MBL Limit 75K: COMPANY XY Strategic Management Paper

OBF UNIVERSITY
Graduate School of Business

Master of Business Administration – Regis
COMPANY XY
STRATEGIC MANAGEMENT PAPER
Submitted to:
Professor
Submitted by:
Name:
Date
Page 1 of 137
CONTENTS
EXECUTIVE SUMMARY 4
1. INTRODUCTION 5
2. RESEARCH DESIGN AND METHODOLOGY 6
3. MACRO-ENVIRONMENTAL ANALYSIS 7
3.1 Economic Forces 7
3.2 Socio-cultural Forces 14
3.3 Technological Forces 16
3.4 Political Forces 17
3.5 Environmental Forces 18
4. INDUSTRY AND COMPETITOR ANALYSIS

4.1 Industry Value Chain and Waterfall Chart 21
4.2 Porter’s 5-Forces Model 25
4.3 Strategic Positioning Analysis & Recommendation 31
4.4 Market Share, Size and Growth Trends 37
4.5 Market Analysis 39
4.6 Competitive Profile Matrix (CPM) 48
4.7 External Factor Evaluation (EFE) Matrix 63
5. COMPANY ANALYSIS
5.1 Company Vision and Mission Statement 70
5.2 Review of COMPANY XY Mission and Vision Statement
71
5.3 McKinsey’s 7s Framework 73
5.4 Company Internal Audit 81
5.5 Key Financial Ratio Analysis 85
5.6 Internal Factor Evaluation (IFE) Matrix 88
6. STRATEGY FORMULATION
6.1 Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix 97
6.2 Strategic Position and Action Evaluation (SPACE) Matrix 105
6.3 Boston Consulting Group (BCG) Matrix 106
Page 2 of 137
6.4 GE McKinsey Matrix 108
6.5 Grand Strategy Matrix 110
6.6 Internal-External Matrix (IE) 112
6.7 Summary of Strategies 113
6.8 Quantitative Strategic Planning Matrix (QSPM) 114
7. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES

7.1 Recommended Revised Vision and Mission Statements 115
7.2 Key Strategic Challenge & Recommended Corporate Strategic Objective 117
7.3 Recommended Functional Strategic Objectives 117
7.4 Recommended Strategies 119
7.5 Recommended Departmental Programs and Actions 121
7.6 Financial Projections 127
8. STRATEGY EVALUATION, MONITORING, AND CONTROL

8.1 Balance Scorecard Strategy Map 130
8.2 Balance Scorecard Objectives and Initiatives Matrix 131
8.3 Balance Scorecard Performance Monitoring Dashboard 131
9. CONTINGENCY PLAN 133
Appendices
Audited Financial Statements of COMPANY XY

Audited Financial Statements of Company A
Audited Financial Statements of Company D
Audited Financial Statements of Company E
Page 3 of 137
EXECUTIVE SUMMARY
COMPANY XY CARE (COMPANY XY) was the first HMO Company to legally register in the
country in 1981. In 1987, COMPANY XY Chairman and owner, Mr. Randy Reyes organized other
HMO companies and formed the Association of Health Maintenance Organization of The Philippines,
Inc. (AHMOPI). This initiative was aimed towards developing and protecting the industry and its
members.
The HMO Industry has a combined revenue of more than 27 Billion pesos with Company A, Company
C and Company B capturing almost 70% of the market. Other significant companies include Company
D and Company E while the remaining percentage is shared by more than a dozen small players. The
oligopolistic nature of the industry results in high competition. COMPANY XY’s Competitive Profile
(CPM) is weak at 2.28 in comparison to its competitors. This is primarily due to COMPANY XY’s
inability to capitalize on the advances in technology and to reach a wider market. Among the critical
success factors for this industry include the ability to provide a responsive customer service and
strategic partnership with a wide network of service providers. Moreover, the company’s ability to
maximize the financial resources in generating revenue and reducing cost would be advantageous.
COMPANY XY’s External Factor Evaluation (EFE) score of 2.70 portrays that the company’s response
to the opportunities and threats of its environment is just average. The organization is failing to take
advantage of the growth of the industry, increase in household income and high percentage of Filipinos
without HMO coverage. In addition, the company’s response to the intense rivalry amongst big players
and the threat of increasing lifestyle related and mosquito borne diseases, is inadequate. With an
Internal Factor Evaluation (IFE) Score of 2.65, the company has a weak internal strength exhibiting an
incapability to fully compete with the industry. The shrinking market share of COMPANY XY in the
last 5 years is a clear manifestation of the above IFE score. The absence of sales force in Mindanao
and limited presence in the Visayas regions and in most areas of Luzon are critical weaknesses that
greatly affect the company’s ability to compete. COMPANY XY’s suitable financial state and ability
to provide personalized handling of membership concerns are strengths that help the company keep its
clientele and remain profitable.
The result of key internal and external factors and strategy formulation tools indicate that product
development, market development, market penetration and backward integration are the appropriate
strategies that the company should adopt. This yielded to specific strategies that worked around in
strengthening and expanding of the sales force to widen its reach, intensive marketing and sales
Page 4 of 137
campaigning, launching of specific products that counters identified threats and partnering with
networks of outpatient service providers to further reduce cost.
The above strategies are intended to make COMPANY XY a significant player in the industry by
achieving a billion peso in revenue and at least 100 million peso profit in the next three years.
1. INTRODUCTION
Company XY (COMPANY XY) is a family owned and run corporation founded in 1981. Reyes family
members occupy key positions in the company, some of which include the Patriarch as the Chairman
of the Board, the wife as the Vice Chairwoman & CEO, and the son as President & COO. The head
office, a newly built seven story building, is located in Pasong Tamo, Makati.
COMPANY XY operations are mainly concentrated in Metro Manila and Calabarzon, particularly in
the Cavite area. Recently COMPANY XY started operations in Cebu. The company has two diagnostic
multi-specialty diagnostic clinics under the brand COMPANY XYcare that offers a wide range of
laboratory services and minor surgical operations.
COMPANY XY is a 630 million pesos revenue company generating almost 35 million profit as of
2015. The company has a very strong balance sheet with more than 326 million pesos in total assets
and no short-term and long-term borrowings. In fact, the company has been profitable for the past 26
years.
The company has more than 160 employees with 70% of them having tenure of at least 10 years. This
is owed to the employee-centered leadership style of the owner. Employees, in particular the sales
force, are complemented by 23 active brokers and 4 franchised marketing arms who help them cover
the market. The organization currently offers various programs, which vary depending on the coverage
limits both for corporate and consumers (Individual, Family & Group or IFG) accounts.
To date, COMPANY XY has 359 accredited hospitals including premiere hospitals in the country such
as St. Lukes (Global and QC), Makati Medical Center, Cardinal Santos Medical Center, and The
Medical City and Asian Hospitals. The organization employs 22,004 accredited doctors, 572 dental
networks, and 720 health partners in the country.
The company currently ranks far number 6 in the HMO industry with a market share of just little above
2% or equivalent to almost 100,000 members.
Page 5 of 137
Table 1. Products
MAXIMUM
ROOM AND BOARD PRODUCTS
BENEFIT LIMIT
Corporate Consumers (Individual,
(MBL Limit) Packages Family & Group)
Ward 75,000.00 Executive 3000*
Semi-Private 1 100,000.00 Customize base on Executive 2000*

the number of
Semi-Private 2 125,000.00 employees, Room Executive 1,500*
& Board type, MBL
Regular Private 1 ** 150,000.00 Limit and other Green 600,800,1000,1200*
specific
Large Private ** 175,000.00 requirements of Ivory 500*
the company.
Small Suite ** 200,000.00
** with access to Major Hospitals (St. Lukes, MMC, * Room & Board
Asian, Cardinal & Medical City Accommodation Limit
2. RESEARCH DESIGN AND METHODOLOGY
The data used for the macro-environmental analysis were gathered from several local and international
sources. Local sources include Banko Sentral ng Pilipinas (BSP) and Philippine Statistic Authority
(PSA). On the other hand, Euromonitor, Inc., World Bank, Colliers International’s 3Q 2015 Philippine
Research & Forecast report, Business Monitor International Ltd. (BMI) reports titled Q4 2015
Philippine Pharmaceuticals & Healthcare Reports, Q1 2016 Philippine Commercial Banking Report,
Q4 2015 Philippine Tourism Report, and Q1 2016 Philippine Insurance Report were the main
international sources of economic trends and forecast data.
Social, technological, political, environment and demographic data, on the other hand, were derived
primarily from the National Statistic and Coordination Board (NCSB), BMI, Asian Development Bank
(the “Accounting for health impacts of climate change” report) , Asian Institute of Management (AIM)
research on Tele-Geriatics, and the media publications namely Philippine Daily Inquirer (PDI),
Rappler, Philippine Star, Manila Bulletin, and Business Mirror.
Page 6 of 137
This study has also utilized data from the Association of Health Maintenance Organization of the
Philippines, Inc. (AHMOPI), Financial Statements filed in Securities and Exchange Commission
(SEC), corporate client survey and individual websites of HMO companies and service providers in the
market and industry analyses.
The company information was obtained with the permission of the company Chairman, Owner and
President. Interviews with the Board of Directors, department heads and front liners as well as rotational
observation of the operation were instrumental in gaining insights and extensive knowledge about the
company. Key Performance Indicators (KPIs), company metrics and audited financial statements for
the last 6 years were provided by the company as well.
Strategic Management Concepts and Cases (13th edition) by Fred R. David were the main reference in
the formulation of strategies and recommendations.
3. MACRO-ENVIRONMENTAL ANALYSIS
3.1 Economic Forces

3.1.1 Manufacturing Industry Growth
Data from Philippine Statistic Agency (PSA) and National Statistic Coordination Board (NCSB)
shows that manufacturing industry revenue posted an average growth rate of 7% from 2013 to
20151. The manufacturing sector is expected to continue growing at this average rate of 7% for the
entire 2016.
Relevance: Manufacturing industry is one of the key drivers of the HMO industry having
contributed almost 6 Billion pesos or 22% of the total industry revenue based on the 2014 data2.
That is equivalent to an estimated of almost 900,000 members. There is still a significant potential
for growth in this segment since the manufacturing industry has an estimated employees of more
than 3.2 million as of 20153
3.1.2 IT-BPO Industry Growth
1
psa.gov.ph; www.nscb.gov.ph
2
AHMOPI
3
http://www.nscb.gov.ph/sna/2013/1st2013/2013mfg1.asp;
http://www.nscb.gov.ph/sna/2015/1st2015/2015ind_1.asp
Page 7 of 137
According to the property consultancy firm CB Richard Ellis (CBRE) citing estimates by the IT-
BPAP, the number of workers in the BPO industry is expected to reach 3.3 million in 15 years from
the 2014 figure of 1.03million. Based on the projection of CBRE, the industry will add 105,000
fulltime employees annually.4
Similarly, Business Monitor International Ltd. (BMI) forecast shows that BPO Revenue could
exceed USD 25billion by 2016 and expected to reach USD 48billion by 2020. 5
Relevance: IT-BPO industry is one of the major drivers of HMO Industry having contributed more
than 4.5Billion pesos or equivalent to 16.71% based on 2014 data.6 That is equivalent to more than
660,000 HMO members.
3.1.3 Hotel and Restaurant Industry Growth

The hotel and restaurants industry posted a growth of 10.14% CAGR from 2011 to 2015 and is
expected to grow by 8.58% CAGR in the next four years. This industry also is one of the major
beneficiaries of the effort of the Department of Tourism in revitalizing the tourism industry.7
Relevance: This is an important development for the HMO Industry because Hotel and Restaurant
segment accounts to 3.8% of the industry revenue or more than 150 thousand members as of 2014.8
Table 3.1.3A: Hotel & Restaurant Industry Revenue from 2011 to 2015
Table 3.1.3B: Hotel & Restaurant Industry Revenue forecast from 2016 to 2019
4
http://www.mb.com.ph/bpo-revenue-generation-to-grow-faster-cbre/
5
2015 Philippine Real Estate Report, Business Monitor International ltd (BMI)
6
AHMOPI
7
BMI Philippine Tourism Report Q4 2015 & http://www.nscb.gov.ph/sna/2013/1st2013/2013otserv1.asp
8
AHMOPI
Page 8 of 137
3.1.4 Financial Intermediary Industry Growth
The Financial Intermediary industry recorded an 11.25% CAGR between 2011 and 2014 as per
National Statistical Coordination Board. 9
On the other hand, Business Monitor International (BMI) forecast shows that commercial banking
assets, loans and deposits will grew by 9%, 12% and 8.9% respectively while insurance gross life
premiums and gross non-life premium forecast are 7% and 6.9% respectively from 2015 to 2019.10
Relevance: This is a very favorable development to the industry since Financial Intermediary
segment contributes a total of 6.7% to the HMO industry coffers or equivalent to 1.7Billion pesos
based on 2014 data.
Table 3.1.4A: Financial Intermediaries 2011 to 2014 Revenue Growth
Table 3.1.4B: Financial Intermediaries Forecast (Bank and Insurance)
9
http://www.nscb.gov.ph
10
BMI Philippine Commercial Banking Report Q1 2016 & BMI Philippine Insurance Report Q1 2016
Page 9 of 137
3.1.5 Real Estate, Renting and other Business Activity Growth
The Real Estate, Renting and other Business Activity segment posted an 11.85% CAGR between
2011 and 2015 as per National Statistic Coordination Board. 11 Although there is no official growth
forecast yet on this segment, supply forecast of office spaces and residential units can be used as a
good alternative indicator of the potential growth of this market segment.
New office supplies are expected to grow an average of 8.2% while residential unit supply is
expected to grow by 11.2%.12 These two forecasts are close to the actual CAGR of 11.8% indicated
in the 2011 to 2015 figures. Moreover, this segment benefits significantly from OFW Remittances
and IT-BPO industry which are the two main growth drivers of the Philippine economy.
Relevance: This is a prime opportunity for HMO industry as this segment contributed more than
4.7 billion pesos based on 2014 data or equivalent to 17.75% of the total industry revenue for the
said year.
Table 3.1.5A: Real Estate, Renting & other Business Activity Revenue Growth from 2011 to 2015
Table 3.1.5B: New Office Supply and Residential Unit Forecast from 2015 to 2018
3.1.6 OFW Cash Remittances & Depreciating Peso
11
http://www.nscb.gov.ph/sna/2015/3rd2015/2015rerba3.asp
http://www.nscb.gov.ph/sna/2013/1st2013/2013rerba1.asp
12
Philippines Research & Forecast Report | 3Q 2015 | Colliers International
Page 10 of 137
The OFW remittances are expected to reach USD 32.99 Billion by 2018 according to the World
Bank. This is consistent with the previous year actual CAGR of 6%-8% and the official forecast of
BSP this year.13
According to Business Monitor International (BMI), the Peso is depreciating and forecasted to
reach 48 Peso to USD 1.00 next year. Depreciated peso means more value for the dollar being sent
by our OFWs to their families which in turn will increase their purchasing power. 14
Relevance: This is very significant to the industry especially towards targeting the families of OFW
for the consumer products of HMO industry.
Table 3.1.6A: OFW Remittances Table 3.1.6B: Exchange Rate (Peso to USD)
3.1.7 Annual Family Income and Expenditures Survey
The Annual family income and expenditures survey conducted by Philippine Statistics Authority
(PSA) show that the total income level has been increasing continuously from 2.43 trillion pesos
in 2003 to 5.02 trillion pesos in 2012. Similarly, though expenditures has been increasing as well,
the data shows that there’s significant increase in annual savings from 398 Billion pesos in 2003 to
901 Billion pesos.15
13
The World Bank, BSP, Inquirer.net
14
Business Monitor International (BMI)
15
Philippine Statistic Authority (PSA)
Page 11 of 137
Relevance: The increasing income and savings of an OFW family presents a favorable opportunity
for the industry to tap the individual, family and group (IFG) market. The increasing savings
particularly in the National Capital Region and Calabarzon Area where the company is currently
concentrated are positive indications of the potential for growth.
Table 3.1.7A: Annual Family Income and Expenditures Survey 2003 to 2012
3.1.8 Private Healthcare Expenditures
The 2015 Philippine pharmaceuticals and healthcare reports of Business Monitor International
(BMI) show that private healthcare spending posted a 9.87% CAGR from 289 Billion in 2011 to
422 Billion in 2015. The trend will continue until 2019 and is expected to reach 608 Billion pesos
as indicated in the forecast of BMI between 2016 and 2019.. 16
Relevance: The industry revenue are mainly coming from private health spending. Therefore, the
increasing health expenditures trend present an opportunity for HMO industry to grow as well.
16
Q4 2015 Philippine Pharmaceuticals and Healthcare Reports, Business Monitor International (BMI)
Page 12 of 137
Table 3.1.8A: Private Healthcare Expenditures and HMO Revenue from 2011 to 2015
Table 3.1.8B: Private Healthcare Expenditures Forecast between 2016 to 2019
3.1.9 Independent Multi-Specialty Diagnostic Clinics
In recent years, independent diagnostic centers/clinics has proliferated all over the country. Hi-
Precision, Hemotek, Nephro System & Medicus are the most prevalent organizations and currently
have a wider network. 17 Early this year, Hi-Precision has opened two new sites while Nephro
System has been working on its additional 9 new branches18. ASTER DM Healthcare, a Dubai-
based medical conglomerate invested 250 million pesos to build a network of diagnostic clinics
starting with its Ortigas branch which opened last November of last year as its pilot site. 19Similarly,
Sanitas Internacional of Spain operating in Latin America, United States and Europe approached
AHMOPI for their plan to put up diagnostic clinics all over the country. Philippine is indeed part
of their expansion plan together with Indonesia, Vietnam and Singapore. 20
Relevance: This is a favorable development for the company because this will allow a potential
wider client coverage through possible strategic partnerships. Such arrangement will bring
17 Q4 2015 Philippine Pharmaceuticals and Healthcare Reports, Business Monitor International (BMI)
18
http://nephrogroup.com/index.php?option=com_content&view=article&id=28&Itemid=13
19
http://business.inquirer.net/202373/dubai-based-firm-banks-on-ph-healthcare-industry
20
http://www.sanitasinternacional.com/english/nuestros-productos.php
Page 13 of 137
additional benefits to our clients as we will be able to cater to more locations. This may also result
to lower outpatient cost for the company since independent diagnostic clinic services are much
cheaper than that of hospitals.
Table 3.2.9A: Independent Diagnostic Centers
3.2 Social-Cultural Forces

3.2.1 Population Growth
The Philippines is expected to have the youngest median age of labor force in Asia by 2030
according to Bloomberg Business Week.21 The data from Philippine Statistic Authority (PSA) is
consistent with the said forecast which shows that the country’s population will reach 123.2 Million
with more than 72.8 million belonging to the working age group by 2030.22
Relevance: Human capital is the most important resource that any country can have. With the
majority of the population belonging to working age group, labor intensive industries would have
a steady supply of labor resources which in return will expand the market of HMO industry. More
importantly, 77% or 56 Million of the said working age population would be less than 50 years old
which means there would be less risk of high utilization.
Table 3.2.1A: Population Growth Forecast
21
www.blomberg.com
22
www.psa.gov.ph
Page 14 of 137
Table 3.2.1B: Working Age Population Growth Forecast
3.2.2 Leading Diseases
According to the survey conducted by Philippine Statistic Authority (PSA) last 2009, the top ten
causes of deaths shows that more than 66% are caused by diseases attributable to lifestyle of the
Filipinos. The 2010 data support this survey with no changes at all with the ranking of the leading
diseases.23 Recently, a report on leading causes of premature death conducted by the Institute for
Health Metrics and Evaluation last 2013 affirmed most of these diseases24. In a separate study
conducted by the Food and Nutrition Research Institute of the Department of Science and
Technology (FNRI-DOST), 8th Nutrition data survey at least 3 out of 10 over 20 year old Filipinos
are suffering from obesity. This may lead to more people suffering from high-risk diseases or health
conditions such as type 2 diabetes, gallbladder stones, hypertension, and high blood cholesterol
levels. This would lead to an increase in the possibility of stroke and heart attacks. This is again
consistent with the result of the PSA survey 25
Relevance: This is crucial to the industry because it can increase the utilization rate or medical
claims which will lessen the profitability of the industry unless significant changes in the lifestyle
of the Filipino were made.
23 www.psa.gov.ph
24 http://www.healthdata.org/philippines
25 Food and Nutrition Research Institute
Page 15 of 137
Table 3.2.2B: Ten Leading Causes of Death as of 2010 Figure 3.2.2: 2013 Ranking of Leading Causes
of Premature Death
3.3 Technological Forces

