CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice STRATEGIC MANAGEMENT & BUSINESS POLICY 11TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER Prentice Hall, Inc. © 2010 Prentice Hall 2006

Functional Strategy The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity Prentice Hall, Inc. © 2008 Prentice Hall 2006

Advertising and promotion Functional Strategy Marketing Strategy – Pricing Selling Distribution Product development Line extension Advertising and promotion Push strategy Pull strategy Skim pricing Penetration pricing Dynamic pricing Prentice Hall, Inc. © 2008 Prentice Hall 2006

Financial Strategy – R&D Strategy – Leveraged buyout Functional Strategy Financial Strategy – Leveraged buyout Reversed stock split Tracking stock R&D Strategy – Technological leader Technological follower Open innovation Prentice Hall, Inc. © 2008 Prentice Hall 2006

Operations Strategy – Job shop Connected line batch flow Functional Strategy Operations Strategy – Job shop Connected line batch flow Flexible manufacturing systems Dedicated transfer lines Mass production Continuous improvement system Modular manufacturing Prentice Hall, Inc. © 2008 Prentice Hall 2006

Purchasing Strategy – Logistics Strategy – HRM Strategy – Functional Strategy Purchasing Strategy – Multiple sourcing Sole sourcing Just-in-time (JIT) Parallel sourcing Logistics Strategy – Centralization Outsourcing Internet HRM Strategy – 360 degree appraisal Prentice Hall, Inc. © 2008 Prentice Hall 2006

Should a company outsource a function? Proposed Outsourcing Matrix Should a company outsource a function? Prentice Hall, Inc. © 2008 Prentice Hall 2006

Should a company outsource a function? Functional Strategy Should a company outsource a function? Maybe Not: 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 Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strategies to Avoid – Follow the leader Hit another home run Arms race Functional Strategy Strategies to Avoid – Follow the leader Hit another home run Arms race Do everything Losing hand Prentice Hall, Inc. © 2008 Prentice Hall 2006

Growth Strategies -- External mechanisms Mergers Acquisitions Corporate Strategy Growth Strategies -- External mechanisms Mergers Acquisitions Strategic alliances Prentice Hall, Inc. © 2008 Prentice Hall 2006

Subjective Factors Affecting Decisions -- Functional Strategy Subjective Factors Affecting Decisions -- Management’s attitude toward risk Pressures from stakeholders Pressures from corporate culture Needs and desires of key managers Prentice Hall, Inc. © 2008 Prentice Hall 2006

Avoiding the Consensus Trap -- Strategic Choice Avoiding the Consensus Trap -- Devil’s Advocate Dialectical Inquiry Prentice Hall, Inc. © 2008 Prentice Hall 2006

Evaluation of Strategic Alternatives -- Strategic Choice Evaluation of Strategic Alternatives -- Mutual exclusivity Success Completeness Internal consistency Prentice Hall, Inc. © 2008 Prentice Hall 2006