LESSON 2 – Strategy Formulation and Defining Vision

2.1. Introduction
Strategy formulation is the process of determining appropriate courses of action for achieving
organisational objectives and thereby accomplishing organisational purpose.

Strategy formulation is vital to the well-being of a company or organisation. It produces a clear

set of recommendations, with supporting justification, that revise as necessary the mission
objectives of the organisation, and supply the strategies for accomplishing them. In formulation
we are trying to modify the current objectives and strategies in ways to make the organization
more successful. This includes trying to create "sustainable" competitive advantages –
although most competitive advantages are eroded steadily by the efforts of competitors.

2.2. 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.

1. Corporate Level Strategy: In this aspect of strategy, we are concerned with broad
decisions about total organisation's scope and direction. Basically, we consider what
changes should be made in our growth objective and strategy for achieving it, the lines of
business we are in, and how these lines of business fit together. It is useful to think of three
components of corporate level strategy:
a. Growth or directional strategy (what should be our growth objective, ranging from
retrenchment through stability to varying degrees of growth - and how do we
accomplish this)
b. Portfolio strategy (what should be our portfolio of lines of business, which implicitly
requires reconsidering how much concentration or diversification we should have),
c. Parenting strategy (how we allocate resources and manage capabilities and
activities across the portfolio – where do we put special emphasis, and how much do
we integrate our various lines of business).

2. Competitive Strategy: It is quite often called as Business Level Strategy. This involves
deciding how the company will compete within each Line of Business (LOB) or Strategic
Business Unit (SBU). In this second aspect of a company's strategy, the focus is on how to
compete successfully in each of the lines of business the company has chosen to engage
in
The central thrust is how to build and improve the company's competitive position for each
of its lines of business. A company has competitive advantage whenever it can attract
customers and defend against competitive forces better than its rivals. Companies want to
develop competitive advantages that have some sustainability (although the typical term
"sustainable competitive advantage" is usually only true dynamically, as a firm works to
continue it). Successful competitive strategies usually involve building uniquely strong or
distinctive competencies in one or several areas crucial to success and using them to
maintain a competitive edge over rivals. Some examples of distinctive competencies are
superior technology and/or product features, better manufacturing technology and skills,
superior sales and distribution capabilities, and better customer service and convenience.

3. Functional Strategy: These more localized and shorter-horizon strategies deal with how
each functional area and unit will carry out its functional activities to be effective and
maximize resource productivity. Functional strategies are relatively short-term activities that
each functional area within a company will carry out to implement the broader, longer-term
corporate level and business level strategies. Each functional area has a number of
strategy choices, that interact with and must be consistent with the overall company
strategies.
 Three basic characteristics distinguish functional strategies from corporate level and
business level strategies: shorter time horizon, greater specificity, and primary involvement
of operating managers.
A few examples follow of functional strategy topics for the major functional areas of
marketing, finance, production/operations, research and development, and human
resources management. Each area needs to deal with sourcing strategy, i.e., what should
be done in-house and what should be outsourced?

2.3. Business Vision

The first task in the process of strategic management is to formulate the organisation’s vision
and mission statements. These statements define the organisational purpose of a firm. Together
with objectives, they form a “hierarchy of goals.”
V
is
i
o
Mission
n
Goals

Objectives

Plans

A clear vision helps in developing a mission statement, which in turn facilitates setting of
objectives of the firm after analyzing external and internal environment. Though vision, mission
and objectives together reflect the “strategic intent” of the firm, they have their distinctive
characteristics and play important roles in strategic management.

Vision can be defined as “a mental image of a possible and desirable future state of the
organisation” (Bennis and Nanus). It is “a vividly descriptive image of what a company wants to
become in future”. Vision represents top management’s aspirations about the company’s
direction and focus. Every organisation needs to develop a vision of the future. A clearly
articulated vision moulds organisational identity, stimulates managers in a positive way and
prepares the company for the future.

Vision has been defined in several different ways. Richard Lynch defines vision as “a challenging
and imaginative picture of the future role and objectives of an organisation, significantly going
beyond its current environment and competitive position.” E1-Namaki defines it as “a mental
perception of the kind of environment that an organisation aspires to create within a broad time
horizon and the underlying conditions for the actualization of this perception”. Kotter defines
it as “a description of something (an organisation, corporate culture, a business , a technology,
an activity) in the future.”

2.4. Nature of Vision

A vision represents an animating dream about the future of the firm. By its nature, it is hazy and
vague. That is why Collins describes it as a “Big hairy audacious goal” (BHAG). Yet it is a
powerful motivator to action. It captures both the minds and hearts of people. It articulates a
view of a realistic, credible, attractive future for the organisation, which is better than what now
exists.

Developing and implementing a vision is one of the leader’s central roles. He should not
only have a “strong sense of vision”, but also a “plan” to implement it.

