stratgy formulation

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INTRODUCTION OF TOPIC:

What is strategy?

Strategy is the direction and scope of an organization over the

long-term: which achieves advantage for the organization

through its configuration of resources within a challenging

environment, to meet the needs of markets and to fulfill

stakeholder expectations.

In other words, strategy is about:

Where is the business trying to get to in the long-term (direction?)

Which markets should a business compete in and what kinds of activities are

involved in such markets? (Markets; scope)

How can the business perform better than the competition in those markets?

(Advantage)

What resources (skills, assets, finance, relationships, technical competence, and

facilities) are required in order to be able to compete? (Resources)

What external, environmental factors affect the businesses' ability to compete?

(Environment)

What are the values and expectations of those who have power in and around the

business? (Stakeholders)

Strategy formulation as part of a strategic management process that comprises threephases:

Diagnosis,

Formulation

Implementation.

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Strategic management is an ongoing process to develop and revise future-oriented

strategies that allow an organization to achieve its objectives, considering its capabilities,

constraints, and the environment in which it operates.

Strategy formulation:

Strategy Formulation is the stage of strategic management that

involves planning and decision making that lead to the

establishment of the organizations goals and of a specific strategic

plan.

In other words it include

Long term vision

While maintaining flexibility

Adopting to change

STEPS IN STRATEGIC FORMULATION:

The formulation of strategy may be seen as having six important steps:

1. The company or organization must first choose the business or businesses in

which it wishes to engage. in other words, the corporate strategy.

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2. The company should then articulate a "mission statement" consistent with its

business definition.

3. The company must develop strategic objectives or goals and set performance

objectives (e.g., at least 15 percent sales growth each year).

4. Based on its overall objectives and an analysis of both internal and external

factors, the company must create a specific business or competitive strategy that

will fulfill its corporate goals (e.g., pursuing a market niche strategy, being a low-

cost, high-volume producer).

5. The company then implements the business strategy by taking specific steps (e.g.,

lowering prices, forging partnerships, entering new distribution channels).

6. Finally, the company needs to review its strategy's effectiveness, measure its own

performance, and possibly change its strategy by repeating some or all of the

above steps.

Content of strategy formulation:

First we suggest setting some principles, this allows for a healthy discussion

around authenticity, transparency and humility as well as the defining the engagement

policy with the client. Next we get into the 'Why', clarifying objectives, linking them

with appropriate metrics and if possible setting targets. What' comes next covering

stage 3 Substance and stage 4 Sources

Substance focuses the mind on what topics, subjects and point of views the

brand wants to have as well as considering the type of social currency value -

entertainment, useful, monetary, information or personal value. Sources look at who is

going to be creating or producing this content, from employees to agencies to crowd-

sourcing.

Next we get into the 'How', who's going to be managing the content, which social

and digital channels will the content be going out thru, which formats are most

appropriate and a schedule over an agreed time period.

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Lastly, with active listening in place we are able to constantly review the

conversational effect of our content against our objectives and the brand will be able to

respond in accordance with their engagement policy.

THREE ASPECTS OF STRATEGY FORMULATION:

The following three aspects or levels of strategy formulation, each with a different

focus, need to be dealt with in the formulation phase of strategic management. The three

sets of recommendations must be internally consistent and fit together in a mutually

supportive manner that forms an integrated hierarchy of strategy, in the order given.

Corporate level strategy

It includes the corporations like joint ventures and mergers.

Business level strategy

E.g. textile, chemical, auto parts etc.

Functional level strategy

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Include different department e.g.finance, HRM, R&D, marketing, etc.

Corporate level strategy:

Corporate level strategy fundamentally is concerned with selection of businesses

in which your company should compete and with development and coordination of that

portfolio of businesses.

Corporate level strategy is concerned with:

Reach: defining the issues that are corporate responsibilities. These might include

identifying the overall vision, mission, and goals of the corporation, the type of

business your corporation should be involved, and the way in which businesses

will be integrated and managed.

Competitive Contact: defining where in your corporation competition is to be

localized.

Managing Activities and Business Interrelationships: corporate strategy seeks

to develop synergies by sharing and coordinating staff and other resources across

business units, investing financial resources across business units, and using

business units to complement other corporate business activities.

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Management Practices: corporations decide how business units are to be

governed: through direct corporate intervention (centralization) or through

autonomous government (decentralization).

