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CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice

Functional Strategy:The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity

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Functional Strategy

Marketing Strategy

–Pricing–Selling–Distribution

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Functional Strategy

Marketing Strategy –

–Product development•Line extension

–Using a successful brand name to market other products–It is a good way to appeal to a company’s current customers

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Functional Strategy

Marketing Strategy –

–Advertising and promotion•Push strategy

–Spending a large amount of money on trade promotion in order to gain or hold shelf space in retail outlets

•Pull strategy–Advertising pulls the products through the distribution channels–A company will spend more money on consumer advertising designed to build brand awareness so that shoppers will ask for the product

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Functional Strategy

Marketing Strategy –

–Pricing•Skim pricing•Penetration pricing•Dynamic pricing

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Functional Strategy

R&D Strategy – Deals with product and process innovation and improvement

–Technological leader–Technological follower–Open innovation

•A new approach in which a firm uses alliances and connections with corporate, government and academic labs to learn about new developments

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Functional Strategy

Purchasing Strategy – Deals with obtaining the raw materials, parts, and supplies needed to perform the operations function

–Multiple sourcing•A purchasing company orders a particular part from several vendors

–Sole sourcing•Relies on only one supplier for a particular part

–Just-in-time (JIT)•Having the purchased parts arrive at the plant just when they are needed rather than keeping inventories.

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Functional Strategy

Logistics Strategy – Deals with the flow of products into and out of the manufacturing process

–Centralization–Outsourcing–Internet

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Functional Strategy

HRM Strategy – Addresses the issue of whether a company or business unit should hire a large number of low-skilled employees who receive low pay, perform repetitive jobs, and most likely quit after a short time or hire skilled employees who receive relatively high pay and are cross-trained to participate in self-managing work teams

–360 degree appraisal

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Functional Strategy

Operations Strategy – Determines how and where a product or service is to be manufactured

–Job shop–Connected line batch flow–Flexible manufacturing systems–Dedicated transfer lines–Mass production–Continuous improvement system–Modular manufacturing

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Functional Strategy

Outsourcing errors –

–Activities that should not be outsourced–Wrong vendor selection–Writing poor contract–Overlooking personnel issues–Hidden costs of outsourcing–Failing to plan exit strategy

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Proposed Outsourcing Matrix

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Functional Strategy

Strategies to Avoid –

–3 Follow the leader–Hit another home run–Arms race–Do everything–Losing hand

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Corporate Strategy

Growth Strategies --

–External mechanisms

•Mergers

•Acquisitions

•Strategic alliances

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Constructing Corporate Scenarios

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Functional Strategy

Subjective Factors Affecting Decisions --

–Management’s attitude toward risk–Pressures from stakeholders–Pressures from corporate culture–Needs and desires of key managers

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Stakeholder Priority Matrix

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Strategic Choice

Avoiding the Consensus Trap --

–Devil’s Advocate

–Dialectical Inquiry

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Strategic Choice

Evaluation of Strategic Alternatives --

–Mutual exclusivity–Success–Completeness–Internal consistency