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FORMULATION OF STRATEGIES

“Insights and hard work deliver


results”
Strategic Planning
Strategic planning has taken on
new importance in today’s world
of globalization, deregulation,
advancing technology, and
changing demographics, and
lifestyles.


Importance of Strategy
Formulation Process
Causes strategic Thinking
Mechanism to ease the
communication of ideas
Co-ordinate the efforts of those
involved in the process
Inject structure into the thinking
without rigidity

Characteristics of ‘good’
strategy
Judged by the results achieved, NOT by
the process
Process must match:
◦ Business needs
◦ Culture
◦ Specific issues of the context
Process must be:
◦ Original
◦ Creative
◦ Easy to implement
Nature of the formulation
process
 Can be both:
◦ formal and informal
◦ simple and complex
◦ Analytical and qualitative
◦ Involve many people or just a few

Strategic Thinking
Should
Consider the enterprise as a whole
Be about the long term and not the
immediate
Address the organisations
relationship with the environment
and its capabilities and resources
Be based on fact and reality with
some imagination
Have a good understanding of the
present
Be able to think imaginatively about
The 3 Interlocking aspects
of the
Strategy Formulation
Process
Strategic
Intent

Strategic
Assessment Strategic
Choice

(c) Macmillan & Tampoe 2001 7


Strategic Intent

◦ Driver of Strategy Formulation Process



◦ Provides direction for strategy

◦ Answers question “Where do we want
to go?”

(c) Macmillan & Tampoe 2001 8


Strategic Assessment

◦ Provides relevant knowledge of


strategic context

◦ Anchors future strategies in reality

◦ Answers question “Where are we now?”

(c) Macmillan & Tampoe 2001 9


Strategic Choice

◦ If no choice - no strategy needed



◦ The link to action

◦ Answers question “How to get from
where we are to where we want to
be?”

(c) Macmillan & Tampoe 2001 10


Strategic Management
Set of decisions and actions used
to implement strategies that will
provide a competitively superior
fit between the organization and
its environment so as to achieve
organizational goals

Responsibility = top managers &
 chief executive

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Grand Strategy
 General plan of major action to
achieve long-term goals
Falls into three general
categories
 1. Growth
A se p a ra te
 2. Stability g ra n d stra te g y
 3. Retrenchment ca n b e d e fin e d
fo r g lo b a l
o p e ra tio n s
Ethical Dilemma: A Great Deal for Whom?

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Grand Strategy: Growth
Growth can be promoted
internally by investing in
expansion or externally by
acquiring additional business
divisions
- Internal growth = can include
development of new or changed
products
- External growth = typically involves
diversification – businesses
related to current product lines or
into new areas 13
Grand Strategy: Stability
Stability,
sometimes called a
pause strategy, means that the
organization wants
◦ to remain the same size or
◦ to grow slowly and in a controlled
fashion

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Grand Strategy:
Retrenchment
 Retrenchment = the organization goes
through a period of forced decline by either
shrinking current business units or selling
off or liquidating entire businesses

 Liquidation = selling off a business nit for the


cash value of the assets, thus terminating
its existence

 Divestiture= involves selling off of
businesses that no longer seem central to
the corporation

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Global Corporate
Strategies
High Transnational
Globalization
Strategy Strategy
•Treats world as a •Seeks to balance global
single global market
Need for Global Integration

•Standardizes global efficiencies and local


products/advertising responsiveness
strategies •Combines
standardization and
customization for
product/advertising
strategies

Export
Strategy Multi - domestic
Strategy
•Domestically focused •Handles markets
•Exports a few independently for each
domestically produced country
products to selected •Adapts
countries product/advertising to
local tastes and needs
Low
Low Need for National Responsiveness High

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Global Strategy
Globalization= product design
and advertising strategies are
standardized around the world
Multi-domestic = adapt product
and promotion for each country
Transnational = combine global
coordination with flexibility to
meet specific needs in various
countries

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Purpose of Strategy

The plan of action that


prescribes resource allocation
and other activities for
dealing with the environment,
achieving a competitive
advantage, that help the
organization attain its goals
Strategies focus on:

● Core competencies
● Developing synergy
● Creating value for customers

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Three Levels of Strategy in
Organizations
Corporate - Level Strategy:
What business are we in?
Corporation

Business - Level Strategy:


How do we compete?

