Strategic Management/Strategy Formulation

Categories: Business Competition Economy Mission Statement Strategic Management Process

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What aspects of strategy formulation do you think requires the most time? Why?

"Strategy formulation includes developing a vision and mission, identifying an organization's external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover.

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Strategy implementation often is called the action stage of strategic management. Implementing strategy means mobilizing employees and managers to put formulated strategies into action. Often considered to be the most difficult stage in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice."

Why is strategy implementation often considered the most difficult stage in the strategic-management process?

"Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed.

Often considered to be the most difficult state in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice. Successful strategy implementation hinges upon managers' ability to motivate employees, which is more an art than a science."

Why is it so important to integrate intuition and analysis in strategic management?

"The strategic-management process can be described as an objective, logical, systematic approach for making major decisions in an organization. Yet strategic management is not a pure science that lends itself to a nice, neat, one-two-three approach.

Based on past experiences, judgment, and feelings, most people recognize that intuition is essential to making good strategic decisions. Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent. Analytical thinking and intuitive thinking complement each other."

Discuss relationships among objectives, strategies, and polices.

"Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Objectives are essential for organizational success because they state direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating, and controlling activities. Strategies are the means by which long-term objectives will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives. Policies are guides to decision making and address repetitive or recurring situations."

Discuss the importance of feedback in the strategic-management model.

A good strategic management process emphasizes feedback as much or more than passage of the plan from top to bottom. The performance of your business depends upon the performance of each team and each individual staff member. Feedback is an essential part of the strategic-management model. Feedback enables significant improvements in performance. "Communication is a key to successful strategic management. Through involvement in the process, managers and employees become committed to supporting the organization. Dialogue and participation are essential ingredients.

Would strategic-management concepts and techniques benefit foreign businesses as much as domestic firms? Justify your answer.

Yes, I believe that strategic-management concepts and techniques benefit foreign businesses as much as domestic firms. "Research indicates that organizations using strategic-management concepts are more profitable and successful than those that do not. Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities. Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as enhanced awareness of external threats, an improved understanding of competitors' strategies, increased employee productivity, reduced resistance to change, and a clearer understanding of performance-reward relationships."

Compare and contrast vision statements with mission statements in terms of composition and importance.

"Mission statements are enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms. It addresses the basic question that faces all strategists: "What is our Business?" A clear mission statement describes the values and priorities of an organization. Developing a business mission compels strategists to think about the nature and scope of present organizational activities and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization." (Concepts of Strategic Management, Fred R. David, 2nd Edition, page 10)

"A Vision Statement is a written statement of what the organization should look like in a certain number of years. This Vision Statement is the "guiding light" that provides the organization with an image toward which to strive. It should be developed collaboratively and should reflect the primary direction of the organization. In other words, "What should our organization look like five years from now?" The Vision Statement should be based upon the collective values and beliefs of the members of the organization.

It should represent the best projections of the future and what that future means to the organization. It assumes that all the resources required to implement the vision can be secured. The Vision Statement should be idealistic, but realistic, i.e. it should be sufficiently realistic to be attainable and should be based upon the best knowledge base available. The Vision Statement drives the goals of the organization." (Jerry Valentine, Middle Level Leadership Center, 1998; http://www.mllc.org/systemic_process/vision.htm)

Explain why a mission statement should not include strategies and objectives.

The mission statement answers the question, "What is our business". A clear mission statement is needed before alternative strategies can be formulated and implemented. "An article by Campbell and Yeung emphasizes that the process of developing a mission statement should create an "emotional bond" and "sense of mission" between the organization and its employees. Commitment to a company's strategy and intellectual agreement on the strategies to be pursued do not necessarily translate into an emotional bond; hence, strategies that have been formulated may not be implemented."

Explain the principal value of a vision and a mission statement.

The principal value of a vision and mission statement is that they reveal an organization's customers, products or services, market, technology, concern for survival, growth, profitability, philosophy, self-concept, concern for public image, and concern for employees. Vision and mission statements are essential for formulating, implementing, and evaluating strategy. "They provide managers with a unity of direction that transcends individual, parochial, and transitory needs.

