In 1970s, businesses adopted a systematic top-down approach to build business strategies and further communicate strategies to executives at the bottom rung of the corporate ladder. It’s a step-by-step process involving essentials 6 steps which are as follows.
- 1. Mission
- 2. Objectives
- 3. Situation analysis
- 4. Strategy formulation
- 5. Implementation
- 6. Control
As you may imagine, this process is most applicable to business units of large conglomerates.
As on a corporate level, executives are more involved to take business-wide decisions like which part of the conglomerate should be the focus, mergers& acquisitions, how to allocate resources for different business functions, and similar decisions. In the further process,
- Mission – This is the step where a company states the reason for its existence. Often this reason is stated in a statement. This also conveys the sense of purpose of company to customers and employees. This part also plays an important part in setting the mood of the company while formulating the business strategy.
- Objectives – This is the step where a company setups measurable and achievable business goals. All business functions are assigned a goal which is expected to be completed in a stipulated time frame.
- Situation Analysis – Once the goals are in place. A company does its research and studies various factors that are important to achieve those goals. Market competition, industry analysis, and other environmental factors. Performing these analyses would reveal areas that can provide opportunities for companies to achieve their goals faster and more sustainably.
Companies also perform internal analysis and see their own limitations and restrictions to see how they can align their resources and achieve their goals.
While performing internal analysis, the following factors are considered important:
2. Company reputation
3. Company culture
4. Market share
5. Operational efficiency
6. Patents and trade secrets
The whole situation analysis process reveals a lot of information. All this information might not be relevant to formulate a strategy. Companies tend to bifurcate this information into strengths and weaknesses while categorizing other information as opportunities and threats. This is commonly referred to as SWOT Analysis.
- Strategy formulation
After a clear picture is available to business strategists, they can come up with strategy to achieve company goals. It’s completely up to the company to devise a plan based on its own strengths and weakness. But a few strategies exist for companies that they can approach in the absence of a better strategy. These strategies are applicable to a wide range of companies and are referred to as Michael Porters’ generic strategies, which include cost leadership, differentiation, and focus.
At any time, only one of these strategies should be pursued.
During any stage of this above process, a business strategy is described in industry jargon and conceptual terms. But at the implementation level, those terms need to be translated to more understandable and executable processes. Essentially, the strategy is broken down into functional levels and communicated to various stakeholders of the business. The overall strategy is broken down into functional levels – marketing, finance, human resources, and research and development.
This stage also highlights inefficiencies of the business strategy which were not visible at higher stages of the planning process.
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There are two major external analyses that companies need to perform: macro-environmental and micro-environmental analysis. Micro environmental analysis includes analyzing factors with the industry in which the company operations while macro-environmental factors take the entire industry into account. Most companies perform political, economic, social, and technological (PEST) analysis to do this.
Finally, once the strategy is implemented companies track the progress of strategy and performance of processes in place. Changes are made as and when required to keep business processes in the direction to achieve set goals. To monitor changes and suggest changes, control systems are put in place.