The Four (4) Priorities of Business

San Miguel Corporation (SMC) is the largest business enterprise in the Philippines and is among the top 2,000 global firms listed by Forbes magazine.  SMC’s gross revenue was PhP 384 billion ($USD 7.6 billion approximately) in 2018 earned from its diversified portfolio that includes food & beverage products, real estate properties, and infrastructure & energy investments.

Steering the SMC behemoth is the corporation’s president and chief executive officer, Mr. Ramon Ang, who has been actively overseeing not only the growth of the corporation but also its investments in infrastructure and contributions to rural communities.  Mr. Ang has received accolades for the continuing profitability of SMC but he stands out for his pursuit of high-capital projects such as construction of a new international airport and the building of an elevated expressway passing over the heart of Manila. 

Mr. Ang apparently recognises the challenging responsibilities of running the largest enterprise in the country.  He demonstrates that profit cannot be the sole priority. He recognises the value of SMC’s standing in society while at the same time makes sure the corporation maintains its competitive edge over rivals and continues to grow in the industries it does business in. 

Every business enterprise has four (4) priorities.  These are:

  1. accumulate wealth;
  2. attain & sustain competitive advantage;
  3. establish esteem;
  4. grow in influence.

Accumulate Wealth

The aim of an enterprise is not only to make a profit but to reap cash from that profit and ensure that the amount it earns exceeds the minimum rates of return of investments.  Furthermore, the wealth that’s gained should translate into cumulatively higher net worth in the form of increased cash liquidity and added equity or stakeholders’ value as invested into the enterprise. 

The priority of the enterprise, to put it another way, is to make money and increase it. 

Attain and Sustain Competitive Advantage

A successful enterprise gains competitive advantage and maintains it.  An enterprise would wither if it cannot compete versus its counterparts in the marketplace. 

Michael Porter defines competitive advantage as one’s position and degree of advantage possessed by an organisation over its competition.[1]

According to Porter, an enterprise gains competitive advantage via either of the following strategies:

  • Cost Leadership
  • Differentiation
  • Focus

Enterprises that position their products or service as the lowest cost in the market are applying the Cost Leadership strategy. 

An enterprise adopts a strategy of Differentiation when it positions its products or services as superior in quality or utility versus others in the market.

Firms that target a certain group or niche of society are using a strategy of Focus.  When firms use a Focus strategy, they either offer products at the lowest cost for that particular group or niche or they advertise superiority but to a specific audience.  In other words, firms apply either the generic Cost Leadership strategy or a Differentiation strategy but for only a specific target market.

An enterprise can only adopt one strategy though large conglomerates may apply an exclusive strategy for each of its business divisions.

Porter’s Generic Competitive Strategies1

Esteem & Reputation

Enterprises have learned that public perception has bearing on how their products and services will perform in the marketplace. 

How a firm presents itself in public has become a management requisite.  When it comes to esteem and reputation, managers are bound to address the following:

  • Corporate Citizenship
  • Community Relations
  • Communications
  • Environmental Stewardship
  • Global Citizenship

Corporate Citizenship refers to a firm’s compliance to laws and regulations.  These include paying the right taxes, cooperating with regulators and government agencies, providing transparent information on finances and operations, and following the spirit and letter of the law in all manners of conduct. 

Community Relations is the enterprise’s outreach to its neighbours and to charitable institutions.  Enterprises receive and provide feedback from and to community leaders and with private associations especially those directly affected by the enterprise’s operations (e.g.  factories and distribution centres).  Enterprises also proactively donate time and resources for those less fortunate.  The purpose of all of these is to establish cordial and synergistic ties with communities the enterprises co-exist with. 

Communications take the form of public bulletins via media as in printed (newspapers), broadcast (television & radio), and social (internet networks). Communications may either be external or internal.  Either the audience is the outside world (the external) or for the benefit of employees and their families (the internal).  The purpose of communications would be to present an enterprise’s positive agenda whether it be clarifying a stand on controversial issues, or the quick dissemination of information on product issues (e.g. details on product recalls, clarifications versus rumours). 

Environmental Management has has to do with the enterprise’s initiatives in regard to environmental protection.  It is more than just compliance to existing laws.  Enterprises are expected to show effort in appeasing the ever growing movement to protect the planet Earth and its resources.  These include the participation in programs such as waste recycling, energy conservation, anti-pollution projects, and in public activities such as tree-planting, placing of artificial coral reefs, and hearings on environmental impact studies. 

Global Citizenship goes one step further especially for enterprises that are involved with suppliers and/or customers in different countries and territories.  Whether the involvement is foreign-based operations, partnerships or joint ventures, or sourcing of materials and labour, enterprises are expected to exercise compliance with domestic and international laws and treaties.  They are also expected to respect cultural and economic differences and proactively reach out to local communities they co-exist with.  It is complicated and comprehensive work but it helps the enterprise attain a reputation of admiration on a global level.       

