According to Mockler (1995), "Strategic formulation is very essential to understand the strategic management. It does not adequately provide a existing direction for the action. It can only be provided by strategic implementation. This recommends that strategy implementation causes even more problems than strategy formulation. On the other hand a basic framework can be derived to give out as a guide map to strategy formulation. (Mezias, Gringer and Gruth 2001; Hills and Jones 1995. p.15; Mockler 1995).
Strategy formulation could be considered as the portion of the entire strategic management process which consists of three fundamental steps and they are diagnosis, formulation and strategic implementation. Strategic formulation is not a onetime event and hence it is an ongoing process to prepare and revisit strategies for the future of the organization so that an organization is able to attain its qualitative and quantitative objectives on the basis of organization's capabilities, limitations and the external factors of the environment (business environment) in which the organization is functional.
Identifying Mission and Agenda Setting for Strategic Formulation
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The first step of the strategic formulation is identifying the mission of the organisations which gives us several ideas regarding the goal of the organisation and explains that "What the organisation seems out to achieve". Organisation can also put across this various mission in the form of mission statement. The mission statement is quite vital for any organisation as it does emphasize the goals of the organisation. For example the main missions of any organisation is making profits and surviving the harsh conditions of the market. However the mission statement of the company does not highlight this phenomenon instead it speaks about the intent of the company by defining its core values, beliefs, purpose etc (Egan, 1995). The internal process that a company needs to carry out is explained with the help of agenda setting. However there are some problems that are associated with this frame work. This frame work does not speak about the detailed goals and objectives thereby making the framework a bit unclear. The relative elements like vision, mission and objectives shouldn't be ignored. The mission that is developed with the help of the vision of the organisation can further be transformed in its goals. As per Faulkner (1992) "the setting of objective consists of determining the general goals of the organization for example giving out higher returns to share holders or minimizing the liability of the company". The preliminary process of growth is completed at the corporate level once the elements are determined.
Diagnosis for the formulation of Strategy
This process refers to environmental scanning of the organisation. According to Pashiadis (1996) "environmental scanning as central in focusing on the progress of building, vision, planning, and community development in order to make situation for decision centres". The analysis of the external environment can be carried out with the help of the PESTEL framework wherein with the help of this framework the political, environmental, social, technological, economical and legal factors can be understood as these factors may have a positive or a negative impact on the company (Lorange and Roos, 1992). The analysis of these factors is quite vital for any organisation as it does act like a map guide and does help the organisation to take effective decisions that may help the organisation to minimize its risk and be profitable under unforeseen events. The changes in the Governmental policies do have an effect on the all types of business. For example the recent recession did force many companies to decrease the prices of its product as the demand for their products decreased due to the low disposable income. Therefore it is quite vital that organisation do study these factors carefully and develop effective strategies as these factors do have a direct effect on the business.
On the contrary the process of investigating the core competencies of the company is termed as the internal analysis. The strength of the business system lies in its internal environment and can also be understood with its help. Analysing the internal environment of a firm would help to gain an understanding into the areas pertaining to the organisations resources, its abilities as well as capabilities in terms of its strategies. Understanding the strength of the internal functional system is quite vital so as to examine an organisations structure as well as culture as this would give a clear picture in the way the communication and coordination process is carried out within the organisation. According to Nonaka and Takeuchi (1995), for evaluating the capabilities of an organisation in terms of its strategies; it is quite vital to assess its financial position of the organisation. Availability of the resources is also an important factor that has to be evaluated. As per Ansoff (1984), the Analysing strategically requires appraising of the corporate environment as well as the resources. He claims that the opportunities and the threats that are prevailing in the market can be overcome with the help of analysis of the external environment and strength and the weakness of the organisation can be identified with the analysis of the internal environment. At the same time it is also important that the firm keeps a regular check on the strategies that are formulated by its competitors.
Strategy conception activities
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Strategy formation at this stage involves creation and evaluation of various strategic options. A number of various models are considered after taking all the factors into consideration, so that the right strategy or model is formed which can be deployed to move towards the company's aims and objectives. According to Ansoff (1984) "Conceiving refers to all activities that contribute to determine which course of action should be pursued". While conceiving there are various tools that are used in order to come up with the best alternative. For example the Ansoff matrix does help to analyze the strategy pertaining to the growth of the company. The Ansoff matrix does help the company with various options which might be beneficial for the company for example penetration of the market, market development, product development or diversification etc. It can also be considered in case, if a company is entering a new market which can grow with the help of mergers and acquisitions, joint ventures etc. The choice of innovation strategy is also available to a company which mainly depends on the mission statement of the company and on the outcome gained from the evaluation of the industry. The innovation strategy consist of coming up with new products or services however on the contrary the firm that operates its business globally does have a number of option under its belt.
