UNIT II

STRATEGIC FORMULATION
THE WORST ERROR IN STRATEGY IS TO COMPETE WITH RIVALS ON THE SAME DIMENSIONS. MICHAEL PORTER, HARVARD UNIVERSITY

FIRST STAGE OF STRATEGIC MANAGEMENT

INTRODUCTION

Strategy formulation refers to the process of

choosing the most appropriate course of action for
the realization of organizational goals and objectives
and thereby achieving the organizational vision.
The process of strategy formulation basically
involves six main steps

Framing Mission & Vision.

Analysis of the Internal Environment
Analysis of External Environment
Gap Analysis
Framing Alternative Strategies.
Choice of Strategy

STRATEGIC FORMULATIOPN

Developing vision & mission

Identifying external opportunities and threats
Determining internal strengths & weakness.
Establishing long term objectives
Generating alternative strategies
Choosing particular strategies to pursue.
Deciding what new business to enter

OBJECTIVE..

VISION STATEMENT

What do we want to
become?

The vision statement answers the question What do

we want to be.
A vision has to be communicated to the members of the
organization..
Communicating the strategic vision down the line to
lower level managers and employees is almost as
important as setting the organizations long term
direction.
A view of an organizations future direction and business
course
a guiding for what the organization is trying to do and to
become.

MISSION

Mission statement tries to provide answer to the question What is

our business.

Some companies develop only a mission statement which reflects the

vision os the company .

It reflects the purpose of companies existance.

Should guide the actions of the organisation

Three essential components of Mission Statement:

Key market.
Contribution
Distinction

DEVELOPING A MISSION STATEMENT

First to select several articles about mission

statements and ask all managers to read these
as background information
Ask managers themselves to prepare a mission
statement for the organization
Committee of top managers should then merge
these statements into a single documents,
Than distribute this draft mission statement to
all managers as a request for modifications
Finalize the modified statement in front of CEO.s

AN EFFECTIVE MISSION STATEMENT SHOULD

Should not too lengthy; recommended is less

than 200 words
Arouses positive feelings and emotions about
an organization
Generates the impression that a firm is
successful, has direction
Distinguish a given organization from all others
Widely understood throughout the organization
Identify the utility of a firms products to its
consumers

DO NOT OFFER ME THINGS

Do not offer me clothes. Offer me attractive looks.

Do not offer me shoes. Offer me comfort feet of
walking.
Do not offer me a house. Offer me security, comfort,
and place that is clean and happy.
Do not offer me books. Offer me hours of pleasure
and benefit of knowledge.
Do not offer me records. Offer me leisure and sound
of music.
Do not offer me things. Offer me ideas,
emotions, ambience, feelings and benefits.

ENVIRONMENTAL ANALYSIS

ENVIRONMENTAL ANALYSIS & SCANNING

The environmental survey is necessary to:
Learn about events and trends in the environment and
project the future position in each factor of environment.
To identify the favorable and unfavorable factors in the
environment from the standpoint of the firm.
To figure out opportunities and threats hidden in
environmental trends and events.
To assess the scope of various opportunities and shortlist
ones which have the potential of becoming promising
business
To formulate strategy in line with opportunities.

FEATURES OF BUSINESS ENVIRONMENT

Environment is inseparable part of Business

Environment is dynamic.
Business lacks control over environment.
Environment regulates the scope of Business.
Direct & long lasting impact.
Internal & external factors.
Environment is complex.
Environment is multi-faceted.
Environment & planning.
Opportunities & obstacles.

IMPORTANCE OF ENVIRONMENT ANALYSIS

Ensures survival & success.

Facilitates Planning.
Helps to grab opportunities.
Minimizes threats.
Builds Image.
Helps in innovation.
Ecological balance.
Facilitates alternative choice.
Optimum use of resources
Flexibility in operations
Helps to be active and alert
Helps to face competition

!
Strengt
hs

Weakne Opportun
Threats
ities
sses

SWOT Analysis

INTRODUCTION
It has decided to
venture into the
market of cosmetics
with the launch of a
new brand of
cosmetics Glaze in
the market.

Globus Inc.
is a
leading
manufacture
r of baby
products.

However, before Globus can

actually make the final
decision of venturing into a
new market, it needs to find
out the things that are
working in its favor and the
aspects that can lead to the

Globus Inc.
is a
leading
manufacture
r of baby
products.

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Whhaatt ddoo yyou
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atiioonn??
However, before Globus can
actually make the final
decision of venturing into a
new market, it needs to find
out the things that are
working in its favor and the
aspects that can lead to the

It has decided to
venture into the
market of cosmetics
with the launch of a
new brand of
cosmetics Glaze in
the market.

Globus can
do a SWOT
Analysis of
its position
in the
market.

Carrying out a SWOT

Analysis will help
Globus understand
the companys
strengths,
weaknesses,
opportunities and
threats.
SWOT Analysis would help
Globus understand its strengths
that would be helpful in the
new venture, its weaknesses
that need to be overcome to be
successful in launching the new
products, the opportunities that
it has at hand to succeed in the
new venture and the threats
that it perceives to the success
in the new venture.

