Strategic Formulation

Corporate level strategy formulation:

Corporate level strategy pertains to the organization as a whole and the combination of business units and product lines that make up the corporate entity. It addresses the overall strategy that an organization will follow. The process generally involves selecting a grand strategy and using portfolio strategy approaches to determine the types of business in which the organization should be engaged.

Grand strategy is the general plan of major action by which a firm intends to achieve its long terms goals. It provides basic direction for the strategic actions of a firm. Grand strategies fall into four general categories: growth / expansion, stability, retrenchment and combination (explained later).

Growth /Expansion Strategy

Organizations generally seek growth in sales, market share or some other measure as a primary objective. When growth becomes a passion and organizations try to seek sizeable growth (as against slow and steady growth) it takes the shape of an expansion strategy. The firm tries to redefine the business enter new businesses that are related or unrelated or look at its product portfolio more intensely. The firm can have as many alternatives as it wants by changing the mix of products, markets and functions. Thus, the growth opportunities may come internally or externally. Internal growth possibilities may be exploited through intensification or diversification. External growth options include mergers, takeovers, and joint ventures.

Stability strategy

A stability strategy involves maintaining the status quo or growing in a methodical but slow, manner. The firm follows a safety oriented status quo type strategy without effecting any major changes in its present operations. The resources are put on existing operations to achieve moderate incremental growth. As such the primary focus is on current products, markets and functions maintaining the same level of effort as at present.

Retrenchment strategy

It is a corporate level, defensive strategy followed by a firm when its performance is disappointing or when its survival is at stake. When the firm is confronted with a precipitous drop in demand for its products and services it is forced to effect across the board cuts in personnel and expenditures. Retrenchment strategy, as such is adopted out of necessity not by deliberate choice.

Combination strategy
Large diversified organizations generally use mixture of stability expansion or retrenchment strategies either simultaneously (at the same time in various businesses) or sequentially (at different times in the same business). For example growth could be achieved by organizations through acquisition of new businesses or divesting itself of unprofitable ventures. Depending on situational demands therefore an organization can employ various strategies to survive grow, and remain profitable.

Business level strategy formulation

Business level strategy deals with how a particular business competes. The principal focus is on meeting competition protecting market share and earning profit at the business unit level. The strategies of growth stability ad retrenchment discussed above apply at the business level as well as the corporate level, but they are accomplished through competitive actions rather than by the acquisition or divestment of other businesses.

Functional level strategy formulation

Functional strategies are formulated by specialists in each area of a business such as marketing production, finance, human resources and research and development. Functional strategies outline the action plans that must be put into practice to execute business level strategy. Business level and functional specialists must coordinate their activities to ensure that the strategies pursued by them are consistent and lead to achievement of overall goals.

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