Corporate Strategy can be understood as an all-embracing scope and direction along with the

means, mediums, methods, and mechanisms through which different business operations of your
company function together for accomplishing specific goals.

The corporate strategy follows the portfolio approach to make a decision where you look at all of
the company’s businesses and analyze how to generate maximum value out of it.

If you’re establishing a corporate strategy, then you should find a link that how different
businesses are connected, their impact on each other, and the structure and functionality of the
parent company. it’s to improve the management, processes, and human capital.

Companies usually develop a corporate strategy on top of their business strategy, and it deals
with the business strategy of individual businesses.

Corporate Strategy is the most crucial factor when it comes to expanding the business and
drawing the overall growth of the company.

It covers the broadest range of strategy levels when it comes to organizational strategies. From
visioning to objective setting to resource-allocations and prioritization, the strategy looks across
all of the businesses of a company for determining the best ways of creating the most value.

Decision-making must reflect the strategy because, without such a strategy, one cannot find a
solution to build up a proper vision of any company.

After proper research and development, one must come up with better strategic levels for the
overall growth and evolution of business. An appropriate strategy can not only expand the
company, but it also grows several opportunities in the market.

Advantages of Corporate Strategy

It cannot only increase the profits of the business, but it also allows a good cash flow and even
some borrowing power. Below are some advantages –

1) Increase of the profitability

In case if you enter a joint venture or invest in some companies, there will be a good profit, and
also you will have some part of ownership.

One must know that in case if their company is getting involved with many companies, they also
need to diversify their corporate strategies according to the situation. One must understand that
calculating the actual return in your investment is necessary for the overall growth of the
company.

2) Guides about business optimization

It guides as optimization.As there are many ups and downs in an organization which is
dependent on the strategic goals and also the opportunities some business gets.

A proper strategy can help a company grow optimally and can also fight with undesirable
situations.

3) Offers a Strategic Direction

With this strategy, one can completely change their business environment.

Making up a strategy and discussing the goals of the organization will not only provide
functional purposes, but even the company will know how to react best in the difficulty levels.

It gives an excellent strategic direction for further development in case if a company needs any
business units.

4) Improves Decision Making

It enhances the decision making of any form.

As the firm will come out with different approaches, it will not only improve the way of thinking
about business but also at the corporate level. It will also motivate the employees as it will give
them faith in having a clear direction and also of knowing their organization’s goals.

It will provide a reasonable translation of better results by coming up with different decisions
and finalizing the best one for the company.

It prepares the company for undesirable situations. As they are already prepared up with
substantial corporate strategies that will develop and grow the business positively?

5) Improves management skills

It makes sure that everything is manageable in an organization.

As various opportunities come up for a business, in case if they are planning to expand, they
need some funding.

It not only develops management skills, but it also gives the employees a better understanding of
their company’s growth. By management skills, a company can do wonders in the corporate
sector.

By having proper research about various firms, a company can build up a strategy and come up
with the best ones to credit economic growth.

6) Minimizes the Risk

It makes sure that the risk is minimal as various strategies are built by a company to be prepared
for the worst.

As a business cannot be stable in this economy, and it goes with ups and downs over a duration.
A proper strategy can not only save their money, but it also helps to focus on the resources of the
company.

For example, if a product ‘Z’ fails, a company can work on product ‘Y’ and ‘X’ to manage the
resources and funds. That’s how corporate strategies work. It adds an extra layer of protection if
the company comes out with quality decisions.

7) Provides sustainability

It develops sustainable development in business.

It can easily measure the growth of your business if your company’s policies are worth it. One
can easily invest in various ventures if their company is capable of handling multiple risks.

One can quickly form subsidiaries, and it can soon become an independent business, but it comes
with a cost. Introducing a company at global marketing needs a diversified strategy. And there
are many activities which one needs to manage if they are already into various ventures.

In this situation, it must be useful to develop a good growth in the sector.

Role of Strategy

There is a total of three strategy levels in our business.

We already know about the Corporate Strategy level; the other two are-

1. Business strategy level

2. Functional level

These three strategy levels are dependent on each other.

The business strategy level is focused more on the needs and capacities at the business
level. The business strategy level focuses more on the market share and to expand it.
The business strategy level has to be more knowledgeable and experienced as their ultimate goal
is to increase the market share and target more consumers.

The functional strategy level is more about coming up with practical decision making, which is
more concerned about improvements which should be taken in business. The strategy needs to
get channelized as per functional strategies associated with R&D and Marketing.
All the business strategies and corporate strategies must turn out to be a better functional result
for the best outcomes of any organization.

Components of Corporate Strategy

The components include-

1. Allocation of the resources

2. Organizational design

3. Management of portfolio

4. Tradeoffs of strategy

1) Allocation of the Resource

The allocation of resources is dependent on two main things which are- capital and people.

Employees must know how to allocate funds to use optimal business units. Allocation of
resources for people will ensure the appropriate use of supply which directly affects the business.

Also, one must identify the core competencies for better distribution across the company.

And, allocation of capital which reflects on risk adjustment and researching for various other
opportunities, so that the company gets the best possible risk-adjusted return for expanding the
company.

2) Organisational Design

As the organizational design keeps on changing from time to time, the head office must
determine the autonomy of business units.

And, decisions which are coordinated from top-level management to bottom level management
and vice versa. Also, one must influence the strategies of business units. The organization’s
structure develops ethical excellence and provides the delegation of authority.

It also sets governance structure and reporting structures. An organizational structure also allows
for a balance between the risk and return of the organization.

