• Strategic Management

Steps in Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.

The process of strategy formulation basically involves six main steps . Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order.

Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there .

Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.

It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources.

A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization.

This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist.

  Related Articles

  • Vision & Mission Statements
  • Strategic Management Process
  • Environmental Scanning
  • Strategy Implementation
  • Strategy Formulation vs Implementation

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Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team . MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider . To Know more, click on About Us . The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
  • Strategic Management - Introduction
  • Strategy - Definition and Features
  • Components of a Strategy Statement
  • Strategy Formulation
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  • SWOT Analysis of Google
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  • Personal SWOT Analysis
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Business Jargons

A Business Encyclopedia

Strategy Formulation

Definition : Strategy Formulation is an analytical process of selection of the best suitable course of action to meet the organizational objectives and vision . It is one of the steps of the strategic management process. The strategic plan allows an organization to examine its resources, provides a financial plan and establishes the most appropriate action plan for increasing profits.

It is examined through SWOT analysis. SWOT is an acronym for strength, weakness, opportunity and threat. The strategic plan should be informed to all the employees so that they know the company’s objectives, mission and vision. It provides direction and focus to the employees.

 Steps of Strategy Formulation

The steps of strategy formulation include the following:

process of strategy formulation

  • Establishing Organizational Objectives : This involves establishing long-term goals of an organization . Strategic decisions can be taken once the organizational objectives are determined.
  • Forming quantitative goals : Defining targets so as to meet the company’s short-term and long-term objectives. Example, 30% increase in revenue this year of a company.
  • Objectives in context with divisional plans : This involves setting up targets for every department so that they work in coherence with the organization as a whole.
  • Performance Analysis : This is done to estimate the degree of variation between the actual and the standard performance of an organization.
  • Selection of Strategy : This is the final step of strategy formulation. It involves evaluation of the alternatives and selection of the best strategy amongst them to be the strategy of the organization.

Strategy formulation process is an integral part of strategic management, as it helps in framing effective strategies for the organization, to survive and grow in the dynamic business environment .

Levels of strategy formulation

levels of strategy formulation

  • Corporate level strategy : This level outlines what you want to achieve: growth, stability, acquisition or retrenchment. It focuses on what business you are going to enter the market.
  • Business level strategy : This level answers the question of how you are going to compete. It plays a role in those organization which have smaller units of business and each is considered as the strategic business unit (SBU) .
  • Functional level strategy : This level concentrates on how an organization is going to grow. It defines daily actions including allocation of resources to deliver corporate and business level strategies.

Hence, all organisations have competitors, and it is the strategy that enables one business to become more successful and established than the other.

Related terms:

  • Strategy Implementation
  • Strategic Management
  • SWOT Analysis
  • Environmental Analysis
  • Formulation of Linear Programming-Maximization Case

Reader Interactions

Belete Hirpa says

May 25, 2020 at 5:39 pm

Your site very important to be referred to enhance my understanding about strategy

onward tangwara says

November 30, 2020 at 10:21 am

very insightful

December 16, 2020 at 10:08 am

very informative

December 30, 2020 at 8:32 pm

very good and extremely helpful, thankyou

Priyani perera says

September 25, 2021 at 3:30 pm

Simple explanation .Thank you

Carla Duran says

December 8, 2021 at 6:47 pm

Informative and easy to understand. The author of the content and the date when it was written are important, as well as the references. Thank you.

MIMI MAGISA says

November 3, 2022 at 5:46 am

This article provided wide information about strategy formulation about which I totally had no idea. Thank you very much!

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Thank u. Keep it up

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Strategy Formulation: 5 Steps To Create A Winning Strategy

Download our free Strategic Planning Template Download this template

What Is Strategy Formulation?

Strategy formulation is a process that  outlines a measurable and concrete course of action to achieve certain strategic objectives or overcome specific challenges.

Companies follow a strategy formulation process to develop a business plan that will guide their decision-making and help them realize their long-term vision.

Developing a coherent strategy is essential for every organization as it enables aligned allocation of resources in a unified effort towards a shared goal.

Without it, a company’s efforts are fragmented, scattering its resources and missing opportunities.

Free Download Download our Strategic Planning Template Download this template

What Makes A Good Strategy?

A good strategy addresses  the right challenge  and is  executable .

Identifying the right challenge determines the strategy’s long-term efficacy.

For example, it’s one thing to say  Sam Walton broke the conventional wisdom and another that he redefined the meaning of the “store.”  Lululemon didn't just make high-quality products, it created a new category by targeting a very niche market in the beginning.

It’s not the wide variety of high-quality drinks that is responsible for  Starbucks’ success , but its redesign of the coffee shop experience.

Successful challenge diagnosis considers all of the organization's reality, from resources and internal culture to market forces and competition moves.

Successful strategy implementation separates laggards from market leaders.  Even with the best diagnosis, competitive advantage will elude you if the plan doesn’t meet your organization’s capacity to bring it to life. The most important factors are your culture and your resource allocation . 

The former follows this rule:  If strategy opposes culture, it loses.  It will never get traction. The latter speaks to  speed and effectiveness . With poor allocation and strategic management, execution will move slowly and its results will meet an insurmountable ceiling.

📚 Read more: The 7 Best Business Strategy Examples I've Ever Seen

3 key elements of an A+ strategy: 

Every effective strategy, when broken down into its fundamental structure, consists of 3 things:

  • Goals:  The objectives, targets, and aspirations it serves
  • Metrics:  A way to track your progress toward the Goals
  • Actions:  The specific way you choose to make that progress

how to formulate strategy graphic

The bigger your organization is, the more complex its competitive strategy can get. However, you can still categorize your strategy’s elements according to these 3 pillars and detect which category needs special attention. Remember - a strategy is only as strong as its weakest link.

Strategy Formulation: The 5 Steps

Strategy formulation is not a complicated planning process, but it should include the five high-level steps below to ensure success:

  • Understanding your strategy level
  • Conduct internal & external research
  • Build the plan backward
  • Review progress regularly
  • Take the first step: Implement

1. Understand your strategy level

Depending on the size of your organization, you might need to formulate different plans for each level of management. That way, you’ll be able to make strategic decisions in line with the relevant context.

For example , your resource allocation decisions are very different at your corporate level, where you approach business units as a portfolio than when formulating a business-level strategy. You might have to shift significant resources to pursue a certain opportunity that will starve other business units.

Here are the  three strategy levels :

  • Corporate Level
  • Business Level
  • Functional Level

2. Conduct internal and external research

Research is the second step in strategy formulation.

External research

To achieve the best competitive position, you need to analyze your target market, competition, and the business environment you’ll operate and gather crucial customer insights.

Backed by such research, you'll be able to get a clear picture of the market’s conditions, identify the main challenges your customers want solved, and develop relevant strategic goals.

Internal research

Determine internal struggles and your culture’s most powerful positive drivers. Revisit the organizational structure, your company’s mission statement, and the incentive system. Once you have a good grasp of your strategy, align structure and incentives with your plan to facilitate implementation.

Try any combination of the frameworks (including  SWOT analysis ,  Gap analysis , and Core competencies analysis) in our  internal analysis guide  to ensure you don’t miss out on any crucial internal factors.

3. Build the plan backward

Every strategist strives to choose bold and ambitious organizational objectives (see  Thibault Mesqui  from  Heineken  or SafetyCulture’s   Hamish Grant ).

However, ambitious goals demand aggressive action. You’ll never hit those goals if your strategic plan suggests conservative action or - God forbid - a miraculous 30% increase in production or employee productivity.

How do you determine those aggressive moves or how bold they should be?

Start with the end in mind.

Set those ambitious goals as high as you want with a respective deadline (or duration if they’re long-term goals) and then start building your new strategy backward. Break down your strategic horizons into smaller time increments and figure out what your KPIs and metrics should look like during each interval. Set up milestones. Ground your plan to reality from the beginning, so your actions and decisions support the bold organizational goals.

👉 Grab Cascade's corporate strategy template to give your plan structure and clarity. 

Tip: Decide on one bold company-wide move. Then allocate resources on the highest level first, so you won’t be tempted to be “fair” and instead support all the initiatives that will somehow contribute to the goal.

4. Review progress regularly

Strategy is iterative, it’s not just about planning and it doesn’t end at execution.

What else is there besides planning and execution?  Reviewing . Strategy is continuously evolving and assessing performance is a big part of it. This is a painful headache for large corporations because very few tools accommodate all of the challenges that come with a complex strategy.

Business intelligence tools require specialization and a great deal of time to be effective. Meanwhile, sheets and slides are tough to update and redistribute on time. As a result, managers end up spending more time tracking and updating documents than doing  actual work  and executing the strategy.

How should you keep track of your strategy’s progress?

Determine your reporting needs

Annual or semi-annual reviews don’t suffice. Depending on your organizational needs, set up recurring meetings across all your teams. Determine  beforehand  the metrics you’ll be reviewing and when each metric makes sense to be reviewed.

Assess lagging and leading KPIs and finish each meeting with a “next steps” discussion. Feel free to adapt your habits to your needs.

Balance the objective with the subjective

Strategy isn’t just facts, it’s also a story. Your reviewing discussions should start with metrics, objectives, and projects, but they should not be limited to those. Discuss judgment calls, decisions, and priorities.

Balance the facts with the story. Allow your people to express their views more often and you’ll acquire a clearer image of your current situation.

The most important step of strategy formulation is the last one.

5. Take the first step: Implement

Long-range planning without short-term action is a nosedive into failure.

Most strategies never leave the port or start their engines. Because there were never any plans on how to do that. So, start your engines by focusing on the first step. Don’t let the strategy discussions die out before you get to implementation steps and, most importantly, the first one.

Why is the first step so important?

Because it builds traction . It builds momentum and demonstrates decisiveness. So, to jumpstart strategy implementation, focus on getting things done and moving things ahead. Let results and execution quality take a back seat until you build enough momentum to integrate implementation with your people’s daily activities.

Free up resources early to leave the port and sustain strategic initiatives during the long voyage of execution.

💡Need a little bit of help? Check out our list of the most popular and free templates in our strategy library that will help you bulletproof your strategic planning and implementation.  

Difference Between Formulation And Implementation Of Strategy

In theory, strategy formulation is the development of your strategic plan, while strategy implementation is the process of putting the plan into motion.

Here is the trap with this distinction.  You separate  strategy from daily operations . As a result, strategy becomes a distinct entity, detached from reality with an  intrusive  role in people’s work. So, instead of people focusing on organizing their activities around the company’s strategy, they are concerned with it once per week or even less often.

It’s simple, people don’t implement strategy because it doesn’t fit into their schedule.

Operations become business as usual with no strategic references.

Why strategy implementation is more challenging than strategy formulation

It’s not. At least not always.

Strategy implementation becomes difficult when formulation doesn’t take it into account.

It’s that simple.

When the action plan doesn’t identify and take into account the organization’s reality, it’s impossible to implement it. When only the top executives are involved in developing the strategy, nobody else will feel invested in it and thus won’t care to implement it. Strategy implementation is harder than formulation when you believe the 3 myths of strategy:

  • Strategy is a conceptual exercise living outside the organization's daily activities.
  • Top-level leadership owns corporate level strategy and employees should not be concerned with it.
  • Strategy is about planning. Execution will take care of itself.

The Best Tool For The Strategy Formulation Phase

The  Cascade strategy execution platform.

We admit that we might be a bit biased. However, Cascade is the only tool that allows you to  plan ,  manage  and  track  your strategy in one place. It includes  dynamic planning ,  strategy maps  that let you monitor your team’s alignment at a glance,  and dashboards  that take the struggle out of reporting, and exposes your strategy to your people, so you can have candid conversations about it.

Are you ready to move from formulation to implementation?   Get in touch with us!

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The strategic planning process in 4 steps, to help you throughout our strategic planning framework, we have created a how-to guide on the basics of a strategic plan, which we will take you through step-by-step..

Free Strategic Planning Guide

What is Strategic Planning?

Strategic Planning is when organizations define a bold vision and create a plan with objectives and goals to reach that future. A great strategic plan defines where your organization is going, how you’ll win, who must do what, and how you’ll review and adapt your strategy development.

What

Overview of the Strategic Planning Process:

The strategic management process involves taking your organization on a journey from point A (where you are today) to point B (your vision of the future).

Part of that journey is the strategy built during strategic planning, and part of it is execution during the strategic management process. A good strategic plan dictates “how” you travel the selected road.

Effective execution ensures you are reviewing, refreshing, and recalibrating your strategy to reach your destination. The planning process should take no longer than 90 days. But, move at a pace that works best for you and your team and leverage this as a resource.

To kick this process off, we recommend 1-2 weeks (1-hour meeting with the Owner/CEO, Strategy Director, and Facilitator (if necessary) to discuss the information collected and direction for continued planning.)

Strategic Planning Guide and Process

Questions to Ask:

  • Who is on your Planning Team? What senior leadership members and key stakeholders are included? Checkout these links you need help finding a strategic planning consultant , someone to facilitate strategic planning , or expert AI strategy consulting .
  • Who will be the business process owner (Strategy Director) of planning in your organization?
  • Fast forward 12 months from now, what do you want to see differently in your organization as a result of your strategic plan and implementation?
  • Planning team members are informed of their roles and responsibilities.
  • A strategic planning schedule is established.
  • Existing planning information and secondary data collected.

Action Grid:

What

Step 1: Determine Organizational Readiness

Set up your plan for success – questions to ask:

  • Are the conditions and criteria for successful planning in place at the current time? Can certain pitfalls be avoided?
  • Is this the appropriate time for your organization to initiate a planning process? Yes or no? If no, where do you go from here?

Step 2: Develop Your Team & Schedule

Who is going to be on your planning team? You need to choose someone to oversee the strategy implementation (Chief Strategy Officer or Strategy Director) and strategic management of your plan? You need some of the key individuals and decision makers for this team. It should be a small group of approximately 12-15 people.

OnStrategy is the leader in strategic planning and performance management. Our cloud-based software and hands-on services closes the gap between strategy and execution. Learn more about OnStrategy here .

Step 3: Collect Current Data

All strategic plans are developed using the following information:

  • The last strategic plan, even if it is not current
  • Mission statement, vision statement, values statement
  • Past or current Business plan
  • Financial records for the last few years
  • Marketing plan
  • Other information, such as last year’s SWOT, sales figures and projections

Step 4: Review Collected Data

Review the data collected in the last action with your strategy director and facilitator.

  • What trends do you see?
  • Are there areas of obvious weakness or strengths?
  • Have you been following a plan or have you just been going along with the market?

Conclusion: A successful strategic plan must be adaptable to changing conditions. Organizations benefit from having a flexible plan that can evolve, as assumptions and goals may need adjustments. Preparing to adapt or restart the planning process is crucial, so we recommend updating actions quarterly and refreshing your plan annually.

Strategic Planning Pyramid

Strategic Planning Phase 1: Determine Your Strategic Position

Want more? Dive into the “ Evaluate Your Strategic Position ” How-To Guide.

Action Grid

Step 1: identify strategic issues.

Strategic issues are critical unknowns driving you to embark on a robust strategic planning process. These issues can be problems, opportunities, market shifts, or anything else that keeps you awake at night and begging for a solution or decision. The best strategic plans address your strategic issues head-on.

  • How will we grow, stabilize, or retrench in order to sustain our organization into the future?
  • How will we diversify our revenue to reduce our dependence on a major customer?
  • What must we do to improve our cost structure and stay competitive?
  • How and where must we innovate our products and services?

Step 2: Conduct an Environmental Scan

Conducting an environmental scan will help you understand your operating environment. An environmental scan is called a PEST analysis, an acronym for Political, Economic, Social, and Technological trends. Sometimes, it is helpful to include Ecological and Legal trends as well. All of these trends play a part in determining the overall business environment.

Step 3: Conduct a Competitive Analysis

The reason to do a competitive analysis is to assess the opportunities and threats that may occur from those organizations competing for the same business you are. You need to understand what your competitors are or aren’t offering your potential customers. Here are a few other key ways a competitive analysis fits into strategic planning:

  • To help you assess whether your competitive advantage is really an advantage.
  • To understand what your competitors’ current and future strategies are so you can plan accordingly.
  • To provide information that will help you evaluate your strategic decisions against what your competitors may or may not be doing.

Learn more on how to conduct a competitive analysis here .

Step 4: Identify Opportunities and Threats

Opportunities are situations that exist but must be acted on if the business is to benefit from them.

What do you want to capitalize on?

  • What new needs of customers could you meet?
  • What are the economic trends that benefit you?
  • What are the emerging political and social opportunities?
  • What niches have your competitors missed?

Threats refer to external conditions or barriers preventing a company from reaching its objectives.

What do you need to mitigate? What external driving force do you need to anticipate?

Questions to Answer:

  • What are the negative economic trends?
  • What are the negative political and social trends?
  • Where are competitors about to bite you?
  • Where are you vulnerable?

Step 5: Identify Strengths and Weaknesses

Strengths refer to what your company does well.

What do you want to build on?

  • What do you do well (in sales, marketing, operations, management)?
  • What are your core competencies?
  • What differentiates you from your competitors?
  • Why do your customers buy from you?

Weaknesses refer to any limitations a company faces in developing or implementing a strategy.

What do you need to shore up?

  • Where do you lack resources?
  • What can you do better?
  • Where are you losing money?
  • In what areas do your competitors have an edge?

Step 6: Customer Segments

What

Customer segmentation defines the different groups of people or organizations a company aims to reach or serve.

  • What needs or wants define your ideal customer?
  • What characteristics describe your typical customer?
  • Can you sort your customers into different profiles using their needs, wants and characteristics?
  • Can you reach this segment through clear communication channels?

Step 7: Develop Your SWOT

What

A SWOT analysis is a quick way of examining your organization by looking at the internal strengths and weaknesses in relation to the external opportunities and threats. Creating a SWOT analysis lets you see all the important factors affecting your organization together in one place.

It’s easy to read, easy to communicate, and easy to create. Take the Strengths, Weaknesses, Opportunities, and Threats you developed earlier, review, prioritize, and combine like terms. The SWOT analysis helps you ask and answer the following questions: “How do you….”

  • Build on your strengths
  • Shore up your weaknesses
  • Capitalize on your opportunities
  • Manage your threats

What

Strategic Planning Process Phase 2: Developing Strategy

Want More? Deep Dive Into the “Developing Your Strategy” How-To Guide.

Step 1: Develop Your Mission Statement

The mission statement describes an organization’s purpose or reason for existing.

What is our purpose? Why do we exist? What do we do?

  • What are your organization’s goals? What does your organization intend to accomplish?
  • Why do you work here? Why is it special to work here?
  • What would happen if we were not here?

Outcome: A short, concise, concrete statement that clearly defines the scope of the organization.

Step 2: discover your values.

Your values statement clarifies what your organization stands for, believes in and the behaviors you expect to see as a result. Check our the post on great what are core values and examples of core values .

How will we behave?

  • What are the key non-negotiables that are critical to the company’s success?
  • What guiding principles are core to how we operate in this organization?
  • What behaviors do you expect to see?
  • If the circumstances changed and penalized us for holding this core value, would we still keep it?

Outcome: Short list of 5-7 core values.

Step 3: casting your vision statement.

What

A Vision Statement defines your desired future state and directs where we are going as an organization.

Where are we going?

  • What will our organization look like 5–10 years from now?
  • What does success look like?
  • What are we aspiring to achieve?
  • What mountain are you climbing and why?

Outcome: A picture of the future.

Step 4: identify your competitive advantages.

How to Identify Competitive Advantages

A competitive advantage is a characteristic of an organization that allows it to meet its customer’s need(s) better than its competition can. It’s important to consider your competitive advantages when creating your competitive strategy.

What are we best at?

  • What are your unique strengths?
  • What are you best at in your market?
  • Do your customers still value what is being delivered? Ask them.
  • How do your value propositions stack up in the marketplace?

Outcome: A list of 2 or 3 items that honestly express the organization’s foundation for winning.

Step 5: crafting your organization-wide strategies.

What

Your competitive strategy is the general methods you intend to use to reach your vision. Regardless of the level, a strategy answers the question “how.”

How will we succeed?

  • Broad: market scope; a relatively wide market emphasis.
  • Narrow: limited to only one or few segments in the market
  • Does your competitive position focus on lowest total cost or product/service differentiation or both?

Outcome: Establish the general, umbrella methods you intend to use to reach your vision.

What

Phase 3: Strategic Plan Development

Want More? Deep Dive Into the “Build Your Plan” How-To Guide.

Strategic Planning Process Step 1: Use Your SWOT to Set Priorities

If your team wants to take the next step in the SWOT analysis, apply the TOWS Strategic Alternatives Matrix to your strategy map to help you think about the options you could pursue. To do this, match external opportunities and threats with your internal strengths and weaknesses, as illustrated in the matrix below:

TOWS Strategic Alternatives Matrix

Evaluate the options you’ve generated, and identify the ones that give the greatest benefit, and that best achieve the mission and vision of your organization. Add these to the other strategic options that you’re considering.

Step 2: Define Long-Term Strategic Objectives

Long-Term Strategic Objectives are long-term, broad, continuous statements that holistically address all areas of your organization. What must we focus on to achieve our vision? Check out examples of strategic objectives here. What are the “big rocks”?

