Exploring the Formulation of Business Strategy


Formulation is the second phase of strategic management process; it provide a clear set of recommendations with justifications and strategies for organisation to revise its mission, objective and strategies to become more successful. There are three strategies may help organisation to formulate its strategies.

Business level strategy is integrating and coordinates commitments and actions helps organisation gain competitive advantage by exploiting core competencies in specific product markets. Organisation decides how to compete within each strategic business unit (SBU) in this level. Organisation need to determine on their customer select their business level strategy.

Generic Competitive Strategies

The organisation can compete with rivals within its industry by using the generic strategies. There are three types of generic strategies developed by Porter (1980). (Please refer to appendix 1)

Overall Cost Leadership Strategy

By applying cost leadership strategy, organisation has to be the lowest cost producer in the industry. It helps organisation achieve cost advantages and gain large profit. It allow organisation compete within its industry because they can charge in the lowest price that competitors hard to compete by matching them.

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Differentiation Strategy

Organisation provides the products or services which are different or unique that make customer willing to pay at premium price. Organisation need to provide a differentiation features which are hard or expensive that competitors cannot duplicate. Organisation has opportunities to meet different customer needs more closely. The organisation core competencies, unique resources or capabilities and superior management of value chain activities may help organisation sustain in its differentiation strategy.

Focus Strategy

Focus strategy allow organisation concentrate on target their customer segment(s) or niche within the market. Organisation can segment base on a group of customers, geographical markets or specific product lines. The organisation can use either low-cost or differentiation strategies to achieve its competitive advantage by focus their segment(s).

Organisation need to choose the generic strategies by concentrate its resource and capabilities. Besides, organisation will fails by using more than one generic strategy because they will become "stuck in the middle" Porter (1980).

(Please refer the example to Appendix 2)

Resource- Based Approach

There are two fundamental reasons make organisation's resource and capabilities as the foundation for its strategy. First, internal resources and capabilities give a basic direction for organisation's strategy. Second, the primary source of profit for organisation is the resources and capabilities.

Gant (1991) distinguishes between resources and capabilities. The source of capability of organisation is the resources. However, the main sources of organisation's competitive advantages are the capabilities.

According to Gant, the profit to an organisation's resources and capabilities depend on two factors. First is sustainability of the competitive advantage which resource and capabilities confer upon the organisation. The sustainability of the competitive advantages characteristics are durability, transferability, and replicability. Second, the organisation ability to appropriate the profit eared form its resources and capabilities.

There is a five stage model will help to guide organisation strategy formulation and it focuses on organisation internal capabilities. (Please refer to Appendix 3)

Organisation should upgrade its resources and capabilities to sustain their competitive advantages base on basis of their future competition that they believe.

Corporate Level Strategy

Organisation can achieve its purpose and gain competitive advantages by using corporate level strategy to define the scope of industries and markets the organisation compete. It can set a direction for organisation and concerned how resources allocate across the business units.

The corporate parent determine the organisation overall direction and objectives. It exists in multiple business units and refers to all management levels which are not part of customer facing and profit run business units.

The role of corporate parenting is to concern how a parent organisation adds value across the business that make up the organisation. It may benefit the corporate parent add more value by its management and coordination of individual business units.

Growth Strategies

Organisation may grow by pursue many different strategies that they prepare to countenance, organisation resources and capabilities, and their management expertise. Ansoff (1965) devised a matrix for organisation to analyse the different direction which they can pursue. (Please refer to Appendix 4)

Market Penetration

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Organisation can increase its market share in the existing market using its existing products by pursuing this strategy.

Product Development

Organisation involve develop new products for its existing market by pursuing this strategy. The ability of organisation to innovate in develop products is important for this strategy because of the rapid changing customer market.

Market Development

Organisation enter new markets with its existing products can pursue this strategy. It can be used when the organisation target its new market segments and new geographical areas.


This strategy will be pursue when an organisation seek to broaden the activities scope by moving into new products and new markets. Broaden the scope can help the organisation to reduce risk by reducing the reliance of any one market or product.

