Understanding the Definition of Strategy Formulation

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Strategic formulation is the process of determining appropriate courses of action for achieving organisational objectives and thereby accomplishing organisational purpose. In a business context, it means what are the products and services the organisation will deliver, what type of market they will entry, which capabilities are required, how will they allocate the resources, and what the returns organisational seeks? Strategic formulation is very important as it is the crucial part in the strategic management. A good and effective strategy is very important to the organisation because it helps the organisation handle threats, seeking and grab the opportunities, and solve the weeknesses and enhance the strengths of the organization in order to survive in the competitive environment. 3.1 Distinction between Business Strategy and Corporate Strategy Business strategy is a long-term plan of action designed to achieve a particular goal or objectives. Corporate strategy is the scope of the different industries and markets the organization competes within in order to achieve its organizational purpose. Normally, corporate strategy is supposed to be determined before the marketing strategy. In strategy formulation, it must included three stages of strategy. There are business level strategy, corporate level strategy, and international or globalisation level strategy. 3.2.1 Business Level Strategy Business level strategy is an integrated and coordinated set of commitments and action of the organisation uses to gain a competitive advantage by exploiting major competencies in specific products and services. It is concerned with how the organization business competes in a specific market. It also concerned the strategic decisions about the product choices, meet the customer expectations, exploiting or creating new opportunities, and gaining competitive advantages. Besides, it is refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. According to Michael Porter, an organisation must formulate their business strategy into three generic strategies to achieve a sustainable competitive advantage and long-term success. The three generic strategies are cost leadership, differentiation strategy, and focus strategy. 3.2.2 Cost Leadership The first generic strategies in business level strategy which are identified as Porter’s Five Forces is known as cost leadership strategy. Cost leadership is involving a firm being the lowest cost producer within the industry. This allows the firms to outperform rivals within the industry because it can be charged in lower prices. Although, the firm charge in lowest cost base, it stills can earn a profit. A dominant market share allows the firm to accumulate the greatest experience and the market share can continuing to grow to increase the cost advantages. A strategy of growth which enhance the accumulative experience and further lowers costs. A cost leadership strategy allows an organization to generate above-average profits even it is intensive rivalry. A low cost producer will be in a better position in relation to the threats of new entrants and or substitutes. Cost leadership risks can be expensive as the organisation continually updates the capital equipments. The activities of the cost leader maybe easy to imitate. 3.2.3 Differentiation Strategy Differentiation strategy is aimed at a broad market and involve the organisation competing on the basis of a unique or different product which is sufficiently valued by customers for them to pay a premium price.

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