Strategy Formulation

Strategic Management Overview

Introduction to Strategic Management

• The discussion begins with an introduction to Chapter 5 of the Principles of Management book, focusing on strategic management as a macro-level organizational concept.

• The session will frame strategy within the POLC (Planning, Organizing, Leading, Controlling) framework, emphasizing strategy formulation and implementation.

Understanding Strategy

• Strategy involves making trade-offs and focusing on what actions to take or avoid. This process requires data collection through internal and external analysis.

• Internal analysis assesses resources and capabilities while external analysis identifies trends that may impact the organization.

Planning in Strategic Management

• Strategic planning starts with defining vision and mission; some theorists argue these elements are integral to the strategic planning process.

• Vision and mission guide strategic plans, ensuring alignment with organizational goals.

Implementation of Strategy

• After formulating strategies, implementation focuses on designing organizations and establishing both formal and informal networks.

• Effective leadership is crucial for executing plans; managers ensure that strategies are implemented correctly through organizing, leading, and controlling.

Long-term Planning Process

• Strategic planning typically spans over three years or more. It involves analyzing data from various sources to create realistic plans for success.

• Objectives set measurable targets that help realize the organization's vision across different types of organizations including for-profits and non-profits.

Formulation vs. Implementation

Distinction Between Formulation and Implementation

• Strategic formulation is about future-focused leadership decisions regarding what initiatives should be prioritized.

• In contrast, strategic implementation ensures current operations align with planned projects at high performance levels.

Types of Strategies

• The focus is primarily on two types of strategies: corporate-level strategy which encompasses all business activities within an organization.

• Corporate strategy serves as a portfolio overview at the top level of an organization; examples like Walmart illustrate this concept effectively.

Understanding Walmart's Corporate and Business Strategies

Overview of Walmart's Diverse Business Portfolio

• Walmart operates a variety of businesses including groceries, clothing, pharmacy services, eye care centers, and banking, all under one corporate umbrella.

• The corporate strategy involves determining which businesses to engage in and how they can synergistically support each other.

Synergy in Business Operations

• Customers can conveniently fulfill multiple needs at Walmart; for example, buying groceries while also cashing a paycheck at the in-store bank.

• This approach creates synergy by offering complementary services that enhance customer experience and drive sales across different business units.

Business Level Strategy Explained

• A business-level strategy consists of strategic alternatives within a specific industry or market context.

• In the banking sector, Walmart competes against traditional banks like Wells Fargo and Chase, which do not offer additional retail services.

Key Concepts: Synergy and Diversification

• Synergy is defined as the interaction between two or more activities that produces an effect greater than their individual contributions (1+1=3).

• An example of synergy is combining eggs and potatoes into a meal that has higher perceived value than the sum of its parts.

Understanding Diversification Strategies

• Diversification refers to the range of different businesses a company engages in and their relatedness.

• Unrelated diversification occurs when companies operate in distinct industries (e.g., Walmart’s grocery vs. banking), while related diversification involves businesses within similar sectors (e.g., Nike’s apparel lines).

Insights from Strategic Management Literature

• Sharon Oster emphasizes that diversification plays a crucial role in creating synergies for companies like Walmart.

• By diversifying into various sectors, Walmart aims to capture more consumer spending across its portfolio.

Tools for Strategic Formulation: SWOT Analysis

• SWOT analysis is introduced as an essential tool for evaluating strengths, weaknesses, opportunities, and threats during strategic planning processes.

What Can Organizations Do?

Understanding Organizational Choices

• The discussion revolves around the strategic choices organizations face, focusing on what they can do, what they want to do, and what is feasible for them to pursue.

• Stakeholders play a crucial role in this decision-making process; they include employees, consumers, and the community who have vested interests in the organization.

SWOT Analysis Overview

• A SWOT analysis evaluates an organization's internal strengths and weaknesses alongside external opportunities and threats. This tool helps identify areas for improvement or potential pursuits.

• Internal attributes are categorized as strengths (what the organization does well) and weaknesses (areas needing improvement), while external factors include opportunities (potential successes) and threats (risks of failure).

Importance of SWOT Analysis

• The SWOT analysis is highlighted as a versatile tool applicable across various fields such as personal development and marketing due to its ability to uncover significant insights quickly.

Additional Analytical Tools

• Other analytical tools mentioned include the value chain analysis and VRIO framework for internal assessments, along with PESTLE analysis for external evaluations.

PESTLE Analysis: Understanding External Factors

Overview of PESTLE Analysis

• PESTLE analysis provides a comprehensive view of the general external environment affecting organizations rather than focusing solely on specific industries.

Components of PESTLE Analysis

• The acronym stands for Political, Economic, Social, Technological, Legal, and Environmental factors that influence organizational strategy:

• Political: Examines local to global political climates impacting operations.

• Economic: Considers economic indicators like GDP growth or decline affecting business viability.

Social Factors Impacting Organizations

• Social dynamics such as generational differences and cultural variations are essential considerations in understanding market behavior.

Technological Considerations

• Technology's impact—especially advancements like AI and big data—is critical in shaping organizational strategies.

Legal Environment Awareness

• Organizations must stay informed about legal changes at various levels that could affect their operations.