3.3.1 B2C E-Commerce
The B2C E-Commerce adaption rate in the Philippines is growing rapidly. As shown in the growth
of the revenue generated through B2C E-Commerce last 2014, the adaption rate grew by 62% over
2013. And the forecast from 2015 to 2018 shows that it will consistently grow by more 100%
annually. From just more than USD 3.2M last 2013 it is expected to reach more than USD 123M
26
on 2018.
Relevance: This is a prominent opportunity for the company because it creates an avenue for the
company through the use of E-Commerce platform to reach a wider market especially for the
consumer products without putting physical offices all over the country.
26
EMIS, Ken Research
Page 16 of 137
Table 3.3.1A: Business-to-consumer (B2C) e-Commerce Growth
B2C E-Commerce Growth (USD)

%
Year Forecast Growth
2013 3,210,000.00
2014 5,200,000.00 62%
2015f 10,751,000.00 107%
2016f 23,506,500.00 119%
2017f 52,720,600.00 124%
2018f 123,273,300.00 134%
3.3.2 Telemedicine
Technology adaption as well as the growing numbers of internet users in the Philippines may fuel
the spread of telemedicine. According to American Telemedicine Association (AMA),
Telemedicine is defined as “the use of medical information exchanged from one site to another via
electronic communications to improve patients’ health status”. 27
Middle of last year, Cisco, through their project spark initiative, announced their intention to donate
a HealthPresence solution to PLDT-Smart Foundation. The objective is to connect patients from
the provinces to doctors of MPIC affiliated hospitals in line with government effort to transform
28
the healthcare delivery system.
Relevance: This is an opportunity for the company because it can possibly lower the cost of
outpatient services, provide easy access to specialist for members from the remote areas and
innovate a new product at a lower cost that suits the potential of this technological development.
3.4 Political Forces

3.4.1 Issuance of Executive Order No. 192, s. 2015
27
American Telemedicine Association (AMA), AIM-Research on Tele-Geriatrics
28
http://manilastandardtoday.com/news/corporate-social-responsibility/153250/pldt-smart-foundation-pilot-
telemedicine-using-cisco-healthpresence-programs.html
Page 17 of 137
The HMO Industry has been in limbo as far as regulatory management is concern. The industry
was under the supervision of DOH for a long time but the organization neglected to appropriately
monitor the industry. Anybody with a 10 million-peso capital can get a license from DOH to set up
an HMO Company. The resulting issue was the establishment of many fly-by-night HMO
companies which hurt the reputation of the industry. As much as The Association of Health
Maintenance Organization of the Philippines, Inc (AHMOPI) wanted to penalize the behavior,
these HMO companies were not under their jurisdiction because these HMOs are not members of
the association according to its Chairman - Mr. Randy Reyes
Executive Order no. 192, s. 2015 was signed last November 12, 2015 officially putting HMO
Industry under the Insurance Commission29. Although not entirely suitable since HMO is not an
insurance entity, it is an improvement in regulations according to Mr. Reyes.
Relevance: This is a positive development for the industry as there will be appropriate monitoring
and regulating of the industry and eventually rid of fly-by-night HMO companies. Indeed, the
Insurance Commission recently issued a memorandum circular that will require HMO companies
to have a minimum of 100 million peso paid-up capital for them to operate30. This will certainly
help clarify the issues on tax hounding or affecting the competitiveness of the industry specifically
on the issues of 12% VAT. Currently, HMO companies are subject to 12% VAT while insurance
companies offering pseudo HMO products are paying only 2% tax. The possible alignment of the
said taxes will result to a level playing field and a potential savings for the industry.
3.5 Environmental Forces

3.5.1 Impact of Climate Change
The data form the International Disaster Database EM-DAT shows that 10 floods and storms had
cost the country almost USD 15 Billion, claimed the lives of almost 10,000 people and affected
more than 44 million Filipinos in the last four years as indicated in the table below.31
In a separate report of EM-DAT, it shows that 7 out of the top 10 economically damaging disasters
since 1900 happened in the last 8 years. In fact, all 10 happened in the last 25 years.32
29
http://www.gov.ph/2015/11/12/executive-order-no-192-s-2015/
30
http://www.manilatimes.net/ic-to-set-p100m-capital-for-hmos/255238/
31
http://emdat.be/country_profile/index.html
32
http://emdat.be/country_profile/index.html
Page 18 of 137
Relevance: Certainly, this is a threat for the company and to the industry as a whole because
disasters have a dual effect in the sense that it may increase the incidence of claims and limit the
opportunity of the company to expand. Affected companies and individuals will certainly tighten
their budget because of the financial consequences for the said disasters to their businesses or
livelihood.
Table 3.5.1A: Key Philippine Natural Disaster in the last 4 years
Total damage
Disaster No Type Date ('000 US$) Total affected Deaths
2013-0433 Storm 8/11/2013 10000000 16106870 7354
2013-0274 Flood 13-08-2013 2190000 3096422 31
2012-0500 Storm 4/12/2012 898352 6246664 1901
2014-0227 Storm 15-07-2014 820576 4654966 111
2011-0379 Storm 24-09-2011 344173 3030846 103
2011-0469 Flood 9/11/2011 178881 - -
2014-0479 Storm 12/12/2014 113878 4150400 18
2013-0430 Storm 12/10/2013 96723 871755 20
2014-0330 Storm 17-09-2014 75783 2052157 22
2012-0272 Flood 6/8/2012 72330 4451725 112
14,790,696.00 44,661,805.00 9,672.00
Table 3.5.1A: Top 10 Economically Damaging Disasters since 1900
Disaster No Type Date Total damage ('000 US$)

2013-0433 Storm 8/11/2013 10,000,000.00
2013-0274 Flood 13-08-2013 2,190,000.00
2012-0500 Storm 4/12/2012 898,352.00
2014-0227 Storm 15-07-2014 820,576.00
1995-0209 Flood 4/9/1995 700,300.00
2009-0422 Storm 29-09-2009 585,379.00
1990-0122 Storm 12/11/1990 388,500.00
1990-0040 Earthquake 16-07-1990 369,600.00
2011-0379 Storm 24-09-2011 344,173.00
2008-0249 Storm 21-06-2008 284,694.00
3.5.2 Mosquito Borne Diseases
Page 19 of 137
In a report of Asian Development Bank entitled “Accounting for Health Impact of Climate Change”
shows that there’s a direct correlation between the volume of rain and the number of dengue cases
in the country. Between 1990 and 1999, monthly rainfall reached more than 600mm nine
consecutive times and in all those instances, the number of dengue cases also rose. 33
Recent data from World Health Organization and reports from Rappler and GMA Network show
that dengue cases in the country increased significantly from just 39,620 cases in 2008 to more than
154 thousand cases as of 2013. That is equivalent to an average annual increase of 39.56%.34
Relevance: This will affect the utilization rate of the members and consequently reduce the
profitability of the company.
Figure 3.5.2A: Monthly Rainfall and Number of Incidence of Dengue Fever in the Philippines
Table 3.5.2A: Dengue Cases from 2008 to 2013
33
www.adb.org
34
WHO, Rappler, www.gmanetwork.com
Page 20 of 137
4. INDUSTRY AND COMPETITOR ANALYSIS
4.1 Industry Value Chain and Waterfall Chart
Figure 4.1A: Value Chain of the HMO Industry
Figure 4.1B: Waterfall Chart
No. of Cases % Increase

2008 39,620.00
2009 58,036.00 46.48%
2010 135,347.00 133.21%
2011 118,868.00 -12.18%
2012 154,945.00 30.35%
2013 154,833.00 -0.07%
Ave. Increase 39.56%
Page 21 of 137
4.1.1 Resources
The first step in the industry value chain is to acquire all necessary licenses and set up critical
resources. These include getting licenses from Department of Health, Insurance Commission and
other relevant government agencies, acquiring actuarial services whether in-house or outsource
services for the proper computation of rates, setting up of owned or affiliated diagnostic clinic/s,
and putting in place the right Healthcare system and IT infrastructure crucial to the operation.
Simultaneously, while the said resources are being acquired, hiring the most critical resource have
to be done as well. This first step accounts to approximately 5.58% of the cost.
4.1.2 Operations & Investment Management
The next step refers to the financial & investment management activities, management &
administrative functions and operation processes crucial in running a smooth and profitable HMO
company. This includes back office, finance and support units such as medical group who takes
care of maintaining and expanding the relationships with network of doctors, hospitals and health
care providers, clinic operation group that provides direct out-patient services, customer and partner
support group that ensures members and partners’ concerns (e.g. claims, payables, inquiries) are
well taken care off. The industry allocates around 7.08% of the cost to this step.
4.1.3 Servicing
This is the most costly step in the value chain which accounts to almost 75% of the total revenue.
This step includes in-patient and out-patient services of medical doctors, hospitals, owned/affiliated
diagnostic clinics and health service providers. This is the only step in the value chain that the
members would feel and appreciate the value of HMO services to them. That is why it is very
crucial that the industry chooses and accredit service partners cautiously and ensure that the
services can provide the best service possible.
Page 22 of 137
4.1.4 Marketing
This refers to marketing activities that may include advertising and promotional activities.
Advertising medium varies between HMO companies but common mediums are newspaper &
magazine advertisement, billboards, social media and occasional radio and TV advertisements. The
primary focus of promotional activities are on partnerships with the association and influencers of
various industry customers and partners. This step accounts to 3.39 of the industry revenue.
4.1.5 Distribution Channels
The industry relies on several distribution channels. Commonly, these are brokers, third party
agents and direct sales or company employed agents. Some companies also have an internal e-
commerce system where consumer clients can avail their prepaid health cards. This step accounts
to 7.5% of the revenue and bulk of it is commission paid to the agents and brokers.
4.1.6 Company Margin
The company margin is highly dependent on the utilization rate of each member and whether HMO
companies are able to price their premium correctly. The 1.9%, margin is slim with high chances
of losing money.
4.1.7 Memberships
The final step of value chain is the health card acquisition or renewal of memberships. Memberships
are classified either as corporate or consumer (Individual, Family or Group) accounts. But almost
99% of the total membership according to AHMOPI are still corporate for the reason that it is
normally given as one of the company benefits.
4.1.8 Key Findings and Insights
COMPANY XY is directly involved in majority of the steps in the value chain. However, the
company is lagging behind especially in marketing activities and the reach of its distribution
network.
Page 23 of 137
The servicing is the most significant step and has the highest cost in the value chain. This is where
much of the value is created and is the only step in the chain were the customer would feel or realize
the value of their HMO. At 75% of the total revenue, any reduction or savings from this step will
definitely boost the profitability of an HMO companies.
AHMOPI, the recognized industry association plays a crucial role in negotiating the best rate
possible with the medical doctors association and hospital organizations. In exchange of volume of
business, AHMOPI can bargain for a standardized lower rate and sign a Memorandum of
Agreement with the service providers and medical doctors. AHMOPI, although still having the
majority of the numbers, would have a lesser bargaining power starting this year due to the
departure of some key members including the biggest HMO Company in the country. The
association, however, is hopeful that the said members will be encouraged to come back once the
Implementing Rules and Regulations (which is being crafted with the active participation of
AHMOPI) of the Executive Order transferring HMO industry under Insurance Commission are
enforced.
Selecting the service providers (hospitals & medical professionals) is also a critical step in the chain
for the industry. HMO companies do not have firm control over the providers with regards to the
quality of service they will provide. That is why the industry needs ensure the appropriate medical
service providers during the accreditation stage.. In fact, as part of the industry requirement, the
medical doctors has to be either diplomate or fellow before they can be accredited according to
AHMOPI.
After servicing, the most important step in the value chain that directly affects the experience of
the members is the processing of benefits and claims. This is where HMO companies can
differentiate itself from its competitors. However, it is becoming common among industry players
to outsource their call center operation that provides critical customer service support.
Relevance to the firm:
COMPANY XY can look into the possibility of backward integration to save on cost. The out-
patient portion of servicing including the professional fee of the doctors account to more than 46%
of the revenue. This is one of the reasons why big players are increasing the number of their own
diagnostic clinics. COMPANY XY can either expand or increase the number of their COMPANY
XYcare or enter into strategic partnerships with independent diagnostic centers.
Page 24 of 137
The company is one of the few (if not the only one remaining) who still maintain its own call center
operation to ensure the proper handling of member’s transaction and concern. This is one area that
COMPANY XY can differentiate itself from the competition. Taking an extra mile to make it easier
for the members to avail their much needed health services especially in case of sickness and
emergency can definitely set the company apart from its competitors. However, as the number of
members increase, having a call center may not be sufficient. The company should look into
improving technologically to prepare its support infrastructure to cope with larger volumes of
members.
Although the company remains profitable and is in a very good financial standing, COMPANY
XY is continuously losing market share as the overall industry expands. There is a need for the
company to venture outside its familiar territory such as Calabarzon and Metro Manila that is
already facing an intense competition to acquire its much needed growth. Consequently,
COMPANY XY need to expand its distribution network to reach more potential members and
accelerate its revenue growth.
4.2 Porter’s 5-Forces Model
4.2.1 Industry Definition and Direct Competitors
The Prepaid Health Care or Health Maintenance Organization (HMO) is a 27 billion peso revenue
industry and has been around since early 1980s. Company XY (COMPANY XY) was the first
HMO company to legally register in the country. Several companies followed a couple of years
after. The market is dominated by big players namely Company A, Company C and Company B
sharing almost equally the 70% of the market.
The industry is currently in limbo as far as regulatory management is concern. Although an

Executive Order transferring the supervision of the industry to the Insurance Commission from the
Department of Health (DOH) was signed last November 12, 2015 - much is still needed to be done
to make it work for the industry. Under the hat of DOH, anybody with 10 million pesos can get a
license to put up their own HMO companies. The problem with this is that so many fly-by-night
HMO companies proliferated which hurt the reputation of the industry according to AHMOPI.
Aside from the big three that was mentioned, the closest competitors of COMPANY XY are
Company D and Company E.
Page 25 of 137
Summary of 5-Forces Analysis:
Force Conclusion
1. Rivalry of Players STRONG
2. Threat from New Entrants MODERATE
3. Bargaining Power of Suppliers MODERATE
4. Bargaining Power of Buyers STRONG
5. Threat from Substitutes WEAK
The industry is highly competitive owing it to its oligopolistic nature due to market dominance of
3 major players. The product itself is not highly differentiated and member can easily switch from
one provider to another because there’s nothing holding them back. Overall, however, the industry
is still attractive because there’s so much room for growth especially that only 4 million out of over
a 100 million population are enrolled in the HMO program. Economic indicators such as the
increasing health expenditures of the private sector, the rising level of household income and
savings, OFW remittances, manufacturing industry growth, booming real estate and renting
business and BPO industry growth are all positive developments that can help the industry sustain
its double digit growth in a three to five year horizon. The entry of big conglomerates such as Ayala
and MPIC in the health care sector especially in the hospital industry is a very good development
because it will help the industry provide better services to its members.
Since the product itself is not highly differentiated, company should focus on developing its
aftersales support and ensure that the members are happy which will increase the members retention
rates. Consequently, they will be willing to refer the firm to their friends, family members,
colleagues and officemates automatically becoming the most persuasive agent that the company
could have.
4.2.2 Rivalry of Competition

Rating: Strong
Page 26 of 137
The industry is oligopolistic because it is dominated by the 3 major players namely Company A,
Company C & Company B capturing almost 70% of the industry revenue which is a high
concentration ratio meaning their share is large enough to influence the market prices.35
Data in the last five years shows that there is basically two main groupings in the industry. The big
players namely Company A, Company C and Company B are closely group together with 20%-
25% market share. The next group which is far number 4, 5 & 6 with a market share between 3 and
7% are Company E, Company D and COMPANY XY. Though, it is noticeable that among the Big
3, only Company C is on the up-trend. Company A on the other hand, lost more than 2% market
share while Company B lost almost 4% in the last 3 years. This is primarily because the pie is
getting bigger and small players are also gaining ground. In fact, from just 10.02% combined
market share, small players now account to almost 17% of the industry revenue.
COMPANY XY, however, is continuously losing its market share also in the last 5 years. The 2010
market share is at 3.6% and it goes down to 2.2% last 2014. Almost 40% of its share was lost simply
because the company’s revenue has not grown as fast as the industry. The industry has made 18.3%
CAGR while COMPANY XY only did 2.6% CAGR.
Pricing also is not regulated. The practice is mainly “cost-plus” and self-determined. The rates
practically varied from one client to the other and from provider to provider. There are several
factors that are being considered in determining the rates such as maximum benefit limit, room &
board, number of employees, dependents, inclusion of major hospitals and benefits included. But
there is no standard rule that will define up to how much each HMO can charge. Based on the
comparative rates per member as indicated in figure 4 and table 22, rates difference can vary
between an average of 1% and 30% depending on the room and board category. But there are
instances that HMO companies will dive down their rates to cut throat level just to get the accounts
according to AHMOPI.
The switching cost of the customer is almost none. Their main considerations are mainly price and
coverage. As long as the competitors can offer better rates and coverage, clients more often than
not will willingly change their provider. This in the end affects the entire industry.
HMO industry however remain attractive despite the factors mentioned above. Indeed, there are so
many companies both homegrown and foreign who entered and are entering the market. The capital
requirement in setting up an HMO company is very minimal at 10 million pesos before DOH can
35
Principles of Economics, 10th Edition by Case, Fair & Oyster
Page 27 of 137
issue a license to operate. For the longest time, there is no one strictly monitoring the industry
especially that DOH does not have the capacity to police them. But since the industry is highly
competitive, complex and the barrier to exit is relatively low - a lot of them folded over the years.
With the recent executive order placing the industry under Insurance Commission, AHMOPI (the
recognized industry organization) is hopeful that the much needed regulation will be implemented
this time.
Table 4.2.2A: Price Percent differences based on actual proposal for 200 employees.
Company XY Company A Company B Company C Company D Company E
Figure 4.2.2A: Rates per member based on actual proposal for 200 employees
XY A B C D E
4.2.3 Potential for new Entrants
Page 28 of 137
Rating: Moderate
The Insurance Commission in collaboration with AHMOPI intent to implement tighter rules in
setting up an HMO company once the Implementing Rules and Regulation of Executive Order 192
is put in place. This in effect will make it difficult for any company to enter the HMO market.
Unlike before, any company with 10 million pesos capital can apply for a license to operate from
the DOH.
The threat may be especially true, however from industries such as insurance and pre-need services.
Philamlife which used to be the owner of Company D for example is on the hunt for a HMO
company that they can acquire. It was reported late 2014 that it was in serious talk to acquire two
HMO companies36.
Similarly, there is no bar holding Ayala and MPIC in getting into HMO business considering that
they have been buying medical institutions left and right all over the country for the past couple of
years. Ayala Corporation in fact is looking at healthcare sector for the future growth of the
conglomerate. Testament to that is their partnership with Mercado Medical Group in building 10
hospitals and satellite clinics under the brand “Qualimed” in the next 5 years. It is worthy to note
also that they still owned a substantial share in BPI-PHILAM Life Assurance Corporation which
is already offering health insurance that somehow compete with HMO. MPIC Health Care Group
is in a shopping spree mode also having bought their 9th hospital early this year. The group already
owned prestigious hospitals such as Makati Medical Center, Cardinal Santos Medical Center, Asian
Hospitals and Medical Center to name a few.
As mentioned, customer loyalty is a problem in this industry since there is really nothing holding
the customers from getting another provider. As long as it can provide better coverage and cheaper
package - the client would gladly embrace the new provider.
The challenge for new entrants, however, revolves around how deep is their financial muscle, how
they can get the services of major health institutions and how they can provide competitive yet
correct pricing considering that they do not have the spread yet to counter the risk. Industry
experience would tell us that even Aetna (one of the biggest and successful HMO companies in the
world) tried to enter the Philippine market only to pull out later on. Same thing happened with the
36
http://www.philstar.com/banking/2014/05/06/1319661/philam-life-courting-2-hmos
Page 29 of 137
health care unit of Ayala Corp. There are about 20 HMO companies already that folded in the past
30 years according to AHMOPI.
4.2.4 Bargaining Power of Supplier

Rating: Moderate
Since there is no inventory in this industry that we can consider, the only logical “suppliers” of
HMO industry if one may call it, are medical doctors, nurses and hospitals. Although, HMO
industry is highly dependent on medical institutions and professionals for the actual health services,
in return, they are getting significant volume of business from the HMO industry. In fact, more
than 16% of the Hospital Industry revenue came from HMO related activities. That is equivalent
to more than 12.7 billion pesos based on 2014 data.
Shortage of hospitals and medical doctors are not the issue as well. Over the years, conglomerates
such as Pangilinan group and Ayala group have been building/expanding hospitals all over the
country. Early last year, Ayala group and Mercado Medical group committed to build 10 hospitals
over 5 years with combined capacity of 1000 beds.37 Metro Pacific Hospital Holdings Inc., of
Pangilinan group on the other hand currently have 2,244 combined hospital beds and planning to
acquire as many as 15 hospitals to achieve its 5,000 beds target.38
In terms of doctors and nurses, Dr. Marilyn Lorenzo of UP Manila College of Public Health said
as reported in GMAnetwork.com that 35 medical colleges are producing 2,000 medical doctors
every year. In the same report, it mentioned that there are 490 colleges producing up to 100,000
nurses annually which is way beyond the needs of our health sector.39
HMO companies also are starting to move towards backward integration particularly on the out-
patients and diagnostic services. Company A currently has 7 primary care centers, Company C has
10 and Company B has 19 medical clinics. Other industry players such as COMPANY XY,
Company D, Company E also have at least 1 or 2 diagnostic clinics of their own.
4.2.5 Bargaining Power of Buyers

