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Strategy formulation
• Strategy formulation is the analytical process of
selection of the best suitable course of action to meet
the organisational objectives and vision.
• It is one of the steps of the strategic
management process. The strategic plan allows an
organization to examine its resources, provides a
financial plan and establishes the most appropriate
action plan for increasing profits.
Steps of Strategy Formulation
• Establishing Organizational Objectives: This involves establishing long-
term goals of an organization. Strategic decisions can be taken once the
organizational objectives are determined.
• Analysis of Organizational Environment: This involves SWOT analysis,
meaning identifying the company’s strengths and weaknesses and keeping
vigilance over competitors’ actions to understand opportunities and
threats.Strengths and weaknesses are internal factors which the company
has control over. Opportunities and threats, on the other hand, are
external factors over which the company has no control. A successful
organization builds on its strengths, overcomes its weakness, identifies
new opportunities and protects against external threats.
• Forming quantitative goals: Defining targets so as to meet the company’s
short-term and long-term objectives. Example, 30% increase in revenue
this year of a company.
• Objectives in context with divisional plans: This involves setting up
targets for every department so that they work in coherence with the
organization as a whole.
• Performance Analysis: This is done to estimate the degree of variation
between the actual and the standard performance of an organization.
• Selection of Strategy: This is the final step of strategy formulation. It
involves evaluation of the alternatives and selection of the
best strategy amongst them to be the strategy of the organization.
Strategy formulation process is an integral part of strategic
management, as it helps in framing effective strategies for the
organization, to survive and grow in the dynamic business
environment.
 Levels of strategy formulation
• There are three levels of strategy formulation
used in an organization:
• Corporate level strategy: This level outlines what you want to achieve:
growth, stability, acquisition or retrenchment. It focuses on
what business you are going to enter the market.
• Business level strategy: This level answers the question of how you are
going to compete. It plays a role in those organization which have
smaller units of business and each is considered as the strategic business
unit (SBU).
• Functional level strategy: This level concentrates on how an organization
is going to grow. It defines daily actions including allocation of resources
to deliver corporate and business level strategies.
Hence, all organisations have competitors, and it is the strategy that
enables one business to become more successful and established than
the other.
 Types of Strategy
The following are the alternative strategies that
an organization can peruse.
1. Integration Strategies
a. Forward Integration
b. Backward Integration
c. Horizontal Integration
Integration Strategies :  Integration strategies allow a firm to
gain control over the distributors, suppliers and/or
competitors.

a. Forward Integration: Involves gaining ownership or

increased control over distributors.

b. Backward Integration: is a strategy of seeking ownership

or gaining a firm’s supplies.

c. Horizontal Integration: Refers to a strategy of seeking

ownership of or increased control over a firm’s competitors.
• 2. Intensive Strategies
a. Market Penetration
b. Market Development
c. Product Devlopment
• 2. Intensive Strategies They require intensive efforts if a
firm’s competitive position with existing products is to
improve.

