Strategy Formulation:
Involves determining appropriate courses of action for achieving
objectives. It includes such actives as analysis, planning and selecting
strategy that increase the chances that an organization objectives will
be achieved.
Strategy Formulation: Input From Environmental Analysis
Environmental Analysis in Strategy Formulation involves two
approaches that are:
1. Critical Question Analysis
2. Swot Analysis
1. Critical Question Analysis:
It provide a general framework for analyzing an organization's current
situation and formulation appropriate strategies. It involves answering
four question that are as follows:
1. What are the purpose (s) & objectives of the
organization?
By answering that particular question a manager comes to know
where organization wants to go.
2. Where is the organization currently going ?
By answering that particular question a manager comes to know
whether an organization is achieving its goals or at least making
satisfactory progress.
3. What critical environmental forces does the
organization is face?
By answering this question a manager comes to know both
internal & external environments factors both inside and outside
the organization.
4. What can be done to achieve organizational objectives more
effectively in the future ?
The answering to this question actually result in the formulation
of a strategy for the organization. That particular question should
be answered by managers when they have a clear understanding
of where the organization wants to go where the organization is
going and its operating environment.
SWOT Analysis: (strengths, weaknesses, opportunities & threats)
SWOT Analysis is a useful tool for analysis an organization overall
situation. This approach attempts to balance the opportunities and threads
that the external environment presents. Furthermore the relative
importance of each issues may vary depending on whether strategy is
being formulated at the organizational, business or at functional level.
Formulating Organization Strategies
Organization strategies are formulated by top management and are
designed to achieve the firm overall objectives.
This process include two related tasks that are as follows:
1-General strategy must be selected and developed
2-Specific decision should must be made about role of
different business lines and allocation of resources for
them.
General Strategy Alternatives:
It involves a variety of general strategies that are as follows.
1-Concentration Strategies:
A concentration strategy is one in which an organization focuses on a
single line of business.
It provide competitive advantages through specialized knowledge and
efficiency and avoid in involving managing too many business.
If industry shrieked that whole industry will be wiped out from the
market.
2- Stability strategy:
The organization that adopts a stability strategy focuses on its existing
line or line of business and attempts to maintain them.
A large organization that have less opportunities of growth and have
no others valuable option is forced to adopt that strategy.
3- Organization growth:
It may be in sales, profit, market share or in some other measureable objectives it
can be pursued in the form of
vertical integration:
This strategy involved growth through acquisition of others organization in a
chance of distribution vertical integration can be in the form of :
Backward Integration:
Organization purchase others companies that supplies them materials is known
as backward integration.
Forward Integration:
When an organization purchase a end users firms than its is known as forward
integration.
Horizontal integration:
It involves growth through the acquisition of competing firms in the same line of
business.
4- Diversification:
This Strategy involves growth through the acquisitions of the firms in
others industries or lines of business.
Related diverersifiaction:
when the acquired firm has same technology, products channels of
distribution and similuar market is known as realted deversification.
Unrealted diversification:
when the acquired firm has different kind of technology, products, channels
of distribution and market distribution.
Mergers and joint mergers:
A company joins with another company to form a new organization.
An organization works with another company on a specific project too large
to handle by itself.
5-Retrenchment strategy:
When an organization is not competing effectively than retrenchment strategy is
often needed .
Three basic strategy are as follows:
Turnaround strategy:
This strategy is used when an organization is performing poorly but has not yet
reached at such critical stage of closing. It usually involves getting rid of
unprofitable products of the organization.
Divestment strategy:
This strategy involves selling the business or setting up the business as a separate
corporation.
Liquidation strategy:
In this strategy business is terminated and its assets sold off. It is usually happen
in cause of having huge loss.
6-Combination strategies:
Large diversified organization commonly use a number of
these strategies in combination. Like example an organization
making growth by acquisition of new firm and also involve
selling of unprofitable parts of organization.
Business Portfolio Model
It is a tool used for analyzing
1. The relationship among all of the organization's business in its
industry
2. The relationship among all of these business units.
Two main approaches for developing these strategies:
1. Boston Consulting Group
2. General Electronic (GE`s) multifactor portfolio matrix.
BCG Growth-Share Matrix:
The BCG Growth-Share Matrix of Mobilink Gsm
Mobilink Jazz 1
JAZZ Octane
Jazz 1+1
Jazz Ladies First
1- Question marks:
Company business that operate in a high-growth market but have low relative
market share. Mostly new firms start there venture form question marks and the
removal of the question mark require huge investment from capital.
2- Stars:
Question mark-mark business that become successful. A star is the market leader
in a high-growth market, but it does not necessary provide much of the cash. In
that stage an organization have to spend huge money to meet their competitors.
