This article deals with
strategy formulation, particularly, the essential elements that are involved in
the formulation of strategy. It discusses how strategy formulation gives the
direction that the organisation wants to go. The different levels of strategy
formulation are enumerated. The article ends by giving vivid information on the
background of strategy formulation in business organisations.
Meaning
and Definition
Strategy formulation is
the process whereby management develops an organisation”s strategic
mission, derives specific strategic objectives and chooses a strategy toimplement. It includes all the direction-setting components of managing the
total organisation.
Formulation of
Strategy and Direction of Organisation
Usually, organisation”s managers have choices about
which part to take in achieving strategic objectives. As the adage goes, “There
are more than one way to skin a cat”. So, an organization strategy represents
the pattern of choices management has made among the alternative means. A
strategy is just the trajectory or the height path toward the target objective.
It is made up of the entrepreneurial competitive and functional area approaches
that the management intends to employ in positioning the enterprise and in
managing its overall portfolio of activities.
Since each organisation is
unique, strategy formulation is custom-tailored by management to suit or fit
all the relevant internal and external circumstances that surround the
organisation. Also, because the organisation”s circumstances change, its
strategy also changes and is always evolving as the managers either fine-tune
or overhaul the ways they try to achieve strategic objectives.
Corporate-Level
Strategy
This is senior
management”s game plan for directing and running the organisation as a
whole. It cuts across all of the organisation’s activities such as different
businesses, divisions, product line and technologies. The corporate level
strategy formulation should involve three tasks, which are:
a. Development
of plan for managing the scope and the mix of the organisation”s various
activities in order to achieve or improve corporate performance.
b. Provision
of co-ordination among different businesses in the portfolio.
c. Establishment
of investment priorities and allocation of corporate resources across the
company”s different activities.
The portfolio management
actions of corporate officers in entering a new or existing business and in
pursuing some opportunities more boldly than others are strategically important
because they determine the organisation”s business position.
The strategy to be
formulated at this level may be a combination of offensive moves to
pursue selected opportunities and build new or stronger business positions, and
defensive moves to protect existing positions against emerging threats.
Coordination of
strategic plans across business units is equally an important task for
corporate managers. This is because it is through the coordination of the
interrelated activities of the corporation”s different business units that
a corporate-level competitive advantage can be created.
Controlling the level of
the pattern of corporate resource allocation is of no less importance. It is
very crucial because the number of “worthy projects” and “can’t miss
opportunities” put forward for funding may entail a lot of capital requirements
even beyond the corporate resources. The allocation of the resources must therefore,
be genuinely done.
Line of Business
Strategy Formulation
This is the managerial
action plan for directing and running a particular business unit. The strategy
at this level deals explicitly with
a.
How
the enterprise intends to compete in that specific business.
b.
Developing responses to changing industry and competitive
conditions.
c.
Controlling
the pattern of resources allocation within the business unit.
The internal key to good
business strategy concerns the development and use of a strategy-supportive
distinctive competence. This means the skill or activity that a firm does
especially well in comparison to the rival firm. Formulation and selection of a
business strategy that is closely matched to the firm”s skills resource
base is very essential
For a single business
enterprise, corporate strategy and business strategy become one and the same
except when the single business is contemplating on diversification.
Functional Area
Support Strategy
These are strategic
formulation for managing the principal subordinate activities within a
business. This should be for each part of the business, production, marketing,
finance, research and development and human resources. This task is delegated
by the business level manger to the functional area heads. The functional heads
then formulate strategies to achieve their set objectives.
Operational-Level
Strategy
The operating-level
strategies are formulated to enable the departmental and supervisory-level
managers to carry out fine details of functional area support strategies.
Levels of Strategy
Formulation
This is another important aspect of strategic management.
This aspect brings into play the critical issue of how the targeted
results are to be accomplished. The objectives of the organisation are the
“ends” while the strategy is the “means” of achieving them. Strategy
formulation is a difficult task. It entails taking into account all the
relevant aspects of the organisation’s internal and external situation and
coming up with a detailed action plan for achieving the targeted short-run and
long-run results consistent with the organisation’s objectives. Strategy is regarded
as a blueprint of all the important entrepreneurial, competitive and functional area actions that are to be taken in pursuing organisational objectives
and positioning the organisation for sustainable success. Consequently, in
formulating a strategy, there are issues that must be addressed which include the
following:
How to Respond to
Changing Strategy Conditions
These conditions include
shifts in customer needs, emerging industry trends, how to defend against
competitors and other externally imposed threats, etc.
