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?
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.
Why Strategy Formulation Matters
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
Levels Of Strategy Formulation
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.
Steps Of Strategy Formulation
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.
Examples Of Strategy Formulation
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.
Curate The Perfect Strategy
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.
Discover more from Harappa with a selection of trending blogs on the latest topics in online learning and career transformation