They promote a sense of shared expectations among all levels and generations of employees. They consolidate values over time and across individuals and interest groups. They project a sense of worth and intent that can be identified and assimilated by company outsiders. Finally, they affirm the company's commitment to responsible action, which is symbiotic with its need to preserve and protect the essential claims of insiders for the sustained survival, growth, and profitability of the firm." (Page 63)

Why is it important for a mission statement to be reconciliatory?

A mission statement "needs to be broad to effectively reconcile difference among and appeal to an organization's diverse stakeholders, the individuals and groups of employees, managers, stockholders, boards of directors, customers, suppliers, distributors, creditors, governments (local, state, federal, and foreign), unions, competitors, environmental groups, and the general public."

In your opinion, what are the three most important components that should be included when writing a mission statement? Why?

The three most important components that should be included when writing a mission statement should be the customers, products or services, and philosophy. Without the customer, the organization is nothing. Without letting the public and potential customers know what products and services are offered, they have no idea what the organization has to offer. Once you attract the public and potential customers, and let them know what products and services you will render, the philosophy of the organization ties it all together by giving the public and potential customers an idea of the organization's morals, values, and ethics.

How would the mission statement for a for-profit and a nonprofit organization differ?

Write a vision and mission statement for an organization of your choice.

Our mission is to be a rising, beneficial, technology services company that guarantees customer satisfaction by providing both quality products and a rewarding work environment for our employees.

To maintain pioneering technology capabilities, providing expertise to the government and commercial contracting community.

Who are the major stakeholders of the bank that you do business with locally? What are the major claims of those stakeholders?

Stakeholders would be those individuals and companies who initially invested in the bank, the shareholders, bank employees, the customers, and the community. The success of the bank's investments and business dealings is important to the investors. Customers have a claim on the ability of the bank to protect their financial interests. The community is invested in the bank in that local businesses and individuals are dependent on it for capital.

Explain how to conduct an external strategic-management audit.

"To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. Individuals can be asked to monitor various sources of information, such as key magazines, trade journals, and newspapers. These persons can submit periodic scanning reports to a committee of managers charged with performing the external audit. This approach provides a continuous stream of timely strategic information and involves many individuals in the external-audit process. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm."

Discuss the following statement: Major opportunities and threats usually result from an interaction among key environmental trends rather than from a single external event or factor.

"Social cultural, demographic, and environmental changes have a major impact upon virtually all products, services, markets, and customers. Small, large, for-profit and non-profit organizations in all industries are being staggered and challenged by the opportunities and threats arising from social, cultural, demographic, and environmental variables. Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations. Political, governmental, and legal factors, therefore, can represent key opportunities or threats for both small and large organizations."

Use Porter's Five-Forces Model to evaluate competitiveness within the U.S. banking industry.

"According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces: 1. Rivalry among competing firms. 2. Potential energy of new competitors. 3. Potential development of substitute products 4. Bargaining power of suppliers. 5. Bargaining power of consumers."

How does the external audit affect other components of the strategic-management process?

Gauging the opportunities and threats of external forces during an external audit can influence strategies involving product development, the types of services offered, the choice of suppliers and distributors, statement of mission, the design of long-term and annual objectives as well as the choice of businesses to acquire or sell.

Give some advantages and disadvantages of cooperative versus competitive strategies.

A major risk in cooperative strategies is that the transfer of skills or technology between the companies may happen at levels other than those specified in the agreement. Paranoia can develop about the other company's motives. The advantage of cooperation is the learning that takes place in sharing knowledge as well as less expense and risk involved in a joint venture. The main concern is that inadvertent information sharing will take place between cooperating rival companies. (Page 98)

Competitive strategies such as rivalry are disadvantages in that competing firms constantly employ countermoves against the competition such as lowering prices, enhancing quality, adding features, providing services, extending warranties, and increasing advertising. Although good for the consumer, as costs for products are driven down, so are company profits. Competitive strategies can be advantageous in that the rivalry to woo customers provides incentive for the companies to be more customer savvy, gaining loyal consumers and providing the best products and services possible. Competition keeps companies on the cutting edge in vying to outdo rivals. Their rivalry mirrors that of consumers to have the latest and best technological gadget.

Explain how information technology affects strategies of the organization where you worked most recently.

