prentice hall, inc. © 20068-1 strategic management & business policy 10 th edition thomas l....

Prentice Hall, Inc. © 2006 8-1

STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice


Functional Strategy

Functional StrategyThe approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity (Hierarchical Planning)


Functional Strategy

Marketing Strategy ––Pricing–Selling–Distribution

Market Development1.Capture large share of an existing market for current products through market saturation and promotion.2.Develop new markets for current products.

Product Development1.Develop new products for existing markets (line extension).2.Develop new products for new markets


Functional Strategy

Marketing Strategy –

–Advertising and promotion•Push strategyTrade promotions to hold shelf space (discounts, in store specials, special advertising allowances)•Pull strategyEmphasize consumer advertising to build brand awareness. (Customers request products)


Functional Strategy

Marketing Strategy –

–Pricing•Skim pricing

High price when product is new and there are few competitors

•Penetration pricingLow price to hasten market development and use experience curve to dominate the market

•Dynamic pricingVariable pricing based on supply and demand


Functional Strategy

Financial Strategy –

–Leveraged buyoutCompany acquires itself through long term debt (“take a company private”)

–Reversed stock splitIncrease stock price for the short run

–Tracking stockSubsidiary has a separate stock issue(T, ATT, ATTL, SBTCL)

–Value or Growth Pay dividend in a slow growth market


Functional Strategy

R&D Strategy –

Technology Leader

Technology Follower

Open Innovation

Cost Advantage •Pioneer in low cost production•First down the learning curve•Low-cost ways of performing value activities

•Lower cost by learning from the leader’s experience•Avoid R&D through imitation

•Alliances with outside agencies

Differentiation •Pioneer unique product that increases buyer value•Innovate value add activities

•Adapt product or delivery system to buyer needs by learning from leader experience

•Alliances with outside agencies


Functional Strategy

Operations Strategy –

–Job shop vs. Connected line batch flow

–Flexible manufacturing systems vs. Dedicated transfer lines

–Mass production vs. Continuous improvement system (TQM)

–Modular manufacturingPreassembled subassemblies Just-In-Time (JIT)

–Mass CustomizationUnique product for each customer


Functional Strategy

Purchasing Strategy –

–Multiple sourcingSuppliers compete to reduce costSecurity of backup suppliers

–Sole sourcingOne supplier responsible for quality

–Parallel sourcingTwo “sole source” suppliers that backup or share responsibility

–Just-in-time (JIT)Raw material provided as needed (Pull)


Functional Strategy

Collaborative planning, forecasting, and replenishment (CPFR)


Functional Strategy

Logistics Strategy –Flow of materials into and out of the manufacturing process

–Centralization–Outsourcing

HRM Strategy ––Self managed work teams–360 degree appraisal–Workforce diversity


Functional Strategy

OutsourcingPurchase a product or service from someone else that was previously provided internally

–AMA Survey of members (94% outsource at least one activity)

Activity %

General and Admin. 78

Human Resources 77

Transportation/Dist. 66

Info Systems 63

Manufacturing 56

Marketing 51

Finance/Accounting 18

25% were disappointed in the results51% brought activities back in house


Functional Strategy

Outsourcing errors –

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


Proposed Outsourcing Matrix


Functional Strategy

Strategies to Avoid –

–Follow the leader – they could be wrong–Hit another home run – R&D longshot–Arms race – price wars–Do everything – nothing well–Losing hand – know when to fold them…


Corporate Strategy

Corporate Scenario Development

Pro forma (estimated) balance sheet and income statements that identify key measures and the optimistic, pessimistic and most likely outcomes of alternative strategies.


Constructing Corporate Scenarios


Functional Strategy

Subjective Factors Affecting Decisions --

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

Risk– Probability of success– Amount of assets allocated to the strategy– Time the assets are committed

Real-Options Approach

Staged funding of multiple alternatives based on periodic evaluation of performance


Functional Strategy


Stakeholder Priority Matrix

Assessing the Importance of Stakeholders1. How will this decision affect each stakeholder, especially those

in the high/medium priority?

2. How much of what they want are they likely to get?

3. What are the stakeholders likely to do if they don’t get what they want?

4. What is the probability that they will do it?

Political Strategies– Constituency building– PAC Contributions– Advocacy Advertising– Lobbying– Coalition Building


Stakeholder Priority Matrix

Corporate CultureIf strategy is a poor fit with the Corporate Culture you have choices:

– Ignore the Culture

– Manage around the Culture

– Change the Culture

– Change the Strategy


Corporate Culture Pressure


Strategic Choice

Avoiding the Consensus Trap --–Devil’s Advocate

prove the proposal wrong

–Dialectical InquiryAlternative assumptions are made for the strategy (Optimistic/Pessimistic). The expected results are debated to reach a decision or compromise.

As a manager, if you have some one in your department that ALWAYS agrees with you, One of you is redundant…

Anon


Strategic Choice

Evaluation of Strategic Alternatives --

–Mutual exclusivity – preclude others–Success – good probability of success–Completeness – account for key strategic issues–Internal consistency – be consistent with mission/vision

Developing PoliciesImplementation guidelines

– Forces trade-offs between competing resource allocations– Tests strategic soundness of decisions– Sets clear boundaries within which employees must operate

while granting freedom to experiment


Policies


STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice

Exercise options

• Levi Case at the end of the chapter

• Constituent Matrix – Smoking Ban in Erie County


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Documents

functional area

strategy formulation

customerprentice hall

demandprentice hall

productsprentice hall

new marketsprentice

outside agenciesprentice

needed pullprentice