Rating: Strong
37
www.Rappler.com
38
www.bworldonline.com
39
www.gmanetwork.com/news
Page 30 of 137
The bargaining power of buyers is really strong in this industry. More than 98% belongs to
corporate accounts that mostly came from key industries such as BPO, Manufacturing, Real Estate
and Renting Business, Hospitality & Restaurants, Financial Intermediaries and Transportation,
Storage and Communication industries.
BPO sector alone who has more than 1 million employees as of 2014 and accounts to almost 18%
(or 600K+) of the 4M members of the industry.40 Not to mention that BPO is one of the major
drivers of the Real Estate and Renting Business Growth which is one of the key sources of industry
members. Another seedbed of HMO memberships is the manufacturing industry which currently
have more than 3.1million employees as of 2014 and forecasted to reach 3.28 million this year.
Another reason for a strong bargaining power of the buyers is the undifferentiated if not
homogenous product of the industry. The product varies only in terms MBL limit and hospital
network. Even the top 3 players’ products offering and its features are almost the same including
the network of hospitals and medical doctors.
Buyers are now also becoming more intelligent and can easily compare offerings and performances
of different HMO companies due to the advent of internet. Internet users in the Philippines already
reached 45.8 million last 2015 according to internetlivestat.com. In effect, it covers almost 50% of
the country’s population.41 The challenge now for the industry is how to use this development to
the advantage of the industry.
4.2.6 Potential for Substitute

Rating: Weak
There’s really no significant substitute in the HMO industry. The closest that we could possibly
consider as substitute is “own savings” or paying the medical bills from our own pockets. However,
this is expensive and impractical because it does not limit our exposure to medical expenses. Unlike
having HMO coverage, the members can be at peace knowing that his or her possible health
expenses are limited to the annual premium that he or she has paid for. The challenge though, since
only 4 million Filipinos out of the over 100Million population are enrolled in a HMO program, is
how to convince majority of the population to plan well their health care needs. About 53% of the
40
BMI and Market Watch
41
http://www.internetlivestats.com/internet-users/philippines/
Page 31 of 137
households are still paying their medical expenses from their own pocket or savings based on the
2011 private sector spending on health.
4.3 Strategic Positioning & Recommendation

4.4 Figure 4.3A: Perceptual Map for Price Competitiveness and Market Coverage
C
XY
B
E
Among the market positioning variables identified, the two most significant variables considered
are Price Competitiveness and Market Coverage.
The x-axis represents the market coverage of an HMO company. This refers to the extent of
distribution network of the firm which can be measured by the number of Sales offices and
availability of e-commerce site. Brokers and agents are part also of the distribution networks but it
would be very difficult to measure them in relation to each HMO companies’ market coverage
because most of them are brokers and agents also of several other firms. This is one of the problems
Page 32 of 137
in the industry. AHMOPI is hoping that the transfer to Insurance Commission will help them
eventually address this concern.
Distribution network is very important in expanding the company. Competitive pricing, good
products and excellent customer support will not matter if we or our potential members/customer
cannot reach us.
The y-axis represents price competitiveness. As mentioned, industry practice in terms of pricing is
normally cost-plus and self-initiated. The challenge is pricing it correctly since the margin can be
so slim that the chances of losing money is too high if the company failed to assess the risk
associated with the accounts properly. It is always a balancing act. Measurement would be “Price
competitiveness” is low if the price is 10% more or higher than the market average and the price is
very competitive if the price is at least 10% lower than the market average.
Table 4.3A: Market Coverage
Availability of
No. Own Diagnostic Clinics / No. of Branches / Sales e-Commerce
COMPANIES Satellite Clinics Offices Site
COMPANY 2 Free-Standing Multi Specialty 3 Regional Offices & 4
XY Clinics & 2 Satellite Clinics Satellite Offices No
7 Free-Standing Multi Specialty 11 Regional Offices &
Company A Clinics, 1 Mobile Clinic Satellite Offices Yes
14 Multi-Specialty Clinics
Company E (Health Protect) 24 Sales Offices No
HQ & 4 Provincial
Company D 4 Clinics & 2 quick assist centers Offices Yes
Sources: Company Website, FB Page, GoogleNews, AHMOPI
Table 4.3B: Market Price Differences
XY A B C D E
XY A B C D E
Page 33 of 137
Sources: Actual company proposals for 200+ employees with same room and board category
And Maximum Benefit Limit
Other Market Positioning Variables and Strategic Maps

Figure 4.3B: Perceptual Map for Customer Support Facilities and Network of Service Providers
A
C
E
D
XY
The x-axis refers to the extent of network of service providers. These are the accredited medical
doctors, partner hospitals, dental clinics and other health service providers. Narrow would be
Page 34 of 137
accredited doctors of 10,000 & below and partner hospitals of 500 & below while wide networks
would be at least 30,000 accredited doctors and at least 1,000 partner hospitals. Owned or affiliated
free standing multispecialty clinics would be added support to the network of service providers.
The y-axis refers to the facilities available to support the members after the account/s was/were
acquired. A firm’s customer support facilities can be classified with “low availability of customer
support facilities” if the existing is limited to a hotline number only or call center and at least 1
owned/affiliated diagnostic clinic. On the other hand, it can be considered high if the firm has at
least 5 free-standing multi-specialty clinics, mobile app, members’ portal and a swipe system.
Table 4.3C: Network of Service Providers
Network of Partner
COMPANIES Doctors Hospitals No. Own Diagnostic Clinics / Satellite Clinics
2 Free-Standing Multi Specialty Clinics & 2 Satellite
COMPANY XY 22,000+ 700+ Clinics
Company A 30,000+ 1,000+ 7 Free-Standing Multi Specialty Clinics, 1 Mobile Clinic
Company E 9,000+ 400+ 14 Multi-Specialty Clinics (Health Protect)
Company D 27,000+ 1000+ 4 Clinics & 2 quick assist centers
Table 4.3D: Customer Support Facilities
No. Own Diagnostic Clinics /

COMPANIES Satellite Clinics Members' Support Facilities
2 Free-Standing Multi Specialty
COMPANY XY Clinics & 2 Satellite Clinics 24x7 Owned Call Center
24x7 Call Center, Mobile App, Toll Free
number, Company A SMS Inquiry Service,
Company A 7 Clinics Online Application, Swipe System
14 Multi-Specialty Clinics 24 hour call center (MM & Province), Online
Company E (Health Protect) inquiry, Mobile App
4 Clinics & 2 quick assist
Company D centers Mobile App, Social media, Swipe System
Page 35 of 137
Figure 4.3C: Perceptual Map for Technology Adoption and Marketing & Advertising Program
E
XY
The x-axis refers to how active is the marketing program of the company. This may include TV,
radio, newspaper and magazines for traditional media placements; billboards and digital signage
for out-of-home (OOH); and Facebook, Google, Linked-In and Youtube for digital marketing. A
program can be considered narrow when the existing and ongoing activities are limited to
traditional placement only specifically print ads and limited partnerships with establishments. It
would be wide when Mixed Media, OOH and Digital Marketing are being employed.
Page 36 of 137
The y-axis represents the openness and capability of the company to use technology to their
advantage. Especially in making it easy for the client to acquire a health card and how convenient
it is for the members to process claims and avail of the services. Basic or low would be the
traditional 24x7 call center and website only while technology adoption can be classified as high if
the company have an e-commerce system, mobile application, swipe card system, online
application, members and employee portals to name a few.
Table 4.3E: Technology Adoption
Company XY
Company A
Company C
Company B
Table 4.3E: Marketing and Advertising Program.
A XY D E
Page 37 of 137
Sources: Company Website, FB Page, GoogleNews
Recommendation:
The most meaningful strategic and marketing positioning variables are price competitiveness and
market coverage. HMO industry is highly competitive and there are players who are engaging in a
cut-throat pricing just to get the account which is hurting the entire industry according to AHMOPI.
The challenge in this industry is anticipating and assessing all the potential risks associated with
the prospective accounts. This involves analyzing the health profiles of all the employees/members,
checking their utilization rate and understanding the hazard levels of their respective jobs. After
doing all this due diligence, that is the only time the company can price the product correctly,
though outcome may not be necessarily competitive always. This is where long term prospect of
the accounts and its relevant to the overall objective of the company will come into play.
Market coverage on the other hand is critical in the sense that this the only way a company can
expand its business. No matter how good or competitive the pricing will not matter if the product
is hardly known or available to the customers.
Based on Figure 4.3A, COMPANY XY is strategically positioned with Company E and Company
D although with noticeable gap due to weak market coverage of the company. For the longest time,
the company has been focusing only with Metro Manila market and part of the Calabarzon areas
which limits its growth. The company in fact has been losing its market share for the past five years
simply because it is not growing as fast as the industry. So even though COMPANY XY’s pricing
is more competitive than Company D and Company E, it did not grew as much as them.
COMPANY XY should focus on finding ways on how to expand its market reach especially in key
growth areas where major industry sources of members such as manufacturing, BPO, real estate,
hospitality, transportation, communication and storage and financial intermediary are expanding.
At the same time, the company should maintain its competitive pricing and further study how it
can lessen its risk exposure.
4.5 Market Size, Share and Growth Trends
Page 38 of 137
The market size of HMO industry has been growing so fast at a double digit growth of 16.89%
CAGR in the last 5 years having 2013 as a banner year for the industry at 19.46% growth. This is
way above the average annual growth of the country’s Gross Domestic Product (GDP) of 6.22%.42
The growth is fueled by several factors like growing private healthcare expenditures, increasing
household income and savings, OFW remittances and the growth of key institutional sources of
members such as BPO industry, manufacturing industry, financial intermediary, hospitality
industry, real estate, renting and other business activities and transportation, storage and
communication industry. Noteworthy also is the growth of small players who posted a compound
annual growth rate (CAGR) of 33.9% in the last 5 years. In fact, the top 6 with the exemption of
Company C all lost market share as we can see in table 4.4B.
Table 4.4A: Market Size Based on Revenue of HMO industry from 2011 to 2015.
Company XY
Company A
Company B
Company C
Company D
Company E
Sources: SEC, AHMOPI
In the past 6 years, the market is primarily dominated by 3 major players who shared almost 70%
of the Market. Company A, the market leader currently has 24.60% market share followed by
Company C at 22.78% and Company B at 19.58% as indicated in table 4.4A. The big 3 was
followed by Company D as a distant no. 4 at 6.82% market share then Company E at 3.58% and
COMPANY XY at 2.02%. The remaining 20.62% was shared by close to twenty other HMO
players and pseudo HMO companies.
42
http://www.rappler.com/business/economy-watch/120543-philippines-gross-domestic-product-2015
Page 39 of 137
Table 4.4B: Market Share Based on Revenue of HMO industry from 2010 to 2015
Company XY
Company A
Company B
Company C
Company D
Company E
Table 4.4C shows that the total market growth has been declining in the past 3 years after it peaked
at 19.46% growth last 2013. Industry leader Company A posted a strong growth last 2015 at 12.91%
from a single digit growth of 8.38% last 2014. Aside from Company A, only Company B and
COMPANY XY register strong growth last year at 10.82% and 6.79% growth respectively.
Table 4.4C: Market Growth/Decline Trends from 2011 to 2015
Company XY
Company A
Company B
Company C
Company D
Company E
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The rapid growth of the industry presents a very positive opportunity for COMPANY XY to reach
wider market and increase its revenue and memberships. However, the company should response
strategically to the threat of its declining market share. Although COMPANY XY’s revenue is
growing steadily, it is not growing as much as the industry and its competitors who are enjoying a
double digit growth.
The company should employ a more aggressive response to expand its reach and increase its market
share. There is definitely a need for COMPANY XY to go beyond its “comfort market zone” which
is currently limited to Metro Manila and part of Calabarzon particularly in Cavite.
4.6 Market Analysis
4.6.1 Market Segment
The market of HMO industry is segmented by industry where its members are coming from. This
segmentation made it easier for HMO companies to identify where it should focus its resources and
support. Almost 75% of the industry revenues are coming from 6 major industries namely
manufacturing industry which currently contributes 22% of the total HMO industry revenue, real
estate, renting and other business activities with 17.75%, IT-BPO at 16.71%, financial intermediary
at 6.39%, transport, communication and storage at 6.22% and hospitality and restaurant industry at
3.80%.
The manufacturing industry currently employed more than 3.2Million as of 2015 and posted a
compound annual growth rate (CAGR) of 5.45% from 2011 to 2015.43 There are several indications
that show how significant this segment is in the growth of HMO industry. Most of the Big HMO
players are putting facilities near manufacturing hubs. Company A for example has offices in
Baguio, Cebu, Batangas and Pampanga which are all known as manufacturing hubs. Similarly,
Company B also has an office in Cebu, Clark, Calamba, Sta Rosa and Cavite. Company C also has
offices in Angeles, Calamba and Cebu.
Real estate, renting and business activities, the 2nd biggest contributor in terms of revenue to HMO
industry, register a growth rate of 9.18% CAGR from 2011 to 2015. It was followed by BPO
43
www.psa.gov.ph
Page 41 of 137
industry which has almost 1.1 million direct employees. BPO Industry includes call centers, back
office outsourcing, IT and other outsourcing services. This is the most solid market of an HMO
company especially that health cards is one of the major benefits that they are offering to their
employees. A lot of them are even extending the benefits to the dependents of their employees. It
is worthy to note also that one of the major growth drivers of real estate and renting business
segment is also BPO. Financial intermediaries on the other hand currently accounts to 6.39% of the
industry revenue. This segment has almost 500,000 employees as of 2015 spread across more than
10,000 banks and more than 18,000 non-banks institutions.44
Table 4.5A: Market Segments, Revenue Contribution and Memberships
Table 4.5B: BPO Industry Revenue and No. of Employees
BPO INDUSTRY GROWTH

Year Revenue (USD Billion) % Growth No. of Employees
2014 18.90 #DIV/0! 1,070,000.00
2015 22.00 16.4% 1,100,000.00
2016f 25.00 13.6% 1,205,000.00
2017f 28.49 13.97% 1,310,000.00
2018f 32.47 13.97% 1,415,000.00
Sources: BMI, Rappler
This market segmentation provides straight forward yet very valuable inputs on where the firm can
focus its limited resources and effort to achieve the much needed market share growth. Almost 50%
of COMPANY XY revenue comes from manufacturing segment considering that the current
operation is limited and concentrated in Metro Manila and Calabarzon areas. The company can use
its experiences from these areas to expand to other manufacturing hub such as Clark, Subic, Cebu,
44
www.psa.gov.ph; www.ncsb.gov.ph
Page 42 of 137
Baguio and Bulacan. In the same manner, the segmentation shows that IT-BPO is another segment
that COMPANY XY should aggressively cover. Consequently, real estate & renting business is
very much linked with BPO so it would be a lot easier for the company to expand on this segment
once BPO segment were strategically covered.
4.6.2 Key Products and Services

Table 4.5.2A: Product Category
2011 2012 2013 2014 2015e CAGR

In Thousand Pesos 16,796,178 19,326,301 23,088,000 27,078,000 31,161,870 16.7%
Regular Corporate HMO
11.9%
Accounts 14,024,809 15,750,935 18,585,840 21,527,010 21,969,118
* Corporate Admin Service
36.4%
Only (ASO) 2,519,427 3,285,471 4,155,840 5,144,820 8,725,324
Individual, Family, Group (IFG) 251,943 289,895 346,320 406,170 467,428 16.7%
Total Market 16,796,178 19,326,301 23,088,000 27,078,000 31,161,870
% Market Share
Regular Corporate HMO
Accounts 83.5% 81.5% 80.5% 79.5% 70.5%
Admin Service Only
(ASO)/Cost Plus 15.0% 17.0% 18.0% 19.0% 28.0%
Individual, Family, Group (IFG) 1.5% 1.5% 1.5% 1.5% 1.5%
Total Market 100% 100% 100% 100% 100%
The products of HMO industry can be broadly categorized into two, which are corporate and
consumer commonly known as IFG (Individual, Family and Group) accounts. Although, not yet a
standard industry product and not all HMO companies are offering Administrative Service Only
(ASO), this can be classified as an offshoot product or a sub-category of regular corporate accounts.
The main difference between the two is the assumption of risk. In regular corporate accounts, a
company would pay the HMO Company a premium based on the desired maximum benefit limit,
room and board category, health profile and number of employees. The exposure of the company
would be limited to the amount of the said premium regardless of utilization rate. So the risk is with
the HMO Company. In the case of ASO, the risk is being assumed by the client by just paying the
HMO Company a fixed amount or percentage of the fund needed to provide similar health services
coverage. HMO Company will compute for the fund needed based on the same considerations and
the client will finance it. If the utilization is lower, the client kept the savings. But if the utilization
gets higher, that is where the risk comes in because their expenses gets higher as well.
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Consumer accounts or IFG on the other hand are individually, family or group paid accounts.
Meaning, these are members who are paying their health cards from their own pocket. Which may
explain why its numbers has not grown over the years. This is despite of the increasing household
income and flow of OFW remittances. The survey conducted by SWS shows that in case of health
emergency, 40% of the adult Filipinos will rely on the income of their spouses while 44% would
get money from their business income or salaries while others would reach to their savings or
government provided health benefits such as PhilHealth. Only 5% of those who were surveyed said
that they have HMO coverage.45
Based on 2011 to 2015 figures as indicated in Table 4.5.2A, almost 99% of the revenues are coming
from corporate accounts. The trend shows also that ASO share of the corporate accounts is
continuously growing and posted a CAGR of 36.4% which is almost triple of the regular corporate
accounts growth.
This product category undeniably shows that the company should seriously consider offering ASO
as a standard service/product and rethink its strategy on consumer or IFG products. Although
COMPANY XY occasionally engage client in an ASO arrangement, it is not being offered actively.
All ASO engagement of the company are client initiated. COMPANY XY should find ways on
how it can capture a big slice of the rapidly growing ASO market. Especially that the 3-year forecast
shows that ASO share would reach 41% of the corporate accounts by 2018.
4.6.3 Market Forecast by Segment

Table 4.5.3A: Market Forecast by Segment
45
www.Inquirer.net
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The over-all market is projected to grow at a compound annual growth rate (CAGR) of 20% in the
next three years. This forecast is still a bit conservative considering that the industry posted a 17%
CAGR in the last 5 years. Among the key segments, BPO, Real Estate, Renting & Business
Activities, Manufacturing and Hospitality Industry are expected to post a double-digit growth until
2018. 46
This forecast will help us align and focus the firm’s limited resources to the segment/s that can
bring us the much needed growth. BPO for example is a segment that we should put more effort to
cover. COMPANY XY barely have few thousands of members from BPO industry in the last five
years despite the fact that employment from this segment have reached almost 1.1 million already
last year.
Table 4.5.3B: Market Forecast by Product Category
The market forecast on a per product category on the other hand shows that regular corporate
accounts, ASO and IFG Account will grow by 12.01%, 36.58% and 16.85% CAGR respectively
in the next 3 years.
Similarly, this forecast is a clear indication that offering ASO as part of COMPANY XYs standard
product portfolio can help the company to increase its market share. The company should rethink
46
Rappler, PSA, GMA & Businessworld
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its strategy in covering regular corporate accounts as it is expected to shrink that will make it hard
to expand its share on this category.
4.6.4 Distribution Channels
HMO companies has a very lean and simple distribution channel. It is an industry practice to use
combinations of Direct Sales, Brokers and 3rd Party Agents. Direct sales are either company
employees selling directly to companies and individuals or e-commerce facility where consumers
can avail of health card without even having to deal with a sales person or agent. Brokers and
agents on the other hand are third party entity and individuals carrying the company’s product in
exchange of incentives or commissions. These two could have been a cost effective mode of
distributing the product if not for the loyalty concern. It is common among them to be brokers and
agents of several companies and push the product of the one who will give them the highest
discounts or incentives. The problem with this is they will always ask one company to match the
price of the other until it brought down the cost to the cut throat level.
HMO industry is still in the process of institutionalizing its reporting policy. According to the
Executive Director of AHMOPI Mr. Carlos Lee Da Silva, they do not have data yet that can tell
which channel is more effective and he is doubtful whether HMO companies would be willing to
share this kind of data because as per his 3 decades experienced in the industry – players are very
protective of information that may erode their competitive advantage. He is hoping that with the
transfer to Insurance Commission, they would be able to come up with such kind of reports
eventually.
However, based on the results of interviews and survey with various HMO clients, it shows that
84% of the respondents preferred to deal directly with the provider while 11% are dealing with a
broker and another 5% with a 3rd Party Agent/s.
Figure 4.4.4a : Distribution Channel Share
Distribution Channel
5%
11%
84%
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Provider Broker Agent

