Strategy Formulation

Topic 1: The Concept of Strategy and the

Strategic Management Process
 What is a strategy?
 The strategic management process
 Why strategic management is an ongoing

process
 Who performs the tasks of SM?
 Benefits of a strategic approach
 ‘determination of the basic long-term goals
and objectives of an enterprise, and the
adoption of courses of action and the allocation
of resources necessary for carrying out these
goals’’
 Chandler

 ‘a commitment to undertake one set of actions

rather than another’
 Oster
 ‘...the “game plan” management has for
positioning the company... entails choice
among alternatives and signals
organisational commitment to specific
markets, competitive approaches, and
ways of operating.’
 Thomson and Strickland
 Corporate

Business Influence

Function
Operating

•Uniting the strategy-making effort through

vertical and horizontal linkages.
•Co-ordination through mutually reinforcing
vision, objectives & strategies.
• Corporate - what business?
• Business - how to compete in each business
• Functional - in support of business level
 Analyze Identify
Environment opps / threats

Identify Formulate
current Strategies
SWOT ANALYSIS
mission,
objectives
& strategies Implement
Analyze Identify
Resources strengths & Strategies
weaknesses

Evaluate
Results

‘Management’, Robbins, S. & Coultar, M. 1996p. 259

 Strategy making is an ongoing process
 Boundaries between tasks:conceptual not

real
 Managers have many other responsibilities
 Crafting/ implementing happens

erratically
‘strategy is a combination of planned actions and on-the-spot
adaptive reactions to freshly developing industry and
competitive events.’

Respond to external/internal environment

Emergent Strategy
 CEO and other managers
 Strategic planners
 Board of directors
 Develop a strategic vision/ business mission
 Set objectives
 Craft a strategy
 ‘Chesire Puss’ she (Alice) began ...
‘Would you please tell me which way I
ought to go from here’

‘That depends on where you want to get

to,’ said the cat.

Lewis Carroll

‘If you don’t know where you’re going,

any old road will take you there’.
Anonymous
 Defines the current boundaries
Defines the business position
-’Who are we?’
- ‘What do we do?’

Mission

Present
◦ soft drinks?
Competition is Pepsi, Finches
◦ beverages?
Competition is tea, coffee,
softdrinks
◦ thirst -quenching?
Competition is water & all
liquids!
Broad Narrow
Beverages Fizzy drinks
Children’s entertainment Toys for toddlers
Furniture Waterbeds
Travel River cruises in Egypt
 •Strategic vs. Financial?

•Long range vs. short range?

•Challenging but achievable

•Measurable
• Strategic
– focus is on competitors
• eg. becoming the top company in the
industry
• Financial
– focus is on financial performance
• eg. acceptable profit margin/ ROI
• Both are neccessary
– company must survive in both
short and long term
• Long term forces
– early action
– long term
implications
considered
• Short term
encourages
– speedy progress
• objectives must be
realistic
• but should stretch
• funds/ resources
must be available
to execute the
strategy
• Objectives must be
measureable
– eg. growth in market share
of 5%
• Deadlines must be set
– eg. by December next

‘You cannot manage what

you cannot measure’
• Parts supporting the whole

• Top-down objective-setting
- cohesion
- leadership
– Master strategist: manager is chief architect
– Delegate to others
– Collaborative approach
– Champion approach
 External

Society Industry Opportunity

political Attractive- threat
regulatory ness

Evaluation
Company’s strategic situation Choice Craft
Craftaa
Strategy
Strategy

Strengths Manager Culture

weakness values /
ambitions

Internal
• Limit the strategic actions that a company
can or should take
• May cause company to change strategy
– anti-smoking lobby (direct mkg/advertising)
– lead-free petrol (eg Pura)
– recycling
• Strategy must be matched to industry and
competitive conditions eg.
– technology shift
– change in cost structure of industry
• Be open to opportunities
• Aim at capturing best growth opportunities
• Defend against threats to well-being and
future performance
• Strategy must be well-matched to the
company’s strengths
– strategy should be grounded in what company
is good at doing
– perilous to depend on what it’s not good at
• Management play a pivotal role
• Strong leadership builds commitment
• Management communication - ‘buy-in’
•
what you might do: opportunity
•
what you can do: resources
•
what you’d like to do: values/
ambitions
•
what you ought to do: ethics
 Goodness of fit test
◦ matches well the company’s situation
 internal
 external
 Competitive advantage test
◦ leads to sustainable competitive advantage
 Performance test
◦ leads to superior performance
 profitability
 long term business/ market position strength
 •Direction
•Adaptable / in-tune with environment
•Basis for budget/resource allocation
•Unifies decisions across organisation
•Encourages pro-active management
•Requires strategic thinking rather than gut-feel/drift