Download - 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)
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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.