Questions to ask:

  • What are our shareholders or stakeholders expectations for our financial performance or social outcomes?
  • To reach our outcomes, what value must we provide to our customers? What is our value proposition?
  • To provide value, what process must we excel at to deliver our products and services?
  • To drive our processes, what skills, capabilities and organizational structure must we have?

Outcome: Framework for your plan – no more than 6. You can use the balanced scorecard framework, OKRs, or whatever methodology works best for you. Just don’t exceed 6 long-term objectives.

Strategy Map

Step 3: Setting Organization-Wide Goals and Measures

What

Once you have formulated your strategic objectives, you should translate them into goals and measures that can be communicated to your strategic planning team (team of business leaders and/or team members).

You want to set goals that convert the strategic objectives into specific performance targets. Effective strategic goals clearly state what, when, how, and who, and they are specifically measurable. They should address what you must do in the short term (think 1-3 years) to achieve your strategic objectives.

Organization-wide goals are annual statements that are SMART – specific, measurable, attainable, responsible, and time-bound. These are outcome statements expressing a result to achieve the desired outcomes expected in the organization.

What is most important right now to reach our long-term objectives?

Outcome: clear outcomes for the current year..

Strategic Planning Outcomes Table

Step 4: Select KPIs

What

Key Performance Indicators (KPI) are the key measures that will have the most impact in moving your organization forward. We recommend you guide your organization with measures that matter. See examples of KPIs here.

How will we measure our success?

Outcome: 5-7 measures that help you keep the pulse on your performance. When selecting your Key Performance Indicators (KPIs), ask, “What are the key performance measures we need to track to monitor if we are achieving our goals?” These KPIs include the key goals you want to measure that will have the most impact on moving your organization forward.

Step 5: Cascade Your Strategies to Operations

NPS Step #5

To move from big ideas to action, creating action items and to-dos for short-term goals is crucial. This involves translating strategy from the organizational level to individuals. Functional area managers and contributors play a role in developing short-term goals to support the organization.

Before taking action, decide whether to create plans directly derived from the strategic plan or sync existing operational, business, or account plans with organizational goals. Avoid the pitfall of managing multiple sets of goals and actions, as this shifts from strategic planning to annual planning.

Questions to Ask

  • How are we going to get there at a functional level?
  • Who must do what by when to accomplish and drive the organizational goals?
  • What strategic questions still remain and need to be solved?

Department/functional goals, actions, measures and targets for the next 12-24 months

Step 6: Cascading Goals to Departments and Team Members

Now in your Departments / Teams, you need to create goals to support the organization-wide goals. These goals should still be SMART and are generally (short-term) something to be done in the next 12-18 months. Finally, you should develop an action plan for each goal.

Keep the acronym SMART in mind again when setting action items, and make sure they include start and end dates and have someone assigned their responsibility. Since these action items support your previously established goals, it may be helpful to consider action items your immediate plans on the way to achieving your (short-term) goals. In other words, identify all the actions that need to occur in the next 90 days and continue this same process every 90 days until the goal is achieved.

Examples of Cascading Goals:

What

Phase 4: Executing Strategy and Managing Performance

Want more? Dive Into the “Managing Performance” How-To Guide.

Step 1: Strategic Plan Implementation Schedule

Implementation is the process that turns strategies and plans into actions in order to accomplish strategic objectives and goals.

How will we use the plan as a management tool?

  • Communication Schedule: How and when will you roll-out your plan to your staff? How frequently will you send out updates?
  • Process Leader: Who is your strategy director?
  • Structure: What are the dates for your strategy reviews (we recommend at least quarterly)?
  • System & Reports: What are you expecting each staff member to come prepared with to those strategy review sessions?

Outcome: Syncing your plan into the “rhythm of your business.”

Once your resources are in place, you can set your implementation schedule. Use the following steps as your base implementation plan:

  • Establish your performance management and reward system.
  • Set up monthly and quarterly strategy meetings with established reporting procedures.
  • Set up annual strategic review dates including new assessments and a large group meeting for an annual plan review.

Now you’re ready to start plan roll-out. Below are sample implementation schedules, which double for a full strategic management process timeline.

Strategic Planning Calendar

Step 2: Tracking Goals & Actions

Monthly strategy meetings don’t need to take a lot of time – 30 to 60 minutes should suffice. But it is important that key team members report on their progress toward the goals they are responsible for – including reporting on metrics in the scorecard they have been assigned.

By using the measurements already established, it’s easy to make course corrections if necessary. You should also commit to reviewing your Key Performance Indicators (KPIs) during these regular meetings. Need help comparing strategic planning software ? Check out our guide.

Effective Strategic Planning: Your Bi-Annual Checklist

What

Never lose sight of the fact that strategic plans are guidelines, not rules. Every six months or so, you should evaluate your strategy execution and strategic plan implementation by asking these key questions:

  • Will your goals be achieved within the time frame of the plan? If not, why?
  • Should the deadlines be modified? (Before you modify deadlines, figure out why you’re behind schedule.)
  • Are your goals and action items still realistic?
  • Should the organization’s focus be changed to put more emphasis on achieving your goals?
  • Should your goals be changed? (Be careful about making these changes – know why efforts aren’t achieving the goals before changing the goals.)
  • What can be gathered from an adaptation to improve future planning activities?

Why Track Your Goals?

  • Ownership: Having a stake and responsibility in the plan makes you feel part of it and leads you to drive your goals forward.
  • Culture: Successful plans tie tracking and updating goals into organizational culture.
  • Implementation: If you don’t review and update your strategic goals, they are just good intentions
  • Accountability: Accountability and high visibility help drive change. This means that each measure, objective, data source and initiative must have an owner.
  • Empowerment: Changing goals from In Progress to Complete just feels good!

Step 3: Review & Adapt

Guidelines for your strategy review.

The most important part of this meeting is a 70/30 review. 30% is about reviewing performance, and 70% should be spent on making decisions to move the company’s strategy forward in the next quarter.

The best strategic planners spend about 60-90 minutes in the sessions. Holding meetings helps focus your goals on accomplishing top priorities and accelerating the organization’s growth. Although the meeting structure is relatively simple, it does require a high degree of discipline.

Strategy Review Session Questions:

Strategic planning frequently asked questions, read our frequently asked questions about strategic planning to learn how to build a great strategic plan..

Strategic planning is when organizations define a bold vision and create a plan with objectives and goals to reach that future. A great strategic plan defines where your organization is going, how you’ll win, who must do what, and how you’ll review and adapt your strategy..

Your strategic plan needs to include an assessment of your current state, a SWOT analysis, mission, vision, values, competitive advantages, growth strategy, growth enablers, a 3-year roadmap, and annual plan with strategic goals, OKRs, and KPIs.

A strategic planning process should take no longer than 90 days to complete from start to finish! Any longer could fatigue your organization and team.

There are four overarching phases to the strategic planning process that include: determining position, developing your strategy, building your plan, and managing performance. Each phase plays a unique but distinctly crucial role in the strategic planning process.

Prior to starting your strategic plan, you must go through this pre-planning process to determine your organization’s readiness by following these steps:

Ask yourself these questions: Are the conditions and criteria for successful planning in place now? Can we foresee any pitfalls that we can avoid? Is there an appropriate time for our organization to initiate this process?

Develop your team and schedule. Who will oversee the implementation as Chief Strategy Officer or Director? Do we have at least 12-15 other key individuals on our team?

Research and Collect Current Data. Find the following resources that your organization may have used in the past to assist you with your new plan: last strategic plan, mission, vision, and values statement, business plan, financial records, marketing plan, SWOT, sales figures, or projections.

Finally, review the data with your strategy director and facilitator and ask these questions: What trends do we see? Any obvious strengths or weaknesses? Have we been following a plan or just going along with the market?

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6 Tips for Transitioning from Strategy Formulation to Implementation

team discussing strategy formulation and implementation over plans

  • 17 Nov 2022

Strategy formulation is key to a successful business, but it's only effective when implemented correctly. Some professionals are experienced in developing comprehensive business plans, while others are well-versed in execution —more commonly known as "thinkers" versus "doers."

A balanced combination of both is an invaluable asset to any business. If you're struggling to bring your business strategy across the finish line, here are tips for transitioning from strategy formulation to implementation and a deeper understanding of why it's essential to your company's long-term success.

Access your free e-book today.

Formulating a Successful Strategy

Developing an effective strategy requires in-depth knowledge, critical thinking, and careful planning. While several frameworks can help set the foundation, Harvard Business School Online's Business Strategy course uses the value stick.

The value stick is a visual representation of value-based strategy and can help you formulate a business model that factors in pricing, product positioning, and vendor management. Value-based strategy relies on customers' perceived value of the products or services being sold and determines the organization's prices, costs, and supplier strategy.

The Value Stick

Some key terms for formulating a value-based strategy include:

  • Willingness to pay (WTP): The price customers are willing to pay for a product or service. The margin between a customer's WTP and the actual price is deemed "customer delight," or customers' perceived received value.
  • Price: The price the product is sold for. The margin between the price and cost is the firm margin, or the money the business makes.
  • Cost: The cost of manufacturing the product.
  • Willingness to sell (WTS): The lowest price a supplier is willing to accept for its services. The margin between WTS and cost is called "supplier surplus" or "supplier delight"—the value suppliers believe they're receiving.

This is just one framework for formulating a successful strategy. You can use similar tools, but the best option will always depend on your company's strategic planning needs . To ensure you're on the right path to an effective business strategy, here are six tips for formulating and implementing successfully.

6 Tips For Transitioning from Formulation to Implementation

After formulating a well-developed business strategy, it's time to execute, which is easier said than done. Strategy execution often poses several challenges that can be hard to overcome.

According to the HBS Online course Business Strategy , there are three characteristics of strategy implementation that make the process difficult for many companies:

  • Boring: Strategy tends to be exciting; implementation, by comparison, can be rather mundane
  • Time-consuming: The best strategies typically require years to implement effectively
  • Detail-oriented: Good strategy implementation requires an attention to detail many managers don't have

To prevent these obstacles and ensure a smooth transition from formulation to successful implementation, here's an overview of what you can do to set your business strategy up for success .

1. Set Clear Goals

A simple and effective way to transition from formulation to execution is to set clear strategic goals . Strategic goals are measurable, actionable objectives that align with an organization's purpose and long-term vision. These goals ensure that individuals implementing the strategy have clear guidelines on how to define successful execution.

“When we set goals, we like to imagine a bright future with our business succeeding,” says HBS Professor Robert Simons in Strategy Execution . “But to identify your critical performance variables, you need to engage in an uncomfortable exercise and consider what can cause your strategy to fail.”

Planning in advance and identifying possible weaknesses in your strategy can help you achieve these business goals and objectives without additional roadblocks.

2. Create a Value Map

A value map is a visual tool that helps organizations determine the needs, pain points, or desires its products or services can solve or fulfill for potential customers. It's a tool that illustrates a business's potential value drivers, the factors that influence customers' willingness to pay for a product or service. Identifying and mapping value drivers can be used to formulate an organization's value proposition and key differentiators.

According to HBS Online's Business Strategy course, there are five steps to creating an effective value map:

  • Identify value drivers: Determine 10 purchasing criteria customers use when choosing between your product and competing products.
  • Rank value drivers: Rank those 10 criteria from most to least important.
  • Rate your company's performance: For each value driver, rate how your company is performing from a score of one (poor) to five (excellent).
  • Rate your competitors' performance: Repeat this process for two or three of your main competitors.
  • Review your value map: Ask yourself if your findings accurately reflect the market's competitive situation, your company's strengths and weaknesses, and if there are actionable next steps to mend any competitive gaps.

Sample value map

By creating a value map, you can review your business's performance and discover new opportunities to improve your position in the market. A value map can also rank how well your company is attracting and maintaining talent compared to competitors.

3. Strengthen Important Value Drivers

Once you've identified your key value drivers, the next step of execution is to strengthen them. Yet, it's important to focus on strengthening the most important ones rather than all of them.

"If you strive to be exceptional everywhere and spread resources evenly across all your value drivers, you end up being mediocre throughout," says Harvard Business School Professor Felix Oberholzer-Gee, who teaches Business Strategy .

Once you've identified the most important value drivers, strengthening them requires generating creative ideas . Since enhancing value drivers can be a relatively vague task, creativity provides ideas and direction. Don't be afraid to think outside the box, take risks, or even fail. Through experimentation and testing, new ideas can strengthen your value drivers and propel your business forward.

4. Create a Plan For Evolving Your Value Proposition

A value proposition is a short statement explaining the value your company provides and how your product or services differ from competitors. As the business landscape and market shift, so must your value proposition.

Competitors often become imitators or substitutes, which can cannibalize your revenue. To stay on top, your strategy—including your value drivers and value proposition—will have to evolve continually.

5. Delegate Work Effectively

Successful strategy implementation can be an overwhelming, multi-step process. It's important for managers to delegate effectively . By assigning tasks to other team members, leadership can spend more time focusing on bigger picture elements and:

  • Engage other team members
  • Share core business values
  • Encourage strategy buy-in
  • Win together and boost team morale

6. Continue to Review Performance

While these tools can be helpful for any strategy implementation, they don’t guarantee success without constant review and oversight. A successful strategic plan that drives value for a business and its customers requires continuous performance reviews and improvements.

One factor of strategy implementation to review is your employees. According to Strategy Execution , it can be beneficial in some cases to use ranking systems when reviewing employee performance to ensure your strategic initiatives receive the support needed to succeed long term.

“Ranking systems have really good features that managers can use to stimulate performance,” says HBS Professor Susanna Gallani in Strategy Execution . For example, employees who are highly motivated by personal achievement often thrive as a result of ranking systems.

It’s also important to continuously review your strategy, even after implementation. To ensure you get the most out of this review process, consider setting up a standardized operating procedure (SOP) for a designated task owner to run regularly to analyze and determine if an update is necessary. This can help you avoid common pitfalls of business strategy failures.

Which HBS Online Strategy Course is Right for You? | Download Your Free Flowchart

Why Business Strategy Formulation and Execution Are Important

Business strategy is an essential component of long-term growth and success. It offers value to customers, encouragement to key stakeholders, purpose for your company initiatives, and direction to your team. Yet, formulation only gets you so far.

Don't lose momentum during the implementation phase—ensure all your hard work pays off. With the right framework, you can create value for your customers and implement a frictionless strategy to achieve outstanding financial results.

Are you interested in learning about strategy implementation? Explore Business Strategy and Strategy Execution , two of our online strategy courses , to develop your strategic planning and implementation skills. To determine which strategy course is right for you, download our free flowchart .

This post was updated on November 3, 2023. It was originally published on November 17, 2022.

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What is Strategy Formulation? Definition, Steps, & Tips

August 3, 2023 | By Hitesh Bhasin | Filed Under: Strategy

Definition: Strategy formulation in business involves creating a plan that outlines the intended direction and specific steps to achieve goals by utilizing the available knowledge. This process entails allocating resources, setting priorities, aligning with organizational objectives, and verifying business goals .

In the world of business, one cannot underestimate the power of a well-considered strategy. Strategy formulation, an integral part of any organization’s success, acts as the blueprint for businesses to realize their objectives and mark their growth trajectory.

This detailed roadmap is not merely about setting goals; it’s about precisely defining the steps to reach there, allocating resources wisely, and aligning every action with the broader organizational objectives.

Table of Contents

What is Strategy Formulation?

Strategy formulation is the analytical process of developing a roadmap to guide an organization toward achieving its long-term objectives and overall mission . It is the backbone of the strategic planning process, ensuring that all business activities are aligned with the organization’s unified vision , goals, and objectives.

An example of strategy formulation can be seen in the global giant, Apple Inc. The company identified a market need for high-quality, user-friendly devices with a sleek design. Their strategy formulation process involved developing a plan to create innovative products that combined functionality and aesthetics, positioning the brand as a premium choice in the technology market.

The steps in this strategic plan included heavy investment in research and development , strict quality control , and a strong marketing campaign emphasizing the uniqueness and quality of their products. This strategy has been successful, with Apple maintaining its position as a market leader and continually expanding its product range, all while staying true to its core brand values.

The strategy formulation process encompasses several crucial steps, including setting strategic goals , analyzing the organization and its environment, developing strategic options, and finally, selecting the most appropriate strategies. Successful strategy implementation , often considered the other half of this coin, relies on the effectiveness of the strategy formulation process.

It ensures that the strategies formulated are executed effectively to yield the desired results. The strategy formulation process aids in identifying the key areas of focus, while successful strategy implementation ensures that these strategies are put into action in a manner that maximizes their potential.

Steps of Strategy Formulation

Strategy Formulation

Step 1: Identifying Organizational Objectives

The first step in strategy formulation involves identifying the organization’s strategic objectives. These objectives provide the direction for the whole strategy formulation process. These objectives must align with the organization’s vision and mission.

  • Vision and Mission: The vision and mission of an organization are the guiding pillars for setting strategic objectives. They reflect the organization’s purpose and the path it intends to follow to fulfill that purpose.
  • Objectives Setting: The objectives should be SMART (Specific, Measurable, Achievable, Relevant, and Time-bound). They provide the necessary specifics that enable the organization to measure progress and adjust the course as required.

Step 2: Environmental Analysis

Once the objectives are set, the next step is to perform an analysis of the organization’s external and internal environment .

  • External Analysis: This involves studying the external environment, including market trends, competitors, customer behavior, technological advancements, and legal or regulatory impacts.
  • Internal Analysis: This involves assessing the organization’s internal environment – its resources, capabilities, strengths, and weaknesses. Tools such as SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) and Value Chain Analysis can be beneficial for this purpose.

Step 3: Strategy Formulation

With the insights gained from environmental analysis, the organization can now formulate strategies.

  • Strategy Options: Multiple strategy options should be generated at this stage. It could include options like market penetration , market development , product development , and diversification .
  • Strategy Selection: The best strategy should be selected based on its potential to exploit the organization’s strengths, mitigate its weaknesses, capitalize on opportunities, and neutralize threats.

Step 4: Strategy Implementation

After the strategy is formulated, it’s time for execution. The implementation should be carefully planned and managed.

  • Action Plan : An action plan should be developed outlining the steps necessary to implement the strategy, including who is responsible for what, when and how tasks should be performed, and the resources required.
  • Monitoring: There should be a robust system to monitor the implementation and measure progress toward the strategic objectives.

Step 5: Strategy Evaluation & Control

The final step of the strategy formulation process involves evaluation and control to ensure that the strategy implemented is delivering the expected results.

  • Performance Metrics: The organization should define clear performance metrics to evaluate the effectiveness of the strategy.
  • Feedback and Control: If the strategy is not delivering the expected results, adjustments should be made based on feedback and control mechanisms. This ensures that the strategy remains aligned with the organization’s objectives and the external environment.

Levels of strategy formulation

Strategy formulation occurs at different levels within an organization: the corporate level, the business unit level, and the functional level. Each of these levels plays a crucial role in shaping the strategy to align with the organization’s overall objectives.

  • Corporate Level Strategy : At the highest level, the corporate strategy focuses on decisions related to the overall scope of the organization. This encompasses choices about which industries to compete in, how resources are allocated across business units, and how to balance risks and rewards. This level of strategy formulation often involves identifying potential synergies between different business units, managing the portfolio of businesses, and exploring growth opportunities through acquisitions, mergers, or partnerships.
  • Business Level Strategy: The business-level strategy is concerned with how the organization competes in individual markets. Business units or product lines within the organization formulate these strategies to gain a competitive advantage in their respective markets. This might involve decisions about targeting specific customer segments , differentiating products or services, or achieving cost leadership .
  • Functional Level Strategy : On the functional level, strategy formulation involves decisions about how different departments, such as marketing, finance, operations, and human resources, support the business-level strategy. Each functional area develops its own strategy, but these must be coordinated to ensure they support the broader business and corporate-level strategies.

Tips for Successful Strategy Formulation

Strategic planning , an integral part of the strategy formulation process, provides a competitive advantage in today’s dynamic business environment . By considering all factors, including the organization’s strengths, weaknesses, opportunities, and threats, a strategic plan addresses both internal and external environments.

This allows the organization to capitalize on its strengths and opportunities, while mitigating its weaknesses and threats, ultimately, giving the organization a competitive edge. This brings us full circle to the importance of a well-formulated strategy, serving as a compass directing the organization toward sustained growth and success. Some of the key tips you need to pay heed to are –

1) Align your Strategy with your Mission

Your strategy formulation should reflect and support your organization’s mission. This alignment ensures that all decisions and actions taken are driving towards the same goal, thereby enhancing internal consistency and focus.

2) Emphasize Communication

Effective communication is a crucial element in successful strategy formulation. All stakeholders should understand the strategy, its objectives, and how they contribute to achieving them. This promotes commitment and engagement at all levels of the organization.

3) Involve Multiple Perspectives

Seeking input from various departments and roles within your organization can enrich your strategy. Different perspectives can provide unique insights, highlight potential issues, and contribute to a more comprehensive and robust strategy.

4) Regularly Review and Adjust your Strategy

Strategy formulation is not a once-off task. The business environment is dynamic, and your strategy should reflect that. Regular reviews and adjustments ensure your strategy remains relevant and effective, enabling your organization to swiftly respond to emerging challenges and opportunities.

5) Use SMART Goals for Strategy Formulation

In the context of strategy formulation, your goals should be Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). This approach enhances goal clarity, facilitates progress tracking, and ensures the goals are realistic and aligned with your organizational mission. Ultimately, SMART goals provide a structured framework that guides your strategic planning process , ensuring effectiveness and efficiency .

