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Strategy formulation involves selecting the most suitable and effective plan of action to meet the organisation’s objectives and goals. It is a crucial step in the strategic management process. Organisations can use a strategic plan to review their resources, establish a financial plan, and determine the most effective action plan for increasing profits.
The senior members of the company’s management system first study the industry’s plan, keeping in mind the present trends. Then they produce ideas for new products and services. These ideas are subsequently transformed into specific strategies for action. Let us see the formulation process, steps, and examples.
Strategy Formulation Process
The first step entails conceptualising. In this step, the company’s management studies the predefined plans and goals.
The next step is to examine the existing goals outlined in the plan and establish long-term goals.
This evaluation, also known as “value engineering,” seeks to evaluate the strategies that are worth it for the company.
This is accomplished by finding the difference between the suggested approach and the predetermined criteria. If the offered solutions are better than the predefined ones, they are accepted. Else they are rejected.
The implementation of the strategy is the final step in this process. This step entails putting the recommended strategy into action.
The technique adopted may decide who is responsible for resource distribution. A minimax strategy, for instance, is a strategy in which management distributes resources to minimise resource scarcity due to loss.
Advantages of Strategic Formulation
Rather than reactively responding to problems, it allows organisations to be proactive. Organisations can anticipate and prepare for their future by preparing a strategic plan. Strategic planning may make taking necessary precautions to avoid certain unfavourable scenarios possible.
This gives the organisation direction. The strategy formulation process allows the organisation to concentrate its efforts, preventing time and money from being allocated to areas that are not critical to its success.
The efficiency of operations is improved. They can focus their attention on reaching goals using such a technique. As a result, the company has become more versatile.
The company’s profitability has increased as well. By targeting and strategically aligning all sales and marketing activities, you can maximise market share and profitability.
It can enhance the longevity of a business. A well-thought-out strategy is a crucial tool for organisational growth and change. Managers are unsure about the future and whether they contribute to the organisation’s goals without a well-defined plan.
Steps involved in Strategic Formulation
1. Create a mission statement.
The primary reason for an organisation’s existence is its mission. It is usually a list of a company’s major reasons for being or the functions it performs.
Mission statements help focus a company’s skills, emphasise its goal, and provide decision-making guidance. The following are some of the goals that a strong mission statement must achieve the following:
What the organisation intends to do for its customers should be spelt out clearly and concisely
There should be a description of the organisation’s purpose or mission
The employees must be well trained for the organisation to achieve its target
2. Coming up with a vision statement
An organisation’s vision statement describes its future in vivid detail. An organisation’s strategy and goals for the future are clearly outlined.
Every organisation needs a vision statement as part of its strategy. In this sense, future strategies will be able to take on a broader framework and be more flexible. The vision statement helps organise the actions of the organisation as well.
A vision statement of an organisation should have the following characteristics:
For employees to know what is expected of them, it should include specifics;
Change should not be permitted to support its implementation;
Substance and visual impact are provided when written;
All employees must be able to understand the text;
3. Assessing the organisation’s present strategic stance
The corporation should focus its resources on improving its shortcomings and seeking new opportunities when it understands its current market position. The company can strive to reach its goals by improving its existing processes.
4. Establishing the firm’s fundamental strengths
To effectively compete in the market, the organisation must be reinvented and transformed into an agile organisation that is lean and flexible.
5. Analysing the company’s strategic position is the fifth step.
The company’s management will have to understand its position in the market and then work on its strengths and weaknesses for the betterment of the company.
6. Making environment-friendly strategic decisions
The company must be able to adapt to environmental issues and opportunities as they arise. Unfortunately, most companies’ ability to adapt to external changes is limited due to their short-term view.
7. Development of an Organisational Structure.
A well-designed organisational structure is a key to its performance. It is important to change the organisational structure when an organisation changes its strategies to accommodate changes in responsibilities, lines of authority, etc. This will make the organisation more efficient.
8. Reward system in strategy implementation
It is important that an organisation rewards and recognizes those who achieve their designated performance targets while rejecting those who don’t. Creating a reward system is one of the key steps to motivating average-level employees to be more productive.
9. Strategy improvement through evaluation in the long term.
Strategy formulation and implementation is an ongoing process. In the long run, it may not seem so relevant. Strategies must be evaluated at least once a year, and reinvent new strategies from the predefined ones.
Strategy Formulation example
Early in the 2010s, Nike lost its popularity among football players to rivals like Adidas and Puma. Nike opted for cross-endorsement, which involves using athletes from one sport to promote merchandise for another sport, to maintain the brand’s appeal. With basketball legend Michael Jordan, Nike developed a line of football kits and apparel called Air Jordan.
Conclusion
Any organisation’s purpose, goal, and vision must be renewed regularly. It’s critical to keep these topics in people’s consciousness. It is also important for all company members to grasp the strategic direction. Businesses must focus on strategic planning at least once a year, if not more frequently. Strategic planning can assist a company in reinvigorating its mission, vision, and purpose. This is critical since employees are most motivated by the organisation’s purpose, goal, and vision. Strategic planning should be done regularly.
