What does strategy formulation mean

The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives.

Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives. This response was strategic, despite ultimately costing the company money. When current events shift and create new challenges and opportunities, the way your organization responds can lay the groundwork for its strategy moving forward.

In addition to current events, a successful strategy must take into account the information and knowledge you have about your organization, other firms, and the fundamental theories of economics. Also, analyze case studies of other businesses and the economic principles that underlie them.

The selection and communication of strategic goals is another important step of strategy formulation. Once the ball is in the air, there is no way to control it; it will land where it will. Related: 8 Essential Leadership Communication Skills. Proactive strategy means anticipating and adapting to change. Crisis management means working out an escape route after a crisis occurs. Reactive strategy is followed by those who simply offer resistance to any change and, in the process, get wiped out.

Logical incrementalism basically means formulating strategies through a one-step-at-a-time process. A company may not have a clear mission, as in the case of the strategic hierarchy method. Therefore, it will take into consideration its past history to guide it about what course of action to take and what to avoid. A number of companies do not have a strategic intent or a vision. They start off as small companies and as they generate sufficient profits and reserves they start looking for the next set of opportunities for growth.

They focus on backward integration or forward integration which is the next logical step to be taken for growth. Similarly, entry into related areas are also logical steps. Proactive strategy means changing in accordance with the change anticipated. The first approach is like wearing a sweater to protect oneself from the cold and the second approach is somewhat similar to using a heater to warm up the room. One salesman came back saying that there was no potential as no one wore shoes in that country, while the other felt that there was a huge potential for the same reason.

Random walk is steps taken in random directions without much analysis or evaluation. The company or the entrepreneur grabs whatever comes their way. Survival is the primary driving force that makes the individual take a number of random steps in the hope that one of them will click someday. According to Hamel the strategy-making process usually tends to be reductionist based on simple rules and heuristics.

The organizational pyramid is a pyramid of experience. But the experience is valuable only to the extent that the future is like the past. The rule makers—the market leaders, who have shaped the industry, e. IBM and Sony. They are likely to be found lower down the hierarchy and not in the top management. However, their voices are muffled by layers of cautious bureaucrats who separate them from senior managers.

The leaders who fail to recognize these revolutionaries are those who have lost confidence in their ability to shape the future of the organizations. To help revolutionary strategies to emerge, senior managers must supplement the hierarchy of experience with a hierarchy of imagination. As can be seen from the various approaches, there is no single best approach, especially as situations vary.

Having understood the concept of business strategy let us turn our attention to marketing. Analysing the external environment helps identify threats and opportunities that the company is likely to face. Further, an internal environment analysis must be carried out to identify the strengths and weaknesses of the company.

These must be corroborated to identify strengths and weakness in light of the opportunities and threats faced in the external environment. It is important to note here that while using the tool options must be ranked based on their net benefit to the company. The top-ranking options must be chosen, but where there are multiple strategic options, all of them must be evaluated before a choice is made.

The TOWS matrix is helpful for generating strategic options. The blend of external factors opportunities and threats with internal factors strengths and weaknesses must be analysed in light of the vision, mission and goals of the company and not independent of them.

It must also be noted that the TOWS matrix as a tool is a supplementary rather than a key decision-making tool unless there is a clear conviction about these disparate external and internal factors. Suppose the FMCG company that we have been referring to wants to drop a product line and invest in another category.

In this case, SWOT analysis could be helpful. SWOT analysis can identify the product line that needs to be dropped by showing its critical weakness and serious threats. Similarly, it can also help judge the category that should be invested in by identifying its strengths and opportunities. Together, these tools would aid in making a good production portfolio decision. The tools that could be applied include product life analysis and the ones on portfolio planning to understand the various facets of the decision, including the size of future investments, in greater detail.

The product life cycle PLC helps to map the stage that the product is in and understand how the strategy under pursuance would help to position the strategic unit. The company can decide whether it needs to innovate and reposition the PLC of its product by relaunching it or by any other means. For example, Lifebuoy as a brand in India has moved from a red bar of soap to a range of specialized and generalized hygiene soaps now promoted by celebrities.

This brand is a leader in the soap market of India, with an In our opinion, the repositioning of Lifebuoy in the PLC has been very successful but is still debated by many market analysts with differing views. The inference here is that the strategy formulation exercise is not as simple as using the PLC, but requires the use of a combination of tools and techniques.

We shall expand on their uses. Portfolio business strategies are more relevant at the SBU-level and corporate-level strategy formulation. When a firm wants to invest in or divest a business in a portfolio, increase its market share, or utilize excess cash generated where there are inadequate opportunities to plough investments, the portfolio approach is deployed. In these situations, either because of the market or the competition, the firm is to initiate strategic moves.

This involves an in-depth analysis of the situation, and decision making at the top level of management. This has to have involvement from both the top-level and operational-level management for effectiveness. The decision could be compulsive at the SBU, product, or market level, but may have lesser priority for top management.

Hence, such sensitivities must be understood by strategy analysts to initiate appropriate actions. There were quite a few acquisitions of brands and business too such as Kissan, and Kwality Ice cream.

After these acquisitions, the company decided to foray into the food business in a big way. It also gave a big push to brands such as Annapurna, Knorr, Kissan, Kwality Walls, and some beverage brands and their product extensions such as filter coffee.

