Strategic Formulation can also be referred to as Strategic Planning. A strategy is a broad plan developed by an organization to take it from where it is to where it wants to be. A well-designed strategy will help an organization reach its maximum level of effectiveness in reaching its goals while constantly allowing it to monitor its environment to adapt the strategy as necessary. Strategy formulation is the process of developing the strategy.
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.
Strategic Formulation is considered to be the first stage of Strategic Management Process.
The process of strategy formulation basically involves six main steps:
- Framing Mission and Objectives.
A Mission id is the reason for the organization existence; A well conceived mission statement defines the company’s operation in terms of the products offered and markets Served.
Objectives are the end result of planned activity They state what is to be accomplished by when and should be quantified if possible. The achievement of corporate objective should result in the fulfillment of a corporate mission. The Mission & Objectives must be clearly defined.
- Analysis of Internal Environment :
After setting the objectives or goals, the management needs to make an analysis of the Internal environment. The Internal Environment refers to manpower, machinery, methods, procedures and other resources of the organization. A proper analysis of the Internal environment revels strengths and weakness of the organization.
- Analysis of External Environment :
The Management must conduct an analysis of the external environment. The external environment refers to government, competition, consumers, technological developments and other environmental factors that affect the organization. . The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses.
- Gap Analysis
The management must also conduct gap analysis, For this purpose, the management must compare and analyze its present performance level and the desired future performance level. Such a comparison would reveal the extent of gap that exists between the present performance and future expectations of the organization. If there is sufficient gap, the management must think of suitable measure to bridge or close the gap.
- Framing Alternative strategies:
After making SWOT analysis and the gap analysis, the management needs to frame alternative strategies to accomplish the objectives of the firm. There is need to frame alternative strategies, as some strategies may be put on hold, and other strategies may be implemented.
- Choice of strategy:
The organization cannot implement all the alternative strategies. Therefore, the firm has to be selective. The organization must select the best strategy, the organization needs to conduct cost-benefit analysis of the alternative strategies. The strategies, which give the maximum benefits at minimum cost, would be selected.
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