Thompson and Strickland (2003) have argued that a definition of strategy is

management's game plan for strengthening the organization's position, pleasing

customers, and achieving performance targets. Strategy is concerned with the long term,
although the definition of the long term may vary considerably depending upon the
nature of the industry (Steiner, G., 1969). Some industries, such as finance, banking,
computers, and software development, may consider six months in the future to be the
extent of the planning horizon while others, such as education or pharmaceuticals, may
look on ten years or longer as the long term. Strategy is directly related to the idea of
what customers and markets are chosen, what objectives are set, and how the firm
actually competes. In a military sense, strategy is getting the troops to the battlefield,
while tactics is the fighting of the actual battle. A model similar in many respects to the
model developed in the following pages can be found in each of the current strategy
textbooks in use at business schools and colleges (see Hill and Jones, 2004; Thompson
and Strickland, 2003; Hunger and Wheelen, 2002; Johnson and Scholes, 1997; and Grant,
1992). In fact, the foundation for the model developed in this paper can found in many of
these texts.

3. MISSION

The concept of mission and vision is a good place to begin a discussion of strategy.
While some argue these two items are different with vision being a more sweeping and
generalist look at the future and mission as being more specific and concerned with the
present, others feel the two terms are closer in meaning. The two are assumed to be
synonymous in this discussion for ease of understanding. What business the organization
is in and should be in is the general concern of mission. The questions of who, what and
where and their answers compose the definition of Mission (Abel, 1985). The customer
groups that are being served represent the "who". The customer needs that are being met
are the "what". Lastly, the methodologies used and the functions performed to meet
customers needs provide the "how". For example, an organization may choose preteen-
aged girls between the ages of ten and thirteen as its potential customers or market
segment. The major need being satisfied is the desire for inexpensive jewelry. The
predominant technology used is traditional retailing, with a delivery method of a small
cart located inside a mall. The business the organization is involved in is fad retailing.

4. OBJECTIVES: FINANCIAL AND STRATEGIC

Closely related to mission is the establishment of financial and strategic objectives.

Financial objectives are concerned with items like ROI, RONA, EPS, and Credit ratings.
Strategic objectives revolve around concepts such as market share, market rank, quality,
customer satisfaction, and international presence to name a few. Both financial and
strategic objectives must be specific rather than general in nature. They require a
timetable for completion and need to be measurable. Finally, they should be challenging
in nature, but not so difficult to accomplish that they discourage rather than encourage. A
financial objective related to the previous jewelry example could be stated, as a return on
investment of 10% is required during the next calendar year to continue to rent the space
in the mall. An example of a strategic objective would be to acquire a 25% market share
of the female preteens in the geographic area also by the end of the next calendar year.
The important point is that both types of objectives are critically important to the
organization and must relate to the stated mission. Objectives exist to drive the
organization towards the fulfillment of its mission. They are standards for performance
that should be equaled or surpassed.

5. DESIGNING A STRATEGY
Michael Porter has argued there are only three basic approaches of competitive strategy
(1996, 1985, and 1980). The first is the low cost producer strategy. If a product or service
can be produced at a cost cheaper than one from a competitor, then the organization will
have a competitive advantage that would be difficult to overcome. An example would be
Southwest Airlines approach to strategy. They have used the same type of aircraft, quick
turnaround gate time, flexible work scheduling, etc. to gain a tremendous cost advantage
over most of their competitors. Porter's second type of strategy involves product and/or
service differentiation. Provide a product or service that is different from the competitor's
and provides some additional benefit that creates perceived value in the mind of the
customer. Again, Southwest Airlines have changed the nature of competing in the airlines
industry by moving away from the emphasis on hub and spoke scheduling that the major
competitors use. Southwest offers the customer something different with flight scheduled
directly between points A and B without the necessity of connecting via a congested hub
location. The final strategy focuses on market segmentation where firms concentrate on
specific market niches and out-compete the rival firms. Southwest with their point-to-
point scheduling have been able to fly to cities and/or airports that have often been
neglected by the major airlines. Midway airport in Chicago is a relevant example. From
the above examples it can be seen that these strategies can be combined to create other
competitive strategies. For example, a best-cost provider strategy is a combination of
low-cost and differentiation. Focusing can be combined with either low-cost or with
differentiation. Probably, the strongest strategy and the one the most difficult to craft is
one composed of the combination of all three. Very few firms have been successful in
creating this type of combination strategy. Two examples in addition to Southwest
Airlines are the Wal-Mart organization and Dell computers. The key idea is a specific
strategy must be chosen by the organization in order to try to compete successfully. This
strategy must also be closely related to the organization's mission and objectives.

