.1 Explain how strategies are formulated and implemented.

(10 marks)Strategy Formulation and Implementation It is the crux of the strategic management process. Strategy refers to the course of action desired to achieve the objectives of the enterprise. Formulation, togetherwith its implementation, constitutes an integral part of the management activity.Managers use strategies for different purposes such as to overcome competition, toincrease sales, to increase production, to motivate the employees to provide theirbest, and so on. Implementation of a strategy is a crucial task as the formulation of i t . T h e r e m a y b e a l o t o f r e s i s t a n c e d u r i n g t h e i m p l e m e n t a t i o n p r o c e s s . I t i s necessary for the manager to be very tactful to involve the members of his group inthe formulation of strategy to facilitate the implementation process. Stages in Strategy Formulation and Implementation a.Identification of mission and objectivesb . E n v i r o n m e n t s c a n n i n g c.Generic strateg y alternativesd . S t r a t e g y v a r i a t i o n s e . S t r a t e g i c c h o i c e f.Allocation of resources and formulation of organisational structureg.Formulation of plans, policies, programmes and administrationh . E v a l u a t i o n a n d c o n t r o l Generic Strategy Alternatives They refer to the strategy alternatives in broader terms. After the nature of thebusiness of the firm is defined, the next task is to focus on the type of strategicalternative, in general, the firm should pursue. The strategist seeks to identify theright alternative through questions such as:1. Should we get out of this business entirely?2. Should we try to expand?There are four strategy alternatives available to a firm or business:a . T o e x p a n d b . T o w i n d u p o r r e t r e n c h c . T o s t a b i l i z e , a n d d.To continue its operations pertaining to its products, markets or functions.a) Expansion strategy can be adopted in the case of highly competitive and volatileindustries, particularly, if they are in the introduction stage of product / service lifecycle.b) Stability strategy is a better choice when the firm is doing well, the environmenti s r e l a t i v e l y l e s s v o l a t i l e , a n d t h e p r o d u c t / s e r v i c e h a s r e a c h e d t h e s t a b i l i t y o r maturity stage of the life cycle. MB0036 Set 1 c) Retrenchment strategy is the obvious choice when the firm is not doing well interms of sales and revenue and finds greater returns elsewhere, or the product /service is in the finishing stage of the product life cycle.d) Combination strategy is not a new strategy as it combines the other strategies.H o w e v e r , i t is to be noted that it is better to evol ve i n d i v i d u a l s t r a t e g i e s a n d combine them rather than trying to evolve a complex combination strategy whichc o u l d b e c u m b e r s o m e w i t h l o s s o f p r e c i o u s b u s i n e s s t i m e . I t i s b e s t - s u i t e d t o multiple SBU firms in times of economic transition and also when changes occur inthe product / service life

cycle. If a firm realises that some of its main product lineshave outlived their lives, it may not be profitable to continue investment in thesame product or SBU. The firm may choose to withdraw its resources from this area( o r S B U ) ( Retrenchment strategy) and follow an Expansion strategy in a n e w product area. Combination strat egy i s best suited when the firm fi n d s t h a t i t s product-wise performance is uneven, or all or most of its products differ in theirfuture potential.Sometimes, a combination of a few or all of these strategies may be necessary. Anychange must be contemplated considering what is to be done (Business definition)and the speed (Pace) with which it is to be done. Each of these alternatives has tobe evaluated on its merits.A strategy is a means to an end. If an organisation wants to perform better in thelong run, it has to select an appropriate strategy and pursue it vigorously. In thisprocess, it might face certain hardships. Also, it has to make necessary changes inits strategy. A change in strategy should not be construed as a sign of failure. Strategic Alliances MB0036 Set 1 Strategic alliances constitute another viable alternative. Companies can developalliances with the members of the strategic group and perform more effectively.These alliances may take any of the following forms:a) Product and/or service alliance: T w o o r m o r e c o m p a n i e s m a y g e t t o g e t h e r t o synergise their operations, seeking alliance for their products and/or services. Theproduct or service alliance may take any of the following forms:A manufacturing company may grant license to another company to produce itsproducts. The necessary market and product support, including technical knowhow,i s p r o v i d e d a s p a r t o f t h e a l l i a n c e . C o c a c o l a i n i t i a l l y p r o v i d e d s u c h s u p p o r t t o Thums Up.T w o c o m p a n i e s m a y j o i n t l y m a r k e t t h e i r p r o d u c t s w h i c h a r e c o m p l e m e n t a r y i n nature. Chocolate companies more often tie up with toy companies. TV Channelstie-up with Cricket boards to telecast entire series of cricket matches live.Two companies, who come together in such an alliance, may produce a new productaltogether. Sony Music created a retail corner for itself in the ice-cream parlours of Baskin-Robbins.b) Promotional alliance: Two or more companies may come together to promotet h e i r p r o d u c t s a n d s e r v i c e s . A c o m p a n y m a y a g r e e t o c a r ry out a promotioncampaign during a given period for the prod u c t s a n d / o r s e r v i c e s o f a n o t h e r company. The Cricket Board may permit Coke s products to be displayed during thecricket matches for a period of one year.c) Logistic alliance: Here the focus is on developing or extending logistics support.O n e c o m p a n y e x t e n d s l o g i s t i c s s u p p o r t f o r a n o t h e