Figure 4.4.4b: Distribution Channels of a HMO company
COMPANY XY need to revisit its distribution strategy which is heavily dependent on brokers and
agents. Although, further study may be needed, the result of interviews and survey mentioned above
shows that a lot of clients are dealing directly with HMO companies. COMPANY XY may bank
on its experience also in balancing the size of its direct sales business and agents & brokers’
provided business. The company may come up with a strategy that will encourage these 3rd party
distribution channel to sell COMPANY XY exclusively. At the end of the day their primary
concern is how to make the most of their business also.
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4.6.5 Marketing and Promotions
Table 4.5.5a: Marketing and Promotional Activities of HMO Companies
Company A Company XY Company D Company E
Company A, aside from being the biggest HMO company, is also the most active in terms of
marketing and sales activities. It utilizes mixed media such as newspaper, Out-of-Home (OOH)
advertising and various social networking site. Company A also had a regular partnerships with
various industry organizations and influencers such as Department of Health, Call Center
Association of the Philippines (CCAP), Bankers Institute of the Philippines (BAIPHIL) and People
Management Association of the Philippines (PMAP) to name a few. They have been making
strategic partnerships by providing scholarships grant to key medical and nursing schools which
ultimately give them long term partnership advantage to the said institution and future medical
professionals. Another areas that Company A has been investing heavily and doing well is in the
use of information technology. Company A currently has portals connecting all their stakeholders
into a single website. It has portals for their brokers & agents, for their network of service providers,
for their members and their employees.
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Similarly, Company D and Company E have been very active in social media, print ads and to some
extend to out-of-home advertising. Both of them also are using technology to their advantage such
as e-commerce, mobile apps and swipe card systems.
COMPANY XY on the other hand had a very few media exposure. The company seldom place an
ads nor conduct an event that can help boost the image or public recall of COMPANY XY.
Technology adoption is very poor as well in the past five years. Current website is very basic and
does not have an e-commerce facility while the facebook is the only social networking site of the
company.
COMPANY XY need to revisit its marketing program. Certainly, it is not working as can be seen
in the growth of the company and its declining market share. It is understandable that COMPANY
XY cannot fight with the big players head-on when it comes to marketing campaign due to budget
constrain. But there are lots of creative ways through the help of technology and social media that
the company can use to market itself. The company should seriously consider putting more weight
in its marketing team and effort to reach wider market.
4.7 Competitive Profile Matrix
Based on the strategic positioning grouping, the closest competitors of COMPANY XY are
Company E and Company D while Company A being the number one is the competitor that the
company can use as a bench mark. Company D and Company E ranked far number 4 & 5 in terms
of market share while COMPANY XY is number 6.
4.7.1 Key Competitors
4.7.1.1 Company A Health Corporation

Size: PhP. 7.7Billion (2015e) Market Share: 24.6% (2015e)
Company A was established in 1987 by an esteemed group of doctors and businessmen with the
vision to deliver a better healthcare system.47 A proud member of the Equicom group of companies,
47
Company A Website
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Company A currently has more than 40,000 accredited medical doctors and more than 1,000 partner
hospitals and clinics across the country. With more than 1 million members, the company is the
market leader with 24.6% estimated market share as of 2015. However, although its revenue has
been growing consistently at 12.9% CAGR from 2010 to 2015, it is experiencing a slight decline
in market share for the past 3 years because of the market expansion.
4.7.1.2 Company D, Inc.

Company D or Company D is a wholly owned subsidiary of XTI Investments, Inc. It was

established in 1982 with the vision of allowing Filipinos to enjoy a quality life by providing them
access to world-class health services. It is currently serving more than 300,000 members with the
help of its more than 1000 partner hospitals & clinics and nearly 27,000 accredited medical doctors
and specialist.48 Company D have grown significantly for the past 6 years from less than a billion
revenue in 2010, it surpassed the 2 billion mark with an estimated amount of 2.1 billion revenue in
2015 achieving a compound annual growth rate (CAGR) of 14.1% which is even better than the
13.9% of the industry.
4.7.1.3 Company E
Company E Inc. (Company E) was established in 1985 and has grown to become one of the major
players in HMO industry. The company is boasting its more than 9,000 medical and dental
specialists and over 400 affiliated hospitals serving 150,000 members49. With more than 1.1 billion
revenue, it currently holds the number 5 spot at 3.6% market share.
48
Company D website
49
Company E Website
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4.7.2 Critical Success Factors (CSF)
4.7.2.1 CSF # 1: Competitive Pricing

CSF Type: Revenue Driver
Importance Weight: 11%
Competitive Pricing refers to the ability to offer competitive pricing. This factor was identified as
CSF and given 11% importance weight because this is one of the major considerations of the
clients. Especially in the case of corporate accounts, health card is one of the expected benefits
being given to the employees and will form part of the annual cost. However, though important,
this is not considered as the most important factor since industry players have the tendency or
sometimes getting force to engage in a cut-throat pricing just to get the account. Normally, the
client or broker shows the proposal given to them to a competitor to get better pricing and coverage.
4.7.2.2 CSF # 2: Responsive Customer Service

This refers to the ability of the company to provide excellent customer service to its members and
partners. Members would always want an easy and speedy approval of their claim request while
partners need a timely payment for their services. Customer service is very critical in ensuring that
the members remain happy with the company so that they would stay. In the same way, health
service providers would expect nothing less as well. This is given 15% importance weight because
serving two sets of customers with varying needs is no easy task. Unfortunately, there is no
available studies whether 3rd party or within the industry that can tell how responsive the customer
service of each HMO companies are. The absence of active regulation makes it more difficult also
to track such valuable data. The alternative objective measurement that can be used is the
availability of facilities intended to support the members and partners such as Call Centers, Mobile
Apps, Online Portal, E-Commerce site, Swipe System and SMS System.
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4.7.2.3 CSF # 3: Wide and Strategic Market Coverage
Wide and strategic market coverage refers to the effective sales coverage of the industry customers
through various channels such as direct sales, brokers, agents and e-commerce platform. This is
given 19% importance weight which is the highest rating because no other factor has more direct
impact on generating revenue and therefore to the growth of the company than market coverage.
4.7.2.4 CSF # 4: Ownership of Strategically Located Diagnostic Clinics

CSF Type: Revenue Driver/Cost Management
These are company owned or company controlled multi-specialty diagnostic clinics that offer an
out-patient services as well as minor surgical services to its members. Having such services as a
status symbol for HMO company. This is one of the factors that corporate clients are looking into
when selecting an HMO company because aside from service accessibility, it speaks of the
company’s credibility and stability. Long term cost management impact can be expected also as a
result of having an owned diagnostic clinics because almost 80% of the total membership revenue
of HMO company goes to service providers and more than 50% of that cost are normally associated
to out-patient services cost.
4.7.2.5 CSF #5: Ability to maximize fund management and to minimize fund utilization.
CSF Type: Revenue Driver/Cost Management
This refers to the ability of the company to use its resources to pay the service providers at the right
time, reduce cost and the ability to use premiums and excess cash to generate more income through
investment in various financial instruments. HMO companies are heavily dependent on service
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providers and just like any other businesses - they need cash to continue the operations. A lot of
these service providers are giving prompt payment discounts that HMO companies can take
advantage of. In the same way, it is crucial for an HMO company to collect its membership
premiums on time and be able to invest on a high yielding investment opportunity to augment its
income.
4.7.2.6 CSF #6: Strategic Partnerships with wide network of service providers.
In the same manner that market coverage is crucial in generating and increasing revenue, strategic
partnerships with wide network of service providers is the key in the ability of the company to serve
large number of members. As the company grow its revenue by increasing its memberships, it
would more or less need to widen the reach of its service providers as well. These are accredited
doctors, partner hospitals and other health service providers. This is given 15% importance weight
because even though indirectly, this can have enormous impact on the company’s revenue because
this is one of the criteria that corporate clients are looking into.
4.7.2.7 CSF #7: Ability to take advantage of on-line facilities such as portal and e-commerce platform
in improving members’ service and generating revenue.
The consumer market or commonly known as individual, family and group (IFG) market of HMO
industry is traditionally more delicate to handle because the company needs to deal with individual
person. Despite the enormous tasks and risks involve in covering and serving this market, the return
is very minimal compared to corporate clients. That is why many brokers and agents are shying
away from covering them. However, with the advent of internet and availability of online portal
and e-commerce platform, dealing with this market is getting easier. The big players now are
offering prepaid health cards that can be purchased on-line without the need for a physical person
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to explain the product to the potential member. All the details about the product are posted in the
website which the customer can read essentially passing the burden of understanding what it covers
to the potential member.
4.7.2.8 CSF #8: Active Marketing Campaign

This refers to the marketing activities of the company to ensure that people have them in mind
when looking for an HMO provider. This is very important especially in capturing corporate clients
who will possibly avail HMO services for the first time. The chance of at least getting a call from
them is higher if they remember the HMO companies and easily find their contact details. The same
concept applies with IFG market.
4.7.3 COMPANY XY’s CSF Ratings
CSF # 1: Competitive Pricing

Rating: 3
The market pricing based on actual corporate proposals for 200 employees with the same maximum
benefit limit and room and boards categories shows that COMPANY XY’s pricing for ward and
regular private rooms are 13% to 30% lower than the industry average. This is significant advantage
because bulk of the members especially rank & file employees are commonly given this category.
COMPANY XY’s pricing however is more expensive by 2%-19% when it comes to higher ends
room category.
CSF # 2: Responsive Customer Service

Rating: 3
The company valued customer service so much. In fact, because of the commitment of COMPANY
XY in providing excellent customer service, they opted to create and maintain their own call center
despite the cost associated with it. One of the policies and major KPIs of the call center team is the
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zero lost call policy. As a result, the company lost only 1.65% of the more than 78,000 received
calls last 2014 and a 93% renewal rates.
COMPANY XY recently hired also a brand experience manager, a newly created position, to
ensure the quality and consistency of our service. However, the current facilities need to be
improved to align it with the desired growth of the company.
CSF #3: Wide and Strategic Market Coverage

Rating: 1
The company became complacent over the years and concentrated their operation mainly in NCR
and Calabarzon areas. Although the company consistently remained profitable, its limited sales
offices, direct sales agents, 3rd party agents and brokers have resulted to continuously decline its
market share. Lately, the company has started expanding its operation in selected areas such as
Cebu and Iloilo. Still, the company does not have an e-commerce facility that can put it at par when
it comes to covering individual, family and group (IFG) market.
CSF #4: Ownership of Strategically Located Diagnostic Clinics

Rating: 2
COMPANY XY currently only have two multi-specialty diagnostic clinics and four referral clinics
catering to its Metro Manila and Calabarzon markets. This is sufficient for now since 70-80% of
our clients are based in Calabarzon and Metro Manila areas. But this certainly puts the company in
a disadvantage position as far as supporting the growth of its operation in Cebu, Iloilo, Davao and
other areas of concern.
CSF # 5: Ability to maximize fund management and to minimize fund utilization.

Rating: 4
COMPANY XY is doing well in managing both its receivables and payables. Its average accounts
receivable turnover and average collection period is 645 and 0.66 respectively which is far better
than the industry average of 47.8 and 83.4. The company’s average accounts payable turnover and
average payment period on the other hand is 8.1 and 45.4 which is also better than the 6.4 and 104
of the industry. With its very good financial standing, COMPANY XY is taking advantage of
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prompt payment discounts being offered by health service providers saving the company up to 15%
of its service costs. More importantly, the company’s ability to control its cost and invest its
premium & excess cash has afforded it to have a higher average net operating margin of 6.8%
which is more than 3 times of the industry average of 2%.
CSF #6: Strategic Partnerships with wide network of service providers

Rating: 3
The company is one of the preferred HMO partners of many hospitals, doctors and other health
service providers because of its prompt payment policy. COMPANY XY currently has more than
22,000 affiliated medical doctors and over 700 accredited hospitals and health service providers.
CSF #7: Ability to take advantage of on-line facilities such as portal and e-commerce in
improving members’ service and generating revenue.
Rating: 2
COMPANY XY failed to take advantage of the development in technology particularly in

harnessing the potential of online technologies such as portal and e-commerce. The company’s
website is still very basic and lacking necessary features that can make it an effective members and
partners support tool.
CSF #8: Active Marketing Campaign

Rating: 2
The company has not been advertising for a long time. Owners and key executive does not see the
need for it. Marketing activities are limited to occasional partnerships with few institutions. Aside
from FB page, COMPANY XY is not active either in social media. In fact, there is even no
dedicated marketing department and manager. Just like other traditional businesses, marketing is
buried within sales organization and normally staff by a low level personnel.
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4.7.4 COMPANY A’s CSF Ratings

Rating: 3
The market pricing based on actual corporate proposals for 200 employees with the same maximum
benefit limit and room and boards categories shows that Company A’s pricing for ward and regular
private rooms are up to 8% higher than the industry average. While higher end room categories
such as small private and regular private rooms are up to 24% lower than the industry average.

Rating: 3
Company A is currently in a position to support well its members and growing business needs. It
has an extensive online facilities that serves all its stakeholders particularly its members,
employees, brokers, agents and health service providers under a single website. The company made
a significant investment also via information technologies such as mobile apps, SMS inquiry
system and swipe system that made it easier for the members to process their claims.

Rating: 4
Company A have an extensive market coverage which certainly served them well in becoming the
biggest HMO company in the country. They currently have 11 regional offices, almost 30 full time
in-house sales representatives and an extensive online facility on top of the traditional partnerships
with brokers and agents.50

Rating: 4
Company A currently have one of the widest networks of owned multi-specialty diagnostic clinics
in the country. Its seven free standing clinics and a mobile clinics are strategically located all over
the country serving the needs of almost 1million members.
50
Company A Website, AHMOPI
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Rating: 3
Certainly, the company has able to use its financial muscle in generating revenue in gaining the
biggest market share. However, the company is doing poorly in managing its accounts receivables.
Company A’s average AR turnover and average collection period is 1.7 and 214 respectively which
is way behind the industry average of 47.8 and 83.4. These somehow affect the ability of the
company to invest its premium. The company’s average accounts payable turnover and average
payment period on the other hand is at 1.5 and 242 which is also lagging behind the 6.4 and 104 of
the industry average. The company’s net operating margin is slightly better though at 3% than the
industry average of 2%.

Rating: 4
Company A currently has more than 30,000 affiliated medical doctors and over 1000 accredited
hospitals and health service providers serving their almost 1 million members across the country.
Rating: 4
Company A invested heavily on online technologies such as e-commerce and portals. Its current
website is very interactive and is equipped with online applications, online feedback forms, an
employee portal, a brokers and agent’s portal, a members log-in and health service providers online
access. These are on top of the e-commerce facilities that allows the potential members to purchase
their pre-paid health card/s online.

Rating: 4
Consistent with its being number one in the industry, Company A has been advertising extensively
covering various medium such as newspaper, magazines, billboards, social media among others.
And these are supported by active partnerships with various client industry associations and
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influencers such as Bankers Institute of the Philippines (BAIPHIL), People Management
Association of the Philippines (PMAP), Contact Center Association of the Philippines (CCAP),
Department of Health (DOH) and GSIS.
4.7.5 COMPANY D’s CSF Ratings

Rating: 2
Based on the proposal for 200 employees with the same maximum benefit limit and room and
boards categories shows that Company D’s pricing for ward and regular private rooms are up to
10% higher than the industry average. While higher end room categories such as small private and
regular private rooms are up to 14% higher than the industry average.

Rating: 3
Following the footsteps of the market leader, Company D also invested in various facilities that can
help support its more than 300,000 members. Technology is in the forefront of its support facilities
having invested in mobile application and swipe system that speed up the processing and approval
members’ benefit claims.

Rating: 3
Company D currently have a head office located in Makati and 4 regional offices strategically
situated in Cebu, Davao, Bacolod and Calamba that can support its growth. The company is
capitalizing also in e-commerce and online payment technology to tap the consumer market or the
individual, family and group (IFG) segment.

Rating: 3
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Aside from wide network of health service providers, the company is currently supporting their
more than 300,000 members with 4 free-standing multi-specialty diagnostic clinics located in
Ayala, Quezon City, Megamall and Manila as well as 2 quick access clinics for members with
access in Makati Medical Center and Medical City.

Rating: 2
Despite growing revenue, Company D is unable to maximize its financial resources to control its
cost, liquidity and profitability. The company’s average AR turnover and average collection period
is 3.75 and 103.5 respectively which is lagging behind the industry average of 47.8 and 83.4.
Consequently, the company’s ability to invest its premium to other financial instruments that could
help improved its bottom line is affected. The company’s average accounts payable turnover and
average payment period however is at 6.0 and 83 which is somewhat close to the industry average
of 6.4 and 104. Moreover, the company’s net operating margin is almost the same as the industry
average of 2% at 1.97%.

Rating: 3
Currently, Company D has more than 27,000 affiliated medical doctors and over 1000 accredited
hospitals and health service providers serving more than 300,000 members across the country.
Rating: 3
Company D website is very interactive and equipped with an integrated e-commerce and online
payment facilities. This enable their consumer markets to purchase wide selection of prepaid health
cards that suit their preferences. The facility effectively shifted the responsibility of explaining the
product to the potential members from “human agent” to a “self-help ordering site”. Similarly, the
company’s website also provides a facility for prospective corporate clients to inquire and request
quotation online.
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Rating: 3
The company’s trust as far as marketing campaign is concern is on the digital space. Company D
is very active in social media utilizing networking accounts such as Youtube, Facebook, Instagram
and Twitter. They are actively partnering also with technology and telco companies such as Smart
Communications, Dragon Pay, Aurum Pay, App Store and Google Play.
4.7.6 COMPANY E’s CSF Ratings

Rating: 2
Company E’s pricing for ward and regular private rooms categories are more expensive than the
industry average by 7% to 15% while high-end rooms category are up to 11% costlier than the
industry average.

Rating: 2
The company is utilizing technologies also in supporting its more than 150,000 members. Company
E currently have mobile applications, online inquiry and swipe system. These are on top of the
24x7 call center and numerous multi-specialty clinics and sales offices across the country that
members can go to.

Rating: 3
Currently, Company E has one of the widest distribution network in the industry owing it to the
network of its mother company – Fortune Insurance. The company is boasting its 24 sales offices
across the country on top of its distributors and agents.
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Rating: 3
Aside from having the widest distribution network, Company E also have one of the largest
networks of free standing multi-specialty clinics in the country via its sister company – Health
Protect Medical Diagnostic Center. Health Protect currently has 14 branches located in Pasig,
Manila, Makati, Caloocan, Muntinlupa, Bulacan, Angeles, Cabanatuan, Tarlac, Batangas, Iloilo,
Cebu and Davao.

Rating: 2
Although Company E’s revenue has grown by more than 55% last 2014, the company’s operating
profit margin fall short of the industry average at 1.3%. The company’s average AR turnover of
11.3 is lower than the industry average of 47.8 while the average collection period of 33 days is
much better than the industry average of 83.4 days. Company E’s average accounts payable
turnover on the other hand is doing well at 16.3 compared to industry average of 6.4 while the
average payment period of 25.8 is also better than the industry average of 104. Moreover, the
company posted no investment activity to other financial instruments in the last three years.

Rating: 2
Among the top 6 HMO companies, Company E has the least number of affiliated medical doctors
and accredited hospitals at 9,000 and 400 respectively. One possible reason for this is the intention
to utilize its wide network of free standing multi-specialty diagnostic clinics scattered across the
country which can help save on the cost of out-patient services.
Rating: 2
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Company E website is not as sophisticated as major competitors but it is equipped with an online
quotation feature. It is just a step away from having an interactive e-commerce site where the IFG
customer can purchase their pre-paid health cards online.