This was done via advertisement, market research, and increasing the market reach of the brands by investing in more stockeeping units etc. Such initiatives would have required decisions using portfolio, market, and product analysis. It may be interesting to note here that a single framework or technique would not be adequate. There is a need to apply a combination of tools.

However, it is important to have a prime technique, along with other complementary techniques and tools while facilitating strategy formulation decisions. Scenario generation is one of the methods which strategic planners have found useful for the interpretation of a fluid, rapidly changing business environment with an uncertain future. Scenarios constitute an effective device for sensing, interpreting, organising and bringing to bear diverse information about the future in planning and strategic decision-making.

Simply stated, scenarios may be regarded as stories about the future. But more precisely speaking, these are descriptions of plausible alternative futures of the macro-environment. The primary purpose of scenario generation is to delimit the range of uncertainties in the most critical factors in an environment. Typical scenarios include qualitative and quantitative descriptions of uncertainties in the most critical factors in an environment.

Typical scenarios include qualitative and quantitative descriptions of the more important social, political, economic, demographic, technological and other conditions. They often describe the basic trends, assumptions, conditions and dynamics of the factors relating to the future period that the scenario covers.

As such scenarios are not forecasts or predictions. Probability estimates are hardly associated with the elements of the scenario. Hence scenarios are said to be fuzzy, too imprecise and hard to apply. Also scenario generation is an expensive process. There is no doubt that scenarios represent a significant departure from the traditional methods of forecasting like the single or multiple variable extrapolation and regression methods.

However, most of the environmental factors are not amenable to easy prediction on account of their complexities and the rapidity of changes. Under the circumstances scenarios are found to be an ideal complement to the various other methods of forecasting and planning.

The basic question that strategic planners have to face with regard to environmental forecasting is how far ahead they will look, that is about the time horizon for forecasting. For, to respond strategically to a perceived environmental change in future, the strategic decisions have to be taken well in advance.

It may be a matter of technology of production envisaged by the planners. Thus, for instance, it will take a considerably longer period to create production facilities for computer hardware than for production say a newly designed software. Application of this technique will be clear from the following diagram which depicts a typical situation. It will be seen in the diagram that between line A , and line A , which show the desired change in a strategic parameter like sale, profit, etc.

The gap widens with the passing of time. The planners should know how long it will take for current decisions to begin to-fill the gap. If it is a question of creating capacity for computer hardware, two years will be too short a period for the purpose unless it is decided to acquire an existing plant. Once the time horizon for forecasting is determined it is necessary that objective data should be processed and then analysed for making forecasts, taking into account the probabilities of occurrence and the risks involved.

However, a single environmental variable is generally insufficient. Thus, multiple regression techniques may have to be used. The practice of strategy formulation is an ongoing exercise that is refined over the years. During the process, tools and techniques are validated and demonstrated by way of successful deployment in organizations.

This is true for different kinds of organizations such as partnership firms, privately-held companies, corporate bodies, government businesses, and not-for-profit organizations. Strategy formulation has to be scientific.

We come across many instances wherein the strategic management process has failed to deliver the required results for competitive growth. This failure, in some cases, is attributed to a lacuna in the strategy formulation stage, leading to a failure in the subsequent strategy implementation stage.

This obviously reflects the multiplicity and complexity of challenges faced at this stage. The following points try to capture such challenges in the context of effective operation of a business:. This is one of the major issues in strategy formulation. There are instances where after choosing an appropriate strategy, the top management, among themselves and across organizations, fails to achieve synchronization of the vision, strategic intent and hence the strategy for way forward.

This leads to problems in implementation and in the obtainment of commitment from the stakeholders. This is a serious issue in making major decisions. For example, while venturing into inorganic moves such as mergers, acquisitions, sell offs, or divestiture, such instances are common.

In this process, there could be a delay in pursuing the strategy, which may lead to value erosion. One of the authors was involved in the selection of technology and boilers for a small power plant for co-generation of power and steam for processing. The delay in decision making made the company lose one operating season as it was a highly seasonal industry. The delay was mainly because the vision for co-generation of power was fully understood but the streamlining with operations was not clear.

It required a combination of vision and operations expertise to consummate the idea, causing the delay. To overcome such problems, creating a shared vision is critical.

All successful organizations have one. Building confidence among stakeholders and communicating objectively are critical for creating a shared vision. It not only creates a shared vision but also a philosophy of oneness and growth through commitment of effort and energy for the benefit of all stakeholders. Strategy Formulation means crafting a combination of strategies and picking out the best one to achieve the organizational goals and objectives and thereby reaching the vision of the organization.

It involves a number of steps which are performed in chronological order. On the other hand, Strategy Implementation refers to the execution of the opted strategy, i. There are many management students, who often juxtapose the two terms. But there exist a fine line of differences between strategy formulation and strategy implementation, which has been explained in the article below.

Basis for Comparison Strategy Formulation Strategy Implementation Meaning Strategy Formulation refers to the preparation of a well thought strategy, that helps in the achievement of organizational goals. Strategy Implementation means to bring the formulated strategy into action. Concept Placement of forces before action takes place. Managing forces at the time of strategy execution. Strategy Formulation is concerned with the crafting and designing of strategies, and picking the best strategy for execution, to achieve the desired organizational goals and objectives.

It is the second stage of the Strategic Management Process.