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STRATEGIC FORMULATION MEANING, DEFINITION AND EXPLANATION

Article  in  E-Journal of Humanities Arts and Social Sciences · January 2019

DOI: 10.14456/hasss.2019.20

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 STRATEGIC FORMULATION MEANING,
DEFINITION AND EXPLANATION

Sookchok Thongsookularn

Silpakorn University International College (SUIC),

Silpakorn University
Bangkok 10500, Thailand

Corresponding author: sookchok@[Link]

Received: February 8, 2018; Revised: November 31, 2018;

Accepted: January 8, 2019

Abstract

This article aims to explore strategic formulation in order to provide

more understanding. Strategic formulation is a partial element of strategic
management which includes three stages as follows: strategic formulation,
strategic implementation and strategic evaluation. In this article, the author
would like to focus only on the strategic formulation known as strategic
planning stage that assists organizations to achieve their purposes and to shape
their directions from the actual state they are to the target where they want to be
in the future amidst fluctuating environment. In this article, principles, theories,
and summary of strategic formulation will be presented and the author’s
opinions and applications have been explained for those who are interested.
Strategic formulation consists of four elements: analysis of strategic
environment; development of mission and vision statements; establishment of
long term objectives; and generation of strategic options and selection of
particular strategies to implement.

Keyword: Strategic formulation; environmental analysis; mission; vision;

long term objective; strategic options

Humanities, Arts and Social Sciences Studies

Vol.19(3) : 418-431, 2019
Strategic Formulation Meaning, Definition and Explanation Thongsookularn, S.

Introduction

According to strategic management, there are two perplexing

definitions between strategic planning and strategic management which were
differently explained in various ways. Strategic management can be defined
as the art of formulation, implementation and evaluation of cross-
functional decisions that enable organizations to achieve their goals. This
could be implied that strategic management focuses on integrating
management, marketing management, financing/accounting management,
producing/operating management, research and development, and computer
information system arrangement to achieve organizational success (David,
2001). In this article, the term of strategic formulation is used closely
associated with the term of strategic planning which is widely used in business
world whereas the former one is frequently used in academic situation. As
seen from Figure 1, strategic management consists of three elements: strategic
formulation, strategic implementation, and strategic evaluation. The purpose
of strategic management is to create opportunities for the future with long
range planning including optimizing any chances for the forthcoming days.
Strategic formulation is the heart of strategic management. It is believed that
the right strategic formulation can retain the organizations more competitive
advantage and synergy with the rests: implementing, evaluating and
controlling the plan. Therefore, the author would like to explore the details and
definitions of strategic formulation (strategic planning) in order to establish
the better insight.

Strategic
Strategic Strategic
evaluation and
Formulation Implementation
Contral

Figure 1: Strategic Management Stages

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 Humanities, Arts and Social Sciences Studies

What is Strategic Formulation?

The first stage of strategic management is strategic formulation which

involves assessing existing strategies, organization, and environment in order
to develop new strategies and strategic plans to enhance future competitive
advantage (Schermerhorn, 1999). Wheelen and Hunger (1995) also asserted
that strategic formulation is the development of long–range plans for the
effective management of environmental opportunities and threats in the light
of corporate strengths and weaknesses. Barnat (2014) and The Saylor
Foundation (2017) have defined strategic formulation as a process of
establishing the organization's mission, objectives, and alternative strategic
selection to achieve the organizational goals. This essential process provides
a framework for the organizations and their executives to take the actions
leading to the anticipated results (Pearce and Robinson, 2000). The approach
of strategic formulation is an improvement from the traditional long range
planning. David (2001) also added that strategic formulation helps the
organizations to commit themselves to specific products, markets, resources,
and technologies over an extended period of time. This, moreover, includes
decisions of entering to the new businesses or abandoning the non-performing
business activities. Business expansion or diversification pedagogies can be
counted in this decision making. Some businesses have been entered to the
international markets in the forms of merging and acquisition or joint venture
in order to escape from the hostile takeover. As the resources are limited,
strategists have to be well aware of the consequence of their selected strategies
and carefully perform their selection of the most beneficial strategies
anticipating availability of resources for implementation. In summary,
strategic formulation is the first stage of strategic management for the
organizations to shape their future and to identify their strategic positions and
directions to follow. The stage of organizational planning commences from
where you are now to somewhere in the future, so it is important to formulate
the plan so as to create the promising future as can be seen in Figure 2.

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Strategic Formulation Meaning, Definition and Explanation Thongsookularn, S.

