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What are the steps in Strategy Formation?

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Steps in strategy formulation: While making a strategy for an organization, the below mentioned process has to be followed:-

1. Clarifying the objectives and values of the organization: a strategy is related with the mission and values of the organization. The mission of an organization can be described as the purpose for which the organization has been established. In this way, it is necessary that the mission of the organization should be clearly defined and at the same time, it should also be communicated to all the members of the organization. All the decisions have to be taken by the managers keeping in view the objectives of the organization and in the same way; strategies are also required to be created for achieving these objectives. The objectives of an organization provide the guidelines that can be used while making the strategies for the organization at different levels. In the same way, the values followed by an organization also help in creating the most appropriate strategies for the organization. For example, while creating strategies for the organization, the managers should keep in mind the likely customers of the organization and also the types of needs that are going to be satisfied by the organization.

2. Evaluating the external environment: the external environment of an organization comprises the economic, political, social, technological and marketing factors that are present at that time. All these factors have an impact on the business. Therefore, all business plans and strategies should be formulated in such a way that maximum benefit can be derived from the external environment of an organization. It is also required that the external environment should be constantly monitored and the likely impact of any changes taking place in the environment should also be assessed in advance. For example, if it is possible for an organization to reduce its cost of production with the help of latest technology, there is also a threat from the competitors as a result of the emerging technology. Therefore, the managers should constantly keep an eye on the external environment. For this purpose, a system of forecasting and monitoring needs to be set up that evaluates the external environment constantly so that effective strategies can be created and these threats can be converted into opportunities.

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3. Evaluating the internal environment: By evaluating the internal environment of the organization, the managers come to know of the strengths and weaknesses of their organization. Therefore, without undertaking a review of different activities, it is not possible to create suitable strategies for the organization. For example if an organization has a strong marketing network but the production activity of the organization is not capable to cope with the marketing activities, certainly the decision-makers have to consider these imbalances while creating the relevant strategies for the organization. In this way, the managers can take advantage of the factors that are favorable and improve the activities that are not coping with them. For this purpose, the evaluation of the internal environment of an organization is required that includes a look at marketing, production and financial& human resources. All these areas should be clearly assessed so that corrective measures can be taken while creating the relevant strategies.

4. Evaluating alternative strategies: the external and internal factors of the organization should properly match with each other. Similarly the strengths and weaknesses of the organization should also be considered when the impact of external environment is being considered by the managers. In some cases, there can be a difference present between the results desired and the actual results delivered. Therefore, alternative strategies may be required in some cases to fill these gaps. The advantages and disadvantages of the alternative strategies should be evaluated so that they can be used whenever the need arises. For example in case of a company that is willing to expand its business, a strategy can be adopted to increase production by extra utilization of the present production facilities or it may decide to add more machines. However an alternative strategy can be to acquire a unit that produces similar product. In such a case, the alternative strategy has to be carefully examined against predetermined criteria.

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5. Selecting a strategy: selecting the appropriate strategy is also a significant step in this process. The managers may have to analyze several different strategies. Similarly the effectiveness of the strategy also needs to be evaluated in achieving the goals of the organization. While selecting the most appropriate strategy for an organization, there are certain factors like the level of risk accepted by the management, the results that have been achieved by the earlier strategy, the values and preferences of the organization, response of owners and the timing of strategy also needs to be considered. As the selection of a wrong strategy can prove to be disastrous for the organization, it is very important that the strategy has been selected by the managers after considering all the relevant factors.

This article has been written by KJ Singh a MBA Graduate from a prestigious Business School In India
Article Published:May 29, 2016
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