Chapter 6 – Strategy Formulation (Detailed Notes)
1. Introduction
Strategy formulation is the process of deciding the best course of action for achieving
organisational goals and creating a roadmap to reach the desired future position.
It follows strategic analysis and focuses on selecting and designing strategies that ensure
competitive advantage, sustainability, and alignment with the organisation’s purpose.
2. Levels of Strategy
1. **Corporate Strategy** – Concerned with overall scope and direction of the organisation,
including which industries or markets to operate in. Example: diversification, mergers,
acquisitions.
2. **Business Strategy** – Focuses on how to compete successfully in specific markets.
Example: cost leadership or differentiation.
3. **Functional/Operational Strategy** – Relates to specific departments or functions
(marketing, HR, finance) supporting business strategy.
3. Strategy Formulation Process
Steps in formulating strategy:
1. Set mission, vision, and objectives.
2. Conduct external and internal analysis (PESTEL, Five Forces, SWOT).
3. Identify strategic options (using Ansoff, SAF framework).
4. Evaluate and select best-fit strategy.
5. Develop implementation plan and KPIs.
6. Communicate strategy and align stakeholders.
4. Vision, Mission, and Objectives
**Vision:** Future aspiration – “what we want to become.”
**Mission:** Purpose and reason for existence – “why we exist.”
**Values:** Principles guiding behaviour.
**Objectives:** Specific, measurable outcomes to achieve the mission (SMART – Specific,
Measurable, Achievable, Relevant, Time-bound).
5. Strategic Direction
Strategic direction defines how an organisation grows and evolves.
- **Market Penetration:** Increase share in current markets.
- **Market Development:** Enter new markets.
- **Product Development:** New products for existing markets.
- **Diversification:** New products in new markets (related or unrelated).
6. Porter’s Generic Strategies
Michael Porter identified three strategies for competitive advantage:
1. **Cost Leadership:** Lowest cost producer in the industry.
2. **Differentiation:** Offering unique value to customers.
3. **Focus:** Targeting a niche segment (cost or differentiation focus).
**Hybrid Strategy:** Combines elements of cost and differentiation (e.g., IKEA).
7. Bowman’s Strategy Clock
Bowman expanded Porter’s model by focusing on customer-perceived value and price.
Key Positions:
1. Low Price/Low Value
2. Low Price
3. Hybrid
4. Differentiation
5. Focused Differentiation
6–8. Non-viable strategies (overpricing without added value).
8. Corporate Strategy Options
1. **Diversification:** Expanding into new industries or products.
2. **Integration:**
- **Vertical Integration:** Moving up (backward) or down (forward) the supply chain.
- **Horizontal Integration:** Merging with competitors.
3. **Strategic Alliances & Joint Ventures:** Partnerships for shared objectives.
4. **Mergers & Acquisitions:** Acquiring or combining with other entities for growth.
9. International Strategy
Firms expand internationally for market growth, efficiency, and resource access.
**Bartlett & Ghoshal’s Strategies:**
1. **Global Strategy:** Standardised approach worldwide (e.g., Apple).
2. **International Strategy:** Centralised knowledge sharing.
3. **Multidomestic Strategy:** Adaptation to local markets.
4. **Transnational Strategy:** Balances global efficiency and local responsiveness (e.g.,
Unilever).
10. Strategic Evaluation – SAF Framework
Evaluate each strategic option for:
- **Suitability:** Does it fit with external environment and internal capability?
- **Acceptability:** Will stakeholders approve it? Are risk and return balanced?
- **Feasibility:** Do we have resources and competences to deliver it?
**Tools:** Risk analysis, financial modelling, sensitivity analysis.
11. Innovation and Entrepreneurship
Innovation drives growth and differentiation.
**Types of Innovation:**
- Product innovation – new goods/services.
- Process innovation – improved operations.
- Business model innovation – new ways of delivering value.
**Entrepreneurship:** Spotting opportunities, risk-taking, and value creation through
innovation.
12. Strategic Choices – Organic vs Inorganic Growth
**Organic Growth:** Internal expansion through innovation and investment.
**Inorganic Growth:** External expansion via mergers, acquisitions, and alliances.
**Choice depends on:** resource availability, risk tolerance, control, and speed of
expansion.
13. Governance and Ethics in Strategy
Strategic decisions must uphold ethical standards and stakeholder interests.
- **Corporate Governance:** Ensures accountability, fairness, and transparency.
- **Ethical Strategy:** Integrates social responsibility and sustainability (ESG principles).
Boards must balance profitability with social and environmental impact.
14. Scenario Planning and Contingency Strategy
Scenario planning helps prepare for uncertain futures by modelling alternative outcomes.
**Steps:**
1. Identify key uncertainties.
2. Develop alternative scenarios.
3. Assess impact on strategy.
4. Formulate contingency plans.
**Purpose:** Build flexibility and resilience.
15. Strategy Selection Tools
Common tools for decision-making:
- **SWOT & TOWS Matrix:** Match strengths to opportunities and counter threats.
- **BCG Matrix:** Evaluate business units (Stars, Cash Cows, Question Marks, Dogs).
- **GE-McKinsey Matrix:** Assess market attractiveness vs business strength.
- **SPACE Matrix:** Strategic position and action evaluation.
16. Strategic Implementation Considerations
Once strategy is chosen, focus shifts to execution.
Success depends on:
- Leadership commitment and communication.
- Organisational structure alignment.
- Resource allocation and control mechanisms.
- Monitoring performance with KPIs.
17. Professional Skills in SBL
**Analysis:** Apply frameworks logically.
**Evaluation:** Prioritise viable strategic options.
**Commercial Acumen:** Assess financial, operational, and ethical implications.
**Communication:** Present strategic advice clearly to stakeholders.
18. Chapter Summary
Strategy formulation bridges analysis and implementation.
It involves selecting the best-fit strategy using SAF and other tools, ensuring governance,
innovation, and ethics are integrated.
Key models: Porter’s Generic Strategies, Bowman’s Clock, Ansoff Matrix, SAF Framework,
BCG Matrix, and Bartlett & Ghoshal’s International Strategies.