What does strategy formulation focus on?

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Every organization requires a strategy for it to operate it must follow these top 6 steps of strategy formulation and strategy formulation process. In order to come up with these strategies the process of strategic formulation is vital to the well-being of a company’s administration or organization. The organization should be keep in mind that there are basically two major types of strategy which are:
corporate strategy: this is a strategy in which organizations and individuals decide which line or lines of business to engage in; and business or competitive strategy: this is a type of strategy which sets the framework for achieving success in a particular business.
Both of these types of strategy involve planning, industry/market analysis, goal setting, commitment of resources, and monitoring and anchor the steps of strategy formulation . But business strategy offer receives more attention than cooperate strategy. This article aims at outlining the importance of strategy formulation, but firstly it is imperative to define what is meant by strategy formulation.

Strategy formulation can be defined as the process of offering proper direction to an organization and an individual. It often seeks to set long term attainable goals that will help an organization to maximize it’s strength fully and deliberately attempt to focus attention on what the organization can do better than its rivals.

In order to achieve this, an organization seeks to find out what it can do best. Once the strengths are known, opportunities to be maximized are identified; a long-term plan is chalked out for concentrating resources and effort.

Strategy formulation process consists of the 6 major strategy formulation steps. These steps are as follows; Write a Vision Statement, Mission Statement, Defining the company’s profile, Evaluating external environment, selecting actions for accomplishing the mission of the organization and choosing of long term strategies for an effective strategy. Below are the key steps followed in strategy formulation and strategy implementation;

Steps of strategy formulation process

1. Understand Choice of business
   An organization must first be in a position to choose what business or businesses the organization wishes to engage in, in other words, the corporate strategy.
2. Mission statement
   Secondly an organization should plainly articulate it’s mission consistent with its business definition.
3. Set Objectives and goals
   An organization must develop strategic objectives or goals and set performance objectives (e.g., at least 15 percent sales growth each year).
4. Analysis of internal and external forces (SWOT Analysis) After the formulation of the strategic objectives and goals it is imperative that an organization makes an analysis of both internal and external factors, the company must create a specific business or competitive strategy that will fulfill its corporate goals.
5. Implementation of the business strategy
   The company then implements the business strategy by taking specific steps (e.g., lowering prices, forging partnerships, entering new distribution channels).
6. Review of the strategy
   Finally, the company needs to review its strategy’s effectiveness, measure its own performance, and possibly change its strategy by repeating some or all of the above steps.

What is the importance of strategy in an organization?

Strategy formulation enables a number of actions and the attainment of desired results which would be difficult to attain. A strategic plan provides with a clear vision of what an organization’s goals and objectives are. This only is applicable when the strategic plan is communicated to all the members of an organization.

Strategy formulation in an organization forces or opens up the organization to inevitability of change examination in the near future and to prepare for change rather than passively waiting until the market compels it. Capital budgeting is one of the activities influenced by strategic formulation and Importance of strategy implementation has significantly increase over the years.

Most organizations have a limitation when it comes to funds to invest, therefore strategic formulation must allocate capital where they will be most effective and derive the highest returns on their investments.

On the other hand, a firm without a clear strategic plan gives its decision makers no direction other than the maintenance of the status quo. The firm becomes purely reactive to external pressures and less effective at dealing with change. In highly competitive markets, a firm without a coherent strategy is likely to be outmaneuvered by its rivals and face declining market share or even declining sales.

Importance of strategy formulation

• Strategy formulation is the course of action companies take to achieve their defined goals.
• it creates awareness of an organization’s objective, mission and purpose.
• A strategic plan enables a company to evaluate resources, allocate budgets, and maximize return on investment.
• It gives an organization a clear direction and focus.
• An organization implements in order to achieve success. This is done by developing appropriate tactics, which are the action steps for meeting the strategies directives.

Finally a strategic plan is a living document that changes and grows as the conditions around it change. If an organization recognizes that it must constantly be aware of the business world around it and must be flexible to the changes that will inevitably occur, then it will be in a position to adapt and modify its plans to achieve maximum success.

Definition: Strategy Formulation is an analytical process of selection of the best suitable course of action to meet the organizational objectives and vision. It is one of the steps of the strategic management process. The strategic plan allows an organization to examine its resources, provides a financial plan and establishes the most appropriate action plan for increasing profits.

It is examined through SWOT analysis. SWOT is an acronym for strength, weakness, opportunity and threat. The strategic plan should be informed to all the employees so that they know the company’s objectives, mission and vision. It provides direction and focus to the employees.

 Steps of Strategy Formulation

The steps of strategy formulation include the following:

1. Establishing Organizational Objectives: This involves establishing long-term goals of an organization. Strategic decisions can be taken once the organizational objectives are determined.
2. Analysis of Organizational Environment: This involves SWOT analysis, meaning identifying the company’s strengths and weaknesses and keeping vigilance over competitors’ actions to understand opportunities and threats.

   Strengths and weaknesses are internal factors which the company has control over. Opportunities and threats, on the other hand, are external factors over which the company has no control. A successful organization builds on its strengths, overcomes its weakness, identifies new opportunities and protects against external threats.

3. Forming quantitative goals: Defining targets so as to meet the company’s short-term and long-term objectives. Example, 30% increase in revenue this year of a company.
4. Objectives in context with divisional plans: This involves setting up targets for every department so that they work in coherence with the organization as a whole.
5. Performance Analysis: This is done to estimate the degree of variation between the actual and the standard performance of an organization.
6. Selection of Strategy: This is the final step of strategy formulation. It involves evaluation of the alternatives and selection of the best strategy amongst them to be the strategy of the organization.

Strategy formulation process is an integral part of strategic management, as it helps in framing effective strategies for the organization, to survive and grow in the dynamic business environment.

Levels of strategy formulation

There are three levels of strategy formulation used in an organization:

• Corporate level strategy: This level outlines what you want to achieve: growth, stability, acquisition or retrenchment. It focuses on what business you are going to enter the market.
• Business level strategy: This level answers the question of how you are going to compete. It plays a role in those organization which have smaller units of business and each is considered as the strategic business unit (SBU).
• Functional level strategy: This level concentrates on how an organization is going to grow. It defines daily actions including allocation of resources to deliver corporate and business level strategies.

Hence, all organisations have competitors, and it is the strategy that enables one business to become more successful and established than the other.