r c o m p a n y s p r o d u c t s a n d services. For example, th e outlets o f Pizza H u t , K o l k a t a e n t e r e d i n t o a l o g i s t i c alliance with TDK Logistics Ltd., Hyderabad, to outsource the requirements of theseoutlets from more than 30 vendors all over India for instance, meat and eggsfrom Hyderabad etc.d) Pricing collaborations: C o m p a n i e s m a y j o i n t o g e t h e r f o r s p e c i a l p r i c i n g collaboration s. It is customary to find that hardware and software companies ininformation technology sector offer each other price discounts. Companies shouldbe very careful in selecting strategic partners. The strategy should be to select sucha p a r t n e r w h o h a s c o m p l e m e n t a r y s t r e n g t h s a n d w h o c a n o f f s e t t h e p r e s e n t weaknesses. The acid test of an alliance is gr eater s a l e s a t l e s s e r c o s t . I t i s a common practice to develop organisational structures or modify them, if necessary,to support the alliances and make them successful. Considering Strategy Variations There can b e a n u m b e r o f v a r i a t i o n s o f t h e g e n e r i c s t r a t e g y a l t e r n a t i v e s . F o r instan ce, if the strategy is to expand, then the alternatives are internal expansion orexternal expansion.Internal expansion can be achieved through any of the following approaches: P e n e t r a t e e x i s t i n g m a r k e t s A d d n e w m a r k e t s Add new products, and so on MB0036 Set 1 Similarly, external expansion can be achieved through mergers or acquisitions. Inmost IT Companies, subsidiaries are created to develop at the earliest upstreamc a p a b i l i t i e s i n t h e I T v a l u e c h a i n . O n c e t h e s e s u b s i d i a r i e s g a i n t h e r e q u i r e d capabilities in te r m s o f c o n s u l t a n c y , s y s t e m i n t e g r a t i o n , p r o d u c t d e s i g n a n d application, development and maintenance, and others, they are merged into am a j o r p l a y e r . M e r g e r h a s t h u s b e e n o n e o f t h e s t r a t e g i e s t o b e n c h m a r k t h e company in terms of performance globally.If the strategy is to attain stability, then the alternatives could be internal stabilityor external stability. In some cases, both may be required. External stability can beattained by maintaining market share.Internal stability of a firm can be achieved through:a.Seeking production and marketing efficiencies, andb.Redefining the existing organisational structure.Strategy variations can attain the following forms: I n t e r n a l o r externalRelated or u nr el at ed Horizontal or vertical A c t i v e o r p a s s i v e Each of these variations has different strategic alternatives considering the majorg o a l s o f t h e o r g a n i s a t i o n . F o r i n s t a n c e , i n t e r n a l s t r a t e g y v a r i a t i o n m a y b e expansion, stability, retrenchment, or combinations. If expansion is decided upon,the alternatives could be to penetrate existing markets, add new products, or addnew markets, and so on. Strategy variation is a global phenomenon. When the firmfinds that it is not possible to fill a gap in the market with the existing strategy, itc o n s i d e r s a c h a n g e i n t h e f o c u s o f t h e s t r a t e g y . A n e x a m p l e w o