6. INDUSTRY ANALYSIS
Understanding the industry the organization competes in is also of critical importance
(Porter, 1996, 1985, and 1980). When looking at an industry, an important start point is
the answering of seven diagnostic questions (from Thompson and Strickland, 2003).

1. The industry's dominant economic characteristics are? (Such as market size and growth
rate, number of customers, degree of vertical integration, and scope of competitive rivalry
to name a few.)

2. The competitive forces are at work in the industry: what are they and how strong are
they? This is the use of Porter's Five Forces Model of Competition. The power of the
buyers, power of the suppliers, the existence of substitute products, the ease of entry, and
the actual extent of rivalry among the competing firms in the focal industry are used to
determine the degree of competition within the industry.

3. Driving forces are factors causing the industry's competitive structure and business
environment to change? Some of the most common are changes in the long-term industry
growth rate, changes in who buys the product and how they use it, product innovation,
technological change, entry or exit of major firms, increasing globalization, and changes
in costs and efficiencies. While quite a few factors may be affecting the focal industry at
any one period of time, the key to the analysis is to find the two or, at most, three causing
the industry to change the most. The computer industry was changed forever when the
personal computer was purchased in large quantities not by business, the initial target
market, but by the consumer who used it for word processing, playing games, and simple
spreadsheet analysis.

4. Companies in the strongest and weakest positions. This step is used to begin a
comparison of the major players in the industry. One technique that can be used for
analysis is the concept of group mapping. Two non-correlated variables, such as
distribution methods and product image are used for the x and y-axis. The firms in the
industry are plotted on this two variable graph/map. The companies that fall closely
together on the map are considered to be within the same strategic grouping and major
competitors with each other. Firms having no close neighbors on the map may have no
serious rivals. Spaces on the map without any firms marked may be potentially open
market niches. The point behind using a series of strategic maps with different variables
is to find out which of the competitors is favorably positioned to compete against the
focal firm and which is unfavorable positioned and therefore not a major threat.

5. Rivals key strategic moves is a step that focuses on each of a company's major
competitors. A series of diagnostic questions directly related to the each rival is asked. Is
the nature of competition local, regional, national, or global? What is the rival's strategic
intent, market share objective, competitive position/situation, strategic posture, and
competitive strategy? The final question asks why this firm should be watched.

6. Key industry success factors? These factors can run the gamut from having a well-
known brand name (Coke) to owning a patent to having a low-cost production facility to
having the best trained sales force in the business. The point is once the key factors for
success are identified, the focal organization will have to craft its strategy based on which
of the success factors it has or can acquire in a reasonable time for a reasonable allocation
of resources. The organization with the greater number of the key success factors in hand
should have an advantage in formulating a strategy and, hopefully, in implementing one.

7. This final series of questions asks why this industry is attractive or unattractive to
current players and possible future players. It also asks what specific problems and/or
issues the industry faces in the near future. Finally, the profit outlook for the industry is
discussed. Appropriate competitive strategies can vary considerably when analyzing
industries that vary from extremely profitable to those that have low profitability.
The information necessary to begin to create an appropriate strategy for the organization
should derive from the answers to these seven questions. An analysis of the focal
company's situation is the next step in the strategy formulation process.

7. COMPANY SITUATION ANALYSIS

The company analysis is also based upon a series of diagnostic questions. (Thompson and
Strickland, 2003)

1. Is the present strategy a low cost producer strategy, a differentiation strategy, a

focusing strategy, or a combination strategy? (Porter, 1980, 1985, 1996) For many
organizations, no consistent strategy may be found. In others, an ineffective strategy may
still be in use. Is the present strategy working? This question can be answered by
analyzing both strategic and financial indicators for the past three to five years. If the
numbers and/or the trends are moving in the wrong direction, there is strong indication
the strategy is not working.

2. An important step requires an analysis of the company's strengths, weaknesses,

opportunities, and threats. Strengths and weaknesses are internal to the organization and
the opportunities and threats are external.

3. What are the costs and pricing structure of the organization? Costs and prices are not
necessarily related (Hanna, N. and H. R. Dodge, 1995) and as a result, too often
managers base price on cost without regard to the economics of the market. The concept
of value chain is significant and consists of the activities, functions, and business
processes that must be performed to create and deliver the product or service to the
customer. It is along this value chain that cost inefficiencies can be identified and reduced
or removed. A good diagnostic question is to ask where along the value chain is the
organization less cost efficient than its strongest competitor. How can the organization
improve is the follow-up question. An example in the area of production to reduce or
even improve our cost status may be to manufacture our own product parts rather than to
buy parts and then assemble the product.