Who is Responsible for Successfully Formulating Business Strategy?

The responsibility for formulating a successful business strategy lies primarily with the strategic management team of an organization. This team, often led by the CEO along with other top executives, undertakes performance analysis to evaluate the effectiveness of the current strategy and identify areas of improvement. In-depth performance analysis forms the basis of strategic decisions which shape the company’s strategy and steer the organization toward its goals.

These strategic decisions branch out to include every aspect of the organization, influencing the course of action in each department. From marketing campaigns to manufacturing processes, each function aligns with the overarching strategic vision to ensure a streamlined approach toward achieving business objectives.

Successful strategy execution, however, is a collective effort. It extends beyond the strategic management team to involve every member of the organization. Each employee , in their capacity, contributes to the execution of the strategy, be it through their daily operations or decision-making roles.

Effective execution of a company’s strategy is crucial, as even the most well-formulated strategy can flounder without efficient implementation. Therefore, while the strategic management team plays a pivotal role in formulating the business strategy, its successful execution is a shared responsibility across the organization.

What is the Difference between the formulation and implementation of a strategy?

Formulation and implementation of a strategy, though interdependent, encompass different aspects of strategic management. Strategy formulation entails crafting and deciding on the organization’s mission, objectives, and strategic direction. It involves an analytical process, assessing internal strengths and weaknesses, as well as external opportunities and threats (SWOT).

On the other hand, strategy implementation transforms the formulated strategy into action. It necessitates the alignment of organizational resources, structures, and processes with the strategy. While formulation is more about strategic planning and decision-making, implementation focuses on operationalizing the strategy, involving the active participation of employees at all levels.

Both stages are critical: a well-formulated strategy may fail due to poor implementation, and excellent execution can’t rectify a poorly formulated strategy.

What is a good example of successful strategic formulation?

Amazon is a prime example of successful strategic formulation. In its early stages, Amazon was predominantly an online bookstore that faced stiff competition from established brick-and-mortar stores.

The company’s leadership, led by Jeff Bezos, formulated a long-term strategy of becoming “the world’s most customer-centric company,” not just an online bookstore. Their strategy entailed diversification into other product categories and eventually into digital products and cloud services. They honed in on their internal strengths – a robust IT infrastructure, customer data, and operational efficiencies – while leveraging the emerging market trend towards online shopping.

Amazon’s strategic formulation also included the creation of Amazon Prime, a subscription-based service that offers multiple benefits to customers, such as free one or two-day shipping, streaming services, and exclusive access to deals. This strategy has resulted in customer loyalty and recurring revenue streams, reinforcing Amazon’s position as a global ecommerce leader.

Today, Amazon’s successful strategic formulation underscores its transformation from a humble online bookstore to a global giant in e- commerce , digital streaming, and cloud computing services.

Liked this post? Check out the complete series on Strategy

Related posts:

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  • Mintzberg’s 10 school of thoughts for Strategy formulation – School of thoughts in management
  • What is Strategy Implementation? A 2023 Guide With Steps & Tips
  • What is Growth Strategy in Business? Types and Steps
  • 8 tips for a successful marketing strategy
  • Strategy Definition – What Is Strategy?
  • Conglomerate Diversification – Definition, Steps and Advantages
  • What is Strategy and what are the four components of Strategy?
  • Three Levels of Strategy: Key Differences in Corporate, Business, and Functional Strategy
  • Difference between Strategy and Planning – Strategy versus Planning

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About Hitesh Bhasin

Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

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I am Amit Verma, I have 8 years of experience in Sales and Marketing, we have start own business last year. we are presently dealing some product which is sold to refinish market and automotive industries, we want to increase our product line,could you suggest how to find and select.

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Dear Amit, I think your customers are the best bet for increasing your product line. There are two line of actions i will ask you to take immediately.

1) Talk to your own customers and find out what else they want from you, or what is in shortage in the market, or which product do customers think has inferior quality, and a better quality can be made. Think of all the elements of a product and then, by asking your customers, you can find out what features to add in your products to make a better product line. 2) I always suggest that at the start of business, you should do what other champions are doing. At least till the time you have a good bottom line. After that you can think of innovation. But until that time, i suggest you make a list of 100-200 manufacturers FROM INDIA as well as 100-200 manufacturers OUT OF INDIA. This will take at least a week for you to do. But after you have done that, you will have at least 200 – 300 products which altogether other manufacturers are selling. Looking at your capability, you can start manufacturing the right products. P.S I also suggest checking out Alibaba.com. Importing is a good option nowadays and its in form. So you can take the import route in consideration also depending on your budget.

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  • 9.3 The Role of Strategic Analysis in Formulating a Strategy
  • Introduction
  • 1.1 What Do Managers Do?
  • 1.2 The Roles Managers Play
  • 1.3 Major Characteristics of the Manager's Job
  • Summary of Learning Outcomes
  • Chapter Review Questions
  • Management Skills Application Exercises
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  • 2.3 Programmed and Nonprogrammed Decisions
  • 2.4 Barriers to Effective Decision-Making
  • 2.5 Improving the Quality of Decision-Making
  • 2.6 Group Decision-Making
  • 3.1 The Early Origins of Management
  • 3.2 The Italian Renaissance
  • 3.3 The Industrial Revolution
  • 3.4 Taylor-Made Management
  • 3.5 Administrative and Bureaucratic Management
  • 3.6 Human Relations Movement
  • 3.7 Contingency and System Management
  • 4.1 The Organization's External Environment
  • 4.2 External Environments and Industries
  • 4.3 Organizational Designs and Structures
  • 4.4 The Internal Organization and External Environments
  • 4.5 Corporate Cultures
  • 4.6 Organizing for Change in the 21st Century
  • 5.1 Ethics and Business Ethics Defined
  • 5.2 Dimensions of Ethics: The Individual Level
  • 5.3 Ethical Principles and Responsible Decision-Making
  • 5.4 Leadership: Ethics at the Organizational Level
  • 5.5 Ethics, Corporate Culture, and Compliance
  • 5.6 Corporate Social Responsibility (CSR)
  • 5.7 Ethics around the Globe
  • 5.8 Emerging Trends in Ethics, CSR, and Compliance
  • 6.1 Importance of International Management
  • 6.2 Hofstede's Cultural Framework
  • 6.3 The GLOBE Framework
  • 6.4 Cultural Stereotyping and Social Institutions
  • 6.5 Cross-Cultural Assignments
  • 6.6 Strategies for Expanding Globally
  • 6.7 The Necessity of Global Markets
  • 7.1 Entrepreneurship
  • 7.2 Characteristics of Successful Entrepreneurs
  • 7.3 Small Business
  • 7.4 Start Your Own Business
  • 7.5 Managing a Small Business
  • 7.6 The Large Impact of Small Business
  • 7.7 The Small Business Administration
  • 7.8 Trends in Entrepreneurship and Small-Business Ownership
  • 8.1 Gaining Advantages by Understanding the Competitive Environment
  • 8.2 Using SWOT for Strategic Analysis
  • 8.3 A Firm's External Macro Environment: PESTEL
  • 8.4 A Firm's Micro Environment: Porter's Five Forces
  • 8.5 The Internal Environment
  • 8.6 Competition, Strategy, and Competitive Advantage
  • 8.7 Strategic Positioning
  • 9.1 Strategic Management
  • 9.2 Firm Vision and Mission
  • 9.4 Strategic Objectives and Levels of Strategy
  • 9.5 Planning Firm Actions to Implement Strategies
  • 9.6 Measuring and Evaluating Strategic Performance
  • 10.1 Organizational Structures and Design
  • 10.2 Organizational Change
  • 10.3 Managing Change
  • 11.1 An Introduction to Human Resource Management
  • 11.2 Human Resource Management and Compliance
  • 11.3 Performance Management
  • 11.4 Influencing Employee Performance and Motivation
  • 11.5 Building an Organization for the Future
  • 11.6 Talent Development and Succession Planning
  • 12.1 An Introduction to Workplace Diversity
  • 12.2 Diversity and the Workforce
  • 12.3 Diversity and Its Impact on Companies
  • 12.4 Challenges of Diversity
  • 12.5 Key Diversity Theories
  • 12.6 Benefits and Challenges of Workplace Diversity
  • 12.7 Recommendations for Managing Diversity
  • 13.1 The Nature of Leadership
  • 13.2 The Leadership Process
  • 13.3 Leader Emergence
  • 13.4 The Trait Approach to Leadership
  • 13.5 Behavioral Approaches to Leadership
  • 13.6 Situational (Contingency) Approaches to Leadership
  • 13.7 Substitutes for and Neutralizers of Leadership
  • 13.8 Transformational, Visionary, and Charismatic Leadership
  • 13.9 Leadership Needs in the 21st Century
  • 14.1 Motivation: Direction and Intensity
  • 14.2 Content Theories of Motivation
  • 14.3 Process Theories of Motivation
  • 14.4 Recent Research on Motivation Theories
  • 15.1 Teamwork in the Workplace
  • 15.2 Team Development Over Time
  • 15.3 Things to Consider When Managing Teams
  • 15.4 Opportunities and Challenges to Team Building
  • 15.5 Team Diversity
  • 15.6 Multicultural Teams
  • 16.1 The Process of Managerial Communication
  • 16.2 Types of Communications in Organizations
  • 16.3 Factors Affecting Communications and the Roles of Managers
  • 16.4 Managerial Communication and Corporate Reputation
  • 16.5 The Major Channels of Management Communication Are Talking, Listening, Reading, and Writing
  • 17.1 Is Planning Important
  • 17.2 The Planning Process
  • 17.3 Types of Plans
  • 17.4 Goals or Outcome Statements
  • 17.5 Formal Organizational Planning in Practice
  • 17.6 Employees' Responses to Planning
  • 17.7 Management by Objectives: A Planning and Control Technique
  • 17.8 The Control- and Involvement-Oriented Approaches to Planning and Controlling
  • 18.1 MTI—Its Importance Now and In the Future
  • 18.2 Developing Technology and Innovation
  • 18.3 External Sources of Technology and Innovation
  • 18.4 Internal Sources of Technology and Innovation
  • 18.5 Management Entrepreneurship Skills for Technology and Innovation
  • 18.6 Skills Needed for MTI
  • 18.7 Managing Now for Future Technology and Innovation
  • Why is strategic analysis important to strategy formulation?

In the previous chapter, you read about the various levels of analysis that a manager carries out in order to understand their firm’s competitive environment. A strategic analysis of a firm’s external environment (the world, competitors) and internal environment (firm capabilities and resources) gives its managers a clear picture of what they have to work with and also what needs to be addressed when developing a plan for the firm’s success. Analysis comes early in the strategic process because the information a manager gets from the analysis informs the decision-making that follows. The information is so critical that entrepreneurs writing business plans (before the business even exists) do this analysis to understand if their business idea is feasible, and to understand how to position their business relative to existing competitors or potential customers in order to maximize their odds of success. Exhibit 9.5 outlines just a few of the questions that strategic analysis tools can help answer.

As an example of how the strategic tools help inform decisions, look back at the Walt Disney mission and vision in Exhibit 9.4 . Imagine if you were Mr. Walt Disney today, and you wanted to start a company with a vision of making people happy in the 21st century. What products or services would you plan to offer? A PESTEL analysis would tell you that technology is an important part of entertainment and that sociocultural trends include people’s preference for on-demand entertainment, to be convenient and compatible with their busy schedules. Disney’s mission statement is broad enough about products and services to include a wide variety of offerings (they are thinking about the future too!), but if you were starting this company today, where would you start? Would you make movies for movie theaters, or develop a way to offer video entertainment online? Would you make console video games or phone apps? Who would your competition be, and what do they offer? How could you offer something better or cheaper?

Managers learn about the conditions that their business will have to operate in by doing strategic analysis, and understanding those conditions is required in order to develop the plans and actions that will lead to success.

Concept Check

  • What strategic analysis tools from the previous chapter would a manager use when planning a strategy for an existing business? What tools would be most helpful for a start-up business?

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Access for free at https://openstax.org/books/principles-management/pages/1-introduction
  • Authors: David S. Bright, Anastasia H. Cortes
  • Publisher/website: OpenStax
  • Book title: Principles of Management
  • Publication date: Mar 20, 2019
  • Location: Houston, Texas
  • Book URL: https://openstax.org/books/principles-management/pages/1-introduction
  • Section URL: https://openstax.org/books/principles-management/pages/9-3-the-role-of-strategic-analysis-in-formulating-a-strategy

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explain the process of strategic plan formulation

Strategy Formulation Process

Ravi is a hardworking professional recently promoted to head of marketing at his software development firm. Full of new ideas…

Examples Of Strategy Formulation

Ravi is a hardworking professional recently promoted to head of marketing at his software development firm. Full of new ideas and good with people, Ravi seems the ideal fit for his new role. Yet, within six months Ravi finds himself in troubled waters. His ideas, while good on paper, don’t seem to work out in practice.

Ravi gets in touch with Shruti, a life coach, who introduces him to the process of strategy formulation . Though the results aren’t instant, Ravi begins to see clear benefits of strategy formulation one year down the line. Four years later, Ravi’s track record as marketing head impresses shareholders and earns him a promotion to Chief Marketing Officer.

What Is Strategy Formulation?

Why strategy formulation matters, levels of strategy formulation, steps of strategy formulation, examples of strategy formulation, curate the perfect strategy.

Strategy formulation is the process of selecting the most appropriate and efficient ways to realize an organization’s vision and help it realize its goals and objectives.

The strategy formulation process is a part of strategic management and involves using several analytical tools to figure out the best way to use an organization’s resources. Strategy formulation allows an organization to create a financial blueprint for creating profits and being sustainable in the long haul.

The most popular way of examining a strategy formulation process is through the SWOT analysis. SWOT is an acronym for strengths, weaknesses, opportunities and threats. It provides a detailed and comprehensive analysis on strategy formulation and helps an organization determine whether a particular strategy is fit to be implemented.

But why should any organization spend time and resources on strategy formulation at all? The answer is simple: without a thorough strategy formulation process , it isn’t possible for an organization to survive in a competitive industry. The following is a list of ways in which strategy formulation matters to an organization:

  •   Strategy formulation provides a roadmap for maximizing an organization’s return on investment (ROI)  
  • It’s through strategy formulation that resource allocation and exact role divisions take place in an organization  
  • Strategy formulation offers clarity on the big picture when it comes to organizational objectives and makes sure that all employees are on the same page
  • A rigorous and regularly evolving strategy formulation process keeps track of competition for the organization and prevents complacency within the management and employees

There are three levels of strategy formulation , also known as the three types of strategy formulation . These levels of strategy formulation refer to the different ways in which strategizing can take pace at an organization:

1. Corporate Level Strategy

This is among the most important types of strategy formulation as it’s used to outline the precise requirement of an organization—growth, acquisition, stability or retrenchment. This in turn shapes the nature of the work that an organization does, the timeline it has to follow and the resources that are at its disposal.

2. Business Level Strategy

As one of the levels of strategy formulation that requires the most research and investment of time and personnel, the business level strategy has a specific purpose. That purpose is to answer the question—how exactly is an organization going to compete? This takes into account an organization’s abilities to expand and retain a competitive edge in the market. This type of strategy formulation is particularly useful for those organizations that have several small units of business, each one of which is considered to be a strategic business unit (SBU).

3. Functional Level Strategy

This level of strategy is concerned less with ideation and more with logistical management and execution. The focus of this level is primarily on growth and how daily actions, including allocation of resources, can help deliver corporate and business level strategies for the organization to reach its business goals.

There are six separate steps that are recognized as part of the strategy formulation process . Each of these steps of strategy formulation has a specific role to play, although it’s not mandatory for the steps to follow a specific chronology to be effective. Let’s take a closer look at all the steps of strategy formulation with a brief explanation for each.

1. Determining Organizational Objectives

The primary purpose of strategic formulation is to set down certain objectives that an organization tries to meet. Objectives may be ambitious or modest, but in either case, they must be spelt out with the help of a detailed plan that shows how these objectives can be realized by the organization. When determining organizational objectives, strategy formulation also takes care of the time periods when particular objectives have to be met or discarded, in case they’re no longer feasible within the scope of the industry concerned.

2. Assessing The Organizational Environment

The second step of strategy formulation involves assessing the industrial and economic environment in which an organization operates. This means that competitors within an industry need to be observed, tracked and analyzed. In addition to that, regular qualitative and quantitative reviews of an organization’s products or services must be carried out.  

3. Fixing Quantitative Targets                                  

This step requires organizations to fix quantitative targets that they must meet in a particular quarter or financial year. These targets provide useful information about the long-term value of customers to an organization as well as the performance trajectories of various product or service zones and operating departments across an organization.

4. Divisional Plans And Contributions From Different Departments

For this step, each department or division or product or service category present in an organization is identified and evaluated for its performance and adherence to strategic planning. This is done not only for the department in question but also for each of the sub-units under a single department.

5. Performance Analysis

As part of this step, organizations are required to identify and analyze the gap between desired performance and actual performance. This is done on the basis of performance data, customer feedback, employee suggestions as well as a general survey of the trends and patterns present in an organization. This step is vital to build connections between what an organization has done in the past, how it’s faring in the present and what it can accomplish in the future.

6. Choice of Strategy

The previous five steps of strategy formulation are supposed to culminate in the sixth and final step of deciding the actual strategy for an organization. To pick the best course of action, this step requires active and careful consideration of organizational strengths and weaknesses, potential, limitations as well as the presence of internal and external opportunities for that organization.

For certain organizations, strategy formulation isn’t just about doing well, it’s also about doing good for the community. In one of the best examples of strategy formulation and how it can shape a brand’s identity, Unilever’s Lipton brand decided to reorient its strategy around manufacturing sustainable tea. Not only did this decision to become more environment-friendly make Lipton a popular choice with environmentally conscious consumers but it also gave the brand an edge in a way its competitors couldn’t have anticipated.

Sports manufacturing giant Nike provides a different example of strategy formulation. In the early 2010s, Nike was beginning to lose its lead in endorsements among footballers, with competitors like Adidas and Puma catching up. To ensure that Nike retained its appeal, the organization decided to cross-endorse, that is use an athlete from one sport to promote merchandise for another sport. Their first choice was legendary basketball player Michael Jordan, with whom Nike launched the Air Jordan line of football kits and apparel. French football club Paris Saint-Germain (PSG) were the first to join the Air Jordan bandwagon, which not only steered NIke clear of its rivals but also provoked interest among millions of Jordan fans about football and PSG.

Another classic example of strategy formulation comes from Apple’s approach to designing its famous Macintosh computers in the 1980s. Taking advantage of an opening in the tech industry that nobody else knew of, Apple came up with a strategy to kickstart a new era with its Macintosh series. Apple’s strategy was built on repurposing the computer from a chunky piece of hardware that’s only seen in offices to something that’s more handy, user-friendly, even entertaining. The Macintosh strategy paid off and the personal computer launched a tech revolution that lives on to this day.

As may be evident by now, strategy formulation can’t be learned in a day. It takes hours and hours of diligence and practical experience to master the process. Harappa’s High Performing Leaders Program is here to ensure that this skill is something your employees can pick up in the smoothest possible way. With the help of this program, your employees will be able to decode the strategic big picture without missing out on the details. They’ll also learn how to mitigate risks, manage crises and create out-of-the-box solutions. Through exciting learning frameworks such as the Leadership Equation, The Rule of Three and Design Thinking, the promising leaders in your organization will get a chance to nurture and develop a variety of must-have Thrive skills, like championing innovation, instinctive adaptability and cultivating foresight. Sign up your best and brightest employees for the High Performing Leaders Program without and set them on their way to curating the perfect strategy for your organization.

Explore Harappa Diaries to learn more about topics such as , Benefits of Strategic Management , Importance Of Team Work in Strategic Planning Process and Types of Management Communication that will help organizations tap into employee potential.

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  • Steps to Strategy Formulation (Read Only If You Want To Outcompete Competitors)

explain the process of strategic plan formulation

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explain the process of strategic plan formulation

The most successful endeavors started with well-made plans. The biggest businesses grew with the aid of well-developed strategies. In fact, if you take a look at businesses, every decision made, every action taken, and every resource allocated and spent, had logic behind them. This logic or basis is a strategy.

However, strategies aren’t pulled out of thin air, and they are not readily served to entrepreneurs and managers on a silver platter. A lot of thought and effort go into the creation of plans – whether they are simple or elaborate – and the formulation of the strategies and specific steps within these plans.

We often hear the phrase “strategic planning” bandied about, and you’ve probably even learned about it extensively in your business classes or similar courses you’ve taken in the past. And then, out of nowhere, you hear “strategy formulation”, and this brings a whole new set of questions in your head. Is it a new concept? Do you have to take a separate course to learn about it, especially on how you can apply it to your business?

Steps to Strategy Formulation (Read Only If You Want To Outcompete Competitors)

© Shutterstock.com | imtmphoto

Here’s the good news: you don’t have to. That is because “strategy formulation” is simply another way to refer to strategic planning.

THE FUNDAMENTALS OF STRATEGY FORMULATION

Strategic Management is a very broad discipline, its scope spanning the entire strategic decision-making structure of the organization, from the management processes and decisions to the activities performed in all its functional units. The primary focus of this discipline is the conduct of the strategic management process, which pretty much covers all the activities and functions performed to enable the organization to cope well with change over the long term.