3) Portfolio Management

Portfolio management is one of the vital components. It helps to decide the business of what
businesses they must enter and which one to ignore.
It also helps to manage the risk and diversify the business.

It also reduces the results of the correlation. It plays a crucial role in finding out the ways
through which business units complement each other, what their different relationships are, and
how to channelize that adeptly.

4) Tradeoffs of Strategy

Help to manage the risk of business units, cost leadership, and saves the leadership position.

It also generates good returns. As there is a higher risk to create higher yields, but tradeoffs help
to develop product differentiation. It also provides incentives that play a significant role.

It is quite different than business strategy because it focuses more on the manageable resources,
minimizing the risk, and also to provide a good return with the form.

Mainly leaders are more responsible for coming up with effective decision making, which
reflects on the location of resources, portfolio management, and also organizational design.

How to Actualize a Corporate Strategy for your Business

To actualize your strategy, you must have a look at different types of corporate strategies
available for you. So, let us have a look upon some of the essential types of corporate strategy
here and now-

1) Growth Strategy

It this type of strategy, you need to find out the difference amongst varying integrations
and diversifications that will let your business appreciate the strategic growth. You need to
incorporate the growth platforms in your strategy for fuelling revenues and ensuring growth.

2) Consolidation of Corporate Strategy

While making this kind of strategy, you need to find out the relevance of consolidation from the
viewpoint of strategic management; as consolidation deals with the acquisitions and mergers of
different smaller companies in larger ones for ensuring the economic advantages.

JP Morgan Chase acquired many smaller banks to seamlessly expand into new markets where
Chase didn't already have branch locations. This allowed the banking powerhouse to buy an
existing book of business with clients needing servicing with active branches, which were
already servicing clients under federal and state regulations. This is a less expensive way to
grow, compared to opening hundreds of new branches.
3) Global Strategy

With this one, you need to make a strategy in the context of a globalized economy
and international business. Such strategies play the role of the strategy guide of a company for
widening the reach and enjoying profits in different geographic markets.

Cost Leadership

Walmart's global strategy for expansion was, you would probably summarize it as "being the
cheapest." That is exactly what cost leadership is. With this strategy, your business seeks to beat
out all of the competition by offering the same products for the lowest prices.

Market Expansion:

When you walk into a McDonald's in Hawaii, you are able to get a local flavor of rice and
Portuguese sausage for breakfast, a common local item. In Japan, you can get a Fillet-O-Ebi
(shrimp) instead of a Fillet-O-Fish. As a global expansion strategy, diversification is really
localization that looks at what is common, popular or desired in any one small market area, and
then adjusts its resources to satisfy that need.

Sourcing:

Starbucks is a great example of using small, regional sourcing to get specific types of coffee
beans grown in different areas. It uses this model as its unique selling proposition, offering
sustainable farming practices helping small communities around the world, while giving
consumers robust and different flavor options

4) Cooperative Strategy

When you are making a cooperative strategy, you need to find out the steps and processes for
making the strategic alliance which is an agreement in which each of the members desires some
benefits from the agreement.

In this, a relationship is established between two or more parties for pursuing a common business
goal while staying independent organizations. Such strategies mainly come in play in between
acquisitions, mergers, and organic growth.

Uber offers Spotify services as part of its services. Ford has an entire Eddie Bauer premium line
of trucks and SUVs.

5) E-Business Strategy

While making this type of strategy, you need to demonstrate the global value chain of an e-
business strategy, online means of channelizing these strategies, and associated benefits.
In today’s time of emerging global economies and booming prevalence of digital marketing,
having the right e-business Corporate Strategy for boosting the online presence of your business
is very important.

After paying heed to the different types of corporate strategies, the next thing you need to pay
attention to is understanding the actualization of a strategy in different ways through which it can
be implemented.

It has a dynamic nature, and it is concerned more about the needs of the business
environment and to have an optimal approach towards the plan.

Search Engine Optimization

Social Media Engagement

Facebook's entire business model is designed around learning about its users to then provide
advertisers with free demographic information.

Many companies get great social media engagement by offering contests and games, so
consumers are talking about the company online.

Online Ads, Stores and Sales Funnels

Amazon is the king of online retailing.

6) Diversification Strategies

Diversification strategy looks at the company's products and services, and then develops a
strategy for successful marketing and sales. Two main diversification strategies exist: a single-
business strategy and a dominant-business diversification strategy. The single-business strategy
limits the number of products or services to a few, if not one. A company using this strategy
seeks to be the leader in the niche.

7) Stability Strategies

Stability in a business is essential, and one must implement it by corporate strategies. If we talk
about the implementation of organizational strategy, then we cannot forget about how important
it is for a business to be flexible. As flexibility in a company is essential and is focused more on
preserving profit and also to use optimization of the resources, stability strategies also investigate
future opportunities in the business.

8) Retrenchment Strategies

We all know that every business goes through sales which are not helping the business to grow.
That is why one must implement retrenchment strategies for their company. It helps to make
decisions for the unprofitable elements in an organization and also to eliminate the costly assets
in any business.

Characteristics of a corporate-level strategy

When you're considering the corporate-level strategies you should undertake, keep these
characteristics.

 Diversification

 Forward or backward integration

 Horizontal integration

 Profit

 Turnaround

 Divestment

 Market penetration

 Liquidation

 Concentration

 Investigation

 No change

Diversification

Diversification is when you notice that you need to change the market you're operating in.
Moving into new markets allows you to create new business opportunities with clients. It can
give you the chance to build a long-lasting relationship linked to the execution and satisfaction of
the products and services you render. If you have enough capital, you can try rebranding on
shifting your services to a new target audience eager to try a new product.

