Strategy Formulation: Meaning and Process

Strategy Formulation: Meaning and Process

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Nov 23, 2023 00:46 IST

In strategy formulation, organizations meticulously analyze their internal and external environments, define clear mission and vision statements, set achievable objectives, and develop robust strategies. This process, grounded in comprehensive research and analysis. It facilitates the creation of actionable plans that steer the organization towards sustainable growth and success.

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Strategy formulation is a critical phase in the strategic management process where organizations define clear objectives and develop a blueprint to achieve them. It involves analyzing the internal and external environment to identify strengths, weaknesses, opportunities, and threats (SWOT). This phase necessitates the integration of insights from various functional areas like marketing, finance, and operations to craft strategies aligned with the organization’s mission and vision. The ultimate goal is establishing a competitive advantage and fostering sustainable growth, ensuring the organization’s long-term viability and success.

Table of Content

What is Strategy Formulation?

Strategy formulation refers to strategic planning or long-range planning. It is connected with developing an organization’s mission objectives, strategies, and policies. This begins with analyzing the situation: finding the strategic fit between external opportunities and internal strengths. Also, while working around external threats and weaknesses. As analyzing the strategic factors in the light of the current situations. Opportunity divided by capacity is the essence of strategy. A company cannot exploit an opportunity without the capacity (resources). 

Read out: What is Business Strategy?

This critical process employs various analytical techniques such as SWOT (Strengths, Weaknesses, Opportunities, Threats), VRIO (Value, Rarity, Imitability, Organization), PESTEL (Political, Economic, Social, Technological, Environmental, Legal) etc. It is done to analyse the dissect market dynamics and pinpoint opportunities. This stage is pivotal in aligning organizational efforts and resources. It fosters a culture of innovation and adaptability and paving a roadmap for sustainable growth and success.

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Levels of Strategy Formulation

Strategy formulation occurs at various organisational levels. Each focuses on different aspects of the organization’s goals and operations. Here are the primary levels of strategy formulation:

Corporate-Level Strategy

Corporate-level strategy is the highest level of strategy formulation. It focuses on the overall scope and direction of the organization. It involves decision-making by the top management regarding which businesses to engage in and how to allocate resources among them.

Example: Alphabet Inc., Google’s parent company, formulating a strategy to diversify its business portfolio beyond search engines into areas like autonomous vehicles (Waymo) and healthcare (Verily).

Business Level Strategy

Business-level strategy concerns how the organization plans to compete successfully in specific markets. It involves developing unique value propositions and competitive advantages.

Example: Toyota adopted a differentiation strategy by focusing on producing high-quality, reliable vehicles and pioneering hybrid technology with the Prius.

Functional Level Strategy

This strategy focuses on the specific actions. It also includes processes within various departments (like marketing, finance, operations, etc.) to support the business-level strategy.

Example: Coca-Cola’s marketing department is developing a global advertising campaign to strengthen the brand’s presence and appeal to a younger audience.

Process of Strategy Formulation

Defining Mission and Vision:

This foundational step articulates the organization’s core purpose (mission) and long-term aspirations (vision). The mission serves as a guiding principle, delineating the organization’s raison d’être and the value it intends to offer. Concurrently, the vision paints a picture of what the organization aspires to become. It serves as a beacon guiding its strategic decisions and actions. Together, they form the cornerstone influencing the organisation’s culture, direction, and goals.

Also read: Vision vs Mission: Understand the Differences

Example: Google’s mission to “organize the world’s information and make it universally accessible and useful” clearly outlines its purpose and the value it aims to bring to users. Its vision of “a world where information is accessible and useful” portrays its long-term aspiration to facilitate information accessibility globally.

 

Setting Objectives

Once the mission and vision are defined, the next step is establishing concrete objectives aligning with them. These objectives are specific, measurable, achievable, relevant, and time-bound (SMART). It serves as milestones that the organization aims to achieve within a specified timeframe. Setting clear objectives is crucial as it provides a focused direction. It enables the organization to channel its efforts effectively towards achieving its mission and realizing its vision. 

Example: A startup setting a SMART objective to achieve a 20% market share in its niche within the first five years of operation, aligning with its mission to become a leader in its industry and its vision to revolutionize its sector with innovative solutions.

Strategy Development

At this juncture, teams brainstorm and develop various strategies. It considers the organization’s strengths, weaknesses, opportunities, and threats (SWOT). This stage is crucial for laying a solid foundation for the forthcoming steps. It ensures the strategies are grounded in a deep understanding of internal and external environments.

Example: Amazon is leveraging its technology and logistics competency to expand into new markets and product categories.

Strategy Evaluation and Choice

Following the development phase, the strategies are scrutinized based on their feasibility and potential effectiveness in achieving the set objectives. This involves a critical analysis where the pros and cons of each strategy are weighed. It ensures the adoption of the most promising strategy for implementation.

