Assignment 2

Q1 Examine the Strategy formulation process in detail.

Strategy Formulation is an analytical process of selection of the best suitable course of action to
meet the organizational objectives and vision. Strategic management process is the best step if
compare it with other.  The strategic plan allows an organization to examine its resources,
provides a financial plan and establishes the most appropriate action plan for increasing profits.
It is examined through SWOT analysis. SWOT is an acronym for strength, weakness,
opportunity and threat. The strategic plan should be informed to all the employees so that they
know the company’s objectives, mission and vision. It provides direction and focus to the
employees.

Steps of Strategy Formulation

The steps of strategy formulation include the following:

1- Establishing Organizational Objectives

This involves establishing long-term goals of an organization. Strategic decisions can be
taken once the organizational objectives are determined. The key component of any
strategy statement is to set the long-term objectives of the organization. It is known that
strategy is generally a medium for realization of organizational objectives. Objectives
stress the state of being there whereas Strategy stresses upon the process of reaching
there. Strategy includes both the fixation of objectives as well the medium to be used to
realize those objectives. Thus, strategy is a wider term which believes in the manner of
deployment of resources so as to achieve the objectives. While fixing the organizational
objectives, it is essential that the factors which influence the selection of objectives must
be analyzed before the selection of objectives. Once the objectives and the factors
influencing strategic decisions have been determined, it is easy to take strategic decisions.

2- Analysis of Organizational Environment:

This involves SWOT analysis, meaning identifying the company’s strengths and
weaknesses and keeping vigilance over competitors’ actions to understand opportunities
and threats. Strengths and weaknesses are internal factors which the company has control
 over. Opportunities and threats, on the other hand, are external factors over which the
company has no control. A successful organization builds on its strengths, overcomes its
weakness, identifies new opportunities and protects against external threats.

3- Forming quantitative goals:

Defining targets so as to meet the company’s short-term and long-term objectives.

Example, 30% increase in revenue this year of a company. an organization must
practically fix the quantitative target values for some of the organizational objectives.
The idea behind this is to compare with long term customers, so as to evaluate the
contribution that might be made by various product zones or operating departments.

4- Objectives in context with divisional plans:

This involves setting up targets for every department so that they work in coherence with
the organization as a whole. the contributions made by each department or division or
product category within the organization is identified and accordingly strategic planning
is done for each sub-unit. This requires a careful analysis of macroeconomic trends.

5- Performance Analysis:

This is done to estimate the degree of variation between the actual and the standard
performance of an organization. Performance analysis includes discovering and analyzing
the gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions must
be done by the organization. This critical evaluation identifies the degree of gap that
persists between the actual reality and the long-term aspirations of the organization. An
attempt is made by the organization to estimate its probable future condition if the current
trends persist.

6- Selection of Strategy:

This is the final step of strategy formulation. It involves evaluation of the alternatives and
selection of the best strategy amongst them to be the strategy of the organization. This is
 the ultimate step in Strategy Formulation. The best course of action is actually chosen
after considering organizational goals, organizational strengths, potential and limitations
as well as the external opportunities. Strategy formulation process is an integral part of
strategic management, as it helps in framing effective strategies for the organization, to
survive and grow in the dynamic business environment.

Q 2 the tools & techniques of strategy formulation.

Strategic Management Tools and Techniques

In recent years, the strategic management process has become more complex and costly.
Growing competitiveness in many markets and along many combinations of dimension is
increasing of analysis facing managers. Therefore, in order to assist strategic managers, a wide
variety of tools and techniques have been developed. These techniques can be divided into three
categories: tools for developing organizational strategies, strategic planning techniques, control
techniques.

Tools for Developing Organizational Strategies

The process of identification and evaluation a wide range of possible strategies has generated a
number of conceptual tools or techniques for these purposes. These tools and techniques are
related but distinct. Managers must decide on the extent to which they will be involved in
strategic and operational decision making process.

Several of the most widely used tools are: critical question analysis, gap analysis, industry
analysis, product-market matrix, product life cycles, and many analytical frameworks are used in
portfolio management (e.g., SWOT analysis, the BCG matrix). This section only emphasizes
on critical question analysis, as the most important aid to guide top management in selecting the
right strategy.

Critical Question Analysis

A synthesis of the ideas of several writers suggests that formulating appropriate organizational
strategy is a process of critical question analysis - answering the following four basic questions:
What are the purpose(s) and objectives of the organization? The answer to this question states
where the organization wants to go. Where is the organization presently going? The answer to
this question can tell managers if an organization is achieving organizational goals and, if so,
whether or not the level of such progress is satisfactory. Is what kind of environment does the
organization now exist? Both internal and external environments are covered in this question.
What can be done to better achieve organizational objectives in the future? The answer to this
question actually results in the strategy of the organization.