Forward or backward integration

Forward integration is when you take the position of a company that served a previous role in
your supply chain. Your business becoming a distributor changes the scope of your operations
and you'll need to move resources to help move and store products for companies in your area.
Backward integration means that you start in the supply chain business and you move to be a
supplier of goods and services. You may have to produce more products to adapt to the change in
your business.

Horizontal integration

Horizontal integration happens when a business merges with another in the same vertical. If you
merge with another company, you'll need to make sure you have the operational capacity to
handle the merger and work with new employees eager to learn your process and how they differ
from the company you acquired.

Profit

This strategy is only dedicated to having more capital to spend once you take out your expenses.
You may need to reduce costs or expenses, selling investments like stocks and bonds, increase
the price of services you sell to your customer based and cutting back on non-essential services.

Turnaround

Turnaround refers to increasing the effectiveness of existing products, so you can sell more of
them. This may require you to boost your testing processes and raise your quality assurance
standards to generate more profit.

Divestment

Divestment is a retrenchment strategy that is aimed to resolve problems and enhance your
business results. You start by selling high-performing stock and paying off debts to raise money
and report favorable financial information to internal and external stakeholders.

Liquidation

Liquidation is the final option you can take if you own a company. You'll make this move after
you exhausted all options to increase the profits of your business. This results in the selling of
your company to another entity and the conclusion of production for all product lines.

Concentration

Concentration is an expansion strategy approach that adds more market shares to the industry
you're operating in. It's viewed as a high-reward strategy because of the market demand for the
industry you're getting involved in.

Investigation

The investigation is the process of testing expansion and retrenchment strategies. You'll know
which strategy to move forward with after you decide to prioritize your performance or
readjusting the scope of your business.
No change

Lastly, no change is often correlated with your stability strategy. It's important to highlight where
you need to upgrade your product to ensure usage and brand loyalty from consumers.
 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 is. essential to an organization's
success, because it provides a framework for the actions that will lead to the anticipated results.

Strategy formulation requires a defined set of six steps for effective implementation. Those steps
are:

1. define the organization,

2. define the strategic mission,

3. define the strategic objectives,

4. define the competitive strategy,

5. implement strategies, and

6. evaluate progress.

we will explore each of the six steps for strategy formulation.

Step 1. Define the Organization

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

Let’s review some of the ways in which companies can define themselves.

End Benefit

Organizations must remember that people are buying benefits not features. For example, if an
airline only defined itself as being in the business of flying people from one place to another,
then it would view its competition as being only other airlines. However, if it views itself as
being in the transportation business, then it will recognize that its competition includes not only
other airlines, but also trains, buses, car rental companies, and other ways of getting people from
one place to another place. An airline must highlight the benefits of using its method of
transportation as a means of persuading customers to purchase its service. Furthermore, an
organization can explain how its product works or how it is built. Inevitably, customers will ask
the question, “What’s in it for me?” Companies must be able to answer this question in order to
meet the needs of their customers. They must be able to respond effectively to the “so what?” in
order to influence customers to buy their product or service.

Target Market

Companies can become successful by identifying themselves with a particular target group. This
focus should not be limited only to demographic segmentation (i.e., age, income, education,
gender, income, family life-cycle, culture) but also by psychographic indicators. For example, by
understanding the values, attitudes, opinions, and lifestyles of a company’s customers, the
organization can better provide ways in which to meet its customers’ needs. For example, Nike
has successfully identified itself not only with professional athletes, but with those who want to
be part of the athlete world. Nike’s marketing message has made everyone who wishes to
participate in sports feel as if they can achieve their athletic goals. While most people who
purchase Nike products are not professional athletes, the people who buy Nike’s products are
able to identify with Nike’s culture and feel like they are part of an exclusive group.

Technology

Computer companies, medical research companies, and other companies that identify themselves
with the tech world will find that they must be able to quickly adapt to changes in the
marketplace. New products, services, and inventions are frequently introduced, making this a
very difficult and challenging business environment in which to operate. For example,
Genentech, Inc. conducts genetic engineering and medical research for the pharmaceutical
industry. This company uncovers and discovers new advances every day, making it challenging
to develop a specific strategy plan for its products and services. However, by defining the
company as being in the biotech industry, it can develop a strategy for its overall corporate goals.

Step 2. Define the Strategic Mission

An organization’s strategic mission offers a long-range perspective of what the organization

strives for going forward. A clearly stated mission will provide the organization with a guide for
carrying out its plans. Elements of a strong strategic mission statement should include the values
that the organization holds, the nature of the business, special abilities or position the
organization holds in the marketplace, and the organization’s vision for where it wants to be in
the future.

Step 3. Define the Strategic Objectives

This third step in the strategic formulation process requires an organization to identify the
performance targets needed to reach clearly stated objectives. These objectives may include:
market position relative to the competition, production of goods and services, desired market
share, improved customer services, corporation expansion, advances in technology, and sales
increases. Strategic objectives must be communicated with all employees and stakeholders in
order to ensure success. All members of the organization must be made aware of their role in the
process and how their efforts contribute to meeting the organization’s objectives. Additionally,
members of the organization should have their own set of objectives and performance targets for
their individual roles.

Step 4. Define the Competitive Strategy

The next step in strategy formulation requires an organization to determine where it fits into the
marketplace. This applies not only to the organization as a whole, but to each individual unit and
department 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 competitive strategy is
identifying an organization’s resources and determining how those resources will be used. Each
department, division, or location will have its own set of needs, and a company must determine
how it will allocate resources in order to meet those needs. Three factors must be considered
when determining the overall competitive strategy: the industry and marketplace, the company’s
position relative to the competition, and the company’s internal strengths and weaknesses.

