STRATEGY FORMATION

(Strategy Formulation and

Implementation)

Submitted by:
Roxanne Keith G. Palisoc
Kristian Noel Santiago
Strategy Formulation
 Approaches
• Critical Question Analysis-provides a
general framework for analyzing an
organization’s current situation and
formulating appropriate strategies.
• SWOT Analysis- useful tool for analyzing an
organization’s overall situation.
 Critical Question Analysis
• What are purpose(s) and objective(s) of the
organization?
• Where is the organization presently going?
• What critical environmental factors does the
organization currently face?
• What can be done to achieve organizational
objectives more effectively in the future?
 SWOT Analysis
• This stands for Strength, Weaknesses,
Opportunities and Threats.
• It tries to balance the internal strengths and
weaknesses that the organization has with the
opportunities and threats that the external
environment presents?
 Organizational Strategies
• These are formulated by top management and
are designed to achieve the firm’s overall
objectives.
• It involves related tasks:
1. General strategies must be selected and
developed.
2. Specific decisions must be made about what
role various lines of business in the
organization will play and how resources will
be allocated among them.
 General Strategy Alternatives
• Concentration strategy- organization
focuses on a single line of business
• Stability strategy- focuses on its existing line
or lines of businesses and attempts to
maintain them.
• Growth strategies
a.Vertical integration-acquisition of other
organizations in a channel of distribution.
(backward/forward)
b.Horizontal integration- acquisition of
competing firms in the same line of business.
c.Diversification acquisition of firms in other
lines of business. (unrelated or conglomerate/
related or concentric)
d.Mergers and joint ventures
• Merger- a company joins with another
company to form a new organization.
• Joint Venture- an organization works with
another company on a project too large to
handle by itself.
• Retrenchment strategies
a. Turnaround strategy
b. Divestment strategy
c. Liquidation strategy
• Combination strategies- use a number of strategies
identified.
• Turnaround strategy- used when
organization is performing poorly but has not yet
reached a critical stage.
• Divestment strategy- involves selling the
business and setting it as a separate corporation.
• Liquidation strategy- business is terminated
and its assets sold off.
 Business Portfolio Models
• BCG Growth Share Matrix- developed by Boston
Consulting Group. It compares the market
growth rate (annual growth percentage of the
market) and the relative market share (dividing
the firms market share by the market share of
the largest competitor)
• GE’s multifactor portfolio matrix- business
strength and industry attractiveness
 BCG Growth Share Matrix
• Question Marks- problem children- high growth
market/low relative market share
• Stars- market leader- high growth market/high
market share
• Cash cows- low growth market/ high market
share
• Dogs- low growth market and low market share.
 Strategic Alternatives
• Build market share- question marks
• Hold market share- cash cows
• Harvest- weak cash cows/question marks and
dogs
• Divest- dogs/question marks
 GE’s Multifactor Portfolio Matrix
• Invest/grow
• Selective investment
• Harvest/divest
 Business Strategies
• Involves decision-making at the division level
or the business-unit level.
• These are based on Michael Porter’s
competitive analysis.
a. Threat of new entrants
b. Bargaining power of suppliers
c. Bargaining power of buyers
d. Threat of substitute products
e. Rivalry among existing firms
 Strategic Alternatives
• Overall cost leadership
• Differentiation
• Focus
 Functional Strategies
• Devised by specialists in each functional area
of a a business.
• These include:
a. Research and development strategy
b. Operations strategy
c. Financial strategy
d. Marketing strategy
e. Human resource strategy
 Strategy Formulation Constraints
• Availability of financial resources
• Attitude toward risk
• Organizational capabilities
• Channel relationships
• Competitive retaliation
 Strategy Selection Criteria
• They are responsive to the external
environment.
• They involve a sustainable competitive
advantage.
• They are consistent with other strategies in the
organization.
• They provide adequate flexibility for the
business and the organization.
• They conform to the organization’s mission and
long-tern objectives.
• They are organizationally feasible.
