Strategy Formulation (Read Only If You Want To Outcompete Competition)
DE-AVK. Tasks of strategic management. Outline. • Strategy formulation. • Develop vision consumer relations and revenues among companies headquartered. Strategic plans should be communicated to all employees so that they are aware of the organization's objectives, mission, and purpose. Strategy formulation. Discover how strategy formulation can help you outcompete your competition and The systematic nature of the strategic management process is .. product line and business relationship is deeply entrenched with New Leaf.
While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.
Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the organizational objectives.
The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments.
The main idea of this stage of planning is to take an Figure 2 SWOT Analysis in-depth look at the company's internal strengths and weaknesses and its external opportunities and threats. This is commonly called a SWOT analysis. Developing a clear understanding of resource strengths and weaknesses, an organization's best opportunities, and its external threats allows the planning team to draw conclusions about how to best allocate resources in light of the firm's internal and external situation.
This also produces strategic thinking about how to best strengthen the organization's resource base for the future. Looking internally, there are several key areas that must be analyzed and addressed. This includes identifying the status of each existing line of business and unused resources for prospective additions; identifying the status of current tracking systems; defining the organization's strategic profile; listing the available resources for implementing the strategic thrusts that have been selected for achieving the newly defined mission; and an examining the current organizational culture.
The external investigation should look closely at competitors, suppliers, markets and customers, economic trends, labor-market conditions, and governmental regulations.
In conducting this query, the information gained and used must reflect a current state of affairs as well as directions for the future.
The result of a performance audit should be the establishment of a performance gap, that is, the resultant gap between the current performance of the organization in relation to its performance targets.
To close this gap, the planning team must conduct what is known as a gap analysis, the next step in the strategic planning process.
All too often, however, planning teams make the mistake of making this step much more difficult than need be. Simply, the planning team must look at the current state of affairs Figure 3 Gap Analysis and the desired future state. The first question that must be addressed is whether or not the gap can feasibly be closed. If so, there are two simple questions to answer: If there is doubt that the initial gap cannot be closed, then the feasibility of the desired future state must be reassessed.
First, an action plan must be developed for each line of business, both existing and proposed. It is here that the goals and objectives for the organization are developed. Goals are statements of desired future end-states. They are derived from the vision and mission statements and are consistent with organizational culture, ethics, and the law. Goals are action oriented, measurable, standard setting, and time bounded. In strategic planning, it is essential to concentrate on only two or three goals rather than a great many.
The idea is that a planning team can do a better job on a few rather than on many. There should never be more than seven goals. Ideally, the team should set one, well-defined goal for each line of business. Writing goals statements is often a tricky task.
By following an easy-to-use formula, goals will include all vital components. Specifically, each objective statement must indicate what is to be done, what will be measured, the expected standards for the measure, and a time frame less than one year usually tied to the budget cycle. Objectives are dynamic in that they can and do change if the measurements indicate that progress toward the accomplishment of the goal at hand is deficient in any manner.
Simply, objectives spell out the step-by-step sequences of actions necessary to achieve the related goals. With a thorough understanding of how these particular elements fit and work together, an action plan is developed.
If carefully and exactingly completed, it will serve as the implementation tool for each established goal and its corresponding objectives as well as a gauge for the standards of their completion. Contingency plans should identify a number of key indicators that will create awareness of the need to reevaluate the applicability and effectiveness of the strategy currently being followed.
Steps in Strategy Formulation Process
When a red flag is raised, there should either be a higher level of monitoring established or immediate action should be taken. To be successful, the strategic plan must have the support of every member of the firm. As mentioned in the beginning, this is why the top office must be involved from the beginning. A company's leader is its most influential member. Positive reception and implementation of the strategic plan into daily activities by this office greatly increases the likelihood that others will do the same.
Advertising is key to successful implementation of the strategic plan. The more often employees hear about the plan, its elements, and ways to measure its success, the greater the possibility that they will undertake it as part of their daily work lives. It is especially important that employees are aware of the measurement systems and that significant achievements be rewarded and celebrated.
This positive reinforcement increases support of the plan and belief in its possibilities.
Difference Between Strategy Formulation and Strategy Implementation
Also known in the United States as policy deployment, management by policy, and hoshin management, it is a careful and deliberate process by which the few most important organizational goals are deployed throughout the organization.
It consists of five major steps: Development at the executive level of a long-term vision. Selection of a small number of annual targets that will move the organization toward the vision. Development of plans at all levels of the organization that will together achieve the annual targets. Execution of the plans.
