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AN INVESTIGATION ON THE STRATEGY FORMULATION PROCE

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AN INVESTIGATION ON THE STRATEGY FORMULATION PROCESS WITHIN
THE ROMANIAN COMPANIES
Article · January 2010
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Ovidiu Niculae Bordean
Anca Borza
Babeş-Bolyai University
Babeş-Bolyai University
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AN INVESTIGATION ON THE STRATEGY FORMULATION PROCESS
WITHIN THE ROMANIAN COMPANIES
O. BORDEAN1, A. BORZA2, C. RUS3, C. MITRA4
Babes-Bolyai University of Cluj-Napoca
1
ovidiu.bordean@econ.ubbcluj.ro
2
anca.borza@econ.ubbcluj.ro
3
rusciprianioan@yahoo.com
4
catalina.mitra@econ.ubbcluj.ro
the development of the strategic management process
have been identified.
Within this context one can easily see the utterly
importance of well designed strategy. The formulation
phase is just one of those elements without the strategy
cannot work in practice. Thus, the assessment of strategy
formulation becomes crucial for both practitioners and
researchers in order to conduct and evaluate different
formulation processes.
Judging from the literature, formulation of a particular
strategy can be only be examined reactively, by
examining the strategy outcome after a period of time
(Eden and Ackerman, 1993; Ramunajam et al., 1986).
However, practitioners need greater confidence that their
chosen strategic management decisions are going to lead
to successful results. Starting from this point, Acur and
Englyst (2006) strive to elaborate upon a proactive
assessment tool of strategy formulation processes that
ensures high quality in process and outcome. We were
interested in how the Romanian managers are filling
about this important step in the strategic management
process, so we developed a questionnaire that was applied
to a sample of managers while we were investigating
some particular aspects about the formulation of strategy
in their companies.
This paper is structured as follows: it starts with a
literature review on the strategic management process that
is followed up by a thorough presentation of the
formulation phase. During this stage the research
questions are being hypothesized and a brief description
of the research methodology follows. The paper continues
with a discussion of the most relevant findings of the
survey and ends up with some conclusions regarding the
advantages and the drawbacks of the strategy formulation
process within the Romanian companies.
ABSTRACT
Strategic management is about managing the future, and
effective strategy formulation is crucial, as it directs the
attention and actions of an organization, even if in some
cases actual implemented strategy can be very different
from what was initially intended, planned or thought. The
assessment of strategy formulation processes becomes
crucial for practitioners and researchers alike in order to
conduct and evaluate different formulation processes.
Today, firms need to cope with competitive challenges
related to innovation, dynamic responses, knowledge
sharing, etc. by means of effective and dynamic strategy
formulation. The purpose of this paper is to investigate
the strategy formulation process for a sample of firms that
are doing business in Cluj-Napoca. In order to evaluate
the degree of importance that each firm places on the
strategy formulation process a questionnaire was
developed and used to test the research hypothesis. The
findings of the study offer multi-perspective reflection on
strategy formulation. Such reflection is assumed to enable
managers to proactively evaluate the potential outcome of
their chosen strategy.
KEY WORDS
Strategic management, strategy formulation, strategic
planning, strategic thinking.
1. Introduction
Strategic management is a complex process that once
implemented can lead to higher profits and ease the
obtaining of the competitive advantage. Today’s dynamic
external environment puts a huge pressure on every
manager’s shoulder when it comes to create the best
strategy on which the entire company has to rely on. To
deal with these constrains a lot of thinking has been done
in the past years and many approaches that can be used in
2. Literature review
During time, many scholars tried to define the strategic
management. We have reached by now a considerable
number of definitions regarding strategic management,
26
yet there exists little consensus about the similarities of
such definitions. Ohmae’s (1982) ideas of strategic
management offer a simple but robust initial definition.
He draws attention to three key groups – the corporation,
the costumer and the competitors. Strategic management
might be defined, therefore, as the pursuit of superior
performance by using a strategy that “ensures a better or
stronger matching of corporate strengths to customer
needs than is provided by competitors” (Ohmae, 1982:
91).
