CHAPTER- 4

STRATEGY FORMULATION
 STRATEGY FORMULATION

• Strategy formulation is what an organization is going to do.

• 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.
 Strategy Formulation…

• 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).
• Strategy formulation requires the following defined set
of activities for effective implementation. It involves:
1. defining the strategic Vision and mission
2. Identifying an organization’s external opportunities and
threats; internal strengths and weaknesses(SWOT Analysis)
3. Establishing log-tem objectives
4. defining the competitive strategy
5. implementing strategies, and
6. evaluating progress.
 4.1. Formulation of Corporate strategy
 Corporate strategy: establishes an overall game
plan for managing a set of businesses in a
diversified, multi-business company.
• Formulatec by the CEO and other senior
executives
• It addresses the questions of what businesses to
hold or divest, which new markets to enter, and
how to best enter new markets (by acquisition,
creation of a strategic alliance, or through
internal development, etc).
 Business strategy
 is primarily concerned with strengthening the
company’s market position and building
competitive advantage in a single business
company or in a single business unit of a
diversified multi-business corporation.
• is strategy at the single-business level,
concerning how to improve performance or gain
a competitive advantage in a particular line of
business.
 Functional-area strategies
 Are Concerned with the approaches employed in managing a
particular functions within a business—like research and
development (R&D), production, procurement of inputs, sales
and marketing, distribution, customer service, and finance.
4.2. Formulation of Generic competitive strategy

Porter’s generics strategies

Competit Competitive Advantage
ive
Low cost Differentiation
scope
Broad Cost leadership Brand
target differentiation

Narrow Cost focus Differentiation

target
focus
 1. Cost leadership strategy
• Operational efficiency: Focus on organizational
design that reduces costs and increases
operational efficiency
• Economies of scale: Take advantage of
economies of scale, which occur when unit costs
decrease as output increases
• Cost minimization: Use efficient production
processes,distributions optimize the supply
chain, and optimize resources
• Innovation: Develop and apply new technology
and procedures to improve cost efficiency
 2.Differentiation based strategy
 Product differentiation
• Superior Quality: Offer products or services of exceptional
quality that outshine competitors.
• Unique Features: Develop innovative features that set your
offering apart.
• Innovative Design: Create visually appealing and functional
designs that resonate with customers.
• Strong Brand Image: Build a recognizable and respected
brand that commands premium pricing.
 Service Differentiation:Provide outstanding customer
support and assistance.
 Channel Differentiation:Unique Distribution Channels
 Relationship Differentiation:Strong Customer Relationships
 3.Focus based strategy
• Focus-based strategies are powerful tools for gaining a competitive
advantage by concentrating on a specific niche market. Here are
the two main types of focus-based strategies:
1. Cost Focus Strategy:
• Target a Specific Niche: Identify a specific market segment with
unique needs and price sensitivities.
• Achieve Cost Leadership: Strive to become the low-cost producer
within that niche.
• Efficient Operations: Focus on streamlining operations and
reducing costs to offer competitive prices.
• Economies of Scale: Leverage economies of scale within the niche
to further reduce costs.
• Example: A budget airline focusing on a specific geographic region
or a specific type of traveler.
 Differentiation Focus Strategy:
2.

• Unique Value Proposition: Offer a unique and differentiated

product or service within the niche.
• Deep Customer Understanding: Develop a deep understanding
of the target market's specific needs and preferences.
• Premium Pricing: Charge a premium price for the unique value
proposition.
• Strong Brand Identity: Build a strong brand identity that
resonates with the target market.
• Innovation: Continuously innovate to maintain a competitive
edge within the niche.
• Example: A high-end boutique hotel catering to a specific type
of traveler or a luxury car brand targeting a specific
demographic.
• Risk of pursuing a focus strategy includes the possibility that
numerous competitors will recognize the strategy & copy its
strategy or customers will drift/flow to others.
• An organization using a focus strategy may concentrate on a
particular group of customers, geographic markets, or on
particular product-line segments to serve a well-defined but
narrow market better than competitors who serve a broader
market.
 4.3. Offensive and Defensive Strategy

1. Offensive strategy
Offensive strategies are proactive measures
designed to attack competitors' positions or create
new market opportunities.They often involve risk-
taking and innovation.
 Types of offensive strategies
• Frontal Attack: Directly challenging a competitor's
strengths in their core market.
• Flank Attack: Targeting a competitor's weak points or
underserved market segments.
• Encirclement Attack: Overwhelming a competitor with
multiple attacks on different fronts.
• Bypass Attack: Ignoring the competitor and targeting a
new market segment or customer base.
• Guerrilla Warfare: Using surprise tactics and
unconventional strategies to disrupt the market.
.Initiative to match or exceed competitors strengths
• Offering the product with equal features but at low cost, which
brings opportunity for acquiring market share if the competitor
is not able to bring down its price.
• Use of advanced technologies and make the rivals products
obsolete, adding new features.
Capitalizing on competitors Gaps
• Taking an initiative for exploiting the rival’s
weakness can provide a better chance for success
than challenge the strengths of the rivals
.Multi-dimensional offensive initiatives
• A company can take up simultaneous initiatives and
launch them more or less at the same time across a
wide geographic region
 The defensive strategies

• used for reducing the risk of being attacked

• weaken the effect of attack that occurs, and
influencing challengers to aim at attacking other
rivals.
• does not improve competitive advantage of the firm
• useful in protecting the competitive position
• protecting the process of initiation of its most
valuable resources & capabilities and defend
whatever competitive advantage it has.
 Defensive Strategies
 Defensive strategies are designed to protect a company's market
position and deter attacks from competitors. They often focus on
building strong barriers to entry and customer loyalty. Here are
some common defensive strategies:
• Position Defense: Protecting a company's core market share by
strengthening its position.
• Flanker Defense: Introducing new products or services to protect
vulnerable flanks.
• Counteroffensive: Responding to a competitor's attack with a
counterattack.
• Mobile Defense: Shifting resources to more attractive market
segments.
• Contraction Defense: Withdrawing from weaker market segments
to focus on core strengths.
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