a. Market Penetration - A market penetration strategy seeks

to increase market for present product or services in present
market through greater marketing efforts.
b. Market Development - Market Development involves
introducing present products or services into new geographic
areas.
c. Product Development is a strategy that seeks increased
sales by improving or modifying present products or services.
• 3. Diversification Strategies
a. Concentric Diversification
Adding new but related products or services is called
concentric diversification.
b. Horizontal Diversification
Adding new unrelated products or services for present
customers is called horizontal diversification.
c. Conglomerate Diversification.
Adding new but unrelated products or services is called
conglomerate Diversification.
• 4. Defensive Strategies
• a. Retrenchment:
Occurs when an organization regroups through
cost and asset reduction to reverse declining
sales and profit.
b. Divestiture:
Selling a division or a part of an organization.
c. Liquidation:
Selling all of a company’s assets , in parts, for
their tangible worth is called liquidation.
• Strategies used to make decisions regarding
the allocation of resources or pursuing an
operational strategy are often categorized as
stability strategies, expansion (growth)
strategies, retrenchment strategies, or
combination strategies.
• 1. Stability Strategy:
• When an enterprise is satisfied by its present position, it will not
like to change from here and it will be a stability strategy.
Stability strategy will be successful when the environment is
stable. This strategy is exercised most often and is less risky as a
course of action.
• The organization may not be adventurous to try new strategies
to change the status quo. This strategy may be possible in a
mature industry with static technology. Stability strategy may
create complacency among managers. The managers of such an
organization may find it difficult to cope with the changes when
they come.
• Stability strategies can be of the following types:
(i) No-Change Strategy: When external environment is
predictable and organizational environment is stable then
a businessman may like to continue with the present
situation. 
(ii) (ii) Profit Strategy: The firm will try to sustain profitability
by controlling expenses, reducing investments, raise
prices, cut costs, increase productivity etc. These
measures will help the firm in sustaining current
profitability in the short run. Profit strategy will be
successful for a short period only.
• (ii) Proceed-With Caution Strategy: Proceed with
caution strategy is employed by firms that wish to
test the ground before moving ahead with full-
fledged grand strategy or by those firms which had a
rapid pace of expansion and now wish to rest for a
while before moving ahead. 
• The main object is to let the strategic changes seep
down the organizational levels, allow structural
changes to take place and let the system adopt to
new strategies.
2. Growth Strategy:
Growth may mean expansion and diversification of
operations of the enterprise. 
The growth strategy may be implemented through
product development, market development,
diversification, vertical integration or merger. In
product development, new products are added
to the existing ones or new products replace the
old ones when they are obsolete.
3. Retrenchment or Retreat Strategy:
• An enterprise may retreat or retrench from its
present position in order to survive or improve its
performance. Such a strategy may be adopted
during a period of recession, tough competition,
scarcity of resources and re-organization of company
in order to reduce waste. This strategy, though
reflecting failure of the company to some degree
becomes highly necessary for the survival of the
company.
• (i) Turnaround Strategies:
Retrenchment may be done either internally or
externally. Internal retrenchment is done to
improve internal working. This usually takes
the form of an operating turnaround strategy.
In contrast, a strategic turn­around is a more
serious form of external retrenchment and
leads to disinvestment or liquidation.
• (ii) Disinvestment Strategies:
It involves the sale or liquidation of a portion of business or
major division or profit center etc. Disinvestment is
usually a part of rehabilitation or restructuring plan. This
strategy is adopted when turnaround strategy has failed.
A firm may disinvest in two ways. A part of the company is
divested by spinning it off as a financially and
managerially independent company, with the parent
company retaining or not retaining partial ownership.
Alternatively, the firm may sell a unit outright.
• (iii) Liquidation Strategies:
It involves the closing down of a firm and selling
its assets. It is considered to be the last resort
because it leads to serious consequences such
as loss of employment for workers and other
employees, termination of opportunities
where the firm could pursue any future
activities and also the stigma of failure which
will be attached with this action.
4. Combination Strategy:
A large firm, active in a number of industries may
adopt a combined strategy. It represents mix of the
three strategies mentioned above.
A large concern may adopt growth strategy’ on one
side and retreat strategy in the other area. In order
to make this strategy effective there should be right
people who can take objective and intelligent
decisions by considering various factors.
 Comparative cost analysis in strategic
management
• A comparison of one entity's cost position to
another. Cost analysis compares everything from
the price paid for raw materials right to the price
customers pay for the finished product. The goal
of the analysis is to determine whether or not one
company's costs are competitive with another's.
Portfolio analysis in strategic management
• Strategic portfolio analysis
 involves identification and evaluation of all products
or service groups offered by company on the market (so
called product mix) and preparing specific strategies for every
group according to its relative market share and actual or
projected sales growth rate. It can be also used to make strategic
decision about strategic business units.
• Portfolio analysis in strategic management allows to answer key
questions how to shape the present and future business
portfolio (of product or services) in order to reduce the risk of
functioning in a changing environment, and increase the effects
of the implemented strategy
 Operational analysis
• Operational analysis is a method of examining the current and
historical performance of an operational (or steady-state)
investment and measuring that performance against an
established set of cost, schedule, and performance parameters.
• Operational analysis gives us an understanding what has
happened now with our operations, it is a short term view on
past events.
• Even though one single short term event can not jeopardize the
long term goal set by strategic planning it is important to be
analysed.
• To make sure that we can achieve our long term goals we must
assure that we are on the right track with every step.
 Strategic financial analysis
• Strategic financial analysis is a powerful, value-creating
framework that helps senior executives assess strategy,
analyze performance, and value a business. 
• Financial analysis and planning help an organization in
achieving strategic tasks and objective within available
resources. The key responsibility of financial analysis and
planning team is facilitate management in formulating
short and long-term objectives, carrying out cost-benefit
analysis and ensuring targets are met through periodic
reviews. 
• Major steps involved in strategic financial
planning are
– Forecasting
– budgeting
– Reporting
– Analysis
Building and restructuring the corporation