(Please refer the example to Appendix 5)

Related Diversification

Related diversification is organisation enters into an industry which has some like with its value chain. It can separate into vertical integration and horizontal integration.

Unrelated Diversification

Unrelated diversification is organisation enter into a totally unrelated industry. It also called as conglomerate diversification.

Implementing Growth Strategies

Organisation can carry out its corporate strategy through mergers, acquisitions, internal development, joint ventures, and strategic alliances. Organisation can joint their resource and technology gaps, and obtain expertise and market positions more quickly than can be done through internal development. And they are useful when organisation want to enter new industry and markets.

(Please example to Appendix 6)

Portfolio Analysis

Portfolio analysis is concern in making decision about the portfolio of strategic business units. It helps Organisation assess its competitive position and identify the rate of return receive from its business units.

Portfolio matrix models useful in re-evaluate organisation's present portfolio. The models can help organisation to understand and consider changes in its portfolio. Besides, it help organisation allocate resources to its different business element.

Boston Consulting Group Matrix

BCG matrix locate organisation's business units base on its industry growth rate and its relative market share. It helps organisation access its business unit's performance. Besides, there are four strategic categories (stars, question marks, cash cow and dogs) which the business unit can be fall into. (Please refer to Appendix 7)

(Please refer example to Appendix 8)

The General Electric-McKinsey Matrix

It considers two composite variables which can customise by organisation for industry attractiveness and competitive strength. It is more comprehensive measure of strategic success. Besides, it comprises a nine-cell matrix and helps to assess the performance of business units by enlarge the criteria. (Please refer to Appendix 9)

International Strategy and Globalisation

Globalisation or Localization

Globalisation is the linkages (e.g. economic, financial, social or political) between markets that happen across other country. Levitt (1983) mention that technology is the strong forces for organisation drives through globalisation because customer worldwide wants standardized product. Organisation can success in compete on price, quality, offer same product sold through international markets.

For localization, organisation needs to ensure the products are responsive to and meet the local preference needs. Therefore, localization implies that different countries have its own preference needs, and, organisation need to have product differences in offering, distributions, and promotion its products.

International Strategy

Organisation factors and environment factor motivate organisation pursue a strategy of internal diversification. The organisation factors are the role of the senior management team and firm-specific factors. Environment factors are unsolicited proposals, the 'bandwagon' effect, and attractiveness of the host country.

Globalisation Framework

Ghoshal (1987) argue, organisation must achieve efficiency in its current activities, manage the risk inherent in carry out the activities, and develop learning capabilities for innovate and adapt to the future. Therefore, organisation can get benefit in competitive advantages when going global. Organisation can use Goshal's framework to differentiate between the benefits and alternative costs strategies. Besides, national differences, scale economic, and scope economics are the competitive advantages for organisation. (Please refer to Appendix 10)

Types of International Strategy

There are four strategies give to organisation to diversify its activity overseas. (Please refer to Appendix 11 and 12)

Multi-domestic Strategy

It is aim to adapt a product in foreign markets and get respond more effectively in the changes for condition of local demand.

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International Strategy

Organisation can use to exploit its core competencies and capabilities in national markets. (Please refer example to Appendix 13)

Global Strategy

In this strategy, organisation provides standardise products to its global markets and produced centralised in a few locations.

Transnational Strategy

In this strategy, organisation seeks to achieve in its efficiency, responsiveness, leverage innovation, and learning by internationally.

Entry Mode Strategies

There are different types of entry mode strategies which are exporting, franchising, joint ventures, strategic alliances, and whole owned subsidiary. (Please refer to Appendix 14)

They can help organisation to enter its international markets. Each mode has its own level of investment and risk and level of organisation should control it. Therefore, organisation evaluates and chooses the entry mode to enter its markets.

(Please example to Appendix 15)

As a conclusion, Organisation uses the business level strategies, corporate level strategies, and international strategy and globalisation to formulate its strategy. Besides, formulation can help organisation to achieve its sustainable competitive advantages and operate itself successfully.