Rating: 3
The company is investing a lot in their marketing campaign as can be seen in their advertising
expenditures which grew by 139% last 2014. Aside from traditional magazine and newspaper
placements, the company invested also in TV commercial which was released in 2015. On top of
all these, Company E is also very active in social media.
Table 4.6.6a: Competitive Profile Matrix
Company A
Company XY Company D Company E
4.8 External Factor Evaluation
4.8.1 Opportunities and Importance Weights
4.8.1.1 O1: The economy has performed well in the last 3 years and GDP is expected to grow between
6% and 7% in the next 3 years.
(Macro-Environmental Analysis – Economic)
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This was given 20% importance weight which is the highest because of its direct impact in the
growth of specific industry segments that significantly contributes in terms of revenue and
memberships to the HMO industry as discussed previously in the macro-environmental analysis.
These specific industries are real estate, renting and other business activities, IT-BPO,
manufacturing, financial intermediaries, hospitality & restaurant and transportation, storage &
communication industry. Other factors that are dependent on economic growth are the private
healthcare expenditures and to certain extend the household disposable income.
4.8.1.2 O2: Full Implementation of Executive Order 192 Guidelines

(Macro-Environmental Analysis – Political)
This was given 15% importance weight because of the possible benefits and tax savings that it
could bring to the industry. According to AHMOPI, the transfer of HMO industry to insurance
commission is expected to result to stricter rules in setting up and operating an HMO company
which will further strengthen the industry. Some of these possible developments are tax exemptions
or realignment, higher capital requirements and clearer reporting & operating requirements to name
a few. One particular tax measure that AHMOPI is pushing is the alignment of taxes with the
insurance industry. Currently, HMO Companies are subject to 12% VAT while insurance
companies offering pseudo HMO products are paying only 2% tax. This alone can bring billions
of savings to the industry.
4.8.1.3 O3: Increasing Household Income

This was given 10% importance weight since this is a favorable opportunity especially in expanding
the consumer or IFG market. The increasing household income and savings as shown in the annual
family income & expenditures survey in the macro-environmental analysis last 2012 is an
indication of the availability of financial resources of the families to set aside or secure a budget
for their healthcare needs.
4.8.1.4 O4: More than 90% of Filipinos do not have HMO coverage.
(Macro-Environmental Analysis - Social)
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More than 95% of the Filipinos are still relying on their savings, business income, salaries and
government provided health benefits for their medical emergencies and healthcare needs. In fact,
as of 2014, only 4 million Filipinos are covered by HMO according to AHMOPI. So there is still a
big untapped market for the HMO industry.
4.8.1.5 O5: Telemedicine is gaining ground in the country

(Macro-Environmental Analysis - Technological)
More than 50% of the cost of HMO industries are related to outpatient services and any savings
from this area will significantly improve the margin of the industry. The advent of telemedicine
presents a possibility to lower the cost of outpatient services in the long term. It can provide an easy
access to services also for members from remote areas and address the lack of specialist doctors.
4.8.2 Threats and Importance Weights
4.8.2.1 T1: Increasing incidence of lifestyle related diseases in the Philippines.

(Macro-Environmental Analysis – Social)
According to SWS survey, 40% of the adult Filipinos will rely on the income of their spouses while
44% would get the money from their business income or salaries and the remaining would reach to
their savings or government provided health benefits such as PhilHealth.
This was given 10% importance weight because changing the mindset of the Filipinos towards
health care planning is one of the significant threats that HMO industry need to overcome to
penetrate the consumer or IFG market.
4.8.2.2 T2: Possible Increase in the claim cost due to proliferation of mosquito borne diseases
(Macro-Environmental Analysis – Environment/Climate)
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Studies conducted by Asian Development Bank on the health impacts of climate change indicates
that there is a direct correlation between the amount of rainfall and the increase of mosquito borne
diseases. Statistic as can be seen in the macro-environmental analysis shows that the average annual
increase of dengue cases alone between 2008 and 2013 reaches almost 40%.
4.8.2.3 T3: Economic impact of calamities to companies and individual Filipinos

Although, this threat seems to be beyond the control of the industry, this was still given 5%
importance weight because of the setback it might cause to the industry. Especially that the data
from the International Disaster Database EM-DAT shows that natural disasters occurred in the past
4 years have cost Philippines almost USD 15 billion and claims the lives of 9,672 people and
affected 44.6Million others. That is huge amount of money that could have been spent to health
care services at least portion of it.
4.8.2.4 T4: Rising Medical Cost

Medical institutions and doctors’ organizations such as Philippine Medical Association (PMA),
Philippine College of Surgeons, Philippine College of Physicians, Philippine Society of Oncologist
and Philippine Heart Association among others have an existing MOA with the industry defining
the negotiated professional fees and hospital services rates according to AHMOPI. However, some
of these associations are now lobbying for a 25% increase this year and a provision to increase on
a yearly basis.
This is a significant threat which was given 10% importance weight because based on the 2014
payments made by the industry to doctors and hospitals, the 25% increase will result to at least one
(1) billion additional cost impact to the industry.
4.8.2.5 T5: Intense Rivalry among Big Players.

(Five Forces)
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This is certainly a potential threat to the industry particularly to small players like us due to the
possibility of merger and acquisition. The big three controls almost 70% of the market share and
possible reason why players like us are still existing is because they are not seeing us as a threat
yet.
4.8.3 Opportunities and COMPANY XY’s current responsiveness
4.8.3.1 O1: The economy performed well in the last 3 years and the GDP is expected to grow between
6% and 7% in the next 3 years.
Rating: 4
The company has been consistently profitable for the past 25 years. Although, its operation is still
largely concentrated in Metro Manila and part of Calabarzon areas. Moving forward, COMPANY
XY need to actively cover other growth areas where activities of key industry drivers such as IT-
BPO, real estate & renting business, financial intermediaries, hospitality among other industries
were particularly strong and growing.
4.8.3.2 O2: Full Implementation of Executive Order 192 Guidelines

(Macro-Environmental Analysis – Political)
Rating: 3
COMPANY XY’s patriarch who is currently the chairman of AHMOPI together with its executive
director and president are very much involved in getting the said E.O. signed by the Philippine
President. Moreover, they have been working hand in hand with insurance commission to shape
the industry through its implementing rules and regulations.
4.8.3.3 O3: Increasing Household Income

Rating: 2
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The company currently have sufficient product lines to cater to the consumer market or individual,
family and group (IFG). However, much is needed to be done particularly in having an aggressive
marketing campaign and necessary technological resources such as online portal and e-commerce
site that can make it easier for the customer to obtain the pre-paid health cards product while
lessening the administrative task involved in selling it.
4.8.3.4 O4: Telemedicine is gaining ground in the country

(Macro-Environmental Analysis - Technological)
Rating: 1
The company have the habit of being late adopters. It does not go easily with the technological
advances. That is the reason why the company is still not using swipe systems and no e-commerce
and online portal in place yet while the top 5 competitors has been using it already for quite some
time. So it is no surprise that the company is not making any move yet to explore the potential of
telemedicine.
4.8.3.5 O5: More than 90% of Filipinos doesn’t have HMO coverage.
(Macro-Environmental Analysis - Social)
Rating: 3
The company has been serving the Filipino people for more than three decades. However, the
company can do a lot by exerting more efforts in expanding its reach beyond its current market.
The company has stayed for so long in its traditional market space. Although, the company has
been making money for a long time, it is slow in taking advantage of the growth of the entire
industry.
4.8.4 Threats and COMPANY XY’s Current Responsiveness
4.8.4.1 T1: Increasing incidence of lifestyle related diseases in the Philippines.

(Macro-Environmental Analysis – Social)
Rating: 2
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The company currently have some awareness programs targeting the lifestyle concern of the
Filipinos. Several products and services are being offered also by COMPANY XYcare (wholly
owned subsidiary multi-disciplinary free-standing clinics) for the prevention of some of the
lifestyle diseases such as diabetes and cardiovascular related diseases.
4.8.4.2 T2: Possible Increase in the claim cost due to proliferation of mosquito borne diseases
Rating: 2
The company still have to come up with specific product or services that can counter the threat of
the proliferation of mosquito borne diseases while competitors and even independent diagnostic
clinics has been offering related products to the consumer market already. The best way to address
the financial impact of this threat is for COMPANY XY to have many customers of related product
so that it could spread the financial impact associated with these diseases.
4.8.4.3 T3: Economic impact of calamities to companies and individual Filipinos

Rating: 2
Definitely, this is something that COMPANY XY cannot control. However, the company is very
liquid and have enough financial investment to counter the possible impact of such calamities to
the business.
4.8.4.4 T4: Rising Cost of Medical Care

Rating: 3
The opening of COMPANY XYcare, a free standing multi-specialty clinic in Cavite and previously
in Makati were intended to lower the cost particularly of the outpatient services which account to
more than half of the company’s health services cost. Although, there are only two branches, it is
sufficient for now since the company’s operation is still focus in these two areas. However, as the
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company expand its market, adding more COMPANY XY care branches must be considered as
well.
4.8.4.5 T5: Intense Rivalry among Big Players.

(Five Forces)
Rating: 2
As can be seen in the past 5 years figures where the company has been consistently losing market
share, COMPANY XY is definitely not doing well in terms of competing for a bigger share. The
company can become a hot target also of possible acquisition because of its good financial standing
and profitability.
Table 4.7a: External Factor Evaluation (EFE) Matrix
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The company’s responsiveness to opportunities and threats are clearly not enough to take advantage
of the opportunities to minimize the impact of the threats. With a rating of 2.70 - it is barely average.
This explained why COMPANY XY’s market share suffered a continuous decline in the last 5
years. Obviously, the company failed to benefits from skyrocketing growth of the industry
especially in the last 3 years. Competition, particularly the big ones are having double-digit growth
in revenue while COMPANY XY is struggling at less than 3%.
5. COMPANY ANALYSIS
5.1 Company Vision and Mission Statements
5.1.1 COMPANY XY’s Vision Statement
To be the leading and most stable HMO by having a reputation of integrity and efficiency,
dedication, commitment and excellence in health care services.
5.1.2 COMPANY XY’s Mission Statement
To make a difference by improving the life and health of people through excellent quality care
programs and delivery that exceeds patients’ expectations through personalized, caring,
convenient, cost-effective, and accessible means.
5.2 Review of the Vision and Mission Statements
5.2.1 Review of the Vision Statement
Parameter Yes / No Why
Does it clearly Yes The vision states that it want to become the leading and most stable
answer the question: HMO Company with a specific set of values such as integrity,
What do we want to efficiency, dedication and commitment to excellence. However, it
become? can still be improved to make it more specific.
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Is it concise enough No Because it doesn’t tell the scope where it want to be “a leading
yet inspirational? HMO”. We don’t know if it is leading HMO in the country, in Asia
or in the World.
Is it aspirational? Yes Because it tells us that the company wants to become the leading
HMO provider though not clear where. So there’s still a room for
improvement.
Does it give clear No There’s no indicated timeline as to when they want this vision to
indication as to when achieve.
it should be attained?
5.2.2 Review of the Mission Statement
Parameter Yes / No If yes, which part of the statement
It was very generic. The Mission only states that its customer is “the
1. Customers No People”. We don’t even know whether they are targeting Filipino
people only or all People of the World.
The product being offered was not mentioned directly. What was
2. Products & mentioned clearly is more on the delivery as a consequence of
No
services availing the product which is “excellent quality care programs and
delivery that exceed patients’ expectations”.
The mission is very broad and it did not mentioned specifically who
3. Markets No is the primary target market. It only state “People” and did not even
mentioned whether it is limited to the Filipino people or not.
4. Technology No There’s no mentioned of technology at all.
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5. Concern for The mission statement mentioned cost “Cost Effective” but it can
survival, growth, No still be improved to make it more specific.
profitability
There’s a strong emphasis on providing the best product and service

possible to the customer as stated in the following part of the
statement …“excellent quality care programs and delivery that
6. Philosophy Yes
exceed patients expectations”. And It talks also about how they
are going to achieve it “through personalized, caring, convenient,
cost-effective, and accessible means”
There’s no statement that emphasize the company’s competitive

7. Self-concept No
advantage.
There’s no direct statement that tells how concern the company is

8. Concern for with its employee. Though, the company has been treating its
No
employees employees as a family from the beginning according to its
Chairman/Owner – Mr. Ernest Reyes.
The statement “exceed patients’ expectations through personalized,

9. Concern for caring, convenient, cost-effective, and accessible means” may
No
public image indirectly show how they want to be viewed by the public. But it
can still be improved to make it more specific.
Though it is not directly worded as such, the statement “To make a

10. Concern for difference by improving the life and health of people” indicates the
Yes
nation building concern of the company to the people. However it can still be
improved.
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5.3 McKinsey’s 7S Framework
5.3.1 Strategy
Service Differentiation
The company in a way has two group of customers to satisfy. The first one is the healthcare service
providers such as hospitals, doctors and clinics and the second one is the card holder or members.
COMPANY XY made it sure that they are both happy by employing the following service
differentiation strategies;
a. Easy and faster claims and reimbursement processing for our members
Aside from immediate approval of benefit coverage, COMPANY XY is making it sure that
members can process and get their reimbursements within 15 day period. The company believes
that this is one of the few opportunities where members can feel that we really care for them and
that COMPANY XY provide additional value to their health cards. As a result, COMPANY XY
have a 93% member renewal rate.
And in order to further improve the customer experience, the company recently hired a customer
brand experience manager with the task of further enhancing the way our people interact with
customers and partners. We would like to make it sure that what we are communicating to our
stakeholders is that same thing that they can experience when they deal with the company and our
people.
b. Paying our service providers/partners promptly
HMO Companies are heavily dependent on partner healthcare providers such as hospitals, doctors,
clinics in making the members feel the worth of their health cards. The best way to ensure that our
members would be treated well by these partners is when COMPANY XY take good care of their
primary concern which is payment. We made it sure that we pay them promptly all the time. As a
result, we are saving a lot of money through the discounts that they are giving us. The estimated
amount of savings for the last 3 years are as follows:
2012 – 16.1M
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2013 – 15.5M
2014 – 15.7M
c. Personalize Membership Handling
Very much related to strategy letter, an COMPANY XY is investing a lot of resources and energy
in providing personalized service to its members. In fact, the company has opted to build its own
call center despite the trends among HMO companies of outsourcing it. The reason behind is that
we want to make it sure that our members’ concerns are being handled efficiently and in a
personalized manner. This is something that you cannot easily get from third party call center
service. Moreover, our in-house call center agents also are all nurses which make it easier for them
to relate to the needs of our members.
Every day, our in-house coordinators are calling all partner hospitals to check whether there is a
member who got admitted. The company made it sure that liaison officers (who are all medical
field graduates) are available in the partner hospitals to assist members in their needs from the
moment they get admitted up to the time that they got discharged.
Conclusion:
The above differentiation strategies are effective as can be seen in the members’ renewal rate and
the savings/discount that the company is getting from its partners.
Recommendations:
Definitely, the company should continue with this differentiation strategy since this is very much
aligned with our objective of ensuring that our members and partners are satisfied with the way we
deal with them. COMPANY XY should plan on how they can support the expansion of the
company to increase its market share. Taking advantage of technologies as previously discussed
should be considered to further improve the customer experience and increase revenue.
Backward Integration
The Company recently put up a multi-specialty diagnostic clinic in Cavite to serve its members in
the Calabarzon areas. The said clinic is fully equipped with the state-of-the-art technology and can
cater to wide array of outpatient and minor surgical needs of its members. With the opening of the
said clinic and with the existing Makati branch, COMPANY XY now is in the position to provide
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outpatient services at a lower cost to majority of its current members who are concentrated in these
two areas.
The company now is also in the process of making these two COMPANY XYcare clinics a formal
company under COMPANY XY Group to benefit from the growing free standing diagnostic clinic
industry. It is expected that this strategy will bring additional savings and revenue to the group and
will further boost the confidence of the market toward COMPANY XY.
Conclusion:
Although, still new, this strategy is expected to yield huge savings for the company especially that
almost 50% of its health services cost is outpatient services. Moreover, with the proper marketing
of its services, it can easily bring additional cash to COMPANY XY coffers.
Recommendations:
COMPANY XY should continue with this strategy and device a more concrete plan how it can
encourage the members to utilize this facilities especially that it can bring savings not just to
COMPANY XY but to members as well since charges is lower which means lower benefit
utilization rate as well.
5.3.2 Structure
The Company has a functional structure with 4 to 5 hierarchal levels. It is divided into 5 major
divisions which are headed by VP level executives directly reporting to the President.
Each division was organized according to critical functions namely Medical Division, Medical
Ancillary and Support Services, Marketing, Finance and Administrative.
Medical Division is primarily in-charged of taking care of the needs of the member-patient/s while
they are in the hospital. They ensure that from the moment the member was admitted up to the time
he/she was discharged from the hospital – our field liaison officers will be there to take care of their
needs. Because of this, the group takes pain in ensuring that they accredit only credible and reliable
hospitals, physicians and medical clinics. The standard rule in fact is unless there’s no available in
the area, COMPANY XY accredit tertiary hospitals only.
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Medical Ancillary and Support Services Division on the other hand is in-charge of two things;
the first one is ensuring that members being proposed by the marketing department are properly
screened and all the risks associated with the clients are accounted for and given the correct pricing.
At the same time, make it easier for the members to get approvals and process their claims. Second,
making it sure that partner hospitals, doctors and other health service providers are properly taken
care of. They are the one managing all the billings of the partners ensuring that the company is
paying what is due at the right time.
Marketing Division, though termed as marketing, is actually functioning right now purely as sales.
The company does not have separate marketing department and maintaining only an assistant to do
clerical marketing jobs. No one is really taking care of marketing the company to the outside world.
They are relying heavily on their sales people and agents to promote the company and its products.
The other two divisions, Finance and Administration, perform other tasks needed to support the
company’s operation. This includes collaborating with the head of operation in investing the
premiums and excess cash to generate additional income, Accounting, Billing & Collection,
Disbursement, Treasury, Human Resource, Recruitment, Office Services, Maintenance and
Information Technology among others.
Conclusion:
The company’s organizational chart clearly shows that there is a strong emphasis on members and
support partners, which is a good thing. However, necessary structures such as marketing, human
resources and information technology were absent to support its continuous market share growth.
Recommendations:
COMPANY XY should continue and further improve its Medical Division and Medical Ancillary
& Support Services Division while working on the development of marketing, human resource and
information technology groups. It is highly recommended that the company put up a separate
marketing department under Sales & Marketing Division to ensure that there is a group focusing
on building the image of the company and creating the demand for its products. Similarly, creating
a separate IT department reporting directly to the President to harness the strengths of technology
in growing the business would be ideal. Having a separate Human Resource Department on the
other hand is needed in preparation for the manpower and training requirements as the company
expand its business.
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Figure 5.3.2a: Current Organizational Chart
5.3.3 Systems
Conservative Pricing & Financial Management approach

