Strategy-Formulation Framework

      STRATEGY-FORMULATION FRAMEWORK

   Learning Objectives

After understanding this topic you able to understand the basic phenomena of strategy formulation frame

work and also under stand the stages of strategy formulation frame work.

   Objectives

Objective placing an important role in strategic management Strategic analysis and choice largely involves

making subjective decisions based on objective information. This topic includes important concepts that

can help strategists generate feasible alternatives, evaluate those alternatives, and choose a specific course of

action. Behavioral aspects of strategy formulation are described, including politics, culture, ethics, and social

responsibility considerations. Modern tools for formulating strategies are described, and the appropriate role

of a board of directors is discussed

  A Comprehensive Strategy-Formulation Framework

Important strategy-formulation techniques can be integrated into a three-stage decision-making framework,

as shown below. The tools presented in this framework are applicable to all sizes and types of organizations

and can help strategists identify, evaluate, and select strategies.

Stage-1 (Formulation Framework)

1. External factor evaluation

2. Competitive matrix profile

3. Internal factor evaluation

Stage-2 (Matching stage)

1. TWOS Matrix (Threats-Opportunities-Weaknesses-Strengths)

2. SPACE Matrix (Strategic Position and Action Evaluation)

3. BCG Matrix (Boston Consulting Group)

4. IE Matrix (Internal and external)

5. GS Matrix (Grand Strategy)

Stage-3 (Decision stage)

1. QSPM (Quantitative Strategic Planning Matrix)

Stage 1 of the formulation framework consists of the EFE Matrix, the IFE Matrix, and the Competitive

Profile Matrix. 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 Threats-Opportunities-

Weaknesses-Strengths (TOWS) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the

Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix.

Stage 3, called the Decision Stage, and 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

an objective basis for selecting specific strategies.

All nine techniques included in the strategy-formulation framework require 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.

Lenz emphasized that the shift from a words-oriented to a numbers-oriented planning process can give rise

to a false sense of certainty; it can reduce dialogue, discussion, and argument as a means to explore

understandings, test assumptions and foster organizational learning. Strategists, therefore, must be wary of

this possibility and use analytical tools to facilitate, rather than diminish, communication. Without objective

information and analysis, personal biases, politics, emotions, personalities, and halo error (the tendency to put

too much weight on a single factor) unfortunately may play a dominant role in the strategy-formulation

process.

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Types Of Vertical Integration Strategy

Vertical integration strategy is a way through which companies try to hold their upstream suppliers and downstream buyers. There are three types of vertical integration and vertical Integration strategies are the combination of those strategies that are applied in the organization to acquire control over suppliers, competitors & distributors. Following are the three main types of vertical integration strategy, which are also collectively known as vertical integration strategies.

1. Forward Integration Strategy
2. Backward Integration Strategy
3. Horizontal Integration Strategy 

   Vertical Integration Strategies are very useful for the organization. Following points show the benefits associated with the vertical integration strategies.

    1. The organization acquires the control over its competitors by the application of vertical integration strategies
    2.The organization takes control of the activities of its suppliers through implementation of vertical integration strategies
    3.The organization gets control of functioning of its distributors with the implementation of vertical integration strategies

Types of Vertical Integration Strategy

    Forward Integration Strategy

  This is first type of the vertical integration strategy. In this vertical integration strategy the transactions between the organization & its customers are included. The organizations sells its products to intermediaries like distributors, retailers etc because it is not possible for it to sell its products directly to the final customers. When organization gets much control over or even ownership of its retailers or distributors then it applies forward integration strategy. The control can be gained over the distributor, supplier & competitor.

   Backward Integration Strategy

  Backward integration strategy is the second utmost important type of vertical integration strategy. When the organization needs to acquire the control over the functioning of its suppliers, backward integration strategy is considered by the organization. Suppliers provide required input materials to both distributors & retailers. The distributors & retailers adopt this vertical integration strategy in order to get control of the operation & functioning of their suppliers. The application of backward integration strategy is quite useful when the suppliers are not reliable enough to provide required material on consistent basis. Also when the suppliers charge too much amount for their services & cannot properly fulfill the needs of the organization, then this vertical integration strategy is the only option for the organization to get control over the functioning of its suppliers & eliminate all the problems that come in the way of smooth running of the business.

   Horizontal Integration Strategy

  The third and last type of vertical integration strategy is horizontal integration strategy. Acquiring control over the operations & functioning of the competitors of the organizations is referred to horizontal integration strategy. In recent years, horizontal integration strategy is frequently used as growth strategy by the organization in their strategic management. Through increasing number of acquisitions, mergers & takeovers the organization not only increases its resources but also obtains large economies of scale. The effectiveness of the organization is also enhanced through horizontal integration strategy.
In horizontal integration there is increased control over the functioning & operations of the competing organizations through purchasing & hostile takeover. This provides new opportunities to organization to be availed. The organization gets control over the other organization that works in the same industry.