Other remarkable contribution to the development of
strategic management theory is that of Pettigrew and
Whipp (1993) who also make the point about the
importance of properly linking strategic and operational
changes. Strategic intentions should be broken down to
what they call actionable pieces, made the responsibility
of change managers.
Joyce and Woods (2002) consider strategic management
as being a difficult process in part because it requires
contradictory qualities and skills in dealing with
paradoxical demands of situations. Indeed, strategic
management is not one of the easy tasks managers have to
accomplish. Moreover, the success of the strategy will
rely on the ability of every strategist responsible of the
implementation. In fact, Charles Handy, an influential
management writer explains the role of the each
management type and points out how the qualities and
skills of different types may be present in single
individuals, who have to bring together in complementary
ways to deal with strategic tensions they confront (1991).
Handy uses Greek myths and gods to personalize the four
manager types that he describes in his book “The gods of
management” (1991).
The strategic management process consists of the
following steps: (1) analysis of the external and internal
environment; (2) strategy formulation; (3) strategy
implementation and (4) strategy evaluation (Borza et al.,
2008). Some authors make a clear distinction between
strategic management (which is a term used especially in
the academic world) and strategic planning (a term that
was coined within the business world which is associated
with the formulation phase). Figure 1 shows the specific
elements that comprise the strategic management process.
The strategic management process starts with an analysis
of the internal and external environment of the
company. The role of this analysis is to determine which
are the strategic factors that determine the future direction
of the company. The external environment consists of
those elements that are not controllable by the managers
that form the context in which companies evolve. On the
other hand, the internal environment includes the
variables within the company (for example organizational
structure corporate culture and the resources of the
company). This first step usually ends up with the
development of the SWOT analysis which will briefly
include the strengths and weaknesses from the internal
environment and the opportunities and threats from the
external environment.
As Figure 1 shows the strategic management is a
continuous process that contains also a feedback phase
suggesting that while the companies goes through all the
steps it is possible to correct some of the decisions taken
earlier or even changing the desired strategy.
Strategy implementation deals with establishing the
annual objectives, policies, programs, staff motivation and
resource allocation in order to facilitate the strategies.
During this phase, the strategists will try to determine
every employee and manager to work together in order to
transform the strategies into coherent actions.
The following decisions are taken within this phase
(David, 2008: 263): the creation of an organizational
culture that will sustain the strategy; the creation of the
marketing budget; the establishment of company budget;
the development and use of the informational systems and
the correlation of employees’ salaries with the company’s
performance.
Strategy evaluation offers managers valuable
information about the way in which the strategy proved its
efficiency. Managers will compare the results with the
goals established during the first phases of the process.
This is a step absolutely necessary because actual success
of the current strategy is not a guarantee of the future
success. The dynamics of the external environment will
determine changes in the context in which companies act.
Strategy evaluation includes the following activities
(Borza, 2008: 19): (1) the analysis of the internal and
external factors on which the strategy has been developed;
(2) the assessment of company’s performance and (3)
implementing corrective actions.
Strategy formulation consists of determining the
organization’s mission, goals, and objectives and
selecting or crafting an appropriate strategy (Figure 2).
Strategy formulation involves much research and decision
making, yet it is primarily a process to answer the
question, “How are we going to accomplish our goals and
get where we want to go?” Before this question can be
asked, however, the goals and objectives must already
have been determined. Essentially, crafting the strategy
can be thought of as a continuous effort to develop a set
of directions, draft a blueprint or draw a road map.
Strategy formulation is influenced by many factors,
including:
Analysis of external and
internal environment
Strategy formulation
Strategy implementation
Strategy evaluation
Figure 1: The strategic management model
Source: adapted from Wheelen and Hunger, 2006: 11
27
Management values and
philosophy
term. They may be financial such as a certain increase in
earnings per share or non-financial such as a percentage
increase in market share. In theory they should be capable
of being quantifiable and hence susceptible to
measurement.
