STRATEGIC FORMULATION“THE WORST ERROR IN STRATEGY IS TO COMPETE WITH RIVALS ON THE SAME DIMENSIONS.” - MICHAEL PORTER,

HARVARD UNIVERSITY

UNIT II

FIRST STAGE OF STRATEGIC MANAGEMENT

INTRODUCTION

Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. 

The process of strategy formulation basically involves six main steps Framing Mission & Vision. Analysis of the Internal Environment Analysis of External Environment Gap Analysis Framing Alternative Strategies. Choice of Strategy

STRATEGIC FORMULATIOPN

Developing vision & mission Identifying external opportunities and threats Determining internal strengths & weakness. Establishing long term objectives Generating alternative strategies Choosing particular strategies to pursue. Deciding what new business to enter

OBJECTIVE..

VISION STATEMENT

The vision statement answers the question “ What do we want to be”.

A vision has to be communicated to the members of the organization..

Communicating the strategic vision down the line to lower level managers and employees is almost as important as setting the organizations long term direction.

A view of an organizations future direction and business course

a guiding for what the organization is trying to do and to become.

What do we want to become?

MISSION

Mission statement tries to provide answer to the question “ What is our business”.

Some companies develop only a mission statement which reflects the vision os the company .

It reflects the purpose of companies existance.

Should guide the actions of the organisation

Three essential components of Mission Statement: Key market. Contribution Distinction

DEVELOPING A MISSION STATEMENT

First to select several articles about mission statements and ask all managers to read these as background information

Ask managers themselves to prepare a mission statement for the organization

Committee of top managers should then merge these statements into a single documents,

Than distribute this draft mission statement to all managers as a request for modifications

Finalize the modified statement in front of CEO.s

AN EFFECTIVE MISSION STATEMENT SHOULD…

Should not too lengthy; recommended is less than 200 words

Arouses positive feelings and emotions about an organization

Generates the impression that a firm is successful, has direction

Distinguish a given organization from all others Widely understood throughout the organization Identify the utility of a firm’s products to its

consumers

DO NOT OFFER ME THINGS

Do not offer me clothes. Offer me attractive looks. Do not offer me shoes. Offer me comfort feet of

walking. Do not offer me a house. Offer me security,

comfort, and place that is clean and happy. Do not offer me books. Offer me hours of pleasure

and benefit of knowledge. Do not offer me records. Offer me leisure and

sound of music. Do not offer me things. Offer me ideas,

emotions, ambience, feelings and benefits.

ENVIRONMENTAL ANALYSIS

ENVIRONMENTAL ANALYSIS & SCANNING

The environmental survey is necessary to: Learn about events and trends in the environment and

project the future position in each factor of environment.

To identify the favorable and unfavorable factors in the environment from the standpoint of the firm.

To figure out opportunities and threats hidden in environmental trends and events.

To assess the scope of various opportunities and shortlist ones which have the potential of becoming promising business

To formulate strategy in line with opportunities.

FEATURES OF BUSINESS ENVIRONMENT

Environment is inseparable part of Business Environment is dynamic. Business lacks control over environment. Environment regulates the scope of Business. Direct & long lasting impact. Internal & external factors. Environment is complex. Environment is multi-faceted. Environment & planning. Opportunities & obstacles.

IMPORTANCE OF ENVIRONMENT ANALYSIS

Ensures survival & success. Facilitates Planning. Helps to grab opportunities. Minimizes threats. Builds Image. Helps in innovation. Ecological balance. Facilitates alternative choice. Optimum use of resources Flexibility in operations Helps to be active and alert Helps to face competition

Strengths

Weaknesses

Opportunities

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Threats

SWOT Analysis

For Organizational Success

INTRODUCTION

Globus Inc. is a leading manufacturer of baby products.

It has decided to venture into the market of cosmetics with the launch of a new brand of cosmetics ‘Glaze’ in the market.

However, before Globus can actually make the final decision of venturing into a new market, it needs to find out the things that are working in its favor and the aspects that can lead to the failure of its new venture.

Globus Inc. is a leading manufacturer of baby products.

It has decided to venture into the market of cosmetics with the launch of a new brand of cosmetics ‘Glaze’ in the market.

However, before Globus can actually make the final decision of venturing into a new market, it needs to find out the things that are working in its favor and the aspects that can lead to the failure of its new venture.

What do you think Globus should do to analyze this situation?

Globus can do a SWOT Analysis of its position in the market.

Carrying out a SWOT Analysis will help Globus understand the company’s strengths, weaknesses, opportunities and threats.

SWOT Analysis would help Globus understand its strengths that would be helpful in the new venture, its weaknesses that need to be overcome to be successful in launching the new products, the opportunities that it has at hand to succeed in the new venture and the threats that it perceives to the success in the new venture.

