Introduction

Strategy formulation is the development of long-range plans for the effective management of
environmental opportunities and threats, in light of corporate strengths and weaknesses (SWOT). It
includes defining the corporate mission, specifying achievable objectives, developing strategies, and
setting policy guidelines.

Learning Objectives

After reading this chapter, you should be able to:

 Organize environmental and organizational information using SWOT analysis and a SFAS matrix.
 Generate strategic options by using the TOWS matrix.
 Understand the competitive and cooperative strategies available to corporations.
 List the competitive tactics that would accompany competitive strategies.
 Identify the basic types of strategic alliances.

6.1 Situational Analysis: SWOT Analysis

SWOT analysis can be used in analyzing factors in light of the current situation. SWOT is an
acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are
strategic factors for a specific company.

SWOT analysis, by itself, is not a panacea. Some of the primary criticisms of SWOT analysis are:

 It generates lengthy lists.

 It uses no weights to reflect priorities.
 It uses ambiguous words and phrases.
 The same factor can be placed in two categories (e.g., a strength may also be a
weakness).
 There is no obligation to verify opinions with data or analysis.
 It requires only a single level of analysis.
 There is no logical link to strategy implementation.
Generating a Strategic Factors Analysis Summary (SFAS) Matrix

The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an organization’s strategic
factors by combining the external factors from the EFAS Table with the internal factors from the IFAS
Table.

You can create an SFAS Matrix by following these steps:

1. In Column 1 (Strategic Factors), list the most important EFAS and IFAS items. After each factor,
indicate whether it is a Strength (S), Weakness (W), an Opportunity (O), or a Threat (T).
2. In Column 2 (Weight), assign weights for all of the internal and external strategic factors. As
with the EFAS and IFAS Tables presented earlier, the weight column must total 1.00. This means
that the weights calculated earlier for EFAS and IFAS will probably have to be adjusted.
3. In Column 3 (Rating), assign a rating of how the company’s management is responding to each
of the strategic factors. These ratings will probably (but not always) be the same as those listed
in the EFAS and IFAS Tables.
4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor by its rating in
Column 3 to obtain the factor’s rated score.
5. In Column 5 (Duration), depicted in Figure 6–1, indicate short-term (less than one year),
intermediate-term (one to three years), or long-term (three years and beyond).
6. In Column 6 (Comments), repeat or revise your comments for each strategic factor from the
previous EFAS and IFAS Tables. The total weighted score for the average firm in an industry is
always 3.0.

The SFAS Matrix includes only the most important factors gathered from environmental scanning
and thus provides information that is essential for strategy formulation.
Finding a Propitious Niche

A niche is a need in the marketplace that is currently unsatisfied. The goal is to find a propitious
niche—an extremely favorable niche—that is so well suited to the firm’s internal and external
environment that other corporations are not likely to challenge or dislodge it.

A niche may also be called a strategic sweet spot - where a company is able to satisfy
customers’ needs in a way that rivals cannot, given the context in which it operates.

Finding such a niche or sweet spot is not always easy. A firm’s management must be always
looking for a strategic window—that is, a unique market opportunity that is available only for a
particular time.

6.2 Mission, Vision, and Objectives

A reexamination of an organization’s current mission and objectives must be made before

alternative strategies can be generated and evaluated. Even when formulating strategy, decision makers
tend to concentrate on the alternatives—the action possibilities—rather than on a mission to be fulfilled
and objectives to be achieved.

An organization’s mission is the purpose or reason for the organization’s existence. It tells what
the company is providing to society—either a service such as housecleaning or a product such as
automobiles. A mission statement may also include the firm’s values and philosophy about how it does
business and treats its employees. It puts into words not only what the company is now but what it
wants to become—management’s strategic vision of the firm’s future.
 Some people like to consider vision and mission as two different concepts: Mission describes
what the organization is now; vision describes what the organization would like to become. Some
companies prefer to list their values and philosophy of doing business in a separate publication called a
values statement.

Problems in performance can derive from an inappropriate statement of mission, which may be
too narrow or too broad.

 A broadly defined mission statement keeps the company from restricting itself to one field or
product line, but it fails to clearly identify either what it makes or which products/markets it
plans to emphasize.
 A narrow mission very clearly states the organization’s primary business, but it may limit the
scope of the firm’s activities in terms of the product or service offered, the technology used, and
the market served.

If the mission does not provide a common thread (a unifying theme) for a corporation’s businesses,
managers may be unclear about where the company is heading.

A company’s objectives can also be inappropriately stated. They can either focus too much on
short-term operational goals or be so general that they provide little real guidance. Objectives should be
constantly reviewed to ensure their usefulness.