The systematic nature of the strategic management process is apparent in how it was split into three stages: Strategy Formulation, Strategy Implementation, and Strategy Evaluation and Control.

In this discussion, we will take an in-depth look at the first stage – Strategy Formulation – and the six steps that you should follow in order to come up with management strategies that will propel your organization forward, far ahead of your competitors and rivals.

Strategy formulation is the process of determining and establishing the goals, mission and objectives of an organization, and identifying the appropriate and best courses or plans of action among all available alternative strategies to achieve them.

Always, there is an end in sight, and that is the organizational goals of the firm. The organization anticipates specific results, which they can only achieve by following a specific route, or acting within the confines or parameters of a specific framework. That route or framework will be created through strategy formulation.

The main reason that the strategy formulation is also referred to at times as “strategic planning” is because they basically follow the same concept. Through strategic planning, management is able to evaluate its resources and determine the best ways to maximize the company’s return on investment (ROI) . The output – the strategic plan – will serve as the framework or guide for the members of the organization in carrying out their respective roles.

Therefore, it is important to note that, although the two phrases are sometimes used interchangeably, and although they are similar in a lot of ways, they are not exactly the same.

Aspects of Strategy Formulation

Strategy formulation has three levels or aspects, with the resulting recommendations in each level being consistent in order to ensure the formulation of strategies that are cohesive, realistic and viable.

Corporate Level Strategy

In this level, the perspective is broad and wide, so the focus is on the overall scope, direction and goals of the entire organization. Since we are looking at the big picture, our concern is the total structure of the business.

This aspect of strategy formulation has the following components:

  • Growth strategy: This component is concerned with the direction that the business is taking. What are the organization’s growth objectives? How is its overall performance, and does it coincide with what the business had in mind when it developed its growth objectives? Are the growth strategies still consistent with the growth objectives and, if not, what changes or modifications must be made?
  • Portfolio strategy: This aspect is all about taking stock of the organization’s operational structure. What are the lines of business in the organization’s portfolio? How are these lines interconnected or how do they fit together? The most common strategies developed at this level address queries on whether a business should diversify its portfolio or keep them as they are, and focusing on their concentrations or weights instead.
  • Parenting strategy: The main point of concern here is the allocation of resources and capabilities across the lines of business of the organization. How will the items in the portfolio be managed? Which lines require more direct management and control? Which lines are in need of additional resources to boost their performance?

Business Level Strategy

Large companies usually have multiple lines of business in their portfolio. The larger firms even distinguish them as separate strategic business units (SBUs) under a single organizational umbrella. As strategic business units, they are operational as stand-alone businesses, which means that competition is bound to arise.

In this level, strategy formulation is geared towards coming up with competitive strategies between and among the lines of businesses or SBUs of the organization.

Functional Level Strategy

Compared to the other two levels, the functional level has a shorter outlook. Within each line of business or SBU, there are functional units with their own specific tasks and sets of activities. Strategies at this level are required, primarily addressing how these activities and tasks will be carried out effectively and efficiently.

STEPS FOR AN EFFECTIVE AND WINNING STRATEGY FORMULATION

So you want your business to earn more than a decent amount of profit. You want your business to grow and be a force to reckon with in the industry. Naturally, you also want to be ahead of the competition, beating them soundly and putting as much distance as you can between you.

First, you have to come up with winning strategies, which you will then implement to come out on top. Your strategy formulation should roughly follow these steps:

1. Define the organization and its environment

The first step requires you to take a look at the organization. The points of interest are:

  • Target market – This is the domain that the business hopes to dominate, so there is a need for the organization to clearly identify and define the particular group that it will target. Demographic and psychographic factors are the primary indicators considered in defining the organization’s target market.
  • Customers – They are the end users of the products and services that the company offers. Who are they? How do they perceive value? Are you able to meet that perception? How do they make their purchasing decisions? Why do they purchase your products or services?
  • Offerings – These are the products or services that you are selling to the customers. Do they offer value to the customers, and does that value meet their perceived value? How does the price point affect its value, if at all? What are the end benefits that these products and services have that convince customers to buy them?
  • Adaptation to changes and challenges – Business environments are, at best, unstable in the sense that changes are expected and even anticipated. Anticipation will spur the company to come up with strategies to be able to adapt quickly and effectively. Therefore, the organization has to identify the potential challenges that are expected to arise. The most common examples are the introduction of new technologies and equipment, and updates in systems.

2. Define the strategic mission

Organizations are forward-looking, and they want to achieve something as they move the business along. The strategic mission will provide a clear picture of that long-range outlook, providing an overview of what the business wants to achieve. This will serve as a definitive and clear guide for the organization and its members as they carry out the tasks indicated in the plan.

A strong strategic mission should have all, if not most, of the following:

  • An indication of a long-range perspective. The business is looking at the long term, not just one, three or five years down the road. It has to be clear on that front.
  • Core values of the organization. The mission must include the values that are upheld and highly esteemed by the organization. These values will largely dictate how you are going to go about the process of achieving the goals of the organization.
  • Nature of the business. Briefly, include a description of the core activities or main line of business of the organization. Is it in commercial retail, healthcare services, or automobile manufacturing?
  • Current position of the organization in the market. Is the organization currently holding the leader position in the market? Are there special characteristics or features that clearly distinguish the organization from the rest? These should also be noted in the strategic mission.
  • Vision of the organization. This is a statement of what and where the organization wants to be in the future, on its own and in the market.

Here are some tips that may help you when crafting your Strategic Mission statement .

  • Start by taking a look at the main operations and offerings of the business and how they go about them. Consider also the end users or recipients of the output of these operations.
  • Focus on the “what is”, not the “what should be”. That means you have to be objective in looking at the current state of affairs in the organization and the industry it belongs to.
  • Present your drafts to other members of the information for critiquing. You may be able to get more pointers from their feedback, since they are likely to be more objective when evaluating the mission statement.
  • Get pointers from other companies. In fact, it would be a great idea to take a look at the mission statements of your competitors, considering how you are pretty much in the same position and, probably, with a similar vision. Be careful, however, that you won’t be copying their mission statements outright.
  • You might end up making dozens of draft mission statements and scrapping all of them. That is fine. Keep revising and improving until you have a draft of a mission statement that you are fully satisfied with, and that captures and reflects the organizations long-range perspective perfectly.

Take a look at the following example of a well-written strategic mission of New Leaf Paper , manufacturer and distributor of printing and office papers using environment-friendly virgin-fiber products. It is one of the largest and leading paper companies in the United States today.

“The mission of New Leaf Paper is to be the leading national source for environmentally responsible, economically sound paper. We supply paper with the greatest environmental benefit while meeting the business needs of our customers. Our goal is to inspire — through our success — a fundamental shift toward sustainability in the paper industry.”

3. Define and set the strategic objectives

Strategic objectives represent what the organization must achieve in order for it to become competitive – or to remain competitive – and ensure sustainability of the business over the long term. They come in the form of specific responses or aims of the organization to address issues regarding competitiveness, long-term sustainability and other business advantages.

If the strategic mission will serve as a directional guide for where the business wants to be, the strategic objectives will serve as a directional guide on how the business will make use of its resources and carry out key functions and activities.

In essence, defining the strategic objectives involves identifying performance targets that the members of the organization will aim for, and these targets are clearly geared towards the attainment of the goals.

When setting strategic objectives, keep the following in mind:

  • They should be specific and easy to understand by everyone, especially the members of the organization.
  • They should be aligned with the strategic mission of the organization.
  • They should be communicated to all employees and other members of the organization, and every effort must be made to ensure that they fully understand the objectives, as well as their individual and collective roles in achieving these targets.

A strategic objective may be something as specific as “to increase annual growth sales rate by 15%”. Or it could be something like how New Leaf Paper set out to develop a new market for environmentally sustainable papers, and pioneer that market by introducing innovative environmental paper products. It is in keeping with how their mission statement referred to the organization’s environmental and sustainability thrusts, as well as that reference to inspiring and stimulating a shift in the paper industry.

4. Define the competitive strategy

The next step in strategy formulation is where the organization will start identifying and coming up with its long-term plan to gain advantage – and maintain it – over the competition. This is known as the competitive advantage, and the plan is referred to as the competitive strategy.

There are three factors at play when determining the Competitive Strategy of the organization.

The industry that the organization belongs to

This involves taking a look at the industry or the marketplace and its various aspects.

  • Market size: Logic would dictate that the overall competitive strategy of a business in the South American hotel industry will have differences with that of a firm in the larger European hotel industry. The size of the market comes with several implications. For example, larger markets generally have more players, which means more competitors. It also often means higher amounts of investment and resource allocations by the company since they have a larger area to cover. These, and other factors, are sure to influence an organization’s competitive strategy.
  • Market growth trends: This requires looking into past market growth, how the market is currently moving along, and any potential growth in the future. Many industrial and market analysts conduct these types of studies from time to time, providing businesses with their inputs and thoughts on the future of the market, which these businesses will then use in its strategic management processes.
  • Competition: A particular point of interest is competitive profitability. How are the competing firms in the market doing in terms of profit-earning? Are their huge disparities in their profit levels? Is the average actual profitability of the firms lower or higher than the expected industry average?
  • Movements in and out of the market: You also have to consider the number of new market entries, withdrawals from the market, and a comparison of the two. A market with too many new entrants can mean a lot of things. It is possible that new players are coming in because they think there is still room for them. Some may also deem the existing firms in the market as weak competition, which is why they are coming in.
  • Threats to the industry: Some industries are prone to more threats than others, and this is bound to affect the formulation of strategies. Aside from getting a feel for the level of vulnerability of the industry to threats, the potential threats should also be clearly identified.

The competitive position of the organization

This time, the focus is on the competition. Know who your competitors are and understand how they work. In aid of defining a competitive strategy, you should:

  • Gain an understanding of the operations of competitors, such as their products and services, their marketing campaigns, and their customer bases.
  • Analyze how the competitors are able to deliver value to their customers through their product offerings.
  • Identify the strengths and weaknesses of competitors, and analyze how they are opportunities and threats to the organization.

The strengths and weaknesses of the organization

The organization also has to look internally and look into itself. In particular, it has to identify its strengths and acknowledge its weaknesses. By doing so, defining a competitive strategy will be easier.

Again, specificity is important when coming up with competitive strategies. Let us take a look at some competitive strategy examples:

  • Produce at low cost and sell at a low price, but at high volume
  • Pursue a market niche strategy

In New Leaf Paper’s case, its competitive strategy involved “serving the market through leading product innovation, while ensuring that each product line and business relationship is deeply entrenched with New Leaf Paper’s environmental and social values.”

(Technically, this is where Strategy Formulation ends, and we move on to the next stage in the Strategic Management Process. However, in order to further emphasize the crucial role played by Strategy Formulation, let us continue on to the succeeding steps in the process.

On the other hand, considering how strategy formulation is also done throughout the strategic management process, it won’t be entirely wrong to say that the next two steps may also fall under Strategy Formulation. After all, management may discover new information or circumstances that will result to formulation of new and improved strategies.)

5. Implementation of strategies

Organizations may have come up with very good strategies, but they will be completely wasted and will benefit no one unless they are implemented.

Identify the tactics or methods that will be used in the implementation of the chosen strategies. As the implementation moves forward, management may spot some methods or tactics that are not working, or they may realize that another tactic may work better. In that case, the corresponding adjustments may be made.

At this point, it is possible that the company was able to come up with several strategies. However, as much as they’d want to implement all these strategies, that is not just possible. Review of the strategies will help the strategic management team to prioritize the strategies and identify which ones to implement.

This time, let us take a look at some tactics, methods or steps undertaken by New Leaf Paper. Keep in mind that the competitive strategy is to introduce product innovations and putting emphasis on environment and social values.

  • “New Leaf Reincarnation, the first 100% recycled coated paper (1998)
  • “New Leaf Ecobook 100”, the first trade book paper, made with post-consumer waste (PCW) content and PCF (2001)
  • “New Leaf Opaque 100”, the first white opaque paper made with 100 PCW and PCF (2003)
  • “New Leaf Primavera”, the first high-end gloss coated paper with 40% PCW and PCF (2004)
  • “New Leaf Sakura”, the first silk-coated paper in the US (2006)
  • Certification as a Certified B corporation. New Leaf Paper is one of the first 81 companies named as a Certified B Corporation , known for using “the power of business to solve social and environmental problems”.
  • Obtaining environmental certifications. In 1999, New Leaf Paper produced the “New Leaf Ecomatte”, which was the first coated paper to be granted a certification by the Forest Stewardship Council (FSC). Other environmental certifications earned were from Biogas Energy, Green-e Certified Renewable Energy, and Ancient Forest Friendly.
  • Tie-ups with major companies and undertakings , one of the most notable ones being when “New Leaf Paper Ecobook 100” was used to print 950,000 copies of J.K. Rowling’s “Harry Potter and the Order of the Phoenix” in 2003.
  • Leveraging partnerships. New Leaf Paper partnered with Bank of America and developed the “New Leaf Everest”, the first bright white letterhead paper in the world, made with 100 PCW and PCF.

6. Evaluate progress and effectiveness

It is important to track the progress of the implementation of the strategies. Are they being properly implemented? Are they being measured properly? Are the safeguards to ensure reliability of the results in place?

On top of that, the effectiveness of the strategy implemented should also be assessed. Is the strategy working? Does it have the potential to bring the company closer to the fulfillment of its goals, as laid out in the Mission Statement?

When we look at the example of New Leaf Paper, its strategies resulted in other paper companies launching their own lines of environmentally responsible paper products that are very similar with New Leaf products. For example, the success of “New Leaf Everest” spurred five competing paper companies to launch their own brands. Clearly, this is an indication that the company is making strides in its vision of inspiring – through their success – that fundamental shift toward sustainability in the paper industry.

Feedback plays a very important role in the evaluation stage, providing the strategists with insights on how the implemented strategies are faring.

It takes a lot of smarts, determination and hard work to make a business succeed, beat the competitors, and have the upper hand in the competitive arena within the marketplace. A great part of this rides on the strategies and how they are implemented, but never forget that it all starts with the strategy. In order to have an effective strategy, make sure that they are in line with the overall organizational goals.

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strategic planning process

5 steps of the strategic planning process

Lucid Content

Reading time: about 6 min

  • Process improvement

Strategic planning process steps

  • Determine your strategic position.
  • Prioritize your objectives.
  • Develop a strategic plan.
  • Execute and manage your plan.
  • Review and revise the plan.

Because so many businesses lack in these regards, you can get ahead of the game by using strategic planning. In this article, we will explain what the strategic planning process looks like and the steps involved.

Strategic planning process

What is the strategic planning process?

In the simplest terms, the strategic planning process is the method that organizations use to develop plans to achieve overall, long-term goals.

This process differs from the project planning  process, which is used to scope and assign tasks for individual projects, or strategy mapping , which helps you determine your mission, vision, and goals.

The strategic planning process is broad—it helps you create a roadmap for which strategic objectives you should put effort into achieving and which initiatives would be less helpful to the business. 

Before you begin the strategic planning process, it is important to review some steps to set you and your organization up for success.

1. Determine your strategic position

This preparation phase sets the foundation for all work going forward. You need to know where you are to determine where you need to go and how you will get there.

Involve the right stakeholders from the start, considering both internal and external sources. Identify key strategic issues by talking with executives at your company, pulling in customer insights, and collecting industry and market data. This will give you a clear picture of your position in the market and customer insight.

It can also be helpful to review—or create if you don’t have them already—your company’s mission and vision statements to give yourself and your team a clear image of what success looks like for your business. In addition, review your company’s core values to remind yourself about how your company plans to achieve these objectives.

To get started, use industry and market data, including customer insights and current/future demands, to identify the issues that need to be addressed. Document your organization's internal strengths and weaknesses, along with external opportunities (ways your organization can grow in order to fill needs that the market does not currently fill) and threats (your competition). 

As a framework for your initial analysis, use a SWOT diagram. With input from executives, customers, and external market data, you can quickly categorize your findings as Strengths, Weaknesses, Opportunities, and Threats (SWOT) to clarify your current position.

SWOT analysis example

An alternative to a SWOT is PEST analysis. Standing for Political, Economic, Socio-cultural, and Technological, PEST is a strategic tool used to clarify threats and opportunities for your business. 

PEST Analysis

As you synthesize this information, your unique strategic position in the market will become clear, and you can start solidifying a few key strategic objectives. Often, these objectives are set with a three- to five-year horizon in mind.

strategic planning

Use PEST analysis for additional help with strategic planning.

2. Prioritize your objectives

Once you have identified your current position in the market, it is time to determine objectives that will help you achieve your goals. Your objectives should align with your company mission and vision.

Prioritize your objectives by asking important questions such as:

  • Which of these initiatives will have the greatest impact on achieving our company mission/vision and improving our position in the market?
  • What types of impact are most important (e.g. customer acquisition vs. revenue)?
  • How will the competition react?
  • Which initiatives are most urgent?
  • What will we need to do to accomplish our goals?
  • How will we measure our progress and determine whether we achieved our goals?

Objectives should be distinct and measurable to help you reach your long-term strategic goals and initiatives outlined in step one. Potential objectives can be updating website content, improving email open rates, and generating new leads in the pipeline.

3. Develop a plan

Now it's time to create a strategic plan to reach your goals successfully. This step requires determining the tactics necessary to attain your objectives and designating a timeline and clearly communicating responsibilities. 

Strategy mapping is an effective tool to visualize your entire plan. Working from the top-down, strategy maps make it simple to view business processes and identify gaps for improvement.

strategy map example

Truly strategic choices usually involve a trade-off in opportunity cost. For example, your company may decide not to put as much funding behind customer support, so that it can put more funding into creating an intuitive user experience.

Be prepared to use your values, mission statement, and established priorities to say “no” to initiatives that won’t enhance your long-term strategic position.  

4. Execute and manage the plan

Once you have the plan, you’re ready to implement it. First, communicate the plan to the organization by sharing relevant documentation. Then, the actual work begins.

Turn your broader strategy into a concrete plan by mapping your processes. Use key performance indicator (KPI) dashboards to communicate team responsibilities clearly. This granular approach illustrates the completion process and ownership for each step of the way. 

Set up regular reviews with individual contributors and their managers and determine check-in points to ensure you’re on track.

5. Review and revise the plan

The final stage of the plan—to review and revise—gives you an opportunity to reevaluate your priorities and course-correct based on past successes or failures.

On a quarterly basis, determine which KPIs your team has met and how you can continue to meet them, adapting your plan as necessary. On an annual basis, it’s important to reevaluate your priorities and strategic position to ensure that you stay on track for success in the long run.

Track your progress using balanced scorecards to comprehensively understand of your business's performance and execute strategic goals. 

balanced scorecard template

Over time you may find that your mission and vision need to change — an annual evaluation is a good time to consider those changes, prepare a new plan, and implement again. 

strategic planning

Achieve your goals and monitor your progress with balanced scorecards.

Master the strategic planning process steps

As you continue to implement the strategic planning process, repeating each step regularly, you will start to make measurable progress toward achieving your company’s vision.

Instead of constantly putting out fires, reacting to the competition, or focusing on the latest hot-button initiative, you’ll be able to maintain a long-term perspective and make decisions that will keep you on the path to success for years to come.

strategic planning

Use a strategy map to turn your organization's mission and vision into actionable objectives.

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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MindManager Blog

The six steps of the strategic planning process

July 27, 2023 by MindManager Blog

Strategic planning is one of the most important undertakings that a business can engage in. However, it can also be one of the most overwhelming ones unless you understand how the strategic planning process works.

You’re probably asking yourself: “Where should I begin? How do I decide what my strategic plan should include? When should others get involved?”

Rest assured, we’ll answer these questions and more in this article.

Keep reading for a brief introduction to the strategic planning process where we’ll discuss the various strategic planning frameworks, common strategic planning goals, and the different stages of the strategic planning process.

We’ll even give a relevant example, so you can imagine how the strategic planning process might work at your own organization.

So, to get started, let’s delve into strategic planning frameworks …

The strategic planning process | MindManager Blog

What are strategic planning frameworks?

Since the 1950s, there have literally been hundreds of different strategic planning frameworks that have been developed, including popular models like OGSM (short for Objectives, Goals, Strategies, and Measures), Balanced Scorecard, and the 7S Model.

Frameworks such as these have been used by businesses of all sizes to achieve their objectives. While no two strategic frameworks are exactly alike, they typically all possess the following elements :

  • Vision and mission – A vision is essentially, the intention a company holds for its future (i.e. to become the #1 leader in widget manufacturing). By contrast, a mission statement describes a company’s values, as well as how that company intends to reach its vision.
  • Internal and external drivers – This element refers to forces both inside the company and outside, that can contribute to its success. For instance, an internal driver might be an organization’s leadership team, while an external driver might include a favorable business climate.
  • Tasks, objectives, and goals – Employees perform tasks to accomplish short-term objectives. These short-term objectives are developed to help companies reach their long-range goals.
  • Time frames – Time frames create urgency, while also establishing a vision for when certain objectives need to be met. Additionally, time frames help companies measure their progress.

5 Most common strategic planning goals?

Before undertaking a project plan, it’s useful for a company’s leadership team to begin thinking about which goals are most important to their organization’s success.