Resources
Allocation
In formulating strategy,
resources allocation over the organisation’s various business units, divisions,
and functional departments are important. Making decisions that will provoke
investment and human resources in the chosen strategic plan are very crucial.
To achieve success, a kind of strategy-supportive guidelines for resources
allocation must be in place.
Competition within
the Industry
This
has to do with the decisions on how to develop customer appeal, position the firm against rivals, emphasise some products and de-emphasises
others to meet some specific competitive threats, which are important
for survival and the
achievement of a definable competitive advantage.
The Actions and
Approaches to take in Each of the Functional Areas of an Operational Department
The
different functional and operating level strategies ought to be co-ordinated
rather than be allowed to go off on independent courses.
They need to support the creation of
a sustainable competitive position and advantage. Strategy formulation should
cover the different levels of the organisation. There should be strategy for
the organisation as a whole (which is top management responsibility). There
should be strategies for each line of business that the organisation is
operating and also at functional area level such as manufacturing, marketing,
finance and human resources, within each business. There should also be
strategy formulation at the operating levels, e.g. for each functional
department and unit in order to be able to carry out the details of functional
area strategy.
Strategy formulation is mainly an exercise carried out by
entrepreneurship. Its contents reflect
the entrepreneurial judgments about the long-term direction of the
organization: any need for major new initiatives such as increased competitive
aggressiveness, diversification moves and divestiture of unattractive
activities.
The specific involvement of
entrepreneurial aspects of strategy formulation is to:
i.
search
actively for innovative ways the organisation can improve on what it is already
doing
ii.
ferret
out new opportunities for the organisation to the purpose
iii.
develop
ways to increase the firm”s competitive strength and put it in a stronger
position to cope with competitive forces
iv.
devise
ways by which to build and maintain a
competitive advantage
v.
decide
on how to meet threatening external developments
vi.
encourage
individuals throughout the organisation to put forth innovative proposals and
champions those that have promise
vii.
direct
resources away from areas of low or diminishing results towards areas of high
or increasing results
viii.
decide
when and how to diversify
ix.
choose
which business or product to abandon, the ones to continue to emphasize and the
new ones to add.
So, the entrepreneur
needs a critical skill to be able to make strategic choices that will keep the
organisation in a position of sustainable success.
Other crucial factors in
strategy formulation are analysis and judgment. The right strategy formulated
and chosen for one organisation may not be the right one for another
organisation, even when they are in the same business and the same environment.
This is because situations differ from one organisation to another and from
time to time. Also, strongly positioned firms can do things that the weak ones
dare not do, and weak firms can do things which the strong firms cannot do. A
good strategy is one that is right for the organisation, considering all the
relevant specifics of its situation.
Therefore, in formulating
strategies, the entrepreneurial task involves and requires heavy dozes of
situational analysis and judgment with the aim of achieving “goodness of fit”
between the formulated strategy and all the relevant aspects of the
organisation’s internal situation and external environment. In fact, the value
of any manager is in his ability to develop customised solutions that fit the
unique features of an organisation’s situation.
In the main, the real
purpose, and value, of strategy formulation is to come up with an action plan
that will successfully attract buyers, produce a sustainable competitive
advantage, boost the firm’s market structure, put added competitive pressures
on rivals, shape the nature of the competitive battle, influence the direction
of industry, change in their favour, and push performance to superior levels.
The ideal result and outcome is the one where the firm’s formulation strategy
propels it to a leadership position above and apart from the rival firms in the
industry in a way that earnings prosper and multiply; and its products
(services) become the standard or the yardstick for the industry comparison.
The Strategy
Making Hierarchy
|
Strategy |
Primary Development Responsibility |
Strategy Making Functions and |
|
Corporate |
CEO, other key Executive (Decisions are typically reviewed |
Structuring |
|
Line-of-Business |
General |
Co-ordinating Choosing |
|
Functional |
Functional |
Developing Co-ordinating |
|
Operational-level |
Departmental |
Controlling |
(1987).
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