The Industry

When evaluating the overall industry, factors to be looked at include:

 size of the market,

 past and potential market growth,

 competitive profitability,

 new market entries, and

 industry threats

These market factors must be evaluated on a regular basis, as small changes may have a large
impact on an organization’s business activities. For example, if an organization becomes aware
of new technology that is on the verge of being introduced into the marketplace, then it can avoid
making any new plans that would involve the older, existing technology available. Also, if an
organization is considering global expansion, then it would be beneficial to be aware of
emerging markets, other areas of potential growth, and what other companies have already
entered in those markets.

The Competition

An organization cannot be successful unless it has a full understanding of the other players in
marketplace. A company must be able to identify the strengths and weaknesses of the
competition and analyze the ways in which the competition’s products or services meet the needs
of its customer base. Has the competition created a significant product differentiation strategy?
Has the competition cornered a specific target market? Is the competition in full-scale
competition with another company? It is essential for these questions to be answered in order to
develop the appropriate strategy for successful competition. As mentioned earlier, we discussed
how competition for an airline is not only other airlines, but also other modes of transportation.
Evaluating competition requires a company to look at organizations that provide substitutes for
its product or service as well as those who provide the same products and services.

Strengths & Weaknesses

Let’s go back to the traditional, well-known marketing tool of the SWOT analysis. As you may
recall, SWOT is an acronym for Strengths, Weaknesses Opportunities, and Threats.
Opportunities and threats are external factors; strengths and weaknesses are internal factors.
When developing a competitive strategy, it is vital for an organization to be fully aware of its
internal strengths and how those strengths relate to the competition. These strengths should be
maximized and leveraged to the company’s advantage as well as highlighted in all business and
marketing activities that the company undertakes. It is equally important for an organization to
take an honest look at its areas of weakness. This is where a company can become vulnerable to
outside market conditions, such as competitive gains, advances in technology, economic shifts,
and other factors. By identifying areas in need of improvement and taking steps to remedy those
areas, a company will be in a stronger competitive position.

Step 5. Implement Strategies

Developing a strategy is only effective if it is put into place. An organization may take all the
necessary steps to understand the marketplace, define itself, and identify the competition.
However, without implementing the strategy, the organization’s work will be of little to no value.
The methods employed for implementing strategies are known as tactics. These individual
actions enable an organization to build a foundation for implementation. Companies are able to
identify which of their efforts are more successful than others and will uncover new methods of
implementation, if necessary.

Step 6. Evaluate Progress

As in any plan, a regular evaluation of processes and results is vital to ongoing success. An
organization must keep track of the progress it is making as defined by its strategic plan. If goals
are not being met, the organization must be adaptable and flexible to recognize that changes may
be needed. An organization should consider the following questions on a continuous basis in
order to evaluate progress: Have market conditions changed that may require a change in
corporate direction? Are there new entries in the marketplace to pose a competitive threat? Has
the organization been successful in translating their strategy into actionable steps? An
organization will be able to successfully implement its strategy both now and in the future
through evaluating feedback.

5 TIPS FOR SUCCESSFUL STRATEGY FORMULATION

1. Start With Purpose

When setting out to create a winning strategy, the first question to ask yourself is, “What’s my
organization’s purpose?”

In the online course Sustainable Business Strategy, Harvard Business School Professor Rebecca
Henderson discusses the importance of starting with purpose when building your business
strategy.

“We see this pattern in a wide range of firms,” Henderson says. “The leaders and firms who are
driving real change and often reaping the benefits of being first-movers are motivated as often by
the driving desire to make a difference as they are to make money.”

One example of a company that formulated its strategy using purpose is Unilever’s Lipton brand.

“It started with the feeling that, for communities, we could do a better job,” says Kevin
Havelock, president of refreshment at Unilever, in Sustainable Business Strategy. “It didn’t start
with the business case. We then said, ‘Hang on—how do we bring this to life?’ If it’s the right
thing to do for these people and for the planet, then we should bring it to life for the brands.”

Instead of jumping right into logistics, Unilever put its values and mission of producing
sustainable tea at the center of its developing strategy, enabling the organization to take steps to
reach that vision.

Henderson notes that this intersection of “doing good” and “doing well”—often referred to as the
process of creating shared value—has the potential to be a highly lucrative space. If the purpose
at the center of your strategy is rooted in sustainability or helping others, there’s value in
pursuing the goal, especially if your organization is the first to do it.

Consider Current Events

Another organization that took a purpose-driven leap is L’Oréal. Its response to the coronavirus
(COVID-19) pandemic demonstrates the importance of considering current events when
strategizing.

Earlier this year, the coronavirus spread rapidly across the globe, leaving hospitals with a
shrinking supply of personal protective equipment (PPE) and sanitizers. In addition to an
economic shutdown, the virus caused food, shelter, and job insecurity for many.

This response was strategic, despite ultimately costing the company money. By responding with
donations and support, L’Oréal positioned itself as a brand that cares about its communities,
vendors, suppliers, employees, and customers.

When current events shift and create new challenges and opportunities, the way your
organization responds can lay the groundwork for its strategy moving forward.

3. Consider Data, Case Studies, and Trends

In addition to current events, a successful strategy must take into account the information and
knowledge you have about your organization, other firms, and the fundamental theories of
economics.

