Strategy Formulation (IP Unit 3) - Research Paper Example

? STRATEGY FORMULATION STRATEGY FORMULATION According to Day (1986), strategy formulation refers to the process undergone to choose the most appropriate course of action so that the organizational goals and objectives are realized hence the achievement of the organizational vision and mission. In our case, a decision has to be made on whether a brand new product should be developed for competitiveness at the market place or just produce the version that already exists at the market place by the competitors. The process of strategy formulation just like that for decision-making follows a six steps procedure that must not be followed chronologically but must be integrated conclusively. It is therefore quiet useful to consider strategy formulation as part of strategic management that entails the diagnostic approach, Formulation and implementation. Diagnosis involves performing a situation analysis where the internal environment of the organization is analyzed while implementation is a stage in formulation where the strategies that are considered appropriate for the operations of the company are put to practice, monitoring, and evaluation (Day, 1986). Strategy formulation is a six steps module that is incorporated under three main aspects. The steps entail - first setting the organizational goals and objectives, which must be long-term in nature, the objectives, reiterates the state of being there while a strategy shows us how to reach there. After the objectives are well laid, environmental scanning is done which entails the review of both the external and internal environments which range from economic to industrial and in which the organization at stake operates (Day, 1986). The management then sets quantitative targets to be achieved through the set organizational objectives. This is to aid comparison with the long-term customers and realize their input and contribution to the overall missions and visions of the organization. The next step is to aim overall goals with divisional outputs where the contributions made by each department are quantified and consolidated. Then performance analysis if done where the gap between the planned and the desired performance is analyzed. A strategy is then chosen from the alternatives projected, considering the organizational goals, strengths, and actual potential visa vi the external environment, a choice is made. As pointed out earlier by Day (1986), strategy formulation is crafted under three major aspects, which involves; corporate level strategy, competitive strategy and functional strategy. Corporate level strategy is concerned majorly of the vast decisions around the total organization’s scope and direction so that there are detected changes to be made to realize growth objective for a given firm. Competitive strategy is aimed at making decisions on how the company should compete to remain relevant in its line of business (LOB) or its strategic business units (SBU). Functional strategy on the other hand deals with how each of the available functional areas is likely to carry out its functional activities (Day, 1986). "FIRST-MOVER" THEORY OR "LATE-MOVER" THEORY Our case is the competitive business strategy where the management is faced with the situation of whether to dev elope a completely new brand of a product or simply produce the already existing brand that a competitor in the same industry is involved. This they expect to do through either the, “first mover theory” or “late mover theory” (Green & Ryans, 1990). Timing of the market by most firms is a very important aspect of their operation. This can either be early entry into the market or late entries hence the two theories. Furthermore, market entry timing decisions are the bridge between the functional strategy and the corporate business strategy, therefore, when timing and scope decisions are combined there is always a realization of a superior market (Green & Ryans, 1990). First movers into the market are normally likely to benefit from above normal economic performance which is mostly in the short run, the reasons behind such benefits are good reputation due to efficiency and effectiveness, well positioning incase of competition and early profits at least before the market is crowded. Despite the above advantages of the first mover, it is still argued by most scholars that the strategy does not in many occasions guarantee long-term success or competitive advantage. On the other hand, late movers may be of dire advantage most so in the industries with many risks, they would come and find a market where the first movers have cleared all the looming risks (Kerin &Varadarajan, 1992). According to Kerin &Varadarajan (1992), a variety of studies are conducted, it is quite vivid from the multidimensional entry strategy argument that the resources that a firm has and the organizational attributes will always influence their timing of entry into the market. Mostly, firms with enormous resources will always be willing to take the risk as “first movers” given that they can sustain and overcome the stiff competition as opposed to firms with limited resources. An environment with scarce resources requires that the First mover theory is adopted so that the firm is able to enjoy all the chances of success; given the level of competition the first is likely to enjoy the greatest chances of success. The first mover advantage advocates that the first firm to enter the market for a specific product or service is likely to achieve all the permanent competitive advantages like buyer switching costs, technological leadership, and assets preemption. They also enjoy larger market shares than the late entrants. Firms to be the first to enter a market also have the advantage of creating a barrier to other new entrants