UNIT - 5

STRATEGY FORMULATION
 In strategy formulation, organizations

meticulously analyze their internal and

external environments, define clear
mission and vision statements, set
achievable objectives, and develop
robust strategies. This process, grounded
in comprehensive research and analysis.
It facilitates the creation of actionable
plans that steer the organization towards
sustainable growth and success.
 Strategy formulation is a critical phase in the
strategic management process where
organizations define clear objectives and
develop a blueprint to achieve them. It involves
analyzing the internal and external environment
to identify strengths, weaknesses, opportunities,
and threats (SWOT). This phase necessitates the
integration of insights from various functional
areas like marketing, finance, and operations to
craft strategies aligned with the organization’s
mission and vision. The ultimate goal is
establishing a competitive advantage and
fostering sustainable growth, ensuring the
organization’s long-term viability and success.
 What is Business Strategy?
 This critical process employs various
analytical techniques such as SWOT
(Strengths, Weaknesses, Opportunities,
Threats), VRIO (Value, Rarity, Imitability,
Organization), PESTEL (Political, Economic,
Social, Technological, Environmental,
Legal) etc. It is done to analyse the dissect
market dynamics and pinpoint
opportunities. This stage is pivotal in
aligning organizational efforts and
resources. It fosters a culture of innovation
and adaptability and paving a roadmap for
sustainable growth and success
 Strategize to Win: Top 5 Tips for Successful Strategy
Formulation
 Deep Market Research
 Diving deep into market research ensures a comprehensive
understanding of the current landscape, emerging trends,
and customer preferences.
 Example: Netflix astutely observed the evolving consumer
shift towards digital content. By transitioning from a DVD
rental model to online streaming, they positioned
themselves at the forefront of the entertainment industry,
capitalizing on the burgeoning demand for on-demand
content.
 Leverage Core Competencies
 Every organization possesses unique strengths and
capabilities. By identifying and building upon these core
competencies, businesses can carve a niche for themselves.
 Example: Apple has always prioritized design and
innovation. This focus has enabled them to introduce
products that set industry standards and resonate deeply
with consumers.
 Stakeholder Engagement
 Engaging key stakeholders in the strategy formulation offers diverse
insights and ensures widespread commitment to the chosen direction.
 Example: Starbucks exemplifies this by involving its baristas in
product development. Such engagement has birthed popular
innovations, like the Flat White, reflecting employee creativity and
customer preferences.
 Flexibility and Adaptability
 While a clear strategic roadmap is invaluable, adapting to changing
circumstances is equally crucial.
 Example: Microsoft showcased this adaptability by evolving its focus
from the Windows OS to embrace the potential of cloud computing with
Azure, thereby staying relevant and competitive in a rapidly changing
tech landscape.
 Continuous Monitoring and Feedback
 A successful strategy is not static; it requires regular reviews and
adjustments based on performance metrics and stakeholder feedback.
 Example: Toyota employs this principle through its Kaizen approach,
emphasizing continuous improvement. By consistently seeking
feedback and making iterative refinements, they maintain their
reputation for quality and innovation in the automotive industry.
 Porter's Five Forces is a framework that helps
businesses understand and analyze the competitive
forces that impact an industry's profitability. The
model was developed by Harvard Business School
professor Michael Porter in 1979. The five forces are:
 Threat of new entrants: How likely new
competitors are to enter the market
 Bargaining power of suppliers: How easy or
difficult it is for suppliers to increase their prices
 Bargaining power of buyers: How much power
buyers have to negotiate with suppliers
 Threat of substitute products or services: How
likely customers are to switch to a different product
or service
 Rivalry among existing competitors: How
competitive existing competitors are with each other
 Strategy implementation
 Strategy implementation is the process of
putting a strategic plan into action to
achieve business goals. It's the fourth
step in the strategic management
process, and it's considered to be one of
the most important steps
 1. Strategic Evaluation
 This refers to assessing the effectiveness of a
company's strategies. Key aspects include:
 Performance Measurement: Evaluating the outcomes
of strategies against predetermined goals using metrics
such as financial performance, market share, and
customer satisfaction.
 Environmental Scanning: Continuously monitoring
external and internal environments to identify changes
that may impact strategic performance. This includes
competitor analysis, market trends, and regulatory
changes.
 SWOT Analysis: Regularly revisiting strengths,
weaknesses, opportunities, and threats to adapt
strategies as needed.
 Feedback Mechanisms: Implementing processes to
gather insights from employees, customers, and other
stakeholders to inform strategic decisions.
