CHAPTER FOUR

STRATEGY ANALYSIS, CHOICE AND

FORMULATION
4.1 The
4.1 Nature ofofstrategy
The Nature Analysis
strategy Analysis andand Choice
Choice
 Strategy analysis and choice seek to determine alternative courses of action that
could best enable the firm to achieve its mission and objectives. The firm’s
present strategies, objectives, and mission, coupled with the external and
internal audit information, provide a basis for generating and evaluating
feasible alternative strategies.
 Unless a desperate situation confronts the firm, alternative strategies will likely
represent incremental steps that move the firm from its present position to a
desired future position. Alternative strategies do not come out of the wild blue
yonder; they are derived from the firm’s vision, mission, objectives, external
audit, and internal audit; they are consistent with, or build on, past strategies
that have worked well.
 The Process of Generating and Selecting Strategies

 A manageable set of the most attractive alternative strategies must be

developed. The advantages, disadvantages, trade-offs, costs, and
benefits of these strategies should be determined. This section discusses
the process that many firms use to determine an appropriate set of
alternative strategies.
 All participants in the strategy analysis and choice activity should have
the firm’s external and internal audit information by their sides. This
information, coupled with the firm’s mission 2 statement, will help
participants crystallize in their own minds particular strategies that
they believe could benefit the firm most. Creativity should be
encouraged in this thought process.
 A Comprehensive Strategy Formulation

 Strategy formulation is often referred to as strategic planning of

long-range planning and is concerned with developing an
organization mission, objectives, strategies, and policies.
 It begins with situation analysis - the process of finding a strategic
fit between external opportunities and internal strengths while
working around external threats and internal weaknesses.
 Important strategy-formulation techniques can be integrated into a
three-stage decision making framework. The tools in the framework
that are applicable to all sizes and types of organizations and can
help strategists identify, evaluate, and select strategies
 Cont’ud
 Stage 1 of the formulation framework consists of the EFE Matrix, the
IFE Matrix, and the Competitive Profile Matrix (CPM). Called the
Input Stage, Stage 1 summarizes the basic input information needed
to formulate strategies.
 Stage 2, called the Matching Stage, focuses upon generating feasible
alternative strategies by aligning key external and internal factors.
Stage 2 techniques include the Strengths-WeaknessesOpport
Evaluation unities-Threats (SWOT) Matrix, the Strategic Position and
Action (SPACE) Matrix, the Boston Consulting Group (BCG) Matrix,
the Internal-External (IE) Matrix, and the Grand Strategy Matrix.
Stage 3, called the Decision Stage, involves a single technique, the Quantitative
Strategic Planning Matrix (QSPM). A QSPM uses input information from Stage 1
to objectively evaluate feasible alternative strategies identified in Stage 2. A
QSPM reveals the relative attractiveness of alternative strategies and thus
provides objective basis for selecting specific strategies.
All nine techniques included in the strategy-formulation framework require
the integration of intuition and analysis. Autonomous divisions in an
organization commonly use strategy formulation techniques to develop
strategies and objectives. Divisional analyses provide a basis for identifying,
evaluating, and selecting among alternative corporate-level strategies. Strategists
themselves, not analytic tools, are always responsible and accountable for
strategic decisions.
 The 7S’ Model

 “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.” Below you can find the McKinsey model, which
represents the connections between seven areas and divides them into ‘Soft Ss’ and
‘Hard Ss’. The shape of the model emphasizes interconnectedness of the elements.