Tools for Planning and Problem Solving

To help managers improve their planning and problems solving, a variety of techniques and tools
have been developed. The most important of these tools are management science research
techniques. The term management science (MS) and operations research (OR) are, in general,
used interchangeably. Management science is defined as "a set of quantitatively based decision
models used to assist management decisions makers". There are three key components in this
definition:

1- Management science is a set of quantitative tools

2- management science uses decision models
3- quantitative models assist decision makers; they cannot substitute for or replace a
manager.

Management science research techniques help managers improve the quality of their problem
solving. These techniques seek to describe, understand, and predict the behavior of complex
system of human being and equipment.

Types of Models and Science Techniques

There are the variety of management science models and techniques that are designed to
supplement managerial planning and decision making. Some writers consider forecasting to be
management science (although others do not). Forecasting is the process of using past and
current information to predict future events. It involves identifying opportunities and threats in
the firm 's external environment. Forecasts are an important aspect of planning and decisions
making process.
A management science also includes many quantitative techniques, and other management
science aids. Some of these are:

The Program Evaluation and Review Technique (PERT). PERT is planning and control
technique that allows managers to decompose a project into specific activities and to plan far in
advance when it is to be completed. The main function PERT is to determine the time required to
complete a project.

Breakeven Analysis. Breakeven analysis helps managers determine how many units must be
sold before a product is profitable.

Linear Programming. Linear programming is used to determine the best way to allocate
resources to achieve some desired objectives.

Game Theory. Game theory attempts to predict how rational people will behave in competitive
situation. For example, game theories attempt to describe how competitors will respond to a
price increase, the introduction of a new product, or a new advertising campaign.

Simulation Models. Simulation models are mathematical representations of the relationships

among variables in real-life organizational situations. The try to replicate a part of an
organization's operations in order to see what will happen to that part over time, or to experiment
with that part by changing certain variables. For example, simulations are popular for the risky
business of new-product innovations.

Control Tools and Techniques

The controlling function includes activities undertaken by managers to ensure that actual results
conform to planned results. Control tools and techniques help managers pinpoint the
organizational strengths and weaknesses on which useful control strategy must focus. In order to
simplify the discussion of the tools and control techniques, many authors divide them into two
categories: nonfinancial and financial. Nonfinancial control techniques do not require financial
data to be used, while financial control techniques require some form of financial data such as
profits, costs, or revenues. Each of the control techniques is intended for a different purpose.
Therefore, in order to make rational choices about which control techniques to implement,
managers must understand what a given control technique can and cannot do.
Nonfinancial control techniques. Nonfinancial control techniques include rewards and
punishments, selection procedures, socialization and training, the management hierarchy,
management by exception, inventory and quality control, and PERT.

Financial Control Techniques. Financial controls help managers to keep costs in line, maintain
a viable relationship between assets and liabilities, sustain adequate liquidity, and achieve
general operating efficiency. Some of the best-known and most commonly used financial control
techniques are: budgets, ratio analysis, break-even analysis, and accounting audits.

Q3 Analyze the Decision-Making process and illustrate it with proper

Block Diagram.
Decision Making Process Step # 1. Recognizing the Problem:
The first step in the decision making process is recognizing situations in which a decision is
needed because an opportunity, a problem or a crisis exists.

In most cases, defining the problem is not an easy task. Opportunities and problems are not so
obvious. What at times might appear to be the real problem might at best be simply the
symptoms of the problems. Nibbling at the fingers of the problem or treating only the symptoms
of the problem, working on the wrong problem are wasteful efforts and are of premature decision
making. Superficial disturbances can be misleading and fail to reveal underlying difficulties.
Management sees a clash of personalities the real problem may will be poor organization
structure. Management see a problem of manufacturing costs and start a cost reduction drive, the
real problem may well be poor engineering design or poor sales planning. So apart from studying
the symptoms, a manager may well try to find out the limiting factors before defining the
problem.

The critical factor analysis helps in finding out the difference between what is happening in a
particular situation and what should be happening. The critical factor determines the gap between
the desired and actual results. If a scooter is not operating because the spark plug needs
replacement, the spark plug is the strategic factor. According to Barnard, the nature of the
strategic factor will shift as the problem is defined correctly. After defining the problem, spark
plug replacement, a new situation will arise where the new limiting factor will be obtaining the
plug, or having money to buy the plug if it is available nearby and so on. Proper emphasis on all
relevant factors will greatly help in defining the problem properly and it must be realized that
problem is half solved when it is properly defined.

Decision Making Process Step # 2. Analyzing the Problem:

In this stage, the decision maker gathers facts and looks for advice. He collects as many facts as
he can and tries to separate facts from beliefs, opinions and preconceived notions. Each items is
carefully evaluated, it is relatively weighted, its validity judged. Irrelevant data and trivia will be
discarded. The whole exercise helps in ensuring adequate background information and essential
data relating to the problem defined.

Earlier, of course, it is possible to gain complete knowledge regarding the problem. Certain
intangible factors always force the manager to base his decisions on incomplete and coarse
information. It is well worth remembering that ‘the best diagnostician is not the man who can
spot early, and correct right away his own mistaken diagnosis’. Knowing the extent of gap which
has forced him to guess will help at least in crystallizing the problem correctly.

