Int. J. Production Economics 60—61 (1999) 87—94 A methodology for formulating a business strategy in manufacturing firms Luis E. Quezada*, Felisa M. Co´rdova, Serge Widmer, Christopher O’Brien  Department of Industrial Engineering, University of Santiago, Avenida Ecuador 3769, Santiago, Chile  SIGA Management, Zurich, Switzerland  Department of Manufacturing Engineering, University of Nottingham, Nottingham, UK Abstract This paper describes a methodology for formulating a business strategy in small- and medium-sized manufacturing firms. It identifies the objectives and beliefs of the owner. Then Strategy Business Units are defined as pairs of products—markets to produce a customer oriented analysis. They are assessed and action plans are generated to improve the competitiveness of the company, taking charge of the preferences of the owner. A reduced number of indicators is used to monitor the performance of the company. The way the process is applied is discussed and its application in five firms is presented as an illustration.  1999 Elsevier Science B.V. All rights reserved. Keywords: Strategy; Strategy formulation; Performance indicators 1. Introduction Companies are facing an increasingly competi- tive environment where competitive advantages have to be created and exploited. Companies have to evolve and change according to the new require- ments or challenges established by the environ- ment. However, any change should be done with a long-term vision, which is important, especially to small- and medium-sized firms (SMED), who can- not afford to make expensive mistakes. As they need to measure every step they do, so they should have a strategy for guiding all their major decisions. * Corresponding author. Tel.: 56-2-7799723; fax: 56-2- 7762260; e-mail: lquezada@lauca.usach.cl. The process of formulating a strategy has been a matter of study for a long time. Even though the concept is very old, the process was not formally studied until the 1960s by authors such as, Ackoff [1], and Ansoff [2] and Chandler [3]. Since then, many methods for formulating a strategy have been produced. For example, Hofer and Schendler [4] describe a number of steps that in some way are present in any strategy formulation process. A dif- ferent view to the traditional prescriptive approach to strategy formulation is made by Mintzberg and Waters [5], who argue that the formulation of a strategy is not necessarily a logical, prescriptive and formal process. They distinguish between de- liberate strategy — realised as intended — and emerg- ent strategy — realised despite or in absence of intentions. However, they conclude that in practice, 0925-5273/99/$ - see front matter  1999 Elsevier Science B.V. All rights reserved. PII: S 0 9 2 5 - 5 2 7 3 ( 9 8 ) 0 0 1 9 4 - 7