Typically, most strategic planning goals fall into one of the following categories:

  • Quality – This goal means that a company is trying to improve the quality of the goods and services that it provides.
  • Speed – Companies with a focus on speed want to service customers faster or speed up key manufacturing processes.
  • Dependability – Businesses that want to strengthen their reputation with customers often make dependability their primary aim.
  • Cost – Many businesses will try to cut costs by finding new ways to increase profit margins.
  • Flexibility – When flexibility is an objective, companies want to be able to react to changing marketing conditions quickly.

What are the 6 stages of the strategic planning process?

While there are many different strategic planning processes you might read about, most have some variation of the following stages :

1. Identify your strategic position

This is where a company defines short and long-term objectives, and the steps it might take to achieve them.

As an example, let’s say that a soda company envisions becoming the #1 soda company in the world. One objective to achieve that might be to increase market share 10% among baby boomers.

In that case, it would make sense to have an action step of spending more money on ads that target baby boomers.

2. Gather people and information

Is there anything that could prevent you from achieving your objective? During this phase, you’ll gather the people and information you need to determine whether there are any other factors you should consider before implementing your plan.

For instance, maybe baby boomers aren’t the best market to go after in the soda category. Perhaps, instead, our hypothetical company should target millennials.

During this analysis phase, companies tweak and refine their goals and objectives based on what they learn as they start collecting more information.

3. Perform a SWOT analysis

During this phase, you’ll identify your company’s strengths, weaknesses, opportunities, and threats.

Doing so will help you refine your organization’s goals, so it can proceed in the most constructive way. It’s helpful to consult a SWOT analysis template at this stage to get the most out of this exercise.

Using our soda company as an example, we might realize after performing a SWOT analysis that there’s a great opportunity in a new overseas market. So, this would replace our original objective of targeting a specific demographic.

4. Formulate a strategic plan

Having gone through the first three phases, our soda company is now ready to develop a strategic plan that takes into account all of the information it’s gathered along the way.

So, during this phase, the soda company will create a plan that details what its goals are, how it intends to achieve them, how success will be measured, and what the timeframe is for accomplishment.

5. Execute the strategic plan

Every department has a role to play in ensuring that the strategic plan gets fulfilled. So, the marketing department might create an advertising roll-out plan for the overseas market that the company plans to target.

Likewise, manufacturing may need to research overseas distribution channels, and HR will probably have to hire employees in the new market to oversee the roll-out.

6. Constantly monitor performance

In this phase, a company monitors key criteria to determine how well the organization is adhering to the plan. It also evaluates whether any tweaks need to be made along the way to achieve the company’s long-term goals.

Again, with our soda company, to do this, we’d probably start by analyzing sales trends and our percentage of market share in the roll-out region.

This concludes a standard strategic planning process.

Most strategic planning processes contain anywhere from four to seven steps, so this is only one example of how an organization might go through the strategic planning process. There are others. Really, it’s just a matter of finding a process that works best for your organization’s needs.

MindManager® can help your team manage your strategic planning process using any of the pre-built visual diagrams to map out workflow processes, internal methodologies and techniques, essential references and resources, and even future plans. Visual diagrams help teams capture and manage internal knowledge, so that productivity and information are not lost.

MindManager features a wide range of customizable visual diagram templates that teams use to help streamline their internal processes and improve business processes.

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Strategic Management Insight

Strategic Management & Strategic Planning Process

explain the process of strategic plan formulation

Strategic management process is a method by which managers conceive of and implement a strategy that can lead to a sustainable competitive advantage. [1 ]

Strategic planning process is a systematic or emerged way of performing strategic planning in the organization through initial assessment, thorough analysis, strategy formulation, its implementation and evaluation.

What is strategic planning process?

The process of strategic management lists what steps the managers should take to create a complete strategy and how to implement that strategy successfully in the company. It might comprise from 7 to nearly 30 steps [4] and tends to be more formal in well-established organizations.

The ways that strategies are created and realized differ. Thus, there are many different models of the process. The models vary between companies depending upon:

  • Organization’s culture.
  • Leadership style.
  • The experience the firm has in creating successful strategies.

All the examples of the process in this article represent top-down approach and belong to the ‘design school’.

Components of strategic planning process

There are many components of the process which are spread throughout strategic planning stages. Most often, the strategic planning process has 4 common phases: strategic analysis, strategy formulation, implementation and monitoring (David [5] , Johnson, Scholes & Whittington [6] , Rothaermel [1] , Thompson and Martin [2] ). For clearer understanding, this article represents 5 stages of strategic planning process:

Initial Assessment

Situation analysis.

  • Strategy Formulation
  • Strategy Implementation

Strategy Monitoring

Components: Vision statement & Mission statement Tools used: Creating a Vision and Mission statements.

The starting point of the process is initial assessment of the firm. At this phase managers must clearly identify the company’s vision and mission statements.

Business’ vision answers the question: What does an organization want to become? Without visualizing the company’s future, managers wouldn’t know where they want to go and what they have to achieve. Vision is the ultimate goal for the firm and the direction for its employees.

In addition, mission describes company’s business. It informs organization’s stakeholders about the products, customers, markets, values, concern for public image and employees of the organization (David, p. 93) [5] . Thorough mission statement acts as guidance for managers in making appropriate (Rothaermel, p. 34) [1] daily decisions.

Components: Internal environment analysis, External environment analysis and Competitor analysis Tools used: PEST , SWOT , Core Competencies, Critical Success Factors, Unique Selling Proposition, Porter’s 5 Forces , Competitor Profile Matrix , External Factor Evaluation Matrix , Internal Factor Evaluation Matrix, Benchmarking , Financial Ratios, Scenarios Forecasting, Market Segmentation, Value Chain Analysis , VRIO Framework

When the company identifies its vision and mission it must assess its current situation in the market. This includes evaluating an organization’s external and internal environments and analyzing its competitors.

During an external environment analysis managers look into the key external forces: macro & micro environments and competition. PEST or PESTEL frameworks represent all the macro environment factors that influence the organization in the global environment. Micro environment affects the company in its industry. It is analyzed using Porter’s 5 Forces Framework.

Competition is another uncontrollable external force that influences the company. A good example of this was when Apple released its IPod and shook the mp3 players industry, including its leading performer Sony. Firms assess their competitors using competitors profile matrix and benchmarking to evaluate their strengths, weaknesses and level of performance.

Internal analysis includes the assessment of the company’s resources, core competencies and activities. An organization holds both tangible resources: capital, land, equipment, and intangible resources: culture, brand equity, knowledge, patents, copyrights and trademarks (Rothaermel, p. 90) [1] . A firm’s core competencies may be superior skills in customer relationship or efficient supply chain management. When analyzing the company’s activities managers look into the value chain and the whole production process.

As a result, situation analysis identifies strengths, weaknesses, opportunities and threats for the organization and reveals a clear picture of company’s situation in the market.

Components: Objectives, Business level, Corporate level and Global Strategy Selection Tools used: Scenario Planning, SPACE Matrix, Boston Consulting Group Matrix , GE-McKinsey Matrix, Porter’s Generic Strategies, Bowman’s Strategy Clock, Porter’s Diamond, Game Theory, QSP Matrix.

Successful situation analysis is followed by creation of long-term objectives. Long-term objectives indicate goals that could improve the company’s competitive position in the long run. They act as directions for specific strategy selection. In an organization, strategies are chosen at 3 different levels:

  • Business level strategy. This type of strategy is used when strategic business units (SBU), divisions or small and medium enterprises select strategies for only one product that is sold in only one market. The example of business level strategy is well illustrated by Royal Enfield firms. They sell their Bullet motorcycle (one product) in United Kingdom and India (different markets) but focus on different market segments and sell at very different prices (different strategies). Firms may select between Porter’s 3 generic strategies: cost leadership, differentiation and focus strategies. Alternatively strategies from Bowman’s strategy clock may be chosen (Johnson, Scholes, & Whittington, p. 224 [6] ).
  • Corporate level strategy. At this level, executives at top parent companies choose which products to sell, which market to enter and whether to acquire a competitor or merge with it. They select between integration, intensive, diversification and defensive strategies.
  • Global/International strategy. The main questions to answer: Which new markets to develop and how to enter them? How far to diversify? (Thompson and Martin, p. 557 [2] , Johnson, Scholes, & Whittington, p. 294 [6] )

Managers may choose between many strategic alternatives. That depends on a company’s objectives, results of situation analysis and the level for which the strategy is selected.

Components: Annual Objectives, Policies, Resource Allocation, Change Management, Organizational chart, Linking Performance and Reward Tools used: Policies, Motivation, Resistance management, Leadership, Stakeholder Impact Analysis, Changing organizational structure, Performance management

Even the best strategic plans must be implemented and only well executed strategies create competitive advantage for a company.

At this stage managerial skills are more important than using analysis. Communication in strategy implementation is essential as new strategies must get support all over organization for effective implementation. The example of the strategy implementation that is used here is taken from David’s book, chapter 7 on implementation [5] . It consists of the following 6 steps:

  • Setting annual objectives;
  • Revising policies to meet the objectives;
  • Allocating resources to strategically important areas;
  • Changing organizational structure to meet new strategy;
  • Managing resistance to change;
  • Introducing new reward system for performance results if needed.

The first point in strategy implementation is setting annual objectives for the company’s functional areas. These smaller objectives are specifically designed to achieve financial, marketing, operations, human resources and other functional goals. To meet these goals managers revise existing policies and introduce new ones which act as the directions for successful objectives implementation.

The other very important part of strategy implementation is changing an organizational chart. For example, a product diversification strategy may require new SBU to be incorporated into the existing organizational chart. Or market development strategy may require an additional division to be added to the company. Every new strategy changes the organizational structure and requires reallocation of resources. It also redistributes responsibilities and powers between managers. Managers may be moved from one functional area to another or asked to manage a new team. This creates resistance to change, which has to be managed in an appropriate way or it could ruin excellent strategy implementation.

Components: Internal and External Factors Review, Measuring Company’s Performance Tools used: Strategy Evaluation Framework, Balanced Scorecard, Benchmarking

Implementation must be monitored to be successful. Due to constantly changing external and internal conditions managers must continuously review both environments as new strengths, weaknesses, opportunities and threats may arise. If new circumstances affect the company, managers must take corrective actions as soon as possible.

Usually, tactics rather than strategies are changed to meet the new conditions, unless firms are faced with such severe external changes as the 2007 credit crunch.

Measuring performance is another important activity in strategy monitoring. Performance has to be measurable and comparable. Managers have to compare their actual results with estimated results and see if they are successful in achieving their objectives. If objectives are not met managers should:

  • Change the reward system.
  • Introduce new or revise existing policies.

The key element in strategy monitoring is to get the relevant and timely information on changing environment and the company’s performance and if necessary take corrective actions.

Different models of the process

There is no universal model of the strategic management process. The one, which was described in this article, is just one more version of so many models that are established by other authors. In this section we will illustrate and comment on 3 more well-known frameworks presented by recognized scholars in the strategic management field. More about these models can be found in the authors’ books.

Source: David (p. 46)

  • Strategy Evaluation
  • Develop vision and mission
  • External environment analysis
  • Internal environment analysis
  • Establish long-term objectives
  • Generate, evaluate and choose strategies
  • Implement strategies
  • Measure and evaluate performance
  • Indicates all the major steps that have to be met during the process.
  • Illustrates that the process is a continuous activity.
  • Arrows show the two way process. This means that companies may sometimes go a step or two back in the process rather than having to complete the process and start it all over from the beginning. For example , if in the implementation stage the company finds out that the strategy it chose is not viable, it can simply go back to the strategy selection point instead of continuing to the monitoring stage and starting the process from the beginning.
  • Represents only strategy formulation stage and does separate situation analysis from strategy selection stages.
  • Confuses strategy evaluation with strategy monitoring stage.

Source: Rothaermel (p. 20)

  • Formulation
  • Implementation
  • Initial analysis
  • External and internal analysis
  • Business or corporate strategy formulation
  • Shows that the process is a continuous activity.
  • Separates initial analysis (in this articles it’s called initial assessment) from internal/external analysis.
  • Emphasizes the main focus of strategic management: “Gain and sustain competitive advantage”.
  • Does not include strategy monitoring stage.
  • Arrows indicate only one way process. For example , after the strategy formulation the process continues to the implementation stage while this is not always the truth. Companies may go back and reassess their environments if some conditions had changed.

Source: Thompson and Martin (p.36)

  • Where are we?
  • Where are we going?
  • How are we getting there?
  • How are we doing?
  • Situation appraisal: review of corporate objectives
  • Situation assessment
  • Clarification of objectives
  • Corporate and competitive strategies
  • Strategic decisions
  • Monitor progress
  • The model is supplemented by 4 fundamental strategic management questions.
  • Arrows indicate only one way process.

Limitations

It is rare that the company will be able to follow the process from the first to the last step. Producing a quality strategic plan requires time , during which many external and even internal conditions may change. This results in the flawed strategic plan which has to be revised, hence requiring even more time to finish.

On the other hand, when implementing the strategic plan, the actual results do not meet the requirements of the strategic plan so the plan has to be altered or better methods for the implementation have to be discovered. This means that some parts of strategic management process have to be done simultaneously, which makes the whole process more complex .

  • Rothaermel, F. T. (2012). Strategic Management: Concepts and Cases. McGraw-Hill/Irwin, p. 20, 32-45, 90
  • Thompson, J. and Martin, F. (2010). Strategic Management: Awareness & Change. 6th ed. Cengage Learning EMEA, p. 34, 557, 790
  • Clark, D. N. (1997). Strategic management tool usage: a comparative study. Strategic Change Vol. 6, pp. 417-427
  • David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice Hall, p. 36-37, 45-47, 93
  • Johnson, G, Scholes, K. Whittington, R. (2008). Exploring Corporate Strategy. 8th ed. FT Prentice Hall, p. 11-13, 224, 294
  • Virtual Strategist (2012). Overview of the Strategic Planning Process (VIDEO). Available at: https://www.youtube.com/watch?v=sU3FLxnDv_A
  • Strategic Management & Strategic Planning
  • Supplier Relationship Management (SRM)

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Module 4: Environments and Strategic Management

Stages and types of strategy, learning outcomes.

  • Explain the stages of strategy.
  • Explain Porter’s general types of competitive strategies.
  • Explain e-commerce strategy.

The previous sections have examined the role of strategy in management and looked at common frameworks for analyzing the external and internal environment of business organizations. But what are the specific steps in the strategic management process? How do managers decide what to do, when to do it, and make sure it is happening the way they want? This is what the strategic management process is all about.

The Strategic Management Process

The strategic management process consists of three, four, or five steps depending upon how the different stages are labeled and grouped. But all of the approaches include the same basic actions in the same order. A brief description of these steps follows:

  • Strategic Objectives and Analysis. The first step is to define the vision, mission, and values statements of the organization. This is done in combination with the external analysis of the business environment (PESTEL) and internal analysis of the organization (SWOT). An organization’s statements may evolve as information is discovered that affects a company’s ability to operate in the external environment.
  • Strategic Formulation. The information from PESTEL and SWOT analyses should be used to set clear and realistic goals and objectives based on the strengths and weaknesses of the company. Identify if the organization needs to find additional resources and how to obtain them. Formulate targeted plans to achieve the goals. Prioritize the tactics most important to achieving the objectives. Continue to scan the external environment for changes that would affect the chances of achieving the strategic goals.
  • Strategic Implementation. Sometimes referred to as strategic execution , this stage is when the planning stops and the action begins. The best plans won’t make up for sloppy implementation. Everyone in the organization should be aware of his or her particular assignments, responsibilities and authority. Management should provide additional employee training to meet plan objectives during this stage, as well. It should also allocate resources, including funding. Success in this stage depends upon employees being given the tools needed to implement the plan and being motivated to make it work.
  • Strategic Evaluation and Control. Because external and internal conditions are always changing, this stage is extremely important. Performance measurements (determined by the nature of the goal) will help determine if key milestones are being met. If actual results vary from the strategic plan, corrective actions will need to be taken. If necessary, reexamine the goals or the measurement criteria. If it becomes apparent that the strategy is not working according to plan, then new plans need to be formulated (see Step 2) or organizational structures adjusted. Personnel may need to be retrained or shifted to other duties. You may even have to repeat the strategic management process from the beginning, including the information and knowledge gained from this first attempt.

Graphic representation of the text above on strategic objectives, formulation, implementation, and evaluation and control

The graphic depicts the basic steps of the strategic management process. Note that analysis, decision making, and action happen in all of the steps and throughout the process.

Practice Question

Porter’s competitive strategies.

The strategic management process described earlier can be successfully used for a wide number of business strategies. In practice, however, most organizations develop strategies that focus on the competition.

Besides studying the nature of industry profits in the Five Forces Theory, Michael Porter is also recognized for his work on four general types of competitive strategies. (More recently, a fifth strategy has been added.) Porter’s model describes two ways of achieving competitive advantage, either by differentiation or by cost. It also identifies two ways of targeting the market, by focusing on a particular market segment or appealing to the overall (broad) market. This approach results in four separate competitive strategies: overall differentiation, overall low cost, focused differentiation, and focused low cost. The fifth strategy combines elements of both low cost and differentiation. This is called the integrated approach.

Porter’s Competitive Strategies. The Overall Differentiation strategy has a broad market scope and a superior value competitive advantage. The Focused Differentiation strategy has a focused market scope and a superior value competitive advantage. The Overall Low Cost strategy has a broad market scope and a low price competitive advantage. The Focused Low Cost strategy has a focused market scope and a low price competitive advantage. Finally, the Integrated strategy lands in the middle between focused and broad market scope, and superior value and low price competitive advantage.

Porter classified competitive strategies by cost and differentiation, with a focused or broad market scope. He later recognized a fifth (integrated) classification.

Low Price Leadership Strategy

An organization seeking a low-cost strategy seeks to become a leader in providing low-cost products to its customers. The strategy is to produce (or purchase) comparable value goods or services at a lower cost than its competitors. The lower cost will attract the majority of customers and allow it to profit by the volume of goods sold. For this strategy to be successful, it requires that only one or two companies can be industry leaders in this position. For example, Walmart and Costco are leaders in the overall low-cost strategy . IKEA is a low-cost leader using a focused low-cost strategy , appealing to a particular segment of the overall market.

Differentiation Leadership Strategy

A strategy based on differentiation ( distinction ) calls for goods and services that offer unique features and that have high value for the target customer. The features must be perceived by the customer to be so much better than what the competition offers that they are worth an additional cost.

The differentiation may be based on the total number of features, quality of the features, customer service, or other criteria. Marketing campaigns are one way to differentiate a product and create a strong emotional attachment to it, supporting premium prices. Examples of companies in the overall market scope that pursue an overall differentiated strategy include Sony and Apple. They produce a large number of quality products that appeal to the wide technology consumer market. Businesses that sell luxury goods in any industry are employing a focused differentiation strategy . Prada, BMW, and Rolex are all companies whose strategy depends upon maintaining a loyal customer base convinced of the superior quality and uniqueness of their products—and who are also willing to pay a premium for the perceived quality value.

Differentiation Strategy Advantages and Disadvantages

Integrated Strategy

In today’s highly competitive market, customers expect distinction and low cost. Some companies have responded by adopting an integrated strategy . Porter originally argued that this integrated, or “stuck in the middle,” strategy would fail, but other researchers showed real-world examples. Later, Porter modified his view. The organizations strive to provide more value than the average competitor but also focus on keeping costs low. Examples of integrated strategy firms include the automobile companies who manufacture a “luxury” brand, such as the Kia K900. Kia keeps costs down by using many components of its low-cost models but adds additional features comparable to luxury car producers. This approach is risky, because these products run the risk of being too expensive for the economy-driven customer but not having the prestige of the classic luxury brands.

E-Business and E-Commerce

Businesses today need a strategy for competing with online “upstarts” who can underprice and steal customers . Companies that once thought they were immune to online competition have discovered that the Internet is biting into their profits. Warby-Parker is an online provider of eyeglasses that offers lenses at up to 70 percent off the price opticians charge. The customer only needs to choose frames, pick a lens, and enter the prescription. Returns are guaranteed. Even many routine medical procedures are being addressed digitally as patients meet online with doctors.

E-business can be defined as any business that takes place over digital processes using a computer network rather than in a physical location (“brick and mortar”). Organizations of all types, military and nonprofit, educational and governmental, use e-business strategies. The strategies are geared to three purposes:

  • those related to decreasing production costs and increasing efficiency.
  • those creating customer focus.
  • those addressing internal management.

E-commerce is a more limited term than e-business. It refers specifically to exchanges or transactions that occur electronically. The younger the shopper, the more likely he or she is to conduct “business” using a smart phone. E-commerce strategies rely on the power of the Internet, both in the growing popularity of online purchasing and in shaping marketing strategies. About 8.5 percent of all retail sales were made online in 2016 and this figure is increasing rapidly every year. Many organizations have sales and marketing teams dedicated to devising strategies for capturing their share of the growing online market. Amazon clearly dominates e-commerce with a whopping 33 percent of all online purchases. Its e-commerce strategy is “simply” to make it as easy as possible for the customer to find, order, pay, receive, and return (if necessary) the goods that it buys from the giant corporation. It doesn’t wait for the customer to search out a product, but rather pushes products to the customer based on past purchases.

