After the managers involved in the strategic management process have analyzed the environment and determined organizational direction through the development of a mission statement and organizational objective, they are ready to formulate strategy. STRATEGY FORMULATION is the process of determining appropriate courses of action for achieving organizational objectives and thereby accomplishing organizational purpose. Managers formulate strategies that reflect environmental analysis, lead to fulfillment of organizational mission, and result in reaching organizational objectives. Special tools they can use to assist them in formulating strategies include the following: These 4 strategy development tools are related but distinct. Managers should use the tools or combination of tools that seems most appropriate for them and their organizations. CRITICAL QUESTION ANALYSIS: The 4 critical questions to be answered here are: SWOT ANALYSIS: SWOT Analysis is a strategic development tool that matches internal organizational strengths and weaknesses with external opportunities and threats. SWOT is an acronym for the organization's Strengths, Weakness, Opportunities and Threats. It is based on the assumption that if managers carefully review such strengths, weaknesses, opportunities and threats, a useful strategy for ensuring organizational success will become evident to them. BUSINESS PORTFOLIO ANALYSIS: Business Portfolio Analysis is an organizational strategy formulation technique that is based on the philosophy that Organizations should develop strategy much as they handle investment portfolios. In the way, in which the sound financial investments should be supported and unsound ones discarded, sound organizational activities should be emphasized and unsound ones deemphasized. 2 Business Portfolio tools are: BCG Growth-Share Matrix: The Boston Consulting Group, a leading consulting firm, developed and popularized a portfolio analysis tools that helps managers develop organizational strategy based on market share of businesses and the growth of markets in which businesses exist. The 1st step in using this model is identifying the organization's strategic business units (SBUs). A Strategic business Unit is a significant organization segment that is analysed to develop organizational strategy aimed at generating future business or revenue. Exactly what constitutes as SBU varies from company to company. In bigger organizations, and SBU could be a company division, a single product or a complete Product Line. In smaller organizations, it might be the entire company. Eventhough they vary drastically in form each SBU has the following characteristics: After identifying the SBUs, the next step is to categorize each SBU within one of the 4 Matrix Quadrants: PITFALLS of the BCG Growth Matrix Model: The matrix does not consider factors like: GE Multifactor Portfolio Matrix: GE Multifactor Portfolio Matrix is a tools that helps managers develop organizational strategy that is based primarily on market attractiveness and business strengths. The GE Multifactor Portfolio was deliberately designed to be more complete than the BCG Growth Share Matrix. Each of the organization's SBUs are plotted on a 2 dimensional matrix of Industry Attractiveness and Business Strength. Each of these 2 dimensions are a composite of a variety of factors that each firm must determine for itself, given its own unique situation. As examples, Industry Attractiveness might be determined by such factors as: Business Strengths might be determined by such factors as: Specific strategies for a company are implied by where their businesses fall on the matrix. While portfolio models are useful frameworks and reference points, no model is yet designed that will deal with all the various dynamics involved in an organization and an industry and the changing environment. Hence Portfolio models should never be applied in a mechanistic fashion and sound managerial judgement and experience is to be applied alongwith. PORTERS MODEL FOR INDUSTRY ANALYSIS: Perhaps the best known tool for formulating strategy is the model developed by Michael E. Porter, an internationally acclaimed strategic management expert. Essentially, Porter's model outlines the primary forces that determine competitiveness within an industry and illustrates how those forces are related. The model suggests that in order to develop effective organizational strategies, managers must understand and react to those forces within an industry that determine an organization's level of competitiveness within that industry. According to these model, competitiveness within an industry is determined by the following factors: According to the model, buyers, product substitutes, supplier and potential new companies within an Industry all contribute to the level or rivalry among industry firms. MANAGEMENT INNOVATIONS managementinnovations2020@gmail.com; manojonkar@gmail.com 919375970812
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Tuesday, December 9, 2008
STRATEGY FORMULATION TOOLS
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