3- Cash cows:
Business in the market whose annual growth rate is less than 10 percent but still
have largest relative market share.
4- Dogs:
A business that have low market share with low market growth is refer to be in
dogs stage. such business generate less profit or even generated losses.
Strategic Alternatives:
It involves looking whether the portfolio is healthy and well balanced a balance portfolio has a number of
stars and cash cows and not too many question marks or dogs. Depending on the situation four basic
strategies can be formulated
Build market share:
This strategy is appropriate for question marks that must increase their share in
order to become stars.
Hold market share:
This strategy is appropriate for cash cows with strong share position.
Harvest:
Harvesting involves milking as much short-term cash from a business as possible,
even allowing market share to decline if necessary.
Divest: It involves selling or liquidation a business because the resources devoted
to it can be invested more profitably in other business.
Evaluation of the growth-share matrix
It provide a overview to the manager of strategy formulation in the form
of relationship among different parts of business.
A variety of problems that arise with this approach suggest that it must
be used carefully among these problems:
1. The growth-share matrix focuses on balancing cash flows.
2. It is not always clear what market share is relevant in the analysis.
3. Many other factors besides market share and growth rate are critical
in strategy formulation.
4. The growth-share matrix does not provide direct assistance in
comparing different business from investment opportunities view.
GE`s Multifactor Portfolio Matrix
This approach include nine-cell business matrix, and the market
attractiveness-business strengths matrix.
Each of an organization's business is plotted in the matrix on two
dimension that are industry attractiveness and business strengths.
These dimension are measure of verities of factors. it is necessary
for the organization to determine what factors are most critical for
defining industry attractiveness and business strengths.
Strategic Alternatives
1. Invest/Grow
2. Selective investment
3. Harvest/Divest
Evaluation of the Multifactor:
Advantages
• Provides mechanism for including a host of relevant variables in the process
of formulating strategy.
• Its dimension provide excellent criteria for rating potential business success.
• Forces managers to be specific about their overall evaluation of business
success.
Disadvantages
• It does not solve the problem of determining the appropriate market.
• It provide subjective measure and can be very ambiguous.
Formulating Business Strategies
It involves making decision at both division level or business unit
level.
The general alternatives that a business strategy include are as
follows:
Structural Analysis of Competitive forces:
Porter`s approach is based on the analysis of five competitive
forces that are listed below:
1. Threats of New Entrants
2. Bargaining power of Suppliers
3. Bargaining power of Buyers
4. Threat of Substitute Products
5. Rivalry Among Existing Competitors
Strategic Alternatives
It involves several approaches that are as follows:
1. Competitive analysis for exiting competitors
2. Overall cost leadership
3. Differentiation involves creating and marketing unique
products.
4. Focuses on segmentation of the market
Formulating Functional Strategies
Functional strategies are devised by specialists in each functional area of a business
which require coordination of the managers in each of the department.
Major functional areas are as follows:
1- Research & Development Strategy:
Such firms that cannot grow or even survive without new products take this strategy in
which specialist come up with some one new product that contain unique qualities
from their competitors.
2- Operating strategy:
Specialists in this area focus on making decision about required plant capacity plant
layout, manufacturing and production process and inventory requirement.
3- Finical strategy:
Specialists in this area focus on decision related to investment and capital.
4- Marketing Strategy:
Specialists in this area focus on appropriate markets for business offering
and on developing effectiveness marketing mixes.
5- Human Resources Strategy:
Specialists in this area focus on motivating and retaining the numbers and
types of employees required to run the business effectively.
Strategy Formulation Constraints & Selection Criteria
It is very necessary for the managers to have a clear awareness about Organization
Strategy Constraints during Strategy Formulation.
Strategy Formulation Constraints
1. Availability of financial resources:
It is very necessary to evaluate require resources for the achievement of desire task.
2. Attitude towards risk:
Some organization are willing to accept very less risk while others are ready to
accept high risk.
3- Organizational capabilities:
Some firms may have excellent production skills but weak marketing skills that is a
constraints for the achievement of their desire goals.
4- Channels relationship:
1. It involves development of new distribution of channels.
2. Competitive relationship
3. Some strategy may have unintended effects of dramatically increasing
competitors efforts in the market place.
Strategy selection criteria:
Strategic alternatives should be accepted to the degree that they
meet the following six criteria:
1. They are responsive to the external environment.
2. They involves a sustainable competitive advantages.
3. They are consistent with other strategies in the organizations
4. They provide adequate flexibility for the business & the
organization.
5. They confirm organization mission and long term objectives.
6. They are organization feasible.