Strategy Formulation

Definition:
• Strategy formulation is the process of using available information to set the strategic
direction of a business. It involves decision-making related to goals, resource
allocation, and the path to achieving success.
Key Elements of Strategy Formulation:
1.Defining Vision and Mission – Establishing long-term objectives.
2.Situational Analysis – Examining internal and external environments (SWOT,
PESTEL analysis).
3.Setting Strategic Goals – Developing specific, measurable, achievable, relevant,
and time-bound (SMART) objectives.
4.Resource Allocation – Determining the required financial, technological, and human
resources.
5.Risk Assessment – Identifying and preparing for possible risks.
• Strategy formulation is a process guiding top management in defining the
company’s business objectives and devising means to achieve them.
• Respond effectively to dynamic environments.
• Align internal capabilities with external opportunities.

• Strategy formulation is central to long-term organizational success. It

involves a deep understanding of internal resources and external
environmental conditions to chart a clear roadmap for achieving goals.
• Example: Companies like Apple focus on continuous innovation, aligning
internal strengths (R&D capabilities) with external trends (consumer
demand for cutting-edge technology).
Examples of Strategy Formulation:
1. Netflix: Transition from DVD Rentals to Streaming
• Vision & Mission: Netflix started as a DVD rental company but saw the rise of digital
content consumption.
• Situational Analysis: They analyzed consumer behavior and realized that streaming
would dominate the future.
• Strategic Goal: Transition from DVD rentals to a subscription-based streaming model.
• Resource Allocation: Invested heavily in content acquisition, technology
infrastructure, and R&D.
• Risk Assessment: Potential loss of existing DVD-rental customers and competition
from cable TV networks.
• Outcome: The strategy formulation led to Netflix becoming a global leader in
streaming entertainment.
2. Tesla: Entering the Electric Vehicle (EV) Market
• Vision: “To accelerate the world’s transition to sustainable energy.”
• Situational Analysis: Recognized the shift in consumer demand for eco-
friendly vehicles.
• Strategic Goal: Create a high-performance electric vehicle market.
• Resource Allocation: Focused on R&D, battery technology, and charging
infrastructure.
• Risk Assessment: High production costs, skepticism about EVs, and
competition from traditional automakers.
• Outcome: Tesla's well-formulated strategy helped it dominate the EV industry
worldwide.
Strategy Implementation
Definition:
• Strategy implementation is the process of executing the formulated strategy through
practical actions, policies, and resource management to achieve desired business goals.
• Key Elements of Strategy Implementation:
1.Organizational Structure: Assigning responsibilities and authority to execute plans.
2.Leadership and Communication: Ensuring clear instructions, training, and motivation.
3.Performance Monitoring: Tracking progress using KPIs and feedback mechanisms.
4.Resource Utilization: Effective allocation of financial, human, and technological
resources.
5.Adaptability and Flexibility: Adjusting strategies in response to market changes.
• Examples of Strategy Implementation:
1. Apple: Implementation of a Premium Branding Strategy
• Organizational Structure: Apple maintained a centralized, hierarchical structure
to control quality.
• Leadership & Communication: Steve Jobs emphasized innovation and user
experience.
• Performance Monitoring: Focused on customer satisfaction, market share, and
profit margins.
• Resource Utilization: Invested heavily in design, research, and marketing.
• Adaptability: Shifted to services like iCloud and Apple Music when iPhone sales
slowed.
• Outcome: Apple’s execution of its strategy cemented its position as a premium
brand, allowing it to command high profit margins.
2. Starbucks: Global Expansion and Digital Transformation
• Organizational Structure: Created regional teams to oversee different markets.
• Leadership & Communication: Trained employees (baristas) in customer
service excellence.
• Performance Monitoring: Tracked store performance, customer satisfaction,
and digital engagement.
• Resource Utilization: Invested in digital payment systems, mobile apps, and AI-
driven personalization.
• Adaptability: Introduced new products (e.g., oat milk, plant-based options)
based on customer preferences.
• Outcome: Successful expansion into international markets and growth in digital
sales.
 Key Differences Between Strategy Formulation and Implementation
Aspect Strategy Formulation Strategy Implementation
Definition Planning and decision-making to set Executing and operationalizing the
goals and strategic direction. planned strategy.
Focus Long-term vision and roadmap. Short-term execution and adaptation.