The company under the leadership of the owner Mr. Ernest Reyes Jr., adopted a conservative
pricing & financial management approach. The main reason behind it is because the company, prior
to him buying out all the other original owners, is heavily bleeding financially up to the point that
it has to let go some of its key people just to survive. The original management is very lax in pricing
and would often dive it down just to get the account. Obviously, it did not serve the company well.
According to Mr. Reyes, it took almost a decade before he started earning money. Fast forward,
COMPANY XY has been making money in the last 26 years and its average gross profit margin
and operating profit margin are higher by more than 5% than the industry and key competitors’
average as shown in table 5.3.2a below.
Presently, all pricing approvals, margin computations, financial related decisions are centralized to
the president (son of the owner) of the company who concurrently head the finance division. This
somehow helps protect the margin of each project/contract.
Table 5.3.3a: Gross Profit Margin and Operating Profit Margin
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Company XY
Conclusion:
COMPANY XY should continue with its financial management approach while revisiting whether
its current rates and pricing policy would help them to expand its market and gain more share
without sacrificing profitability.
Recommendations:
In anticipation of the company’s growth, changes such as delegation of some task of the president
to trusted deputies and automation of some of the pricing and costing activity would be necessary
steps to take.
Fox-Pro Based System
This is an old in-house developed system using very old technology which has very limited (if not
none at all) support. The system supposed to cover marketing, members processing, billing,
cashiering, medical claims and clinics. Over time however, the system was proven to be ineffective
lack necessary features, security, and most especially reports. The people get used to doing things
semi-manually and a lot of them are getting burden by clerical works.
Conclusion:
After more than 3 decades of operation, the company is still unable to capitalize on its historical
data in making strategic plans and decisions because it failed to anticipate its future reporting
requirements when the system is still being developed.
Recommendations:
The company should invest in a new system that could address its present and future needs.
COMPANY XY should look into technology as a strategic resource in the growing its business.
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5.3.4 Style
The management style is generally patriarchal. Decisions are made in a top-down manner
especially during the early years of the company. The management style has shifted to combination
of top-down and participative through its operation (OpCom) and reconsideration (ReCon)
committees when the company started to get in good shape. But whenever major decisions has to
be made, it still imperative to be consulted to the patriarch.
The present president is the son of the owner who has been in the company for more than 20 years
while the patriarch remained to be the Chairman and CEO and the wife as Vice Chairwoman. Being
a family run corporation, the family atmosphere was extended to all and is very evident in the
culture and the way the owners relate with their employees.
Conclusion:
Obviously, the management style works with the company and the people really look up to the
owners especially to the patriarch. A lot of employees have been in the company for more almost
30 years already and they are very happy with the way the owners are treating them. Even during
difficult times in the early years of COMPANY XY - people choose to stay. There are few who left
because the company cannot afford to offer them better salary due to financial difficulties but
immediately came back after things got better.
COMPANY XY employees really felt that they are treated well as family members and the owners
really know them by heart. As a result, more than 70% of the employees have a tenureship of at
least 10 years and the company has been making good profit in the last 25 years.
Recommendations:
Definitely, the company should maintain this culture and plan for the continuity especially after the
1st Generation of its owners retire.
5.3.5 Staff
Majority of the key managers are home grown. They have been with the company long enough to
see the 2nd generation of owners lead the company. Most of them have been with the patriarch from
the beginning of the company. The ability of the owners to make the employee stay is so admirable.
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Rarely, you can see a company whose employees are so loyal and satisfy. Generally, more than
70% of employees have tenureship of at least 10 years and about 90% of the managers and
executives have been with the company for more 20 years. The main reason behind this is that they
really felt and are treated like members of the family.
Conclusion:
The owners are indeed so successful in establishing a culture of “Being a Family”, and the
employees are happy that the current president & son of the owner who have been in the company
for more than 20 years are already following the same path.
Recommendation:
The company should continue the “family culture”. However, it might be prudent to formalize it
and put a structure already on how such culture can be passed on to the next generation of
employees. Especially now that most of the key executives are almost near to their retirement age.
5.3.6 Skills
With the exception of messengers and maintenance personnel, all employees are college graduate.
100% of the liaison officers and customer support team members are either nurses or have a degree
in medical field which makes it easier for them to relate to the concern of their members.
New employees are given series of internal trainings and a “rebalida” after three months to test
their knowledge about the company and its products and services. Annual trainings are being
conducted also for front liners (both managers and staff) to ensure that they are equipped to face
the changing support needs of the industry.
Conclusion:
These activities are all very helpful. However, these are mostly focus on support services which is
of course very important. But similar initiatives are needed to address the sales and marketing gap
that keeps it from gaining more market share.
Recommendation:
The company should work out also plans on how it can better equip its sales and marketing group
so that revenue can further increase. As discussed previously, COMPANY XY is hardly known
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outside of its clientele and partners. This is because there is no one really looking after the
marketing need of the company – no one is creating the demand. It is high time that the company
form a separate and dedicated marketing team to help the sales team in creating the market
demands.
5.3.7 Shared Values/Superordinate Goals
The company is pretty consistent with its mission of “making a difference to the life and health of
people through excellent quality care programs”. COMPANY XY team really made it sure that
their members will receive, at the very minimum, the benefits that they paid for. But the company
is exerting so much effort to give the best service possible by handling members concerns in a more
efficient and personalized manner. Because of this, the company is enjoying a 93% members
renewal rates.
Conclusion:
Manifestation of this mission is even more evident in the way the company treat its employees. The
family atmosphere in the company is very strong which really made the employee stay. As
mentioned, more than 70% of their employees had been in the company for at least 10 years.
Recommendation:
COMPANY XY should continue pursuing this mission and work harder to expand its reach and
gain as many members as possible who could benefit from the quality service of the company.
5.3.8 Alignment with Strategy
a. Structure: Good
The structure is sufficient for the current service differentiation and backward integration
strategies. However, improvements are needed to prepare for a more aggressive growth and
direction.
b. Systems: Good but with room for improvement

The system particularly on pricing and financial management obviously works well for the
company. However, there is significant room for improvement especially on harnessing the
strength of technology in differentiating the company further from the competition.
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c. Style: Very Helpful
The leadership style of the owners is very admirable. Certainly, it helps the employee to
understand clearly the personalized service objectives of the company and embrace the idea of
taking good care of its members.
d. Staff: Sufficient
The current staff compliment is sufficient. However, additional talents may be needed to help
the company response fully in the requirements of the strategies.
e. Skills: Good but can still be improved

Employees are well-experienced as far as serving the current market is concern. However,
improvements are needed especially on the areas of digital marketing, market coverage,
harnessing technology and new product development.
f. Shared Values/Goals: Good

The company is doing well in communicating its core values, mission and vision to its
employees.
5.4 Company Internal Audit
5.4.1 Management Audit
The company is the first HMO company to be legally registered in the country. It took almost a
decade before the Reyes family turned it into a profitable business venture. Although the elder
Reyess are still around, the second generation of owner is now managing the day-to-day operations.
COMPANY XY has been very cautious in expanding its business to the point that it is growing far
slower than the industry growth.
Being a family-owned and ran corporation, planning are still informally done and decisions are
normally happen in a top down manner which means from the owner to the employees. However,
the management listen and consult the key managers or division heads whenever important
decisions have to be made. In fact, the owners meet with the managers on a weekly basis through
operation committee meeting (OpCom) and reconsideration committee (Recon) meeting to plan
their short term objectives, resolve issues at hand and to discuss how they are doing operationally.
The company is structured per functional division wherein each division is compose of several
groups which is equivalent to departments, though not yet formally labeled as such. And each of
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these groups is given specific authority to act on issues concerning their key results area (KRAs).
Although, KRAs are still relatively broad and limited to division level focusing mainly on the
strategic objectives set by each divisions namely “enhancing the operational performance”,
“reducing accounts receivables”, “Increasing the volume of new business” and “expanding the
network of hospitals, doctors and health partners”
As discussed previously, the company’s structure appears to be insufficient already particularly on

the areas of human resource, information technology and marketing. The three are staff only by
rank & file employees whose functions are mostly administrative in nature which clearly shows
that the management does not see yet its strategic importance.
Despite all these challenges, employee morale are very high which enable it to have a very low
attrition rate. More than 70% of its employees had been with the company for more than a decade
already and a lot of them have been there long enough to see their children or children of other
older employees being employed also by COMPANY XY.
5.4.2 Marketing Audit
The company obviously does not see the need yet to prioritize marketing. Advertising and
promotion expenditures as a percentage of operation expense for example posted a -10% CAGR
decline from 2010 to 2014. There is really no one nor a formal marketing department focusing on
marketing efforts. This must have been one of the major reasons why despite being a pioneer HMO
company in the country, COMPANY XY lagged behind its competitors in terms of revenue and
market share.
There is no specific segmentation being implemented. Aside from current focus location – there is
no defined strategic segmentation at all. This is evident on the lack of available reports or even raw
data where critical analysis to determine current segmentation can be extracted. The company has
not done any market research or study on this area as well. So sales really does not have documented
idea yet about the profile of their market.
COMPANY XY is relying heavily now on brokers and agents for its marketing effort. In fact, most
of the promotional efforts of the company are geared towards rallying these two distribution
channels to perform and bring in revenue. Although the current effort is enough to keep the
company profitable, it is insufficient to make the company a major industry player with significant
market share.
Page 84 of 137
In terms of social media and digital space, the company have a very limited exposure. Aside from
FB page, there is no significant effort to reach the digital audiences.
5.4.3 Finance Audit
The finance is concurrently being headed in practice by the president himself. I mentioned in
practice because the company actually have a vice president for finance already. This is very
evident even in the set-up of offices wherein the office of the president is located in the midst of
finance and accounting offices – in fact just few steps away from the office of the VP for finance.
This is understandable however because aside from the president being really interested in finance
from the beginning, the owners would not want a repeat of what happened during the early years
of the company. There are two areas that the president is particularly very much hands-on with.
The first one is costing of all the products and services while the second one is cash management.
The current set-up is working well for the company. The average gross margin and operating profit
margin of the company are more than 5% higher than the industry average. COMPANY XY’s
average collection period is less than a day compare to more than 80 days of the industry. This is
one of the main reasons why the company remain very liquid to achieve an average current ratio of
1.95 as opposed to 1.12 of the industry.
The company is very much capable also of financing most of its investment requirements and the
owners believe that there is no reason for them to borrow money if they can finance it by
themselves. That is why the company’s debt to equity ratio is very low at 0.98 which is four fold
better than the industry average of 4.31. Similarly, COMPANY XY’s almost no long term
obligations at 0.03 long-term debt to equity ratio.
COMPANY XY is very fortunate to have the financial management ingenuity of the patriarch who
is a former investment banker and CFO of Lopez Group of Companies.
5.4.4 Operations Audit
After 30 years of operation, the company decided to build their own building which is located
within the heart of Makati. This is indeed a sign of the company’s financial stability and business
growth over the years.
Being a service company, COMPANY XY does not have any inventory of raw materials or finished
goods aside from small number of office and maintenance supplies.
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Product costing is currently being handled by the president himself as discussed earlier while there
is really no one in-charged of research and development. This is the reason why there is no new
product that has come out in the last five years.
5.4.5 Computer Information Systems Audit
The chairman and patriarch do not see the need for automation especially that the business is in
fact doing well. This perception was somehow balance by the son who is a chemical engineer and
knows a bit about computer programming. The company developed an in-house application using
now a very old development technology called foxpro. The system designed failed to anticipate the
future requirements of the company especially on the reporting side. As discussed in the 7s, the in-
house system is supposed to cover the end-to-end operation of the company which means from
marketing to accounting. Unfortunately, due to loopholes and lack of features, people end up doing
things semi-manually.
There is no formal IT department also that looks after the technology needed by the company. The
2 IT staff are barely sufficient to maintain the current infrastructure which includes computers,
printers, servers, network system, the said in-house application, PABX, website to name a few. As
a result, the company is unable to cope up with the recent technological advances that could
somehow help the company streamline its processes, widen its market reach, capitalize on its
experiences & databases and prepare itself to provide better service to its growing members. Some
of these advances which includes item mentioned already previously are swipe system, e-commerce
system, HMO healthcare management system, credit card payment facility, online portal and cuing
system.
5.5 Key Financial Ratios Analysis
5.5.1 Liquidity Ratios
The company is very liquid as can be seen in the current ratio below. COMPANY XY’s average
ratio is 1.95 compare to 1.06 of its key competitors and 1.12 of the industry average. And since the
company does not have inventory items either raw materials or finished goods, company’s quick
ratio will still be the same.
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Company XY
Recommendations:
COMPANY XY should maintain its good financial management and liquidity because it gives the
stakeholders a confidence that the company will be able to meet its financial obligations. This is
critical because of the previous cases that some HMO companies account were suspended in some
hospitals due to unpaid health services fee obligations which of course affect the members.
Corporate clients especially multi-national normally include financial stability as one of the critical
criteria in selecting supplier in general.
5.5.2 Leverage Ratios
The company’s debt-to-asset ratio of 0.46 indicates that less half of the firm assets are financed by
debt as against more than 70% of the key competitors and the whole industry. It shows also that
the company is not dependent on third party to finance its growth. Debt-to-equity ratio of the
company on the other hand is also much better than the competition at 0.98 which means that the
company is able to finance its own operation and much less dependent on borrowings.51 This is a
clear manifestation of why the owners are not keen on taking loans because the company can handle
the financial obligation on its own. However, company’s average long term debt to equity ratio is
very low at 0.03 which is somehow align with the industry average of less than 0.20. This ratio
shows that the company is either too cautious in taking loans or as mentioned is also a reflection of
the beliefs of the owner that loans are not necessary since they can manage their financial
requirements on its own.
Company XY
Recommendations:
51
Investopedia
Page 87 of 137
The firm should retain or even improve further their debt-to-asset ratio and debt-to-equity ratio
because it gives members, corporate clients and health service providers a confidence that the
company would be able to continue its operation. In the case of long term debt-to-equity ratio, the
company should study however the possibility of taking calculated risk in using loan instrument to
speed up its much needed growth.
5.5.3 Activity Ratios
The company’s asset turnover shows that the firm is at par with the industry when it comes to
utilizing its assets in generating revenue. 52 AP turnover and average payment period on the other
hand show that the company is able to pay its suppliers and health service providers at a faster rate
and in much shorter period than its competitors. This is reflective of the prompt payment policy
where the firm is taking advantage of the discounts given by some of the health service providers.
The ability of the company to pay its supplier on time may be rooted on the very good AR turnover
and average collection period ratios. COMPANY XY is really doing well in managing its AR. As
can be seen in the table below, the company can collect AR at an average of less than a day while
competitors and the industry are taking almost 3 to 4 months to collect.
Company XY
Recommendations:
52
investopedia
Page 88 of 137
COMPANY XY should definitely continue with what it is doing right now on management of its
account receivable and payables. The company however should study how it can better improve its
asset turnover by finding ways on utilizing its asset more efficiently to generate more revenue.
5.5.4 Profitability Ratios
Gross profit margin and operating profit margin clearly show that the company is much more
profitable than its competitors and even to the industry as a whole. COMPANY XY’s operating
profit margin is more than 3 times of the industry average at 6.84% and more than 6 folds of the
key competitors’ average. Although the company’s asset turnover ratio is lower than the industry
as indicated in the activity ratios, its return on assets however is much better than the competition.
This simply means that the company is more efficient in managing its cost and using its assets when
generating profits. In the same manner, the firm’s return on stockholders’ equity is more than
double of the industry average and far better than key competitors’ average. However, COMPANY
XY’s earning for share is slightly lower than the industry average but much better that the key
competition.
Company XY
Recommendations:
The company should maintain or even try to further improve its margin and return on asset and
stockholders’ equity while finding ways on how it can yield better on its earning per share.
5.5.5 Growth Ratios
Page 89 of 137
Sales growth of the company is clearly not as good as the key competitor’s and industry average.
However, net income ratio shows that the company is much more profitable. This is a clear
manifestation of the claim of AHMOPI that a lot of HMO companies are engaging in a cut throat
pricing just to get an account which resulted more often in losing their shirts.
Company XY
Recommendations:
The company is indeed doing really well in pricing its products and services correctly and it should
be maintained or even improved. However, it should find ways on how it can grow further its
revenue and market share as previously pointed out without sacrificing its margin.
5.6 Internal Factor Evaluation (IFE) Matrix
5.6.1 Strengths and Importance Weight
5.6.1.1 S1: Has been in the business for 34 years

(Internal Audit)
Stability and track record of an HMO provider are very important and a primary consideration of a
customer most especially to corporate accounts. And the closure of over a dozen HMO companies
in the past 30 years which hurt the reputation of the industry made this important.
5.6.1.2 S2: Ability to provide competitive pricing.

(CPM)
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Pricing is a major consideration whether corporate or consumer clients. However, there is no
defined standard pricing and it can vary from one client to another. It will normally varies based
on several factors such as number of employees, utilization rate, pre-existing conditions among
other. But the key is to be able to price each contract correctly. Failure to account any risk involved
in a particular account can easily result in losing money.
5.6.1.3 S3: Ability to provide personalized handling of members’ concern.

(7S Mckinsey)
The ability to provide personalized handling of members’ concern is certainly very important. This
may include getting referral, approval of claims, smooth coordination with health service provider
and reimbursements. This is one of the few or limited occasions wherein members can experience
the quality of service from the company. In times of sickness, the least thing that you would want
to experience as member is the inefficiency and impersonal service.
5.6.1.4 S4: Employee centered leadership style of the owner.

(Internal Audit)
There is a saying that you can only give what you have. Having that in mind, employees can only
take good care of their customers if they are being treated well by the company.
5.6.1.5 S5: Good Financial Management

(7S McKinsey)
Financial stability and liquidity are very critical to HMO companies to gain the trust of health
service providers and corporate clients. Especially that health service providers have no qualms in
suspending or even terminating the services agreement to HMO companies who are unable to pay
their obligations. The ability of the company to invest the premiums and excess cash to various
financial instruments to generate additional income is undoubtedly important.
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5.6.1.6 S6: Dedicated Medical Team that maintains good relationship with wide network of health
service providers
(Internal Audit)
This is the key in ensuring that only the best hospitals, medical doctors and health providers are in
the network of partner service providers. As a policy, unless there is no available in the area, only
tertiary hospitals and at least diplomat doctors are getting accredited by the company.
On the other hand, the worth of a health card or HMO memberships can only be felt by the members
when they received a warm and delightful service from partner healthcare providers such as
hospitals, doctors and clinics. And the best way to ensure that members would be treated well by
these partners is when HMO companies have take good care of their primary concern as well which
is timely payment.
5.6.2 Weaknesses and Importance Weight
5.6.2.1 W1: Absence of Sales Force in Mindanao and limited presence in Visayas and most part of
Luzon
(CPM)
This is considered as an important weakness because as discussed in the CPM, wide and
strategically located distribution networks are very crucial to the growth of the company.
5.6.2.2 W2: Lack of External IT Infrastructure such as Members Portal, E-Commerce and Swipe
System
(CPM)
Philippine internet users are growing between 16% and 18% annually while E-Commerce revenue
is growing more than 100% annually from merely USD 3 million, in 2013 it is forecasted to reach
more than USD 120 million by 2018. HMO companies are now capitalizing on this development
by offering HMO products that can be purchased online which is becoming the fastest and most
cost-effective way of selling to IFG market. The swipe system on the other hand could speed up
the verification of members’ eligibility and benefits which will shorten the time of service approval.
Page 92 of 137
5.6.2.3 W3: No Dedicated Marketing Department
(7S Mckinsey)
This is considered as important weakness because it is crucial in having an effective marketing

support. The need for a dedicated team or department focusing on creating awareness about the
company and eventually creating demand is so high and cannot be left to chances.
5.6.2.4 W4: Insufficient and obsolete internal IT System

(7S Mckinsey)
Businesses especially those in the service industry like HMO requires a lot of resources especially
manpower which is difficult to find and would result to higher OPEX. Information Technology
could play a big role in minimizing this cost while improving efficiency at the same time. The
existing software application of the company which supposed to automate the day-to-day processes
is very obsolete and lack a lot of the needed features. The freelance programmer who developed it
has been long gone and nobody could support it anymore. Thus, a lot of employees have been doing
their job manually.
5.6.2.5 W5: Absence of Own Diagnostic Clinics in Strategic/Growth Locations

(7S Mckinsey)
The presence of diagnostic clinic/s in a particular place can boost the confidence of the members
towards the company. The clinic itself also is a constant advertisement for the company in the area.
On top of that, the convenience that it may bring to the members because of easy access to medical
services.
5.6.3 Strengths and Company Ratings
5.6.3.1 S1: Has been in the business for 34 years

(Internal Audit)
Page 93 of 137
Rating: 4
More than 3 decades, the existence of COMPANY XY speak well enough of the company’s
stability. The company has been making money in the last 26 years and have a very strong balance
sheet.
5.6.3.2 S2: Ability to provide competitive pricing.

(CPM)
Rating: 3
COMPANY XY’s pricing for ward to regular private rooms is 6%-32% lower than the industry
average. This is very important because bulk of the employee memberships are given by the
company on this type of rooms. More importantly, the company’s gross profit margin and net
operating margin is almost 5% higher than the industry average which means the company is
pricing it correctly and able to account all the risks that are involved.
5.6.3.3 S3: Ability to provide personalize handling of members’ concern/s

(7S Mckinsey)
Rating: 3
The company opted to build its own call center despite the trend among other HMO companies of
outsourcing it. The reason behind this is we want to make it sure that members’ concern/s are
handled efficiently and in a personalized manner. This is something that you cannot easily get from
a third party call center service. COMPANY XY ensure that liaison officers (who are all graduates
of medical courses) are available in the partner hospitals to assist its members in their needs from
the moment they got admitted up to the time that they got discharged.
5.6.3.4 S4: Employee centered leadership style of the owner.