Colsa Incorporated, where I am employed uses information technology to keep track of products and services which are loaned out to the government and other businesses. This would entail various computer programs which run spreadsheets as well as computer-based tracking systems. The Internet is an invaluable tool in communicating with customers worldwide.

Discuss the ethics of gathering competitive intelligence.

"Any discussions with a competitor about price, market, or geography intentions could violate antitrust statutes, but this fact must not lure a firm into underestimating the need for and benefits of systematically collecting information about competitors for the purpose of enhancing a firm's effectiveness. The Internet has become an excellent medium for gathering competitive intelligence. Information gathering from employees, managers, suppliers, distributors, customers, creditors, and consultants also can make the difference between having superior or just average intelligence and overall competitiveness. Firms need an effective competitive intelligence (CI) program. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions."

Explain why prioritizing the relative importance of strengths and weakness in an IFE Matrix is an important strategic-management activity.

"This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas."

How could a strategist's attitude toward social responsibility affect a firm's strategy? What is your attitude toward social responsibility?

Strategic Management establishes an organization's mission and objectives, evaluates the environment and resource capabilities, forms the organizational systems and processes needed to implement the strategy, and creates devices for evaluating the organization's performance. A strategist's prejudices affect whether or not the firm even practices strategic management, and if it does, the form it will take.

A strategist's outlook forms all the components in the strategic management process, including the business activity of the enterprise, the selection of a strategy, and the attitudes about social and ethical concerns. Corporate culture is the multifaceted set of values, beliefs, assumptions, and symbols that define the way in which an organization conducts its business. Well-run organizations have a unique culture that supports the creation, implementation, and maintenance of successful strategies.

Which of the three basic functions of finance/accounting do you feel is most important in a small electronics manufacturing concern? Justify your position.

If the company is small and committed to the manufacture of a single product, then the function of deciding on financing would be important. A small firm would need financing for start-up costs, or to buy new machinery or raw materials. Financing would help to pay employee wages until the firm turned a profit. Investment decisions would be for larger, more diverse companies in deciding where capital should be spent to strengthen different areas such as research and development, etc. A small company would probably not have gone public; thus, it would not have to make dividend decisions concerning stockholders.

Do you think aggregate R&D expenditures for American firms will increase or decrease next year? Why?

American firms face tremendous pressure from an increased domestic and foreign competition in new product and technology development. Changing consumer needs and preferences, as well as shortened product life cycles are other reasons that spending on research and development has grown tremendously and will continue to do so.

Explain how you would motivate mangers and employees to implement a major new strategy.

In order to motivate managers and employees to implement a major new strategy I would first establish rapport with managers and subordinates alike, empathize with their needs and concerns, set a good example, and strive to gain their trust by demonstrating fairness. I would identify the composition and nature of informal groups to in order to facilitate strategy formulation, implementation, and evaluation. I would encourage two-way communication and allow subordinates to discuss their concerns, reveal their problems, provide recommendations, and give suggestions.

If a firm has zero debt in its capital structure, is that always an organizational strength? Why or why not?

Debt is important to a company's capital structure in that it provides vital financial information to potential lenders, buyers, or shareholder concerning how a firm manages its finances. Leverage ratios, as part of a financial summary of a company, can show the balance between assets and debt, the balance of debt and equity, as well as the extent to which a company's earnings can decline without causing the company to be unable to meet its annual interest costs. A zero debt would be indicative of nothing. A potential buyer or lender would not have much to go on in assessing the company's financial capabilities. So debt would be a measure of the company or an organizational strength.

Do you think cultural products affect strategy formulation, implementation, or evaluation the most? Why?

Cultural products such as values, beliefs, rites, rituals, ceremonies, myths, stories, legends, sagas, language, metaphors, symbols, heroes, and heroines are tools that are used to formulate strategies. Strategy formulation takes place within a company's culture, therefore, strategy would be affected the most by cultural products. Since strategy implementation and evaluation follow formulation, they will be affected by culture in the same way.

How does strategy formulation differ for a small versus a large organization? How does it differ for a for-profit versus a nonprofit organization?

Give recent examples of market penetration, market development, and product development.

A recent example of market penetration is Japan's Canon overpowering its rival, Xerox with a superior direct-sales force and customer service. It has also maintained excellent rapport with its dealers. Canon has also done twice the business in the area of digital cameras, moving ahead of Kodak.