Strategy Implementation
 Five-Stage Model of Strategy
Implementation Process
• Determining how much the organization will
have in order to implement the strategy under
consideration
• Analyzing the formal and informal structures of
the organization
• Analyzing the culture of the organization.
• Selecting an appropriate approach
• Implementing the strategy and evaluating the
results.
 Four Variables
• Success- organization has a good strategy and
implements well.
• Roulette- a poorly formulated strategy is
implemented well.
• Trouble- a well-formulated strategy is poorly
implemented.
• Failure- poorly formulated strategy is poorly
implemented.
 The Five Levels of Strategic Change
• Continuation strategy- same strategy used in
the previous planning period is repeated.
• Routine strategy- involves normal changes in
the appeals to attract customers.
• Limited Strategy change- involves offering
new products to new markets within the same
general product class.
• Radical Strategy Change- major
reorganization within the firm.
• Organizational Redirection- mergers and
acquisitions of firms in different industries/when
a firm leaves one industry and enters a new one.
 An Operational Approach to Product
Positioning
• Identify the competitors.
• Determine how competitors are perceived and
evaluated.
• Determine the competitor’s position.
• Analyze the customers.
• Select the position.
• Monitoring the position.
Analyzing Organizational Structure
• Formal- this is conveyed in the organizational
chart.
• Informal- represents the social relationships
based on friendships or interests shared among
members of the organization.
Five Types of Organizational Structure
• Simple
• Functional
• Divisional
• Strategic Business Unit Structure
• Matrix
 Simple Organizational Structure
• It has only two levels, the owner-manager and
the employees.
 Functional Organizational Structure
• Reflect greater specialization in functional
business areas as firms grow and develop a
number of related products and markets.
Divisional Organizational Structure
• As firms acquire or develop new products in
different industries and markets.
 Strategic Business Unit Structure
• When a divisional structure becomes unwieldy
because a CEO has too many divisions to
manage
 Matrix Organizational Structure
• Used to facilitate the development and execution
of various programs.
 Simple Organizational Structure
• Advantages:
a. Facilitates control of all the business’s
activities.
b. Makes possible rapid decision making and
ability to change with market signals.
c. Offers simple and informal
motivation/reward/control system.
 Simple Organizational Structure
• Disadvantages:
a. Is very demanding on the owner-manager.
b. Grows increasingly inadequate as volume
expands.
c. Does not facilitate development of future
managers.
d. Tends to focus owner-manager on day-to-day
matters.
 Functional Organizational Structure
• Advantages:
a. Boosts efficiency through specialization.
b. Fosters improved development of functional
expertise.
c. Differentiates and delegates day-to-day
operating decisions.
d. Retains centralized control of strategic
decisions.
 Functional Organizational Structure
• Disadvantages:
a. Promotes narrow specialization and potential
rivalry of conflict.
b. Fosters difficulty in functional coordination
and interfunctional decision-making.
c. Can occasion staff-line conflict.
d. Limits internal development of general
managers.
Divisional Organizational Structure
• Advantages:
a. Forces coordination and necessary authority
down to the appropriate level for rapid
response.
b. Places strategy development and
implementation in closer proximity to the
division’s unique environment.
c. Frees chief executive officer for broader
strategic decision making.
d. Sharply focuses accountability for
performance.
e. Retains functional specialization within each
division.
f. Serves as good training ground for strategic
managers.
Divisional Organizational Structure
• Disadvantages:
a. Fosters potentially dysfunctional competition
for corporate-level resources.
b. Creates a problem with the extent of authority
given to division managers.
c. Fosters the potential for policy inconsistencies
between divisions.
 Strategic Business Units
• Advantages:
a. Improves coordination between divisions with
similar strategic concerns and product/market
environments.
b. Tightens the strategic management and control
of large, diverse business enterprises.
c. Channels accountability to distinct business
units.
 Strategic Business Units
• Disadvantages:
a. Places another layer of management between
the divisions and corporate management.
b. May increase dysfunctional competition for
corporate resources.
c. May make defining the role of the group vice-
president difficult.
