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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 companys 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
J ust-in-time (J IT)
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

J ob 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 --

Managements 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 --

Devils Advocate

Dialectical Inquiry
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Strategic Choice
Evaluation of Strategic Alternatives --

Mutual exclusivity
Success
Completeness
Internal consistency