 The model can be applied to many situations and is a valuable tool when
organizational design is at question. The most common uses of the framework 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.
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.
1. Strategy is a plan developed by a firm to achieve sustained
competitive advantage and successfully compete in the market. A
sound strategy is the one that’s clearly articulated, is long-term, helps
to achieve competitive advantage and is reinforced by strong vision,
mission and values
Structure represents the way business divisions and units are
organized and include the information of who is accountable to
3. Systems are the processes and procedures of the company,
which reveal business’ daily activities and how decisions are made.
Systems are the area of the firm that determines how business is
done and it should be the main focus for managers during
organizational change.
4.Staff element is concerned with what type and how many
employees an organization will need and how they will be
recruited, trained, motivated and rewarded.
5. Style represents the way the company is managed by top-level
managers, how they interact, what actions do they take and their
symbolic value. In other words, it is the management style of
company’s leaders.
6. Shared Values are at the core of McKinsey 7s model. They are
the norms and standards that guide employee behavior and
The necessary steps that should help you to apply this model
Step 1. Identify the areas that are not effectively aligned
Step 2. Determine the optimal organization design
Step 3. Decide where and what changes should be made
Step 4. Make the necessary changes
Step 5. Continuously review the 7s
4.1 formulation of corporate strategy
 What is Corporate Strategy?
 Corporate Strategy takes a portfolio approach to
strategic decision making by looking across all of a
firm’s businesses to determine how to create the
most value. In order to develop a corporate strategy,
firms must look at how the various business they
own fit together, how they impact each other, and
how the parent company is structured, in order to
optimize human capital, processes, and governance.
Corporate Strategy builds on top of business
strategy, which is concerned with the strategic
decision making for an individual business.
 Corporate strategy
 Business strategy
 Competitive advantage

 Competitive advantage
 Business strategy
 Business strategy
 What are the Components of Corporate Strategy?
There are several important components of corporate strategy that leaders of
organizations focus on. The main tasks of corporate strategy are:
1.Allocation of resources
2.Organizational design
3.Portfolio management
4.Strategic trade offs
#1 Allocation of Resources
The allocation of resources at a firm focuses mostly on two resources: people
and capital. In an effort to maximize the value of the entire firm, leaders must
determine how to allocate these resources to the various businesses or
business units to make the whole greater than the sum of the parts. Key factors
related to the allocation of resources are:
 People
 Identifying core competencies and ensuring they are well distributed
across the firm .
 Moving leaders to the places they are needed most and add the most value
(changes over time, based on priorities)
 Ensuring an appropriate supply of talent is available to all businesses
 Capital
 Allocating capital across businesses so it earns the highest risk-
adjusted return
Analyzing external opportunities(mergers andacquisitions)and allocating
capital between internal (projects) and external opportunities
#2 Organizational Design
design involves ensuring the firm has the necessary corporate structure and
related systems in place to create the maximum amount of value. Factors that
leaders must consider are the role of the corporate head office (centralized vs
decentralized approach) and the reporting structure of individuals and business