A recent example of market development is AOL's aggressive expansion worldwide. As an internet service provider, it shows the most growth than any other country in Latin and South America. It has also expanded in China, serving more than 10 million customers in that country.

In the area of product development, Microsoft, which has steadily sought dominance in this area, the Pocket PC 2002 has served as its answer to the Palm Pilot. Microsoft depends on its computer hardware partners to promote its new products.

Give recent examples of concentric diversification, horizontal diversification, and conglomerate diversification.

A recent example of concentric diversification is Amazon.com's use of the wholesaler Ingram Micro to package and distribute computers to customers ordering online rather than house the computers in warehouses. This minimizes the risk involved in diversification.

What are the major advantages and disadvantages of an integrative strategy?

The advantages of integrative strategies are cost leadership benefits. When the strategies are successful the company not only gains more market share, but the successes give the firm more high efficiency, low overhead, cost containment, and broad employee participation. The downside of such a strategy is that competitors may copy the strategy, thus driving down the overall industry profits. Also, technological breakthroughs may make the strategy ineffective. In addition, buyers may look at other features rather than price.

Consumers can purchase tennis shoes, food, cars, boats, and insurance on the Internet. Are there any products today that cannot be purchased online? What is the implication for traditional retailers?

There are no products that cannot be purchased online. Retailers must conduct business in part through the Internet in order to compete in the marketplace. Traditional retail stores will no doubt continue to thrive, however, because there is an element to shopping that the Internet cannot provide. There is the human contact; the kinesthetic element to shopping that only is experienced at the actual retail store. Shopping is an experience, which people will continue to enjoy. And there are many who cannot afford computers and Internet service and the shipping costs involved.

Does the United States lead in small business startups globally?

Yes. Because of the high number of layoffs within large corporations, there has been a trend toward individuals starting their own companies in the U.S. Companies in other countries tend to keep their employees. The individualism and spirit of capitalism in our country would be factors, I think, in this phenomenon.

Visit the CheckMATE Strategic Planning software Web site at www.checkmateplan.com, and discuss the benefits offered.

This site offers analytical tools such as TOWS, SWOT, SPACE, and the GRAND analysis with help screens, examples and clear printouts. It will help develop your company's mission statement and aid in the development of company specific strategies for you even if you have no prior knowledge.

How would application of the strategy-formulation framework differ from a small to a large organization?

Explain the steps involved in developing a QSPM.

The steps involved are the following:

Step 1- Make a list of the firm's key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM.

Step 2- Assign weights to each key external and internal factor.

Step 3- Examine the Stage 2(matching) matrices, and identify alternative strategies that the organization should consider implementing.

Step 4 Determine the Attractiveness Scores (AS)

Step 5- Compute the Total Attractiveness Scores.

Step 6- Compute the Sum Total Attractiveness Score.

What do you think is the appropriate role of a board of directors in strategic management? Why?

A board of directors has to be composed of individuals from the outside. The board should be small enough to discuss issues more easily and to take on more responsibility in the direction of the company. Also, a board of directors should take a more active role to ensure a more accurate representation of the company to the public. A board of directors has to take on the responsibility in strategic decision-making and management decisions.

Discuss the limitations of various strategy-formulation analytical techniques.

The BCG Matrix views businesses in a simplistic manner, using labels such as Cash Cow, Star, Dog, or Question mark. Also, BCG is a snapshot of the company rather than an indicator of growth over time.

The TOW and SPACE matching tools require hard facts to be reliable, although subjective judgments are often employed, thus negating their effectiveness.

Explain why cultural factors should be an important consideration in analyzing and choosing among alternative strategies.

A firm's success relies on the level of support it receives from its culture. If the values, beliefs, rites, and rituals of the culture support strategies, changes can be made more easily. If not, then strategies may backfire. When companies of different cultures merge, considerations of the culture of each must be taken into account as to the joint venture's success.

How are the TOWS Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix similar? How are they different?

The TOWS Matrix helps develop strategies by evaluating strengths, weaknesses, and opportunities. Matching key internal and external elements to these matrices is difficult, requiring good judgment. Specific, rather than general strategy terms must be employed with this tool.

