CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity Prentice Hall 2006

Marketing Strategy Pricing Selling Distribution Functional Strategy Prentice Hall 2006

Marketing Strategy – Product development Line extension 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 company’s current customers Prentice Hall 2006

Marketing Strategy – Advertising and promotion Push strategy 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 Prentice Hall 2006

Marketing Strategy – Pricing Skim pricing Penetration pricing Functional Strategy Marketing Strategy – Pricing Skim pricing Penetration pricing Dynamic pricing Prentice Hall 2006

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 Prentice Hall 2006

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 Just-in-time (JIT) Having the purchased parts arrive at the plant just when they are needed rather than keeping inventories. Prentice Hall 2006

Functional Strategy Logistics Strategy – Deals with the flow of products into and out of the manufacturing process Centralization Outsourcing Internet Prentice Hall 2006

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 Prentice Hall 2006

Functional Strategy Operations Strategy – Determines how and where a product or service is to be manufactured Job shop Connected line batch flow Flexible manufacturing systems Dedicated transfer lines Mass production Continuous improvement system Modular manufacturing Prentice Hall 2006

Outsourcing errors – Activities that should not be outsourced 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 Prentice Hall 2006

Proposed Outsourcing Matrix Prentice Hall 2006

Strategies to Avoid – 3 Follow the leader Hit another home run Functional Strategy Strategies to Avoid – 3 Follow the leader Hit another home run Arms race Do everything Losing hand Prentice Hall 2006

Growth Strategies -- External mechanisms Mergers Acquisitions Corporate Strategy Growth Strategies -- External mechanisms Mergers Acquisitions Strategic alliances Prentice Hall 2006

Constructing Corporate Scenarios 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 2006

Stakeholder Priority Matrix Prentice Hall 2006

Avoiding the Consensus Trap -- Strategic Choice Avoiding the Consensus Trap -- Devil’s Advocate Dialectical Inquiry Prentice Hall 2006

Evaluation of Strategic Alternatives -- Strategic Choice Evaluation of Strategic Alternatives -- Mutual exclusivity Success Completeness Internal consistency Prentice Hall 2006