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Questions and Answers
What is the primary responsibility of top managers?
When is a stability strategy most likely to be successful?
What is the goal of a profit strategy?
Which of the following situations is unsuitable for a no-change stability strategy?
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Under what conditions would a profit strategy be unsuccessful?
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What is the main characteristic of a no-change stability strategy?
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Which type of strategy is likely to be temporary and aimed at sustaining profitability in unfavorable conditions?
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In what type of environment is a profit strategy most likely to be implemented by a firm?
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When would a no-change stability strategy be preferable for a small or medium-sized firm?
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Which element is crucial for the success of a profit strategy in the short run?
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Study Notes
Corporate Level Strategy
- Top managers are responsible for formulating corporate level strategy, looking ahead for five years or longer.
- This level outlines what an organization wants to achieve, such as growth, stability, acquisition, or retrenchment.
- It focuses on what business the organization is going to enter into the market.
Strategic Alternatives
- Strategic alternatives are strategies that a business develops to set the direction for applying human and material resources to achieve selected goals.
- There are different types of strategic alternatives, including stability strategy.
Stability Strategy
- A stability strategy is adopted when an enterprise is satisfied with its present position and does not want to change.
- This strategy is successful when the environment is stable.
- It is less risky and often exercised, as it involves continuing with the present work.
- A stability strategy is followed when an organization is satisfied with the same product, serving the same consumer groups, and maintaining the same market share.
Types of Stability Strategies
- No-change strategy: a conscious decision to do nothing new, continuing with the present work.
- No-change strategy is preferred in a predictable and stable external environment with no new threats from competitors or new competing products.
- Profit strategy: adopting changes to sustain profitability in response to unfavorable external factors such as increased competition, recession, or industry downturn.
- Profit strategy involves controlling expenses, reducing investments, raising prices, cutting costs, and increasing productivity to sustain current profitability in the short run.
- Profit strategy is successful for a short period only, and if things do not improve, it can negatively affect the organization's position.
Strategy Formulation
- Strategy formulation is an analytical process of selecting the best course of action to meet organizational objectives and vision.
- It involves examining resources, providing a financial plan, and establishing an action plan to increase profits.
- The strategic plan should be informed to all employees to provide direction and focus.
Levels of Strategy Formulation
- There are three levels of strategy formulation: corporate level, business level, and functional level.
- Business level strategy answers the question of how to compete and is used in organizations with smaller units of business (SBU).
- Functional level strategy concentrates on how an organization is going to grow and defines daily actions, including resource allocation to deliver corporate and business level strategies.
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Description
Learn about strategy formulation, which is a crucial step in the strategic management process. Understand how it involves analyzing and selecting the best course of action to achieve organizational objectives. Explore how strategic plans can help organizations allocate resources effectively and increase profits.
