Strategy Formulation

strategy formulation:situation analysis and Business Strategy

Midamar Corporation is a family-owned company in Cedar Rapids, Iowa, that
has carved out a growing niche for itself in the world food industry: supplying
food prepared according to strict religious standards. The company specializes
in halal foods, which are produced and processed according to Islamic law for sale
to Muslims. Why did it focus on this one type of food? According to owner-founder
Bill Aossey, “It’s a big world, and you can only specialize in so many places.”
Although halal foods are not as widely known as kosher foods (processed according to
Judaic law), their market is growing along with Islam, the world’s fastest-growing religion.
Midamar purchases halal-certified meat from Midwestern companies certified to conduct halal processing. Certification requires practicing Muslims schooled in halal processing to slaughter the livestock and to oversee meat and poultry processing.
Aossey is a practicing Muslim who did not imagine such a vast market when he founded his business in 1974. “People thought it would be a passing fad,” remarked Aossey. The company has grown to the point where it now exports halal-certified beef, lamb, and poultry to hotels, restaurants, and distributors in 30 countries throughout Asia, Africa, Europe, and North America. Its customers include McDonald’s, Pizza Hut, and KFC. McDonald’s, for example, uses Midamar’s turkey strips as a bacon-alternative in a breakfast product in Singapore.
Midamar is successful because its chief executive formulated a strategy designed to give it an advantage in a very competitive industry. It is an example of a differentiation focus competitive strategy in which a company focuses on a particular target market to provide a differentiated product or service. This strategy is one of the business competitive strategies .

Situational Analysis: SWOT Analysis

Strategy formulation, often referred to as strategic planning or long-range planning, is concerned with developing a corporation’s mission, objectives, strategies, and policies. It begins with situation analysis: the process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. As shown in the Strategic Decision-Making Process in Figure 1–5, step 5(a) is analyzing strategic factors in light of the current situation using SWOT analysis. SWOT is an acronym used to describe the particular Strengths,Weaknesses,Opportunities, and Threats that are strategic factors for a specific company. SWOT analysis should not only result in the identification of a corporation’s distinctive competencies—the particular capabilities and resources that a firm possesses and the superior way in which they are used—but also in the identification of opportunities that the firm is not currently able to take advantage of due to a lack of appropriate resources. Over the years,
SWOT analysis has proven to be the most enduring analytical technique used in strategic management.
For example, in a 2007 McKinsey & Company global survey of 2,700 executives, 82% of the executives stated that the most relevant activities for strategy formulation were evaluating the strengths and weaknesses of the organization and identifying top environmental trends affecting business unit performance over the next three to five years.2 A 2005 survey of competitive intelligence professionals found that SWOT analysis was used by 82.7% of the respondents, the second most frequently used technique, trailing only competitor analysis.It can be said that the essence of strategy is opportunity divided by capacity.4 An opportunity by itself has no real value unless a company has the capacity (i.e., resources) to take advantage of that opportunity. This approach, however, considers only opportunities and strengths when considering alternative strategies. By itself, a distinctive competency in a key resource or capability is no guarantee of competitive advantage. Weaknesses in other resource areas can prevent a strategy from being successful. SWOT can thus be used to take a broader view of strategy through the formula SAO/(S – W) that is, (Strategic Alternative equals Opportunity divided by Strengths minus Weaknesses). This reflects an important issue strategic managers face: Should we invest more in our strengths to make them even stronger (a distinctive
competence) or should we invest in our weaknesses to at least make them competitive?
SWOT analysis, by itself, is not a panacea. Some of the primary criticisms of SWOT
analysis are:
It generates lengthy lists.
It uses no weights to reflect priorities.
It uses ambiguous words and phrases.
The same factor can be placed in two categories (e.g., a strength may also be a weakness).
There is no obligation to verify opinions with data or analysis.
It requires only a single level of analysis.
There is no logical link to strategy implementation.

Review of Mission and Objectives

A reexamination of an organization’s current mission and objectives must be made before alternative strategies can be generated and evaluated. Even when formulating strategy, decision makers tend to concentrate on the alternatives—the action possibilities—rather than on a mission to be fulfilled and objectives to be achieved. This tendency is so attractive because it is much easier to deal with alternative courses of action that exist right here and now than to really think about what you want to accomplish in the future. The end result is that we often choose strategies that set our objectives for us rather than having our choices incorporate clear objectives and a mission statement.

Problems in performance can derive from an inappropriate statement of mission, which
may be too narrow or too broad. If the mission does not provide a common thread (A unifying theme) for a corporation’s businesses, managers may be unclear about where the company is heading. Objectives and strategies might be in conflict with each other. Divisions might be competing against one another rather than against outside competition—to the detriment of the corporation as a whole.
A company’s objectives can also be inappropriately stated. They can either focus too much on short-term operational goals or be so general that they provide little real guidance. There may be a gap between planned and achieved objectives. When such a gap occurs, either the strategies have to be changed to improve performance or the objectives need to be adjusted downward to be more realistic. Consequently, objectives should be constantly reviewed to ensure their usefulness.
This is what happened at Boeing when management decided to change its primary objective from being the largest in the industry to being the most profitable. This had a significant effect on its strategies and policies. Following its new objective, the company cancelled its policy of competing with Airbus on price and abandoned its commitment to maintaining a manufacturing capacity that could produce more than half a peak year’s demand for airplanes.

Generating Alternative Strategies by Using a TOWS Matrix

Thus far we have discussed how a firm uses SWOT analysis to assess its situation. SWOT can also be used to generate a number of possible alternative strategies. The TOWS Matrix (TOWS is just another way of saying SWOT) illustrates how the external opportunities and threats facing a particular corporation can be matched with that company’s internal strengths and weaknesses to result in four sets of possible strategic alternatives. This is a good way to use brainstorming to create alternative strategies that might not otherwise be considered. It forces strategic managers to create various kinds of growth as well as retrenchment strategies. It can be used to generate corporate as well as business strategies.

To generate a TOWS Matrix for Maytag Corporation in 1995, for example, take the following steps:

  1. In the Opportunities (O) block, list the external opportunities available in the company’s or business unit’s current and future environment from the EFAS Table
  2. In the Threats (T) block, list the external threats facing the company or unit now and in the future from the EFAS Table
  3. In the Strengths (S) block, list the specific areas of current and future strength for the company or unit from the IFAS Table
  4. In the Weaknesses (W) block, list the specific areas of current and future weakness for the company or unit from the IFAS
  5. Generate a series of possible strategies for the company or business unit under consideration based on particular combinations of the four sets of factors:
    SO Strategies are generated by thinking of ways in which a company or business unit could use its strengths to take advantage of opportunities.
    ST Strategies consider a company’s or unit’s strengths as a way to avoid threats.
    WO Strategies attempt to take advantage of opportunities by overcoming weaknesses.
    WT Strategies are basically defensive and primarily act to minimize weaknesses and avoid threats.

Business Strategies

Business strategy focuses on improving the competitive position of a company’s or business unit’s products or services within the specific industry or market segment that the company or business unit serves. Business strategy is extremely important because research shows that business unit effects have double the impact on overall company performance than do either corporate or industry effects.9 Business strategy can be competitive (battling against all competitors for advantage) and/or cooperative (working with one or more companies to gain advantage against other competitors). Just as corporate strategy asks what industry(ies) the company should be in, business strategy asks how the company or its units should compete or cooperate in each industry

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