Understanding this information enables you to orient your company in the current business
landscape and learn from others’ mistakes and successes.

“As you think about going out into the world and using these tools of experimentation, the first
thing is to think of yourself as an experimenter,” says Nava Ashraf, an associate professor at
HBS who’s featured in the online course Economics for Managers. “Change your mindset of
what it actually means to look for data from the world that helps you know whether something
works or doesn’t work.”

When crafting your strategy, examine your organization’s financial statements, along with
historical strategies that have been successful and unsuccessful. Also, analyze case studies of
other businesses and the economic principles that underlie them.

4. Set and Effectively Communicate Goals

The selection and communication of strategic goals is another important step of strategy
formulation. Research shows that, on average, 95 percent of employees don’t understand their
company’s strategy—a staggering statistic, considering that successful strategy execution
requires organization-wide effort..

“In the long term, consistently positive results spring from intelligent strategy and an incessant
focus on the quality of execution,” Hamm writes. “Think of a golf pro like Tiger Woods, whose
best bet for winning major championships is to master his aim, setup, and swing. Once the ball is
in the air, there is no way to control it; it will land where it will.”
Crafting a strategy is crucial, but it can’t be successful unless it’s effectively and artfully
communicated to your entire organization so that all employees feel empowered and responsible
for reaching the company’s goals.

5. Think of Strategy as an Ongoing Process

Once you’ve formulated and communicated a strategic plan, it can be tempting to assume the
strategic planning process is complete. According to HBS Professor Clayton Christensen,
however, strategy is a continual process of development.

“Most people think of strategy as an event, but that’s not the way the world works,” Christensen
says in the course Disruptive Strategy. “More often than not, the strategy that leads to success
emerges through a process that’s at work 24/7 in almost every industry.”

Periodically reassess your company’s strategy to adapt to new challenges and opportunities, and
continue to communicate its evolution to your broader organization.

Factors affecting Strategy Formulation

i. Achieving Shared Vision:

This is one of the major issues in strategy formulation. There are instances where after choosing
an appropriate strategy, the top management, among themselves and across organizations, fails
to achieve synchronization of the vision, strategic intent and hence the strategy for way forward.

This leads to problems in implementation and in the obtainment of commitment from the
stakeholders. This is a serious issue in making major decisions. For example, while venturing
into inorganic moves such as mergers, acquisitions, sell offs, or divestiture, such instances are
common. In this process, there could be a delay in pursuing the strategy, which may lead to value
erosion.

The delay in decision making made the company lose one operating season as it was a highly
seasonal industry. The delay was mainly because the vision for co-generation of power was fully
understood but the streamlining with operations was not clear. It required a combination of
vision and operations expertise to consummate the idea, causing the delay.

To overcome such problems, creating a shared vision is critical. All successful organizations
have one. Building confidence among stakeholders and communicating objectively are critical
for creating a shared vision. It not only creates a shared vision but also a philosophy of oneness
and growth through commitment of effort and energy for the benefit of all stakeholders.

ii. Inability of Partners to Map a Vision:

The inability of partners to map a vision and agree on strategy formulation could be another
issue, especially in case of alliances and joint ventures, venture capitalists, and group companies.
Though partners have well defined areas of interest, when it comes to the nitty-gritty of strategy
formulation, there could be divergence of views. In addition, there could be a possibility of a
dominant partner having a ‘big brother’ attitude, because of which the strategy formulation
process could be jeopardized.

In case venture capitalists are active at the strategy formulation stage, they may try to overplay
the role because of experience elsewhere or lack of on-ground realities. Many times, even debt
fund providers drive strategic intent because of certain contractual clauses, such as the right to be
present on the board. The inconvenient exposure may lead to a loss of control in making right
decisions in the interest of all the stakeholders.

However, the problems among partners can be addressed by promoting healthy understanding
and transparency. Key partners such as a venture capitalist can be given board responsibilities
and may be involved in decision making. It may be a good idea to have an open and clear
communication rather than taking problems to a breaking point and then trying to resolve them.

iii. Leadership and Managerial Bias:

Imposing leaders and self-motivated managers are often causes of dissonance at the strategy
formulation stage. To overcome the same, leaders and managerial bias needs to be addressed
effectively. A strong and active board is one which can balance this bias. Such an approach is
possible only with large companies. Small and mid-sized companies have a problem in getting
directors, who could overpower this bias, on the board of the company. In such cases, the
strategy formulation team may need to involve the right advisors and experts to bring a balance.

Leaders who have a tendency to follow the success of others must be engaged in the details of
operational situations and exposed to internal factors adequately so that someone’s success is not
imitated. Wherever leaders have a problem with respect to assimilating the nuances of technical
or functional perspectives, adequate time must be allocated during the formulation stage.
Without the right perspectives, if leaders are driving or are driven by any of the stakeholders, the
post-decision correction process could be time consuming. In addition, such moves may lead to
strategic lapses, requiring resources and effort.

iv. Managers Over-Emphasizing Tools and Techniques:

Another issue involves managers over-emphasizing tools and techniques and losing touch with
the pulse of the market or going in the wrong direction due to a herd mentality. Sometimes, they
may be following the market without understanding the internal factors, leading to difficulty in
strategy formulation. This is the most common issue when external agents or advisors are used to
formulate a strategy.

Many times, investment bankers get enthusiastic and highly impressed with an idea, which may
result in a slip at the input stage of strategy formulation. There are a number of examples
especially in major strategic decisions such as sell-offs, mergers, diversification, and funding,
which state that such problems of investment bankers’ overdrive have resulted in big mistakes.