Nature of Activity Entrepreneurial and innovative thinking. Administrative and operational execution.

Process Analytical (conducting SWOT, PESTEL analysis, Practical (assigning roles, managing
setting goals). resources, ensuring performance).

Coordination Required Involves senior executives and strategy teams. Involves entire organization, including
managers and employees.
Leadership, communication, change
Skills Needed Strategic thinking, risk assessment, vision-setting. management, and performance
monitoring.
Tesla’s execution of building giga factories,
Example Tesla’s decision to enter the EV market. expanding the Supercharger network, and
launching new models.
Challenges in Strategy Formulation and Implementation
• Challenges in Formulation:
1. Uncertainty in Market Trends: Rapid technological changes make planning difficult.
2. Resource Constraints: Limited capital, labor, or infrastructure.
3. Resistance to Change: Employees and stakeholders may oppose new directions.
4. Incorrect Assumptions: Over-reliance on historical data may lead to flawed strategies.

• Challenges in Implementation:
1. Poor Communication: If employees do not understand the strategy, execution will fail.
2. Inefficient Resource Allocation: Budget mismanagement or workforce misalignment.
3. Lack of Accountability: Without clear responsibility, tasks remain incomplete.
4. Rigid Structure: Lack of flexibility makes adapting to unforeseen challenges difficult.
5. How to Improve Strategy Formulation and Implementation?
a. Best Practices for Strategy Formulation:
• Conduct thorough market research and competitive analysis.
• Use frameworks like SWOT, PESTEL, and Porter’s Five Forces for strategic
insights.
• Set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) objectives.

b. Best Practices for Strategy Implementation:

• Establish clear leadership and accountability.
• Use KPIs (Key Performance Indicators) to track progress.
• Encourage continuous feedback and flexibility in execution.
• Invest in employee training and technology for seamless execution.
Transitioning from Strategy Formulation to Implementation
• Successfully moving from strategy formulation to implementation is crucial for achieving organizational goals. The
following steps, supported by real-world examples, can guide this transition:
1. Set Clear Goals
• Explanation: Establishing measurable, actionable objectives aligned with the organization's mission ensures that all team
members understand the targets and can work cohesively towards them.
• Example: In 2014, Google set a clear goal to make its services more accessible in emerging markets. This led to the
development of the Android One program, aiming to provide affordable smartphones with a consistent user experience.
By setting this clear objective, Google streamlined efforts across various departments to successfully penetrate new
markets.
2. Create a Value Map
• Explanation: A value map visually represents the factors that influence customers' willingness to pay for a product or
service. It helps organizations identify and prioritize value drivers to enhance their offerings.
• Example: Tesla utilizes a value map to understand customer priorities such as performance, design, and sustainability. By
focusing on these value drivers, Tesla has been able to position its electric vehicles as premium products, commanding
higher price points and fostering brand loyalty.
3. Strengthen Important Value Drivers
• Explanation: After identifying key value drivers, organizations should focus on enhancing the most critical ones to
differentiate themselves from competitors.
• Example: Apple emphasizes design and user experience as primary value drivers. By investing heavily in product design
and intuitive interfaces, Apple differentiates its products in the crowded consumer electronics market, leading to a loyal
customer base and robust sales.
4. Create a Plan for Evolving Your Value Proposition
• Explanation: As markets and consumer preferences change, organizations must adapt their value propositions
to stay relevant and competitive.
• Example: Netflix began as a DVD rental service but evolved its value proposition by transitioning to streaming
and investing in original content. This shift not only met changing consumer preferences but also positioned
Netflix as a leader in the entertainment industry.
5. Delegate Work Effectively
• Explanation: Effective delegation involves assigning tasks to team members based on their strengths and
expertise, ensuring efficient execution of the strategy.
• Example: At Procter & Gamble (P&G), the company employs a decentralized management structure,
empowering brand managers to make decisions for their specific product lines. This approach allows P&G to
respond swiftly to market changes and maintain a diverse and successful product portfolio.
6. Continue to Review Performance
• Explanation: Regularly monitoring and assessing performance ensures that the strategy remains effective and
allows for timely adjustments.
• Example: Amazon continuously reviews performance metrics such as delivery times, customer satisfaction,
and inventory levels. This relentless focus on performance enables Amazon to optimize its operations and
maintain its position as a leader in e-commerce.
• Example of Strategy Formulation and Implementation: Starbucks' Global
Expansion Strategy
Step 1: Strategy Formulation
• Starbucks formulated a strategy to expand its global footprint while maintaining
its premium coffee brand image. The key elements of this strategy included:
1.Market Expansion – Entering emerging markets such as China, India, and
Africa.
2.Localization Strategy – Adapting product offerings to local tastes (e.g., Green
Tea Frappuccino in China).
3.Technology Integration – Enhancing the Starbucks mobile app for seamless
customer engagement.
4.Sustainability and Ethical Sourcing – Committing to 100% ethically sourced
coffee to build brand trust.
• Step 2: Strategy Implementation
• To execute the formulated strategy, Starbucks took the following actions:
1. Global Expansion Execution
1. Partnered with Tata Group in India to navigate local regulations and establish stores efficiently.
2. Opened 6,000 stores in China by 2022, positioning itself as a premium café experience rather than just a
coffee chain.
2. Localization Strategy Execution
1. Introduced Red Bean Latte in China to cater to local preferences.
2. Designed spacious stores in the Middle East to accommodate large gatherings, a common social culture.
3. Technology Integration Execution
1. Expanded mobile ordering and digital payments through the Starbucks app, improving customer
convenience.
2. Implemented AI-driven inventory management to reduce waste and improve supply chain efficiency.
4. Sustainability and Ethical Sourcing Execution
1. Partnered with Fair Trade organizations to ensure ethical coffee sourcing.
2. Invested in European and American markets' reusable cup initiatives and eco-friendly packaging.
Outcome & Performance Monitoring
• Revenue Growth: Global revenue increased from $16 billion in 2014 to over $32 billion in 2022.
• Customer Base Expansion: The Starbucks Rewards program grew to nearly 30 million
members.
• Sustainability Milestones: Reduced carbon emissions by 50% by 2030 goal set in motion.

