Strategy Formulation
Rex
C. Mitchell, Ph.D.
INTRODUCTION
It is useful to consider
strategy formulation as part of a strategic management process that comprises
three phases: diagnosis, formulation,
and implementation. Strategic management
is an ongoing process to develop and revise future-oriented strategies that
allow an organization to achieve its objectives, considering its capabilities,
constraints, and the environment in which it operates.
Diagnosis
includes: (a) performing a situation
analysis (analysis of the internal environment of the organization), including
identification and evaluation of current mission, strategic objectives,
strategies, and results, plus major strengths and weaknesses; (b) analyzing the
organization's external environment, including major opportunities and threats;
and (c) identifying the major critical issues, which are a small set,
typically two to five, of major problems, threats, weaknesses, and/or
opportunities that require particularly high priority attention by management.
Formulation,
the second phase in the strategic management process, produces a clear set of
recommendations, with supporting justification, that revise as necessary the
mission and objectives of the organization, and supply the strategies for accomplishing
them. In formulation, we are trying to
modify the current objectives and strategies in ways to make the organization
more successful. This includes trying to
create "sustainable" competitive advantages -- although most
competitive advantages are eroded steadily by the efforts of competitors.
A
good recommendation should be: effective
in solving the stated problem(s), practical (can be implemented in this
situation, with the resources available), feasible within a reasonable time
frame, cost-effective, not overly disruptive, and acceptable to key
"stakeholders" in the organization.
It is important to consider "fits" between resources plus
competencies with opportunities, and also fits between risks and
expectations.
There
are four primary steps in this phase:
* Reviewing
the current key objectives and strategies of the organization, which usually
would have been identified and evaluated as part of the diagnosis
* Identifying
a rich range of strategic alternatives to address the three levels of strategy
formulation outlined below, including but not limited to dealing with the
critical issues
* Doing
a balanced evaluation of advantages and disadvantages of the alternatives
relative to their feasibility plus expected effects on the issues and contributions
to the success of the organization
* Deciding
on the alternatives that should be implemented or recommended.
In
organizations, and in the practice of strategic management, strategies must be implemented
to achieve the intended results. The
most wonderful strategy in the history of the world is useless if not
implemented successfully. This third and
final stage in the strategic management process involves developing an
implementation plan and then doing whatever it takes to make the new strategy
operational and effective in achieving the organization's objectives.
The remainder of this chapter
focuses on strategy formulation, and is organized into six sections:
Three Aspects of Strategy
Formulation, Corporate-Level Strategy, Competitive Strategy, Functional
Strategy, Choosing Strategies, and Troublesome Strategies.
THREE
ASPECTS OF STRATEGY FORMULATION