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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
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Marketing Strategy Pricing Selling Distribution Functional Strategy
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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
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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
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Marketing Strategy – Pricing Skim pricing Penetration pricing
Functional Strategy Marketing Strategy – Pricing Skim pricing Penetration pricing Dynamic pricing Prentice Hall 2006
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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 Prentice Hall 2006
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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 Just-in-time (JIT) Having the purchased parts arrive at the plant just when they are needed rather than keeping inventories. Prentice Hall 2006
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Functional Strategy Logistics Strategy – Deals with the flow of products into and out of the manufacturing process Centralization Outsourcing Internet Prentice Hall 2006
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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 Prentice Hall 2006
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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
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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
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Proposed Outsourcing Matrix
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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
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Growth Strategies -- External mechanisms Mergers Acquisitions
Corporate Strategy Growth Strategies -- External mechanisms Mergers Acquisitions Strategic alliances Prentice Hall 2006
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Constructing Corporate Scenarios
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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
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Stakeholder Priority Matrix
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Avoiding the Consensus Trap --
Strategic Choice Avoiding the Consensus Trap -- Devil’s Advocate Dialectical Inquiry Prentice Hall 2006
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Evaluation of Strategic Alternatives --
Strategic Choice Evaluation of Strategic Alternatives -- Mutual exclusivity Success Completeness Internal consistency Prentice Hall 2006
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