u l d b e h o w multinationals Indianised their global strategies to woo their customers in Indianmarkets. Selection of the Best Alternative The best alternative is one that can improve overall p erformance. Its s e l e c t i o n depends upon: P a r t i c u l a r c o n f i g u r a t i o n o f objectivesEnvironmental threat and opportunity profile S t r a t e g i c a d v a n t a g e p r o f i l e T h e g e n e r i c s t r a t e g y i t s e l f If a company has a higher growth as its objective, it is better to expand from a baseof proven or time-tested competence (e.g. cost leadership or market leadership)and organise the departments to provide new opportunities while taking moderaterisks.Every company must tailor an appropriate strategy for achieving its goals. The mostgeneric types to initiate strategic thinking, as suggested by Michael Porter, are ( a )Overall cost leadership, ( b ) Differentiation and ( c ) Focus. MB0036 Set 1 a) Overall cost leadership The company is said to achieve OCL when it offers itsp r o d u c t s o r s e r v i c e s a t t h e l o w e s t p r i c e ( d u e t o i t s l o w e s t c o s t ) a m o n g competitors, thus maintaining the largest market share. Companies which pursuet h i s s t r a t e g y h a v e t o s h a r p l y f o c u s o n c o s t e f f e c t i v e s t r a t e g i e s i n a l l t h e a r e a s pertaining to engineering, purchases, manufacturing and physical distribution. Anybreakdown could cost the company very badly. A standby arrangement is vital.Mergers and take-overs reflect the common route for companies to optimise theirresources and costs. HLL emerged stronger with the acquisition of Brook Bond.b) Differentiation The company should be capable of demonstrating a superiorperformance through its products and services. This should benefit a large numberof customers in saving their resources in terms of time and money. Hero Hondac o u l d d e s i g n i t s m o t o r c y c l e d i f f e r e n t l y t o o f f e r h i g h e r m i l e a g e . T his r esulted insaving s to the u ser. Th e strateg y is to differentiate the p r o d u c t s a n d s e r v i c e s sharply through quality in a market dumped with stocks. A photocopying companycan demonstrate its excellence by minimising defects per thousand prints. Constantadaptation to changing technology and large-scale initiatives in R&D would providea shot in the arm for the company. INFOSYS and WIPRO are some examples whichhave made a niche in the software industry through differentiation.c) Focus The company may concentrate on a narrow market segment and obtainfull market information about it. It may pursue either overall cost leadership ordifferentiation strategy within that target segment. Such companies which pursuet h e s a m e s t r a t e g y t o t h e s a m e t a r g e t m a r k e t , a r e c a l l e d a s t r a t e g i c g r o u p o f companies. If they relentlessly pursue their strategies, they are bound to succeed,leading to benchmarking of strategies. The danger here is that others can copy inthe name of benchmarks. This can be avoided by performing similar activities in aninnovative and swift way, which the competitors cannot catch up with. There arecertain issues which cannot be copied in the short run. Strategic Choice It involves the decision to select from among alternatives, the best strategy whicheffectively contributes to the business objectives. The spade work before making

astrategic choice consists of: Identifying the few viable alternative courses of action. Considering the parameters for selection of best alternative. Evaluating each alternative on its own merits and in relation to other alternatives. Making the final choice. Keeping the next best alternative as stand by ( to take care of contingencies )T h e f o l l o w i n g a r e t h e q u e s t i o n s i n t e r m s o f w h i c h e n v i r o n m e n t a l a n d i n t e r n a l conditions are analysed: What are the main business objectives? Does the selected strategy contribute to these objectives? MB0036 Set 1 What is the business definition is it product-based, market-based or functionbased? Will it be achieved in the future?These questions help us to examine the performance gap between the expected andthe ideal outcomes in relation to the alternatives under consideration. If the gap isnarrow or negligible, the stability strategy is the best strategy, since it focuses on d o i n g i n t h e b e s t w a y w h a t w e c a n d o . M o s t i n t e r n a t i o n a l a i r l i n e s l e a s e o u t operations such as reservation, maintenance, ground halting work, and others toprofessional agencies to improve their overall performance in general and increaset h e p a c e o f i t s o w n a c t i v i t i e s i n p a r t i c u l a r . T h e f o c u s w i l l b e o n b e t t e r implementation initiating certain pace changes internally. If the gap is large ands i g n i f i c a n t , t h e p r o b a b l e a l t e r n a t i v e s a r e e i t h e r t o e x p a n d o r t o w i t h d r a w f r o m unrelated areas. Mergers, acquisitions, disinvestments are some of the measuresthat initiate changes in the pace of growth.The decision-maker considers different choices closest to the present strategy. Inthe process, he identifies the most preferred strategy. Some of the parameters thathelp him in this process are: Is it politically acceptable or not? What is the degree of risk involved? To what extent is the enterprise dependent on external factors?Such an evaluation leads to the choice of an appropriate strategy, and at this point,it appears to the decision-maker that the gap between the expected and the idealo u t c o m e s i s c l o s e d . R e l y i n g e x c e s s i v e l y on one corporate plan w ith one or tw ovariations, mor e often, may not b e a d e q u a t e . H e n c e , i t i s d e s i r a b l e t o k e e p a contingency plan ready as standby.Allocation of Resources and Development of Organisational StructureThe process of strategy implementation calls for an integrated set of choices andactivities. These include allocating resources, organising, assigning appropr iateauthority to the key managers, setting policies and developing procedures.It is necessary to establish an operative system to reinforce, control and evaluate astrategy.A good strategy with effective implementation has a higher probability of success.There source allocation decisions, such as, which department is sanctioned howm u c h o f m o n e y a n d r e s o u r c e s , i n t h e n a m e o f t h e b u d g e t , a n d s o o n s e t t h e operative strategy of the firm.Budgets are formulated after a series of negotiations across different levels in theo r g a n i s a t i o n . B u d g e t s m a y b e o f d i f f e r e n t t y p e s : c o r p o r a t e b u d g e t s , c a p i t a l budgets, departmental budgets, sales budgets, expense budgets, and others.An effective co-ordination and efficient division of labour requires an appropriateorganisational structure. The best structure is one, which fits into the organisational MB0036 Set 1