strategy formulation functional strategy

8/3/2019 Strategy Formulation Functional Strategy

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Strategy FormulationStrategy Formulation

Functional StrategyFunctional Strategy

Prof. Rushen ChahalProf. Rushen Chahal


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Functional Strategy

Key Goals

To achieve corporate and business

unit objectives and strategies by

maximizing resource productivity

To develop & nurture a distinctivecompetence to provide a company

(BU) competitive advantage


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Functional Strategy

Functional strategies are primarily concerned with:

Efficiently utilizing specialists within the functional area.

Integrating activities within the functional area (e.g.,coordinating advertising, promotion, and marketing

research in marketing; or purchasing, inventory control,

and shipping in production/operations).

Assuring that functional strategies mesh with business-

level strategies and the overall corporate-level strategy.


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Functional Strategy Objectives

Profitabilityproducing at a net profit in business.

Market sharegaining and holding a specific share of a

product market.

Human talentrecruiting and maintaining a high-quality

workforce.Financial healthacquiring financial capital and earning

positive returns.

Cost efficiencyusing resources well to operate at low

cost.

Product qualityproducing high-quality goods or

services.

Innovationdeveloping new products and/or processes.

Social responsibilitymaking a positive contribution to

society.


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Core Competence

is something that a corporation can do

exceedingly well.

A company must continually reinvest in its

core competences or risk losing them.


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Core Competence

To be considered a distinctive competency (superior

to those of the competition), the competence must

meet three tests:

Customer Valueit must make a disproportionatecontribution to customer-perceived value.

Competitor Uniqueit must be unique and superior to

competitor capabilities.

Extendibilityit must be something that can be used to

develop new products/services or enter new markets


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Distinctive Core Competence

A corporation can gain access to a distinctive competency in

four ways:

Be an asset endowment such as key patent coming from

the founding company (Xerox).

Be acquired from someone elseWhirlpool bought a

worldwide distribution system when it purchased Philips

appliance division.

Be shared with another business unit or alliance partner

Apple Computer worked with a design firm to create the

special appeal of its Apple II and Mac computers.

Be carefully built and accumulated over time within the

companyHonda carefully extended its expertise in small

motor manufacturing from motorcycles to autos and

lawnmowers.


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The Sourcing Decision

If a corporation does not have a distinctive

competency in a particular functional area, that

functional area could be a candidate for outsourcing

Outsourcing is purchasing from someone else a product

or service that had been previously provided internally.

According to an American Management Association

survey 94% of the firms outsource at least one activity.


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Activitys Total Value-Added to FirmsProducts and Services

Low High

Taper verticalIntegration:Produce some

internally

Full VerticalIntegration:

Produce all

internally

Outsource

Completely:Buy on open

market

Outsource

Completely:Long-term

contracts

Activitys

Potentialfor

CompetitiveAdvantageHig

h

Low

Outsourcing Matrix


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Make or BuyMake or Buy

Make

Lower costs

ProprietaryProduct

TechnologyProtection

Facilitatingspecializedinvestments

Improvedscheduling

Buy

Strategicflexibility

Lowercosts

Offsets

Trade-offs


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Functional Strategy

Appropriate timing: advertising for a new product could beexpected to begin sixty days prior to shipment of the first

product. Production could then start thirty days before

shipping begins. Functional strategies have a shorter time

orientation than either business-level or corporate-level

strategies

Accountability is also easiest to establish with functional

strategies because results of actions occur sooner and are

more easily attributed to the function than is possible atother levels of strategy.

Personnel: lower-level managers are most directly

involved with the implementation of functional strategies.


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Functional Strategy

Marketing strategy deals with pricing, selling, and

distributing a product

Financial strategy examines the financial implications of

corporate and business-level strategic options and identifiesthe best financial course of action

Operations strategy determines how and where a product

or service is to be manufactured, the level of vertical

integration in the production process, and the deployment

of physical resources.


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Research and Development Strategy

and Competitive Advantage

Technological Leadership Technological

Followership

Cost Advantage

Differentiation

Pioneer the lowest cost

product design. Be the first

firm down the learningcurve. Create low-cost

ways of performing value

activities.

Pioneer a unique productthat increases buyer value.

Innovate in other activities

to increase buyer value.

Lower the cost of the

product or value activities

by learning from theleaders experience.

Avoid R&D costs through

imitation.

Adapt the product or

delivery system more

closely to buyer needs by

learning from the leaders

experience.


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Functional Strategy

Purchasing strategy deals with obtaining the raw

materials, parts, and suppliers needed to perform theoperation function.

Logistics strategy deals with the flow of products into and

out of the manufacturing process.

Power of Just-in-Time:

Economize on inventory holding costs.

Drawback: no buffer inventory.


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From lean to lasting (by David Fine, MaiaA. Hansen, andStefan Roggenhofer)

Organizations overlook up to half of the potential savingswhen they implement or expand operational-improvement

programs inspired by lean, Six Sigma, or both.

The broader challenge underlying such problems is

integrating the better-known hard operational tools andapproachessuch as just-in-time productionwith the

soft side, including the development of leaders who can

help teams to continuously identify and make efficiency

improvements, link and align the boardroom with the shopfloor, and build the technical and interpersonal skills that

make efficiency benefits real.


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From lean to lasting (by David Fine, MaiaA. Hansen, andStefan Roggenhofer)


17/19

Functional Strategy

Corporations are increasingly adopting information systemsstrategies in that they are turning to information systems

technology to provide business units with competitive advantage

Track component parts to assembly plant.

Optimize production scheduling.

Ability to accelerate (or slow) production.

Electronic data interchange coordinates flow through

into/through manufacturing to customers.

Suppliers, shippers, and purchasing firms cancommunicate with each other without delay.

Flexibility and responsiveness.

Paperwork is decreased.


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Functional Strategy

HRM strategy addresses the issue:

should we hire a large number of low-skilled

employees who receive low salary and most

likely quit after a short time

or hire skilled employees who receive

relatively high salary and cross-trained to

participate in self-managing work teams.


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Strategies to Avoid

Follow the leader: imitating a leading competitors strategy

Hit Another Home Run: if a company is successful because it

pioneered an extremely successful product, it tends to search for

another super product

Arms Race: entering into a spirited battle with another firm for

increased market share

Do Everything: when faced with several interesting

opportunities, management might tend to leap at all of them.

Losing Hand: a corporation might invest so much in a particular

strategy that top management is unwilling to accept its failure.

strategy formulation functional strategy

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