Strategy formulation is vital to the well-being of a company or organization.
There are two major types of strategy:
(1) Corporate strategy, in which companies decide which line or lines of business to engage in.
(2) Business or competitive strategy, which sets the framework for achieving success in a particular business. While business strategy often receives more attention than corporate strategy, both forms of strategy involve planning, industry/market analysis, goal setting, commitment of resources, and monitoring.
The formulation of sound strategy may be seen as having six important steps:
1. The company or organization must first choose the business or businesses in which it wishes to engage—in other words, the corporate strategy.
2. The company should then articulate a “mission statement” consistent with its business definition.
3. The company must develop strategic objectives or goals and set performance objectives (e.g., at least 15 percent sales growth each year).
4. Based on its overall objectives and an analysis of both internal and external factors, the company must create a specific business or competitive strategy that will fulfill its corporate goals (e.g., pursuing a market niche strategy, being a low-cost, high-volume producer).
5. The company then implements the business strategy by taking specific steps (e.g., lowering prices, forging partnerships, entering new distribution channels).
6. Finally, the company needs to review its strategy’s effectiveness, measure its own performance, and possibly change its strategy by repeating some or all of the above steps.