To some
where in
Identifying the future
your
strategic
Where postion and
you are direction
now

Figure 2: Strategic Formulation Process

The Components of Strategic Formulation

Several researchers have generated the components of strategic

formulation as followed: David (2001) states that strategic formulation includes
developing vision and mission, identifying organizations’ external opportunities
and threats, determining internal strengths and weaknesses, establishing long
term objectives, generating alternative strategies, and choosing particular
strategies to implement. David’s claim has been agreed by Wheelen and Hunger
(1995) who also added some components of specifying achievable objectives,
developing strategies and setting policy guidelines. Moreover, Bowman and
David (1978) have added another two components: strategic option
specification and strategic selection, as well. Besides, Pearce and Robinson
(2000) have inserted the components of creating competitive advantage for
business unit, and setting long term objectives. Additionally, Hidayat (2016) has
also commented that strategy formulation involves the interplay of interrelated
components which enable organizations to compete effectively and survive in
the dynamic business world. Hidayat has differently added annual objectives,
grand strategy, generic strategy, and functional/operational strategies into
strategic components, too.
Thus, it can be summarized that there are four components of strategic
formulation as follows: developing organization mission and vision, analyzing
environment by applying SWOT analysis, establishing long-term objectives,
and, choosing the right strategies to implement, as seen in Figure 3. As far as

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annual objectives are concerned, it could be excluded from strategic formulation

components because its function should be deployed in the stage of strategic
implementation.

Generating strategic
Mission and Environmental Long term options and
Vision statment Analysis objectives Selecting Particular
strategy

Figure 3: Strategic Formulation Components.

Organizational Mission and Vision Statements

Mission statements
Developing a mission and vision statement is the first step of strategic
formulation. Katsioloudes (2006) has coiled the definition of organizational
vision and mission statement that it is described as the purpose and the reason
to commence the organization. Mission statement can be narrow or broad in
scope. Wheelen and Hunger (1995), David (2001), Osen and Osen (2011),
Schermerhor (1999) and Hidayat (2016) have also asserted that statement of
mission helps the organizations to determine their objectives, strategies and
policies. A good mission statement can reflect the value and priority of decision
making and differentiate the company from others and to identify the unique
scopes of the company’s operation, products offered and market served that
meet the customers’ demands. Apart from that, Hidayat (2016) also included
technological areas of thrust into mission statement. Businessdictionary (2017)
illustrates a comment that a mission statement, sometimes focusing 'present day'
situations, helps company to lay out the promising plans to achieve its
objectives. This would be the answers for employees, shareholders, and others
who inquire about the business of the company and the reasons of business
operations.
The mission of a business seems to be an endless future as if the firm
were immortal.
In order to write a mission statement, the organization should answer
the following questions:
- What is the purpose of your business?

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Strategic Formulation Meaning, Definition and Explanation Thongsookularn, S.

- What do you intend to accomplish on behalf of your customers?

- In the light of the needs you see, why does your business exist?
- Which needs can your organization resolve or serve?

Vision statements
A vision statement provides the road map for the organizations in the
future. Number of researchers (Harrison, 2003; Miller, 1998; Osen and Osen,
2011; Hidayat, 2016) have defined ‘vision statement’ as the image the
companies would like to be in the future. This could include the guidance and
frame of thinking for the companies to create and declare their short term and
the long term goals. During the course of time, the companies may change or
adapt their business activities in order to achieve their desired targets with the
meaningful action. By having purposeful visions, everyone in the organization
has been inspired to perform his tasks with motivation and this has kept the
organization ascending to the intended direction (Businessdictionary, 2017 and
Hidayat, 2016). Collins and Porras (2011) have generated the components of
vision statement into two major components: core ideology and envisioned
future.
Hidayat (2016) has suggested questions for the companies to answer so
as to set up their vision statements.
- What will your business look like in 5 and 10 years from now?
- What new things do you intend to pursue?
- What future customer needs do you want to satisfy?
A mission and a vision are standard and essential elements of a
company’s strategy. Most recognized organizations always develop
organizational mission statements and vision statements which serve as
foundational guides in the establishment of company objectives (Gudhate,
2016).

Benefits of Establishing a Vision and Mission Statements:

- The vision and mission statements provide a reason of purpose to
organizations’ activities and inspire the employees with the sense of
belonging. This could serve as the identity of organization with the
organizational dogma and motto.

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- A vision and mission statement defines types of organizational

operation since it reasons of the existence of the organization and it
represents the indicators of the direction to the actual goals.
- The vision and mission statements are considered as central points and
directions for the employees to identify themselves in the organization.
- The vision and mission statements help organizations to transform the
objectives into task and job descriptions that can be generated to those
who are responsible for.
- Finally, vision and mission statements provide a philosophy of the
organization to the employees.