units – vertical hierarchy, matrix reporting, etc.
Key factors related to organizational design are:
 Head office (centralized vs decentralized) o
 Determining how much autonomy to give business units
 Deciding whether decisions are made top-down or bottom-up
 Influence on the strategy of business units
 Organizational structure (reporting)
 Determine how large initiatives and commitments will be divided into
smaller projects
 Integrating business units and business functions such that there are no
redundancies
 Allowing for the balance between risk and return to exist by separating
responsibilities
 Developing centers of excellence
 Determining the appropriate delegation of authority
 3 ,Portfolio Management
Portfolio management looks at the way business units complement
each other, their correlations, and decides where the firm will “play”
(i.e. what businesses it will or won’t enter). Corporate Strategy related
to portfolio management includes:
Deciding what business to be in or to be out of
 Determining the extent of vertical integration the firm should have
 Managing risk through diversification and reducing the correlation
of results across businesses
 Creating strategic options by seeding new opportunities that could
be heavily invested in if appropriate
 Monitoring the competitive landscape and ensuring the portfolio is
well balanced relative to trends in the market
#4 Strategic Tradeoffs
One of the most challenging aspects of corporate strategy is balancing
the tradeoffs between risk and return across the firm. It’s important to
have a holistic view of all the businesses combined and ensure that the
desired levels of risk management and return generation are being
pursued. Below are the main factors to consider for strategic tradeoffs:
 Managing risk o Firm-wide risk is largely depending on the
strategies it chooses to pursue o True product differentiation,
4.2 formulation of generic competitive
strategy
 Professor porter suggested that there are 3 general
positioning strategy to achieve competitive
advantage.
1. Low cost leadership strategy
2. Focus strategy
3. Definition strategy
A genetic competitive strategy(GCS) is methodology
designed to provide companies with strategic plan to
compete to.
The GCS is useful to when company is looking to gain
an advantage over competatior.
 Low cost leadership strategy
 The firm employees economies of scale and
efficiencies in production line .
 Here the firms tries to beat the competitors by
keeping the price low .
 It is characterized by reduction of over heads
of and fixed cost of production.
 This helps to avoid risk and able to sustain in
inflation .
 Differentiation strategy
 This strategy adopted by the firm which wants
to differentiate it product from competitors.
 Here the firm wants to high light some
features in its product offering as superior to
that of its competitor
 By heaving advertising it is able to insert this
value in the mind of its customer their by
creating brand loyalty for its product
 Focus strategy
 In this firm focus on particular market
segment with in industry.
 Focus are 2 types
1. cost focus
2. Differentiate focus
4.3 offensive and defensive strategy
 Offensive strategy:- improving own position
by taking away market share of competitors.
 Involves direct and indirect attacks
 Retaliatory in nature
 Example
 Front attack same product price
 Focus on competitors strength and weakness
 Flank attack ;-attacking the competitor at the
weak point
 encirclement , bypass,
 Defensive strategy
 Primary purpose is to make possible attacks
unattractive or discourage competitors
 Its developed to protect market share ,position and
profitability.
 It is a strategy that can to be used to keep up top
position in local and existing market.
 This strategy is the most successful to keep up
customer confidence which no new competitor disturb.
1. Position defense
2. Mobile defense
3. Contraction defense
 CHAPTER FIVE