 Matrix Organizational Structure
• Advantages:
a. Accommodates a wide variety of project-
oriented business activity.
b. Serves as good training ground for strategic
managers.
c. Maximizes efficient use of functional
managers.
d. Fosters creativity and multiple sources of
diversity.
e. Provides broader middle-management
exposure to strategic issues for the business.
 Matrix Organizational Structure
• Disadvantages:
a. Can create confusion and contradictory policies
by allowing dual accountability.
b. Necessitates tremendous horizontal and
vertical coordination.
 Analyzing Organizational Culture
• Organizational Culture- a set of shared
values and beliefs that influences the
effectiveness of strategy formulation and
implementation.
 Five Primary Mechanisms
• What leaders pay attention to, measure and
control.
• Leaders’ reactions to critical incidents and
organizational crises.
• Deliberate role modeling, teaching and coaching.
• Criteria for allocation of rewards and status.
• Criteria for recruitment, selection, promotion
and retirement of employees.
 Secondary Mechanisms
• The organization’s design and structure.
• Organizational systems and procedures.
• Design of physical space, facades, and buildings.
• Stories, legends, myths and parables about
important events and people.
• Formal statements of organizational philosophy,
creeds and charters.
Illustrative Example: Stories that Influence
Organizational Culture
• Remember, when Ray Kroc (founder of McDonalds
Restaurants) visited a McDonald’s franchise in
Winnipeg? He found a single fly. Even one fly
didn’t fit with QSC&V (Quality, Service, Cleanliness
and Value- the McDonald's creed). Two weeks later
the Winnipeg franchisee lost his franchise. You’d
better believe that after this story made the rounds,
a whole lot of McDonald’s people found nearly
mystical ways to eliminate flies-every fly-from their
shop. Mr. Kroc did do things like that.
• A Procter & Gamble executive recounted a late-night
phone call he received several years ago. The executive
had just been promoted to management at that time and
the call was from his district sales manager: “George,
you’ve got a problem with a bar soap down here”. Down
here, George explained, was three hundred miles away.
“George, think you could get down here by six-thirty in
the morning?”. Our informant added, “It sounded like
more than an invitation.” And finally, he concluded, “
After you’ve finished your first three-hundred mile ride
through the back hills of Tennessee at seventy mile an
hour to look at one damned thirty-four-cent bar of soap,
you understand that P&G is very, very serious about
product quality. You don’t subsequently need a two-
hundred page manual to prove it to you.
Selecting an Implementation Approach
• Commander Approach
• Organizational Change Approach
• Collaborative Approach
• Cultural Approach
• Crescive Approach
 Commander Approach
• The manager concentrates on formulating
strategy by applying rigorous logic and analysis.
• The manager may either develop strategies alone
or supervised by a team of strategists charged
with determining the optimal course of action
for the organization.
 Organizational Change Approach
• Focuses on how to get an organization to
implement a strategy.
• Managers assume that a good strategy has been
formulated and view their task as getting the
company moving toward new goals.
 Collaborative Approach
• The manager in charge of the strategy calls in the
rest of the management team to brainstorm
strategy formulation and strategy
implementation.
• Managers with different perspectives are
encouraged to contribute their points of view in
order to extract whatever group wisdom emerges
from these multiple perspectives.
 Cultural Approach
• It enlarges the collaborative approach to include
lower levels in the organization.
• The manager guides the organization by
communicating and instilling his or her vision of
the overall mission for the organization and
allowing employees to design their own work
activities in accordance with this mission.
 Crescive Approach
• The manager who adopts this approach
addresses strategy formulation and strategy
implementation simultaneously.
• “Crescive” means increasing or growing.
• The manager does not focus on doing these tasks
but on encouraging subordinates to develop,
champion and implement sound strategies on
their own.
 Four Key Implementation Skills
• Interacting skills- are expressed in managing one’s
own and other’s behavior to achieve objectives.
• Allocating skills- are brought to bear in managers’
abilities to schedule tasks and budget time, money
and other resources efficiently.
• Monitoring skills- involve the efficient use of
information to correct any problem that arise on the
process of implementation.
• Organizing skills- are exhibited in the ability to
create a new informal organization or network to
match each problem that occurs.
Thank you for your listening 