Example:
1. Henry Ford’s vision of a “car in every garage” had power. It captured
the imagination of others and aided internal efforts to mobilize resources
and make it a reality. A good vision always needs to be a bit beyond a
company’s reach, but progress towards the vision is what unifies the
efforts of company personnel.
2. One of the most famous examples of a vision is that of Disneyland “To
be the happiest place on earth”. Other examples are:
(a) Hindustan Lever: Our vision is to meet the everyday needs of people
everywhere.
(b) Microsoft: Empower people through great software any time, any
place and on any device.
(c) Britannia Industries: Every third Indian must be a Britannia consumer.

Although such vision statements cannot be accurately measured, they do provide a fundamental
statement of an organisation’s values, aspirations and goals.
Some more examples of vision statements are given in Box 2.2
1. A Coke within arm's reach of everyone on the planet (Coca Cola)
2. Encircle Caterpillar (Komatsu)
3. Become the Premier Company in the World (Motorola)
4. Put a man on the moon by the end of the decade (John F. Kennedy, April 1961)
5. Eliminate what annoys our bankers and customers (Texas Commerce Bank)
6. The one others copy (Mobil)

2.5. Characteristics of Vision Statements

As may be seen from the above definitions, many of the characteristics of vision given by these
authors are common such as being clear, desirable, challenging, feasible and easy to communicate.
Nutt and Backoff have identified four generic features of visions that are likely to enhance
organisational performance:

1. Possibility means the vision should entail innovative possibilities for dramatic
organisational improvements.
2. Desirability means the extent to which it draws upon shared organisational norms and
values about the way things should be done.
3. Actionability means the ability of people to see in the vision, actions that they can take
that are relevant to them.
4. Articulation means that the vision has imagery that is powerful enough to communicate
clearly a picture of where the organisation is headed.

Thus vision statements serve as:

1. A basis for performance: A vision creates a mental picture of an organisation’s path and
direction in the minds of people in the organisation and motivates them for high
performance.
2. Reflects core values: A vision is generally built around core values of an organisation, and
channelises the group’s energies towards such values and serves as a guide to action.
3. Way to communicate: A vision statement is an exercise in communication. A wellcommunicated
vision statement will bring the employees together and galvanize them
into action.
4. A desirable challenge: A vision provides a desirable challenge for both senior and junior
managers.

While providing a sense of direction, strategic vision also serves as a kind of “emotional
commitment”. Thompson and Strickland point out the significance of “vision” which is broadly
as follows:
1. It crystallizes top management’s own view about firm’s long-term direction.
2. It reduces the risk of rudderless decision-making.
3. It serves as a tool for maximizing the support of organisation members for internal
changes.
4. It serves as a “beacon” to guide managers in decision-making.
5. It helps the organisation to prepare for the future.
Vision poses a challenge and addresses the human need for something to strive for. It can depict
an image of the future that is both attractive and worthwhile.
2.6. Advantages of Vision

Several advantages accrue to an organisation having a vision. Parikh and Neubauer point out
the following advantages:
1. Good vision fosters long-term thinking.
2. It creates a common identity and a shared sense of purpose.
3. It is inspiring and exhilarating.
4. It represents a discontinuity, a step function and a jump ahead so that the company knows
what it is to be.
5. It fosters risk-taking and experimentation.
6. A good vision is competitive, original and unique. It makes sense in the market place.
7. A good vision represents integrity. It is truly genuine and can be used for the benefit of
people.

When does a vision fail?

A vision may fail when it is:
1. Too specific (fails to contain a degree of uncertainty)
2. Too vague (fails to act as a landmark)
3. Too inadequate (only partially addresses the problem)
4. Too unrealistic (perceived as unachievable)

2.7. Formulating a Vision Statement

Generally, in most cases, vision is inherited from the founder of the organisation who creates a
vision. Otherwise, some of the senior strategists in the organisation formulate the vision
statement as a part of strategic planning exercise.
Nutt and Backoff identify three different processes for crafting a vision:
1. Leader-dominated Approach: The CEO provides the strategic vision for the organisation.
This approach is criticized because it is against the philosophy of empowerment, which
maintains that people across the organisation should be involved in processes and decisions
that affect them.
2. Pump-priming Approach: The CEO provides visionary ideas and selects people and groups
within the organisation to further develop those ideas within the broad parameters set
out by the CEO.
3. Facilitation Approach: It is a “co-creating approach” in which a wide range of people
participate in the process of developing and articulating a vision. The CEO acts as a
facilitator, orchestrating the crafting process. According to Nutt and Backoff, it is this
approach that is likely to produce better visions and more successful organisational change
and performance as more people have contributed to its development and will therefore
be more willing to act in accordance with it.

Phase 1: Preparation - Establish purpose and goals

Phase 2: Initial meeting. Two-day meeting with discussion on vision audit (character of
organization), vision scope (who it includes and desired vision characteristics), and vision context
(environmental issues)
Phase 3: Analysis and report cycle. Facilitator prepares three scenarios of the future that are
discussed among participants over a number of weeks
Phase 4: Final meeting. One-day discussion and evaluation of vision alternatives and their
strategic implications
Phase 5: Post-retreat activities. Conclusions communicated throughout the organization including
ways of implementing it