STRATEGY F ORMUL AT I ON

Chapter # 4
Formulation Strategies involves determining appropriate courses of
action for achieving objectives.
Such activities it includes:
- Analysis
- Planning
- Selecting strategies
S T R AT E GY F OR MU L AT I ON
Inputs from environmental analysis
Two approaches that focuses on strategic
formulation.

- Critical question Analysis
- SWOT analysis


Critical Question analysis
Provides a frame work to understand organization current situation.
It contains four basic questions.

1. What are the purpose and objectives of the organization?
2. Where is the organization presently going?
3. What critical factors organization currently facing?
4. What can be done to achieve organizational objectives more effectively in
the future?
SWOT Analysis
( SWOT stands for strengths, weaknesses, opportunities, and threats.)
This approach suggests that the major issues facing an organization can
be isolated through
Careful analysis of each of these four elements.
Formulating organizational
strategies
Organizational strategies are formulated by top management and are
designed to achieve the firms overall objects. Process includes two
related tasks. First, general strategies must be selected and developed.
Second, specific decisions must be made about what role various lines
of business in the organization will play and how resources will be
allocated among them.

GENERAL STRATEGIES
ALTERNATIVES
An organization can choose from a wide variety of general
strategies.
Concentration Strategies
A concentration strategy is one in which of buisness.h an organization
focuses on a single line.
This strategy used by firms seeking to gain a competitive advantage through
a specialized knowledge and efficiency and to avoid problems involved in
managing too many businesses.

Stability Strategy
The organization that adopts a stability strategy focuses on its existing
line/ business lines and attempt to maintain them.
An organization in a low- growth industry that has no other viable
option may be forced to select a stability strategy.

Growth Strategy -1
Organizations usually seek growth in sales, profits ,market share, or some
other measure as a primary objective.

growth strategies may be pursued by:

1. VERTICAL INTEGRATION :
it involves growth through acquisition of other organizations in a
channel of distribution it is used to obtain greater control over a line of
business and to increase the profits through better efficiency, or better
selling efforts.

Growth Strategy - 2
2. HORIZONTAL INTEGRATION:

It involves growth through the acquisition of competing firms in the same
line of business.
It is adopted in an effort to increase the size, sales, profits, and potential
market share of organization .

3. DIVERSIFICATION:

Involves growth through acquisition of firms in other industries or business
lines.
Useful while organization acquiring efficiency or market impact through
The use of shared resources.







Mergers and joint ventures

Merger:

- Joining of two companies to form a new organization

Joint Ventures

- An organization works for another company on a project too large to
handle by itself.

RETRENCHEMENT Strategies
When an organizations survival is threatened and it is not
competing effectively.


RETRENCHEMENT Strategies types-1
1. Turnaround strategy

When an organization perform poorly but has not yet reached at critical
stage .
It involves cutting of / getting rid of unprofitable products, workforce,
distribution outlets.

RETRENCHEMENT Strategies types-2

2.Divestment strategy

Involves business selling or setting it up as a separate corporation.
3. Liquidation strategy

least desirable strategy.
In this strategy business is terminated and its assets sold off,
it usually involves loses to both stockholders and employees.


Combination strategies
Large , Diversified organization commonly these strategies.

Business Portfolio Model
Tools for analyzing
1.Relative position of each of an organizations businesses in its industry.
2.Relationship between all of the businesses of organization.
Bcgs Growth- share matrix
BCG- Boston consulting Group , a leading management consulting
firm, developed and popularized a strategy formulation approach called
the growth share matrix

BCG BUSINESS PORTFOLIO MATRIX
High
Low
High
Low
Stars
Cash Cows
Question Marks
Dogs
Industry
Growth
Rate
Relative Market Share Position
BCG Business Portfolio Matrix

Firms should have a balanced portfolio of business such that
Some generate cash then they use and thus support other businesses that
need cash to develop and become profitable.
The VERTICLE AXIS indicates the Market Growth Rate
The HORIZONTAL AXIS indicates Market Shares
The growth - Share market consist on four cells
Reflect four possible combinations of High and Low Growth with High and
Low market share.


BCG Business Portfolio Matrix

1. Question marks ( known as Problem children):
Company businesses operate as a high-growth market with low market
share.
2. Stars:
- Question marks Company businesses becomes successful.
- Market leader.
- But not necessarily to provide much cash





BCG Business Portfolio Matrix

3. Cash Cows:
Company businesses with less growth rath annually 10 percent. But
with largest relative market share.
Org. doesnt need to finance a great deal / investment of expansion
because of lower market growth.
4. Dogs:
Company businesses with weak market shares in low growth markets.

alternative strategies

A balanced portfolio has number of stars and cash cows and not too
many questions marks and dogs.
This balance is not only to important to maintain existing businesses
but also to develop new businesses.


alternative strategies- 1
Four basic strategies can be described as:
1.Build Market Share: appropriate for question marks that must increase
shares to becomes Stars
2.Hold Market share: appropriate for Cash Cows with strong Share
position
3.Harvest: involves milking as much short-term cash from a business as
possible.
4.Divest: involves selling or liquidating a business becaouse the resources
devoted to it can be invested more profitability in other businesses.

Formulating business strategies
INVOLVES:

- Decision making at the decision level or the business-unit level.
Formulating business strategies
Structural Analysis of competitive Forces.
It includes:
- Threat of New entrants,
- the bargaining power of suppliers,
- the bargaining power of buyers ,
- Threat of subsitute of products

Structural Analysis of
competitive Forces- 1
Threat of New entrants:
Firms entering an industry bring new capacity and a desire to gain
market share and profits.

Bargaining Power of suppliers:
Suppliers can be a competitive threat in an industry because they can rise
the price of raw material or reduce their quality

Structural Analysis of
competitive Forces- 2
Bargaining Power of suppliers:
Suppliers can be a competitive threat , because they can raise the price of
raw material.
Bargaining Power of buyers:
Buyers compete with the industry by forcing prices down, bargain for
higher quality or more services, and playing competitors off against
each other

Structural Analysis of competitive
Forces- 3
Threat of Substitute Products:
All firms in a industry are competition with industries producing
substitute products.
The more attractive the price performances alternatives offered by
substitute. Tighter the lid on industry profits
Rivalry Among Existing Competitors:
All firms try to take customers from one another by substitute.
Strategies such as price competition, advertising battles, new products
intro. And increased customer services


Formulating Functional strategies
Functional strategies spells out the specific tasks that must be
performed to implement the business strategy.

Research and Development Strategy :
R&D responsible for to finds out new product ideas, and develop them
until product goes into full production and enter the market.

Operation Strategy :
It is all about decision and planning about production plant or business
lines, like plant layout, manufacturing and production processes, and
inventory requirements.
Formulating Functional strategies- 1
Financial Strategy :
It contains forecasting and financial planning evaluating investment
proposals, securing financing for various investments. And controlling
financial resources
Marketing Strategy :
determines the appropriate markets for business offering and on developing
effective marketing mixes
Human Resource Strategy:
It is about to attracting, assessing, motivating, and retaining the number and
types of employees required to run the business effectively.
Strategy Formulation Constraints
Some strategies needs to be considered when planning and
selecting organizational, business, or functional strategies :

1.Availability of financial resources.
2.Attitude towards risk.
3.Organizational capabilities.
4.Channel relationships.
5.Competitive relation
Strategy selecting criteria
Strategic alternatives should be accepted to the degree that
they meet the following criteria.

1.They are responsive to the external environment
2.They provide adequate flexibility for the business and the organization.
3.They conform to the organizations mission and long term objectives.
4.They are organizationally feasible.