Strategy Implementation: Functional Strategy and Strategic Choice

Outsourcing:
Withdrawing from certain stages/activities in the value chain systems and relying on outside vendors to supply needed products, support services, and functional activities.

Strategy Implementation: Functional Strategy and Strategic Choice

Outsourcing makes strategic sense when: An activity can be performed better or more cheaply by outside specialists (e.g., outside assembly of PCs due to sizable economies of scale in purchasing components in large volumes and in the assembly process). The activity is not crucial to the firms ability to achieve sustainable competitive advantage and wont hollow out its core competencies. (e.g., outsourcing of maintenance services, data processing, accounting).

Strategy Implementation: Functional Strategy and Strategic Choice

Outsourcing makes strategic sense when:

It reduces the companys risk exposure to changing technology and/or changing buyer preferences. It streamlines company operations in ways that improve organizational flexibility, cut cycle time, speed decision-making, and reduce coordination costs. It allows a company to concentrate on its core business and do what it does best.

Strategy Implementation: Functional Strategy and Strategic Choice

Dell Computers partnerships with suppliers of PC components have allowed it to:

operate with fewer than 7 days of inventory save substantial savings in inventory costs get PCs equipped with next-generation components into the marketplace in less than a week after the newly upgraded components start shipping.

Strategy Implementation: Functional Strategy and Strategic Choice

Advantages of Outsourcing:
Obtaining higher quality and/or cheaper components or services than internal sources can provide Improving the companys ability to innovate by interacting and allying with best-in-world suppliers who have considerable intellectual depth and innovative capabilities of their own.

Strategy Implementation: Functional Strategy and Strategic Choice

Advantages of Outsourcing:
Enhancing the firms strategic flexibility should customer needs and market conditions suddenly shift-seeking out new suppliers with the needed capabilities already in place is frequently quicker, easier, less risky, and cheaper than hurriedly retooling internal operations. Increasing the firms ability to assemble diverse kinds of expertise speedily and efficiently.

Strategy Implementation: Functional Strategy and Strategic Choice

Pitfalls of Outsourcing:
Firm may farm out too many or the wrong types of activities and hollow out its own capabilities. Cisco guards against loss of control and protects its manufacturing expertise by designing the production methods that its contract manufacturers must use. Cisco also uses the Internet to monitor the factory operations around the clock.

Strategy Implementation: Functional Strategy and Strategic Choice

Marketing Issues:
Use exclusive dealerships or multiple channels of distribution Use heavy, light, or no TV advertising Limit (or not) the share of business done with a single customer Be a price leader or price follower Offer a complete or limited warranty Reward salespeople based on straight salary, straight commission, or a combination of the two To advertise on online or not.

Strategy Implementation: Functional Strategy and Strategic Choice

Marketing Issues:

Ansoff Matrix of Marketing Strategies

Products Market Situation Existing Existing New

Market Penetration

Product Development

New

Market Development

Diversification

Strategy Implementation: Functional Strategy and Strategic Choice

Marketing Issues

Extending Product Life Cycles

1. Promoting more frequent usage of the product by

current customers.

2. Finding new target markets for the product. 3. Finding new uses for the product.

Strategy Implementation: Functional Strategy and Strategic Choice

Marketing Issues

Extending Product Life Cycles

4. Pricing below the market.
5. Developing new channels.
6. Adding new ingredients and/or deleting old

ingredients.

7. Making a dramatic new guarantee.

Strategy Implementation: Functional Strategy and Strategic Choice

Research and Development Issues

Emphasize product or process improvements Stress basic or applied research Be leaders or followers in R&D Develop robotics or manual-type processes Spend a high, average, or low amount on R&D Perform R&D within the firm or contract R&D to outside firm Use university researchers or private sector researchers

Strategy Implementation: Functional Strategy and Strategic Choice

Research and Development Issues

First-mover advantages pioneering helps build a firms image and reputation with buyers early commitments to new technologies, new-style components, distribution channels, etc. can create an absolute cost advantages

Strategy Implementation: Functional Strategy and Strategic Choice

Research and Development Issues

First-mover advantages First-time customers remain loyal by making repeat purchases. Preemptive strikes are hard to imitate.

Strategy Implementation: Functional Strategy and Strategic Choice

Research and Development Issues

Follower Advantages Pioneering leadership is more costly, only small experience curve benefits may accrue to first mover First mover products may not sufficiently meet buyer expectations, permitting follower to win buyers with better performing products.

Strategy Implementation: Functional Strategy and Strategic Choice

Research and Development Issues

Follower Advantages Rapid advance of technology permits fast followers to leapfrog first movers products with full-featured 2nd and 3rd generation products.

Strategy Implementation: Functional Strategy and Strategic Choice

Finance/Accounting Issues
Raise capital with short-term debt, long-term debt, preferred stock, or common stock Lease or buy fixed assets Determine appropriate dividend payout ratio Use LIFO, FIFO, or a market-value accounting approach Extend the time of accounts receivable Establish a certain percentage discount on accounts within a specified period of time Determine amount of cash that should be kept on hand.

Strategy Implementation: Functional Strategy and Strategic Choice

Management of Information Issues

Information collection, retrieval and storage to
Cross-sell to customers Monitor suppliers Keep managers and employees informed Coordinating activities across divisions Managing funds