Sustainable Coffee Sourcing & Agriculture

• Investment in Regenerative Agriculture: Starbucks is funding sustainable farming practices
through its Farmer Support Centers worldwide. These centers help coffee farmers adopt
techniques that improve soil health and carbon sequestration.
• Ethical Sourcing: 99% of Starbucks’ coffee is now sourced under C.A.F.E. (Coffee and Farmer
Equity) Practices, ensuring lower carbon footprints in farming.
• Reforestation Initiatives: Starbucks is actively supporting tree planting projects in coffee-growing
regions to offset emissions.
• Example: Starbucks partnered with Conservation International to help coffee farmers in Latin
America plant shade trees, which absorb carbon dioxide and reduce deforestation.
Lessons from Starbucks’ Strategy Implementation
• Adaptation is Key: Starbucks localized its offerings in different markets while
maintaining brand consistency.
• Technology Drives Growth: Mobile ordering and digital payments fueled
customer loyalty and repeat business.
• Ethical Practices Enhance Brand Value: Sustainability commitments
improved public perception and long-term profitability.

This example showcases how strategy formulation and implementation must

align to drive a company’s global success.
• Importance of Environmental Analysis in Strategy Formulation
• Environmental analysis plays a critical role in ensuring that strategic plans align with
market demands and organizational goals.
• Continuous Study of the Environment:
• Benefits: Identifies potential impacts and serves as a trigger for necessary strategy changes.
• Example: Prolonged study of e-commerce trends led companies like Walmart to invest in online
platforms to compete with Amazon.
• Perceived Environmental Causes for Changes:
• Internal Triggers: Organizational restructuring, leadership changes, or operational
inefficiencies.
• External Triggers: Entry of competitors, technological advancements, or changes in
government policies.
• Case Study: Reliance Industries studied the impact of government decisions regarding
international loans, leading to strategic evaluations beyond immediate business
concerns.
• Key Steps in Environmental Analysis
1.Study of the Environment:
• Definition: A systematic examination of external and internal factors influencing the organization.
• Key Aspects:
• Formal or informal studies based on the size and philosophy of the organization.
• Focus on identifying opportunities, threats, strengths, and weaknesses.
Example: Starbucks continuously studies global coffee trends to adapt its offerings to evolving
consumer preferences.
2.Trigger Events:
• Definition: Specific occurrences that necessitate environmental analysis.
• Types:
• External: Regulatory changes, economic shifts, technological innovations.
• Internal: Leadership changes, mergers, or operational inefficiencies.
Examples:
External: Government regulation of cryptocurrencies impacting fintech companies.
Internal: Organizational restructuring prompting operational realignments.
3. Collection and Analysis of Data:
• Definition: Gathering and interpreting relevant data to inform strategic decisions.
• Approach:
 Use quantitative and qualitative methods to ensure comprehensive insights.
 Employ tools like SWOT analysis, PESTEL analysis, and Porter’s Five Forces.
Example: Tesla’s focus on battery technology innovations to maintain its competitive edge in the electric vehicle
market.
4. Translation into Strategy:
• Definition: Converting environmental insights into actionable strategic plans.
• Process:
 Prioritize key findings from data analysis.
 Develop strategies addressing identified opportunities and threats.
Example: Google’s diversification into AI and cloud computing is based on emerging technological trends.
5. Presentation to Decision Makers:
• Definition: Communicating insights and recommendations to top management for informed decision-making.
• Best Practices:
• Use clear visuals and concise summaries to present findings.
• Align recommendations with organizational goals and priorities.
Example: A comprehensive presentation of sustainability initiatives to the board, as seen in Nike’s shift toward carbon
neutrality.
• Factors Influencing Environmental Analysis
1.Managerial Philosophy:
• Forward-looking managers actively engage with external opportunities.
Example: Jeff Bezos’ emphasis on future growth led to Amazon’s long-term
investments in AWS.
2.Organizational Age:
• Mature organizations often rely on streamlined information due to
experience.
3.Size and Power:
• Larger organizations interact more intensively with their environment.
Example: Apple’s regulatory compliance across different countries.
Balanced Score Card: Performance Metrics
• The Balanced Scorecard (BSC) Approach
The Balanced Scorecard (BSC) is a strategic planning and performance
management tool that helps organizations align business activities with vision
