Strategy formulation and implementation

1. Leading global excellence in procurement and supply
Strategy formulation and implementation
This podcast gives an overview of strategy formulation and implementation.
This section looks at how corporate and business strategic decisions impact on supply chains.
The Ansoff matrix is a business analysis technique that provides a framework for identifying
business strategies for potential future growth.
It presents four strategies that an organisation can adopt to achieve growth, based on whether
they decide to focus on existing or new products within existing or new markets.
Market penetration seeks to increase market share by pushing existing products further into an
existing market. This strategy requires detailed market and competitor intelligence so as to
understand competitor strategies and actions, and therefore identify actions to increase
product usage in the market. This strategy carries the lowest risk.
Market development focuses on finding new markets for existing products, often by expanding
into unexploited and unsaturated geographical regions. Market development can take different
forms, including developing into new segments, new users, and new geographical markets. This
strategy carries moderate risk, since the products are known, even though they’re entering
unknown markets.
Product development involves modifying existing products or creating new products to sell
within the organisation’s existing markets. Modifying existing products in this way can prolong
the product life cycle of an existing product. Product development requires research and
development, the assessment of customer needs and a clear path for brand extension. This
strategy also carries moderate risk.
Diversification involves creating new products for new markets. This strategy requires intensive
research to be conducted before the organisation ventures into developing new products and
approaching new markets. This is the riskiest strategy since it involves significant unknown
elements.
Once an organisation is established in its domestic market, often it is only able to achieve
significant growth through market development into new geographical regions. This is called
internationalisation.
An international strategy has five main themes:
• International drivers are the forces that lead organisations to seek international strategies
• Geographical and organisation-specific advantages can be realised through competing
internationally

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• International strategy considers the range of options for operating outside an
organisation’s country of origin. Global strategy is a type of international strategy that involves a
high level of co-ordination of activities around the world
• Market selection means deciding which markets to prioritise, and
• Entry mode means how the organisation should enter the target market.
According to Yip’s globalisation framework, international strategy potential is driven by factors
classified into four key drivers:
• Market drivers can be divided into three components, which are homogeneous customer
needs, global customers, and transferable marketing
• Cost drivers, again, have three main elements, which are economies of scale, country-
specific differences, and favourable logistics
• Competitive drivers are made up of interdependence between country operations, and
globalised competitors, and finally
• The government drivers that can influence international strategy include favourable trade
policies, technical standards and common marketing regulations.
This brings us to the end of the section on how corporate and business strategic decisions
impact on supply chains.
Now answer these questions to check your understanding. Pause the podcast to write down
your answers.
1. Write down the four categories in the Ansoff matrix, and the level of risk associated with
each one.
2. What are the four drivers of internationalisation?
3. Select one of the drivers and write down the components of that driver.
This section looks at how organisational strategy can be implemented in supply chains, and
focuses on the evaluation of strategy.
Strategies need to be fully evaluated before an organisation’s board will choose to implement
them. The criteria applied in such an evaluation are suitability, acceptability and feasibility.
Suitability is a measure of whether a strategy addresses the key issues relating to the strategic
position of the organisation. That is, will it enable the organisation to achieve its objectives? It
also considers the expected changes in the environment, whether it exploits strategic
capabilities, and whether it’s appropriate in terms of shareholder expectations and influence.
Tools that can be used to analyse the suitability of potential strategic options include the TOWS
matrix, the relative suitability of options, ranking strategic options, decision trees and scenarios.
Acceptability is measured in terms of the expected performance outcomes of a strategy and
how well it aligns with the wishes of the organisation’s shareholders. Acceptability can be
measured in three ways: returns, real options, and risks. The three commonly used approaches

3. Leading global excellence in procurement and supply
for financial analysis are: return on capital employed (ROCE), payback period, and discounted
cash flows (DCFs). A cost–benefit analysis can also be performed on returns.
Feasibility concerns whether or not an organisation has the capabilities, resources and capacity
to deliver the strategy. Feasibility tests centre on the question: is this strategic option possible?
Feasibility is largely influenced by the resources available to, or possessed by, the organisation.
Different approaches can be used to understand feasibility. These are financial feasibility, and
resource deployment.
This brings us to the end of the section on how organisational strategy can be implemented in
supply chains.
Now answer these questions to check your understanding. Pause the podcast to write down
your answers.
1. What tools can be used to assess the suitability of an option?
2. What approaches are used for financial analysis when assessing acceptability?
3. What factors are considered in relation to feasibility?
This section looks at the relationship between strategy and corporate, business and functional
structures in organisations.
There are three main models of supply chain organisational structure that an organisation can
consider: centralised, devolved or hybrid.
In the centralised organisational structure, a corporate-level supply chain group is put in a
central location, often the headquarters. This group is responsible for overseeing and managing
supply chain operations for the organisation. This enables the organisation to leverage its
corporate spending, drive standard outsourcing and processes and make standard
technological decisions. This results in economies of scale, which improves the organisation’s
spending power. This model is often adopted by companies that need to reduce their supply
costs, because the centralised model reduces redundancies.
In a devolved supply chain structure, supply chain activities are based in the plants or business
units. This means that the business unit oversees and manages all sourcing decisions and
procurement activities. This model is best suited to companies that have multi-functional
organisational structures that operate independently and have a high level of autonomy.
A hybrid supply chain structure, which is often linked to a matrix reporting structure, typically
has decentralised buyers reporting to a head office. In this model, strategic supply chain
decisions are made at the headquarters, while low-risk decisions, such as tactical and
operational decisions, are performed at the plants. Hybrid supply chain structures can extend
into lead buyer networks, where individual expertise is spread around a group.
This brings us to the end of the section on the relationship between strategy and corporate,
business and functional structures in organisations.

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Now answer these questions to check your understanding. Pause the podcast to write down
your answers.
1. What are the benefits of a centralised structure?
2. What type of organisation is a devolved structure best suited to?
3. What reporting structure is a hybrid structure most likely to be linked to?
This section looks at the management of resources to support the development and
implementation of strategy.
An organisation must manage its finances properly to ensure that it has the money to pay for its
daily operations, but also to fund its future operations and its investment requirements. The
company will then be able to continue to implement its strategy. Financial management is the
planning, directing, organising and controlling of the financial undertakings of a company.
Financial management is used to make a number of key decisions:
• First, decisions about the capital structure of the organisation are made. This focuses on
assessing the longer-term requirements of the business and involves decisions around the
optimum balance of funding between debt and equity.
• Second is about working capital management decisions, which affect the daily operations
of a company. Working capital management oversees how funds are generated in the short
term. It involves managing current assets and current liabilities.
• Third is dividend decisions. This determines much money will be paid to shareholders
from the earnings of the organisation.
• Fourth, once the funds have been set aside, investment decisions need to be made.
Organisations usually invest in the projects and financial assets that are likely to yield the
highest possible return.
This brings us to the end of the section on the management of resources to support the
development and implementation of strategy.
Now answer these questions to check your understanding. Pause the podcast to write down
your answers.
1. What activities are involved in financial management, alongside planning?
2. What aspects does capital structure take into account?
3. What factors determine the dividend ratio?
This is the end of this podcast. You should now be able to:
• Evaluate how corporate and business strategic decisions impact on supply chains
• Evaluate how organisational strategy can be implemented in supply chains

5. Leading global excellence in procurement and supply
• Analyse the relationship between strategy and corporate, business and functional
structures in organisations
• Analyse the management of resources to support the development and implementation of
strategy.