How is strategy formulated

As the implementation moves forward, management may spot some methods or tactics that are not working, or they may realize that another tactic may work better. In that case, the corresponding adjustments may be made. At this point, it is possible that the company was able to come up with several strategies. Review of the strategies will help the strategic management team to prioritize the strategies and identify which ones to implement.

This time, let us take a look at some tactics, methods or steps undertaken by New Leaf Paper. Keep in mind that the competitive strategy is to introduce product innovations and putting emphasis on environment and social values. It is important to track the progress of the implementation of the strategies. Are they being properly implemented? Are they being measured properly?

Are the safeguards to ensure reliability of the results in place? On top of that, the effectiveness of the strategy implemented should also be assessed.

Is the strategy working? Does it have the potential to bring the company closer to the fulfillment of its goals, as laid out in the Mission Statement? When we look at the example of New Leaf Paper, its strategies resulted in other paper companies launching their own lines of environmentally responsible paper products that are very similar with New Leaf products.

Clearly, this is an indication that the company is making strides in its vision of inspiring — through their success — that fundamental shift toward sustainability in the paper industry. Feedback plays a very important role in the evaluation stage, providing the strategists with insights on how the implemented strategies are faring.

It takes a lot of smarts, determination and hard work to make a business succeed, beat the competitors, and have the upper hand in the competitive arena within the marketplace.

A great part of this rides on the strategies and how they are implemented, but never forget that it all starts with the strategy. In order to have an effective strategy, make sure that they are in line with the overall organizational goals. E-mail is already registered on the site. Please use the Login form or enter another.

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Not yet a member? Sign Up. Find your dream job. Leadership bias could also be present because of the persuasive approach of the leader on a chosen plan, pushing it through a strategy formulation stage. In ex-post facto analysis, one can look at a number of such decisions taken both in the case of listed and unlisted companies. Ideally, some stakeholders should apply pressure against such bias and insist on withdrawing support.

The large regional retailer Subhiksha which became defunct in could be an example here. If leadership had avoided bias by broadening its forum of decision makers, the company could have seen different times. There are cases of successful persuasive leadership bias as well. In the case of these examples, leadership bias has been validated through scientific analysis and support systems.

There have also been some cases where inadequate application of right leadership perspective led to a crisis. For example, there was a distillery company that adopted unproven venture funded technology for handling effluent, which led to the failure of the distillery and finally forced its promoters to sell the business. Here, the case was of a clear lack of perception and inadequate time spent on analysis and choice while formulating the strategy. If it had been done, there could have been some fall-back option and adverse situations could have been avoided.

Managerial bias can also influence strategy formulation. It is highly subjective in nature. This makes them drive the strategic decisions that are convenient to them instead of being scientific in strategy formulation. This has been well articulated by Oliver E. Williamson This is applicable even today, especially in large corporates and MNCs.

It could be difficult to be conclusive for us to comment on whether it is advisable. However, such biases must be validated through systematic analysis and choice process. During contemporary business conditions, we see that boards are effective in handling this bias.

Even then, the bias and organizational politics are subjective in nature and influence strategy formulation. The board of directors is elected as representatives of the shareholders. Its role is to oversee the function of the company and ensure that the company continues to operate in the best interests of all stakeholders. However, in contemporary business, this is not an easy task.

This is true from the perspective of the individuals and the intangible value they bring to the business and its stakeholders. The board could be passive, active or aggressive. There were times when the board was considered the rubber stamp of the promoters.

With an increased orientation towards responsible corporate governance prevalent in the business landscape today, the perception and effectiveness of a board of directors has now changed to that of a strategic asset for the company. A good board needs to set a tone that will promote a transparent culture, and effective dialogue among directors, senior management, and various functional and risk managers.

The composition and role of the independent directors are also now examined closely. Independent directors should significantly contribute to the functioning of the board through requisite understanding of the company and business.

Boards must be involved in their own performance evaluation and enable continuous feedback and communication across stakeholders. Effective boards build capabilities within themselves and their organizations that allow them to jointly protect existing assets compliance role , as well as, manage threats to future growth strategy oversight role.

It is important to note that there are some key functions that should be fulfilled by the board, such as the following:. Selecting, compensating, and monitoring key executives, and overseeing succession planning. Ensuring a formal and transparent board nomination and election process. Monitoring and managing potential conflicts of interest of management, board members, and shareholders, including misuse of corporate assets and abuse in related party transactions.

Ensuring control systems for risk management, financial and operational control, and compliance. Overseeing the process of disclosure and communications. If you study these key functions, you will realize that all are important from the strategic management process perspective.

In fact, strategy formulation is one of the most important functions that the directors spend a lot of time on.

Indian companies understand the importance of board composition and large business houses vie to maintain illustrious people among their board of directors. His research and teaching interests center on managing innovation and creating new growth markets.

Christensen has founded three successful companies. Similarly, Dr. Marti G. Subrahmanyam, the Charles E. Subrahmanyam has published several articles and books in corporate finance, capital markets, and international finance. Similarly, many of the leading companies have well-known personalities as independent directors who can bring high value to strategy formulation, and direction to the company based on their intellect and experience.

