marketing and sales: all advertising and sales interactions and activities (also a great
place to use your sales forecasting data)
• Service: all forms of customer support interaction and brand credibility

Secondary activities include:

• Infrastructure: any administrative, finance, management, planning, or legal operations
needed to support primary activities
• Technology development: any technological improvements made to existing machinery,
hardware, or software in the name of supporting primary activities
• Human resource management: hiring and then placing workers in the correct and most
efficient positions
• Procurement: all purchases related to buying raw materials or any fixed assets (for
example, vendor fees and selection)
Primary activities relate directly to the physical creation, sale, maintenance and support of a
product or service. They consist of the following:
•Inbound logistics. These are all the processes related to receiving, storing, and
distributing inputs internally. Your supplier relationships are a key factor in creating
value here.
•Operations. These are the transformation activities that change inputs into outputs
that are sold to customers. Here, your operational systems create value.
•Outbound logistics. These activities deliver your product or service to your customer.
These are things like collection, storage, and distribution systems, and they may be
internal or external to your organization.
•Marketing and sales. These are the processes you use to persuade clients to
purchase from you instead of your competitors. The benefits you offer, and how well
you communicate them, are sources of value here.
•Service. These are the activities related to maintaining the value of your product or
service to your customers, once it's been purchased.

Support Activities
These activities support the primary functions above. In our diagram, the dotted lines show
that each support, or secondary, activity can play a role in each primary activity. For example,
procurement supports operations with certain activities, but it also supports marketing and
sales with other activities.
•Procurement (purchasing). This is what the organization does to get the resources it
needs to operate. This includes finding vendors and negotiating the best prices.
•Human resource management. This is how well a company recruits, hires, trains,
motivates, rewards, and retains its workers. People are a significant source of value, so
businesses can create a clear advantage with good HR practices.
•Technological development. These activities relate to managing and processing
information, as well as protecting a company's knowledge base. Minimizing information
technology costs, staying current with technological advances, and maintaining
technical excellence are sources of value creation.
•Infrastructure. These are a company's support systems, and the functions that allow
it to maintain daily operations. Accounting, legal, administrative, and general
management are examples of necessary infrastructure that businesses can use to their
advantage.

Companies use these primary and support activities as "building blocks" to create a valuable
product or service.

Using Porter's Value Chain

To identify and understand your company's value chain, follow these steps.

Step 1 – Identify subactivities for each primary activity

For each primary activity, determine which specific subactivities create value. There are three
different types of subactivities:
 •Direct activities create value by themselves. For example, in a book publisher's
marketing and sales activity, direct subactivities include making sales calls to
bookstores, advertising, and selling online.
•Indirect activities allow direct activities to run smoothly. For the book publisher's
sales and marketing activity, indirect subactivities include managing the sales force and
keeping customer records.
•Quality assurance activities ensure that direct and indirect activities meet the
necessary standards. For the book publisher's sales and marketing activity, this might
include proofreading and editing advertisements.

Step 2 – Identify subactivities for each support activity.

For each of the Human Resource Management, Technology Development and Procurement
support activities, determine the subactivities that create value within each primary activity.
For example, consider how human resource management adds value to inbound logistics,
operations, outbound logistics, and so on. As in Step 1, look for direct, indirect, and quality
assurance subactivities.
Then identify the various value-creating subactivities in your company's infrastructure. These
will generally be cross-functional in nature, rather than specific to each primary activity. Again,
look for direct, indirect, and quality assurance activities.

Step 3 – Identify links

Find the connections between all of the value activities you've identified. This will take time,
but the links are key to increasing competitive advantage from the value chain framework. For
example, there's a link between developing the sales force (an HR investment) and sales
volumes. There's another link between order turnaround times, and service phone calls from
frustrated customers waiting for deliveries.

Step 4 – Look for opportunities to increase value

Review each of the subactivities and links that you've identified, and think about how you can
change or enhance it to maximize the value you offer to customers (customers of support
activities can be internal as well as external).

Porter’s Value Chain Analysis of Jollibee

Porter’s Value Chain framework examines the primary and support activities that create value
for Jollibee and help it gain a competitive advantage.
PRIMARY ACTIVITIES
1. Inbound Logistics
• Jollibee manages a well-established supply chain with centralized commissaries that
handle raw materials like chicken, flour, and spices to ensure consistent quality.
• It has long-term partnerships with local suppliers and farmers, reducing supply
costs and ensuring freshness.
• Use of inventory management systems ensures timely delivery to outlets and
minimizes waste.
• Example: Jollibee’s Central Commissary in Laguna ensures uniformity in its flagship
products like Chickenjoy and Jolly Spaghetti.

2. Operations
• Jollibee operates a hybrid company-owned and franchise model, which allows fast
expansion across the Philippines and abroad.
• Stores maintain standardized cooking procedures and quality control to ensure a
consistent taste across all branches.
• Advanced kitchen systems and training programs ensure efficient food preparation
with minimal delays.

