Strategy Formulation is designed to guide executives in defining the business, their company, the aims it seeks, and the means it uses to accomplish these aims. Strategy formulation involves an improved approach to traditional long-range planning. Strategy formulation joins a future oriented perspective with concern for firm’s internal and external environment in developing its competitive planning action. Thus the Process of using environmental analysis in strategy formulation is significant. Strategy formulation will always follows the same steps regardless of level; however, the scope will differ.
Environmental analysis either formal or informal plays significant role in strategy formulation. Infact, environmental analysis plays the most important input for strategy formulation because an organization tries to relate itself to the demand of the environment. Therefore, managers should ensure that their function of environment analysis is integrated with strategy formulation. The various steps involved in this context can be described as follows.
• Study of the Environment. Every organization undertakes analysis of environment either on formal basis or informal basis depending on the size of the organisation, its managerial philosophy, the nature of its environment, etc. However, if environmental analysis is taken as on-going basis, it serves the organizational purpose in a much better way. Moreover, on-going environment study takes much wider coverage of the environment. When art analysis is limited to specific projects, it covers only some areas in the environment having behind spots in others. An on-going study can locate existing
and potential impact oi the environment on the organization. This phase is to be directed by and is complementary to the phase of informal planning. It should aim at broad coverage of the environment rather. This serves two purposes:-
- it becomes complementary source for identifying perceived environmental causes for the changes in strategy;
- its output may serve as a trigger for strategy changes for detailed environmental analysis.
• Perceived Environmental Causes for Strategy Change. Strategy makers perceive the need for strategy change in the light of environmental factors. This awareness of environmental forces and their impact on the organization does not come suddenly. Moreover, this awareness fluctuates over the period of time. However, this alone does not initiate strategy changes.
• The trigger is an event or set of events that initiates strategy changes or creates need for environmental data. Events serving in triggers may take place outside the organization, e.g., a change in the Government’s policy toward foreign technical collaboration of entry of new competitor with some unique features; or may take place within the organization, e.g., change in organizational structure or during of a new key executive. In fact, various triggers outside the organization force managers to take environmental studies on specific project basis. For example, Reliance Industries even took the study of application of Government oi India’s decision of not withdrawing Rs. 1100 core of its loan sanctioned by International Monetary Fund. Though such a study was not related with the immediate business of the company, this could provide way for evaluation of the business opportunities lying in the environment.
• Strategy Changes. These Triggers may be used as a means of Strategy changes. However, strategy changes based on triggers alone may be. It gives right direction for strategy change but triggers must be used as the reasons for collecting appropriate information from the environment.
• Need for Environmental Data. Need for environmental data because of two f actors first, the organization is taking, up environmental analysis as an on-going process and second, when some triggers are there. While the first aspect emphasizes the general study of the environment, the second emphasizes on specific project or areas to be studied.
• Assignment of Environmental Study Project. The assignment of environmental study project depends on the organization and its practice of environmental study. If it is monitoring the environment on continuous basis and some persons are assigned for this purpose, these persons can take up this job as an additional work load, if the organisation does‘ not have a special task force which can be created for the purpose which may be termed as environmental analysis unit (EAU). The task between EAU and strategists could be clearly shown so that exact term of reference can be fixed.
• Collection and Analysis of Data. Data collection at this stage may be specific relating to the particular strategy which an organization may consider seriously looking into various aspects, such of all those factors which go into choice of strategy. However, data collection and analysis cannot be taken just to satisfy a strategy information based on whims of some people at the top level of the organization.
• Preparation of Reports and Presentation to Strategy Makers. The complete report can be presented to those people who can make decision on it. Usually most of the organizations have certain .specified groups of people who make strategic decision. However, they can perform better if they work in close contact with people responsible for planning of environment.
• Indirect Impact. External environmental scanning is only one end of input which goes in strategy formulation. Therefore, strategy may not necessary go on the basis of report prepared by environmental scanning group. However, they are affected by the information inputs. Therefore, environmental scanning can stimulate them indirectly to go for certain strategy. Thus, more frequent exposure of the strategy maker to data and its analysis will enhance the educational process which is the essence of the indirect impact. The additional exposure can be achieved through periodical progress reports.
• Translation of Environmental Analysis Into Strategy Action. Direct use of environmental analysis in strategy making requires translation of environmental analysis in strategy making which requires translation of environmental analysis into specific changes. When large amount of data is collected and analyzed, either strategy makers cart make decisions leading to strategic change or they may create special task force whose task may be to make environmental analysis. Effective translation of environmental analysis in to specific change can be performed cooperatively by analysts, strategy makers, and task force if created.