Carrying out a SWOT

Analysis will help
Globus understand
Globus can
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Opportunities are:
Chances to make greater
profits in the environment.
External attractive factors that
represent the reason for an
organization to exist and
develop.
Condition of the environment
that benefits the organization
in planning and executing
strategies that enable it to
become more profitable.
Organization should be careful and
recognize the opportunities and
grasp them whenever they arise.
Opportunities may arise from

S
O

W
T

STRENGTHS
Characteristics of the business or
a team that give it an advantage
over others in the industry.
Positive tangible and
intangible attributes, internal
to an organization.
Beneficial aspects of the
organization or the capabilities
of an organization, which
includes human competencies,
process capabilities, financial
resources, products and
services, customer goodwill
Examples
Godrej consumer
and brand loyalty.
Products

S
O

W
T

WEAKNESS
Characteristics
Characteristics that
that place
place the
the firm
firm at
at a
a
disadvantage
disadvantage relative
relative to
to others.
others.
Detract
Detract the
the organization
organization from
from its
its ability
ability to
to
attain
the
core
goal
and
influence
its
growth.
attain the core goal and influence its growth.
Weaknesses
Weaknesses are
are the
the factors
factors which
which do
do not
not meet
meet
the
standards
we
feel
they
should
meet.
the standards we feel they should meet.
However,
sometimes
weaknesses
are
However,
sometimes
weaknesses
are
controllable.
They
must
be
minimized
and
controllable. They must be minimized and
eliminated.
eliminated.
Examples
Examples -- Limited
Limited financial
financial resources,
resources, Limited
Limited
distribution,
distribution, Higher
Higher costs,
costs, Out-of-date
Out-of-date products
products //
technology,
technology, Weak
Weak market
market image,
image, Poor
Poor marketing
marketing
skills,
Limited
management
skills.
skills, Limited management skills.

THREATS
External elements in the
environment that could cause
trouble for the business - External
factors, beyond an organizations
control, which could place the
organizations
mission in
or
Arise when conditions
operation
at risk.
external environment
jeopardize the reliability and
profitability of the
organizations
Compound thebusiness.
vulnerability when
they relate to the weaknesses.
Threats are uncontrollable. When
a threat comes, the stability and
survival
can be
at stake.
Examples
Godrej
consumer
Products

Mc Donalds SWOT Analysis

INTERNAL
INTERNAL
STRENGTHS
STRENGTHS

Ranks very high on the Fortune

Magazine's most admired list
Community oriented
Global operations all over the world
Cultural diversity in the foods
Excellent location
Assembly line operations.
Use of top quality products
OPPORTUNITIES
OPPORTUNITIES

WEAKNESSES
WEAKNESSES

Failing pizza test market thus limiting the

ability to compete with pizza providers.
High training costs due to high turnover.
Minimal concentration on organic foods.
Not much variation in seasonal products .
Quality concerns due to franchised
operations.
Focus on burgers / fried foods not on
healthier
THREATS
options for their
customers.
THREATS

Opening more joint ventures.

Marketing strategies that entice people
Being more responsive to healthier
from
options.
small children to adults.
Advertising wifi services in the
Lawsuits for offering unhealthy foods.
branches.
Contamination risks that include the
Expanding on the advertising on being
threat of
more socially responsible
e-coli containments.
Expansions of business into newly
The vast amount of fast food
developed
restaurants that
parts of the world.
are open as competition.
EXTERNAL
EXTERNAL
Open products up to
Focus on healthier dieting by
allergen free options
consumers.

BENEFITS OF SWOT ANALYSIS

Benefits
of SWOT
Analysis

Knowing the
Competion
Reviews a company's
competitors &
benchmarks against
them to configure
strategies that will put
the company in a
competitive advantage.

Decision Making Tool

Provides well-rounded
information that prompt
well-informed decisions.

Forecasting
Provides a variety of
information critical to
forecasted variables.
Threats, for e.g., can impact
a business's forecast. By
understanding the
company's advantages &
disadvantages, forecasts will
be more accurate.

BENEFITS
Besides the broad benefits, here are few more benefits of conducting
SWOT Analysis:
Helps in setting of objectives for strategic planning
Provides a framework for identifying & analyzing strengths,
weaknesses, opportunities & threats
Provides an impetus to analyze a situation & develop
suitable strategies and tactics
Basis for assessing core capabilities & competencies
Evidence for, and cultural key to, change
Provides a stimulus to participation in a group experience

PITFALLS OF SWOT

Can be very subjective. Two people rarely come up with the

same final version of a SWOT. Use it as a guide and not as a
prescription.
May cause organizations to view circumstances as very
simple due to which certain key strategic contact may be
overlooked.
Categorizing aspects as strengths, weaknesses, opportunities &
threats might be very subjective as there is great degree of
uncertainty in market.
To be effective, SWOT needs to be conducted regularly. The
pace of change makes it difficult to anticipate
developments.
The data used in the analysis may be based on assumptions
that subsequently prove to be unfounded [good and bad].
It lacks detailed structure, so key elements may get missed.

CONDUCTING SWOT ANALYSIS

Decide on the objective of your SWOT analysis.

Research your Business, Industry, Market.
List your Business Strengths
List your Business Weakness
List your potential opportunities
List your potential threats
Establish priorities from SWOT
Develop a strategy to address issues in the
SWOT