STRATEGY FORMULATION ALMA SHAMEEM STRATEGY FORMULATION CHAPTER 07

STRATEGY FORMULATION ALMA. SHAMEEM

STRATEGY FORMULATION • CHAPTER 07 -FUNCTIONAL STRATEGY

Learning Objective • After learning this chapter, you should be able to: • Indentify a variety of functional strategies that can be used to achieve organizational goals and objectives. • Understand what activities and functions are appropriate to outsource in order to gain or strengthen competitive advantage.

FUNCTIONAL STRATEGY • Functional strategy is the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity. Organizational plan for human resources, marketing, research and development and other functional areas. The functional strategy of a company is customized to a specific industry and is used to back up other corporate and business strategies. • Core competency or Core capability • Distinctive Competencies

FUNCTIONAL STRATEGY Marketing Strategy Financial Strategy Research and Development (R&D) Strategy Operations Strategy Purchasing Strategy Human Resource Management (HRM) Strategy • Information Systems Strategy • • •

FUNCTIONAL STRATEGY • For example, marketing strategy involves decisions related to pricing, selling, advertising and distributing a product. The aim could be to increase market share, venture into newer markets, penetrate existing markets, launch new products or deal with distributors/ competitors.

FUNCTIONAL STRATEGY • A company’s finance department typically decides on the capital structure, i. e. the mix of debt and equity funds to finance business operations. A functional strategy provides guidance reviewing operational income, evaluating various funding options and deciding on the capital structure mix that gives the lowest cost of capital.

FUNCTIONAL STRATEGY • Production/operations management (POM) is the basic function in the business firm. This function of a business consists of all those activities that transform inputs into goods and services. POM must guide decisions regarding: the technical core, quality, capacity, facilities, technology and production planning and control. The need for consistency among these six decisions is highlighted.

FUNCTIONAL STRATEGY • Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers' needs and wants for products and services. The major decisions in marketing strategy concern the product/service, price, place/distribution, and promotion/advertising. The key is to strive for consistency among these elements.

FUNCTIONAL STRATEGY • Financial management is primarily concerned with two functions: (1) acquiring funds to meet the organization's current and future needs; (2) recording, monitoring, and controlling the financial results of an organization's operations. Therefore, the major decisions in financial strategy concern objectives, profitability, liquidity and cash management, leverage and capital management, asset management, investment ratios, and financial planning and control.

FUNCTIONAL STRATEGY • Human resource strategies concern human resource planning, recruitment and selection, training and development, compensation and rewards, employment security, and labor relations. Functional strategies in human resource management should guide the effective utilization of human resources to achieve both the objectives of the firm and the satisfaction and development of employees.

FUNCTIONAL STRATEGY • Research and development (R&D) has two basic components: product/service R&D and process R&D. Research and development strategy concerns the relationship of R&D to business strategy. Business units competing with the nichelow-cost and low-cost strategies emphasize process R&D to reduce their operations costs; those the use nichedifferentiation or differentiation place greater importance on product/service R&D; and adopters for niche-low-costdifferentiation, low-cost-differentiation, and multiple strategies simultaneously both types of R&D. With the increasing of technological change R&D has assumed a key functional role in many organizations.

FUNCTIONAL STRATEGY • An information system which provides accurate, timely, and relevant information for use in the strategic decision process is an important organizational resource. • Overall strategic success requires that all functional activities be tightly integrated so that their operation mesh smoothly with one another. In this term, functional strategies are importance tool for effective implementation of a business strategy.

FUNCTIONAL STRATEGY • Interrelationships Among Functional Departments • To better understand the role of functional strategies, they must be differentiated from business strategies.

Differentiated from business strategies • Three basic characteristics differentiate functional and business strategies 1. Time horizon covered • The time horizon of a functional strategy is usually comparatively short. Functional strategies identify and coordinate short- term actions, usually undertaken in a year or less.

Differentiated from business strategies 2. Specificity • A functional strategy is more specific than business strategy. The business strategy provides general direction. Functional strategies give specific guidance to managers responsible for accomplishing annual objectives.

Differentiated from business strategies 3. Participation in the development • Different people participate in strategy development at the functional and business levels. Development of functional strategy is typically delegated by the business-level manager to principal subordinates charged with running the operating areas of the business. Business strategy is the responsibility of the general manager of a business unit.

FUNCTIONAL STRATEGY • The Sourcing Decision: Where Should Functions Be Housed? • Outsourcing is purchasing from someone else a product or service that had been previously provided internally. • Outsourcing is becoming an increasingly important part of strategic decision making and an important way to increase efficiency and often quality.

Thank you