(Internal Audit)
Rating: 4
Page 94 of 137
The owners indeed go beyond treating their employees well. They are considered and treated as
family members. The family atmosphere in the company is very evident and having more than 70%
employees with tenureship of at least 10 years was a concrete and specific manifestation of this.
Key officers’ doors are always open also for any concerns that employees might have. Even the
Chairman of the company socialized with guards and janitors.
5.6.3.5 S5: Good Financial Management

(7S McKinsey)
Rating: 4
The company’s liquidity ratio which was discussed earlier shows that the company is very liquid
and that an exceptional financial management is being practiced. This certainly helps the company
remain in a very good financial condition and profitable for the past 25 years.
5.6.3.6 S6: Dedicated Medical Team that maintains good relationship with wide network of health
service providers
(Internal Audit)
Rating: 3
COMPANY XY’s Medical Team is taking extra mile in maintaining good relationship with partner
health service providers. Some of the initiatives that support the team objectives are the prompt
payment policy of the company and the support hotline dedicated for partners. The company
believed that these will enhance our partners’ desire and capacity to take care of our members in
the same way.
5.6.4 Weaknesses and Company Rating
5.6.4.1 W1: Absence of Sales Force in Mindanao and limited presence in Visayas and most part of
Luzon
(CPM)
Rating: 1
Page 95 of 137
The company for a long time has concentrated only in Metro Manila and Calabarzon areas
particularly in Cavite. It is just starting to expand in key cities outside Luzon such as Cebu and
Iloilo while the competition has been operating already in the almost all the growth areas. The
absence of COMPANY XY sales force in Mindanao and very limited presence in Visayas and
much of Luzon certainly limits the ability of the company to expand or increase its member based
on the grow of its revenue.
5.6.4.2 W2: Lack of External IT Infrastructure such as Members Portal, E-Commerce and Swipe
System
(CPM)
Rating: 2
COMPANY XY is definitely lagging behind on this field. The absence of members’ portal and e-
commerce sites certainly affects the firm’s ability to capture the online market. Lack of swipe
system on the other hand limits the opportunity to further improve or streamline their processes.
5.6.4.3 W3: No Dedicated Marketing Department

(7S Mckinsey)
Rating: 2
This is one area that the company really needs to improve on. The company only have staff doing
mostly administrative marketing. Obviously, this is one of the main reasons why COMPANY XY
is unknown beyond its members and partners and unable to achieve a growth rate as high as the
industry growth rate.
5.6.4.4 W4: Insufficient and obsolete internal IT System

(7S Mckinsey)
Rating: 2
Businesses especially those in the service industry like HMO requires a lot of resources especially
manpower which is difficult to find and equates higher OPEX. IT can play a big role in minimizing
this cost while improving efficiency at the same time. Unfortunately, the company does not take
necessary actions in the last 5 years or so to harness the strength of technology and address the said
insufficiencies.
Page 96 of 137
5.6.4.5 W5: Absence of Own Diagnostic Clinics in Strategic/Growth Locations
(7S Mckinsey)
Rating: 2
The company currently only have 2 branches located in Makati and Cavite. This is sufficient for
now since majority of clients are concentrated in these areas. But additional strategically located
diagnostic clinics will be needed eventually as the company expands outside of the said sites.
Table 5.6a: Internal Factor Evaluation (IFE) Matrix
Ratings: 4 = Major Strength, 3 = Minor Strength, 2 = Minor Weakness, 1 = Major Weakness
With a weighted score of 2.65, the company should work on its weaknesses especially the lack of
formal marketing support structures and absence of sales force in key growth areas. The company
has been losing market share for the past 5 years and these are definitely key contributing factors.
Investing in IT infrastructure and support mechanism must be seriously considered as well.
Technology can offer a lot of means to improve the way for the company to conduct its business.
Page 97 of 137
The lack of reliable system for example has forced the employees to do a lot of clerical works that
eat their precious time and energy which could have been allocated in finding ways on how to grow
the company. Similarly, the company should work on members’ portal and e-commerce system to
effectively cover the consumer or IFG market.
The company on the other hand can capitalize on its strengths such as good financial standing, good
relationship with employees, ability to assess the risk and provide correct pricing and its capacity
to provide personalized service to counter the listed weaknesses and eventually compete more
effectively in the market.
6. STRATEGY FORMULATION
6.1 Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix
6.1.1 Strength-Opportunity (SO) Strategy
STRENGTHS OPPORTUNITIES
S1: Has been in the business for 34 years O1: The economy performed well in the last 3
years and GDP is expected to grow between 6%
S2: Ability to provide competitive pricing and 7% in the next 3 years.
S3: Ability to provide personalized handling of O2: Full implementation of the new Executive
members’ concern/s Order guidelines
S4: Employee centered leadership style of the owner O3: Increasing Household Income
S5: Good financial management O4: Telemedicine is gaining ground in the

Country
S6: Dedicated medical team that maintains good
relationships with wide network of hospitals, O5: More than 90% of Filipinos doesn’t have
doctors and health providers HMO coverage
SO1: Come up with HMO plan for IFG that can be sold online - (S2, O5, O3)
SO2: Focus employee energy in actively pursuing growth industry – (S1, S4, O1, O3, O5)
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SO3: Consider investing in Telemedicine Technology as an extension of COMPANY XYcare
services - (S5, O4)
SO4: Come up with a product that can be serviced via telemedicine - (S2, O4)
SO5: Come up with a program for OFWs and their Families - (S1, O5)
6.1.2 Strength-Threat (ST) Strategy
STRENGTHS THREATS
S1: Has been in the business for 34 years T1. Increasing incidence of lifestyle related diseases
in the Philippines
S2: Ability to provide competitive pricing
T2: Possible increase in the claim cost due to
S3: Ability to provide personalized handling of proliferation of mosquito borne diseases
members’ concern/s
T3: Economic Impact of Calamities to companies
S4: Employee centered leadership style of the and individual Filipinos
owner
T4: Rising cost of medical care
S5: Good financial management
T5: Intense rivalry among the big players
S6: Dedicated medical team that maintains good
relationships with wide network of hospitals,
doctors and health providers
ST1: Partner with AHMOPI and fitness organizations to create a campaign on how to achieve a
healthy lifestyle - (S1, S4, S3, S6, T1, T2)
ST2: Come up with IFG product for mosquito related diseases such as malaria and dengue – (S2,
T2)
ST3: Partner with AHMOPI and relevant government agencies and NGOs to run a campaign on
disaster preparedness focusing on how to can prepare and protect themselves and their properties
in times of calamities. – (S1, S3, S4, S6, T1, T3)
ST4: Partner with independent diagnostic clinics and actively promote the outpatient services that
members can avail through them – (S1, S3, S5, S6, T4)
ST5: Increase market share and continue to stay financially healthy – (S1, 4, S5, T5)
Page 99 of 137
6.1.3 Weakness-Opportunity (WO) Strategy
WEAKNESSES OPPORTUNITIES
W1: Absence of sales force in Mindanao and O1: The economy performed well in the last 3
limited presence in Visayas regions and most part years and GDP is expected to grow between 6%
of Luzon. and 7% in the next 3 years.
W2: Lack of external IT infrastructure such as O2: Full implementation of the new Executive
members portal, E-commerce and swipe system. Order guidelines
W3: No dedicated marketing department. O3: Increasing Household Income
W4: Insufficient & obsolete internal IT system. O4: Telemedicine is gaining ground in the
Country
W5: Absence of own diagnostic clinics in
strategic/growth locations. O5: More than 90% of Filipinos doesn’t have
HMO coverage
WO1: Invest in e-commerce and other online facilities to support the drive to capture OFW &
their families, Online Freelance workers and the 90% Filipinos who does not have HMO
coverage - (W2, O5)
WO2: Strengthen the distribution channels (Direct Sales, Brokers & Agents) in areas where key
growth drivers such as BPO, Manufacturing and Hospitality industries are located/expanding. –
(W1, O1, O3)
WO3: Create a dedicated marketing group or department that can focus in helping sales in
aggressively covering the key growth drivers – (W3, O1, O2, O3, O5)
WO4: Invest in IT personnel and Infrastructure to support the Growth Plan – (W2, W4, O3, O4,
O5)
WO5: Study putting up an additional diagnostic clinic/s in support of the aggressive coverage of
key growth areas and as a potential additional source of revenue – (W6, O1, O3, O5, O6, O8)
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6.1.4 Weakness-Threat (WT) Strategy
WEAKNESSES THREATS
W1: Absence of sales force in Mindanao and T1. Increasing incidence of lifestyle related diseases
limited presence in Visayas and most part of in the Philippines
Luzon
T2: Possible increase in the claim cost due to
W2: Lack of external IT infrastructure such as proliferation of mosquito borne diseases
members portal, E-commerce and swipe system
T3: Economic Impact of Calamities to companies
W3: No dedicated marketing department and individual Filipinos
W4: Insufficient & obsolete internal IT system T4: Rising cost of medical care
W5: Absence of own diagnostic clinics in T5: Intense rivalry among the big players
strategic/growth locations
WT1: Create an integrated marketing program with the objective of helping Filipino people
understand the importance of living a healthy lifestyle as well as the importance of planning their
health requirements while making it easier for them to avail one – (W1, W2, W3, W4, W5, T1,
T3, T4)
WT2: Run a campaign that will educate the Filipino people about the impact of climate change
to their health and properties. At the same time, showing them available options on how they can
prepare with the help of COMPANY XY – (T2, T3, T4, W1, W2, W3, W4, W6)
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6.1.5 Grouping of SWOT Strategy
6.1.5.1 Market Penetration Strategies
SO2/WO2: Capitalize on the high employee morale in focusing and strengthening the sales force
in areas where key industry growth drivers are located or expanding – (S4, O1, O3, O5), (W1, O1,
O3)
Having a very good employee morale is an edge that the company can use to rally them behind a
specific goal that the company would like to achieve. With that in mind, COMPANY XY should
push them to strengthen its sales force and aggressively cover areas beyond their traditional selling
field. They should be able to cover key industries such as BPO, manufacturing, hospitality industry,
real estate & renting business and financial intermediary.
ST3/WT2: Run an educational campaign about climate change preparedness in partnership with
AHMOPI, relevant government agencies and non-government organizations (NGOs). (T2, T3,
T4, W1, W2, W3, W4, W6) (S3, S4, S6, T1, T3)
The effect of climate change may not be inevitable. But being prepared and knowing what to do
would certainly help to alleviate its impact particularly on one’s health and properties. Getting the
Filipino people especially our members and clients can potentially help the company lessen the
possible increase in benefits claim cost. Moreover, if they can protect their business and finances,
they would be able to continue giving health benefits to their employees and continue business
with us.
ST1/WT1: Partner with AHMOPI and fitness organizations to create a marketing campaign to
help the Filipino understand the importance of achieving a healthy lifestyle - (S4, S3, S6, T1, T2)
(W1, W2, W3, W4, W5, T1, T3, T4)
The best way to counter the impact of increasing cases of lifestyle related diseases is to attack its
very roots which is the changing lifestyle of the Filipino people. Educating them on how they can
achieve a healthy lifestyle and prepare for their health requirements will have a lasting effect both
on cost savings and additional revenue. This is the best opportunity also to push for products that
can help them maintain their health.
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ST5/WO3: Create a dedicated marketing department that can focus on helping sales aggressively
cover the key growth drivers and increase its market share. (S4, S5, T5) (W3, O1, O2, O3, O5)
There is no other way to counter the intense rivalry among big players than to become big
ourselves. The company can bank on the good financial condition and ability to assess properly
the risk associated in every account in aggressively going after the market. COMPANY XY just
need to significantly improve its marketing capability and sales force.
WO4: Invest in IT personnel and infrastructure to support the growth plan – (W2, W4, O3, O4,
O5)
The role of information technology in the growth of the company is too significant not to be
given immediate attention. It is high time that the company invest in a more sophisticated system
that can help its people do its job more efficiently, serve members effectively and increase
revenue at much higher rate. Systems like integrated healthcare ERP, swipe system and cuing
system to name a few will significantly improve the way the company do things.
ST4: Partner with independent diagnostic clinics and actively promote the outpatient services that
members can avail through them – (S3, S5, S6, T4)
As previously discussed, bulk of the health services cost of the company and the industry as a
whole are outpatient services. The company can save a lot of money if the company can
encourage its members to have their outpatient services done in COMPANY XYcare or partner
independent diagnostic clinics instead of availing through from the hospitals.
WO5: Invest in formal HR group to support the growth plan – (W5, O1, O2, O3, O5)
The human resources need of the company have grown tremendously already over the past years.
With its relatively median age old employee, retooling and upgrading of skills are necessary to
prepare them as the company work on aggressively chase its much needed growth.
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6.1.5.2 Product Development Strategies
SO1/SO5: Come up with product that can be sold online specifically meant for IFG market such
as freelance workers and OFWs & their families - (S2, O5, O3)
The number of freelance workers alone are continuously growing and their numbers which is
almost a million already cannot be ignored. The good thing is that a lot of them are formerly
employed and used to having HMO memberships. So with an attractive coverage and affordable
price, freelance workers can be an easy market for the company. Similarly, the company should
come up with an affordable product intended for OFWs and their family members who belong
also to the more than 90% Filipinos who do not have HMO coverage. Moreover, the firm must
make it sure that products can easily be availed through the use of technology which can help the
company expands its market and generate more revenue. Aside from the fact that it will
significantly reduce the clerical and effort involve in selling to consumer or IFG market.
ST2: Come up with IFG product for mosquito related diseases such as malaria and dengue – (S2,
T2)
In relation to climate change, the growing numbers of mosquito related diseases threatens to
increase the health services cost of the company and therefore reduce its profitability. The best way
to counter this is to widen the base where the cost can be spread which means more members are
needed. The company can come up with a product specifically for mosquito related diseases.
SO4: Come up with a product that can be serviced via telemedicine - (S2, O4)
Aside from including telemedicine services in the traditional HMO coverage, the company can
come up also with an affordable product for simple outpatient concerns that can be serviced and
can be availed only via telemedicine.
6.1.5.3 Backward Integration Strategy
WO6: Study putting up an additional diagnostic clinic/s in support of the aggressive coverage of
key growth areas and as a potential additional source of revenue – (W6, O1, O3, O5, O6, O8)
Page 104 of 137

Having own multi-specialty diagnostic clinics is very strategic for two reasons: 1. It can provide
significant savings for the company in the long term given that bulk of the health services cost are
outpatient related which can be serviced by a diagnostic clinics at a lower cost; 2. The diagnostic
clinic industry is growing at a rapid rate because people are looking for cheaper and alternative to
the hospital and they are learning that multi-specialty clinics’ services at par or sometimes even
better that the hospital.
6.1.5.4 Market Development Strategies
WO1: Invest in e-commerce and other online facilities to support the drive to capture OFW &
their families, online freelance workers and the 90% Filipinos who do not have HMO coverage -
(W2, O5)
E-Commerce and online facilities are crucial in capturing the consumer or IFG market. This is the
most cost-effective and fastest way to sell. Not to mention the market reach that it can give to the
company. The good thing about this is that the facility will effectively eliminate the need for an
agent to explain the product to individual customer.
SO3: Consider investing in telemedicine technology as an extension of COMPANY XYcare

services - (S5, O4)
Investing in telemedicine technology will facilitate the collaboration among COMPANY XY
doctors from different locations effectively sharing the strength of each other for the good of its
members. Moreover, it can make it possible for members who happened to be in a remote area to
avail services as if they are in Manila as long as there is internet connection or mobile services.
Page 105 of 137

6.2 Strategic Position and Action Evaluation (SPACE) Matrix
XY’s
XY’s
Page 106 of 137

Based on the result of SPACE Matrix, the company should utilize competitive strategies namely
backward, forward and horizontal integration, market penetration, market development and
product development in mitigating on its internal weaknesses and avoiding external threats.53
53
Strategic Management Concepts and Cases 13th Edition, David, Fred
Page 107 of 137

6.3 Boston Consulting Group (BCG) Matrix
Table 6.3a: Category Shares
COMPANY XY being number 6 in terms of corporate account market share is in a Question

Mark Quadrant category as it has low market share. The corporate account generates more than
95% of the company’s revenue which is aligned with the overall industry. COMPANY XY,
though doing better in terms of profitability ratio compared to key industry players, is lagging
against the industry growth having just 4% CAGR against the more than 16% of the industry.
The company’s IFG account is very small and also in a Question Mark category. Similarly, the
company needs to do a lot in terms of penetrating the market, developing new products, putting
Page 108 of 137

the right infrastructure and technology. The recommended strategies for both are product
development, market penetration, market development and divestiture.54
6.4 GE McKinsey Matrix
54
Page 109 of 137

The company’s corporate accounts is bordering between Medium-Medium Grow and Medium-
Low Hold positions. Although the industry is more attractive, the company’s competitiveness
rating is below minor weakness already. This is a very clear indication why the company is not
growing as much as the industry in the last 5 years. IFG accounts on the other hand are in the
Medium-Low Harvest Position. The industry attractiveness of this product is affected by the fact
that this is normally paid for by the individual or group of people with their own money. And
since this is an individual or very small group of people - it means that it is a low volume sale
while at the same time requires a lot of selling and clerical efforts. This is where the need for E-
Commerce facility will come in.
COMPANY XY should aim for a High-High Position by increasing its market share and putting
necessary structures to sustain its growth. The company should consider also formalizing
administrative service only (ASO) as an official product which is actively being marketed already
by major competitors. Currently, this is on a per request basis only which means only the
customers who are familiar with it can avail of it.
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Although IFG product category is less attractive, this is actually easier to manage in terms of
product and services delivery. Especially when the right technology and marketing campaign is in
place already.
Strategies that the company can employ are market penetration, product development, market
development and backward integration
6.5 Grand Strategy Matrix
XY
6.5.1 Future Rapid Growth: Rapid
The company is competing in a rapid growth market. Data shows that the industry posted a
compound annual growth rate (CAGR) of 16.9% from 2011 to 2015. As of 2015, HMO Industry
has an estimated combined revenue of more than 31 billion pesos having Company A, Company C
and Company B capturing almost 70% of the market. Some of the primary drivers of this growth
are BPO industry which is forecasted to grow at 13.97% CAGR, manufacturing industry which
Page 111 of 137

employs more than 3.2 million people by the end of 2015, the continuous growth of OFW
remittances, hospitality industry which is expected to grow by 8.5% in the next 4 years, real estate
and renting business which posted a 11.9% CAGR between 2011 and 2015 and private healthcare
expenditures which reaches 422 billion in 2015 from just 289 billion in 2011.
The recent signing of an executive order putting HMO industry and the eventual implementation
of its implementing rules and regulations will have a long term effect in the development of the
industry. The most critical probably are the policing of industry especially those companies that
affects the reputation of the industry because of their scrupulous practices and the potential savings
on alignment of taxes with the insurance industry.
COMPANY XY, though making good profit, is lagging behind its key competitors and the industry
as a whole in terms of growth rate and market share. In fact, the company posted a continuous
decline of its market share in the last 5 years. COMPANY XY should then employ combination of
strategies to benefit in the rapidly growing HMO Industry. These strategies are market
development, market penetration, product development, horizontal integration, divestiture and
liquidation.
6.5.2 Competitive Position: Weak
COMPANY XY suffers in a weak competitive position as manifested in the company’s revenue

growth performance. The company needs to address its weaknesses and mitigate potential threats
to strengthen its competitiveness and eventually increase its market share. COMPANY XY can
take advantage of its good financial management and condition, pricing capabilities, personalized
customer service and excellent relationships among its partners.
The company’s IFE score of 2.65 and EFE score of 2.70 are just average and certainly need
improvement for COMPANY XY to effectively compete and take advantage of the rapidly growing
market.
COMPANY XY should take combination of strategies such as market development, market

penetration, product development, horizontal integration, divestiture and liquidation.
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6.6 Internal-External Matrix
Based on the IE matrix, the company is in the hold and maintained position with a recommended
market penetration and product development as strategies.55 COMPANY XY certainly should
find ways on how to move to a strong position from barely average with the help of
recommended hold and maintain strategies that was mentioned.
55
Page 113 of 137

6.7 Summary of Strategies
As indicated in the summary of strategies, the most attractive are market development, product
development, market penetration and backward integration.
6.8 Quantitative Strategic Planning Matrix (QSPM)
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Based on the result of Quantitative Strategic Planning Matrix (QSPM) above, the most attractive
strategy is market penetration with a score of 6.35 followed by market development at 5.95 and
product development at 4.55.
Page 115 of 137

7. STRATEGIC CORPORATE & FUNCTIONAL OBJECTIVES AND RECOMMENDED
STRATEGIES
7.1 Recommended Revised Vision and Mission Statements
The recommended revised Vision Statement for Company XYis:
“To become one of the top five and most stable Health Maintenance Organization in the
country by 2025, providing excellent and cost-efficient prepaid health care services.”
Revised Vision Statement Evaluation
Parameter Yes / Why

No
Does it clearly answer The vision states that we would like to become “one of
the question: What do Yes the top 5 and most stable HMO companies in the
we want to become? Country”
Is it concise enough yet It is written in a single sentence which tells us our target,
inspirational? Yes the timeline when do we want to achieve it and the scope
where we are going to compete.
Is it aspirational? The company is now far number 6 with less than 3%

share. Being in the top 5 would mean we need to
Yes
significantly increase our market share in the next 10
years.
Does it give clear The target is very specific. We want to achieve this in a
indication as to when it Yes 10 year horizon
should be attained?
The recommended revised Mission Statement for Company XYis:
We aspire to make a difference by improving the life and health of our members through
excellent prepaid healthcare products delivered in a manner that exceeds patient expectations
through personalized, caring, convenient, cost-effective, and accessible means;
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We espoused responsible, sustainable and ethical business practices keeping in mind and deed
the best interests of our members, shareholders and employees;
We want to grow a profitable and dynamic company by investing in the latest technology and
in our people.
We contribute to nation building by keeping our members healthy leading to a strong
workforce which is the lifeblood of any country.
Revised Mission Statement Evaluation
Parameter Yes / No If yes, which part of the statement
1. Customers As part of its mission, the company would like to make a

Yes difference by improving the life and health of our members
through excellent prepaid healthcare products
2. Products & services The term “prepaid healthcare products” was used instead of health
Yes cards to adopt the correct terminology referring to HMO
Products.
3. Markets Yes The market is the entire country
4. Technology Investment in the latest technology is one of the key component