4. The strength of the company's competitive position can be analyzed by comparing it to

its major competitors on the key success factors determined during the industry analysis.
Each factor is weighted according to its importance. A forced choice scale of 1 to 5
points or some other reasonable range is employed. The resulting scores on each key
success factor as well as for the total can be used to see how the organization stacks up
against its rivals.

5. Questions relating to the specific problems/issues that the organization faces are also
important. Some problems, i.e. an economic downturn resulting in lost sales, may be
common to all the players in the industry while others, i.e. a production bottleneck, may
be unique to a specific company. In any case these problems and/or issues are important
places to look for challenges in crafting a strategy for the future.
8. NINE STEP MODEL OF STRATEGY FORMULATION AND IMPLEMENTATION

The following series of steps are designed to determine the major strategic issue facing
the organization, develop a strategy to create a sustainable competitive advantage,
implement the strategy, and then evaluate it as to its successfulness.

9. STRATEGY FORMULATION

Steps:

Steps one through five are summarized as basic decision theory.

1. A Strategic Issue statement consists of one to two sentences. Strategic issues can be
significant problems or market opportunities available to the organization. For example,
if the strategist determines a problem exists and the problem is one of targeting too small
of a market segment, then the statement would be written that the problem is just that, the
organization has targeted too small of a market segment to support itself. On the other
hand, if the strategist determines a market opportunity is being missed, the strategic issue
statement could be posited, for example, as a market opportunity available by targeting a
new segment of young girls between the ages of 10 and 15 living within the geographic
region. The statement must be specific because the rest of the analysis requires such
precision to build upon. It is also important to state problems and not symptoms. For
example, losing sales or increased costs are not problems but symptoms in the strategic
sense. The problem is what is causing the lost sales or the increased costs.

2. An explanation of the Strategic Issue statement can be written in one or two

paragraphs. This explains why the particular problem exists and what is causing it. In the
case of an opportunity, an explanation of why this is an opportunity is important to state.
Previously conducted industry and company analysis of a careful nature should provide
the specific problems and/or opportunities that either plague the firm or exist for it to
exploit. These should be found in the sections discussing specific problems and/or issues
the industry and/or the firm are encountering. In addition, the core competencies
identified through SWOT analysis should be listed as they pertain to solving the problem
or developing the market opportunity.

3. Reasonable alternatives (solutions if a problem statement, market opportunities if an

opportunity statement) with advantages and disadvantages listed for each one should be
created. The concept of requiring multiple problem solutions or market opportunities is to
force the strategist to stretch the analysis. If only one problem solution is required, it may
not be the desired solution but, rather, the easiest to observe or implement. Requiring a
greater number should reduce this type of error. The same logic holds true with requiring
multiple market opportunities. The exercise may bring to the forefront better
opportunities.

4. The best alternative should be chosen and written down.

5. An explanation in detail as to the rational of the choice acts as a check on its validity.
Restating the advantages is not explaining. A series of questions must be answered to
support why this is the best choice,. How is it better than the other two alternatives? In
what ways does the choice lead to accomplishing the organization's mission and major
strategic and financial objectives? Finally, what Porter-based strategy is used to
accomplish the above? Is the choice a low-cost, differentiation, or focus strategy, or some
combination? If the specific choice cannot be related to a specific strategy, it is probably
not very useful and will be difficult to implement successfully.

10. STRATEGY IMPLEMENTATION

6. One strategic model suggests eight managerial components must be covered during
implementation of strategy. (Thompson and Strickland, 2003)

a. The building of a capable organization by selecting the right people and creating the
necessary positions for them, having in place the core competencies upon which the
implementation will be based, and creating the correct structure to support the strategy.
The concept that strategy must precede structure is from Chandler's seminal work
Strategy and Structure (1962).

b. Designing a three-year pro forma budget reflecting the specific implementation.

c. Writing detailed policies and procedures supporting the strategy chosen.

d. Installing appropriate systems supporting the strategy. Examples include information

systems, clerical support, accounting, and inventory control systems.

e. Designing reward systems complementing the designated strategy.

f. Finding and installing a system of best practices based upon benchmarking those
organizations performing the key task in the best manner.

g. Preparing the old culture to reflect the values and beliefs of the organization in light of
the specific strategy and implementation chosen. In some instances, a new culture
significantly different from the old may emerge.

h. Providing leadership in a manner supporting the strategy chosen.

11. STRATEGY EVALUATION

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