Strategic Formulation: Process, Levels, and Structure

Strategy Formulation Process

Stage 1: Identify Company Mission and Goals

Define the business and its main objectives.

Ex: Company activities.

Stage 2: Identify Core Competency and Value-Creating Activities

Analyze the company's unique abilities and activities.

Stage 3: Formulate Strategies

Select a multinational or global strategy. Formulate corporate and business-level strategies.

Levels of Company Strategy

CHARTDPTS

1. Growth Strategy: Designed to increase the scale or scope of a corporation's operations.
   • Methods: Mergers and Acquisitions, Growth, Joint Ventures, Strategic Alliances.
   • Example: Tesla
2. Retrenchment Strategy: Designed to reduce the scale or scope of a corporation's business.
   • Example: PRISA
3. Stability Strategy: Designed to guard against change and used by corporations to avoid either growth or retrenchment.
   • Example: EL CORTE
4. Combination Strategy: Designed to mix growth, retrenchment, and stability strategies across a corporation's business units.

Business-Level Strategies

Managers must also formulate separate business-level strategies for each business unit. For some companies, this is creating just one strategy.

1. Low-Cost Strategy: A company exploits economies of scale to have the lowest cost structure of any competitor in its industry.
   • Considerations: Cutting costs, quality, new entrants, loyalty.
   • Example: PRIMARK
2. Differentiation Strategy: A company designs its products to be perceived as unique by buyers throughout its industry.
   • Considerations: Differentiation and price premium.
   • Example: ALFA ROMEO
3. Focus Strategy: A company focuses on serving the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its products, or both.
   • Example: Johnson & Johnson
4. Department-Level Strategies: Each department is instrumental in creating customer value through lower costs or differentiated products.
   • Examples: Marketing, Manufacturing

Organizational Structure

Organizational structure is the way a company divides its activities among separate units and coordinates activities among those units.

1. Centralized Decision Making: Concentrates decision-making at a high organizational level in one location, such as headquarters.
2. Decentralized Decision Making: Disperses decisions to lower organizational levels, such as to international subsidiaries.