CMA Intermediate · Operations Management and Strategic Management

Formulation and Implementation of Strategy: formula sheet

Full chapter guide

Key formulas

Steps in strategy formulation (sequence): Vision, mission and objectives → Environmental scanning → Internal appraisal → SWOT → Generate alternatives → Evaluate and choose → Strategic plan; Textbooks vary in how they number the steps. Keep this logical order and name each step clearly.
SWOT classification rule: Strengths and Weaknesses = internal; Opportunities and Threats = external; Internal factors are within the firm's control. External factors are not.
SWOT strategy pairings: SO: use strengths to exploit opportunities; WO: overcome weaknesses using opportunities; ST: use strengths to counter threats; WT: reduce weaknesses and avoid threats; This pairing is often called the TOWS approach. Use it to turn a SWOT list into strategic options.
Environmental scanning outputs: Environment → Opportunities (favourable) + Threats (unfavourable); The same trend can be an opportunity for one firm and a threat for another.
Corporate level: Scope: whole organisation | Question: What businesses? | Made by: board, CEO, top management; Long term, high risk, resource allocation across businesses. Examples: diversification, merger, divestment.
Business level: Scope: one SBU or product line | Question: How to compete? | Made by: SBU head, general manager; Medium term. Examples: cost leadership, differentiation, focus.
Functional level: Scope: one department | Question: How to support the business strategy? | Made by: functional managers; Short term, specific, operational. Examples: marketing mix, working capital policy, hiring plan, production scheduling.
Three families of grand strategy: Grand strategy = Stability | Expansion | Retrenchment; Always classify the case into a family first, then name the specific strategy.
Expansion routes: Expansion = Concentration + Integration + Diversification + Cooperation; Integration: backward, forward, horizontal. Diversification: concentric (related) or conglomerate (unrelated).
Retrenchment ladder: Turnaround → Divestment → Liquidation; Ordered from mildest to most severe. Turnaround keeps the business, divestment sheds a part, liquidation closes the firm.
Market-product logic: Penetration: existing product, existing market | Market development: existing product, new market | Product development: new product, existing market | Diversification: new product, new market; Use this grid to identify concentration versus diversification quickly.
BCG relative market share: Relative market share = Your business's market share ÷ Share of the largest competitor; A value above 1 means you are the market leader. A value below 1 means a rival is larger. Many textbooks use 1 as the high/low cut-off, but check the cut-off the question gives.
BCG market growth rate: Market growth rate (%) = (Current year market sales − Previous year market sales) ÷ Previous year market sales × 100; Use the growth of the whole market, not of your own business. The high/low cut-off is usually given in the question (often around 10%).
BCG four categories: Star = high growth, high share | Cash cow = low growth, high share | Question mark = high growth, low share | Dog = low growth, low share; Learn each as a pair of growth and share.
GE matrix axes: Industry attractiveness (high/medium/low) × Business strength (high/medium/low) = 9 cells; Both axes are composite scores based on several weighted factors.
Ansoff matrix: Market penetration = existing product, existing market | Market development = existing product, new market | Product development = new product, existing market | Diversification = new product, new market; Risk is lowest in penetration and highest in diversification.
Porter's generic strategies: Cost leadership | Differentiation | Focus (cost focus or differentiation focus); Two axes: source of advantage (low cost or uniqueness) and scope (broad or narrow).
Structure follows strategy: Strategy → Structure (a change in strategy calls for a matching change in structure); Chandler's idea. Also remember that an existing structure can constrain strategy choices.
McKinsey 7S - hard elements: Strategy, Structure, Systems; Easier to define and change, as they appear in plans, charts and procedures.
McKinsey 7S - soft elements: Shared values, Style, Staff, Skills; Harder to change, but often decide success. Shared values are at the centre of the model.
Structure choice rule: Single or few related products → Functional; diversified products or regions → Divisional/SBU; need for dual focus → Matrix; A guide for matching, not an absolute rule.
Four perspectives of the balanced scorecard: Financial + Customer + Internal Business Process + Learning and Growth; Remember the questions: how do we look to shareholders, how do customers see us, what must we excel at, can we keep improving and creating value.
Strategic control process: Set standards → Measure actual performance → Compare → Analyse deviations → Take corrective action; Write the steps in this order. Corrective action may change the action, the standard or the strategy itself.
Deviation: Deviation = Actual performance − Standard (target); Say whether it is favourable or adverse, and state the cause. For cost measures, actual above standard is adverse.

Quick revision

Strategy formulation moves from vision, mission and objectives to environment analysis, strategic choice and plan.
Corporate level decides the portfolio of businesses; business level decides how to compete; functional level supports them.
Grand strategies are stability, growth and retrenchment.
Growth can come through expansion, diversification, mergers or strategic alliances.
Retrenchment includes turnaround, divestment and liquidation.
SWOT matches internal strengths and weaknesses with external opportunities and threats.
The BCG matrix classifies businesses by market growth and relative market share.
Implementation turns strategy into action through plans, resources, structure, systems and people.
Structure should follow strategy, and leadership shapes culture and commitment.
Strategic control checks whether the strategy is working and whether its assumptions still hold.
Evaluation compares actual results with targets and triggers corrective action.
Always link a concept to the case facts in written answers.

Common mistakes

Placing a factor in the wrong SWOT quadrant, such as calling a new government policy a strength. Fix: First ask: is it inside the firm's control? If yes, it is a strength or weakness. If no, it is an opportunity or threat.
Treating SWOT as the whole strategy formulation process. Fix: Show SWOT as one step. Add objectives before it and alternatives, evaluation and choice after it.
Calling pricing or competitive positioning a corporate level decision. Fix: Positioning against rivals in one market is business level. Corporate level is about the choice and mix of businesses.
Treating functional strategy as unrelated to business strategy. Fix: Always say functional strategies implement the business strategy and must be aligned with it.
Treating divestment and liquidation as the same. Fix: Divestment sells a part and the firm continues. Liquidation closes the entire firm.
Confusing turnaround with divestment. Fix: Turnaround tries to revive the business and keep it. Divestment removes a unit from the portfolio.
Using the firm's own growth rate instead of the market growth rate in BCG. Fix: Always use industry or market growth on the vertical axis. Business share is used only through relative market share.
Taking absolute market share instead of relative market share. Fix: Divide your share by the largest competitor's share. A business with 20% share can still be low if a rival holds 40%.
Confusing procedural implementation with project implementation. Fix: Project is about building or setting up the venture. Procedural is about legal and regulatory permissions and compliance.
Treating implementation as the same as formulation. Fix: State that formulation decides what to do and implementation decides how to do it, with resources, structure and people.

Exam tips

For a 'steps' question, write the steps as a numbered list with a one-line explanation each. Examiners reward clear sequence.
In SWOT case studies, label each point S, W, O or T, and finish with a recommended strategy. A table alone loses marks.
For MCQs, remember that strengths and weaknesses are internal, opportunities and threats are external. Many options test only this.
Add a short Indian company example in theory answers. Keep it generic if you are unsure of facts.
Do not confuse this topic with the broader strategic management process. Formulation is one phase; implementation and evaluation are separate.
Prepare a ready comparison on six points: scope, decision makers, time horizon, risk, nature and examples. It fits both short notes and 14-mark answers.
In case studies, quote the decision maker from the case to justify the level you choose.
For MCQs, look for key words: portfolio, diversification and acquisition mean corporate; competitive advantage and SBU mean business; department names mean functional.