Decision Making Process Step # 3. Generating Alternatives:

Normally, a business problem can be solved in many ways. If there is only one alternative, no
decision is required. But in any rational decision-making process, the manager should not jump
on to single proposal without considering all the alternatives. At this stage, the decision maker
searches for existing alternatives, modifies more reliable, easier to implement and available. If
these alternatives are found unsuitable, they can be made useful by modification.

Totally unique alternatives are costly and time consuming to create and often difficult to
implement operating within these extremes (existing Vs. unique alternatives). A manager may
involve others in this exercise in order to devise possible courses of action. As pointed out by
Koontz, the ability to develop alternatives is often as important as making a right decision among
alternatives. Ingenuity research and creative imagination are required to make sure that the best
alternatives are considered before a course of action is selected. Sometimes taking no action
would itself be sufficient. To take no action is a decision fully as much as to take specific action.
The search for alternatives calls for creative abilities on the part of managers. It helps in focusing
adequate attention before it is finally resolved. Additionally, the availability of two or three good
alternatives enables managers to fully test the soundness of each and every alternative before it is
finally translated into practice. In the process of testing, if one decision were to fail, the next one
can be pressed into service without difficulty.

Decision Making Process Step # 4. Evaluating Alternatives:

The search for alternative is not an unending process. The entire range of alternatives cannot be
expressed in black and white, there is a cutoff point. Once this point is reached, the decision
maker should weigh alternative solution against one another. The problem effects of each
alternative must be outlined. Unfortunately, the consequences are always not clear. To reduce
time and effort, the decision maker may well concentrate as really important facts of these
alternatives by applying the ‘critical factor analysis’. All pertinent facts must be collected. They
must be classified and pros and cons must be considered and the important facts must be
distinguished from trivial facts. The basic purpose or evaluation should not be to find out one
magic solution. The attempt should be to limit the alternatives to a manageable (two or three)
and economically feasible number. Comparisons must be made on the basis of values, the
desirable and undesirable aspects in every alternative listed and the conflicting values resolved in
some satisfactory manner. This requires subjective judgement. Experience, sometimes, may be
the best teacher.

Decision Making Process Step # 5. Choosing the Best Alternative:

In this phase, the decision maker evaluates each alternative by judging it according to some
criterion (profit, cost, product, quality etc.). According to Druker, there are four criteria for
picking the best among the possible solutions.

1. The risk:
The manager has to weigh the risk of each course of action against the expected gains. He must
decide as to how much risk he can take and find out the alternative that satisfies with this view
point.

2. Economy of effort:
The alternative that will give the greatest output for the least input in terms of material and
human resources is obviously the best one to be selected. Instead of picking up an elephant gun
to choose sparrows, managers may well select the one that ensures efficient utilization of scarce
resources.

3. Timing:
If the situation has great urgency; the best alternative is one that warns the organization about
impending dangers. On the other hand, if inconsistent effort is needed, a slow start that gathers
momentum may be preferable.

Limitation of Resource:
Physical, financial, and human resources impose a limitation on the choice of selection of these,
the most important resources whose limitations have to be considered are the human beings who
will implement the decision. Their vision, skill, understanding and competence, often determine
how effectively the organizational efforts are carried out.

If adequate human resources are not currently available, the decision should give effect to their
development or acquisition from outside sources in the next plan. The selection process is a
demanding function. It is often a painful process. It requires an uncanny ability to draw the
curtain between controllable and uncontrollable factors, tangible and intangible factors, facts and
predications. The final decision is a product of deliberation, evaluation and thought. In some
decisions, the manager’s reputation is at stake, and he may risk antagonism, and
misunderstanding. Normally to avoid such unpleasant situations, managers rely on past
experience. Routine problems are disposed of on the basis of experience and unique problems
like launching a new product are solved through a process of experimentation. However, the time
and expense involved in the process of experimentation make it a prohibitive practice. In case of
important decisions, managers rely on the technique of research and analysis. The problem and
its relationship with different variables are expressed in mathematical terms and put to further
analysis and examination with the help of computer and data processing machines, a conceptual
frame-work is outlined for the problem under Consideration.
Decision Making Process Step # 6. Implementing and Verifying the Decision:
Decision implementation is as important as decision formulation. A manager’s decision is
always a decision concerning what other people should do. So to avoid problems in
implementation, he must communicate the decision, that is, he must indicate as to what change in
behavior is expected, what action is expected, and so on. In addition, effective implementation
depends on how people react to it. Gaining acceptance requires participation by operating
people. The most appropriate stage for their involvement is that developing alternative solutions
to the problem. At that point, they can contribute their ideas and suggestions. Decision
implementation thus includes: observing the decision as it becomes operative, modifying it when
necessary, coaching the people who implement it and perfecting it once it is in action. The
process of decision verifying is very important in the sense that it helps in highlighting the
deviations and assists in taking rectification actions in time.

Recognising Analysing the Generating

the problem problem alternatives

Implementing choosing the Evaluating the

& verifying the best alternative
decision alternative