FORMULATION OF CORPORATE AND BUSINESS STRATEGY NOTES
Strategy Formulation is designed to guide executives in defining the
business, their company, the aims it seeks, and the means it uses to
accomplish these aims. Strategy formulation involves an improved
approach to traditional long-range planning. Strategy formulation joins
a future oriented perspective with concern for firm’s internal and
external environment in developing its competitive
planning action. Thus the Process of using environmental analysis in
strategy formulation is significant. Strategy formulation will always
follows the same steps regardless of level; however, the scope will
differ. Environmental analysis either formal or informal plays
significant role in strategy formulation. Infact, environmental analysis
plays the most important input for strategy formulation because an
organization tries to relate itself to the demand of the environment.
Therefore, managers should ensure that their function of environment
analysis is integrated with strategy formulation. The various steps
involved in this context can be described as follows.
• Study of the Environment. Every organization undertakes analysis of
environment either on formal basis or informal basis depending on the
size of the organisation, its managerial philosophy, the nature of its
environment, etc. However, if environmental analysis is taken as
on-going basis, it serves the organizational purpose in a much better
way. Moreover, on-going environment study takes much wider coverage of
the environment. When art analysis is limited to specific projects, it
covers only some area in the environment having behind spots in others.
An on-going study can locate existing and potential impact oi the
environment on the organization. This phase is to be directed by and is
complementary to the phase of informal planning. It should aim at broad
coverage of the environment rather. This serves two purposes:-
- it becomes complementary source for identifying perceived
environmental causes for the changes in strategy; - its output may serve as a trigger for strategy changes for detailed
environmental analysis.
• Perceived Environmental Causes for Strategy Change. Strategy makers
perceive the need for strategy change in the light of environmental
factors. This awareness of environmental forces and their impact on the
organization does not come suddenly.
Moreover, this awareness fluctuates over the period of time. However,
this alone does not initiate strategy changes.
• The trigger is an event or set of events that initiates strategy
changes or creates need for environmental data. Events serving in
triggers may take place outside the organization, e.g., a change in the
Government’s policy toward foreign technical collaboration of entry of
new competitor with some unique features; or may take place within the
organization, e.g., change in organizational structure or during of a
new key executive. In fact, various triggers outside the organization
force managers to take environmental studies on specific project basis.
For example, Reliance Industries even took the study of application of
Government oi India’s decision of not withdrawing Rs. 1100 core of its
loan sanctioned by International Monetary Fund. Though such a study was
not related with the immediate business of the company, this could
provide way for evaluation of the business opportunities lying in the
environment.
• Strategy Changes. These Triggers may be used as a means of Strategy
changes. However, strategy changes based on triggers alone may be. It
gives right direction for strategy change but triggers must be used as
the reasons for collecting appropriate information
from the environment.
• Need for Environmental Data. Need for environmental data because of
two f actors first, the organization is taking, up environmental
analysis as an on-going process and second, when some triggers are
there. While the first aspect emphasizes the general study of the
environment, the second emphasizes on specific project or areas to be
studied.
• Assignment of Environmental Study Project. The assignment of
environmental study project depends on the organization and its practice
of environmental study. If it is monitoring the environment on
continuous basis and some persons are assigned for this purpose, these
persons can take up this job as an additional work load, if the
organisation does‘ not have a special task force which can be created
for the purpose which may be termed as environmental analysis unit
(EAU). The task between EAU and strategists could be clearly shown so
that exact term of reference can be fixed.
• Collection and Analysis of Data. Data collection at this stage may be specific relating to the particular
strategy which an organization may consider seriously looking into
various aspects, such of all those factors which go into choice of
strategy. However, data collection and analysis cannot be taken just to
satisfy a strategy information based on whims of some people at the top
level of the organization.
• Preparation of Reports and Presentation to Strategy Makers. The
complete report can be presented to those people who can make decision
on it. Usually most of the organizations have certain .specified groups
of people who make strategic decision. However, they can perform better
if they work in close contact with people responsible for planning of
environment.
• Indirect Impact. External environmental scanning is only one end of
input which goes in strategy formulation. Therefore, strategy may not
necessary go on the basis of report prepared by environmental scanning
group. However, they are affected by the information inputs. Therefore,
environmental scanning can stimulate them indirectly to go for certain
strategy. Thus, more frequent exposure of the strategy maker to data and
its analysis will enhance the educational process which is the essence
of the indirect impact. The additional exposure can be achieved through
periodical progress reports.
• Translation of Environmental Analysis Into Strategy Action. Direct use
of environmental analysis in strategy making requires translation of
environmental analysis in strategy making which requires translation of
environmental analysis into specific changes. When large amount of data
is collected and analyzed, either strategy makers cart make decisions
leading to strategic change or they may create special task force whose
task may be to make environmental analysis. Effective translation of
environmental analysis in to specific change can be performed
cooperatively by analysts, strategy makers, and task force if created.