A Managing Director MD is the director of a company who is given special powers by its constitution. In most companies, this is the senior-most manager of the company, heading the organization, and so may have a title, such as Chief Executive Officer CEO. We now commonly come across such job profiles in many IT firms in India and elsewhere. A managing director is in a leadership role for an organization and he may have to work towards fulfilling a motivational role for the stakeholders.

The CEO and the board must work on ideas for the improvement of the company. The responsibility of the CEO is to align the company, internally and externally, with its strategic vision.

A CEO must balance internal and external initiatives to build a sustainable company. This clearly brings out the role of the CEO in strategy formulation. In some companies, the CEO primarily coordinates external initiatives, as functional level executives i. On the other hand, in emerging entities, promoters act as CEO on a very different platform than that of the corporate level.

At times, when other top level executives are not incorporated in small operations, it is the duty of the CEO and sometimes founder to assume those positions. In these companies, both formulation and execution responsibilities lie with the CEO.

Some CEOs reach celebrity status with their performance and achievement. You may note the impact these leaders have on strategy formulation through setting a vision, ensuring that it becomes the shared vision, and orchestrating strategy for high performance. Corporate history has seen many such leaders and their role in strategy formulation. Mid-sized companies, start-ups, not-for-profit organizations and governments have such leaders. Key skill sets include the ability to set vision and drive the strategy team to proceed on the same.

Strategists try to run their organizations based on a systematic and objective method of strategy formulation, strategy-implementation and strategy-evaluation. This approach of managing the firm is dependent on long term and short-term objectives of the firm and is known as managing by objectives. It has been observed therein that, on an average, strategy formulation ranks sixth in importance in the ten-key agenda items of the top executives.

Only 14 per cent of the executives put future strategy at the top of their list. And out of those 14 per cent, only a few executives depend on systematic and objective approach for strategy-formulation. They refuse to realize that the future will not be an extrapolation of the past. Obviously, they are failing in their endeavor. And all these failures indicate the need for strategy- formulation framework. Generally, strategy-formulation framework is a four-stage integrated process of decision-making.

In the first stage strategists are concerned with analysis and diagnosis of the external environment. This stage is also known as external input stage.

The Second stage is internal input stage where the strategists are concerned with internal capabilities and limitations. The third stage focuses on generating alternative strategies by matching the basic external factors with the basic internal factors. In view of the same the third stage is termed as matching stage.

QSPM reveals the relative attractiveness of different alternative strategies generated in the earlier stage and provides with the objective basis for final selection of the corporate strategy. Lenz has however, emphasized that this number-oriented planning process might give rise to a false sense of certainty and reduce discussions, arguments and opinion based analysis.

He is in favor of words-oriented planning, but, according to David biases, groupism and halo error i. Thus, strategists must make a balance between number oriented planning and word oriented planning tools by opting for analytical tools and facilitating communication. The strategy formulation involves the following steps:. Specify what products, markets, technologies and customer policies to follows.

Vision communicate management aspirations to stack holders of company. Helps to boost morale of organization and engages them for a common direction. Clear vision helps to provide a motivated and stimulated environment in the organization.

Vision specify management aspiration for the business in long-term. Objectives define specific performance targets, results and growth that organization wants to achieve. To determine the objectives an approach known as Balance Score Card is used. Overall a company should set both strategic and financial objectives. However, organization can use Balance Score Card approach for setting objectives.

Balance Score Card also provides a basis to measure company performance against set objectives. Company strategic and financial objectives should be set both as, short-term and long-term objectives.

Long-term objectives represent the results expected from pursuing certain strategies, usually from two to five years. Objectives are commonly stated in the following terms; growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree and nature of vertical integration, earnings per share, and social responsibility.

Concept of Strategic Intent:. Here intent refers to intension. A company exhibits strategic intent when it relentlessly aggressively pursues an ambitious strategic objective and concentrates its full resources and competitive actions on achieving that objective.

Delivering the best customer service in the industry or the world ;. Turning new technology into products which capable of changing the way people work and live. Sometime ambitious companies begin with strategic intents that are out of proportion to their immediate capabilities and market positions. But they continuously work hard— even achievement of objective may take a sustained effort of 10 years or more.

Moreover, on reaching one target they stretch the set objectives and again pursue them relentlessly, sometimes even obsessively. The Need for Objectives at all Organizational Levels:. Company objectives need to be broken down into performance targets for each separate business, product line, functional department, and individual work unit.

This means that objectives should be given to each and every business units and those should be combined with overall company objectives. A company can achieve its mission and objectives when all the components of a company work together.

Vision, Objectives and crafting a strategy set the both short-term and long-term performance targets for organization. Together, they constitute a strategic plan to deal with industry and competitive conditions. There are three levels of strategy formulation used in an organization:. Hence, all organisations have competitors, and it is the strategy that enables one business to become more successful and established than the other.

Your email address will not be published. Comments Your site very important to be referred to enhance my understanding about strategy. This requires a careful analysis of macroeconomic trends. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance.

A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. Choice of Strategy - This is the ultimate step in Strategy Formulation.