Types of corporate level strategies :

It includes:

Growth strategy

Related diversification

Unrelated diversification

Merger & acquisition

Joint venture, etc.

Stability strategy

Retrenchment strategy

Combination strategy

Business Level Strategy

An integrated and coordinated set of commitments and actions the firm uses to

gain a competitive advantage by exploiting core competencies in specific product

markets

In selecting a business-level strategy, the firm determines

who it will serve

what needs those target customers have that it will satisfy

how those needs will be satisfied

At such a level, strategy is a comprehensive plan providing objectives for SBUs,

allocation of resources among functional areas and coordination between them for

achievement of corporate level objectives. These strategies operate within the overall

organizational strategies i.e. within the broad constraints and policies and long term

objectives set by the corporate strategy.

Types of business level strategies:

Cost leadership strategy

Differentiation strategies

Diversification strategies

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Focus strategies

Functional Level Strategy

The functional level of your organization is the level of the operating divisions

and departments. The strategic issues at the functional level are related to functional

business processes and value chain. Functional level strategies in R&D, operations,

manufacturing, marketing, finance, and human resources involve the development and

coordination of resources through which business unit level strategies can be executed

effectively and efficiently.

Functional strategy deals with a relatively restricted plan providing objectives for specific

function, allocation of resources among different operations within the functional area

and coordination between them for achievement of SBU and corporate level

objectives.Sometimes a fourth level of strategy also exists. This level is known as the

operating level. It comes below the functional level strategy and involves actions relating

to various sub functions of the major function. For example, the functional level strategy

of marketing function is divided into operating levels such as marketing research, sales

promotion, etc. The three levels of strategies have different characteristics as shown

below;

Dimensions Levels

Corporate Business Functional

Impact Significant Major Insignificant

Risk Involved High Medium Low

Profit potential High Medium Low

Time Horizon Long Medium Low

Flexibility High Medium Low

Adaptability Insignificant Medium Significant

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PRACTICAL STUDY:

SELECTED ORGANIZATION:

INTRODUCTION OF MCDONALD:

McDonald's Corporation is the world's largest chain of hamburger fast food

restaurants, serving more than 58 million customers daily.The business began in 1940,

with a restaurant opened by brothers Dick and Mac McDonald in San Bernardino,

California. Their introduction of the "Speedee Service System" in 1948 established the

principles of the modern fast-food restaurant. The original mascot of McDonald's was a

man with a chef's hat on top of a hamburger shaped head whose name was "Speedee."

Speedee was eventually replaced with Ronald McDonald in 1963.

The first McDonald's restaurants opened in the United States, Canada, Costa Rica,

Japan, the Netherlans, Germany, Australia, France, El Salvador and Sweden in order of

openings.

The present corporation dates its founding to the opening of a franchised

restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955[7] , the ninth

McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the

company and led its worldwide expansion and the company became listed on the public

stock markets in 1965 Kroc was also noted for aggressive business practices, compelling

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the McDonald brothers to leave the fast food industry. The McDonald brothers and Kroc

feuded over control of the business, as documented in both Kroc's autobiography and in

the McDonald brothers' autobiography. The site of the McDonald brothers' original

restaurant is now a monument.

With the expansion of McDonald's into many international markets, the company

has become a symbol of globalization and the spread of the American way of life. Its

prominence has also made it a frequent topic of public debates about obesity, corporate

ethics and consumer responsibility

STRATEGY FORMULATION OF McDonald:

McDonald formulate their strategy on the basis of

STEPTS IN STRATEGY FORMULATION OF MCDONALD:

These steps involve in strategy formulation:

Developing vision and mission

Identification or external opportunity and threats

Determining internal strength and weakness

Establishing long term objectives

Generating alternative strategies

Choosing particular strategies to pursue

Current Situation

Objectives

(Where do we want to go?)

Strategy (how do we get

there)

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--ASPECT OF STRATEGY FORMULATION OF MCDONALD:

McDonald used

Corporate level strategies

Business level strategies

Societal level strategies

World wide growth strategies

CORPORATE LEVEL STRATEGIES:

a) Growth strategy of McDonald

In corporate level strategies McDonald use the growth strategy. McDonalds

grown-up thinking about design is part of its "Plan to Win" growth strategy, initiated in

2003 when executives realized their core markets had gorged on expansion. The Golden

Arches increasingly looked like a corporate shrug, and its stock price dipped below $13 a

share. Since that nadir, the Plan to win has helped drive the stock up 437%. The strategy's

three pillars are

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menu innovation,

store renovation

An upgrade of the ordering experience.

