When it comes to making formations in-game, I think it would be awesome to need a large open space in your fortress where your Militia Commander would drill formation exercises
And of course how much they drill would determine their speed at changing formation [say from a column for traveling (maybe 2 wide and five deep;almost perfect corridor size, but we don't have size fifteen squads, though combining two squads should be possible) to a line for fighting(maybe 2 deep and five wide)] and of course their ability to stay in formation while fighting and their movement speed in formation as well.
I do think the direction system is a bit clumsy. They should be able to wheel the formation to face any direction. Of course you'd need to designate relative directions where each dwarf in the formation is supposed to face [shieldwall all in one direction, turtle type formation would have each dwarf pointing at a different direction.
Instead of having preset shapes I think it might be more interesting for players to be able to designate the relative positions dwarves stand and when in formation they'd try and stay in those relative positions if the terrain allows it. There'd have to be some option for what dwarves must do if other dwarves die and relative positions are left open.
It'd also be interesting to set the relative positions of different formations for control over entire armies. Like the roman maniple system.
Though one thing I find a bit difficult to figure out is how much control the player would have. I wouldn't trust the ai to pick what formation is best. But I don't want the player to have as much control as an rts. Maybe an emphasis on tactics where the the squad menu is changed into more of a tactical command system where you can tell squads or groups of squads what formation to take and where to move. but it would be more like setting up hunting or fishing labours. It'd need to have a high priority so your dwarves don't comit suicide when you tell them to retreat. But when not following orders [like when traveling to a from set order stations] they'd have a certain amount of freedom. Like if they run into enemies that outnumber them and they cant get to a station you'd a an announcement that they are holding back. Or if theres a stockpile on the way they might ressuply. And thye might skirmish with enemy is not specifxally told to hold back. I don't lnow. This still might be tooo much control but....