Strategy implementation
5.1 nature of strategy implementation
 Strategic implementation bridges the gap
between company strategy ideation and
execution, making it a critical stage in its
evolution. So, the technique entails translating
the organization's long-term vision into
actionable steps for allocating resources and
assigning duties.
 Strategy implementation
 the sum total of the activities and choices required for the execution of a
strategic plan.
It is the process by which objectives, strategies, and policies are put into action
through the development of programs, budgets, and procedures.
Although implementation is usually considered after strategy has been
formulated,
implementation is a key part of strategic management.
Strategy formulation and strategy implementation should thus be considered as
two sides of the same coin. This might involve changes within the overall culture,
structure
and/ or management system of the entire organization.
Successful strategy formulation does not guarantee successful strategy
implementation. I
Strategy formulation is positioning forces before the action.
 Strategy implementation is managing forces during the action.
Strategy formulation focuses on effectiveness.
Strategy implementation focuses on efficiency.
Strategy formulation is primarily an intellectual process.
Strategy implementation is primarily an operational process.
Strategy formulation requires good intuitive and analytical skills.
 Strategy implementation requires special motivation and
leadership
skills.
Strategy formulation requires coordination among a few
individuals.
Strategy implementation requires coordination among many
Components of strategy implementation

1. Is the formulated strategy communicated properly

2. Are structuring mechanism properly aligned
3. Are functional area conflicts reconciled
4. Does leadership inspire commitment to the
formulated strategy
5. Do reward systems reinforce appropriate behavior
6. Are functional issues addresed& implemented
7. Does the control system provide appropriate
feedback
 1. Communicating strategy
 Before a strategy can be implemented ,it must
be understood .
 A clear understanding of strategy gives
purpose to the activities of each organization
member.
 It allows the employee to link what ever task is
at hand to the overall organizational direction
 2 . strategy& structure
 Achieving a fit between strategy &structure is
a complex process that involves how:
 Activities will be grouped
 Groups will be coordinated
 This refers to the need for identifying the
appropriate types of organizational structure,
linking organizational units &decision making
 5.2 policy and annual objective
formulation
 Developing Policies Changes in a firm’s strategic direction do not occur
automatically. On a day- to-day basis, policies are needed to make a strategy
work.
 Policies facilitate solving recurring problems and guide the implementation of
strategy.
 Broadly defined, policy refers to specific guidelines, methods, procedures,
rules, forms, and administrative practices established to support and encourage
work toward stated goals.
 Policies are instruments for strategy implementation.
 Policies set boundaries, constraints, and limits on the kinds of administrative
actions that can be taken to reward and sanction behavior; they clarify what can
and cannot be done in pursuit of an organization’s objectives let both
employees and managers know what is expected of them, thereby increasing
the likelihood that strategies will be implemented successfully.
 They provide a basis for management control, allow coordination across
organizational units, and reduce the amount of time managers spend making
decisions
 Annual objectives
Approving, revising, or rejecting annual objectives is much more than a
rubber-stamp activity.
Clear annual objectives do not guarantee successful strategy implementation,
but they do increase the likelihood that personal and organizational aims can be
accomplished.
Overemphasis on achieving objectives can result in undesirable conduct, such
as faking the numbers, distorting the records, and letting objectives become ends
in themselves. Managers must be alert to these potential problems
 5.3 resource allocation
 Resource Allocation In organizations that do not use a strategic-
management approach to decision making, resource allocation is often
based on political or personal factors.
 Strategic management enables resources to be allocated according to
priorities established by annual objectives could be more detrimental to
strategic management and to organizational success than for resources to
be allocated in ways not consistent with priorities indicated by approved
annual objectives number of factors commonly prohibit effective resource
allocation, including an overprotection of resources, too great an emphasis
on short-run financial criteria, organizational politics, vague strategy
targets, a reluctance to take risks, and a lack of sufficient knowledge real
value of any resource allocation program lies in the resulting
accomplishment of an organization’s objectives. Effective resource
 Five allocation does not guarantee successful strategy implementation
because programs, personnel, controls, and commitment must breathe life
into the resources provided. Strategic management itself is sometimes
referred to as a “resource allocation process
5.4 . Restructuring and Re-engineering
 Matching Structure with Strategy Changes in
strategy lead to changes in organizational
structure. Structure should be designed to
facilitate the strategic pursuit of a firm and,
therefore, follow strategy. Without a strategy or
reasons for being (mission), companies find it
difficult to design an effective structure found a
particular structure sequence to be repeated
often as organizations grow and
changestrategy over time.
basic types of organizational structure There is no one optimal
organizational design or structure for a given strategy or type of organization.
What is appropriate for one organization may not be appropriate for a similar
firm, although successful firms in a given industry do tend to organize
themselves in a similar way. a. The Functional Structure The most widely
used structure is the functional or centralized type because this structure is
the simplest and least expensive of the given alternatives. A functional
structure groups tasks and activities by business function, such as
production/operations, marketing, finance/accounting, research and
development, and management information systems
Assessing Strategy-Culture Compatibility When implementing a new
strategy, a company should take the time to assess strategy-culture
compatibility.
 5.5 strategic control and its types
 Strategic control
 The process of monitoring and correcting a firm’s
strategy and performance informational ,behavioral.
 Strategic control concerned with tracking a strategy as it
is being implement ,detecting a problem or changes in its
underlying premise ,and making necessary adjustment.
 There are four main types of strategic control: premise
control checks assumptions, strategic surveillance
broadly monitors for relevant information, special alert
control triggers reassessments due to unexpected events,
and implementation control assesses strategy based on
incremental actions take
 Types of strategic control
 1,primise control:- serves the purpose of
continually testing the assumption to find out
whether they are still valid or not its helps the
strategist take a corrective action at right time
2,implimantation control
Milestone review and monitoring strategy
3, strategic surveillance ;- designed to observe a
wide range of events with in and outside of the
organization that are likely affect the track of
your organization’s strategy
4 special control;- unexpected event