Hence, meaningful vision and mission statements are closely connected

with assigned tasks, actionable parameters and the spirit of the organization. It
can be summarized that mission statements are underlying the reason for the
organizational existence. This difficult task is still continued and has never been
achieved. It seems like the sailor taking the journey to the North Star. In contrast,
the organization’s vision cannot be achieved within a short period of time. Once,
when the vision is achieved and completed, such vision can be shifted into the
new one.

Environmental Analysis

After organizations have completed developing mission and vision

statements, environment assessment, second element of strategic formulation,
can be applied thereafter to identify opportunities, threats, strengths and
weaknesses of the organizations. It is important for the organizations to keep
their business surviving and to achieve some more degree of match between
their supplies and the demands by initiating favorable strategies based on
information given. Bateman and Snell (2002) have commented that it is crucial
for the managers to predict opportunities and threats that are likely to take place
from both internal and external environment. Apart from those strategic tools,
PESTLE analysis (2015) can be also added. Then, the results of environmental
analysis can be transformed into the decision-making process which helps the
executives to arrange the proper strategies associating with the organizations’
environment. Stoner and Freeman (1992) also supported that claim and

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commented that not only can environmental analysis make change

organizations’ economic, technology, socio-culture, but political and legal
environments also influence the organizations and the others who involve in
their business activities. Moreover, Hidayat (2016) has included an external
environment, an uncontrollable factor, which can give an impact to strategic
options and competitive position. The external environment can be divided into
two types: the operating environment and the remote environment. The
operating environment can be competitors, consumers, and vendors which
directly influence to organizational performance. The remote environment, on
the other hand, includes political, social, economic, and demographic factors.
An internal analysis helps the company to determine its capabilities and
developing an internal profile reflecting the strengths and weaknesses as well as
evaluating past performance. This can be done to assess the capabilities of the
company in the future.
Capozzi (2017) claimed that external environment has given an impact
to the decision making in the stage of environmental analysis. Grant (as cited in
Capozzi, 2017) has categorized environmental influences as either source or
proximity. In the terms of source, it can be defined as PEST analysis referring
to political, economic, social and technological factors. Some are beyond
control, so the company needs to plan some potential solution ahead based on
environmental analysis. Besides the PEST analysis, the SWOT analysis also
plays a crucial part to look into external circumstances together with internal
counterparts as well. Some factors can be taken place only at some companies,
such as, business’s leadership abilities, patents and intellectual property,
technology availability and the power of its brand name. Gregory (2017) has
supported that the SWOT analysis is the strategic planning tool helping the
business owners to construct their marketing plan and to generate business
strategies commencing from the discussing inside the company. By applying
the SWOT analysis, the company will be able to maintain and increase their
wealth in a number of situations.
In summary, environmental factors could greatly affect to the wealth of
the company, so the company should carefully lay out the plans aligning with
the surrounding situations which could happen currently or in the future. A good

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use of the SWOT analysis, one of strategic managing tools, could assist the
company to define its own strength, weakness, opportunity and threat from both
inside and outside environments. This also helps the company emphasize the
best practice and manage the failures that have been happened. Finally, the
company will be able to optimize the results with a better planning.

Long Term Strategic Objective

Developing long term objective is the third element of strategic

formulation. Wheelen and Hunger (1995) have stated that objectives are the
end results of planed activities. Additionally, Osen and Osen (2011) have
given explanation that objectives are the areas where the effort has to be made
to drive organizations from mission to vision or from motive to action. This
helps an organization define its targets both programmatically and
organizationally. This can be arranged as broad categories that are non-
measurable and continuous. Besides, David (2001) has further added about
the importance of setting the objectives which helps organizations to state the
direction and evaluation, to create synergy, to reveal priorities, to focus
coordination, and to initiate a tool for motivation plan and controlling
activities during the long period of time which could be more than one year.
Kaufman et al. (2003) have also claimed that setting the objectives has to be
laid out before committing any business activities and establishing
expectations from job performance as well as measurable standards. They also
suggest that any kinds of incentive have to be aligned with the expected
outcome of performance as reinforcement in the short or long term goals.
Apart from this, Hidayat (2016) has pointed out about the two types of
objectives: long-term and annual objectives. Long-term objectives can be
completed over a number of years. These can be set as targets in various areas
such as market share, return on assets, profitability, technological leadership,
employee relations, social responsibility, and employee development.
There are two questions to be aware before the setting strategic objectives
- Which areas need to be involved in order to accomplish the
company’s vision?
- Which areas need to be continued actively in the next five years?