Strategic decisions are ones that are of fundamental
importance to the business, but will not prove to have
been right or wrong for some considerable time. Strategic
decisions are normally such that they are irreversible or at
least can only be reversed at considerable cost.
In the context of company strategy, policies are rules or
principles that are regarded as an integral part of the
company’s success model; they are practices or ways of
doing things, often long established, that are seen as
indispensable parts of the company’s formula for
achieving a sustainable competitive advantage.
Determination of mission
Mission statement
(1) evaluating the internal and external organization
(especially the projected future environment);
(2) establishing the predetermined mission and goals of
the organization;
(3) setting the organization’s strategic policies or
guidelines; and
(4) assessing the needs, values, and skills possessed by
those who develop the strategy. The same factors
influence development of the strategic objectives
(Alkhafaji, 2003).
STRATEGY FORMULATION
Establishment of objectives
Evaluation of strategic
effectiveness
Strategic goals
Strategy planning
Strategy
Corporate and business strategy
Strategic decision
Management
information
systems and
reporting systems
Determination of policies
Figure 2: The components of strategy formulation phase
Source: adapted from Alkhafaji, 2003: 12
Figure 3: Mission statements and measurement of strategic
effectiveness
Source: adapted from Joyce and Woods, 2003: 66
Most large organizations these days have mission
statements. Usually a mission statement is defined as
being a formal expression of an organization’s purpose.
This may be distinguished from the strategic vision,
which is a description of a desired future state, and
strategic goals, which are specific outcomes that
contribute to the achievement of the mission in the
circumstances that prevail or are emerging (Joyce and
Woods, 2002).
The importance of the mission statement is that it leads to
focus and persistence by the organization and these things
are generally assumed to be important for organizational
achievement. It may also be argued that mission
statements and strategic visions are important for
motivating and inspiring managers and employees within
an organization. The development of mission statements
and strategic goals can be useful as one approach to
developing systems for evaluating strategic effectiveness
(Figure 3).
In the devoted literature the terms objectives and goals are
used interchangeably (Sadler, 2003). Strategic objectives
are normally ones to be achieved over the medium or long
According to Bogner and Thomas (1993), there are two
competing models of strategy formulation. The objective
model is based on economic concepts (i.e., supply and
demand, competition factors, etc.). The model begins with
a company objective, which will finally be affected by
competition. The competition will have an impact on
strategy formulation process. The industry structure
(combined competitors) will directly impact the
formulation process, which in turn will affect resource
allocation decisions. This process will continue until an
external factor (i.e., technological change) will disrupt it,
at which time a new objective model will be formulated.
The second model is the cognitive model. It exposes a
flaw in the objective model (i.e., the inability to capture
the significance of the changes causing the objective
formulation process to begin again). The cognitive model
follows the sample principles as the first model. However,
it also consists of a collective view of objective strategies,
which are consolidated into one formulation process. This
process is to define one’s one place in the industry and
28
The data shows that a high percentage of the questioned
managers revise their firm’s vision each year which
means they are more concerned with the firm’s evolution
as opposed to the 8% whom have established a vision two
years ago and have not revised it since then. None of the
questioned managers are in the situation of not revising
their vision over a period of five years or more. When it
comes to vision importance, 89% of the questioned
managers think that establishing a vision is very important
in contrast with the company’s activities and evolution as
opposed to the 11 % whom think otherwise.
The data shows that, although 89 % of the questioned
managers think that vision is very important only 74 % of
them have established one. We can observe a pretty
significant difference between the two percentages from
which we can conclude that even though some managers
know about the importance of establishing a vision for
their firm they choose not to.
cognitively organize one understands of competitive
strategy (Bogner and Thomas, 1993).
3. Research methodology
In order to see how the Romanian managers think about
one of the most important stages in the strategic
management process we have developed a questionnaire
that was addressed to a number of 35 companies from
Cluj-Napoca. The questionnaire comprised two sections:
the former included factual questions, while the latter
included 12 questions about different elements of the
formulation phase of the strategy, such as: company
visions, the SWOT analysis, the goals of the company and
company’s values. The questionnaire was administrated in
person during April and May 2010.