Yes
in keeping the company profitable and dynamic.
5. Concern for survival, The last part of the mission clearly state that it want to grow a
Yes
growth, profitability “profitable and dynamic company”
6. Philosophy The mission specifically mentioned that it want to “espouse a

Yes
responsible, sustainable and ethical business practices”
7. Self-concept The company viewed itself “As one of the leading HMO
Yes
companies in the country”
8.Concern for employees It clearly states that investing in people is necessary in growing a
Yes
profitable and dynamic company.
9. Concern for public The statement “responsible and ethical business practices” is a
image Yes clear manifestation of the company’s desire to be viewed by the
public as an institution that could do clean business.
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10. Concern for nation By espousing responsible, sustainable and ethical business
building Yes practices – the company clearly shows its concern for the
development of the country.
7.2 Key Strategic Challenge & Recommended Corporate Strategic Objective
7.2.1 Key Strategic Challenge
“Given the continuous and rapid growth of the industry, how will COMPANY XY become a
significant player despite the fact that it has been losing market share in the last five years due to
lack of marketing effort and market coverage”.
7.2.2 Recommended Strategic Corporate Objective
The recommended overall strategic objective is:
“To become a billion peso revenue company in the next 3 years by increasing & strengthening
its sales force, implementing effective marketing campaign and launching new relevant
products”
The recommended overall strategic objective is very much aligned with the vision of becoming one
of the top 5 HMO companies in the country by 2025. Breaking the billion peso revenue mark is an
initial milestone towards the realization of the said vision. The target would require the company
to achieve a 20% compound annual growth rate (CAGR) in the next 3 years which is higher than
the industry projected CAGR of 16.9%. This objective will be achieved by reaching wider market
and launching new products consistent with the demand of the market and identified opportunities.
COMPANY XY is currently rank number 6 with just over 2% market share. Achieving the said
objective will bring the company closer to its closest rivals namely Company D and Company E
that have market share of 3.9% & 6.9% and revenue of 1 billion and 1.8 billion respectively as of
2014.
7.3 Recommended Functional Strategic Objective
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In line with the overall corporate strategic objectives, the following 5 functional objectives are
recommended;
Functional Objective # 1 (Marketing)
To develop and launch new products that can help the company capture wider market and
increase its market share.
COMPANY XY’s marketing division which includes sales and marketing department should work
hand in hand in creating demand, acquiring new business and keeping renewal rates high. As
previously discussed, there is a need to increase and strengthen the sales force or distribution
channels in key growth areas such as Davao, Cebu, Iloilo, Bacolod, Pampanga and Baguio to name
a few.
New products are very much needed in response to the identified opportunities and challenges. The
company should formally launch Administrative Service Only (ASO) as an official product to
capture the rapidly growing demands for it from corporate accounts. At the same time, COMPANY
XY should develop a product for consumer market in relation to mosquito borne diseases,
increasing cases of lifestyle related diseases, increasing household income and savings, OFW
remittances, freelance workers and telemedicine.
Functional Objective # 2 (IT Infrastructure & Support Team)
To strengthen internal and external IT capabilities by acquiring and developing E-Commerce

facilities, online portals, swipe system and complete healthcare management system.
The current IT infrastructures are obsolete and inadequate. Technological advances is currently not
being used or seen as a strategic resource to achieve the much needed growth. The company needs
to invest both in infrastructure and staff. The two persons IT team is barely sufficient to address the
daily requirements of the company in maintaining computers, website, emails, printers, networks,
old in-house developed system among others. It is highly advisable to augment the team and create
a formal IT department that can guide the company on how to expand the business, achieve more
efficiency and generate more revenue through the use of technology.
In terms of IT infrastructure, the most urgent requirements critical to launching of new products
are the on-line portal, mobile application and e-commerce facility. Implementation of swipe system
and healthcare management system are also pressing need to further improve the efficiency of
Page 119 of 137

handling memberships benefit approval and in preparation for the volume of members as a result
of aggressive growth plan.
Functional Objective # 3 (Financial)
To increase revenue between 1 Billion to 1.1 Billion and achieve a net income of 90million to
100 million.
The company’s revenue has not grown as much as the industry in the last 5 years. With a revenue
growth rate ranges only between 2% and 6% reaching a billion peso revenue would mean achieving
a 20% compound annual growth rate (CAGR) which is higher than the industry projected CAGR
of 16.9%. However, the target is not far from achievable given that there are more than 95 million
Filipinos who do not have prepaid health cards coverage yet.
7.4 Recommended Strategies
The recommended strategies that the company can pursue to achieve its overall corporate objective
based on the result of matrices and as indicated in the strategy attractiveness shown in QSP Matrix
top 3 most attractive strategies are market penetration, market development and product
development.
Strategy # 1 (Market Penetration)
Launch an intensive marketing campaign, E-Commerce site and partnerships program with
independent Multi-Specialty Diagnostic Clinics for the distribution of IFG/Consumer Products
This market penetration strategy will include the following;
a. Intensify Digital Presence via Social Networking Sites and Online Facilities such
as FB, Twitter, Blogs, Websites, Linked-In, Forums etc.
This strategy will help the company boost its market presence in a cost-effective way.
Number of visits, feedbacks, reviews are good indications of the effectiveness of
marketing messaging and can be tracked easily compared to traditional medium of
advertising.
Page 120 of 137

b. Actively partner with Industry organizations especially with key industry growth
drivers.
This is a more direct way of marketing the company and its products and services to
the target market. Instead of spending so much on traditional media, sponsorships in
events organized by the industry association will put the company face-to-face to its
target audience.
c. Partner with establishments where members are frequently going. e.g. coffee
shops, cinema, fitness gyms etc.
By partnering with the said establishment where members can avail of discounts just
by presenting their COMPANY XY Card, the company is adding value to the
members’ health card and making it a more part of their daily lives.
d. Redesign current website to make it more interactive and relevant.
This will help the company utilize the advances in web designing technology such as
mobile suitability of the web pages, linkages with social media accounts, customer and
partners’ portal and integration with the e-commerce platform.
e. Develop an e-commerce system that will be used for the aggressive selling of IFG
products.
This will become the main distribution channel of IFG products. The idea is for the
consumer market to purchase their prepaid health cards online which will result to the
company being able to reach a much bigger market, faster collection since payment are
made online, ability to process bigger volume of customers and eliminating the
middleman cost (agents & broker commission).
f. Partner with independent diagnostic centers and transform them into an indirect
sales agent/s of COMPANY XY.
Come up with an attractive incentive program that can lure independent diagnostic
centers to promote and sell COMPANY XY products among their clients. This in effect
will give COMPANY XY wider market coverage.
Page 121 of 137

Strategy # 2 (Market Development)
Increase & strengthen market coverage of key growth areas.
Increasing and strengthening of sales force or distribution channels to cover wider market are
definitely crucial to the realization of the over-all corporate objectives. This market development
strategy will include;
a. Develop a team that will cover the identified growth areas
It is important to have a dedicated sales team that will focus in developing the identified
growth areas such as Davao, Iloilo, Bacolod, Cebu, Baguio and Pampanga. The team
can cover these new markets from Manila at the start until such time that the volume
of business is big enough to justify the cost of putting up a dedicated office in the area.
b. Develop partnerships with local diagnostic clinics, establishments, agents and

brokers who can help effectively cover the market
The company can come up with an attractive incentive programs to engage these
potential partners that can compensate the absence of local office or direct sales force.
Strategy # 3 (Product Development)
Launch new products catering to IFG or Consumer market as a response to identified

opportunities and challenges.
The said products are meant to counter the possible increase in claim cost due to
proliferation of mosquito borne diseases and increasing cases of lifestyle related diseases.
While at the same time to seize the opportunities brought by the increasing household
income and savings, OFW remittances, freelance workers and telemedicine technology.
Each prepaid health card will specifically address each challenges and opportunities and
will be sold mainly via the e-commerce site.
7.5 Recommended Departmental Program and Actions
Page 122 of 137

Strategy # 1 (Market Penetration)
Launch an intensive marketing campaign, E-Commerce site and partnerships program with
independent Multi-Specialty Diagnostic Clinics for the distribution of IFG/Consumer Products
Department: Sales and Marketing
Action / Program Who When
a. Identify Possible Brokers & Agents who can help Brokers & Agent Relation July 2016
the company penetrate the current market further officers; Sales Manager;
AVP for Sales &
Marketing
b. Actively partner with industry organizations Marketing Officer & AVP July 2016
especially with key growth drivers. for Sales & Marketing
c. Intensify Digital Presence via FB, Blogs, Marketing Manager and September
Websites, Linked-In, Forums and etc. Social Media Team 2016
d. Partners with Independent Diagnostic Clinics Marketing Manager, AVP October

and transform into indirect sales agent/s of for Sales & Marketing 2016
COMPANY XY.
e. Partners with establishments where members are Marketing Manager, AVP October
frequently going. e.g. coffee shops, cinema, fitness for Sales & Marketing 2016
gyms etc.
f. Create a Social Media Team that will be

responsible for all social media activities. They will Digital Marketing Officer,
September
be in-charged also of managing the e-commerce Marketing Manager, AVP
2016
platform. for Sales & Marketing
g. Create an extensive marketing plan for the

launching of ASO product Digital Marketing Officer,
August
Marketing Manager, AVP
2016
for Sales & Marketing
Page 123 of 137

h. Launch e-Commerce Site via cocktail event in AVP for Sales and January
partnership with Odesk, Freelance.com and other Marketing, Marketing 2017
Online working site. Invites Bloggers, Friends Manager, IT Manager &
from the Media, Representatives from other Digital Marketing Officer
Freelance Worker Groups and homebased
workers.
i. Study the possibility of adapting Telemedicine AVP for Sales and February
Technology. Marketing, Marketing to April
Manager, IT Manager & 2017
Digital Marketing Officer
Department: Human Resource
a. Hire Marketing Manager HR Manager August

2016
b. Hire Digital Marketing Officer HR Manager August

2016
c. Hire IT Manager HR Manager August

2016
Department: Information Technology
a. Evaluate Proposals for the new Website IT Manager, Marketing September

Design and Members Portal. Manager, AVP for Sales 2016
and Marketing, Brand
Experience Manager
b. Implement the New Website Design and IT Manager, Marketing October to

Members Portal. Manager, AVP for Sales December
and Marketing, Brand 2016
Experience Manager
a. Evaluate Proposals for e-commerce system and IT Manager, Marketing September

payment gateway. Manager, Digital Marketing 2016
Page 124 of 137

Officer, Brand Experience
Manager
b. Implement the new e-commerce system and IT Manager, Marketing October to

payment gateway. Manager, Digital Marketing December
Officer, Brand Experience 2016
Manager
c. Evaluate technology that can be used for IT Manager, Marketing March to

telemedicine services, healthcare management Manager, Digital Marketing April 2017
system and swipe system Officer, Brand Experience
Manager, VP for Medical
Ancillary Division, VP for
Medical Division
d. Select Initial technology that can be used for IT Manager, Marketing March to
telemedicine services and healthcare Manager, Digital Marketing April 2017
management system and swipe system Officer, Brand Experience
Manager, VP for Medical
Ancillary Division, VP for
Medical Division
Department: Finance
a. Finance development of new website and VP for Finance & September

members’ portal. Accounting 2016
b. Finance Sponsorships, Membership and VP for Finance & July 2016

Campaigns with Target Industry Organizations. Accounting
c. Finance development and launching of ASO VP for Finance & August

product. Accounting 2016
d. Finance development of new e-commerce VP for Finance & September

system and payment gateway. Accounting 2016
e. Finance the internal and external IT VP for Finance & September

infrastructure projects. Accounting 2016
Page 125 of 137

Department: Management/Executives
a. Hire HR Manager President; VP for Admin June 2016
Strategy # 2 (Market Development)
Increase & strengthen market coverage of key growth areas.
a. Create a dedicated team who will cover the Sales Manager; AVP for July 2016
identified key growth areas Sales & Marketing
b. Come up with a sales go to market plan Marketing Officer; Sales August

Manager; AVP for Sales & 2016
Marketing
c. Create co-marketing program with local Marketing Officer; Sales September

establishments, agents, brokers and clinics to Manager; AVP for Sales & 2016
establish presence in the area Marketing; Broker & Agent
Relation Officers
d. Conduct enablement sessions for Direct Sales,

Marketing Officer, AVP for September
Brokers and Agents on how to penetrate the Key
Sales & Marketing 2016
Growth Areas.
e. Come up with an attractive incentive program AVP for Sales and October
for the local partners Marketing; Brokers and 2016
Agents Relation Officer
c. Launch Incentive Program for the local AVP for Sales and November
partners via simple cocktail event. Marketing; Brokers and 2016
Agents Relation Officer
Page 126 of 137

Department: Information Technology
Department: Finance
b. Finance scheduled launching events. VP for Finance & Accounting November

2016
c. Come up with incentive payment and releasing VP for Finance & Accounting; September
schedules. AVP for Sales and Marketing, 2016
Strategy # 3 (Product Development)
Launch new products catering to IFG or Consumer market as a response to identify

opportunities and challenges.
VP for Medical Ancillary Division; AVP for

a. Develop and launch the ASO September
Sales and Marketing, Marketing Manager,
product. 2016
Digital Marketing Officer, IT Manager
b. Develop and launch prepaid VP for Medical Ancillary Division; AVP for
November -
card/s for mosquito borne Sales and Marketing, Marketing Manager,
January 2017
diseases. Digital Marketing Officer, IT Manager
VP for Medical Ancillary Division; AVP for December -

c. Develop and launch prepaid
Sales and Marketing, Marketing Manager, February
card/s OFW and their families.
Digital Marketing Officer, IT Manager 2017
VP for Medical Ancillary Division; AVP for

d. Develop and launch prepaid January -
Sales and Marketing, Marketing Manager,
card/s for freelance workers. March 2017
Digital Marketing Officer, IT Manager
VP for Medical Ancillary Division, VP for

e. Develop and launch prepaid
Medical Division, AVP for Sales and April – July
card/s for telemedicine services
Marketing, Marketing Manager, Digital 2017
only.
Marketing Officer, IT Manager
Page 127 of 137

7.6 Financial Projections
7.6.1 Basis and Assumptions
General Assumptions:
- Recommended Strategy 1 & 3 are expected to grow the company’s revenue and break the
billion peso mark.
- Recommended Strategy 2 will contribute in the reduction of outpatient cost of up to 30% by
2018
- Due to intensive marketing campaign and market coverage as discussed in the recommended
strategies, the company’s marketing and advertising cost is expected to rise accordingly.
- Due to the required additional manpower, it is expected also that the salaries and wages as well
as benefits cost will increase also.
- Expenditures on Information Technology especially on software and applications will increase
as required by recommended strategy 2
- Incentive payout is expected to increase also as a result of recommended strategy 2
7.6.2 Projected Income Statements (2016 – 2018)
High Side Income Statement
Low Side Income Statement
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- Recommended Strategy 1 & 3 are expected to grow the revenue by 16% on 2016, 18% by 2017
and 20% by 2018 at the High side while 10%, 12% and 14% on the low side.
- Cost of plan sold is expected to increase as the volume of membership increases but the growth
will not be as much as the previous increases due to significant savings coming from the
outpatient services cost as a result of recommended strategy 2.
- Direct expenses will also rise due to commission and incentives pay out associated with the
aggressive market coverage and strategic partnerships.
- Fixed expenses will increase as well as required by the recommended strategies.
- Consequently, as the income increase, the provision for income tax will increase as well.
7.6.3 Projected Balance Sheet (2016 -2018)
High Side Projected Balance Sheet
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Low Side Projected Balance
- Cash and Receivables will grow as expected due to the projected growth of revenue. However,
accounts receivables will still be maintained at the minimum level as a result of management
effort to retain or even further improve the average collection period. Similarly, excess cash
will be invested to various financial instruments so that cash and cash equivalents will be kept
at the minimum level as well.
- There will be no significant growth as well in terms of long-term liabilities because the
company can finance the investment requirements in the next three years on its own. This is
align also with the practice of the company of not borrowing money from outside sources
unless extremely necessary.
- As the number of employees increases, budget allocated for the retirement will also increase as
can be seen in the retirement liability figures.
- Consequently, retained earnings will continue to grow as a result of profitable operation.
Page 130 of 137

7.6.4 Projected Statement of Cash Flows (2016 – 2018)
High Side Projected Cash Flows
Page 131 of 137

Low Side Projected Cash Flows
- Cash will continue to increase year-on-year starting though minimally due to expected
expenditures related to technological innovation, new product releases, aggressive market
coverage and marketing campaign.
Page 132 of 137

The projected financial statements show that COMPANY XY’s revenue will reach a little over
1 billion pesos and more than 111 million peso net income by 2018. Similarly, company’s total
assets as indicated in the balance sheet is expected to increase by almost 40% in the same period
while retained earnings will grow by more than 4 folds.
8. STRATEGY EVALUATION, MONITORING AND CONTROL
8.1 Balanced Scorecard Strategy Map
Page 133 of 137

8.2 Balance Scorecard and Initiatives Matrix
8.3 Balance Scorecard Performance Monitoring Dashboard
Page 134 of 137

Page 135 of 137
Page 136 of 137
9. CONTINGENCY PLAN
Upside Factor Proposed Action Plan
The economy performed • Intensify market penetration campaign

exceedingly well (Above 8% • Invest excess cash and premiums to high yield local
annual GDP Growth) in 2016 to investment opportunities.
2018
Downside Factor Proposed Action Plan
2016 Presidential Election • Move local financial investments to foreign market.

failed and causing political
• Watch out for potential HMO companies that can be
uncertainty. Investors pulling
out their money which greatly bought at a sale/undervalued price.
affects the economy.
Cost of Imported Medical • Provide freebies or incentives to members who will opt to
Equipment and Supplies avail COMPANY XY Care services instead of services of
skyrocketed which further the partner hospitals.
increase the hospital billing.
--------- END OF PAPER --------
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OBF UNIVERSITY

Graduate School of Business

STRATEGIC MANAGEMENT PAPER

4. INDUSTRY AND COMPETITOR ANALYSIS

7. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES

8. STRATEGY EVALUATION, MONITORING, AND CONTROL

9. CONTINGENCY PLAN 133

Audited Financial Statements of COMPANY XY

Ward 75,000.00 Executive 3000*

Semi-Private 1 100,000.00 Customize base on Executive 2000*

2. RESEARCH DESIGN AND METHODOLOGY

3.1 Economic Forces

3.1.2 IT-BPO Industry Growth

3.1.3 Hotel and Restaurant Industry Growth

Table 3.1.4A: Financial Intermediaries 2011 to 2014 Revenue Growth

Table 3.1.4B: Financial Intermediaries Forecast (Bank and Insurance)

3.1.6 OFW Cash Remittances & Depreciating Peso

3.1.7 Annual Family Income and Expenditures Survey

3.1.8 Private Healthcare Expenditures

Table 3.1.8B: Private Healthcare Expenditures Forecast between 2016 to 2019

3.1.9 Independent Multi-Specialty Diagnostic Clinics

Table 3.2.9A: Independent Diagnostic Centers

3.2 Social-Cultural Forces

Table 3.2.1A: Population Growth Forecast

3.2.2 Leading Diseases

3.3 Technological Forces

B2C E-Commerce Growth (USD)

3.4 Political Forces

3.5 Environmental Forces

Table 3.5.1A: Key Philippine Natural Disaster in the last 4 years

14,790,696.00 44,661,805.00 9,672.00

Table 3.5.1A: Top 10 Economically Damaging Disasters since 1900

Disaster No Type Date Total damage ('000 US$)

3.5.2 Mosquito Borne Diseases

Table 3.5.2A: Dengue Cases from 2008 to 2013

Figure 4.1A: Value Chain of the HMO Industry

Figure 4.1B: Waterfall Chart

No. of Cases % Increase

4.1.2 Operations & Investment Management

4.1.5 Distribution Channels

4.1.6 Company Margin

4.1.8 Key Findings and Insights

Relevance to the firm:

4.2 Porter’s 5-Forces Model

4.2.1 Industry Definition and Direct Competitors

The industry is currently in limbo as far as regulatory management is concern. Although an

4.2.2 Rivalry of Competition

Company XY Company A Company B Company C Company D Company E

4.2.3 Potential for new Entrants

4.2.4 Bargaining Power of Supplier

4.2.5 Bargaining Power of Buyers

4.2.6 Potential for Substitute

4.3 Strategic Positioning & Recommendation

Table 4.3A: Market Coverage

Sources: Company Website, FB Page, GoogleNews, AHMOPI

Table 4.3B: Market Price Differences

Other Market Positioning Variables and Strategic Maps

Table 4.3C: Network of Service Providers

Sources: Company Website, FB Page, GoogleNews, AHMOPI

Table 4.3D: Customer Support Facilities

No. Own Diagnostic Clinics /

Table 4.3E: Technology Adoption

Sources: Company Website, FB Page, GoogleNews, AHMOPI