Notes on Strategy Formulation

3. Diagnosis of Need for Change

• The evaluation leads to the determination of when and what extent the present strategy should be changed.
• In order to focus subsequent planning effort, one can usefully raise 3 questions designed to disclose the aspect of strategy in which a change may be required.

• Economic Mission

• Whether the business organization is in the “right” business and is pursuing the “right” goals.

• Competitive Approach

• Question as to the way in which management is seeking to carry it out.

• Program of Action

• 2 Possibilities:

1. Formulate a new Program of Action
2. Conclude that the present strategy is still satisfactory

4. Formulation of Economic Mission

• Q: What kind of business the organization should be in and what the performance objectives should be?
• “What kind of business the organization should be in”

• A change in economic mission frequently involves either addition to or change in the fields of endeavor which together make up the business the organization is in.

• “What the performance objectives should be”

• 4 Performance objectives that should be considered:

1. Growth
2. Flexibility
3. Stability
4. Return on Investment

• Process of formulation begins with the possible need for change growing out of the reappraisal of present strategy.

• Change can take form of alternations in or additions to the existing field of endeavor.

• Steps:

1. To ask what alternative fields of endeavor in the present strategy, but also alternative opportunities within the present fields of endeavor. The answer to this question may well be a list of possibilities which must be progressively narrowed as the formulation process is pursued.

1. Given the list of candidate’s field of endeavor, including the fields in which the business organization is active, one first narrows down the choice by identifying the most promising ones.
2. Ask what inherent potential is for each field of endeavor. Inherent potential is defined as the extent to which the field of endeavor offers the possibility of achieving objectives in the four critical areas of performance.
3. The performance of leading organizations in a field offers some indication of the potential in that field.

1. The alternative fields of endeavor are apprised in terms of the requirements for success.
2. The organization’s capabilities in the various fields under consideration should be determined.
3. Estimating the organization’s performance potential in each filed. This can be derived by matching the remaining candidates with corresponding inherent potentials.
4. Testing possible combinations of more promising fields of endeavor with each other and with other aspects of the organization’s present economic mission.

• The final choice of a particular combination of fields of endeavor determines the economic mission of the enterprise.

5. Formulation of Competitive Approach

• Q: How the organization should pursue its objectives in each field of endeavor specified in the economic mission?
• The task is to describe more fully the relationship between the distinctive capabilities of the business organization and the opportunities in the organization’s environment. 
• Process of formulation:

• Steps:

1. To ask what the possible product market opportunities are for each field of endeavor in the economic mission.
2. Steps designed to facilitate evaluation of the alternative approaches for each field of endeavor, eliminating the least desirable alternatives as one proceeds. 3 Preliminary questions need to be explored:

1. The potential market for each product–market opportunity needs to be estimated; market research techniques can help rank the product–market opportunities from this standpoint.
2. The performance market opportunity needs to be ascertained.
3. It will help to estimate capabilities and resources of potential competitors in each product–market.

1.  Make an analysis of the organization’s capabilities with respect to research and development, marketing, production, finance, and management. Q: What modifications would be required in the organization’s functional capabilities in order to exploit each product-market opportunity?
2. Comparisons may be made with respect to resource requirements, competitive advantage, and performance potential.
3. Formulate alternative competitive approaches for the business organization as a whole. This process involves combining plans for the more attractive product-market opportunities with one another and with existing plan in the fields of endeavor in which the organization is already operating.

• Selecting a competitive approach determines the definite ways in which performance objectives will be pursued in each field of endeavor, together with the functional goals necessary for their accomplishment, and, thus, provides the framework for developing a program of action.