• Corporate restructuring is the process of

redesigning one or more aspects of a
company. The process of reorganizing a
company may be implemented due to a
number of different factors, such as
positioning the company to be more
competitive, survive a currently adverse
economic climate, or poise the corporation to
move in an entirely new direction.
 Purpose of Corporate Restructuring

• To enhance the share holder value

• To focus on asset utilization and profitable
investment opportunities.
• To reorganize or divest less profitable or loss
making businesses/products.
 2 types of corporate restructuring
1. Financial Restructuring
Financial restructuring is the reorganization of the financial
assets and liabilities of a corporation in order to create the
most beneficial financial environment for the company.
The process of financial restructuring is often associated with
corporate restructuring, in that restructuring the general
function and composition of the company is likely to
impact the financial health of the corporation. When
completed, this reordering of corporate assets and
liabilities can help the company to remain competitive,
even in a depressed economy.
2. Organizational Restructuring
In organizational restructuring, the focus is on
management and internal corporate governance
structures. Organizational restructuring has
become a very common practice amongst the
firms in order to match the growing competition
of the market. This makes the firms to change
the organizational structure of the company for
the betterment of the business.
 VARIOUS STRATEGIES FOR BUSINESS
RESTRUCTURING
• Smart sizing: It is the process of reducing the size of a company
by laying off employees on the basis of incompetence and
inefficiency.
• Acquisitions: HLL took over TOMCO.
• Diversification: Videocon group is diversified into power projects,
oil exploration and basic telecom services.
• Merger: Asea and Brown Boveri came together to form ABB.
• Strategic alliances: Siemens India has got a Strategic alliance with
Bharati Telecom for marketing of its EPABX.
• Expansion: Siemens is expanding its medical electronics division-
a new factory for medical electronics is already come up in Goa.
• Networking: It refers to the process of
breaking companies into smaller independant
business units for significant improvement in
productivity and flexibility. The phenomenon
is predominant in South Korea, where big
companies like Samsung, Hyundai and
Daewoo are breaking themselves up into
smaller units.
 ETOP
Environmental Threat Opportunity Profile
(ETOP)
• ETOP analysis is the process by which
organizations monitor their relevant
environment to identify opportunities and
threats affecting their business for the
purpose of taking strategic decisions.
• ETOP analysis is a management tool that analyses
environmental information and determines the relative
impact of threats and opportunities for the systematic
evaluation of the environment.
• ETOP process involves dividing the environment into
different environmental sectors and then analyzing the
impact of each sector on the organisation.
• ETOP gives a clear picture to the strategies about each
aspect of the business environment, the various individual
factors within each sector which affect the business
favourably or otherwise.
 ORGANISATIONAL CAPABILITY PROFILE
• An organizational capability profile describes the skills,
knowledge and resources that enable your company to
provide quality products or services to customers.
• The profile provides useful background information for
your marketing and corporate communications. You can
also use it as part of a formal bid document to win
contracts.
• To draft the profile, first identify the capabilities that are
important to your customers and that differentiate you
from competitors and then incorporate them in a
presentation or document.
 STRATEGIC ADVANTAGE PROFILE
• strategic advantage profile is a summary statement
which provides an overview of the advantages and
