What's Strategy Formulation?

What is Strategy Formulation?

Every organization whether small or big has certain objectives to be achieved. Each of them has to prepare a broad plan for achieving those objectives. Strategy is a plan of action prepared to achieve the organizational goals. It is a broad long-term plan formulated to direct the business activities. Strategy formulation means defining the strategy in a very clear and simple words. Strategy formulation means stating the outline and the features of a strategy. It simply means preparing the action plan. Strategy is a pattern or plan that integrates an organization's values, major goals, policies and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organization's resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents.

Steps of Strategy Formulation

Steps of Strategy formulation

The process of strategy formulation broadly involves the following steps. 

1. Establishing objectives: The main element of corporate strategy is the objectives of the firm. Objectives of the firm acts as a foundation or base on the strategy is based. Hence objectives should properly defined. But objectives should be realistic in nature and achievable. E.g. if the firm's aim is to expand the business, firm has to pursue a growth strategy. 

2. Analyzing the Environment: In this stage general environment is analyzed from different angles. This involves assessment of internal and external business environment. This will help the firm to appraise its strengths and weaknesses and identify the major strengths and weaknesses of their competitors.

3. Fixing quantitative targets: In this state a firm may set quantitative target for some of its objectives. At this stage, the purpose is not to set targets for comparison with future outcomes, but to set global targets for the firm as a whole, so as to assess the contribution that may be made by different product areas or operating divisions. 

4. Relating targets to divisional plans: This step of strategy formulation identifies the contribution that can be made by each division or product group within the corporation and for this purpose, a provisional strategic plan must be developed for each sub-unit. These plans should be based upon the analysis of macro economic trends and the competitive environment specific to the sub-unit. Corporate targets when related to divisional plans ensure better chance of their attainment. 

5. Relating targets to divisional plans: This step of strategy formulation identifies the contribution that can be made by each division or product group within the corporation and for this purpose, a provisional strategic plan must be developed for each sub-unit. These plans should be based upon the analysis of macro economic trends and the competitive environment specific to the sub-unit. Corporate targets when related to divisional plans ensure better chance of their attainment. 

6. Gap Analysis: Gap Analysis is the identification and analysis of a gap between planned or desired performance. The organization must analyze critically its previous performance, its present condition and the desired future conditions. Such an analysis helps to reveal the extent of gap that exists between the present reality and future aspirations of the organizations. The organization also tries to estimate its likely future state if the present trends and activities continue.

7. Strategy formulation: Different strategies are formulated to achieve the target. It is only enough to formulate only one strategy. Keeping in mind the aims and the changing business environment, various strategies have to prepared. 

8. Choice of Strategy: This is the final stage in the formulation of corporate strategy. It is a well considered course of action which is chosen by relating corporate goals, external opportunities, corporate capabilities and limitations. Different strategies are evaluated from different angles and the appropriate strategy is chosen.

The process of strategy formulation

1. Setting Organizations’ objectives – Any strategy statement is to set the long-term objectives of the org. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.
2. Evaluating the Organizational Environment - To evaluate the general economic and industrial environment in which the organization operates. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market.
3. Setting Quantitative Targets - An organization must fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution made by various operating departments.
4. Aiming in context with the divisional plans – The contributions made by each department or division within the organization is identified accordingly strategic planning is done for each unit. This requires a careful analysis of macroeconomic trends.
5. Performance Analysis - A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. It includes discovering and analyzing the gap between the planned or desired performance.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.

Difference Between Strategy Formulation & Implementation

Difference Between Strategy Formulation & Implementation

FAQs

What is Strategy formulation?

It is useful to consider strategy formulation as part of a strategic management process that comprises three phases: diagnosis, formulation, and implementation. 

1. Diagnosis - 

• Performing a situation analysis, including identification and evaluation of current mission, strategic objectives, strategies, and results, plus major strengths and weaknesses 
• Analyzing the organization's external environment, including major opportunities and threats 

2. Formulation, the second phase in the strategic management process, produces a clear set of recommendations, with supporting justification to make the organization more successful. This includes trying to create "sustainable" competitive advantages. A good recommendation should be effective in solving the stated problem, practical, feasible within a reasonable time frame, cost-effective, not overly disruptive, and acceptable to key "stakeholders" in the organization. It is important to consider "fits" between resources plus competencies with opportunities, and also fits between risks and expectations. 

3. In organizations, strategies must be implemented to achieve the intended results. The most wonderful strategy in the history of the world is useless if not implemented successfully. This third and final stage in the strategic management process involves developing an implementation plan and then doing whatever it takes to make the new strategy operational and effective in achieving the organization's objectives.

What is Strategy implementation?

It is the translation of chosen strategy into organizational action so as to achieve strategic goals and objectives. It is also defined as the manner in which an organization should develop, utilize, and amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive advantage and a better performance. Organizational structure allocates special value developing tasks and roles to the employees and states how these tasks and roles can be correlated so as maximize efficiency, quality, and customer satisfaction-the pillars of competitive advantage.

What are the steps for implementing Strategy?

Following are the main steps in implementing a strategy

1. Developing an organization having potential of carrying out strategy successfully. 
2. Disbursement of abundant resources to strategy-essential activities. 
3. Creating strategy-encouraging policies. 
4. Employing best policies and programs for constant improvement. 
5. Linking reward structure to accomplishment of results. 
6. Making use of strategic leadership. 

Strategy implementation poses a threat to many managers and employees in an organization. New power relationships are predicted and achieved. New groups (formal as well as informal) are formed whose values, attitudes, beliefs and concerns may not be known. Excellently formulated strategies will fail if they are not properly implemented. Also, it is essential to note that strategy implementation is not possible unless there is stability between strategy and each organizational dimension such as organizational structure, reward structure, resource-allocation process, etc.