Globus can do a SWOT Analysis of its position in the market.

Carrying out a SWOT Analysis will help Globus understand the company’s strengths, weaknesses, opportunities and threats.

SWOT Analysis would help Globus understand its strengths that would be helpful in the new venture, its weaknesses that need to be overcome to be successful in launching the new products, the opportunities that it has at hand to succeed in the new venture and the threats that it perceives to the success in the new venture.

Hence, you can see that an organizational SWOT Analysis can be a very useful tool for a company’s development to succeed in any venture.

Let us look at

organizational SWOT

Analysis in detail.

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Opportunities are:• Chances to make greater

profits in the environment.• External attractive factors that

represent the reason for an organization to exist and develop.

• Condition of the environment that benefits the organization in planning and executing strategies that enable it to become more profitable.

Organization should be careful and recognize the opportunities and grasp them whenever they arise. Opportunities may arise from market, competition, industry/government and technology.

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STRENGTHSSTRENGTHS

Characteristics of the business or a team that give it an advantage over others in the industry.

Positive tangible and intangible attributes, internal to an organization.

Beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty.

Examples – Godrej consumer Products

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WEAKNESSWEAKNESSWCharacteristics that place the firm at a disadvantage relative to others.

Detract the organization from its ability to attain the core goal and influence its growth.

Weaknesses are the factors which do not meet the standards we feel they should meet. However, sometimes weaknesses are controllable. They must be minimized and eliminated.

Examples - Limited financial resources, Limited distribution, Higher costs, Out-of-date products / technology, Weak market image, Poor marketing skills, Limited management skills.

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W THREATSTHREATS

External elements in the environment that could cause trouble for the business - External factors, beyond an organization’s control, which could place the organization’s mission or operation at risk.

Arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business.

Compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake.

Examples – Godrej consumer Products

Mc Donald’s SWOT Analysis

WEAKNESSES

• Failing pizza test market thus limiting the ability to compete with pizza providers.• High training costs due to high turnover.• Minimal concentration on organic foods.• Not much variation in seasonal products .• Quality concerns due to franchised operations.• Focus on burgers / fried foods not on healthier options for their customers.

• Ranks very high on the Fortune Magazine's most admired list• Community oriented• Global operations all over the world• Cultural diversity in the foods• Excellent location• Assembly line operations.• Use of top quality products

STRENGTHS

INTERNAL

• Marketing strategies that entice people from small children to adults.• Lawsuits for offering unhealthy foods.• Contamination risks that include the threat of e-coli containments.• The vast amount of fast food restaurants that are open as competition.• Focus on healthier dieting by consumers.• Down turn in economy affecting the ability to eat that much.

THREATS

• Opening more joint ventures.• Being more responsive to healthier options.• Advertising wifi services in the branches.• Expanding on the advertising on being more socially responsible• Expansions of business into newly developed parts of the world.• Open products up to allergen free options such as peanut free.

OPPORTUNITIES

EXTERNAL

BENEFITS OF SWOT ANALYSIS

ForecastingProvides a variety of information critical to forecasted variables.

Threats, for e.g., can impact a business's forecast. By

understanding the company's advantages &

disadvantages, forecasts will be more accurate.

Decision Making ToolProvides well-rounded

information that prompt well-informed decisions.

Knowing the Competion

Reviews a company's competitors &

benchmarks against them to configure

strategies that will put the company in a

competitive advantage.

Benefits of SWOT Analysis

BENEFITS…

Helps in setting of objectives for strategic planning

Besides the broad benefits, here are few more benefits of conducting SWOT Analysis:

Provides a framework for identifying & analyzing strengths, weaknesses, opportunities & threats

Provides an impetus to analyze a situation & develop suitable strategies and tactics

Basis for assessing core capabilities & competencies

Evidence for, and cultural key to, change

Provides a stimulus to participation in a group experience

Can be very subjective. Two people rarely come up with the same final version of a SWOT. Use it as a guide and not as a prescription.May cause organizations to view circumstances as very simple due to which certain key strategic contact may be overlooked.Categorizing aspects as strengths, weaknesses, opportunities & threats might be very subjective as there is great degree of uncertainty in market. To be effective, SWOT needs to be conducted regularly. The pace of change makes it difficult to anticipate developments.The data used in the analysis may be based on assumptions that subsequently prove to be unfounded [good and bad].

It lacks detailed structure, so key elements may get missed.

PITFALLS OF SWOT

CONDUCTING SWOT ANALYSIS

Decide on the objective of your SWOT analysis. Research your Business, Industry, Market. List your Business Strengths List your Business Weakness List your potential opportunities List your potential threats Establish priorities from SWOT Develop a strategy to address issues in the

SWOT