Factors Affecting use of Environmental analysis in Strategy Formulation
• Managerial Philosophy. The managerial philosophy determines the actions which
managers take towards various factors affecting their decisions. Such
factors may include the environmental forces as well as the various
internal forces. If the managerial philosophy is positive, the managers
are likely to take into account the various factors affecting the
organization while making decisions.
• The term managerial philosophy includes manager’s attitudes, reactions
to situations, and the way of looking at the things. If these are
positive, they may go for long-term actions for which they require more
information about the environment. From this point of view, managers can
be classified into two categories’ those who are forward- locking and
those who keep themselves busy in the day-to-day affairs of the
organization. It is the latter category of managers who do not put great
emphasis on the environmental search and analysis. They lead stagnant
organization. They focus on a very narrow range of the environment and
tend to over-emphasize details instead of focusing on the long-term
impact and leaving the details of their subordinates. They feel more
satisfied by the past
and present performance of their organization rather than looking into
the future. Sometime even the internal environment of the organization
may compel to believe so.
For example, the reward and punishment system of the organization may
emphasize on the present performance rather than on the long-term
planning which may modify the manager’s thinking to look into the
present. Then tries are managers who believe that take care of present,
future will take care of its own. Naturally the range of environmental
analysis for such managers is limited.
• On the other hand, forward-looking managers think of future keeping in
mind the happening in the present. They look for various opportunities
in the environment. They believe that opportunities knocks the door for
once. If you miss this, you miss for ever.
Naturally such managers will be more conscious about what is happening
outside their organizations. For this purpose, they go for seeking
maximum information from the environment. Thus the managerial philosophy
determines the volume and type of information that manager will seek
from the environment. However, it can be mentioned, that if a top level
manager is not spending his 15-20 per cent time on strategic management
and interacting with the environment, he is certainly leading to slow death
of his organization.
• Age of the Organization. The age of the organization may also
determine the type of information that can be sought by it, the
organizational growth over the period of time requires different type of
interaction with its environment. Generally older is the age of the
organization with the more experienced managers, the narrower will be
the focus on the environmental ‘ information because with the
experience, manager may be able to distinguish either what is relevant
or irrelevant of the organization. The necessary information may be
sought and unnecessary will be screened out. Since the information can
be tested to determine the organizational effectiveness by the managers,
they can easily know the relevance of a particular piece of information.
• Size and Power of the Organisation. Size is an important factor (or
determining the interaction with the environment. Normally larger is the
size of the organisation, more will be its interaction with its
environment
When an organisation is small, it may be
exempted Irom various legal provision, with regard to its various
management practice. For example, the various labour legislation are
applicable only when the organisation has achieved a certain size.
Similarly, the organisation is covered by MRTP Act or Industries
(Development and Regulation) Act after it has achieved certain size.
• The relative power of the organisation vis-a-vis its external
environment determines the extent to which the organisation can control
or is controlled by the environmental forces. If the organisation is
strong in respect of certain environmental factors, it is unlikely to
focus attention on this aspect.
Formulation of a corporate strategy should be collaborative
A strategy should be participatory in the sense that all stakeholder s
are involved. At global level, this happened in Singapore and Malaysia.
Locally the country‘s blue print was equally collaborative as shown below.
The strategy should have a time frame. A local example is Kenya‘s
national time frame as shown below:-
Business strategy
Business Level: Strategic Business Unit (SBU) managers (e.g.. Divisional
General Managers), are involved at this level in taking strategic
decisions. Here” strategies are about how to compete in particular
product-markets. The strategies are related to a unit within the
organization. On this point it also important to mention operating level
strategy. This third level of strategy is at the operating end of the
organization. Here, the strategies are concerned with how the different
functions of the enterprise like marketing, finance, manufacturing, etc.
contribute to the strategies of other levels. These contributions are
important in terms of how can an organization become competitive.
Competitive strategy depends to a large extent on decisions about market
entry, price, product offer, financing, manpower, investment in plant,
etc. In themselves these decisions are of strategic importance but are
made, or at least strongly influenced at operational levels.
ELEMENTS OF STRATEGIC MANAGEMENT
Strategic Management is concerned with deciding on the strategy and how
the strategy is to be put into action. Strategic management has three
main elements: strategic analysis, strategic choice, and strategy
Implementation.
Strategic Analysis: This is concerned with understanding the strategic
situation of the organization and its effects on the organization,
assessment of its resources and strengths in the context of these
changes, effect of the changes on people and on their present and future
aspirations.
Strategic Choice: Strategic analysis provides a basis for strategic
choice. This is concerned with the formulation of possible courses of
action, their evaluation and the choice between them. This means that
the strategic choice has three parts to it- generation of strategic
options, evaluation ct strategic options and selection of strategy.
Strategy Implementation: This is concerned with translation of general
directions of strategy into action. This is also as important as
strategic analysis and choice. Implementation involves resources
planning in which logistics of implementation are examined. It also
takes into account the organization structure needed to carry through
the strategy and of course the systems and people who implement the
strategy are important.