Due to the type of questions it was absolutely necessary to
have managers replying to the questionnaire. A very high
proportion of the respondents held the position of
manager (85%) and the rest declared that they had the
necessary data needed to complete the survey.
The respondents had an average age of 26, the youngest
being 20 and the oldest being 40 years old. Among the
respondents 17% of them were female while 83% were
male. The companies that were included in the survey
sample had an average lifetime of two years, the newest
one being opened six months ago and the oldest one had
ten years of market experience. The companies had a
number of employees between 2 and 100 with an average
of 20 employees.
The strategy
Another part of the questionnaire referred to the strategy
development. Out of the 35 questioned managers 71 %
have developed a strategy for their firm while 29 % have
not (Figure 5).
4. Findings and discussions
Figure 5: Strategy development within the surveyed companies
The vision
One of the first questions that were addressed to
companies’ managers referred to the vision of their
company. Out of the questioned managers 74% said that
the company has established a vision while 26% declared
that have not established one. When questioned about the
process of revision of the vision out of the 35 respondents,
73% said that it was revised this year, 19% last year and
8% two years ago (Figure 4).
When it comes to the strategy revision process, 72 % of
the questioned managers have revised their strategy this
year, 16 % last year and 12 % two years ago (Figure 6).
Figure 6: The frequency of strategy revision within the surveyed
companies
Only 72 % of the questioned managers respect the
dynamic character of the strategic management process.
The other 28%, even though have established a strategy,
they have not revised it for over a year or even 2 years
now. These managers chose to ignore the ever changing
Figure 4: The frequency of vision revision within the surveyed
companies
29
even if the firms have conducted a SWOT analysis last
year or two years ago the data gathered at the respective
time may have become incorrect or even irrelevant at the
present time.
As we stated before, the internal and external factors
change continuously and managers need to understand
and adapt to this fact. Incorrect data may lead to the
implementation of the wrong type of strategy which can
lead to negative outcomes, that is why continuously
analyzing the internal and external factors, as they
change, is a very important part of the strategic
management process. We can conclude that not all the
questioned managers assess the necessary importance to
each step required in creating and implementing a good
strategy.
internal and external factors which can affect the
companies’ evolution in time which is a very negative
thing. A good strategy may, in time, become obsolete due
to the changes that occur in the market.
The SWOT analysis
An important part of the strategic management process is
the SWOT analysis, which involves a detailed analysis of
the strengths and weaknesses of the firm and the
opportunities and threats that the firm is currently facing
or the ones it may face in the future. Despite the great
importance that this type of analysis plays in the process
of strategy development, only 54 % of the questioned
managers have conducted a SWOT analysis (Figure 7).
The long term objectives
Another important element in the strategy formulation
process is determining the long term objectives which the
firm wishes to achieve. Surprisingly, although only 71 %
out of the 35 questioned managers have developed a
strategy, 89% of them have established long term
objectives, which mean that managers consider long term
objectives to be very important.
Figure 7: The use of SWOT analysis within the surveyed companies
After observing this difference between the managers who
have established a strategy and those who have conducted
a SWOT analysis we can conclude that 17 % of the
questioned managers have either copied the strategy they
have implemented from other firms or they have
developed a strategy based solely on intuition. Incorrect
implementation of the strategic management process may
lead to negative consequences for the firms that haven’t
started or implemented their strategic process based on
the necessary data.
Figure 9: Long term objective development within the surveyed
companies
The conclusion referring to the importance of long term
objectives is also supported by the responses shown in the
figure 10, 80 % of the questioned managers consider long
term objectives to be very important. But only
establishing long term objectives but no strategy with
which to achieve them is not a valid option in the business
world, firms need a correctly implemented strategy to
help them reach their determined goals.