Retailers and manufacturers also use the aspects of the internet such as Twitter, Facebook, and other social media sites to predict trends as they are developing to get a jump on production. First to market can be a key competitive advantage, in part because of the short life span of many fads. Many of the strategies needed to succeed in e-commerce are very different from competing in a nondigital environment. To survive today, organizations need to be present in both environments.

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Strategy Formulation: Meaning, Aspects, Process, Approaches and Challenges

explain the process of strategic plan formulation

Everything you need to know about strategy formulation. Strategy formulation is the process of offering proper direction to a firm.

Strategy Formulation seeks to set the long-term goals that help a firm exploit its strengths fully and encash the opportunities that are present in the environment.

There is a conscious and deliberate attempt to focus attention on what the firm can do better than its rivals. To achieve this, a firm seeks to find out what it can do best. Once the strengths are known, opportunities to be exploited are identified; a long-term plan is chalked out for concentrating resources and effort.

Henry Mintzberg, after much research found that strategy formulation is typically not a regular, continuous process.

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“It is small often an irregular, discontinuous process, proceeding in fits and starts. There are periods of stability in strategy development, but also there are periods of flux, of grouping of piecemeal changes and of global change.”

Strategy formulation is as much an art as it is a science. In fact, it is the art of strategy formulation that drives fast growth and catapults a firm into newer horizons. Leaders should develop skills and capabilities to sense early opportunities and be quick in making strategic moves.

In this article we will discuss about strategy formulation. Learn about:-

1. Meaning and Modes of Strategy Formulation 2. Subjective Aspects in Strategic Formulation 3. Framework 4. Process 5. Approaches 6. Tools and Techniques and 7. Challenges Faced.

Strategy Formulation: Meaning, Process, Framework, Approaches and Challenges

  • Meaning and Modes of Strategy Formulation
  • Subjective Aspects in Strategic Formulation
  • Framework of Strategy Formulation
  • Strategy Formulation Process
  • Approaches to Strategy Formulation
  • Tools and Techniques of Strategy Formulation
  • Challenges Faced during Strategy Formulation.

Strategy Formulation – Meaning and Modes

Strategy formulation is the process of offering proper direction to a firm. It seeks to set the long-term goals that help a firm exploit its strengths fully and encash the opportunities that are present in the environment. There is a conscious and deliberate attempt to focus attention on what the firm can do better than its rivals. To achieve this, a firm seeks to find out what it can do best. Once the strengths are known, opportunities to be exploited are identified; a long-term plan is chalked out for concentrating resources and effort.

Since strategies consume time, energy and resources, they must be formulated carefully. Strategies, once formulated, must ensure a best fit between goals, resources and effort put in by people. The ultimate goal of every strategy that is being formulated should be to deliver outstanding value to customers at all times.

Henry Mintzberg, after much research found that strategy formulation is typically not a regular, continuous process. “It is small often an irregular, discontinuous process, proceeding in fits and starts. There are periods of stability in strategy development, but also there are periods of flux, of grouping of piecemeal changes and of global change.”

Performance results are generally periodic measurements of developments that occur during a given time period like return on investment, profits after taxes, earnings per share and market share. Current performance results are compared with the current objectives and with that of the previous year’s performance results. If the results are equal to or greater than the current objectives and past year’s results, the company will mostly continue with the current strategy otherwise, the strategy formulation process begins in earnest.

The strategic managers must evaluate the mission, objectives and policies. In fact, the strategic managers are evaluated in terms of management style, values and skills by the top management. Henry Mintzberg has pointed out that a corporation’s objectives and strategies are strongly affected by top management’s view of the world. This view determines the mode to be used in strategy formulation.

These modes include:

1. Entrepreneurial Mode:

Strategy is formulated by one powerful individual. The focus is on opportunities rather than on problems. Strategy is guided by the founder’s own visions of direction.

2. Adaptive Mode:

This strategy formulation mode is characterised by reactive solutions to existing problems rather than a proactive search for new opportunities.

3. Planning Mode:

Analysts assume main responsibility for strategy formulation. Strategic planning includes both the proactive search for new opportunities and the reactive solution of existing problems.

Strategic planning is a systemic and disciplined exercise to formulate strategies. It relates to the enterprise as a whole or to particular business units (identified as strategic business units – SBUs) of a divisionalised organisation. It consists of making risk- taking decisions -entrepreneurial decisions – for the future with the best possible knowledge of their probable outcome and effects.

In short, strategic planning concerns itself with the formulation of strategic alternatives to obtain sanctions for one of the alternatives which is to be ultimately interpreted and communicated in operational terms. Thus, strategic planning is a forward-looking exercise which determines the future posture of the enterprise with special reference to its products-market posture, profitability, size, rate of innovation and external institutions.

Strategic planning differs from project planning tactical, planning and operational planning. Strategic planning is more comprehensive, for strategy is dealt with at corporate level and is concerned mainly with the long-term aspects of business. It deals with what business the company wants to be in.

Project planning involves looking for new markets for existing products, developing new products, creating demand for the same, and utilising the existing facilities if they have the capacity to meet the marketing and selling requirements of the new product. Tactical planning is done at the functional level. It is concerned more with the present than the future. It implies an ad hoc approach based on expediency with a time schedule.

Operational planning, on the other hand, is essentially concerned with the existing product-market operations – the ‘bread and butter lines’ of the business. The scope of operational planning is restricted to the operations in the market with which the company has built up a rapport with the existing range of products through the facilities which are already in harness.

Choice activity consists of selecting the most appropriate strategy from among the alternatives. This framework is helpful in understanding the essential elements involved in strategy formulation. But the sequence of intelligence, design and choice activity may not be practiced in the same order. It is possible for a strategic planner to first choose a preferred strategy, then develop other options (alternatives) to analyse for rationalising the choice.

The degree of uncertainty in tactical planning and operational planning is of a low order. It is of a higher order in project planning, while in strategic planning risk and uncertainty involved are much greater. The time span of discretion is relatively shorter in tactical and operational planning than in project planning. It is much longer in strategic planning as compared with that of project planning. Thus the value of judgment is of much greater significance in strategic planning than in project planning or operational planning.

Strategic Formulation – 4 Important Subjective Aspects: Culture, Politics, Leadership, and Managerial Bias

The successes of Airtel and Bharti Enterprises in India, and Google and Southwest airlines abroad, are some examples. Cavin Kare, the Chennai- based FMCG company has moved from a personal care product company into a major FMCG over the years because of the bold strategic initiatives that it undertook. Similarly, snacks maker Haldirams has established its brand in the food segment with a range of ready-to-eat food items from ethnic India.

Some of the important subjective aspects of strategy formulation are culture, politics, leadership, and managerial bias. All these aspects are capable of being skewed by personal experience, individual understanding, and prejudice. Although these might not necessarily be ill-motivated or falsified they digress from purely scientific decision-making and could be risky to that extent.

i. Cultural Aspects :

Culture defines the way of life or decision making in the firm. Culture includes values, beliefs, norms, and attitudes and could be positive, neutral, or negative. Culture evolves and changes according to the changing circumstances or if a need is felt among organizational members. We will see here how it can influence strategy formulation.

Culture could be passive and submissive. In such cultural situations, there is an inability to speak up to senior management. There have been traditional companies that are promoted by extraordinary entrepreneurs, who have meticulously grown the business. There are a number of family-owned businesses that have grown big, but have not become entirely professional.

Cultural features also relate to societal involvement and orientation towards strategy. In India, dairy cooperatives are highly successful in Gujarat because such a style involves more democracy and has no gender bias. However, the same amount of success could not be achieved in dairy cooperatives in Uttar Pradesh and Maharashtra. Ironically, these states are not against cooperatives.

For instance, sugar cooperatives are highly successful in both the states, especially in Maharashtra. One of the reasons could be that animal husbandry and dairy farming is usually led by women and needs more social and economic freedom, whereas sugar cooperatives are led by leaders with links to the political system. Thus, cultural traits could be critical for strategy formulation.

We have seen in the case of start-ups how cultural factors influence strategy formulation. Some of the strategic focus areas include the hiring of key resources, fund raising through equity, and approach towards product and market reach. If the promoters of a start-up are professional they may be open to some of these factors and be culturally oriented.

They may also have some issues with respect to controlling the interest and submitting to funding bodies or agents. If the start-up is promoted by those who are popular, it is difficult for such personalities to keep subjective factors away from strategy formulation. Such personalities fail to understand the scientific side of strategy formulation and sooner or later dwarf the growth of the start-up.

Normally cultural differences surface when inorganic growth strategies such as joint ventures, alliances and mergers and acquisitions are initiated.

The inability of the promoters to involve professional management in the decision process, and inadequate orientation could lead to such passive cultures. This may lead to a serious hindrance in upward communication of ground level realities. The authors are aware of companies, which have an asset valuation and business of nearly $200 million but are driven by first generation promoters acting as chairman and/or managing directors.

Though the entrepreneur is a thorough professional encouraging risk taking and leadership among the next tier of management, in reality, the next tier is unable to be truly professional in formulating a strategy. This is because there is a hesitancy due to the perceptions about the likes and dislikes of the promoter in business.

This results in a loss of a number of opportunities to promote business and a few bad decisions, which have a negative strategic impact on the company. This is a cultural trait when a promoter builds a business with close friends, or early starters who he has groomed, but is willing to come out and be independent of his friends or the early starters. Such cultural traits undermine the scientific effort in strategy formulation.

On the positive side, when there are shared values and beliefs, it may be easier to create a shared vision. Such situations help in formulating strategies that lead to excellence. For example, the TVS group of companies has a culture of providing value to customers by deploying superior technology and processes.

This practice is well-appreciated in the southern states of India. Most of the group’s companies are among the leaders in their chosen businesses. Sundaram Clayton supplies its products globally because of its excellent quality standards. Some other companies have also achieved a similar status. Cultural fit for achieving excellence is natural in formulating strategy, where the vision is shared across all levels of employees.

Shared values create trust and togetherness in an organization. Shared values contribute to the social identity of an organization, for example, the Tata group stands for socially-responsible business behaviour. These values must be stated as both corporate objectives and individual values. Every organization and every leader has a different set of values that are appropriate to the organization’s business situation. However, a company must encourage its employees to create shared values and respect the synchronization of individual and corporate values.

General Electric (GE) is known for its customer value, Wal Mart for best pricing, Toyota for quality, and Sony and Nokia for innovativeness. In India, we have companies that have gained shared to improve the effectiveness of strategy formulation. For example, the Tata group seeks excellence and scale in whatever it does. Any such focus on culture is generally cherished by external stakeholders as well.

Cultural perspectives in strategic formulation arise largely from ethnicity, region, and level of education. For example, we find in some ethnic societies in India, that doing business in financial services is encouraged whereas in some places it is taboo. Entrepreneurial traits are imbibed from birth in certain geographies and communities. Such a cultural milieu fosters the mushrooming of self-driven small businesses as a strategic orientation in certain geographies such Gujarat and Punjab.

It is rare in such cultures to build large companies on the basis of scientific analysis and scale because of their cultural need to control. For example, there are some successful fast-food brands in South India such as Saravana Bhavan and Hot Chips which have grown into large firms, and are still following the measured steps that they had been carrying out earlier to succeed in their business.

We can find such cultures in the services business as well. We observe that in India, education is offered predominantly by trusts of large corporates or personalities well known in their region. In these cases, scalability and cultural orientation are limited.

ii. Political Characteristics in Strategy Formulation :

The term ‘political’ here refers to taking sides or being influenced in decision making. It could be because of leadership and managerial team.

Leadership bias, predominantly, refers to owners, capital providers, or the CEO. We have cited a few instances where promoters have led to a controlled or guarded strategy formulation. There are cases where the leader’s initial success drives the spirit of entrepreneurism and strategy formulation. For example, there have been cases where after a success, the leader has heavily bet on the same business. In the case of sugar and retail, we have quite a few examples in India such as Thiru Aaroon Sugars, Rajashree Sugars, Shree Renuka Sugars, EID Parry and in the retail sector, south Indian consumer goods chains Vivek’s and Vasanth & Co.

In a way, this has been a welcome approach as they have a focus on horizontal integration. However, at times, such approach leads to inadequate application of science in strategy formulation. In addition, the people lower in the hierarchy lack the orientation to think critically on strategic perspectives. It has also been seen that after a stage inertia sets in, investments and returns mature, and take an inverted ‘U’ turn after reaching a peak. This happens because of leadership bias.

Leadership bias could also be present because of the persuasive approach of the leader on a chosen plan, pushing it through a strategy formulation stage. In ex-post facto analysis, one can look at a number of such decisions taken both in the case of listed and unlisted companies. Ideally, some stakeholders should apply pressure against such bias and insist on withdrawing support. When this fails to happen, it leads to business failure as the leader’s obsession may not turn into market success.

The large regional retailer Subhiksha which became defunct in 2008-09 could be an example here. If leadership had avoided bias by broadening its forum of decision makers, the company could have seen different times.

There are cases of successful persuasive leadership bias as well. The classic Indian examples are of Reliance Industries, many Tata group companies, and the Aditya Birla group. In the case of these examples, leadership bias has been validated through scientific analysis and support systems.

There have also been some cases where inadequate application of right leadership perspective led to a crisis. For example, there was a distillery company that adopted unproven venture funded technology for handling effluent, which led to the failure of the distillery and finally forced its promoters to sell the business.

Here, the case was of a clear lack of perception and inadequate time spent on analysis and choice while formulating the strategy. If it had been done, there could have been some fall-back option and adverse situations could have been avoided. Though it is not the mistake of any one in the system, an analysis based on scenario building using multi-dimensional ‘failure scenarios’ and their impact on cash flow and overall viability could have helped to protect the company from this investment.

Managerial bias can also influence strategy formulation. It is highly subjective in nature. Managers’ success and rise to stardom lead, at times, to strong bias. In addition, there have been cases of ‘agency theory’ at work, where manager’s agents or trustees of investors, are, after a point, driven by their own personal motives. This makes them drive the strategic decisions that are convenient to them instead of being scientific in strategy formulation. This has been well articulated by Oliver E. Williamson (1970).

This is applicable even today, especially in large corporates and MNCs. It could be difficult to be conclusive for us to comment on whether it is advisable. However, such biases must be validated through systematic analysis and choice process. During contemporary business conditions, we see that boards are effective in handling this bias. Even then, the bias and organizational politics are subjective in nature and influence strategy formulation.

iii. Role of Directors and CEOs :

The board of directors is elected as representatives of the shareholders. Its role is to oversee the function of the company and ensure that the company continues to operate in the best interests of all stakeholders. However, in contemporary business, this is not an easy task. In addition, the board’s effectiveness is the key performance driver in Indian companies. This is true from the perspective of the individuals and the intangible value they bring to the business and its stakeholders.

The board could be passive, active or aggressive. There were times when the board was considered the rubber stamp of the promoters. With an increased orientation towards responsible corporate governance prevalent in the business landscape today, the perception and effectiveness of a board of directors has now changed to that of a strategic asset for the company.

A good board needs to set a tone that will promote a transparent culture, and effective dialogue among directors, senior management, and various functional and risk managers. The composition and role of the independent directors are also now examined closely. Independent directors should significantly contribute to the functioning of the board through requisite understanding of the company and business. Boards must be involved in their own performance evaluation and enable continuous feedback and communication across stakeholders.

Effective boards build capabilities within themselves and their organizations that allow them to jointly protect existing assets (compliance role), as well as, manage threats to future growth (strategy oversight role).

It is important to note that there are some key functions that should be fulfilled by the board, such as the following:

1. Strategy formulation, budgets, business plans, etc.

2. Monitoring the effectiveness of the company’s governance practices.

3. Selecting, compensating, and monitoring key executives, and overseeing succession planning.

4. Deciding executive and board remuneration

5. Ensuring a formal and transparent board nomination and election process.

6. Monitoring and managing potential conflicts of interest of management, board members, and shareholders, including misuse of corporate assets and abuse in related party transactions.

7. Ensuring the integrity of the corporation’s accounting and financial reporting systems, including the independent audit.

8. Ensuring control systems for risk management, financial and operational control, and compliance.

9. Overseeing the process of disclosure and communications.

If you study these key functions, you will realize that all are important from the strategic management process perspective. In fact, strategy formulation is one of the most important functions that the directors spend a lot of time on.

Indian companies understand the importance of board composition and large business houses vie to maintain illustrious people among their board of directors. Clayton M Christensen, the Robert and Jane Cizik Professor of Business Administration at the Harvard Business School, is on the board of TCS as a non-executive director and along with him there are other business leaders who serve on the board. His research and teaching interests center on managing innovation and creating new growth markets. Christensen has founded three successful companies.

Similarly, Dr. Marti G. Subrahmanyam, the Charles E. Merrill Professor of Finance, Economics, and International Business at the Stern School of Business at New York University is on the board of Infosys Technologies as an independent director. Subrahmanyam has published several articles and books in corporate finance, capital markets, and international finance. Similarly, many of the leading companies have well-known personalities as independent directors who can bring high value to strategy formulation, and direction to the company based on their intellect and experience.

iv. Role of Chief Executive Officer/Managing Director :

A Managing Director (MD) is the director of a company who is given special powers by its constitution. In most companies, this is the senior-most manager of the company, heading the organization, and so may have a title, such as Chief Executive Officer (CEO). In some companies, there are Chief Operating Officers (COO) who are responsible for the routine operation of the company, leaving the CEOs free to plan and direct the company’s strategy. We now commonly come across such job profiles in many IT firms in India and elsewhere.

A managing director is in a leadership role for an organization and he may have to work towards fulfilling a motivational role for the stakeholders. A managing director has responsibility for the overall management of a company, including the staff, the customers, the budget, the company’s assets, and all other company resources to make the best use of them and increase the company’s profitability. The CEO and the board must work on ideas for the improvement of the company. It is the CEO/MD’s responsibility to implement, improve upon, or ignore these ideas.

The responsibility of the CEO is to align the company, internally and externally, with its strategic vision. A CEO must balance internal and external initiatives to build a sustainable company. This clearly brings out the role of the CEO in strategy formulation. In some companies, the CEO primarily coordinates external initiatives, as functional level executives (i.e., marketing, information, technical, and financial) are oriented towards internal initiatives.

On the other hand, in emerging entities, promoters act as CEO on a very different platform than that of the corporate level. At times, when other top level executives are not incorporated in small operations, it is the duty of the CEO (and sometimes founder) to assume those positions. In these companies, both formulation and execution responsibilities lie with the CEO. Some CEOs reach celebrity status with their performance and achievement.

You may note the impact these leaders have on strategy formulation through setting a vision, ensuring that it becomes the shared vision, and orchestrating strategy for high performance. Corporate history has seen many such leaders and their role in strategy formulation. Mid-sized companies, start-ups, not-for-profit organizations and governments have such leaders. Key skill sets include the ability to set vision and drive the strategy team to proceed on the same.

Strategy Formulation – Stages & Framework: External Input, Internal Input, Matching and Decision

Strategists try to run their organizations based on a systematic and objective method of strategy formulation, strategy-implementation and strategy-evaluation. This approach of managing the firm is dependent on long term and short-term objectives of the firm and is known as managing by objectives. Unfortunately, importance of strategy on the chief executive officer’s agenda is mostly very low. M. de Kare Silver (1997) has referred to a survey work done by Kalchas group in August 1996 on ranking of strategy by CEOs of top 100 companies based in USA and UK.

It has been observed therein that, on an average, strategy formulation ranks sixth in importance in the ten-key agenda items of the top executives. Only 14 per cent of the executives put future strategy at the top of their list. And out of those 14 per cent, only a few executives depend on systematic and objective approach for strategy-formulation.

Those who assign less priority on strategy formulation try to manage their organizations either by extrapolation of the past plans, works and achievements or by reacting under crisis and allowing external events to dictate the what’s and when’s of business decisions or by creating the hope that failures are the pillars of success or by not doing any unified planning and directing all to do their best.

Even in today’s competitive world, these executives are trying to survive without any objective framework and sometimes without any planned strategy. They refuse to realize that the future will not be an extrapolation of the past. Obviously, they are failing in their endeavor. And all these failures indicate the need for strategy- formulation framework.

Generally, strategy-formulation framework is a four-stage integrated process of decision-making. In the first stage strategists are concerned with analysis and diagnosis of the external environment. In this process, strategists develop Competitive Profile Matrix, or External Factor Evaluation Matrix, or External Factor Index Matrix, or Environmental Threat and Opportunity Profile.

This stage is also known as external input stage. The Second stage is internal input stage where the strategists are concerned with internal capabilities and limitations. They develop Internal Factor Evaluation matrix, or Internal Factor Index matrix, or Strategic Advantage Profile.

The third stage focuses on generating alternative strategies by matching the basic external factors with the basic internal factors. In view of the same the third stage is termed as matching stage. Matching stage techniques include Strengths-Weaknesses- Opportunities-Threats (SWOT) analysis, Threat-Opportunities-Weaknesses-Strength (TOWS) analysis, Strategic Position and Action Evaluation (SPACE) matrix. Internal- External (IE) matrix, the Indexed Internal-External (HE) matrix and the Grand Strategy (GS) matrix.

The fourth stage is the decision stage involving Quantitative Strategic Planning Matrix (QSPM). QSPM reveals the relative attractiveness of different alternative strategies generated in the earlier stage and provides with the objective basis for final selection of the corporate strategy.

