Strategy Formulation and Strategic Choice
From Analysis to Choice
Strategy formulation translates analysis into long-term direction. Candidates must understand Ansoff's matrix (market penetration, product development, market development, diversification), Porter's generic strategies (cost leadership, differentiation, focus), and the BCG matrix (stars, cash cows, question marks, dogs). Also know corporate parenting roles and build/buy/ally decisions.
Common Traps
- Confusing diversification with integration: Related diversification shares capabilities; unrelated diversification does not. Vertical integration is along the value chain.
- Misapplying Porter's generic strategies: A firm can be "stuck in the middle" if it fails to achieve either cost leadership or differentiation. The trap is assuming focus is always niche-focus can be cost or differentiation based.
- BCG matrix misuse: Market growth and share are proxies; a "dog" may still generate cash or serve a strategic purpose.
- Ignoring stakeholder expectations in choice: strategy must be acceptable to key stakeholders.
Worked Example
"A luxury car maker launches a lower-priced model to reach new customers. Which Ansoff quadrant?" Answer: Market development (existing product, new market) if the model is essentially the same product positioned to a new segment; but if it is a new product for new customers, it is diversification. The trap is assuming any new customer equals market development-check whether the product is new.
Rule of thumb: Use Ansoff to classify growth options by product/market novelty; use Porter to test competitive basis; use BCG to balance the portfolio. Always evaluate options against suitability, acceptability, and feasibility (SAF).
Key Concepts to Master
- Ansoff's matrix and risk levels (diversification highest).
- Porter's generic strategies and "stuck in the middle".
- BCG matrix and cash flow implications.
- SAF criteria for strategic evaluation.
- Corporate parenting and synergy.