There are 4 strategies that are adopted by companies while entering or competing in the global environment they are transitional strategy, global strategy, international strategy and multi domestic strategy. However the choice of adopting the strategy depends mainly on aims and objectives of the firm. There are also other strategies that can be adopted by a firm for example the defender, the prospector and analyser strategy. The defender strategy emphasizes on having a restricted field of product line and services whereas gaining advantage in the market by a recent services and product launch is the basis of the prospector strategy. Furthermore, the analyser strategy is the combination of the above two strategies explained (Ansoff, 1979).
In order to find out which alternative would help in gaining the desired results it is quite necessary that an evaluation is conducted. During the instance of having more than one option it is the experience of the manager that would help to decide on the most profitable option. The option that is shortlisted not only consists of the inner and outer surroundings of the business but also utilizes the short term and the long term benefits available to the organisation and also to the other elements associated with it for instance the execution capability of the company, risk bearing capacity supposed risks, economical reply's, accepted gain/profit and opportunity prospects. Hence, strategic decision making refers to the process of evaluating various strategic options and then settling down on one (Weick, 1995).
Strategy implementation follows the strategy development process. Since, in gaining the desired outcomes strategy development plays a vital role so as to identify the problem. According to Weick (2001), strategy formation incorporates the process of implementing strategies. So as to make sure that the changes are implemented successfully it is quite vital that there are some changes that are made to the organisation and the operating system of the organisation. The actions that are intended should only be implemented if the actions are helping in gaining the organisational aims and objectives. The next stage from here on is the setting up of the organisational system into formulated actions. The manager at this stage plays a significant role as it is the duty of the manager to run a check to see whether the organisation is achieving what it was anticipating or not. Not only this; to evaluate the performance they would require a group so as to be deployed that would act as auditors and compare the performance to the goals and objectives of the organisation.
As per Sanchez (2002), there are 3 steps in the process of business strategy formulation these are analysing strategies, developing strategies and implementing strategies. These steps are in succession by means of the higher level authority coming up with strategies that are further passed on the mid level as well as the lower level management and thereby suitable arrangements are made for strategy implementation. A main issue associated with this is the problem of controlling the performance indicators as the process of controlling the performance indicators is quite expensive and time consuming. The evaluation may differ as some managers would opt for the simple process whereas some managers would go with extensive measures.
Strategy Formulation vs. Implementation
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Strategy Formulation = Phase of Strategic Management involve in decision and planning that direct to the establishment of the organization's goals and of a specific strategic plan
Strategy Implementation = Phase of Strategic Management involves in the use of organizational and managerial tools to direct resources toward achieving strategic outcomes
The market based strategies are comparable to those that are resource base. Wherein the one that speaks about the market that the organisation is currently in and also its future market is the market based strategy. Whereas, evaluating the available resources and then determining the formulation of strategies is referred to as the resource based strategy (Nonaka and Tacheuchi, 1995). Corporate strategy is also one of the three strategies along with the business strategy and the functional strategy. The entire business is taken into consideration while determining the corporate strategy which also facilitates the evaluation of the rationale and the limit of the business unit. Moreover, it plays a significant part in mergers and acquisitions and even diversification. The business strategy depends a lot on the strategic business units. Competitive advantage can be gained with the help of strategic business units that take the responsibility so as to produce and market the products of the company. Strategies which take into account the operations of the company for example human resource, advertising department etc are known as functional ones (Weick, 2001).
Limitations of the strategic planning process
Planning is quite a systematic process; whereas the process that is involved with it does help in formulating effective strategies. However, there are some issues that are associated with the strategy formation as well as the strategy implementation process. The process of strategy formation does take into account the changes that do occur in the external as well as the internal environment. As the external environment is quite dynamic and does have a direct effect on the business it is quite difficult for the business to predict these changes or asses the through effects these alterations may have. This is one of the most significant problems that are associated with the process of strategy formation (Nonaka and Takeuchi, 1995).
A complex process can be another term for the strategy formation process, as there are many stages involved in it. The analysis of the external as well as the internal environment is a compulsion when it comes to the strategy formation process. Not only this for the purpose of coming up with effective strategies the organisations do need to take into consideration the mission of the company and the aims and objectives that the organisations desires to achieve. The next step that is considered after this is the diagnosis of the external environment as well as the internal resources which thereby helps in developing strategies and selecting the right option. Once this is attained the strategy implementation process can be worked upon especially at the business as well as the functional.