Strategy Formulation: Definition, Model & Process

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  • 0:29 The Process
  • 1:25 The Process: Steps
  • 2:50 The Process: Strategy
  • 3:40 The Process: Culture
  • 4:20 The Process: Action
  • 5:34 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Ever used a road map to get somewhere? Well, a strategy is a road map for a business. In this lesson, you'll learn about the process of strategy formulation. You'll also have a chance to take a short quiz after the lesson.

What is Strategy Formulation?

A strategy is a broad plan developed by an organization to take it from where it is to where it wants to be. A well-designed strategy will help an organization reach its maximum level of effectiveness in reaching its goals while constantly allowing it to monitor its environment to adapt the strategy as necessary. Strategy formulation is the process of developing the strategy.

The Process

Strategy formulation requires a series of steps performed in sequential order. The steps must be taken in order because they build upon one another. However, there are two processes that are continually performed throughout the strategy formulation: environmental scanning and continuous implementation.

Environmental scanning is simply the process of paying attention to the external environment for factors that may affect your organization's performance, which will need to be addressed in the strategy formulation process. For example, you will pay attention to what your competition is doing and make adjustments to your strategic plan as necessary throughout the process. Continuous implementation is simply implementing parts of the strategy that must take place in order for the next step of the strategy formulation process to be undertaken. The rest of the strategy formulation must be taken in order.

The Process: Steps

The first step is values assessment. Every organization has values, and the strategic plan should align with the organization's values. A value assessment should look into the personal values of the organization's members, organizational values, the organization's operating philosophy, culture and stakeholders.

The second step is vision and mission formulation. Once you have a firm handle on an organization's values, it's time to establish its mission and vision, which is the foundation upon which your strategy will be built.

An effective vision requires a core ideology and an envisioned future. A core ideology is the force that binds the organization together. It consists of core values and core purposes. The core purpose is the organization's raison d'être, or reason for being. It's why the organization even exists - what it's here for. The envisioned future is your conception of where the organization will be at a specific point in time.

The mission statement states the purpose of the organization in express and unequivocal terms. The mission statement helps to determine the allocation of resources, guides your organizational culture, establishes the boundaries of its activities and helps to facilitate accountability, control, time and performance by providing criteria for mission achievement.

The Process: Strategy

The next step is strategy design, which involves four elements. First, you must identify the major lines of your organization's business or activities, called LOBs.

Then, you must establish critical success indicators (CSIs), which are just a way to measure progress towards the organization's mission. Indicators should include a target deadline. Indicators can include such things as the return on investment, profit margins, customer loyalty and employee retention.

Next, you need to identify where you will focus your efforts, known as strategic thrusts. Examples of strategic thrusts include focusing on existing products and services, development of joint ventures and strategic alliances, diversification or liquidation.

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