McDonald's efficiency and its continued expansion of premium menu items snack

wraps! Sweet tea! Frappes! Has helped boost the average annual store gross by 25% over

the past six years to around $2 million. McDonald's execs say, depends on design.

"People eat with their eyes first," says president and COO Don Thompson. "If you

have a restaurant that is appealing, contemporary, and relevant both from the street

and interior, the food tastes better."Mc Donalds is horizontally integrating itself by

increasing the number of outlets. At current timing there are nine outlets operating only at

Lahore and they have Twenty one outlets in all over Pakistan. They are also planning

firstly to go into the Metro Areas like Islamabad and Rawalpindi and then they will look

toward Mutant.

b) WORLDWIDE GROWTH STRATEGY

McDonald is operating more than 121 countries which mean it is following global

diversification strategy. McDonald's world wide growth strategy is based on three

elements;

Adding restaurants,

Maximizing sales and profits at existing restaurant

Improving international profitability.

Maximizing sales and profits at existing restaurants will be accomplished through

better operations, reinvestment, product development and refinement, effective marketing

and lower development and operating costs. Improved international profitability will be

realized as economies of scale are achieved in individual markets and as the company

benefits from the global infrastructure.

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c) Retrenchment strategy:

McDonald also uses the retrenchment strategy for growth in corporate level. For

example, in its retrenchment, McDonald's reduced complexity in its operations, in part by

simplifying the menu. Any new item had to meet the company's stringent test-kitchen

demands for being simple to prepare consistently. It repositioned its brand, refined its

pricing strategy and pulled the market segmentation lever, making sure it was targeting

young adults and moms with kids.

BUSINESS LEVEL STRATEGY

Customers are the foundation of successful business-level strategies and Levels

should never be taken for granted. When selecting a business-level strategy the firm

determines:

Who will be served?

What needs those target customers have that it will satisfy?

How those needs will be satisfied?

McDonalds answers to these 3 questions were:

People of various ages globally,

A quick, delicious, and non-expensive meal,

They offer a variety of breakfast, lunch, and dinner meals, snacks, and drinks for

adults and children in various places around the world.

Since McDonalds operates in 119 countries on 6 different continents they have different

food selections for most, than what we see in the United States. They offer these different

products because of different needs in each country, due to religion, diets, and resources

of each individual country. This flexibility and knowledge allows McDonalds to achieve

global targets and compete with the other competitors.

I would have to say that McDonalds uses the Integrated Cost Leadership/

Differentiation Business-Level Strategy. McDonalds has strategically planned to stay

ahead of their competitors by providing customers with more options of healthy meals,

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cheaper prices, and better service. McDonalds is competitive in many categories like

price, quality, management, and employee training.

From looking at the Direct Competitor Comparison for 2006-2008 I saw that

McDonalds was indeed ahead of the others in revenue by as little as 12 billion to asmuch as 22.15 billion. Obviously, they are doing something right, but in these times

things change at such a fast pace that you have to know how to keep up or your

competitors will blow you out of the water. Most people are also more inclined to follow

trends to be accepted and fit in, so if your competitor comes out with a new product you

better have something better in your back pocket or you

a) Differentiation

McDonalds has Broad Target and it wants to achieve competitive strategy

adopted by McDonalds is Differentiation i.e. Mc Donalds wants to a make its

products unique and highly differentiated.

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b) Cost leadership strategy of McDonald:

A leading cost strategy for McDonalds is the ability to purchase the land and

buildings of its restaurants. McDonalds also developed a strong division of labor for its

production processes, tight management control and product development strategy.Creating a strong top-down style of management is another leading cost strategy for

McDonalds. Using fewer in-store managers allows the company to hire lower-wage

workers to complete tasks. Limiting autonomy is also central to avoiding costly and

unnecessary restaurant expenditures like improvements or altering business processes.

These five forces influence the business level strategy of McDonald.

OPERATIONAL /FUNCTIONAL STRAEGY OF MCDONALD:

An operations strategy consists of a sequence of decisions that, over time, enables

a business unit to achieve a desired operations structure, infrastructure, and set of specific

capabilities in support of the competitive priorities.

Statement of McDonalds Operations Strategy

To provide unmatched consistency in operations in support of

high product quality. This must be accomplished with

adequate speed, low cost, and process innovation to

accommodate changes in consumer tastes.

