STRATEGY FORMULATION
Strategy formulation is an analytical process of selection of the most
suitable course of action to meet the organizational objectives and vision. It
is one of the steps of the strategic management process. The strategic plan
allows an organization to examine its resources, provides a financial plan and
establishes the most appropriate action plan for increasing profits.
STEPS OF STRATEGY FORMULATION
1. Establishing organizational objectives- this involves establishing
long-term goals of an organization. Strategic decisions can be taken once the
organizational objectives are determined.
2. Analysis of organizational environment- this involves swot analysis
meaning identifying the company’s strengths and weaknesses and keeping
vigilance over competitors’ actions to understand opportunities and threats.
Strengths and weaknesses are internal factors which the company has
control over. Opportunities and threats, on the other hand, are external
factors over which the company has no control. A successful organization
builds on its strengths, overcomes its weakness, identifies new opportunities
and protects against external threats.
3. Forming quantitative goals- Defining targets to meet the company’s
short-term and long-term objectives. Example, 30% increase in revenue this
year of a company.
4. Objectives in context with divisional plans- This involves setting up
targets for every department so that they work in coherence with the
organization as a whole.
5. Performance Analysis- This is done to estimate the degree of variation
between the actual and the standard performance of an organization.
6. Selection of Strategy- This is the final step of strategy formulation. It
involves evaluation of the alternatives and selection of the best strategy
amongst them to be the strategy of the organization.
THREE LEVEL OF STRATEGY
Corporate level strategy: This level outlines what you want to achieve:
growth, stability, acquisition or retrenchment. It focuses on what business
you are going to enter the market.
Example: a company's decision to acquire another firm to diversify into a
new industry, like Disney buying a streaming service to expand its content
delivery methods beyond traditional film and theme parks.
Business level strategy: This level answers the question of how you are
going to compete. It plays a role in those organization which have smaller
units of business, and each is considered as the strategic business unit
(SBU).
Example: Walmart employs a broad-target cost leadership strategy by
offering low prices to a large customer base, while Ferrari uses a narrow-
target differentiation strategy by producing high-performance sports cars for
a niche market of enthusiasts who desire luxury and speed.
Functional level strategy: This level concentrates on how an organization
is going to grow. It defines daily actions including allocation of resources to
deliver corporate and business level strategies.
Example: Human Resources' recruitment of top talent, Marketing's new
product launch campaign, Operations' adoption of just-in-time inventory,
Finance's strategy for raising capital, and Research & Development's focus
on product innovation.