Prentice Hall, Inc. 20068-*STRATEGIC MANAGEMENT & BUSINESS POLICY 10TH EDITIONTHOMAS L. WHEELEN J. DAVID HUNGERCHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice

Prentice Hall, Inc. 20068-*Functional StrategyFunctional StrategyThe approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity (Hierarchical Planning)

Prentice Hall, Inc. 20068-*Functional StrategyMarketing Strategy PricingSellingDistribution

Market DevelopmentCapture large share of an existing market for current products through market saturation and promotion.Develop new markets for current products.Product DevelopmentDevelop new products for existing markets (line extension).Develop new products for new markets

Prentice Hall, Inc. 20068-*Functional StrategyMarketing Strategy

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

Prentice Hall, Inc. 20068-*Functional StrategyMarketing Strategy

PricingSkim pricingHigh price when product is new and there are few competitorsPenetration pricingLow price to hasten market development and use experience curve to dominate the marketDynamic pricingVariable pricing based on supply and demand

Prentice Hall, Inc. 20068-*Functional StrategyFinancial Strategy

Leveraged buyoutCompany acquires itself through long term debt (take a company private)Reversed stock splitIncrease stock price for the short runTracking stockSubsidiary has a separate stock issue(T, ATT, ATTL, SBTCL)Value or Growth Pay dividend in a slow growth market

Prentice Hall, Inc. 20068-*Functional StrategyR&D Strategy

Technology LeaderTechnology FollowerOpen InnovationCost Advantage Pioneer in low cost productionFirst down the learning curveLow-cost ways of performing value activitiesLower cost by learning from the leaders experienceAvoid R&D through imitationAlliances with outside agenciesDifferentiationPioneer unique product that increases buyer valueInnovate value add activitiesAdapt product or delivery system to buyer needs by learning from leader experienceAlliances with outside agencies

Prentice Hall, Inc. 20068-*Functional StrategyOperations 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

Prentice Hall, Inc. 20068-*Functional StrategyPurchasing Strategy

Multiple sourcingSuppliers compete to reduce costSecurity of backup suppliersSole sourcingOne supplier responsible for qualityParallel sourcingTwo sole source suppliers that backup or share responsibilityJust-in-time (JIT)Raw material provided as needed (Pull)

Prentice Hall, Inc. 20068-*Functional StrategyCollaborative planning, forecasting, and replenishment (CPFR)

Prentice Hall, Inc. 20068-*Functional StrategyLogistics Strategy Flow of materials into and out of the manufacturing processCentralizationOutsourcing

HRM Strategy Self managed work teams360 degree appraisalWorkforce diversity

Prentice Hall, Inc. 20068-*Functional StrategyOutsourcingPurchase a product or service from someone else that was previously provided internallyAMA Survey of members (94% outsource at least one activity)

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

Activity%General and Admin.78Human Resources77Transportation/Dist.66Info Systems63Manufacturing56Marketing51Finance/Accounting18

Prentice Hall, Inc. 20068-*Functional StrategyOutsourcing errors

Activities that should not be outsourcedWrong vendor selectionWriting poor contractLosing control over the activityOverlooking personnel issuesHidden costs of outsourcingFailing to plan exit strategy

Prentice Hall, Inc. 20068-*Proposed Outsourcing Matrix

Prentice Hall, Inc. 20068-*Functional StrategyStrategies to Avoid

Follow the leader they could be wrongHit another home run R&D longshotArms race price warsDo everything nothing wellLosing hand know when to fold them

Prentice Hall, Inc. 20068-*Corporate StrategyCorporate Scenario DevelopmentPro forma (estimated) balance sheet and income statements that identify key measures and the optimistic, pessimistic and most likely outcomes of alternative strategies.

Prentice Hall, Inc. 20068-*Constructing Corporate Scenarios

Prentice Hall, Inc. 20068-*Functional StrategySubjective Factors Affecting Decisions --

Needs and desires of key managersManagements attitude toward riskPressures from stakeholdersPressures from corporate culture

RiskProbability of successAmount of assets allocated to the strategyTime the assets are committed

Real-Options ApproachStaged funding of multiple alternatives based on periodic evaluation of performancePrentice Hall, Inc. 20068-*Functional Strategy

Prentice Hall, Inc. 20068-*Stakeholder Priority Matrix

Assessing the Importance of StakeholdersHow will this decision affect each stakeholder, especially those in the high/medium priority?How much of what they want are they likely to get?What are the stakeholders likely to do if they dont get what they want?What is the probability that they will do it?

Political StrategiesConstituency buildingPAC ContributionsAdvocacy AdvertisingLobbyingCoalition Building

Prentice Hall, Inc. 20068-*Stakeholder Priority Matrix

Corporate CultureIf strategy is a poor fit with the Corporate Culture you have choices:Ignore the CultureManage around the CultureChange the CultureChange the StrategyPrentice Hall, Inc. 20068-*Corporate Culture Pressure

Prentice Hall, Inc. 20068-*Strategic ChoiceAvoiding the Consensus Trap --

Devils Advocateprove 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 redundantAnon

Prentice Hall, Inc. 20068-*Strategic ChoiceEvaluation of Strategic Alternatives --

Mutual exclusivity preclude othersSuccess good probability of successCompleteness account for key strategic issuesInternal consistency be consistent with mission/vision

Developing PoliciesImplementation guidelines

Forces trade-offs between competing resource allocationsTests strategic soundness of decisionsSets clear boundaries within which employees must operate while granting freedom to experiment Prentice Hall, Inc. 20068-*Policies

Prentice Hall, Inc. 20068-*STRATEGIC MANAGEMENT & BUSINESS POLICY 10TH EDITIONTHOMAS L. WHEELEN J. DAVID HUNGERCHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice

Exercise optionsLevi Case at the end of the chapter

Constituent Matrix Smoking Ban in Erie CountyPrentice Hall, Inc. 20068-*

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