It is not erroneous on the part of the advisors to commit to such situations. Many times, the
internal strategists do not understand the situation in perspective or lack the ability to
communicate clearly the various facets and risks of business. More importantly, the high brand
value of such advisors overawes some clients, who leave the decision process to the advisors,
instead of taking an active role.

The ability to manage the issue of bias towards tools and techniques, and find the right balance
of experience, intellect and deployment of tools and techniques for decision making is required.
This can again be achieved by involving senior board members and making a committee
responsible for major strategic decisions. Such a committee can bridge the art and science of
decision making for effective formulation of strategies.

Strategy Implementation

Strategy Implementation refers to the execution of the plans and strategies, so as to accomplish
the long-term goals of the organization. It converts the opted strategy into the moves and actions
of the organisation to achieve the objectives.

Process of Strategy Implementation

1. Building an organization, that possess the capability to put the strategies into action
successfully.

2. Supplying resources, in sufficient quantity, to strategy-essential activities.

3. Developing policies which encourage strategy.

4. Such policies and programs are employed which helps in continuous improvement.

5. Combining the reward structure, for achieving the results.

6. Using strategic leadership.

Prerequisites of Strategy Implementation

Institutionalization of Strategy: First of all the strategy is to be institutionalized, in the sense

that the one who framed it should promote or defend it in front of the members, because it may
be undermined.
Developing proper organizational climate: Organizational climate implies the components of
the internal environment, that includes the cooperation, development of personnel, the degree of
commitment and determination, efficiency, etc., which converts the purpose into results.

Formulation of operating plans: Operating plans refers to the action plans, decisions and the
programs, that take place regularly, in different parts of the company. If they are framed to
indicate the proposed strategic results, they assist in attaining the objectives of the organization
by concentrating on the factors which are significant.

Developing proper organisational structure: Organization structure implies the way in which
different parts of the organisation are linked together. It highlights the relationships between
various designations, positions and roles. To implement a strategy, the structure is to be designed
as per the requirements of the strategy.

Periodic Review of Strategy: Review of the strategy is to be taken at regular intervals so as to

identify whether the strategy so implemented is relevant to the purpose of the organisation. As
the organization operates in a dynamic environment, which may change anytime, so it is
essential to take a review, to know if it can fulfill the needs of the organization.

Strategy Evaluation
‘Strategy evaluation’ is the process through which the strategists know the extent to which a
strategy is able to achieve its objectives. In the words of Professor William F. Glueck and
Lawrence R. Jauch,

Strategy evaluation is that phase of the strategic management process in which manager tries to
assure that the strategic choice is properly implemented and is meeting the objectives of the
enterprise.

Strategy Evaluation – Basic Requirements

Strategy evaluation system must meet several basic requirements to be effective.

Strategy evaluation:

1. Activities must be economical.

2. Should not provide too much information and provide required information at right time.

3. Should be done with average control and avoid too many controls.

4. Activities should specifically relate to a firm’s objectives.

5. Should be designed to provide a true picture of what is happening.

6. Process should not dominate strategic decisions, it should foster mutual understanding, trust
and commonsense.

Process of Strategy Evaluation

The process of strategy evaluation consists of following steps:

1. Fixing Benchmark of Performance:

While fixing the benchmark, strategists encounter questions such as – what benchmarks to set,
how to set them and how to express them. In order to determine the benchmark performance to
be set, it is essential to discover the special requirements for performing the main task.

The performance indicator that best identify and express the special requirements might then be
determined to be used for evaluation. The organization can use both quantitative and qualitative
criteria for comprehensive assessment of performance.

A quantitative criterion includes determination of net profit, ROI, earning per share, cost of
production, rate of employee turnover etc. Among the Qualitative factors are subjective
evaluation of factors such as – skills and competencies, risk taking potential, flexibility etc.

2. Measurement of Performance:

The standard performance is a bench mark with which the actual performance is to be compared.
The reporting and communication system help in measuring the performance. If appropriate
means are available for measuring the performance and if the standards are set in the right
manner, strategy evaluation becomes easier.

But various factors such as managers’ contribution are difficult to measure. Similarly divisional
performance is sometimes difficult to measure as compared to individual performance. Thus,
variable objectives must be created against which measurement of performance can be done.

The measurement must be done at right time else evaluation will not meet its purpose. For
measuring the performance, financial statements like – balance sheet, profit and loss account
must be prepared on an annual basis.

3. Analyzing Variance:

While measuring the actual performance and comparing it with standard performance there may
be variances which must be analyzed. The strategists must mention the degree of tolerance limits
between which the variance between actual and standard performance may be accepted.

The positive deviation indicates a better performance but it is quite unusual exceeding the target
always. The negative deviation is an issue of concern because it indicates a shortfall in
performance. Thus in this case the strategists must discover the causes of deviation and must take
corrective action to overcome it.

4. Taking Corrective Action:

Once the deviation in performance is identified, it is essential to plan for a corrective action. If
the performance is consistently less than the desired performance, the strategists must carry a
detailed analysis of the factors responsible for such performance. If the strategists discover that
the organizational potential does not match with the performance requirements, then the
standards must be lowered.

Another rare and drastic corrective action is reformulating the strategy which requires going
back to the process of strategic management, reframing of plans according to new resource
allocation trend and consequent means going to the beginning point of strategic management
process

After developing a number of strategic alternatives, they should be evaluated against the criteria,
in order to select the best strategy.