and strategy, improve internal and external communications, and monitor
organizational performance against strategic goals.
1. Origins of the Balanced Scorecard
The concept was introduced by Robert Kaplan and David Norton in the early
1990s as a response to the limitations of traditional financial performance
measures. It recognizes that financial performance alone does not provide a
complete picture of an organization’s health and effectiveness.
2. Four Perspectives of the Balanced Scorecard
• The BSC includes four key perspectives, each of which provides a different viewpoint on
organizational performance:
A. Financial Perspective – "How do we look to our shareholders?"
• Traditional financial metrics such as revenue growth, profitability, return on investment
(ROI), and cost management.
• Example KPIs: Net Profit Margin, Earnings Per Share (EPS), Revenue Growth Rate.
• Case Example: Amazon focuses on free cash flow rather than short-term profits, allowing
it to invest in long-term growth strategies.
B. Customer Perspective – "How do customers see us?"
• Measures related to customer satisfaction, retention, and acquisition.
• Example KPIs: Net Promoter Score (NPS), Customer Retention Rate, Market Share.
• Case Example: Apple’s focus on premium customer experience through seamless
integration of hardware, software, and services.
C. Internal Business Processes Perspective – "What must we excel at?"
• Examines operational efficiency, innovation, and quality control.
• Example KPIs: Production Efficiency, Order Fulfillment Cycle Time, R&D Spend
Effectiveness.
• Case Example: Toyota’s Just-in-Time (JIT) production system ensures high efficiency
and minimal waste.
D. Learning and Growth Perspective – "Can we continue to improve and create
value?"
• Focuses on employee development, innovation, and organizational culture.
• Example KPIs: Employee Satisfaction Index, Training Hours per Employee, Innovation
Index.
• Case Example: Google invests heavily in employee development and innovation,
leading to groundbreaking products like Google Cloud and AI-driven solutions.
• Structure of the Balanced Scorecard: examples
1. The Balanced Scorecard is made up of four perspectives: financial, customer, internal processes, and learning and
growth.
Financial perspective: The objectives of this perspective are often linked to financial results such as profitability,
revenues, and return on investment. How is the company perceived by its shareholders, and what are its financial
results?
Examples of KPIs are revenue, gross margin, return on investment (ROI), and cost of customer acquisition.
2. Customer perspective: This perspective focuses on how the organization is perceived by its customers, with
indicators such as customer satisfaction and loyalty rates. How is the company perceived by its customers, and
what are its objectives in terms of customer satisfaction?
Examples of KPIs: customer satisfaction rate, customer loyalty rate, conversion rate from prospects to
customers.
3. Internal Process Perspective: The objectives of this perspective relate to the effectiveness and efficiency of the
organization’s internal processes, such as production cycle time and defect rate. Which internal processes must be
improved to achieve the company's objectives?
Examples of KPIs: production cycle time, percentage of defective products, response time to customer service
requests.
4. Learning and Growth Perspective: This perspective focuses on the organization’s ability to innovate and learn,
with indicators such as training expenditure per employee and the number of new products launched. How can the
company improve, innovate, and create value in the future?
Examples of KPIs: training expenditure per employee, percentage of employees undergoing training each year,
and number of new products or services launched each year.
How the Balanced Scorecard Aligns Strategy Formulation and
Implementation?
• Strategy Formulation: The BSC ensures that strategic objectives are set across
multiple dimensions rather than focusing solely on financial outcomes.
• Strategy Implementation: The BSC translates vision and strategy into actionable
goals and KPIs for different departments, ensuring a structured approach.
• Steps to Implement a Balanced Scorecard
Define Strategic Objectives – Align with the organization’s vision and mission.
Identify Key Performance Indicators (KPIs) – Set measurable goals for each
perspective.
Develop Action Plans – Assign responsibility and timelines.
Monitor and Review Performance – Regularly track progress and make
adjustments.
Real-World Case Study: Starbucks’ Implementation of the Balanced Scorecard
Company Background: Starbucks is a global leader in the coffee retail business, with a focus on premium experiences
and ethical sourcing.
Starbucks’ Balanced Scorecard Implementation

