1. Organizational Mission and Objectives. Organizational mission and objectives are the starting point of strategy formulation. As discussed earlier, mission is the fundamental unique purpose of an organization that sets it apart from other organizations and objective is the end result, which an organization strives to achieve. These together provide the direction for other aspects of the process.
2. Environmental Analysis. The second aspect of the process is the environmental analysis. Since the basic objective of strategies is to integrate the organization with its environment, it must know the kind of environment in which it has to work. This can be known by environmental analysis. The process of environmental analysis includes collection of relevant information from the environment, interpreting its impact on the future organizational working,
and determining what opportunities and threats-positive and negative aspects-are offered by the environment. The environmental information can be collected from various sources like various publications, verbal information from various people, spying, and forecasting. The process of environmental analysis works better if it is undertaken on continuous basis and is made an intrinsic part of the strategy formulation.
3. Corporate Analysis. While environmental analysis is the analysis of external factors, corporate analysis takes into account the internal factors. These together are known as
SWOT (strengths, weaknesses, opportunities and threats) analysis. It is not merely enough to locate what opportunities and threats are offered by the environment but equally important is the analysis of how the organization can take the advantages of these opportunities and overcome threats. Corporate analysis discloses strengths and weaknesses of the organization and points out the areas in which business can be undertaken. Corporate analysis is performed by identifying the factors, which are critical for the success of the present or future business of the
organization, and then evaluating these factors whether they are contributing in positive way or in negative way. A positive contribution is strength and a negative contribution is a weakness.
4. Identification of Alternatives. Environmental analysis and corporate analysis taken together will specify the various alternatives for strategy. Usually this process will bring large
number of alternatives. For example, if an organization is strong in financial resources, these can be used in many ways, taking several projects. However, all the ways or projects cannot be selected. Therefore, some criteria should be set up to evaluate each alternative. Normally the criteria are set in the light of organizational mission and objectives.
5. Choice of Strategy. The identification and evaluation of various alternatives will narrow down the range of strategies that can seriously be considered for choice. Choice is deciding the acceptable alternative among the several which fits with the organizational objectives. Normally at this stage, personal values and expectations of decision-maker play an important role in strategy because he will decide the course of action depending on his own likings and disliking. This happens because in one way the organizational objectives reflect the personal philosophy of individuals particularly at the top management level.
6. Implementation. After the strategy has been chosen, it is put to implementation, that is, it is put into action. Choice of strategy is mostly analytical and conceptual while implementation is operational or putting into action. Various factors which are necessary for implementation are
design of suitable organization structure, developing and motivating people to take up work, designing effective control and information system, allocation of resources, etc..
When these are undertaken, these may produce results, which can be compared in the light of objectives set, and control process comes into operation. If the results and objectives differ, a further analysis is required to find out the reasons for the gap and taking suitable actions to overcome the problems because of which the gap exists. This may also require a change in strategy if there is a problem because of the formulation inadequacy. This puts back the managers at the starting point of the strategy formulation.
Once the creative and analytical aspects of strategy formulation
have been settled, the managerial priority is one of converting
the strategy into operationally effective action. Indeed a strategy is never complete, even as formulation until it gains a commitment of the organization’s resources and becomes embodied in
organizational activities. Therefore, to bring the result, the strategy should be put to action because the choice of even the soundest strategy will not affect organizational activities and
achievement of its objectives. Therefore, effective implementation of strategy is a must for the organization.
Implementation of strategy can be defined as follows:
Implementation of strategy is the process through which a chosen strategy is put into action. It involves the design and management of systems to achieve the best integration of people, structure, processes and resources in achieving organizational objectives.
Judging from this definition, it can be observed that the scope of managerial activities associated with strategy implementation is virtually coexistence with the entire management process. This
is because the entire management process is geared up according to the needs of the strategy.
The first basic action that is required for putting a strategy into operation is its institutionalization. Since strategy does not become either acceptable or effective by virtue of being well designed and clearly announced, the successful implementation of strategy requires that the strategy framer acts as its promoter and defender. Often strategy choice becomes a personal choice of the strategist because his personality variables become an influential factor in strategy formulation. Thus, it becomes a personal strategy of the strategist. Therefore, there is an urgent need for the institutionalization of strategy because without it, the strategy is subject to being undermined. Therefore, it is the role of the strategist to present the strategy to the members of the organization in a way that appeals to them and brings their support. This will put organizational people to feel that it is their own strategy rather than the strategy imposed on them. Such a feeling creates commitment so essential for making strategy successful.