Criteria to evaluate strategy

Seymour Tiles suggests the following criteria to evaluate strategy soon after the
implementation is over:

1. Internal Consistency:

The consistency of policy implementation of the strategy fits into the integrated pattern of the
organisation should also be related to the other policies of the organisation, which has been
established, and to the goals it is pursuing.

2. Consistency with the Environment:

Long-range planning implements the strategy that looks for long-run success. For long-run
success, it is necessary for continuous assessment of high degree to which previously established
policies are consistent with the environment and how current policies are accounted with future
of the environment.

3. Appropriateness of the Strategy in the Light of Available Resources:

The implementation of strategy has to make use of the critical resources most effectively. The
management should assess the available resource and identify the critical one, which is the most
the company poses and which is the least it has. To evaluate competence in relation to strategy,
the company must identify its strength whether it is good in marketing, in production or in R&D.
Another strategic importance is the physical availability of resources in relation to its
environment or physical facilities relative to markets, source of labour or materials or the
efficiency of facilities. The implementation of strategy should facilitate the economic use of
scarce resources.

4. Acceptability of the Degree of Risk Involved in the Strategy:

In the given environment, attitude of the management is to eliminate risks involved in the
strategy. This criteria does not imply that the strategy is the one with minimum risk. High returns
often go with high degree of risk.

The degree of risk involved in the strategy is dependent on three factors:

(i) Uncertainty of available resources over the anticipated period may be caused by internal of
external changes.

(ii) The risk is involved in the time period of available resources with the difficulty of predicting
long-run environmental changes.

(iii) The proportion of resources is committed to a single venture.

Greater the magnitude of the above factors, greater is the degree of risk involved. Non-utilization
of internal resources to the fullest may well be the riskiest strategy.

5. Appropriates of Time Horizon of the Strategy:

Strategic are not goal oriented but also time bounded. Introduction of new product, market or
installation of a plant can be of strategic importance only if mission is accomplished within
specified time. Realising the goals within the appropriateness of time horizon evaluates the
strategy effectively and efficiently.

6. Workability of the Strategy:

If the evaluation of the strategy is result-oriented then the workability of the strategy is
appraised. The workability amount of the strategy obviously explicit the implementation of
strategy with skill and appropriateness. If the workability of strategy cannot be evaluated by
results alone, Seymour Tiles suggests some other indicated that may be used for the purpose.

Role of Organisational Systems in Strategy Evaluation

The process of strategic evaluation and control does not operate in isolation; it works on the basis
of the different organizational systems that are used to implement strategies. There are six
organizational systems – information control, appraisal, motivation; development and planning.

Here, we shall briefly review the role of organizational systems in evaluation.

1. Information System:

Evaluation is done by comparing actual performance with standards. The measurement of

performance is done on the basis of reports generated through the information system. In fact the
purpose of information management system is to enable managers to keep track of performance
through control reports.

Several of the techniques whether for strategic surveillance or financial analysis are based on the
use of an information system to provide relevant and timely data to managers to allow them to
evaluate performance and strategy, and ‘Initiate corrective action.

In fact, with the increasing sophistication of the information management systems and the use of
it is possible to devise elaborate methods for evaluation. Techniques such as data warehousing
and data mining enable organisations to delve deeper into their internal systems and come up
with information that can be useful for evaluation and control purposes.

2. Control System:

The control system, of course, is at the heart of any evaluation process, and is used for setting
standards, measuring performance, analyzing variances, and taking corrective action.

3. Appraisal System:

The appraisal system actually evaluates performance and so is a part of the wider control system.
However, its significant role in evaluation is yet to be acknowledged. When the performance of
managers is appraised, it is their contribution to the organizational objectives which is sought to
be measured.

In practice, it is difficult to differentiate strictly between the performance of individuals and that
of the organizational units they belong to.

Thus, the achievement of a department or a profit centre is the sum total, or even more,
synergistically, of the individual performance of managers and employees in that department or
profit centre. The, evaluation process, through the appraisal system, measures the actual
performance and provides the basis for the control system to work.

4. Motivation System:

The central role of the motivation system is to induce strategically desirable behavior so that
managers are encouraged to work towards the achievement of organisational objectives. Now, if
we look at the way the evaluation process works, we will observe that its efficacy depends on the
extent to which it is able to bring actual performance to the level of the standards.

In other words, the lesser the deviation of actual performance from standards, the higher is the
efficacy of the evaluation process. The motivation system plays a significant role in ensuring that
deviations do not occur, or if they do, then they are corrected by the means of rewards and
penalties. Incentive systems are directly related to the amount of deviation. Performance checks,
which are a feedback in the evaluation process, are done through the motivation system.

5. Development System:

The development system prepares the managers for performing strategic and operational tasks.
Among the several aims of development, the most important is to match person with the job to
be performed.

The factors that could Help in Evaluating a Strategy: Quantitative Factors and Qualitative
Factors

The factors that could help in evaluating a strategy may broadly be classified into two
categories:

1. Quantitative factors and

2. Qualitative factors.

1. Quantitative Factors:

Quantitative criteria commonly employed to evaluate strategies are financial ratios, which
strategies use to make three important comparisons – (i) comparing the firm’s performance over
different time periods (ii) comparing the firm’s performance to competitors’ and (iii) comparing
the firm’s performance to industry averages.

Some key financial ratios that are particularly useful as criteria for strategy evaluation
may be stated thus:

i. Return on investment
ii. Return on equity
iii. Z score
iv. Employee satisfaction index
v. Return on capital employed
vi. Profit margin
vii. Market share
viii. Debt to equity
ix. Earnings per share
x. Sales growth
xi. Asset growth

However, there are some potential problems associated with using quantitative criteria for
evaluating strategies. First, most quantitative measures are tied to annual objectives rather than
many quantitative measures. Second, dividing the quantitative measures for various purpose
involves judgment. For these and other reasons, qualitative criteria are also to be taken into
account while evaluating strategies.