Establishing long term objectives but not trying to achieve
them represents a useless activity that can’t lead
anywhere, for example, it is pointless to communicate to
employees the objectives which the firm wants to achieve
if they are not told what to do in order to help the firm
achieve those objectives. A manager whom has
established long term objectives for their firm without
developing a valid strategy to achieve them can be
compared to a navigator that doesn’t have a map.
Figure 8: The frequency of SWOT analysis revision within the
surveyed companies
As shown in the figure above only 74% of those who
conducted a SWOT analysis have conducted it this year
while others chose to base their strategic management
process on the data gathered a year ago or even two years
ago. This data, even though it was relevant at the time it
may have become incorrect at this moment. Therefore,
30
References
[1] Acur, N., Englyst, L., (2006). Assessment of strategy
formulation: how to ensure quality in process and
outcome, International Journal of Operations and
Production Management, 26(1), 69-91.
[2] Alkhafaji, A.F., (2003). Strategic management.
Formulation, evaluation and control in a dynamic
environment, USA: The Haworth Press.
[3] Bogner, W.C., Thomas, H., (1993). The role of
competitive groups in strategy formulation: a dynamic
integration of two competing models, Journal of
Management Studies, 30(1), 51-67.
[4] Borza, A., Bordean, O., Dobocan, C., Mitra, C.,
(2008). Strategic management. Concepts and cases,
Risoprint Publishing House, Cluj-Napoca.
[5] David, F., (2008). Strategic Management. Concepts
and cases,11th Edition, New Jersey: Pearson/Prentice
Hall.
[6] Eden, C., Ackerman, F., (1993). Evaluating strategy –
its role within the context of strategic control, The Journal
of the Operations Research Society, 44(9), 853-865.
[7] Handy, C., (1991). The gods of management, Business
Books, London.
[8] Joyce, P., Woods, A., (2002). Strategic management.
A fresh approach to developing skills knowledge and
creativity, Kogan Page Limited, London, UK.
[9] Ohmae, K., (1982). The mind of the strategist,
McGraw-Hill, London.
[10] Pettigrew, A., Whipp, R., (1993). Managing change
for competitive success, Blackwell Publishers, Oxford.
[11] Ramanujam, V., Venkatraman, N., Camillus, C.J.,
(1986). Multi-objective assessment of effectiveness of
strategic planning: a discriminate analysis approach,
Academy of Management Journal, 29(2), 347-372.
Sadler, P., (2003). Strategic management, 2nd Edition,
Kogan Page Limited.
[12] Wheelen, T., Hunger, D., (2006). Strategic
Management and Business Policy, 12th Edition, New
Jersey: Pearson Education.
Figure 10: The importance of long term objectives within the surveyed
companies
Taking into account all the collected data we can conclude
that over half of the questioned managers have respected
the dynamic character of the strategic management
process and have implemented it correctly in their firms.
However a small percentage of the questioned managers,
7 % to be exact, have not established a vision or any long
term objectives have not developed a strategy and have
not conducted a SWOT analysis at all. This small
percentage of managers should really consider
implementing a strategic management process; also those
who have implemented it already but in an incorrect
manner should revise and correct it immediately.
5. Conclusions
The strategic management has been defined as that set of
decisions and actions which may lead to the development
of an effective strategy or strategies to help achieve
corporate objectives. Strategy formulation is the second
step of the strategic management process that comes
naturally after the analysis of both internal and external
environment.
The work presented in this paper identified the elements
of strategy formulation phase within the Romanian
companies. A simple questionnaire was developed and
used to test validity of the successful strategy formulation.
Simplistically, one might assume that strategic thinking is
followed by strategic planning and then embedding in the
organization. Rather than this sequential perception,
however, we consider that the phases are managed as
interrelated in parallel over the course of a strategy
formulation process.
Our study points out the fact that although there were
many Romanian managers who developed a vision for
their company and also established a strategy for their
company, only few of them revise their strategy.
We can also conclude that, despite the fact that some
firms have incorrectly developed and implemented their
strategic management process based on insufficient data,
they have also chosen not to revise it periodically. This
may lead towards very unpleasant situations or even
situations that can put the firm’s survival at risk.
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