Perspective Strategic Objective KPI Used Implementation Example

Financial Increase global revenue and Revenue Growth Rate, Expansion into high-growth
profitability Gross Profit Margin markets like China and India

Customer Enhance customer Customer

Rate, Net
Retention Personalized offers through
Promoter the Starbucks Rewards app
experience and loyalty Score

Internal Processes Improve supply chain Order Fulfillment Time, AI-driven

forecasting to
demand
reduce
efficiency Waste Reduction Rate inventory costs

College tuition
Learning & Growth Invest in employee training Employee Satisfaction reimbursement for
and well-being Score, Training Hours employees and leadership
development programs
Outcome of Starbucks’ Balanced Scorecard Strategy
• Financial Success: Starbucks’ revenue grew from $16 billion in 2014 to
over $32 billion in 2022.
• Customer Loyalty: The Starbucks Rewards program exceeded 30 million
members, driving repeat business.
• Operational Efficiency: AI-driven inventory management reduced waste and
optimized supply chains.
• Workforce Development: Investing in employee benefits and training led to
higher engagement and productivity.
Benefits of the Balanced Scorecard
• Holistic Performance Measurement: The BSC enables companies to track a
wide range of performance indicators, not just financial measures. This gives a
more complete picture of the health and performance of the business.
Incorporates financial and non-financial metrics.
• Strategic Alignment: Ensures all departments work toward common strategic
objectives. BSC helps to align the company's objectives and initiatives with its
overall vision and strategy.
• Enhances Decision-Making: Provides data-driven insights for management.
• Encourages Continuous Improvement: Promotes long-term growth and
adaptability.
• Communication and understanding: BSC makes communicating and
understanding the company's strategy easier for all staff.
Limitations of the Balanced Scorecard Balanced Scorecard

Complexity: Setting up and managing a BSC can be complex and require

a lot of time and resources. This can be particularly difficult for small
businesses.
• Choice of indicators: Choosing the right performance indicators can be
challenging. Poorly chosen indicators can give a distorted picture of the
company's performance.
• Overweighting of quantitative measures: Although BSC encourages
the use of a variety of performance indicators, it can still favor
quantitative measures over qualitative ones.
• The Balanced Scorecard is a powerful tool that bridges the gap between
strategy formulation and execution. By integrating financial and non-financial
perspectives, organizations like Starbucks, Amazon, and Toyota have
successfully implemented BSC to achieve sustainable growth and
competitive advantage.