Example: Netflix evaluated various content strategies before investing heavily in original programming to differentiate itself in a crowded market.

Implementation Planning

This phase is characterized by meticulous Planning to pave the way for the successful implementation of the chosen strategy. It encompasses delineating responsibilities, setting realistic timelines, and allocating necessary resources. A well-crafted plan at this stage serves as a blueprint for action in the subsequent phase.

Example: Tesla outlining a detailed plan for the rollout of its electric vehicle charging infrastructure, including timelines, budget allocations, and partnerships.

Strategy Implementation

Strategy implementation implies the transition of strategy from paper to practice. The organization mobilizes its resources to execute the plan, adjusting based on real-time feedback and changing circumstances. This stage is vital for translating strategic visions into tangible actions and achievements.

Example: Starbucks is implementing its strategy of expanding globally by opening stores in various countries and adapting its menu to suit local tastes.

Monitoring and Control

This stage involves continuously monitoring the strategy’s performance to ensure alignment with the organization’s objectives and the dynamic market conditions. It allows for timely interventions and adjustments, helping to maintain the strategy’s effectiveness and relevance in a fluctuating business environment.

Example: Coca-Cola regularly monitors the performance of its marketing campaigns and makes adjustments based on consumer feedback and market trends.

Feedback and Adjustment

Feedback is a pivotal aspect of this phase, where inputs from various stakeholders are collected and analyzed. This facilitates necessary adjustments to the strategy. It ensures it remains attuned to the evolving needs and preferences of the market, thereby sustaining its effectiveness and relevance.

Example: Apple gathering feedback on the initial version of its iOS software. It makes adjustments based on user suggestions and identified issues.

Review and Assessment

This final step involves periodic reviews to assess the strategy’s effectiveness. It allows for a comprehensive evaluation and necessary recalibrations. This ensures the strategy aligns well with the organization’s goals, fostering continuous improvement and steering it towards its envisioned success.

Example: Samsung conducts a periodic review of its smartphone strategy. This is done to assess its effectiveness and make essential adjustments to stay competitive.

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Deep Market Research

Diving deep into market research ensures a comprehensive understanding of the current landscape, emerging trends, and customer preferences.

Example: Netflix astutely observed the evolving consumer shift towards digital content. By transitioning from a DVD rental model to online streaming, they positioned themselves at the forefront of the entertainment industry, capitalizing on the burgeoning demand for on-demand content.

Leverage Core Competencies

Every organization possesses unique strengths and capabilities. By identifying and building upon these core competencies, businesses can carve a niche for themselves.

Example: Apple has always prioritized design and innovation. This focus has enabled them to introduce products that set industry standards and resonate deeply with consumers.

Stakeholder Engagement

Engaging key stakeholders in the strategy formulation offers diverse insights and ensures widespread commitment to the chosen direction. 

Example: Starbucks exemplifies this by involving its baristas in product development. Such engagement has birthed popular innovations, like the Flat White, reflecting employee creativity and customer preferences.

Flexibility and Adaptability

While a clear strategic roadmap is invaluable, adapting to changing circumstances is equally crucial.

Example: Microsoft showcased this adaptability by evolving its focus from the Windows OS to embrace the potential of cloud computing with Azure, thereby staying relevant and competitive in a rapidly changing tech landscape.

Continuous Monitoring and Feedback

A successful strategy is not static; it requires regular reviews and adjustments based on performance metrics and stakeholder feedback. 

Example: Toyota employs this principle through its Kaizen approach, emphasizing continuous improvement. By consistently seeking feedback and making iterative refinements, they maintain their reputation for quality and innovation in the automotive industry.

FAQs

What is strategy formulation?

Strategy formulation is the process of planning and making decisions to create a series of actions and approaches that an organization intends to follow to achieve its goals and objectives.

Why is environmental analysis crucial in strategy formulation?

Environmental analysis helps in understanding the internal and external factors that can influence the organization's success, allowing for the creation of strategies that are aligned with market trends, customer preferences, and organizational strengths.

How do mission and vision statements influence strategy formulation?

Mission and vision statements serve as the foundation of strategy formulation, guiding the development of objectives and strategies that align with the organization's core purpose and long-term aspirations.

Why is continuous monitoring and feedback essential in strategy formulation?

Continuous monitoring and feedback allow for timely adjustments to the strategy, ensuring its effectiveness and relevance in a dynamic business environment, and fostering continuous improvement.

Can strategy formulation adapt to changing market dynamics?

Yes, an essential aspect of strategy formulation is its flexibility to adapt to changing market dynamics, allowing the organization to pivot its strategies based on real-time feedback and evolving market conditions.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio