CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice

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

2. Functional Strategy • Marketing Strategy • Pricing • Selling • Distribution

3. 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

4. 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

5. Functional Strategy • Marketing Strategy – • Pricing • Skim pricing • Penetration pricing • Dynamic pricing

6. 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

7. 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.

8. Functional Strategy • Logistics Strategy – Deals with the flow of products into and out of the manufacturing process • Centralization • Outsourcing • Internet

9. 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

10. 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

11. 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

12. Proposed Outsourcing Matrix

13. Functional Strategy • Strategies to Avoid – • 3 Follow the leader • Hit another home run • Arms race • Do everything • Losing hand

14. Corporate Strategy • Growth Strategies -- • External mechanisms • Mergers • Acquisitions • Strategic alliances

15. Constructing Corporate Scenarios

16. Functional Strategy • Subjective Factors Affecting Decisions -- • Management’s attitude toward risk • Pressures from stakeholders • Pressures from corporate culture • Needs and desires of key managers

17. Stakeholder Priority Matrix

18. Strategic Choice • Avoiding the Consensus Trap -- • Devil’s Advocate • Dialectical Inquiry

19. Strategic Choice • Evaluation of Strategic Alternatives -- • Mutual exclusivity • Success • Completeness • Internal consistency