2.2 Strategy formulation
Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses (SWOT). It includes defining the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.
Mission: an organization's mission is the purpose or reason for the organization's existence. In tells what the company is providing to society- either a service such as housecleaning or a product such as automobiles. A well-conceived mission statement defines the fundamental, unique purpose that sets a company apart from other firms of its type and identifies the scope of the company's operations in terms of products (including services) offered and markets served. It may also include the firm's values and philosophy about how it does business and treats its employees. It puts into words not only what the company is now but what it wants to become- management's strategic vision of the firm's future.
The mission statement promotes a sense of shared expectations in employees and communicates a public image to important stakeholder groups in the company's task environment. Some people like to consider vision and mission as two different concepts; A mission statement describes what the organization is now; a vision statement describes what the organization would like to become. We prefer to combine these ideas into a single mission statement. Some companies prefer to list their values and philosophy of doing business in a separate publication called a values statement.
2.2 Strategy formulation
One example of a mission statement is that of Maytag Corporation:
To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.
A mission may be defined narrowly or broadly in scope. An example of a broad mission statement is that used by many corporations: "serve the best interests of shareowners, customers, and employees."
A broadly defined mission statement is that used by many corporations: "serve the best interests of shareowners, customers, and employees." A broadly defined mission statement such as this keeps the company from restricting itself to one field or product line, but it fails to clearly identify either what it makes or which products/markets it plans to emphasize. Because this broad statement is so general, a narrow mission statement, such as the preceding one by Maytag, which emphasizes appliances, is generally more useful.
A narrow mission very clearly states the organization's primary business, but it may limit the scope of the firm's activities in terms of the product or service offered, the technology used, and the market served. Research indicates that a narrow mission statement may be best in a turbulent industry because it keeps the firm focused on what it does best: a broad mission statement may be best in a stable environment that lacks growth opportunities.
2.2 Strategy formulation
Objectives: are the end results of planned activity. They should be stated as action verbs and tell what is to be accomplished by when and quantified if possible. The achievement of corporate objectives should result in the fulfillment of a corporation's mission. In effect, this is what society gives back to the corporation when the corporation does a good job of fulfilling its mission. For example, by providing society with office supplies of every kind for home and work at better quality, price, and location than its competitors, Staples has become one of the most successful retailers in the United States. Even though the office supplies market is maturing, staples' management established the twin objectives of doubling sales to $20 billion from 2003 to 2008 while boosting net income more than 20% annually.
The term goal is often used interchangeably with the term objective. In this book, we prefer to differentiate the two terms. In contrast to an objective, we consider a goal as open-ended statement of what one wants to accomplish, with no quantification of what is to be achieved and no time criteria for completion. For example, a simple statement of "increased profitability" is thus a goal not an objective, because it does not state how much profit the firm wants to make or when. A good objective should be action oriented and begin with the word to. An example of an objective is "to increase the firm's profitability in 2007 by 10% over 2006". Some of the areas which a corporation might establish its goals and objectives are:
2.2 Strategy formulation
A strategy of corporation forms a comprehensive master plan that states how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. For example even though staples is a major competitor in office supplies retailing, it is not likely to achieve its challenging growth objective of doubling sales within five years without making a major change in strategy. The North American and European market for office supplies have been growing only 2% faster than their economies. Staples CED Ronald Sargent decided to think "outside the box" by reducing new store openings and instead emphasizing delivering office supplies form warehouses directly to businesses. Sergeant believed that the delivery business could equal revenue from staples store sales.
The typical business firm usually considers three types of strategy: corporate, business, and functional.
Corporate strategy
Describes a company's overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines. Corporate strategies typically fit within the three main categories of stability, growth, and retrenchment. Staples, for example, were following a corporate strategy of growth by diversifying from its base in retailing into the delivery business.
2.2 Strategy formulation
Business strategy
Occurs at the business unit or product level, and it emphasizes improvement of the competitive position of a corporation's products or services in the specific industry or market segment served by that business unit. Business strategies are grouped into two overall categories, competitive and corporate strategies.
For example, staples has used a competitive strategy to differentiate its retail stores form its competitors by adding services to its stores, such as copying, UPS shipping, and hiring mobile technicians who can fix computers and install networks. British Airways has followed a cooperative strategy by forming an alliance with American Airlines in order to provide global service. Cooperative strategy may thus be used to support a competitive strategy. Intel, a manufacturer of computer microprocessors, uses its alliance (Cooperative strategy) with Microsoft to differentiate itself (competitive strategy) from AMD, its primary competitor.
Functional strategy
The approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide accompany or business unit with a competitive advantage. Examples of research and development (R&D) functional strategies are technological followership (imitation of the products of other companies) and technological leadership (pioneering of an innovation). For years, Magic Chef had been a successful appliance maker by spending little on R&D but by quickly imitating the innovations of other competitors. This has helped the company to keep its costs lower than those of its competitors.
2.2 Strategy formulation
Business firms use all three types of simultaneously. A hierarchy of strategy types by level in the organization. Hierarchy of strategy is a nesting of one strategy within another so that they complement and support one another. Functional strategies support business strategies, which, in turn, support the corporate strategy(ies).
Just as many firms often have no formally stated objectives, many firms have unstated, incremental, or intuitive strategies that have never been articulated or analyzed. Often the only way to spot a corporation's implicit strategies is to look not at what management says but at what it does. Implicit strategies can be derived from corporate policies, programs approved (and disapproved), and authorized budgets. Programs and divisions favored by budget increases and staffed by managers who are considered to be on the fast promotions track reveal where the corporations is putting its money and its energy.
