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

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

3. 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

4. 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

5. 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

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

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

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

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

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

11. 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

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

13. 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.

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

15. 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

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

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

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

19. Information Systems Strategy
Technology to provide business units with competitive advantage

20. 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

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

22. 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

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