functional strategies 1

8/6/2019 Functional Strategies 1

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FUNCTIONAL STRATEGIES


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Functional Strategies

y Purchasing and Materials Management

y Production/ Operations Management

y Financey Research and Development

y Human Resources Management

y Information Systems

y Marketing


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Purchasing and Materials Management

Purchasing function is the first step in thematerials management process.

Function

In Manufacturing companies, purchasingdept. buy raw materials for productiondept.

In retailing organizations, individual

buyers purchase clothing, toys and othermaterial for resale to ultimate consumers.


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Tasks

Identify potential suppliers, evaluatethem,

Invite bids

Price quotations,

Negotiate prices and terms of payment,

Place orders, follow up on those orders,

Inspect incoming shipments

Pay suppliers.


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Niche-Low-Cost / Low-Cost StrategyCompanies using these strategies emphasize

purchasing at the lowest cost possible.

Large Org. purchase at low costs throughtheir ability to demand quantity discounts.

Small org. must attain low-cost purchasing

in other ways which may be in form ofIndustry Network or to develop contact with

Domestic & Foreign suppliers.


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Purchasing and Materials

ManagementNiche-Low-Cost / Low-Cost Strategy

Businesses using niche-low-cost or low-coststrategies should seek out the best cost.

The best cost is as low as possible

consistent with the quality of thepurchased good or service


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Niche-Differentiation / Differentiation Strategy

Organizations that use these strategiesemphasize on:

Procu

rement of high-quality inputs

The quality of the parts or products takesprecedence over cost considerations.


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Niche-Low-cost Differentiation / Low-CostDifferentiation Strategy

Organizations that use these strategiesemphasize on:

Buying high-quality inputs at low-costs

Businesses that adopt these strategies

may be able to attain this purchasing goalthrough the development of organizationalexpertise and image.


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Production/ Operations Management

POM is most often associated withmanufacturing processes, operations

management is crucial to all types oforganizations.


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Strategies for SBUs

Niche-Low-Cost Strategy

SBUs that use this strategy emphasize:

low initial investments to hold their fixed

costs down.

They attempt to keep their variableoperations costs as low as possible.


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Strategies for SBUs

Niche-Low-Cost Strategy

Since the emphasis in on holding costsdown, production/ operation strategies

are continuously scrutinized to makethem more efficient.


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Strategies for SBUs

Niche-Differentiation Strategy

Its emphasis is on Superior quality.

Low costs are not the primary concern ofthis strategy.


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Strategies for SBUs

Niche-Low-Cost Differentiation Strategy

Its emphasis simultaneously on lower

costs and heighten differentiation.

This strategy may initially involve highercosts but over time, cost savings and

quality improvements evolve.


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Strategies for Large BUs

Large BUs take advantage of experiencecurve.

Experience Curve

the reduction in per unit costs that occursas an organization gains experienceproducing a product service.


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Variables of Experience Curve

Learning

Economies of Scale

Capital-labor substitution


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Low-Cost Strategy

Businesses that compete with thisstrategy tend to buy their way to lower

costs.They sell their products or services at low

prices.

The low prices increase their volume,

thereby permitting them to lower theircosts by use of Experience Curve.


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Low-Cost Strategy

These businesses are Vulnerable to BU

that are also able to attain low costs butoffer better quality products andservices. .


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Production/ Operations ManagementStrategies for Large BUs

Differentiation / Low-Cost-DifferentiationStrategy

Businesses using this strategy chargeaverage to high prices, seeking to gain

market share by offering higher qualityinputs.

Managers using differentiation strategy donot actively capitalize on the

opportunities presented by lower costs,whereas managers competing with low-cost differentiation do.


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Differentiation / Low-Cost-DifferentiationStrategy

Differentiation strategy users arevulnerable to competitors that offeralternative products, but at lower orpredatory prices.


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FINANCE

The finance function encompasses not

only cash management but also the use

of credit and decisions regarding

capital investments.


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FINANCE

Niche-Low-Cost / Low-Cost Strategy

Businesses using this strategy pursuefinancial strategy that are intended to

lower their financial costs.

They attempt to keep their costs withinthe limits of the funds they are able to

generate from operations.


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FINANCE

Niche-Differentiation/ Differentiation

Strategy

Businesses that adopt these strategiespursue financial strategies that fund

quality enhancements.

To stay with their competitors, theydirect their financial efforts toward

upgrading their present and futureoutputs.


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FINANCE

Niche-Differentiation/ Differentiation

Strategy

In short the aim of these BU is t place

the highest strategic priority on Quality

maintenance rather than on financial

considerations.


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RESEARCH AND DEVELOPMENT

R&D has two basic components:

Product/ Service R&D refers to effortsthat ultimately lead to improvements or

innovations in the companys outputs.

Process R&D aims at reducing the costsof operations and making them more

efficient.


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Niche-Low-Cost/ Low-Cost Strategy

Business units that compete thesestrategies emphasize Process R&D to

reduce their operation costs.


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Niche-Differentiation/ DifferentiationStrategy

Business units that use these strategies

place more importance on Product/Service R&D to produce improved andnew innovative outputs.


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Niche-Low-Cost Differentiation/ Low-CostDifferentiation Strategy

Businesses using these simultaneously

stress both Product/ Service R&D andProcess R&D efforts.


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HUMAN RESOURCE MANAGEMENT

The HRM functions include such majoractivities as planning for future HR needs,recruiting personnel, and many others.

The aim is to build a work force thatenables the organization to achieve itsgoals.

To facilitate the development andutilization of organizationalcompetencies.


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Niche-Low-Cost/ Low-Cost Strategy

Businesses using these strategies must

reward employees who help reduceoperating costs.


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Niche-Differentiation/ DifferentiationStrategy

Businesses using these strategies shouldestablish reward systems that encourageoutput improvements or innovations.


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INFORMATION SYSTEMS MANAGEMENT

A well-designed information system canbenefit all of a business units functionalareas.

A computer-based DSS can permit eachfunctional area to access the info itneeds.

It allows to communicate with otherdepartments to enhanceinterdepartmental coordination.


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INFORMATION SYSTEMS MANAGEMENT

It can cut internal costs while promotingdifferentiation and quality through a

faster response to the market needs.


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MARKETING

Marketing consists of four dimensions:- Products/ Services- Pricing

- Channels of Distribution/ location ofoutlets- Promotion


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MARKETING

Low-Cost Differentiation / Differentiation

Strategy

Business units following these strategies

emphasize on Marketing quality products and

services that are distinguishable from theoutputs of rivals .


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MARKETING

Niche-Low-Cost Differentiation / Niche-

Differentiation Strategy

Business units following these strategies tend

to offer specialized, highest quality products

and services to meet the particular needs ofa relatively small market.


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BENCHMARKING

Buyers everywhere look for value.

Benchmarking refers to the comparison offunctional and cross-functional

performance of one business relative todesirable standards.

Businesses benchmarked their

performance relative to the superiorrivals in the same industry.


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INTEGRATING THE FUNCTIONS

Strategic success requires that allfunctional activities be tightly integrated.

Businesses that are best able to achievefunctional integration are those mostlikely to attain the competitiveadvantages.


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INTEGRATING THE FUNCTIONS

Superior Product Design

Superior Customer Service

Superior Speed

Superior Guarantee

functional strategies 1

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