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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 23
STRATEGY-FORMULATION FRAMEWORK
Learning Objectives
After understanding this topic you able to understand the basic phenomena of strategy formulation frame
work and also under stand the stages of strategy formulation frame work
Objectives:
Objective placing an important role in strategic management Strategic analysis and choice largely involves
making subjective decisions based on objective information. This topic includes important concepts that
can help strategists generate feasible alternatives, evaluate those alternatives, and choose a specific course of
action. Behavioral aspects of strategy formulation are described, including politics, culture, ethics, and social
responsibility considerations. Modern tools for formulating strategies are described, and the appropriate role
of a board of directors is discussed
A Comprehensive Strategy-Formulation Framework
Important strategy-formulation techniques can be integrated into a three-stage decision-making framework,
as shown below. The tools presented in this framework are applicable to all sizes and types of organizations
and can help strategists identify, evaluate, and select strategies.
Stage-1 (Formulation Framework)
1. External factor evaluation
2. Competitive matrix profile
3. Internal factor evaluation
Stage-2 (Matching stage)
1. TWOS Matrix (Threats-Opportunities-Weaknesses-Strengths)
2. SPACE Matrix (Strategic Position and Action Evaluation)
3. BCG Matrix (Boston Consulting Group)
4. IE Matrix (Internal and external)
5. GS Matrix (Grand Strategy)
Stage-3 (Decision stage)
1. QSPM (Quantitative Strategic Planning Matrix)
Stage 1 of the formulation framework consists of the EFE Matrix, the IFE Matrix, and the Competitive
Profile Matrix. Called the Input Stage, Stage 1 summarizes the basic input information needed to formulate
strategies. Stage 2, called the Matching Stage, focuses upon generating feasible alternative strategies by
aligning key external and internal factors. Stage 2 techniques include the Threats-Opportunities-
Weaknesses-Strengths (TOWS) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the
Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix.
Stage 3, called the Decision Stage, and involves a single technique, the Quantitative Strategic Planning Matrix
(QSPM). A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies
identified in Stage 2. A QSPM reveals the relative attractiveness of alternative strategies and, thus, provides
an objective basis for selecting specific strategies.
All nine techniques included in the strategy-formulation framework require integration of intuition and analysis.
Autonomous divisions in an organization commonly use strategy-formulation techniques to develop
strategies and objectives. Divisional analyses provide a basis for identifying, evaluating, and selecting among
alternative corporate-level strategies.
Strategists themselves, not analytic tools, are always responsible and accountable for strategic decisions.
Lenz emphasized that the shift from a words-oriented to a numbers-oriented planning process can give rise
to a false sense of certainty; it can reduce dialogue, discussion, and argument as a means to explore
understandings, test assumptions and foster organizational learning. Strategists, therefore, must be wary of
this possibility and use analytical tools to facilitate, rather than diminish, communication. Without objective
information and analysis, personal biases, politics, emotions, personalities, and halo error (the tendency to put
too much weight on a single factor) unfortunately may play a dominant role in the strategy-formulation
process.
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning