January 22, 2017

Formulation of Strategy

Formulation of strategies is a creative and analytical process. It is a process because particular functions are performed in a sequence over the period of time. The process involves a number of activities and their analysis to arrive at a decision. Though there may not be unanimity over these activities particularly in the context of organizational variability, a complete process of strategy formulation and implementation can be understood.

Formulation of strategy

The process set out above includes strategy formulation and its implementation, what has been referred to as strategic management process. The same process can be applied to both strategy and policy. The figure suggests the various elements of strategy formulation and process and the way they interact among themselves.

Accordingly .the various elements are organizational mission and objectives, environmental analysis, corporate analysis, identification of alternatives, and choice of alternative. Up to this stage the formulation is complete. However, implementation is closely related with formulation because it will provide feedback for adjusting strategy. A brief discussion of each element will be helpful to understand the problems involved in each.

  1. Organizational mission and objectives – are the starting point of strategy formulation. As discussed earlier, mission is the fundamental unique purpose of an organization that sets it apart from other organizations and objective is the end result, which an organization strives to achieve. These together provide the direction for other aspects of the process.
  2. Environmental Analysis – The second aspect of the process is the environmental analysis. Since the basic objective of strategies is to integrate the organization with its environment, it must know the kind of environment in which it has to work. This can be known by environmental analysis. The process of environmental analysis includes collection of relevant information from the environment, interpreting its impact on the future organizational working, and determining what opportunities and threats-positive and negative aspects-are offered by the environment. The environmental information can be collected from various sources like various publi-cations, verbal information from various people, spying, and forecasting. The process of environmental analysis works better if it is undertaken on continuous basis and is made an intrinsic part of the strategy formulation.
  3. Corporate Analysis – While environmental analysis is the analysis of external factors, corporate analysis takes into account the internal factors. These together are known as SWOT (strengths, weaknesses, opportunities and threats) analysis. It is not merely enough to locate what opportunities and threats are offered by the environment but equally important is the analysis of how the organization can take the advantages of these opportunities and overcome threats. Corporate analysis dis-closes strengths and weaknesses of the organization and points out the areas in which business can be undertaken. Corporate analysis is performed by identifying the factors, which are critical for the success of the present or future business of the organization, and then evaluating these factors whether they are contributing in positive way or in negative way. A positive contribution is strength and a negative contribution is a weakness.
  4. Identification of Alternatives – Environmental analysis and corporate analysis taken together will specify the various alternatives for strategy. Usually this process will bring large number of alternatives. For example, if an organization is strong in financial resources, these can be used in many ways, taking several projects. However, all the ways or projects cannot be selected. Therefore, some criteria should be set up to evaluate each alternative. Normally the criteria are set in the light of organizational mission and objectives.
  5. Choice of Strategy – The identification and evaluation of various alternatives will narrow down the range of strategies that can seriously be considered for choice. Choice is deciding the acceptable alternative among the several which fits with the organizational objectives. Normally at this stage, personal values and expectations of decision-maker play an important role in strategy because he will decide the course of action depending on his own likings and disliking. This happens because in one way the organizational objectives reflect the personal philosophy of individuals particularly at the top management level.
  6. Implementation – After the strategy has been chosen, it is put to implementation, that is, it is put into action. Choice of strategy is mostly analytical and conceptual while implementation is operational or putting into action. Various factors which are necessary for implementation are design of suitable organization structure, develop-ing and motivating people to take up work, designing effective control and information system, allocation of resources, etc.

When these are undertaken, these may produce results, which can be compared in the light of objectives set, and control process comes into operation. If the results and objectives differ, a further analysis is required to find out the reasons for the gap and taking suitable actions to overcome the problems because of which the gap exists. This may also- require a change in strategy if there is a problem because of the formulation inadequacy. This puts back the managers at the starting point of the strategy formulation.

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