Chapter —3 STRATEGY FORMULATION Strategy formulation is the process by which an organization chooses the most. appropriate courses of action to achieve its defined goals, This process ts, essential to fan arganization's success, because it provides a framework for the. actions that will lead to the anticipated results, Strategic plans should be communicated to all employees 80 that they are aware of the organization's objectives, mission, and purpese. Strategy formulation forces an organization to carefully look at the changing environment and to be prepared for the possible changes that may occur. A strategic plan also enables an organization to evaluate its resources, allocate budgets, and determine the most effective plan for maximizing ROI (return on investment). A company that has not taken the time to develop a strategic plan will not be able to provide its employees with direction or focus, Rather than being proactive in the face of business conditions, an organization that does not have a set strategy will find that it is being reactive; the organization will be addressing unanticipated pressures as they arise; and the organization will be at a competitive disadvantage. Strategy formulation requires a defined set of six steps for effective implementation. Those steps are define the organization, 2. define the strategic mission, 3. define the strategic objectives, 4. define the competitive strategy, 5, 6. implement strategies, and evaluate progress. In this reading, we will explore each of the six steps for strategy formulation. The first step in defining an organization is to identify the company’s customers. Without a strong customer base, whose needs are being filled, an organization will not be successful. A company must identify the factors that are valued by its customers. Is the value based on a superior product or service relative to the competition? Are your customers buying your products for your low prices? Do you produce products that meet image needs of your customers? Competitive Strategy The next step in strategy formulation requires an erganization to determine where it fits into the marketplace. This applies not only to the organization as a whole, but to each individual unit and depariment throughout the enterprise, Each area must be aware of its role within the company and how those roles enable the organization to maintain its competitive position. Another step in the competitive strategy process requires an organization to develop proactive responses to potential changes in the marketplace. As discussed in earlier readings, an organization must not wait for events in the marketplace to occur before taking steps: they must identify possible events and be prepared to take action. The final step in defining aExpansion Strategy Definition: The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. In other words, when a firm aims to grow considerably by broadening the scope of one of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually ar jointly. then it follaws the Expansion Strategy. Retrenchment Strategy Defi The Retrenchment Strategy is adopted when an organization aims al reducing its one or more business operations with the view to cut expenses and reach to a more stable financial position Combination Strategy it is the combination of stability, growth Sretrenchment strategies adopted by an organisation, either at the same time in its different businesses, or at different times in the same business with the aim of improving its performance. Combination strategy is not an independent classification but it is a combination of different strategies for the Stability, Growth & Rapid Environment change + Forward integrationis a business strategy that involves a form of vertical integration whereby business activities are expanded to include contral of the direct distribution or supply of a company’s products, This type of vertical integration is conducted by a company moving down the supply chain. + Backward integration is 2 form of vertical integration that involves the purchase of, or merger with, suppliers up the supply chain. Companies pursue backward integration when it is expected to result in improved efficiency and cost savings, For example, this type of integration might cut transportation costs, improve profit margins and make the firm more competitive, + Horizontal integration is the process of a company increasing production of goods or Services at the same part of the supply chain. A company may do this via internal ‘expansion, acquisition or merger ‘The process can lead to monopoly if a company captures the vast majority of the market for that product or service Horizontal integration contrasts with vertical integration, where companies integrate multiple stages of production of a small number of production units. « Market penetration refers to the successful selling of a product or service in a specific market, It is measured by the amount of sales volume of an existing goad or service compared to the total target market for that product or service.existing market in rant customers This strategy involves selling current products or services mice at order to obtain a higher market share. This could involve persue ner from their to buy more and new customers to start buying or even conve! etitive pricing, competitors. This could be implemented using methods such aS re as loyalty increase in marketing communications or utilizing reward systems, CATE 1, points/discounts. New Strategies involve utilizing pathways and finding EW To? prove profits, increase sales and productivity, in order to Stay flv competitive in the long run Product Development The creation of products with new or different characteristics that offer new oF additional benefits to the customer, Product development may involve modification of an existing product or its presentation, or formulation of an entirely new product that satisfies. a newly defined customer want or market niche Concentric diversification Concentric diversification is a type of business strategy where a company acquires or creates new products or services to reach more consumers, These new products and services usually are closely related to the company's existing products and services. Conglomerate diversification Conglomerate diversification is growth strategy that involves adding new products or services that are significantly different from the organization's present products or services. Conglomerate diversification occurs when the firm diversifies inte an area(s) totally unrelated to the organization current business Horizontal Diversification The company adds new products of services that are often technologically or commercially unrelated to current products but that may appeal to current customers. This strategy tends to increase the firm's dependence on certain market seg! ts, Joint Venture Definition: Joint Venture can be described as a business arrangement, wherein two or more independent firms come together to form a legally independent undertaking, for a stipulated period, to fulfil a specific purpose such as accomplishing a task, activity or project. In other words, it is a temporary partnership, established for a definite purpose, which may or may not uses a specific fim name,