STRATEGY FORMULATION

1. Strategy Formulation
PRESENTED BY:
KAMAL SINGH
IFTM UNIVESITY
Anamika

2. Introduction

3. Strategy formulation is the process by which an organization
chooses the most appropriate courses of action to achieve its
defined goals.
This process is essential to an organization’s success, because
it provides a framework for the actions that will lead to the
anticipated results. Strategic plans should be communicated to
all employees so that they are aware of the organization’s
objectives, mission, and purpose.
Strategy formulation forces an organization to carefully look at
the changing environment and to be prepared for the possible
changes that may occur.
A strategic plan also enables an organization to evaluate its
resources, allocate budgets, and determine the most effective
plan for maximizing ROI (return on investment).

4. Evaluation of Current
Results:
Henry mintzberg, after much research found that strategy
formulation is typically not a regular, continuous
process. “it is small, often an irregular,discountinuous
process,proceeding in fits and starts. these are period of
stability in strategy development. But also there are
periods of flux, of grouping,of pricemical changes and
global changes.”

5. Mode of Strategy
Formulations:
Entrepreneurial Mode
Adaptive Mode
Planning Mode

6. SWOT Analysis:
Strength
Weaknesses
Opportunity
Threats

7. STABILITY STRATEGIES

8. STABILITY STRATEGIES
Introduction:- some firms adopt stability strategy
instead of using growth strategies. Firms attempt to
maintain their size, level of production & sales, serving
almost the same customer groups, performing the same
customer functions, produce with the same technologies
and operate the current line of business.

9. Stability through diversification:- companies
experiencing volatilities diversify to stable portfolio
businesses.
stability through minor functional strategies:-
some companies belong to sun-setting/ non growth
industries like hotel, automobile & publishing adopt
minor functional strategies like service,
modernisation, customisation strategies in order to
have stability in sales revenue & profit.
This strategy can be of five types…
Contd…

10.  Maintenance of status Quo
 Sustainable growth
 Pause/Proceed with caution strategy
 No change strategy
 Profit strategy.
Contd…

11. Reasons for adopting stability strategies:- Firms
adopt the stability strategies due to the following
reasons:
Manager of small businesses desire a satisfactory
level of profit rather than increased profit.
Maintenance of status quo involve less risk than a
more growth strategy.
Change of any form may disrupt the current working
relationship & the consequence may be detrimental to
the organisation.
Contd…

12. Change may upset the smooth operations and result in
poor performance especially, if the firm considers
itself successful with the present level of operations.
Some executives maintain with the stability strategy
due to inertia for change.
In some cases, firms are forced to adopt stability
strategy, if they operate in a low growth or no growth
industry.
Sometimes, firms may find that the cost of growth is
more than the benefits of the same.
Contd…

13. GROWTH STRATEGIES

14. INTRODUCTION
Increased
Performance/
Profit
Increase
Sale
Increase
Market
Share Reduce
Cost of
Production

15. CLASSIFICATION
Internal Growth
Strategy
Concentration
Strategy
Merger Strategy
Takeover/Acquisiti
on Strategy
Horizontal
Integration
Vertical Integration
Conglomerate
Diversification
Joint Ventures

16. 1. INTERNAL GROWTH STRATEGY
Increasing
Production
Capacity
Increasing
Employees
Increasing
Sale

17. 2. CONCENTRATION STRATEGY
Customer Product Technology
Increase Usage Differentiate
from
Customer
New
equipment
Develop
Offer, Promotion,
Advertisement
Develop New
Usage
New Product
Development
Attract
Competitor
Customer
Improve Product
Servicing
Improve
Quality
Product Line
Price Cut

18. Reason of Moving from
Concentration Strategy
Risk
Diversification
Need to meet
short term
goal
Impatience to
grow
Pressure to
use Idle
capacity
Over
Confidence

20. 3. MERGER STRATEGY
“Firms of similar objectives and strategies combine
into one firm, such combination is called Merger”.
Combination of two or more firms is known as
‘Merger’.
 It can take place within one nation or across the
nation.
Ex.- TCS-CMC in 2014.

21. TYPES OF MERGER
Horizontal Merger
(Same Business)
Vertical Merger
(Complementary
Activities)
Concentric Merger
(Same Customer
Group)
Conglomerate
Merger (Unrelated
Business)

22. REASON/MOTIVES
Stock.
Growth rate
of the firm.
Firm’s
earning and
sale.
To diversify
the product
line.
Efficiency
and
Profitability.
Good
Investment.

23. ADVANTAGE
Economies of large scale operation.
Profit growth by utilizing funds.
Higher productivity with efficient utilization of resources.
Established Market
Easy access of Finance, HR and Raw material.