 2. Strategic Control
 This involves monitoring and managing the
execution of strategies. Key aspects include:
 Setting Standards: Establishing benchmarks and
performance standards based on strategic goals.
 Monitoring Progress: Tracking the implementation
of strategies through regular reports and reviews to
ensure alignment with objectives.
 Corrective Actions: Identifying deviations from the
plan and implementing necessary adjustments. This
could involve reallocating resources, revising
strategies, or addressing performance issues.
 Risk Management: Assessing potential risks and
developing contingency plans to mitigate them,
ensuring that the organization can adapt to
unforeseen challenges
Problems in designing evaluation criteria in strategic
management:
 Designing evaluation criteria in strategic management can
present several challenges, including:
 Alignment with Strategic Goals: Ensuring that
evaluation criteria align with overarching strategic
objectives can be difficult, especially if goals are not clearly
defined.
 Complexity of Metrics: Selecting appropriate metrics that
accurately reflect performance can be complex, particularly
when balancing quantitative and qualitative measures.
 Dynamic Environment: Rapid changes in the external
environment (e.g., market trends, regulatory shifts) can
make it hard to establish stable criteria that remain
relevant over time.
 Stakeholder Perspectives: Different stakeholders (e.g.,
management, employees, customers) may have conflicting
interests, making it challenging to develop universally
accepted criteria.
 Measuring Intangible Assets: Evaluating intangible
factors such as brand value, employee morale, and
innovation can be subjective and difficult to quantify.
 Data Availability and Quality: Inconsistent or
inadequate data can hinder the ability to effectively
measure performance against established criteria.
 Overemphasis on Short-term Results: Focusing too
much on short-term performance can lead to neglecting
long-term strategic goals, resulting in misaligned
evaluations.
 Bias in Evaluation: Personal biases or organizational
politics can influence how criteria are set and how
performance is assessed, potentially skewing results.
 Resource Constraints: Limited resources (time, budget,
personnel) can impact the thoroughness of the evaluation
process and the criteria development.
 Change Management: Implementing new evaluation
criteria may face resistance from employees or
stakeholders, complicating the evaluation process.
 Process of Strategic Evaluation and Control
[Steps]
 The process of strategy evaluation and control involves
several critical steps that ensure an organisation's
strategy remains aligned with its goals and adapts
effectively to environmental and internal changes:
 Setting Benchmarks: Establish specific criteria and
performance standards against which the strategy's
success can be measured.
 Performance Measurement: Regularly measure
performance using predefined metrics to assess the
effectiveness of implemented strategies.
 Comparative Analysis: Compare actual performance
with expected results to identify deviations or gaps in
strategy execution.
 Diagnostic Review: Analyse the reasons for any
discrepancies between planned and actual outcomes.
This involves looking at both internal operational issues
and external environmental shifts.
 Taking Corrective Actions: Based on the insights gained
from the diagnostic review, make necessary adjustments
or implement new strategies to better align with the
organisation’s objectives.
 Revising Strategies: Continually update the strategies in
response to feedback and changes in the business
environment to ensure they remain relevant and effective.
 Reporting and Communication: Ensure that all
stakeholders are informed about the strategy evaluation
results and any changes made to the strategic plan. In
today's rapidly evolving business landscape, understanding
the need for learning innovation for business leaders is
crucial. Continuous learning helps leaders adapt to new
challenges, embrace technological advancements, and
foster a culture of innovation, enabling them to guide their
organisations effectively through periods of change.
 By following these steps, organisations can maintain
control over their strategic direction and make necessary
adjustments to stay competitive and effective.
 Importance of Strategy Evaluation
 Strategy evaluation is critical for several reasons, all of which contribute significantly to an
organisation's long-term success and sustainability:
 Ensures Alignment with Objectives: Regular evaluation helps ensure that all strategic actions are
aligned with the organisation's overarching goals.
 Facilitates Swift's Response to Change: It allows businesses to respond rapidly to market or
internal changes, staying relevant and competitive.
 Improves Resource Allocation: Effective evaluation identifies underperforming areas, enabling
better resource allocation to more profitable or strategic areas.
 Enhances Organisational Learning: It fosters a culture of feedback and continuous improvement,
driving innovation and efficiency.
 Risk Management: Strategy evaluation is crucial in identifying risks early, allowing management to
take proactive steps to mitigate potential impacts.
 How to Evaluate Strategy [Tips To Know]
 Evaluating a strategy effectively requires a comprehensive approach:
 Utilise a Balanced Scorecard: Incorporate a balanced scorecard that evaluates performance from
multiple perspectives, including financial, customer, internal processes, and learning and growth.
 Employ Strategic Audits: Conduct regular strategic audits to assess the relevance of current
strategies in the light of external and internal changes.
 Engage Stakeholders: Involve various stakeholders in the evaluation process to gain diverse
insights and foster a deeper understanding of the strategic challenges and opportunities.
 Leverage Analytical Tools: Use SWOT, PESTLE, and other analytical tools to provide a structured
analysis of environmental and organisational factors affecting the strategy.
 Focus on Continuous Improvement: Treat strategy evaluation as an ongoing process, not a one-
time event, to continuously refine and enhance strategic approaches.
 Enrol in Leadership and Strategy Courses: To further develop your strategic thinking and
evaluation skills, consider enrolling in leadership and strategy courses. These courses can provide
deeper insights, advanced techniques, and hands-on experiences that are crucial for mastering
strategy evaluation and implementation.
 Understanding what are modern management theories is also vital for effective strategy evaluation,
as these theories introduce contemporary perspectives on organizational management, leadership,
and decision-making, helping leaders adapt to today’s dynamic business environments.
 Strategic evaluation and control
 Strategic evaluation and control is defined as a process of estimating the
effectiveness of a strategy in achieving the organizational objectives and
taking corrective actions whenever required.
 Strategic evaluation is an important part of strategic management as it
checks whether the strategy implementation is going in the right direction
or not.
 Strategic evaluation
 Strategic evaluation is the last step of the strategic management process,
and comes after the formulation and implementation of strategy.
 Strategic evaluation is defined as the process of assessing the efficacy of
the strategy in achieving the organizational objectives. In other words,
strategic evaluation checks that whether or not the strategy that was
selected and implemented has met the organizational objectives. It can
be regarded as the performance appraisal of organizational strategies.
 It answers the following questions:
 Are the objectives and plans formulated by the organization appropriate?
 Has the business grown or not?
 Has normal profit been achieved by an organization?
 Has the strategy guided the organization towards its objectives?
 Do the obtained results conform to the predetermined time schedule?
 Are the resources being allocated and utilized properly?
 Is there any need to change the strategy?
 Importance of Strategic Evaluation
 Strategic evaluation helps an organization to progress in a particular
direction of success and growth. The importance of strategic evaluation
is as follows:
 Getting Feedback, Appraisal, and Reward: Helps measure the
performance of employees in attaining organizational goals. In strategic
evaluation, the feedback of employees is taken to perform the appraisal
and good performance is rewarded to motivate them. If a gap is found
in employees’ actual and desired performance, training and
development programs are provided.
 Verifying the Strategic Choice: Checks the validity of the strategic
choice. The strategic evaluation process ensures that the selected
strategy is in line with the objectives of an organization.
 Checking the Link between the Decisions and Strategy: Maps the
decisions taken by the strategists with the strategic requirements. The
strategic evaluation process ensures that the final decisions taken are
coordinated with the strategies to achieve organizational effectiveness.
 Ensuring Successful Strategic Management: Ensures efficiency in
the strategic management process. An efficient and successful strategic
management process helps the organization in meeting its objectives.
 Further Planning of Strategies: Helps in conceptualizing and
designing further strategies. Thus, it can be said that strategic
evaluation acts as a base for new strategies
 Participants in the Strategic Evaluation Process
 In an organization, strategic evaluation is done at all the levels to
know whether or not the results match with the defined
organizational objectives. In general, all members take part in the
process of strategic evaluation; however, a major role is played by
the following participants:
 Directors: Enact the official role of reviewing and screening the
executive decisions.
 Chief Executives: Take the responsibility for all the administrative
aspects of the strategic evaluation and control process
 SBU heads: Facilitate strategic evaluation at their respective levels
and divisions.
 Financial Controllers: Help in the operational controls that involve
budgeting, reporting, and financial analysis.
 Executive Committees: Take the responsibility of regular
screening of the performances of the employees with the set
standards.
 Middle Level Managers: Help in providing the information and
feedback regarding the performance of employees. These managers
get the directions from the top management for taking the
corrective action.

