Every organization requires a strategy for it to operate it must follow these top 6 steps of strategy formulation and strategy formulation process. In order to come up with these strategies the process of strategic formulation is vital to the well-being of a company’s administration or organization. The organization should be keep in mind that there are basically two major types of strategy which are:
corporate strategy: this is a strategy in which organizations and individuals decide which line or lines of business to engage in; and business or competitive strategy: this is a type of strategy which sets the framework for achieving success in a particular business.
Both of these types of strategy involve planning, industry/market analysis, goal setting, commitment of resources, and monitoring and anchor the steps of strategy formulation . But business strategy offer receives more attention than cooperate strategy. This article aims at outlining the importance of strategy formulation, but firstly it is imperative to define what is meant by strategy formulation.
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Strategy formulation can be defined as the process of offering proper direction to an organization and an individual. It often seeks to set long term attainable goals that will help an organization to maximize it’s strength fully and deliberately attempt to focus attention on what the organization can do better than its rivals.
In order to achieve this, an organization seeks to find out what it can do best. Once the strengths are known, opportunities to be maximized are identified; a long-term plan is chalked out for concentrating resources and effort.
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Strategy formulation process consists of the 6 major strategy formulation steps. These steps are as follows; Write a Vision Statement, Mission Statement, Defining the company’s profile, Evaluating external environment, selecting actions for accomplishing the mission of the organization and choosing of long term strategies for an effective strategy. Below are the key steps followed in strategy formulation and strategy implementation;
Steps of strategy formulation process
- Understand Choice of business
An organization must first be in a position to choose what business or businesses the organization wishes to engage in, in other words, the corporate strategy.
- Mission statement
Secondly an organization should plainly articulate it’s mission consistent with its business definition.
- Set Objectives and goals
An organization must develop strategic objectives or goals and set performance objectives (e.g., at least 15 percent sales growth each year).
- Analysis of internal and external forces (SWOT Analysis) After the formulation of the strategic objectives and goals it is imperative that an organization makes an analysis of both internal and external factors, the company must create a specific business or competitive strategy that will fulfill its corporate goals.
- Implementation of the business strategy
The company then implements the business strategy by taking specific steps (e.g., lowering prices, forging partnerships, entering new distribution channels).
- Review of the strategy
Finally, the company needs to review its strategy’s effectiveness, measure its own performance, and possibly change its strategy by repeating some or all of the above steps.
What is the importance of strategy in an organization?
Strategy formulation enables a number of actions and the attainment of desired results which would be difficult to attain. A strategic plan provides with a clear vision of what an organization’s goals and objectives are. This only is applicable when the strategic plan is communicated to all the members of an organization.
Strategy formulation in an organization forces or opens up the organization to inevitability of change examination in the near future and to prepare for change rather than passively waiting until the market compels it. Capital budgeting is one of the activities influenced by strategic formulation and Importance of strategy implementation has significantly increase over the years.
Most organizations have a limitation when it comes to funds to invest, therefore strategic formulation must allocate capital where they will be most effective and derive the highest returns on their investments.
On the other hand, a firm without a clear strategic plan gives its decision makers no direction other than the maintenance of the status quo. The firm becomes purely reactive to external pressures and less effective at dealing with change. In highly competitive markets, a firm without a coherent strategy is likely to be outmaneuvered by its rivals and face declining market share or even declining sales.
Importance of strategy formulation
- Strategy formulation is the course of action companies take to achieve their defined goals.
- it creates awareness of an organization’s objective, mission and purpose.
- A strategic plan enables a company to evaluate resources, allocate budgets, and maximize return on investment.
- It gives an organization a clear direction and focus.
- An organization implements in order to achieve success. This is done by developing appropriate tactics, which are the action steps for meeting the strategies directives.
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Finally a strategic plan is a living document that changes and grows as the conditions around it change. If an organization recognizes that it must constantly be aware of the business world around it and must be flexible to the changes that will inevitably occur, then it will be in a position to adapt and modify its plans to achieve maximum success.