24. DIS-ADVANTAGE
Strategic Issue (Strength & Weakness)
Managerial Issue
Legal Issue
Negative attitude of Senior firm towards
Junior.

25. 4. TAKEOVER/ACQUISITION
“Attempt of one firm to acquire ownership or control
over another firm against the wishes of latter’s
Management.”
 It can be hostile (Against the wishes) or friendly
(through mutual consent).
Ex. Tata steel acquire Corus Group.
Videocon acquire Daewoo Electronics.

26. ADVANTAGE
Ensure Management
Accountability.
Easy growth opportunities.
Create mobility of resources from
one activity to another activity.

27. DIS-ADVANTAGE
Professionalization of management
may be replaced by money power.
Detrimental to the society.
They result in monopoly and
concentration of economic power.

28. 5. HORIZONTAL INTEGRATION
It is to be done-
 To increase market share.
 To reduce cost of operation per unit of business
through large scale economies.
 To promote product & services more efficiently to
larger audience.

29. Horizontal Integration Contd.
To have greater access to the channel of
distribution.
 Finally To take the advantage of Synergy.
Ex. Tata Financial Service, Tata Capital, Tata
investment Corporation.

30. 6. VERTICAL INTEGRATION
 It is integration in which new product/service
which is complementary to existing
product/services are added.
 It can be of three types-
1. Backward Integration
2. Forward Integration
3. Balanced Integration

32. ADVANTEGES
Regular supply of raw material or control
over sale and output.
Quality control at different stages can be
ensured easily.
Firms can have own facilities for providing
pre-sales and post-sales service.
Improve competitive position.

33. DIS-ADVANTAGES
Technology up-gradation in one firm may
not feasible.
Firm selling product and component,
involve conflicting situation of competing its
own customer.
Financial problems as demand for large
scale operation.

35. 8. JOINT VENTURES
“Joint Ventures are partnership in which two or
more firms carry out a specific project in a
selected area of business.”
 The ownership of the firm remain unchanged.
 It is formed for specific time bound objectives.

36. When Do Joint Venture Form:
Joint Venture form-
 An activity is un-economical for an organization
to do alone.
 Risk of business has to be shared.
 Strength can be combined.
 Requirement of other firm’s ability.

37. CHARACTERISTICS
 It has a scheduled life cycle.
 It has to be dissolved when it has outlived its life
cycle.
 Change in environment force the joint venture to
be redesigned regularly.

38. TYPES OF JOINT VENTURES
Same
Industry
of same
country.
Different
Industry
of same
country.
Two
countries
locating
the
business
in
domestic
country.
Two
countries
locating
the
business
in foreign
country.
Two
countries
locating
the
business
in third
country.

39. ADVANTAGES
Spread development/production cost.
Combine resources and knowledge of
expertise in different fields.
Trial process to see that firm can work in
merger.
Quick access to channel of distribution.
Minimize the risk to both the partners.

40. DIS-ADVANTAGES
Absence of proper co-ordination between
partners.
Difference of culture and customer of both
partners.
Division of profit with other firms.
Possible conflict and blaming each other at the
time of failure.
Problem of equity participation.

41. Strategic Alliances
Strategic Alliances are teaming and allying
with other companies either of the same
industry or another industry with a view to
help to perform all kinds of
business/service activities necessary for a
customer in the supply chain .

42. Characteristics of Strategic Alliances
 Firms of an alliance remain independent, but
join together to collaborate like a single firm,
to provide the total but part by part, in the
supply chain.
 Firm of an alliances coordinate with each
other in addition to performing efficiently.
 Firm link with each other on a long term basis.
 Strategic are crafted in a unified manner
 Partners share strengths, thus eliminating the
weaknesses . In other words, the strengths of
one partner wipes out the weakness of the
other partner. Thus , the relationship is

43.  Alliances are for mutual benefit by pooling
technology, resources, investments and
bearing risks mutually and jointly .
 All firms of an alliances perform part by part,
but provide all the part of supply chain in a
coordinated manner.

44. Objectives of Strategic Alliances
 Different partner of an alliance possess
strengths as well as core competencies in
various areas
 A strategic alliance is to encourage the
partners to develop new technologies.
 An alliance is to learn form the alliance
partners how to expand and diversity into new
areas in the future.
 To create and develop new resources and
thereby, new core competencies.

45.  Alliances is to reduce the cost of
establishment and operations.
 To minimize or avoid risks.

46. Areas of Strategic Alliances
 New Market Entry.
 Supply Chain Integration.
 Design an Integrated Product-Cum-Service.
 Shaping Industry Evolution.
 Mutual Learning and Applying Technology,
Methods and Systems.