Textiles Chemicals Auto Parts


Unit Unit Unit

Functional - Level Strategy:


How do we support the business-level
strategy?

Finance R&D Manufacturing Marketing

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Strategic Management
Process
Scan Identify
External Strategic
Environment Factors –
– National , Opportunities ,
Global Threats Implement
Strategy
via Changes
Evaluate Formulate in :
Current Define new Strategy
SWOT Mission Leadership
Mission , – culture ,
Goals , Goals , Grand Corporate ,
Strategy Structure ,
Strategies Business , HR ,
Functiona Information
l & control
systems
Scan Internal
Environment – Identify
Core Competence , Strategic
Synergy , Value Factors –
Creation Strengths ,
Weaknesses

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Strategy Formulation vs.
Implementation
 Strategy Formulation = stage of strategic
management that involves planning and
decision making that lead to the
establishment of the organization’s goals
and of a specific strategic plan
 Strategy Implementation = stage of strategic
management that involves the use of
managerial and organizational tools to
direct resources toward achieving strategic
outcomes

Experiential Exercise: Developing Strategy for a Small


Business

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Checklist for Analyzing
Organizational Strengths and
Weaknesses
Management and Marketing Human Resources
Organization
Distribution channels Employee experience,
Management quality education
Staff quality Market share
Degree of centralization Advertising efficiency Union status
Organization charts Customer satisfaction Turnover, absenteeism
Planning, information, Product quality
Work satisfaction
control systems Service reputation
Grievances
Sales force turnover
Finance Production Research and Development
Profit margin Plant location Basic applied research
Debt-equity Machinery obsolescence Laboratory capabilities
ratio Research programs
Inventory Purchasing system
ratio New-product innovations
Return on investment Quality control
Credit rating Productivity/efficienc Technology innovations
y

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BCG
M a trix

Portfolio Strategy

M ix o f b u sin e ss u n its
a n d p ro d u ct lin e s
th a t fit to g e th e r in a
lo g ica lw a y to
p ro vid e syn e rg y a n d
co m p e titive
a d va n ta g e

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Five Forces Affecting Industry
Competition

•Reduces Potential New


barriers to Entrants
entry

Blurs differences among


competitors in an industry

Threat of Substitute Rivalry Bargaining


Products among Power of
Competitors Buyers
•Expands market size , but •Shifts greater power to
creates new substitution end consumers
threats

•Tends to increase the


bargaining power of suppliersBargaining Power of
Suppliers
Source: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

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Competitive Edge Through
Competitive Strategies
Differentiation = attempt to
distinguish products or services
from that of competitors
Cost leadership= aggressively
seeks efficient facilities,
pursues cost reductions, and
uses tight cost controls to
produce products more
efficiently than competitors
Focus = concentrates on a
specific regional market or buyer
group
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Implementing Strategy
Tools
Leadership
Structuraldesign
Information and control systems
Human resources

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Tools for Putting Strategy into Action
Environment

Organization
Leadership

Persuasion

Motivation
Structural Design 
Human
Culture / values Resources
 Organization Chart 
Strategy Recruitment / selection Performance
 Teams 
Transfers / promotions
  Training
Centralization  Layoffs / recalls
nDecentralization
Information
, and Control
nFacilities task
Systems
, design
 Pay , reward system

Budget allocations

Information systems
Source: Adapted from Jay R. Galbraith and Robert K. Kazanjian, strategy Implementation: Structure, Systems and Process, 2d ed. (St. Paul, Minn.: West, 1986), 115,
Used with permission.

 Rules / procedures 27
Results from the strategy
formulation process
Goals that are simple, consistent
and long term.
Profound understanding of the
competitive environment
Objective appraisal of resources
Effective implementation
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