Lenz (1987) has however, emphasized that this number-oriented planning process might give rise to a false sense of certainty and reduce discussions, arguments and opinion based analysis. He is in favor of words-oriented planning, but, according to David (1989) biases, groupism and halo error (i.e., error due to assigning extra weightage on a single factor) creep in when objective information is lacking. Thus, strategists must make a balance between number oriented planning and word oriented planning tools by opting for analytical tools and facilitating communication.

Strategy Formulation – 5 Step Process:  Developing Strategic Vision, Setting Objectives, Crafting a Strategy to Achieve the Objectives & Vision, and a Few More

The strategy formulation involves the following steps:

Step # 1. Developing Strategic Vision:

i. Vision specifies what direction or path to follow.

ii. Specify what products, markets, technologies and customer policies to follows

iii. Vision communicate management aspirations to stack holders of company.

iv. Helps to boost morale of organization and engages them for a common direction.

v. Clear vision helps to provide a motivated and stimulated environment in the organization.

vi. Vision specify management aspiration for the business in long-term.

Step # 2. Setting Objectives:

Corporate objectives are outcome of “Mission and Vision” of organization. Objectives define specific performance targets, results and growth that organization wants to achieve.

To determine the objectives an approach known as Balance Score Card is used.

Balance Score Card Approach:

Overall a company should set both strategic and financial objectives. However, organization can use Balance Score Card approach for setting objectives. This approach states that “Organization should focus more on achieving strategic objectives – like “performance”, “customer satisfaction”, “innovation” and “profitability” – than financial objectives (i.e., profit and profit growth) only.

Balance Score Card also provides a basis to measure company performance against set objectives.

Company strategic and financial objectives should be set both as, short-term and long-term objectives.

Long-Term and Short-Term Objectives:

Long-Term Objectives:

i. Profitability.

ii. Productivity.

iii. Competitive Position.

iv. Employee Development.

v. Employee Relations.

vi. Technological Leadership.

vii. Public Responsibility.

Long-term objectives represent the results expected from pursuing certain strategies, usually from two to five years.

Qualities of Long-Term Objectives:

i. Acceptable

ii. Flexible

iii. Measurable

iv. Motivating

v. Suitable

vi. Understandable

vii. Achievable.

Objectives are commonly stated in the following terms; growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree and nature of vertical integration, earnings per share, and social responsibility.

Short-range objectives can be identical to long-range objectives for example, if a company has long- term objective of 15 percent profit growth every year, then the company’s short-term objective would also be 15% profit growth for current year.

Concept of Strategic Intent:

Here intent refers to intension. A company exhibits strategic intent when it relentlessly (aggressively) pursues an ambitious strategic objective and concentrates its full resources and competitive actions on achieving that objective.

A company’s strategic intent can helps in many ways to the company, like –

i. In becoming the dominant company in the industry;

ii. Unseating the existing industry leader;

iii. Delivering the best customer service in the industry (or the world);

iv. Turning new technology into products which capable of changing the way people work and live.

Sometime ambitious companies begin with strategic intents that are out of proportion to their immediate capabilities and market positions. But they continuously work hard— even achievement of objective may take a sustained effort of 10 years or more. Moreover, on reaching one target they stretch the set objectives and again pursue them relentlessly, sometimes even obsessively.

The Need for Objectives at all Organizational Levels:

Objective setting should not stop with top management’s setting the companywide performance targets. Company objectives need to be broken down into performance targets for each separate business, product line, functional department, and individual work unit.

Company performance can’t reach full potential unless each area of the organization does its part and contributes directly to the desired companywide outcomes and results. This means that objectives should be given to each and every business units and those should be combined with overall company objectives.

Step # 3. Crafting a Strategy to Achieve the Objectives and Vision :

A company can achieve its mission and objectives when all the components of a company work together. A company’s strategy is at full power only when its many pieces are united. Achieving unity in strategy planning and formulation is partly a function of communicating the company’s basic strategy themes effectively across the whole organization.

A company’s strategic plan lays out its future direction, performance targets, and strategy.

“Developing a strategic vision, setting objectives, and crafting a strategy are basic direction-setting tasks” .

Vision, Objectives and crafting a strategy set the both short-term and long-term performance targets for organization. Together, they constitute a strategic plan to deal with industry and competitive conditions.

For crafting or developing a strategy many assessments are performed.

However, three assessments are very important:

i. The first determine organizational strengths and weaknesses.

ii. The second evaluates competitor strengths, weaknesses, and strategies, because an organization’s strength is of less value if it is neutralized by a competitor’s strength or strategy.

iii. The third assesses the competitive environment, the customers and their needs, the market, and the market environment.

These assessments, based on the strategy selected, focus on finding how attractive the selected market will be. The goal is to develop or formulate a strategy that exploits business strengths and competitor weaknesses and neutralizes business weaknesses and competitor strength.

Step # 4. Implementing & Executing the Strategy:

Strategy implementation and execution is an operations-oriented activity. This stage is the most demanding and time-consuming part of the strategy-management process.

Till now, in the above stages everything was planning only. In this stage above plans are given actions. In this stage, based on company and competitor’s strength and weaknesses various activities are implemented.

This stage is like management process and includes followings:

i. Staffing the organization with the needed skills and expertise.

ii. Developing budgets and organizing resources to carry out those activities which are critical to strategic success.

iii. Using the best-known practices to perform business activities and pushing for continuous improvement.

iv. Motivating people to pursue the target objectives energetically.

v. Tying rewards and incentives directly to the achievement of performance objectives and good strategy execution.

vi. Creating a company good culture and work climate for successful strategy implementation and execution.

vii. Keep on improving strategy execution and when the organization encounters stumbling blocks or weaknesses, management has to see that they are addressed and rectified quickly.

Good Strategy Execution Involves Creating Strong “Fits”:

i. Between strategy and organizational capabilities.

ii. Between strategy and the reward structure

iii. Between strategy and internal organization working systems, and

iv. Between strategy and the organization’s work climate and culture.

Step # 5. Monitoring Implemented Strategy and Making Corrective Adjustments :

A company’s vision, objectives, crafting strategy, and implementing and execution of strategy are not final thing in strategic management – managing strategy is an ongoing process.

There is one more stage in the corporate strategy management and that stage is—monitoring and evaluating the company’s progress. As long as the company’s strategy is going well, executives may remain stick to implemented strategy except more changes are required with time.

But whenever a company encounters disruptive changes or downturn in its market positions then company managers are required to search out whether the reasons of downturn are due to poor strategy, poor execution, or both to take timely corrective action.

A company’s direction, objectives, and strategy have to be revisited anytime external or internal conditions warrant. It is to be expected that a company will modify its strategic vision, direction, objectives, and strategy over time, if required.

Strategy Formulation – Top 11 Approaches: Strategic Hierarchy, Generic Strategies, Strategic Intent, Strategic Posture, Logical Instrumentalism and a Few More

There are as many approaches to formulating strategy as there are academicians researching on business policy or strategic management.

The following are some of the well-known ap­proaches:

1. Strategic hierarchy

2. Shotgun strategies vs. rifle strategies

3. Street-smart planning vs. formal planning

4. Intuitive planning vs. analytical planning

5. Generic strategies

6. Strategic intent

7. Strategic posture

8. Logical instrumentalism

9. Proactive strategies vs. creative strategies

10. Random walk

11. Strategy as revolution.

Approach # 1. Strategic Hierarchy :

Strategic hierarchy is a very popular approach among academi­cians. Every company should have a clear mission statement which is usually reflective of the value system of the founder(s). Johnson & Johnson’s credo goes thus – ‘We believe our first responsibility is to the doctors, nurses and patients, to mothers and all others who use our products and services. In meeting their needs, everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices…’

Some of the major points from the business philosophy of Matsushita, the founder of the Matsushita Electric Industrial Company Ltd, are:

i. The purpose of an enterprise is to contribute to society by sup­plying goods of high quality at low prices in ample quantity.

ii. Profit comes in compensation for contribution to society.

iii. Always direct your effort for ‘mutual prosperity and existence’.

iv. Human unity and harmony are indispensable for job achieve­ment.

A mission statement should lead to objectives and goals. The objectives of an organization are generally towards achieving leadership in a particular field (market share, new product introduction or profits). Goals set specific targets such as attaining 50 per cent market share or introduction of a certain number of new products.

A SWOT (strengths, weaknesses, opportunities and threats) analysis can help a firm develop strategies to attain its goals. Strategy should decide the organizational structure to carry out activities for the same. Management Control and Information Systems (MCIS) help managers to control and review the perfor­mance of their organizations with regard to mission, objectives and goals.

Approach # 2. Shotgun Strategies vs. Rifle Strategies :

When a company faces the problem of starting a new business, it has two options – (i) It can either define the target market, understand its needs and develop products according to its tastes, or (ii) develop good products as defined by the technolo­gists of the company and make them available in, the market so that whoever likes them can buy them.

The first option is referred to as rifle strategy as one knows the exact target and the company aims and shoots accordingly. The second approach is called shotgun approach as one fires in all directions and hopes that some of the shots may hit the target.

Approach # 3. Street-Smart Planning vs. Formal Planning :

Formal planning is often criticized by street-smart entrepre­neurs as slow and impractical. Consider, for example, a case for offering a 1 per cent discount for a slightly damaged product to clear the stock. An MBA, because of his training, would subject this problem to such an analysis that by the time he came to a decision, the competitor would have given a 1 per cent discount on his fresh stock and clinched the deal.

Parle’s chief, Ramesh Chauhan, is often described as street-smart. The following case illustrates the ordeal Double-Cola, a potential competitor for Parle’s Thums Up brand at that time, went through in Mumbai with regard to distribution.

‘The unique industrial relations problems which sabotaged the launch of Double-Cola in Bombay in mid-June provides ample testimony of the domination of the indigenous bottled soft drinks market by the tough Ramesh Chauhan, Chief Executive of the Bombay- based Parle Beverages Pvt. Ltd., which has a 65% share of the national bottled soft drinks market….The Bharatiya Kamghar Sena, the trade union arm of the Shiv Sena, suddenly insisted that distributors’ contractors, who have traditionally worked on a commission basis for all soft drink manufacturing companies, should be absorbed by Double-Cola Manufacturing Company as full-time employees. Curiously, the Bharatiya Kamghar Sena is the recognised union in Parle Beverages as well, where it has made no such demand’.

Double-Cola’s problems could have been further compounded by the fact that having spent large sums of money on advertising, and thus stimulating demand for the product, the company would have been unable to make the product available at the retail outlets.

Approach # 4. Intuitive Planning vs. Analytical Planning :

Generally, professional managers, by virtue of their education and training, believe in the strength of logic and are reluctant to give up their implicit faith in logic even when they reach senior levels where strategic and entrepreneurial decisions are re­quired. In many such cases data is scanty and the ultimate deci­sion has to be arrived at by largely using intuition.

Approach # 5. Generic Strategies :

Porter (1980) developed a thesis which stated that a firm’s profit­ability was determined by the characteristics of the industry it was in and the firm’s position within it. Using his own framework to analyze industry structure, Porter developed three generic strategies for firms.

i. Overall cost leadership

ii. Differentiation

iii. Focus.

Any other strategy followed by firms could be classified as ‘get­ting stuck in the middle’.

Approach # 6. Strategic Intent :

Hamel and Prahalad (1989) turn much recent thinking upside down by asserting that the real function of a company’s strategy is not to match its resources with its opportunities but to set goals which ‘stretch’ a company beyond what most managers believe is possible. The examples cited are Toyota vs. General Motors, CNN vs. CBS, British Airways vs. Pan Am and Sony vs. RCA. In all these cases the overwhelming ambition and determination may well have been a vital ingredient in their success story.

Of course, the ambitious strategic intent should be backed by an active Management process that includes focusing the organi­zation’s attention on the essence of winning; motivating people by communicating the value of the target; leaving room for indi­vidual and team contributions; sustaining enthusiasm by provid­ing new operational definitions as circumstances change; and using intent consistently to guide resource allocations.

While strategic intent is clear about the end, it is flexible with regard to the means and leaves room for improvisation. Achieving strategic intent requires enormous creativity with regard to the means. It also creates an extreme misfit between resources and ambitions. The top management then challenges the organiza­tion to close the gap between the two by systematically building new advantages. The essence of strategy lies in creating tomor­row’s advantage faster than competitors mimic the ones the orga­nization possess today.

Approach # 7. Strategic Posture :

There are three basic postures that are exhibited by companies in coping with the changing environment:

i. Proactive strategy

ii. Crisis management strategy

iii. Reactive strategy.

Proactive strategy means anticipating and adapting to change. Crisis management means working out an escape route after a crisis occurs. Reactive strategy is followed by those who simply offer resistance to any change and, in the process, get wiped out.

Approach # 8. Logical Instrumentalism :

Logical incrementalism basically means formulating strategies through a one-step-at-a-time process. A company may not have a clear mission, as in the case of the strategic hierarchy method. It may have some idea about growth and tar­gets but not about the route to be taken. Therefore, it will take into consideration its past history to guide it about what course of action to take and what to avoid. After studying its past experi­ence, at a given point of time, the company will decide the next logical step.

All subsequent decisions too will be taken in a simi­lar manner. Additionally, the choice of the new strategy will also depend upon the company’s current strengths, weaknesses and resources, as such a company will not think beyond its current capabilities. Logical incrementalism is probably the most com­monly adopted approach by companies.

A number of companies do not have a strategic intent or a vision. They start off as small companies and as they generate sufficient profits and reserves they start looking for the next set of opportunities for growth. They focus on backward integration or forward integration which is the next logical step to be taken for growth. Similarly, entry into related areas are also logical steps.

For example, the TTK group of companies, though they were marketing Kiwi Shoe Polish, never considered entry into men’s toiletries until they tied up with the Beecham group of the U.K. to market Brylcreem in India. Now the next logical step is to look for companies for acquisition in the area of men’s toiletries to fill the product or line gap between the head and the toe.

Approach # 9. Proactive Strategies vs. Creative Strategies:

Proactive strategy means changing in accordance with the change anticipated. However, the creative approach enables the com­pany to engineer changes to suit itself. The first approach is like wearing a sweater to protect oneself from the cold and the second approach is somewhat similar to using a heater to warm up the room. The creative approach breaks through the constraints and barriers and creates an environment that suits the company’s requirements.

The creative approach is also different from the incremental approach which is based on logic, is rooted in the past, and con­strained by current firm capabilities. Conversely, the creative approach goes beyond the boundaries to develop multiple alter­natives, and comes up with totally new products and develops entirely new markets.

The often quoted anecdote about two shoe salesmen who vis­ited some underdeveloped country to explore the market poten­tial aptly illustrates these two approaches. One salesman came back saying that there was no potential as no one wore shoes in that country, while the other felt that there was a huge potential for the same reason.

Steve Job’s personal computer and Akio Morita’s Walkman are products of the creative approach. Both go beyond trivial innova­tions, such as changing the shape or color of a product, practised by logical incrementalists.

Approach # 10. Random Walk :

Random walk is steps taken in random directions without much analysis or evaluation. The company or the entrepreneur grabs whatever comes their way. Survival is the primary driving force that makes the individual take a number of random steps in the hope that one of them will click someday.

Approach # 11. Strategy as Revolution :

According to Hamel (1996) the strategy-making process usually tends to be reductionist based on simple rules and heuristics. It works from the present forward, not from the future back, impli­citly assuming, whatever evidence to the contrary, that the future will be more or less like the present.

The organizational pyramid is a pyramid of experience. But the experience is valuable only to the extent that the future is like the past. In industry after indus­try the terrain is changing so fast that experience is becoming irrelevant and even dangerous.

There are basically three types of companies:

i. The rule makers—the market leaders, who have shaped the industry, e.g. IBM and Sony

ii. The rule takers—the companies that pay homage to industrial ‘lords’ like Fujitsu and Matsushita

iii. The revolutionaries—the companies that overturn the indus­trial order, e.g. IKEA and Body Shop

Rule breakers, or revolutionaries, set out to redefine the indus­try, to invent the new by challenging the old. Anita Roddick, founder of Body Shop, once said – ‘Watch where the cosmetics industry is going and then walk in the opposite direction.’

In the same way, there are revolutionaries within every com­pany. They are likely to be found lower down the hierarchy and not in the top management. However, their voices are muffled by layers of cautious bureaucrats who separate them from senior managers. It is difficult to challenge the combined forces of prece­dence, position and power.

The leaders who fail to recognize these revolutionaries are those who have lost confidence in their ability to shape the future of the organizations. They have forgotten that from Gandhi to Mandela, from the American Patriots to the Pol­ish Shipbuilders, the creators of revolutions have not come from the top.

To help revolutionary strategies to emerge, senior managers must supplement the hierarchy of experience with a hierarchy of imagination. By this process a revolution will gather mass and momentum and overthrow the stale and obsolete industry con­ventions and norms and develop radically different and new strategies.

As can be seen from the various approaches, there is no single best approach, especially as situations vary. This is what makes the field of strategic management exciting, offering scope for cre­ativity, innovation and intuition. Having understood the concept of business strategy let us turn our attention to marketing.

Strategy Formulation – Tools and Techniques: SWOT Analysis, TOWS Matrix, PLC, Portfolio, Market & Product Strategies, Scenarios and Gap Analysis

The various tools required for strategy formulation are:

1. SWOT Analysis and TOWS Matrix :

Analysing the external environment helps identify threats and opportunities that the company is likely to face. Further, an internal environment analysis must be carried out to identify the strengths and weaknesses of the company. These must be corroborated to identify strengths and weakness in light of the opportunities and threats faced in the external environment. This tool can be used for corporate, SBU, and functional/ operational level strategy formulation.

It is important to note here that while using the tool options must be ranked based on their net benefit to the company. The top-ranking options must be chosen, but where there are multiple strategic options, all of them must be evaluated before a choice is made.

The TOWS matrix is helpful for generating strategic options. The blend of external factors (opportunities and threats) with internal factors (strengths and weaknesses) must be analysed in light of the vision, mission and goals of the company and not independent of them. It must also be noted that the TOWS matrix as a tool is a supplementary rather than a key decision-making tool unless there is a clear conviction about these disparate external and internal factors.

Suppose the FMCG company that we have been referring to wants to drop a product line and invest in another category. In this case, SWOT analysis could be helpful. SWOT analysis can identify the product line that needs to be dropped by showing its critical weakness and serious threats. Similarly, it can also help judge the category that should be invested in by identifying its strengths and opportunities. Together, these tools would aid in making a good production portfolio decision.

The tools that could be applied include product life analysis and the ones on portfolio planning to understand the various facets of the decision, including the size of future investments, in greater detail.

2. Product Life Cycle :

The product life cycle (PLC) helps to map the stage that the product is in and understand how the strategy under pursuance would help to position the strategic unit. The company can decide whether it needs to innovate and reposition the PLC of its product by relaunching it or by any other means.

For example, Lifebuoy as a brand in India has moved from a red bar of soap to a range of specialized and generalized hygiene soaps now promoted by celebrities. This brand is a leader in the soap market of India, with an 18.4 per cent share of a consumer base of 140 million households in India, and an annual global turnover of 350 million euros worldwide, of which 200 million comes from India.

In our opinion, the repositioning of Lifebuoy in the PLC has been very successful but is still debated by many market analysts with differing views. The inference here is that the strategy formulation exercise is not as simple as using the PLC, but requires the use of a combination of tools and techniques.

3. Portfolio, Market, and Product Strategies :

These techniques include SPACE (strategic position and action evaluation) matrix, BCG matrix, GE matrix, Ansoffs matrix, McKinsey’s 7S model, and PMIS (profit impact of market share). We shall expand on their uses.

Portfolio business strategies are more relevant at the SBU-level and corporate-level strategy formulation. When a firm wants to invest in or divest a business in a portfolio, increase its market share, or utilize excess cash generated where there are inadequate opportunities to plough investments, the portfolio approach is deployed.

In these situations, either because of the market or the competition, the firm is to initiate strategic moves. This involves an in-depth analysis of the situation, and decision making at the top level of management. This has to have involvement from both the top-level and operational-level management for effectiveness. The decision could be compulsive at the SBU, product, or market level, but may have lesser priority for top management. Hence, such sensitivities must be understood by strategy analysts to initiate appropriate actions.

A good example would be that of Hindustan Unilever Limited (HUL), which has applied such strategies extremely well. The company merged its subsidiaries such as Ponds India, Lipton, and Brook Bond earlier. There were quite a few acquisitions of brands and business too such as Kissan, and Kwality Ice cream.

After these acquisitions, the company decided to foray into the food business in a big way. It also gave a big push to brands such as Annapurna, Knorr, Kissan, Kwality Walls, and some beverage brands and their product extensions such as filter coffee. This was done via advertisement, market research, and increasing the market reach of the brands by investing in more stockeeping units etc. Such initiatives would have required decisions using portfolio, market, and product analysis.

It may be interesting to note here that a single framework or technique would not be adequate. There is a need to apply a combination of tools. However, it is important to have a prime technique, along with other complementary techniques and tools while facilitating strategy formulation decisions.

Technique for Strategy Formulation:

1. Scenarios:

Scenario generation is one of the methods which strategic planners have found useful for the interpretation of a fluid, rapidly changing business environment with an uncertain future. Scenarios constitute an effective device for sensing, interpreting, organising and bringing to bear diverse information about the future in planning and strategic decision-making.