Regular audits of the plans. Hoshin management was developed in Japan as part of the overall refinement of quality programs in that country after World War II. At one time, "made in Japan" was synonymous with shoddy quality, but with the encouragement of the American occupation force, the Japanese Union of Scientists and Engineers JUSE made great efforts to improve Japanese manufacturing. Edwards Deming and Joseph M.
Juran to train managers and scholars in statistical process control SPC and quality management. So significant were these visits, especially Deming's, that the highest Japanese award for quality is called the Deming Prize. Each company developed its own planning methodology, but the Deming Prize system involves the sharing of best practices, and common themes developed.
In Bridgestone Tire published a report described the planning techniques used by Deming Prize winners, which were given the name hoshin kanri. By hoshin planning was widely accepted in Japan. In the early s hoshin planning began to gain acceptance in the United States, first in companies that had divisions or subsidiaries in Japan which won the Deming Prize: Florida Power and Light, the only company outside Japan to win the Deming Prize, was an early adopter.
During the s the practice spread. In Noriaki Kano, professor of management science at the University of Tokyo and member of the Deming Prize Committee, gave a presentation on the topic at the meeting of the American Society of Quality Control now the American Society for Quality.
Several elements of TQM are especially important for the effectiveness of hoshin planning. This aspect of strategy formulation has the following components: This component is concerned with the direction that the business is taking. How is its overall performance, and does it coincide with what the business had in mind when it developed its growth objectives?
Are the growth strategies still consistent with the growth objectives and, if not, what changes or modifications must be made? How are these lines interconnected or how do they fit together? The most common strategies developed at this level address queries on whether a business should diversify its portfolio or keep them as they are, and focusing on their concentrations or weights instead. The main point of concern here is the allocation of resources and capabilities across the lines of business of the organization.
How will the items in the portfolio be managed? Which lines require more direct management and control? Which lines are in need of additional resources to boost their performance? Business Level Strategy Large companies usually have multiple lines of business in their portfolio. The larger firms even distinguish them as separate strategic business units SBUs under a single organizational umbrella. As strategic business units, they are operational as stand-alone businesses, which means that competition is bound to arise.
In this level, strategy formulation is geared towards coming up with competitive strategies between and among the lines of businesses or SBUs of the organization. Functional Level Strategy Compared to the other two levels, the functional level has a shorter outlook. Within each line of business or SBU, there are functional units with their own specific tasks and sets of activities. Strategies at this level are required, primarily addressing how these activities and tasks will be carried out effectively and efficiently.
You want your business to grow and be a force to reckon with in the industry. Naturally, you also want to be ahead of the competition, beating them soundly and putting as much distance as you can between you.
First, you have to come up with winning strategies, which you will then implement to come out on top. Your strategy formulation should roughly follow these steps: Define the organization and its environment The first step requires you to take a look at the organization. The points of interest are: Target market — This is the domain that the business hopes to dominate, so there is a need for the organization to clearly identify and define the particular group that it will target.
Customers — They are the end users of the products and services that the company offers. How do they perceive value? Are you able to meet that perception? How do they make their purchasing decisions? Why do they purchase your products or services? Offerings — These are the products or services that you are selling to the customers. Do they offer value to the customers, and does that value meet their perceived value?
How does the price point affect its value, if at all? What are the end benefits that these products and services have that convince customers to buy them?
Adaptation to changes and challenges — Business environments are, at best, unstable in the sense that changes are expected and even anticipated. Anticipation will spur the company to come up with strategies to be able to adapt quickly and effectively. Therefore, the organization has to identify the potential challenges that are expected to arise.
The most common examples are the introduction of new technologies and equipment, and updates in systems. Define the strategic mission Organizations are forward-looking, and they want to achieve something as they move the business along. The strategic mission will provide a clear picture of that long-range outlook, providing an overview of what the business wants to achieve.
This will serve as a definitive and clear guide for the organization and its members as they carry out the tasks indicated in the plan. A strong strategic mission should have all, if not most, of the following: An indication of a long-range perspective. The business is looking at the long term, not just one, three or five years down the road.
It has to be clear on that front. Core values of the organization. The mission must include the values that are upheld and highly esteemed by the organization. These values will largely dictate how you are going to go about the process of achieving the goals of the organization.
Nature of the business. Briefly, include a description of the core activities or main line of business of the organization. Is it in commercial retail, healthcare services, or automobile manufacturing? Current position of the organization in the market.