3. Outbound Logistics
• Jollibee uses a combination of dine-in, take-out, drive-thru, and delivery services
(via Jollibee Delivery, GrabFood, and Foodpanda).
• It has invested in cold chain logistics to ensure that raw materials and pre-prepared
items reach outlets fresh and on time.
• Effective distribution centers ensure all outlets have a steady supply of ingredients.

4. Marketing and Sales

• Jollibee leverages emotional and family-oriented advertising that resonates with
Filipino values, creating strong brand loyalty.
• Aggressive promotions, bundle meals, and seasonal offers keep customers
engaged.
• Social media presence and digital marketing campaigns boost its visibility, especially
among the younger generation.
 • Example: Jollibee’s “Kwentong Jollibee” viral ad campaigns emphasize emotional
storytelling.

5. Service
• Jollibee prioritizes customer satisfaction through friendly service and fast response to
complaints.
• It provides after-sales support via customer hotlines and online feedback
platforms.
• Delivery services ensure convenience, and loyalty programs like Jollibee App
Rewards increase customer retention.

SUPPORT ACTIVITIES
1. Firm Infrastructure
• Jollibee maintains a strong corporate structure with a centralized management team
overseeing operations, marketing, and strategic expansion.
• It uses data analytics and IT systems for decision-making and performance
monitoring.
• Global subsidiaries like Smashburger and The Coffee Bean & Tea Leaf benefit from
centralized infrastructure support.

2. Human Resource Management

• Jollibee is known for its employee training programs and strong corporate culture
that emphasizes Filipino family values.
• It invests in leadership development and barista/cooking training for quality
consistency.
• Employee engagement and incentives reduce turnover, particularly in high-demand
fast-food environments.

3. Technology Development
• Jollibee adopts digital ordering systems (self-service kiosks), mobile apps for
online ordering, and AI-driven delivery tracking.
• It invests in kitchen innovations to reduce cooking time and improve efficiency.
 • Integration of data analytics helps forecast customer demand and improve supply
chain management.

4. Procurement
• Jollibee negotiates with local farmers and suppliers to maintain cost efficiency and
quality.
• It sources ingredients locally where possible, reducing import costs.
• Economies of scale from bulk procurement help keep menu prices competitive.
Distinctive competencies are the firm-specific strengths of a company. Valuable distinctive
competencies enable a company to generate superior profitability. The distinctive
competencies of an organization arise from its resources and capabilities. In order to achieve
a competitive advantage, a company needs to pursue strategies that build on its existing
resources and capabilities and to formulate strategies that build additional resources and
capabilities (develop new competencies) and the durability of a company‘s competitive
advantage depends on the height of barriers to imitation.
competitive action
a strategic or tactical action the firm takes to build or defend its competitive advantages or
improve its market position

competitive behavior
the set of competitive actions and competitive responses the firm takes to build or defend its
competitive advantages and to improve its market position

competitive dynamics
The total set of actions and responses taken by all firms competing within a market.

competitive response
a strategic or tactical action the firm takes to counter the effects of a competitor's competitive
action

competitive rivalry
the ongoing set of competitive actions and competitive responses that occur among firms as
they maneuver for an advantageous market position

competitors
firms operating in the same market, offering similar products, and targeting similar customers

fast-cycle markets
markets in which competitors can imitate the focal firm's capabilities that contribute to its
competitive advantages and where that limitation is often rapid and inexpensive

first mover
a firm that takes an initial competitive action in order to build or defend its competitive
advantages or to improve its market position

late mover
a firm that responds to a competitive action a significant amount of time after the first mover's
action and the second mover's response

market commonality
concerned with the number of markets with which the firm and a competitor are jointly
involved and the degree of importance of each individual markets to each

multimarket competition
occurs when firms compete against each other in several product or geographic markets

quality
Exists when the firm's goods or services meet or exceed customers' expectations.

resource similarity
the extent to which the firm's tangible resources compare favorable to a competitor's in terms
of type and amount

second mover
a firm that responds to the first mover's competitive action, typically through imitation

slow-cycle markets
markets in which competitors lack the ability to imitate the focal firm's competitive advantages
that commonly last for long periods, and where imitation would be costly

standard-cycle markets
markets in which some competitors may be able to imitate the focal firms competitive
advantages are where that limitation is moderately costly

strategic action or strategic response

is a market-based move that involves a significant commitment of organizational resources
and is difficult to implement and reverse

tactical action
a market-based move that is taken to fine-tune a strategy; it involves fewer resources and is
relatively easy to implement and reverse
 ASSIGNMENT 2
1. Identify the competitive advantages of the following companies and how such
competencies
contribute to profitability:
• Apple
• Starbucks
• Lazada
• Toyota
2. How Porter‘s concept on competiveness may be applied during this time of COVID-19
pandemic? Cite an instance to justify your answer.
3. Explain the importance of SWOT analysis in achieving organizational competitive
advantage.
4. Explain how innovations help an organization to maintain its competitive advantage in a
very stiff competition in the market.