Strategy Formulation: Functional Strategy and Strategic Choice Chapter 7 Strategy Formulation: Functional Strategy and Strategic Choice

Functional Strategy Functional Strategy: The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity.

Functional Strategy Core competency: Distinctive competencies: Something that a corporation can do exceedingly well – a key strength Distinctive competencies: When core competencies or core capabilities are superior to those of the competition

Functional Strategy Distinctive competencies: Must meet 3 tests: Customer value Competitor unique Extendibility Firm can gain access to distinctive competencies in 4 ways: Asset endowment Acquired Shared with another business unit Built and accumulated

Functional Strategy Determining Functional Strategy: Identify business unit’s core competencies Ensure that competencies are continually strengthened Manage competencies so that competitive advantage is preserved

Functional Strategy Marketing Finance R&D Operations Purchasing Logistics HRM Information Systems

Marketing Strategy Involved with pricing, selling, and distributing a product.

Marketing Strategy Market development strategy – Capture a larger share of existing market through market saturation and market penetration Develop new markets for current products

Marketing Strategy Product development strategy – Develop new products for existing markets Develop new products for new markets

Marketing Strategy Promotional Strategy Pricing Strategy Push strategy Pull strategy Pricing Strategy Skim pricing Penetration pricing

Financial Strategy Examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. Maximizes financial value of the firm

R&D Strategy Deals with product and process innovation and improvement Choice: Technological leader Technological follower

Research and Development Strategy and Competitive Advantage Technological Leadership Technological Followership Cost Advantage Differentiation Pioneer the lowest cost product design. Be the first firm down the learning curve. Create low-cost ways of performing value activities. Pioneer a unique product that increases buyer value. Innovate in other activities to increase buyer value. Lower the cost of the product or value activities by learning from the leader’s experience. Avoid R&D costs through imitation. Adapt the product or delivery system more closely to buyer needs by learning from the leader’s experience.

Operations Strategy Determines: How and where product is manufactured Level of vertical integration in process Deployment of physical resources Relationships with suppliers

Operations Strategy Affected by product life cycle Job shop Connected line batch flow Flexible manufacturing system Dedicated transfer lines Movement from mass production to: Continuous improvement Modular manufacturing Mass customization

Purchasing Strategy Obtaining raw materials, parts and supplies Basic Purchasing Choices: Multiple sourcing Sole sourcing Parallel sourcing

Logistics Strategy Flow of products into and out of the process Three current trends: Centralization Outsourcing Use of the Internet

HRM Strategy Addresses issues of: Low-skilled employees Low pay Repetitive tasks High turnover Skilled employees High pay Cross trained Self-managing teams

Information Systems Strategy Technology to provide business units with competitive advantage

Constructing Corporate Scenarios: Strategic Choice Constructing Corporate Scenarios: Corporate Scenarios Pro forma balance sheets and income statements that forecast effects of alternatives on return on investment Steps in constructing scenarios – Use industry scenarios Develop common-size financial statements Construct detailed pro forma financial statements for each alternative

Process of Strategic Choice: The evaluation of alternative strategies and selection of the best alternative Not based on consensus Discussion, disagreement Programmed conflict

Process of Strategic Choice: Devil’s Advocate Identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation. Dialectical Inquiry Two proposals are generated using different assumptions for each alternative strategy

Evaluating strategic alternatives: Strategic Choice Evaluating strategic alternatives: Ability to meet four criteria: Mutual exclusivity Success Completeness Internal consistency