Simply stated, scenarios may be regarded as stories about the future. But more precisely speaking, these are descriptions of plausible alternative futures of the macro-environment. The primary purpose of scenario generation is to delimit the range of uncertainties in the most critical factors in an environment.

Typical scenarios include qualitative and quantitative descriptions of uncertainties in the most critical factors in an environment. Typical scenarios include qualitative and quantitative descriptions of the more important social, political, economic, demographic, technological and other conditions. They often describe the basic trends, assumptions, conditions and dynamics of the factors relating to the future period that the scenario covers. As such scenarios are not forecasts or predictions.

Probability estimates are hardly associated with the elements of the scenario. Hence scenarios are said to be fuzzy, too imprecise and hard to apply. Also scenario generation is an expensive process. There is no doubt that scenarios represent a significant departure from the traditional methods of forecasting like the single or multiple variable extrapolation and regression methods.

However, most of the environmental factors are not amenable to easy prediction on account of their complexities and the rapidity of changes. Under the circumstances scenarios are found to be an ideal complement to the various other methods of forecasting and planning.

2. Gap Analysis:

The basic question that strategic planners have to face with regard to environmental forecasting is how far ahead they will look, that is about the time horizon for forecasting. For, to respond strategically to a perceived environmental change in future, the strategic decisions have to be taken well in advance. It may be a matter of technology of production envisaged by the planners.

Thus, for instance, it will take a considerably longer period to create production facilities for computer hardware than for production (say) a newly designed software. A technique which has been found useful in determining the time horizon for environmental forecasting is that of ‘Gap Analysis’. Application of this technique will be clear from the following diagram which depicts a typical situation.

explain the process of strategic plan formulation

Strategic planning is a process through which business leaders map out their vision for their organization’s growth and how they’re going to get there. In this article, we'll guide you through the strategic planning process, including why it's important, the benefits and best practices, and five steps to get you from beginning to end.

Strategic planning is a process through which business leaders map out their vision for their organization’s growth and how they’re going to get there. The strategic planning process informs your organization’s decisions, growth, and goals.

Strategic planning helps you clearly define your company’s long-term objectives—and maps how your short-term goals and work will help you achieve them. This, in turn, gives you a clear sense of where your organization is going and allows you to ensure your teams are working on projects that make the most impact. Think of it this way—if your goals and objectives are your destination on a map, your strategic plan is your navigation system.

In this article, we walk you through the 5-step strategic planning process and show you how to get started developing your own strategic plan.

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What is strategic planning?

Strategic planning is a business process that helps you define and share the direction your company will take in the next three to five years. During the strategic planning process, stakeholders review and define the organization’s mission and goals, conduct competitive assessments, and identify company goals and objectives. The product of the planning cycle is a strategic plan, which is shared throughout the company.

What is a strategic plan?

[inline illustration] Strategic plan elements (infographic)

A strategic plan is the end result of the strategic planning process. At its most basic, it’s a tool used to define your organization’s goals and what actions you’ll take to achieve them.

Typically, your strategic plan should include: 

Your company’s mission statement

Your organizational goals, including your long-term goals and short-term, yearly objectives

Any plan of action, tactics, or approaches you plan to take to meet those goals

What are the benefits of strategic planning?

Strategic planning can help with goal setting and decision-making by allowing you to map out how your company will move toward your organization’s vision and mission statements in the next three to five years. Let’s circle back to our map metaphor. If you think of your company trajectory as a line on a map, a strategic plan can help you better quantify how you’ll get from point A (where you are now) to point B (where you want to be in a few years).

When you create and share a clear strategic plan with your team, you can:

Build a strong organizational culture by clearly defining and aligning on your organization’s mission, vision, and goals.

Align everyone around a shared purpose and ensure all departments and teams are working toward a common objective.

Proactively set objectives to help you get where you want to go and achieve desired outcomes.

Promote a long-term vision for your company rather than focusing primarily on short-term gains.

Ensure resources are allocated around the most high-impact priorities.

Define long-term goals and set shorter-term goals to support them.

Assess your current situation and identify any opportunities—or threats—allowing your organization to mitigate potential risks.

Create a proactive business culture that enables your organization to respond more swiftly to emerging market changes and opportunities.

What are the 5 steps in strategic planning?

The strategic planning process involves a structured methodology that guides the organization from vision to implementation. The strategic planning process starts with assembling a small, dedicated team of key strategic planners—typically five to 10 members—who will form the strategic planning, or management, committee. This team is responsible for gathering crucial information, guiding the development of the plan, and overseeing strategy execution.

Once you’ve established your management committee, you can get to work on the planning process. 

Step 1: Assess your current business strategy and business environment

Before you can define where you’re going, you first need to define where you are. Understanding the external environment, including market trends and competitive landscape, is crucial in the initial assessment phase of strategic planning.

To do this, your management committee should collect a variety of information from additional stakeholders, like employees and customers. In particular, plan to gather:

Relevant industry and market data to inform any market opportunities, as well as any potential upcoming threats in the near future.

Customer insights to understand what your customers want from your company—like product improvements or additional services.

Employee feedback that needs to be addressed—whether about the product, business practices, or the day-to-day company culture.

Consider different types of strategic planning tools and analytical techniques to gather this information, such as:

A balanced scorecard to help you evaluate four major elements of a business: learning and growth, business processes, customer satisfaction, and financial performance.

A SWOT analysis to help you assess both current and future potential for the business (you’ll return to this analysis periodically during the strategic planning process). 

To fill out each letter in the SWOT acronym, your management committee will answer a series of questions:

What does your organization currently do well?

What separates you from your competitors?

What are your most valuable internal resources?

What tangible assets do you have?

What is your biggest strength? 

Weaknesses:

What does your organization do poorly?

What do you currently lack (whether that’s a product, resource, or process)?

What do your competitors do better than you?

What, if any, limitations are holding your organization back?

What processes or products need improvement? 

Opportunities:

What opportunities does your organization have?

How can you leverage your unique company strengths?

Are there any trends that you can take advantage of?

How can you capitalize on marketing or press opportunities?

Is there an emerging need for your product or service? 

What emerging competitors should you keep an eye on?

Are there any weaknesses that expose your organization to risk?

Have you or could you experience negative press that could reduce market share?

Is there a chance of changing customer attitudes towards your company? 

Step 2: Identify your company’s goals and objectives

To begin strategy development, take into account your current position, which is where you are now. Then, draw inspiration from your vision, mission, and current position to identify and define your goals—these are your final destination. 

To develop your strategy, you’re essentially pulling out your compass and asking, “Where are we going next?” “What’s the ideal future state of this company?” This can help you figure out which path you need to take to get there.

During this phase of the planning process, take inspiration from important company documents, such as:

Your mission statement, to understand how you can continue moving towards your organization’s core purpose.

Your vision statement, to clarify how your strategic plan fits into your long-term vision.

Your company values, to guide you towards what matters most towards your company.

Your competitive advantages, to understand what unique benefit you offer to the market.

Your long-term goals, to track where you want to be in five or 10 years.

Your financial forecast and projection, to understand where you expect your financials to be in the next three years, what your expected cash flow is, and what new opportunities you will likely be able to invest in.

Step 3: Develop your strategic plan and determine performance metrics

Now that you understand where you are and where you want to go, it’s time to put pen to paper. Take your current business position and strategy into account, as well as your organization’s goals and objectives, and build out a strategic plan for the next three to five years. Keep in mind that even though you’re creating a long-term plan, parts of your plan should be created or revisited as the quarters and years go on.

As you build your strategic plan, you should define:

Company priorities for the next three to five years, based on your SWOT analysis and strategy.

Yearly objectives for the first year. You don’t need to define your objectives for every year of the strategic plan. As the years go on, create new yearly objectives that connect back to your overall strategic goals . 

Related key results and KPIs. Some of these should be set by the management committee, and some should be set by specific teams that are closer to the work. Make sure your key results and KPIs are measurable and actionable. These KPIs will help you track progress and ensure you’re moving in the right direction.

Budget for the next year or few years. This should be based on your financial forecast as well as your direction. Do you need to spend aggressively to develop your product? Build your team? Make a dent with marketing? Clarify your most important initiatives and how you’ll budget for those.

A high-level project roadmap . A project roadmap is a tool in project management that helps you visualize the timeline of a complex initiative, but you can also create a very high-level project roadmap for your strategic plan. Outline what you expect to be working on in certain quarters or years to make the plan more actionable and understandable.

Step 4: Implement and share your plan

Now it’s time to put your plan into action. Strategy implementation involves clear communication across your entire organization to make sure everyone knows their responsibilities and how to measure the plan’s success. 

Make sure your team (especially senior leadership) has access to the strategic plan, so they can understand how their work contributes to company priorities and the overall strategy map. We recommend sharing your plan in the same tool you use to manage and track work, so you can more easily connect high-level objectives to daily work. If you don’t already, consider using a work management platform .  

A few tips to make sure your plan will be executed without a hitch: 

Communicate clearly to your entire organization throughout the implementation process, to ensure all team members understand the strategic plan and how to implement it effectively. 

Define what “success” looks like by mapping your strategic plan to key performance indicators.

Ensure that the actions outlined in the strategic plan are integrated into the daily operations of the organization, so that every team member's daily activities are aligned with the broader strategic objectives.

Utilize tools and software—like a work management platform—that can aid in implementing and tracking the progress of your plan.

Regularly monitor and share the progress of the strategic plan with the entire organization, to keep everyone informed and reinforce the importance of the plan.

Establish regular check-ins to monitor the progress of your strategic plan and make adjustments as needed. 

Step 5: Revise and restructure as needed

Once you’ve created and implemented your new strategic framework, the final step of the planning process is to monitor and manage your plan.

Remember, your strategic plan isn’t set in stone. You’ll need to revisit and update the plan if your company changes directions or makes new investments. As new market opportunities and threats come up, you’ll likely want to tweak your strategic plan. Make sure to review your plan regularly—meaning quarterly and annually—to ensure it’s still aligned with your organization’s vision and goals.

Keep in mind that your plan won’t last forever, even if you do update it frequently. A successful strategic plan evolves with your company’s long-term goals. When you’ve achieved most of your strategic goals, or if your strategy has evolved significantly since you first made your plan, it might be time to create a new one.

Build a smarter strategic plan with a work management platform

To turn your company strategy into a plan—and ultimately, impact—make sure you’re proactively connecting company objectives to daily work. When you can clarify this connection, you’re giving your team members the context they need to get their best work done. 

A work management platform plays a pivotal role in this process. It acts as a central hub for your strategic plan, ensuring that every task and project is directly tied to your broader company goals. This alignment is crucial for visibility and coordination, allowing team members to see how their individual efforts contribute to the company’s success. 

By leveraging such a platform, you not only streamline workflow and enhance team productivity but also align every action with your strategic objectives—allowing teams to drive greater impact and helping your company move toward goals more effectively. 

Strategic planning FAQs

Still have questions about strategic planning? We have answers.

Why do I need a strategic plan?

A strategic plan is one of many tools you can use to plan and hit your goals. It helps map out strategic objectives and growth metrics that will help your company be successful.

When should I create a strategic plan?

You should aim to create a strategic plan every three to five years, depending on your organization’s growth speed.

Since the point of a strategic plan is to map out your long-term goals and how you’ll get there, you should create a strategic plan when you’ve met most or all of them. You should also create a strategic plan any time you’re going to make a large pivot in your organization’s mission or enter new markets. 

What is a strategic planning template?

A strategic planning template is a tool organizations can use to map out their strategic plan and track progress. Typically, a strategic planning template houses all the components needed to build out a strategic plan, including your company’s vision and mission statements, information from any competitive analyses or SWOT assessments, and relevant KPIs.

What’s the difference between a strategic plan vs. business plan?

A business plan can help you document your strategy as you’re getting started so every team member is on the same page about your core business priorities and goals. This tool can help you document and share your strategy with key investors or stakeholders as you get your business up and running.

You should create a business plan when you’re: 

Just starting your business

Significantly restructuring your business

If your business is already established, you should create a strategic plan instead of a business plan. Even if you’re working at a relatively young company, your strategic plan can build on your business plan to help you move in the right direction. During the strategic planning process, you’ll draw from a lot of the fundamental business elements you built early on to establish your strategy for the next three to five years.

What’s the difference between a strategic plan vs. mission and vision statements?

Your strategic plan, mission statement, and vision statements are all closely connected. In fact, during the strategic planning process, you will take inspiration from your mission and vision statements in order to build out your strategic plan.

Simply put: 

A mission statement summarizes your company’s purpose.

A vision statement broadly explains how you’ll reach your company’s purpose.

A strategic plan pulls in inspiration from your mission and vision statements and outlines what actions you’re going to take to move in the right direction. 

For example, if your company produces pet safety equipment, here’s how your mission statement, vision statement, and strategic plan might shake out:

Mission statement: “To ensure the safety of the world’s animals.” 

Vision statement: “To create pet safety and tracking products that are effortless to use.” 

Your strategic plan would outline the steps you’re going to take in the next few years to bring your company closer to your mission and vision. For example, you develop a new pet tracking smart collar or improve the microchipping experience for pet owners. 

What’s the difference between a strategic plan vs. company objectives?

Company objectives are broad goals. You should set these on a yearly or quarterly basis (if your organization moves quickly). These objectives give your team a clear sense of what you intend to accomplish for a set period of time. 

Your strategic plan is more forward-thinking than your company goals, and it should cover more than one year of work. Think of it this way: your company objectives will move the needle towards your overall strategy—but your strategic plan should be bigger than company objectives because it spans multiple years.

What’s the difference between a strategic plan vs. a business case?

A business case is a document to help you pitch a significant investment or initiative for your company. When you create a business case, you’re outlining why this investment is a good idea, and how this large-scale project will positively impact the business. 

You might end up building business cases for things on your strategic plan’s roadmap—but your strategic plan should be bigger than that. This tool should encompass multiple years of your roadmap, across your entire company—not just one initiative.

What’s the difference between a strategic plan vs. a project plan?

A strategic plan is a company-wide, multi-year plan of what you want to accomplish in the next three to five years and how you plan to accomplish that. A project plan, on the other hand, outlines how you’re going to accomplish a specific project. This project could be one of many initiatives that contribute to a specific company objective which, in turn, is one of many objectives that contribute to your strategic plan. 

What’s the difference between strategic management vs. strategic planning?

A strategic plan is a tool to define where your organization wants to go and what actions you need to take to achieve those goals. Strategic planning is the process of creating a plan in order to hit your strategic objectives.

Strategic management includes the strategic planning process, but also goes beyond it. In addition to planning how you will achieve your big-picture goals, strategic management also helps you organize your resources and figure out the best action plans for success. 

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  1. Complete Guide to Strategy Formulation

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  2. 6 Main Steps of Strategic Planning Process (Made Easy)

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  3. Stages and Types of Strategy

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  4. Components of the Strategic Planning Process

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  5. Strategic Management Process and Its Different Stages

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  6. Tips For Creating A Business With Strategic Planning Process

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VIDEO

  1. Introduction to Strategic Planning

  2. DIFFERENCE BETWEEN STRATEGIC PLANNING AND OPERATIONAL PLANNING

  3. Strategic Planning

  4. Business Plan Formulation Unit 5 Part 2b

  5. Strategic Planning 1

  6. Strategic Management Process

COMMENTS

  1. Steps in Strategy Formulation Process

    Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps.

  2. Tips for Successful Strategy Formulation

    Strategy formulation is the process of using available knowledge to document the intended direction of a business and the actionable steps to reach its goals. This process is used for resource allocation, prioritization, organization-wide alignment, and validation of business goals.

  3. What is Strategy Formulation? definition, process, levels

    Definition: Strategy Formulation is an analytical process of selection of the best suitable course of action to meet the organizational objectives and vision. It is one of the steps of the strategic management process.

  4. How To Use Strategy Formulation: Definition, Steps and Tips

    Strategy formulation is the process of establishing goals and determining the proper plan of action to achieve those goals. An organization uses strategy formulation to plan for success and make improvements to workplace strategies as needed. Strategy formulation is essential for achieving and measuring the attainability of goals.

  5. Strategy Formulation: 5 Steps To Create A Winning Strategy

    Strategy formulation is a process that outlines a measurable and concrete course of action to achieve certain strategic objectives or overcome specific challenges. Companies follow a strategy formulation process to develop a business plan that will guide their decision-making and help them realize their long-term vision.

  6. Strategic Planning

    Strategy Formulation In the process of formulating a strategy, a company will first assess its current situation by performing an internal and external audit. The purpose of this is to help identify the organization's strengths and weaknesses, as well as opportunities and threats ( SWOT Analysis ).

  7. The Strategic Planning Process in 4 Steps

    The strategic management process involves taking your organization on a journey from point A (where you are today) to point B (your vision of the future). Part of that journey is the strategy built during strategic planning, and part of it is execution during the strategic management process.

  8. Strategy Formulation to Implementation: 6 Tips To Consider

    Formulating a Successful Strategy Developing an effective strategy requires in-depth knowledge, critical thinking, and careful planning. While several frameworks can help set the foundation, Harvard Business School Online's Business Strategy course uses the value stick.

  9. What is Strategy Formulation? Definition, Steps, & Tips

    What is Strategy Formulation? Strategy formulation is the analytical process of developing a roadmap to guide an organization toward achieving its long-term objectives and overall mission.It is the backbone of the strategic planning process, ensuring that all business activities are aligned with the organization's unified vision, goals, and objectives.

  10. Strategy formulation (Chapter 2)

    This set of activities is often called strategy formulation. For this purpose we use an analytical approach to uncover alternative strategic options available to the firm as the basis for choosing a suitable path forward.

  11. 9.3 The Role of Strategic Analysis in Formulating a Strategy

    A strategic analysis of a firm's external environment (the world, competitors) and internal environment (firm capabilities and resources) gives its managers a clear picture of what they have to work with and also what needs to be addressed when developing a plan for the firm's success.

  12. Strategy Formulation Process

    The strategy formulation process is a part of strategic management and involves using several analytical tools to figure out the best way to use an organization's resources. Strategy formulation allows an organization to create a financial blueprint for creating profits and being sustainable in the long haul.

  13. Steps to Strategy Formulation (Read Only If You Want To Outcompete

    Strategy formulation is the process of determining and establishing the goals, ... Through strategic planning, management is able to evaluate its resources and determine the best ways to maximize the company's return on investment (ROI). The output - the strategic plan - will serve as the framework or guide for the members of the ...

  14. Strategic Planning Process Steps

    Strategic planning process steps Determine your strategic position. Prioritize your objectives. Develop a strategic plan. Execute and manage your plan. Review and revise the plan.

  15. PDF Strategy Formulation

    Strategy Formulation Introduction Strategy formulation is the process by which an organization chooses the most appropriate courses of action to achieve its defined goals. This process is essential to an organization's success, because it provides a framework for the actions that will lead to the anticipated results. Strategic plans should be

  16. Strategy Formulation

    Strategic formulation is the process to develop a strategy for a business or an organization. The resulting strategy should be in line with the vision of the business and will be adopted...

  17. The 6 steps to the strategic planning process

    What are the 6 stages of the strategic planning process? While there are many different strategic planning processes you might read about, most have some variation of the following stages: 1. Identify your strategic position This is where a company defines short and long-term objectives, and the steps it might take to achieve them.

  18. Strategic Management & Strategic Planning Process

    Most often, the strategic planning process has 4 common phases: strategic analysis, strategy formulation, implementation and monitoring (David [5], Johnson, Scholes & Whittington [6], Rothaermel [1], Thompson and Martin [2] ). For clearer understanding, this article represents 5 stages of strategic planning process: Initial Assessment

  19. Stages and Types of Strategy

    The strategic management process consists of three, four, or five steps depending upon how the different stages are labeled and grouped. ... Strategic Formulation. ... If actual results vary from the strategic plan, corrective actions will need to be taken. If necessary, reexamine the goals or the measurement criteria. If it becomes apparent ...

  20. Strategy Formulation: Meaning, Aspects, Process, Approaches and Challenges

    Strategy formulation is the process of offering proper direction to a firm. It seeks to set the long-term goals that help a firm exploit its strengths fully and encash the opportunities that are present in the environment. There is a conscious and deliberate attempt to focus attention on what the firm can do better than its rivals.

  21. The Strategic Planning Process

    The Strategic Planning Process. The articles on this website are copyrighted material and may not be reproduced, stored on a computer disk, republished on another website, or distributed in any. An outline of the strategic planning process, including mission statement, environmental scan, strategy formulation...

  22. Strategic Planning: What Are the 7 Stages to the Process?

    7 stages of strategic planning. Consider the following seven steps to help you create effective, actionable plans: 1. Understand the need for a strategic plan. The first and perhaps most important step of the planning process is understanding that there's a need for a plan. In terms of management, this means that you need to be aware of the ...

  23. What is strategic planning? A 5-step guide

    A 5-step guide Julia Martins January 23rd, 2024 11 min read Jump to section Summary Strategic planning is a process through which business leaders map out their vision for their organization's growth and how they're going to get there.

  24. Business Explained on Instagram: "The Most Comprehensive E-book on

    860 likes, 12 comments - letsexplainbusiness on December 18, 2023: "The Most Comprehensive E-book on Strategic Management ⬇️ Table of Contents: 1. Introduction..." Business Explained on Instagram: "The Most Comprehensive E-book on Strategic Management ⬇️ Table of Contents: 1.