REFERANCES: http://www.businessstudynotes.com/finance/strategic-managment/types-vertical-integration-strategy/

Core Competency

Core Competency Theory of Strategy

Core Competency Theory

The core competency theory is the theory of strategy that prescribes actions to be taken by firms to achieve competitive advantage in the marketplace. The concept of core competency states that firms must play to their strengths or those areas or functions in which they have competencies. In addition, the theory also defines what forms a core competency and this is to do with it being not easy for competitors to imitate, it can be reused across the markets that the firm caters to and the products it makes, and it must add value to the end user or the consumers who get benefit from it. In other words, companies must orient their strategies to tap into the core competencies and the core competency is the fundamental basis for the value added by the firm.

Core Competencies and Strategy

The term core competency was coined by the leading management experts, CK Prahalad and Gary Hamel in an article in the famous Harvard Business Review. By providing a basis for firms to compete and achieve sustainable competitive advantage, Prahalad and Hamel pioneered the concept and laid the foundation for companies to follow in practice.
Some core competencies that firms might have include technical superiority, its customer relationship management, and processes that are vastly efficient. In other words, each firm has a specific area in which it does well relative to its competitors, this area of excellence can be reused by the firm in other markets and products, and finally, the area of strength adds value to the consumer. The implications for real world practice are that core competencies must be nurtured and the business model built around them instead of focusing too much on areas where the firm does not have competency. This is not to say that other competencies must be neglected or ignored. Rather, the idea behind the concept is that firms must leverage upon their core strengths and play to their advantages.

Some Examples

If we take the examples from real world companies and evaluate their core competencies, we find that many firms have benefited from the application of this theory and that they have succeeded in attaining competitive advantage and sustainable strategic advantage. For instance, the core competencies of Walt Disney Corporation lie in its ability to animate and design its shows, the art of storytelling that has been perfected by the company, and the operation of its theme parks that is done in an efficient and productive manner. Hence, Walt Disney Corporation would be well advised to configure its strategy around these core competencies and build a business model that complements these competencies.

Closing Thoughts

The important aspect to be noted is that core competencies provide the companies with a framework wherein they can identify their core strengths and strategize accordingly. Of course, the identification and evaluation of core competencies must be done as accurately and reliably as possible since the divestment of non-core areas must not lead to the firm missing key areas of operation and competitive advantage. Finally, care must be taken when building the organizational edifice around the core competencies to avoid the situation where many or too few of the competencies are identified leading to redundancies or scarcity.

http://managementstudyguide.com/core-competency-theory-of-strategy.htm

Strategic Planning

Why Some Firms Do Not Do Strategic Planning

Many firms do not engage in strategic planning and some firms do strategic planning that is poor and ill conceived. Some of the reasons for this sorry state of affairs in these firms are listed below:

• The first and foremost reason for poor strategy is the lack of experience in strategic management which is due to the paucity of managers and executives with experience and the presence of those who do not understand strategic management.
• The next reason has to do with the poor reward structure in place where success goes unrewarded and failures are punished. Because of this “double whammy” of no recognition when things have gone right and blame game when things go wrong, managers are reluctant to engage in strategic management.
• Because an organization is always firefighting which means that is so embroiled in its internal problems, the top management does not have the time or the energy to engage in strategic management. This is often the case with many firms where the lack of coherence and control in organizational processes means that most of the time is spent on tackling problems rather than preempting problems or solving problems.
• Some firms view strategic planning and strategic management as a waste of time since they are under the impression that they can handle the longer-term imperatives by doing things that they have always done in a particular manner. This is the case with firms that have been in business for generations where the new leaders often think that “if it is not broke, do not fix it”. This mindset precludes them from approaching the future in a proactive manner instead of a reactive manner.
• Continuing in the same vein, many firms, especially those that have been successful see no point in formulating newer strategies since their position is comfortable and they are content with success. Success breeds arrogance as the case of Nokia, which went from market leader to the bottom in a few years time reminds us.
• With experience, many managers think that they can weather any storm because they “have been there, done that”. However, this attitude is counterproductive as planning for eventualities is necessary and formal models of strategy have to be drawn up since experience is not always the best guide. This is especially the case with the modern era where the advent of the digital age has changed the rules of the game.
  
  
  
  


• Perhaps one of the most important reasons why firms do not engage in strategic management is that they fear the “unknown”. What they forget is that precisely because of the unknown and the unpredictable; they have to plan in advance. Further, the managers might be uncertain of their abilities to learn new skills, of their aptitude with new systems, and their ability to take on new roles. This happens when organizational arteries are clogged because of inertia and a general sense of laziness and ostrich like mindsets.
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    Finally, the other important reason why firms and the managers within them do not engage in strategic management is the lack of consensus and differing ideas as to what a good strategy ought to be.