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Strategic Formulation Meaning, Definition and Explanation Thongsookularn, S.

In summary, long term objectives can be compared as a bridge

connecting between visions and goals in order to create concrete ways of
business activities. This also acts like a broad of action statement that can be
a guidance to achieve the vision in the future. If the long term objectives have
been clearly established, it is easy for the organizations to identify goals to be
reached in the short term period (1-3 years). After short term goals have been
fulfilled, the long term objectives can be achieved which means the
organization vision can be accomplished. Without long term objectives, the
organization cannot achieve its vision.

Generating Strategic Option and Selecting Particular Strategy

After environmental analysis and long-term objectives have been

completed, generating strategic options and selecting particular strategy
can be deployed as the last step in strategic formulation. This is because
SWOT analysis has been explored during the environmental analysis
process together with Internal and External Matrix, BCG Matrix, GE
matrix and SPACE Matrix. These tools are essential to implement strategic
alternatives.
Strategictoolkit (2016) has stated that selecting proper strategic
choice is a central process for making sustainable strategic decisions.
The future of the company can be well crafted with effective
strategies with ability of prioritizing and good decision making.
Generating alternatives can be hard and easily ignored for several reasons
- It is a waste of time because everyone knows what we are going to
do already (“groupthink”)
- Aren’t we better off “focusing on execution” instead of debating
theoretical alternatives
- The more radical the alternative, the more change is required.

This is where the creative strategy takes place alongside with the extra
possibilities in the business. During the strategic analysis process, it is
recommended that “opportunity” should be listed. However, some unexpected
events may appear at the start. David (2001) has suggested that not all

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alternatives can be fitted in the business operations as there could be number

of implementation methods for those alternative actions. Therefore, a
manageable set of the most attractive alternative strategies must be developed
relating to advantages, disadvantages, trade-off, cost and benefits.
Hence, it is important for the executives to employ internal and
external factors to specify the strategies for the organization so as to maintain
and boost up its competitive advantages leading to the synergy. Despite
various strategic availabilities, the executives need to generate the strategic
options based upon internal and external factors. Then, numbers of these tools
analysis, such as EFE and IFE Matrix, TOWS Matrix, BCG Matrix, and GE
Matrix, need to be deployed to create favourable strategic options.

Conclusion

It can be concluded that strategic formulation is the first stage of

strategic management which does not end at the strategic planning process.
There are three components of strategic management: strategic formulation,
strategic implementation and strategic evaluation and control. During this
stage, strategic position and direction have to be portrayed to lead the
organizations systematically to the desired success, to keep the organizations
surviving in difficult circumstances and to maintain competitive advantages
over the rivals with limited resources.
The responsibility of setting strategic formulation is usually fallen
upon the executives identifying mission and vision statesmen carefully. Then,
environmental analysis needs to be made in order to spot the strength,
weakness, opportunity and threat. There are two components of external
environmental analysis: general environment analysis which can be made by
applying PESTLE analysis (Political, Economic, Social, Technology, Legal,
and Environmental), and competitive environmental analysis which can be
made by applying Porter’s Five Force Model (Porter, 2011). An internal
environmental analysis can be deployed in the fields of organizational
strategies, staff’s capabilities, corporate value, supply chain, financial
statement and organizational past performance in order to gain the insight of

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Strategic Formulation Meaning, Definition and Explanation Thongsookularn, S.

weakness and strength of the organizations. After that, long term objectives
have to be illustrated so as to fulfil the organizational vision. Next, a number
of strategies have been generated and the most proper ones will be selected to
apply, as seen in Figure 4.

Developing mission and

vision statement

Environmental analysis

Long term objectives

Generating strategic options

and particular strategy

Figure 4: Pyramid of Strategic Formulation

It can be easily concluded that strategic formulation has been

systematically arranged starting from developing of vision and mission
statements and long term goals as known as vision which is an organizational
desire in the future. On the other hand, mission is the frame and reason of
organizational existence which is customer’s oriented. Long term objective can
be compared as a bridge which links between the goals and the organizational
vision in the future. In terms of strategies, these can be utilized correlating to the
internal and external environmental factors so as to achieve the goals. The
strategic management process does not stop when the firm decides what
strategies to pursue, but it must be transformed from strategic thought into
strategic action.
Last but not least, the organizations could not archive their plan without
applying strategic formulation. Moreover, it is undeniable that strategic
implementation, evaluation and control are crucial elements to make the
strategic formulation become realistic and concrete in order to complete the
management cycle which could lead the organization to success.

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