disadvantages in key areas likely to affect future
operations of a firm.
• It is a total for making systematic evaluation of
strategic advantage factors which are significant for
the company in its environment. It involves
functional areas like marketing, production, finance,
accounting, personnel, human resource and R$D
 CORPORATE PORTFOLIO ANALYSIS
• A corporate portfolio analysis takes a close look at a
company’s services and products. Each segment of a
company’s product line is evaluated including sales,
market share, cost of production and potential
market strength.
• The analysis categorizes the company’s products and
looks at the competition. The goal is to identify
business opportunities, strategize for the future and
direct business resources towards that growth
potential.
 SWOT ANALYSIS
• EXPLAIN YOURSELF
 GAP ANALYSIS
• Gap analysis is an excellent strategic tool used
by management to identify where the
company is going and what is the expectation
or the potential of the company.
• Gap analysis compares the actual achievement
with the potential achievement to find the gap
in the existing strategy. This gap then needs to
be filled such that the company meets its own
potential.
 Mc Kinsey 7s framework
• McKinsey 7s model is a tool that analyzes
firm’s organizational design by looking at 7 key
internal elements: strategy, structure, systems,
shared values, style, staff and skills, in order to
identify if they are effectively aligned and
allow organization to achieve its objectives.
• McKinsey 7s model was developed in 1980s by
McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from
Richard Pascale and Anthony G. Athos.
• The goal of the model was to show how 7
elements of the company: Structure, Strategy,
Skills, Staff, Style, Systems, and Shared values,
can be aligned together to achieve
effectiveness in a company.
• The key point of the model is that all the
seven areas are interconnected and a change
in one area requires change in the rest of a
firm for it to function effectively.
• In McKinsey model, the seven areas of
organization are divided into the ‘soft’ and
‘hard’ areas. Strategy, structure and systems
are hard elements that are much easier to
identify and manage when compared to soft
elements. On the other hand, soft areas,
although harder to manage, are the foundation
of the organization and are more likely to
create the sustained competitive advantage.
Applications of this model are,
• To facilitate organizational change.
• To help implement new strategy.
• To identify how each area may change in a
future.
• To facilitate the merger of organizations
 GE 9 CELL MODEL
• GE Nine(9) Cell Matrix. 
GE nine-box matrix is a strategy tool that offers a
systematic approach for the multi business
enterprises to prioritize their investments
among the various business units.
It is a framework that evaluates business
portfolio and provides further strategic
implications.
• The GE 9-Cell Matrix was developed with the
intention to overcome certain limitations of
the BCG Matrix.

The Matrix was pioneered by General Electric

Co., with the aid of Boston Consulting Group
and McKinsey & Co.
• The matrix consists of 9 cells (3X3) and Two
Key Variables :

• Business Strength
• Industry Attractiveness
• Business Strengths :
• Product features/ Patents
• Market Share
• Profit Margins
• Price/ Quality Competitiveness
• Market Intelligence
• Industry Attractiveness :
• Market Size & Growth
• Economies of scale
• Technology
• Social/ environmental aspects
• Competitive factors
• If your enterprise falls in the green zone you
are in a favorable position with relatively
attractive growth opportunities.

A position in the yellow zone is viewed as

having medium attractiveness.
 Balanced score card
• Balanced scorecard is a strategy performance
management tool – a semi-standard
structured report, that can be used by
managers to keep track of the execution of
activities by the staff within their control and
to monitor the consequences arising from
these actions.