The SPACE Matrix, like the TOWS, is a matching tool, which indicates in four quadrants whether aggressive, conservative, defensive, or competitive strategies are more appropriate for an organization. The matrix, like the TOWS, considers internal as well as external dimensions of the company. Like TOWS, the SPACE Matrix has to be tailored to the particular company or organization being studied and depends on factual information. The SPACE Matrix seems to consider variables more than does the TOWS. It also employs a mathematical formula to calculate strategies.

The BCG Matrix pays attention to cash flow, investments, and needs of the organization's divisions and how they change over time. BCG graphically shows differences among divisions in terms of relative market share position. It rates companies as Cash Cows, Dogs, Stars or Question Marks, very simplistic analyses. It does not show whether there is growth over time. It is simply a snapshot of the company's position.

The IE Matrix is like the BCG Matrix in that they both plot divisions via a schematic. They are different in that the IE Matrix requires more information than the BCG Matrix.

The Grand Strategy Matrix evaluates a company's competitive position and market growth. It lists appropriate strategies in sequential order in four quadrants.

How would for-profit and nonprofit organizations differ in their applications of the strategy-formulation framework?

A non-profit organization would benefit from the BCG Matrix, which deals with cash flow, investment opportunities and the needs of its various divisions. For profit firms would benefit more from TOWS and SPACE, which deals more with competition, and the economic environment as represented by the variables and external threats, which they outline.

Allocating resources can be a political and an ad hoc activity in firms that do not use strategic management. Why is this true? Does adopting strategic management ensure easy resource allocation? Why?

Strategic management allows resources to be used according to guidelines set by previously established annual objectives rather than allowing politics to become involved. It does not guarantee success because strategies are merely processes geared toward the allocation of resources and not the final result. Success can only be assured by the implementation of personnel and controls in committing to the strategy.

Compare strategy formulation with strategy implementation in terms of each being an art or a science.

Strategy implementation is fraught with unknown qualities and the dynamics of change. Management must be carefully matched to the strategies if they are to succeed. Implementation of strategies is more of an art in that managers must be able to deal with employees using subjective judgment, feelings and instincts. Strategic formulation does not consider does not consider individual skills, values, and abilities of individuals when selecting new strategies. It is more of a science, but companies are beginning to realize that it does need to consider humans to be more supportive of implementation strategies.

Describe the relationship between annual objectives and policies.

Annual objectives are necessary for the implementation of strategy. They represent "the basis for allocating resources." They are a major means of evaluating managers. They monitor progress toward achieving objectives, and establish organizational, divisional, and departmental priorities. Policies are used for strategic implementation. They set boundaries and limits on what administrative actions can reward or punish behavior. They make clear what can or cannot be done in accordance with objectives.

Describe several reasons why conflict may occur during objective-setting activities.

One reason for conflict is limited resources. When two parties differ over issues conflict arises. People have different expectations and perceptions. Also, schedules create pressure. There is the issue of personality conflicts and misunderstandings. Trade-offs between management and strategists make conflicts unavoidable.

In your opinion, what approaches to conflict resolution would be best for resolving a disagreement between a personnel manger and a sales manger over the firing of a particular salesperson? Why?

The firing of personnel is not a situation, which could be remedied through either diffusion or avoidance. If the firing is under disagreement, only through confrontation can the matter be resolved. This does not mean there has to be a negative argument, only that the facts have to be brought out for all parties to discuss so that a fair decision is hopefully reached. This is not a situation, which can be avoided or brought to compromise.

Explain why organizational structure is so important in strategy implementation.

Structure determines the terms, which will be used in strategic implementation. The structural format impacts all strategic activities. Also, strategic changes involve allocation of resources. If the organization is groups of customers, then resources will be allocated in that manner. A company's organization often follows strategy. If a company does not change structure along with strategy this could lead to too many levels of management, too many meetings, as well as too many unachieved objectives. Structure influences strategy as well.

What are the advantages and disadvantages of decentralizing the wage and salary functions of an organization? How could this be accomplished?

Centralized wage and salary functions of an organization would be the simplest and least expensive structure. The disadvantage is that accountability is forced to the top, there is lower worker morale due to less opportunities for career advancement, and there is poor delegation of authority.