2. Qualitative Factors:

Many managers feel that qualitative organizational measurement is best arrived at simply by
answering a series of important questions aimed at revealing important facets of organizational
operations.

Seymour Tiles identified six qualitative that are useful in evaluating strategies way back in 1963
thus –

i. Is the strategy internally consistent?

ii. Is the strategy consistent with the environment?
iii. Is the strategy appropriate in view of available resources?
iv. Does the strategy involve an acceptable degree of risk?
v. Does the strategy have an appropriate time framework?
vi. Is the strategy workable?
Some additional key questions that reveal the need for qualitative or intuitive judgment in
strategy evaluation may be listed thus –

i. How good is the firm’s balance of investments between high-risk and low-risk projects?

ii. How good is the firm’s balance of investments between long term and short-term projects?

iii. How good is the firm’s balance of investments between slow-growing markets and fast-
growing markets?

iv. How good is the firm’s balance of investments among different divisions?

v. To what extent are the firm’s alternative strategies socially responsible?

vi. What are the relationships among the firm’s key internal and external strategic factors?

vii. How are major competitors likely to respond to particular strategies?

Environmental Analysis

Environmental analysis is a strategic tool. It is a process to identify all the external and internal
elements, which can affect the organization’s performance. The analysis entails assessing the
level of threat or opportunity the factors might present. These evaluations are later translated into
the decision-making process. The analysis helps align strategies with the firm’s environment.

Businesses are greatly influenced by their environment. All the situational factors which
determine day to day circumstances impact firms. So, businesses must constantly analyze the
trade environment and the market.

There are many strategic analysis tools that a firm can use, but some are more common. The
most used detailed analysis of the environment is the PESTLE analysis. This is a bird’s eye
view of the business conduct. Managers and strategy builders use this analysis to find where their
market currently. It also helps foresee where the organization will be in the future.

PESTLE analysis consists of various factors that affect the business environment. Each letter in
the acronym signifies a set of factors. These factors can affect every industry directly or
indirectly.

The letters in PESTLE, also called PESTEL, denote the following things:

 Political factors

 Economic factors

 Social factors

 Technological factors

 Legal factors

 Environmental factor

P for Political factors

The political factors take the country’s current political situation. It also reads the global political
condition’s effect on the country and business. When conducting this step, ask questions like
“What kind of government leadership is impacting decisions of the firm?”

Some political factors that you can study are:

 Government policies

 Taxes laws and tariff

 Stability of government
  Entry mode regulations

E for Economic factors

Economic factors involve all the determinants of the economy and its state. These are factors that
can conclude the direction in which the economy might move. So, businesses analyze this factor
based on the environment. It helps to set up strategies in line with changes.

I have listed some determinants you can assess to know how economic factors are affecting your
business below:

 The inflation rate

 The interest rate

 Disposable income of buyers

 Credit accessibility

 Unemployment rates

 The monetary or fiscal policies

 The foreign exchange rate

S for Social factors

Countries vary from each other. Every country has a distinctive mindset. These attitudes have an
impact on the businesses. The social factors might ultimately affect the sales of products and
services.

Some of the social factors you should study are:

 The cultural implications

 The gender and connected demographics

 The social lifestyles

 The domestic structures

 Educational levels

 Distribution of Wealth

T for Technological factors

Technology is advancing continuously. The advancement is greatly influencing businesses.
Performing environmental analysis on these factors will help you stay up to date with the
changes. Technology alters every minute. This is why companies must stay connected all the
time. Firms should integrate when needed. Technological factors will help you know how the
consumers react to various trends.

Firms can use these factors for their benefit:

 New discoveries

 Rate of technological obsolescence

 Rate of technological advances

 Innovative technological platforms

L for Legal factors

Legislative changes take place from time to time. Many of these changes affect the business
environment. If a regulatory body sets up a regulation for industries, for example, that law would
impact industries and business in that economy. So, businesses should also analyze the legal
developments in respective environments.

I have mentioned some legal factors you need to be aware of:

 Product regulations

 Employment regulations

 Competitive regulations

 Patent infringements

 Health and safety regulations

E for Environmental factors

The location influences business trades. Changes in climatic changes can affect the trade. The
consumer reactions to particular offering can also be an issue. This most often affects agri-
businesses.

Some environmental factors you can study are:

 Geographical location

 The climate and weather

  Waste disposal laws

 Energy consumption regulation

 People’s attitude towards the environment

There are many external factors other than the ones mentioned above. None of these factors are
independent. They rely on each other.

ere are 5 simple steps you could follow:

1. Understand all the environmental factors before moving to the next step.

2. Collect all the relevant information.

3. Identify the opportunities for your organization.

4. Recognize the threats your company faces.

5. The final step is to take action.

Environmental analysis

Environmental analysis is described as the process which examines all the components internal
or external that has an influence on the performance of the organization.

The internal components indicate the strength and weakness of the business entity where are the
external components represent opportunities and threats outside the organization.

Environment analysis is also defined as the awareness of the organisation to the success.

Need and importance of Environmental Analysis

They help the managers to achieve the organisational objectives effectively than other
organizations.

An enterprise cannot achieve its objective unless it adapts itself to environmental change

Systematic analysis in labels that manages to predict the future and to have enough time for other
activities this minimises the time pressure of the managers.