and hence insurmountable (Kerin &Varadarajan, 1992). There is as well the likelihood of brand loyalty and cost advantages of the existing infrastructure and channels for distribution. First mover advantage in short has elements such as network effects, acquisition of resources and consumer switching cost as well as technological preemption. Late movers theory on the other hand perpetuates for firms to join the market qite late. There are arguments that late entry into the market is most of the time facilitated by strong marketing and manufacturing skills. Late movers learn from the disadvantages of the first movers and perfects them forming late movers advantages to include; free rider effects, possibilities of uncertainty are highly minimized and first mover inertia. Late movers are likely to benefit due to information flow in case there is lack of patent protection and free information flow. The same first movers to perfect their operations therefore in the position of learning from the mistakes that are made by the first movers and the challenges face late movers. Although in many markets the first movers normally outsell the late comers some evidence allude that in other markets the late movers normally outsell the first movers (Hoppe, 2000). Open evidence has it that it doesn’t matter when a firm enters the market that matters but it is how it exercises its functionality through superior products strategies that will lead it towards the superior advantages either as first or late movers (Hoppe, 2000). It is in record that EMI was the very first introducer of the CAT scanner used in scanning by hospitals, it was later snatched the advantage by GE a later entrant who did very little by simply providing the same product in a very different way. Again, Microsoft is the pioneer in the business of providing the personal computer operating systems and it has managed to maintain its leadership since the 1990s. Other forms, which have used the late entrant strategy successfully, are a group of companies in the automobile industry like GM, Ford, and Chrysler. Other firms, which were eclipsed by late movers, include the wine cooler corporation and the video game markets. The late movers can beat the first movers in two major ways – by beating the pioneer in their own game through a keen concentration in understanding the pioneers preferences hence identification of a superior but overlooked product position by the pioneer (Hoppe, 2000). He can as well compete through price undercuts hence beating the pioneer at their own game. Secondly, a late mover is likely to overtake a first mover by way of innovation; he can either innovate and provide a new product or innovate and come up with a new strategy to beat the first mover. First movers who have since remained successful include- the MacDonald’s food stores, Nakumatt Holdings and in the airlines industry we have the Virgin Atlantic. They have been able to survive given that they cut a niche in their areas of operations, they have remained relevant through being dynamic in the products that they offer, and through fierce competition, they are able to protect their hard-earned market share (Hoppe, 2000). WHICH IS WHICH? With such a case in hand, it is not a matter of who got into the market first or last. Instead, it is all about the strategy of entry and, therefore faced with a decision about when a firm should enter a market will in most cases depend on the strengths and the weaknesses of the resources base of the firm in question. First entry strategies are most of the time advisable for firms whose desires are to develop completely new products for the market (Hoppe, 2000). On the other hand, a firm with much manufacturing and marketing strength does not need to worry when it gets into the market, specifically; it is advisable that firms with such strengths come into the market as late movers after all the risks and the first mover’s clear uncertainties. Based on the resource based approach to organization theory, the study of the product life cycle verses marketing, the first mover advantage and market entry timing, it is quiet important to know which firm and when they should get into the market. As to when a firm should enter, a number of factors among which we have the PLC, which explains entry concerning the various stages of the product development, dictates a market (Hoppe, 2000). It most occasions it is not the management to determine when a product enters a market, this is because from research, it has been realized that it is automatic that firms with weaker innovative skills are most of the time destined for late entry. The late entrants are mostly likely only to prevail when they posses qualities or resources that the first movers in the same market do not hold as at the time. In addition, depending on the strategies employed late movers may be in the position of engaging in mergers or acquiring the pioneers hence enabling them form a wider market base by linking their resources to the market share of the first movers. Depending on the organizations objectives as the step number one to strategy formulation, a firm is in the position of defining whether to be a first entrant or late movers. References Day, G.S., (1986). Tough Questions for Developing Strategies. Journal of Business Strategy; 7 (3): 160-169. Green, D.H., Ryans, A.B., (1990). Entry strategies and market performance: causal modeling of a business simulation. J Product Innovation Manage; 8(2): 45-59. Hoppe, H.C., (2000). Second-mover advantages in the strategic adoption of new technology under uncertainty. International J Industrial Organization; 18 (2): 415-438. Kerin, R.A., Varadarajan, P,R., (1992). First mover advantage: A synthesis, conceptual framework, and research propositions. Journal of Marketing; 57(4): 210-253 Read More