Influence & Growth

Despite the pressures to deliver results in the short-term, enterprises have to plan for long-term sustainability and growth.  They also realize growth isn’t just about numbers in the balance sheet; it is about expanding their sphere of influence in the markets they compete in.

Enterprises need to have strong influence not only with their customers but also with their stakeholders, their suppliers, their employees, and with the communities they work with.  Having influence assures lasting stability and sustenance.  Successful enterprises therefore always plan for the long-term even as they may have to deal with the demands in the short-term.

Typical approaches for long-term influence and growth are business leadership, and vertical and horizontal integration.  Business leadership includes dominating markets with superior products and services. Vertical integration means gaining influence over suppliers on the upstream and customers or distribution channels on the downstream.  Horizontal integration means widening influence with firms with similar industries or expanding one’s business to new markets.  This often means mergers and acquisitions of other enterprises to gain greater market share and capital.

The four (4) priorities apply to all enterprises.  A start-up business may perhaps work more on wealth while a global manufacturing firm may busy itself boosting its reputation.  The level of importance an enterprise gives may not be evenly spread among the four (4) priorities.  Despite whatever emphasis given to each of its priorities, the enterprise should not lose focus altogether on all, lest it risks the potential downsides.      

The four (4) priorities and the level of focus an enterprise places on each sets the foundation for an overall direction that inspires the subsequent strategies in operations, organisation, marketing, and finance. 

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[1] Michael E. Porter, Competitive Strategy,  (New York, N.Y. : The Free Press, 1980), p. 35

Competitive & Non-Competitive Priorities and How to Deal with Them

In several firms I’ve worked with, I couldn’t help but notice that supply chain managers would sometimes be engrossed with priorities regarding compliance to government-mandated occupational safety & health standards.  They would have long meetings and spend much time on the nitty-gritties of reports to be filed and procedures to follow.

But in the following week, the same managers would switch to issues regarding costs that were going over budget.  The general manager of their company was concerned about expenses and wanted a meeting so the supply chain managers would be rushing to prepare their presentations to explain their respective functions’ spending. 

Priorities would shift week after week, month after month.  One day it would be safety, the next day it would be quality.  When managers would ask which priority is more important, their boss would reply: “all of them.” 

There are two (2) types of priorities enterprise executives deal with.  These are competitive priorities[i] and non-competitive priorities. 

Competitive priorities are those when addressed add value to the enterprise.  Examples are sales, cost, quality, delivery reliability, and after-sales service excellence.  As the term suggests, these priorities directly contribute to an enterprise’s competitive advantage. 

Non-competitive priorities are those that executives do not recognise as adding value to the organisation but are too important to ignore.  Examples are safety, security, industrial labour relations, community relations, government regulation compliance, environmental safeguards, and employee health.  These priorities may not contribute to an enterprise’s competitive advantage but are imperative to its ongoing operations. 

Enterprise executives see competitive priorities as vital to the organisation’s growth.  Consumer goods executives, for example, would develop marketing and product initiatives to bring about higher sales. 

Enterprise executives, on the other hand, see non-competitive priorities as crucial to the organisation’s survival.  Executives, for example, would stress industrial safety as a program to prevent injuries.  They would expect their organisations to adopt safety practices so that people don’t get hurt, and not lead to disruption in operations. 

To put it in another way:

  • Competitive priorities address opportunities.
  • Non-competitive priorities address adversities.

Classifying priorities in either category may help enterprise executives not only what to tackle first but also determine who should be leading the respective priorities. 

Quality and safety are everyone’s jobs but if there are no quality control or safety managers to lead priorities in either one, then it would probably be chaotic for the executives trying to handle them on top of the other important things they have to do. 

It also pays to have awareness of the two types of priorities to know how they would affect the enterprise.  Classifying community relations as a non-competitive priority, for instance, may prove worthwhile for an enterprise who has a factory situated within a largely populated city.  It would encourage executives to invest in a manager who would engage with the factory’s neighbours and handle issues that might result in mutual benefits. 

Being mindful of competitive and non-competitive priorities also gives the organisation a constant big picture of the work it’s doing.  Engineers building a new storage facility, for example, would best have an understanding of what they want to accomplish.  It wouldn’t just be about building for more capacity; it would also be about the impact on working capital, better distribution of products, reduction in damages, and safer working conditions.

Executives can sharpen their enterprise strategies with their awareness of both competitive and non-competitive priorities.  The trick is to have balance and brevity.  Some company mission statements tend to stress too much on quality and leave out the rest.  Other corporate philosophies overdo it with numerous paragraphs that overwhelm the organisation. 

We all have priorities.  We just need to understand which ones are competitive and non-competitive in which the former addresses opportunities while the other takes on adversities.  Both are too important to ignore so it would help if we classify the things we do as either competitive or non-competitive. 

If we can’t do things all at once, we may need to check our structure and resources.  We also should try to make sure our overall strategies aren’t complicated or overwhelming for our own organisations. 

[i] Davis, Mark M., Aquilano, Nicholas J., and Chase, Richard B., Fundamentals of Operations Management, 1999, Chapter 2, p. 25

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