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From the statement of McDonalds operations strategy, it is clear that both consistent and

high-performance qualities are considered order winners, while speed, cost, and

innovation are considered order qualifiers.

Evaluation of the operations strategy:

Internal and external consistency - Looking at the operations strategy along the

seven dimensions, they all support the operations mission and the business

strategy from the previous page.

Contribution to competitive advantage - Systemic strategy creates unmatched

consistency in operations that has been difficult to imitate.

McDonalds Operations Strategy

Dimension StrategyCapacity Growth as needed through additional stores - but capacity added

carefully. Well-utilized - franchisee's well-being depends on it

being used heavily

Facilities Distributed facilities, each facility being very similar to the next,

all focused around the same menu - although the uniformity is

beginning to changeProcess

Technology

High degree of process understanding, emphasis on "fool-proof"

processes

A leader in the technology of fast-food delivery

Vertical

Integration

Partnership arrangement

Long-term relationship with suppliers to promote innovation and

quality improvement

Workforce Franchisees: well-trained, carefully selected, entrepreneurs

Operators: high-turnover, cheap

Organization Guidelines provided by corporation, but franchisees push to

locally optimize

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Control

Systems

Centralized buying

Bulk contracts

"Push" system for basic supplies, "pull" system day-to-day in the

restaurants

DATA COLLECTION METHOD:

I took data from internet, books, reports, etc.i have collected secondary data

which I use as my primary data.

DATA ANALYSIS:

Strengths

Good innovation and product development. It continually innovates to retain

customers in the business.

The McDonalds brand offers consumers choice, reasonable value and great

service

Globalization: 31,000 restaurants serving 120 countries. Of the 31,000 restaurants

at least14,000 restaurants in the US

It adapts to the cultural differences regarding the region where the restaurant is

set up.

It has located itself in major airports, cities, highways, tourist locations, theme

parks.

It has an efficient food preparation style that follows the process in a systematic

way.

Weaknesses

Core product line out of line with the trend towards healthier lifestyles for adults

and children. Product line heavily focused towards hot food and burgers

Seasonal

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Quality issues across the franchise network.

Opportunities

Joint ventures with retailers (e.g. supermarkets).

Consolidation of retailers likely, so better locations for franchisees.

Respond to social changes - by innovation within healthier lifestyle foods. Its

move into hot baguettes and healthier snacks (fruit) has supported its new

positioning.

Use of CRM, database marketing to more accurately market to its consumer target

groups. It could identify likely customers (based on modeling and profiles of

shoppers) and prevent brand switching

Strengthen its value proposition and offering, to encourage customers who visit

coffee shops into McDonalds.

The new formats, McCafe, having Wifi internet links should help in attracting

segments. Also installing childrens play-parks and its focus on educating

consumers about health, fitness.

Continued focus on corporate social responsibility, reducing the impact on the

environment and community linkages.

International expansion into emerging markets of China and India.

Threats

Domestically is the lack of growth opportunities

Social changes - Government, consumer groups encouraging balanced meals, 5 a

day fruit and vegetables.

Focus by consumers on nutrition and healthier lifestyles.

Competitive pressures on the high street as new entrants offering value and

greater product ranges and healthier lifestyles products. E.g. subway,

supermarkets, M&S.

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Recession or down turn in economy may affect the retailer sales, as household

budgets tighten reducing spend and number of visitors.

Pressure groups - environmental.

ConclusionMcDonalds faces some difficult challenges. Key to its future success will be

maintaining its core strengths an unwavering focus on quality and consistency while

carefully experimenting with new options. These innovative initiatives could include

launching higher-end restaurants under new brands that wouldnt be saddled with

McDonalds fast-food image. The company could also look into expanding more

aggressively abroad where the prospects for significant growth are greater. The

companys environment efforts, while important, should not overshadow its marketinginitiatives, which are what the company is all about.

RECOMMENDATION:

After writing the conclusion of the company I personally recommend the

managers of McDonalds to take of the politics form their employees and also treat the

employees on the equal basis. The people get jobs with huge references in it. These

processes of references are very common in country like Pakistan but the company needs

to appoint new people on merit basis a good working environment also enhance the

capabilities of the people working in an organization so mangers can work to improve

those conditions in order to get good results.

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REFERENCES:

http://www.mcdonalds.com

http://www.wikipedia.com

http://www.scribed.com

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stratgy formulation