47. Forms of Strategic Alliance
Strategic alliance can take several forms. The
significant among them are:
 Licensing
 Franchising
 Co-marketing
 Co-production
 Outsourcing
 Knowledge-sharing
 Joint Ventures
 Equity Participation

48. Strategic Alliances

49. Advantages of Strategic Alliances
 Alliances and collaborative arrangement
normally result in win-win outcomes to the
parties.
 Alliances help in racing against rivals for
market leadership.
 Alliances help in acquiring new competencies,
improve supply chain efficiently and gain
economies of scale.
 Alliances help in entering critical markets and
building a potent market presence.
 Knowledge about unfamiliar markets.
 Skills and competencies .

50. Disadvantages of Strategic Alliances
 Increase in incompatibility of partners.
 Risk of Knowledge/Skill Drain .
 Risk of Dependence.
 Cost of Coordination.
 Cost of Learning .
 Cost of Inflexibility .
 Cooperation and Competition.
 Shifting Loyalties of Staff.

51. RETRENCHMENT
STRATEGY

52. RETRENCHMENT STRATEGY
A strategy used by corporations to reduce
the diversity or the overall size of the operations of
the company. This strategy is often used in order to
cut expenses with the goal of becoming a more
financial stable business.

53. REASON FOR ADOPTING
 Prevalence of poor economic condition.
 Competitive pressure may cause firms to pursue.
retrenchment strategies.
 Due to production inefficiencies.
 Inability of firm to implement latest technology
caused by technology evolution.
 Company is not doing well.
 Company has not meet its objective and there is
pressure from stakeholders, customers or others.

54. CLASSIFICATION
Turnaround
Strategy
Captive
Company
Strategy
Divestment
Strategy
Transformation
Strategy
Liquidation
Strategy

55. 1. TURNAROUND STRATEGY
 Turnaround strategy helps to improve the internal
efficiency of the organization.
 Aim of this strategy is to transform the
organization into a learner and more effective
business.
There are two approaches in this strategy:
1. Surgical Approach
2. HRD Approach

56. REASONS
Incurring Losses continuously.
Declining demand for product & services.
Increasing cash outflow or decreasing cash inflow.
Declining sales & Market Share.
Declining productivity.
Continuous problem of working capital.

57. TURNAROUND PROCESS
 Diagnosing the problem accurately.
 Analysis the product, service, design,
configuration, customer taste & preference against
the competitor’s product and substitute product.
 Analysing production process, technology
competitor’s strategy, market segment etc.
 Feed-forward the information in various
decisional areas.
 Take up activities systematically.

58. 2. CAPTIVE COMPANY STRATEGY
Under this strategy firm sells majority of its
product to one customer (wholesaler/dealer) or
outsources its production activities.
Customer provides design to captive manufacturer
who produce according to this design and supplies
the product to customer.
Captive strategy reduce labour cost and reducing
size of employees.

59. CAPTIVE COMPANY STRATEGY Contd.
The firm need not involve the cost of product
design and marketing and also minimize risk of
marketing.
It may also be effective for a new company.
The major limitation of this strategy is that the
company is limited by the activities of its captor.

60. 3. TRANSFORMATION STRATEGY
A transformation occurs when a firm makes a
major change in its outlook and its operations
usually including moving from one kind of
business to another.
These strategies are difficult to implement because
they require a great deal of flexibility on the part of
the entire organization.

61. REASONS FOR ADOPTING
Return on current operation are lower than desired.
Opportunities in other areas are specially attractive.
Investment needed in current opportunities exceed
when the firm is able to spend.
A strong flexible management team exists.
Firm has a strong financial base.

62. 4. DIVESTMENT STRATEGY
The company sells or “spins off” one of its
business unit under the divestment strategy.
It is usually adopted when the company is
performing poorly or when it no longer fits the
company’s strategic profile.

63. CAUSES
Firm wants to increase its efficiency of business unit.
Market share of company is negligible or too small.
Availability of better alternatives.
A continuous increase in cash outflows than cash inflows.
A firm’s inability to meet the competition.
Inability of financial resources.

64. APPROACHES
Firm pursue this strategy by spinning off a part of
business as an independent both financially and
managerially.
Firm also divest by selling a business unit to
another firm .
Another form of divestment is simply closing
down a portion of the firm’s operations.

65. 5. Liquidation Strategy
It is most extreme retrenchment strategy.
I involves closing down a business organization
and selling its assets.
This is the last alternative strategy as its
consequence are severe.

66. CAUSES
In small firms when one or more shareholders
want to withdraw from the business.
Other shareholders express their inability to buy
the withdrawing partner’s share.
Owners may receive “Godfather Offer” i.e. highly
attractive offer and they feel that liquidation is
more worthwhile.
Value of the assets is more worthwhile than the
rate of return earned by the firm.