Setting organizational climate relevant for strategy implementation is important for making strategy to work. Organizational climate refers to the characteristics of internal environment that conditions the co-operation, the development of the individuals, the extent of commitment and dedication of people in the organization, and the efficiency with which the purpose is translated into results. Organizations whose strategy is implemented with conducive climate are more effective than those whose are not. People are the instruments in implementing a particular strategy and organizational climate is basically a people oriented attempt. A top manager can play an important role in shaping the organizational climate not only by providing standards for what others do but also what he does because organizational climate is a matter of practice rather than the precept.
Operating plans are the action plans, operational program and decisions that take place in various parts of the organization. If they are made to reflect desired strategic results, they contribute to the achievement, of organizational objectives by focusing attention on those factors, which are important. For example, in budgeting, more resources will be allocated on those factors, which are critical to the success of the organization as spelled out during the strategy formulation process. There are various ways of making sure that operating plans contribute. If every manager understands strategy, he can certainly review the program recommendations of staff advisers and line subordinates to see that they are consistent with the requirements of the strategy. Appropriate committees to see if they contribute positively can review major program. This lends an aura of formality to the program decisions and their influences on strategy may become clear.
Organization structure is the pattern in which the various parts of the organization are interrelated or interconnected. It prescribes relationships among various positions and activities. For implementing strategy, the organization structure should be designed according to the needs of the strategy. The relationship between strategy and structure can be thought of in terms of utilizing structure for strategy implementation because structure is a means to an end, that is, to provide facilities for implementing strategy. Therefore, both should be integrated. In the absence of such integration, outcome may be confusion, misdirection and splintered effort within the organization.
There can be various ways of designing an organization structure. However, the major issues involved in designing the structure to fit the strategy involve the answers of following questions:
- What should be the different units of the organization?
- What components should join together and what components should be kept apart?
- What is the appropriate placement and relationship of different units?
There should be periodic review of strategy to find out whether the given strategy is relevant. This is required because even the care-fully developed strategies might cease to be suitable if events change, knowledge becomes more clear, or it appears that the environment will not be as originally thought. Thus, strategies should be reviewed from time to time. What should be the frequency for such a review is not universal but major strategies should be reviewed at least once a year. In fact this is done by most of the organizations who believe in relating themselves with the environment.
The term policy has more precise definition as compared to strategy. It has been derived from the Greek word ‘politeia’ meaning citizen and Latin word ‘politis’ mean-ing polished, that is, to say clear. According to New Webster Dictionary, policy means
“the art of manner of governing a nation, the line of conduct which rulers of a nation adopt on a particular question specially with regard to foreign countries, the principle on which any measure or course of action is based”.
While these descriptions of policy relate to any field, Weihrich and Koontz define policy in management context as follows:
“Policies are general statements or understandings which guide or channel think-ing in decision making”.
Kotler has defined policy more elaborately as follows:
“Policies define how the company will deal with stakeholders, employees, customers, suppliers, distributors, and other important groups. Policies narrow the range of individual discretion so that employees act consistently on important issues”
We may define the policy as follows:
A policy is the statement or general understanding, which provides guidance in decision making to members of an organization in respect to any course of action.
Strategy is now the more common term for what used to be called policy, though there is no consensus on this also. For example, some writers make distinction between the two referring as the general or grand strategy as policy and competitive; strategy as the strategy used in military sense. The situation is, therefore, still confusing. Steiner has observed that for some years and after much travail, the term policy was fairly understood. Then the game theorists began to use the term strategy with result that management literature now is thoroughly confused about its meaning and relationship to policy. However,in this text, two terms have been used with fairly different meaning and based on that, the difference between the two can be identified.
A distinction between policy and strategy is made on the basis that former is a guideline to the thinking and action of those who make decisions while the latter is concerned with the direction in which human and physical resources are deployed in order to maximize the chances of achieving organizational objectives in the face of environmental variables. Ansoff makes difference between policy and strategy by putting that “policy is a contingent decision whereas strategy is a rule for making decision. A contingent event is recognized because it is repetitive but the specific occurrence cannot be specified. For such repetitive events, it is not worthwhile to decide every time what to do when such a contingency arises. It is better to decide in advance what ill be done in such a case.