Strategy formulation is the process of choosing the best possible strategy out of several other strategic options.
“Strategy formulation is designed to guide executives in defining the business their company is in‚ the aims it seeks‚ and the means it will use to accomplish these aim….. Strategy formation combines a future-oriented perspective with concern for a firm’s internal and external environment in developing its competitive plan of the action.” (Pearce and Robinson)
Process of Strategy formulation
Following steps are involved in strategy formulation process:
1. Evaluate current performance result:
In the process of strategy formulation it is essential to evaluate the concerned firm’s current performance in terms of profit and loss situation and return on investment. It is also required to appraise the current mission, objectives, strategies and policies adopted by the firm.
2. Review corporate governance:
This includes appraisal of performance of the BODs, CEOs and other top level managers. It is also essential to examine the organizational vision, mission, objectives culture and management practices as successful drives for governing the corporation.
3. Scan and assesses the internal corporate environment:
It is also essential to assesses organizational competencies, skills, abilities and resources in order to cope with external changes. These are the determining factors to enhance organizational strength and minimize weaknesses and to fit a firm with the external challenges and opportunities.
4. Scan and assesses the external environment:
This is related with the examination of external factors that are posing threats as well as opportunities. The firm’s market shares and growth depend largely on external opportunities and threats.
5. Analyze strategic factors:
Strategic factors are external and internal elements determining the future of a firm. At this stage of strategy formulation process, it is essential to pin point the problematic areas and issues relating to getting competitive advantages. Problems and issues are analyzed in the SWOT form. The SWOT variables are important for the effective implementation of the strategy.
6. Generate, evaluate, and select the basic strategic options:
This is relative to the identification of the strategic options upon which a new strategy may be build. At this stage, one or more of the strategic option is selected for implementation.