 Strategic Control:


 Strategic control take into account the changing assumptions that

determine a strategy, continually evaluate the strategy as it is
being implemented and take necessary action and steps to adjust
the strategy to the new requirement.
 Strategic control regularly monitors the changes occurring inside
and outside an organization to update the strategies as per the
required changes.
 The time gap between the formulation and implementation of the
strategy may be substantial. It may be possible that the
assumptions made while formulating the strategy change at the
implementation level due to changing organizational and
environmental conditions.
 Strategic control focuses on looking at these changes and taking
the necessary steps to adjust these changes to the strategy.
 In addition, they help in knowing whether the strategies are
working as expected or not.
 Strategic control also involves looking at the solutions for the
organizational problems by forming strategic control systems.

 Process of strategic control
 Process of strategic control involves the following
steps:


 Establishing Sub-goals: Implies dividing the

strategies into standards and targets, so that a
strategy can be evaluated easily
 Creating Measurement Systems: Involves
creating the procedures or techniques for
measuring the performance
 Comparing the Actual Performance: Involves
finding the gaps between actual and desired
performance,
 Initiating the Corrective Action: Implies taking
an action to cover the gaps

 Types of strategic control


 Premise Control: Helps in recognizing the changes in the assumptions of a strategy. Any
change in an assumption of strategy may affect the organization’s success. Thus, premise
control helps in regularly testing the assumptions with the changing environment and taking
corrective actions if required. In other words, it can be explained as a control that helps in
identifying the key assumptions of the plans and gathering the data to monitor the changes.
Premise control helps in testing the foundations of the strategy and determining the validity
of these foundations with respect to the present condition of the
 organization.
 Implementation Control: Focuses on evaluating the plans, programs, and projects that
have been developed during the implementation stage. Plans, programs, and projects are
evaluated to check whether or not they are contributing to the organization’s objectives. It
analyzes the output to identify the gaps between predefined standards and actual
performance, and takes corrective actions if needed. The two types of implementation
control are as follows:
 Monitoring Strategic Thrust: Involves controlling the projects that represent the actions
that need to be taken if the overall strategy is to be fulfilled. It helps an organization to know
whether continuing the strategy would be appropriate or not
 Milestone Review: Implies identifying the milestones that will be achieved during the
implementation of a strategy. Milestone reviews involve taking a small pause in between a
project to ensure that the work done till now is completed successfully.
 Strategic Surveillance: Refers to a general type of control. It monitors the changes
happening inside and outside the organization with the help of available information sources,
and identifies those changes or events that may affect the organization’s strategy. Strategic
surveillance is sometimes confused with environmental scanning; however, there is a
difference between the two. Table-1 shows the difference:
 Special Alert Control: Refers to the type of control that discovers critical situations. Special
alert control provides a mechanism for rapid response to a problem by forming contingency
strategies. These strategies are created in advance to deal with business uncertainties. There
are numerous organizations that form crisis management teams to implement special alert
control.
 The criteria for effective strategic evaluation
 Minimum Information: Implies that a control should involve
minimum information, since too much information may lead to
ambiguity. There should be a balance between complexity and
simplicity.
 Timely Action: Implies that corrective actions should be taken
on time. Performing strategic evaluation too early or too late may
not be apt.
 Term Controls: Imply that the controls should be long term
because a strategy has a long-lasting impact on an organization.
 Counting the Important Activities: Results in effective
evaluation. The activities that do not contribute to achievement
should not be emphasized much as they make the strategic
evaluation process ineffective.
 Rewarding the Effective Performance: Motivates the
employees. If the performance of employees is equal to or more
than the standards, the employees should be rewarded. The
penalties for low performance should be minimized as it may
demotivate the employees.
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