Strategy Formulation: Functional Strategy and Strategic Choice

Functional Strategy- approach a functional area takes to achieve corporate and business unit objectives
and strategies by maximizing resource productivity. It is concerned with developing and nurturing a
distinctive competence to provide a company or business unit with a competitive advantage.

Marketing Strategy- pricing, selling, and distributing a product.

Market Development Strategy- company can:

1. capture a larger share of an existing market for current products through market
saturation and market penetration

2. develop new uses and/or markets for current products

Product Development Strategy

1. develop new products for existing markets

2. develop new products for new market

Brand extension- using a successful brand name to market other products

Push Strategy- spending a large amount of money on trade promotion in order to gain or hold
shelf space in retail outlets

Pull Strategy- spends more money on consumer advertising designed to build brand awareness
so that shoppers will ask for the products

Skim Pricing- offers the opportunity to “scream the cream” from the top of the demand curve
with a high price while the product is novel and competitors are few.

Penetration Pricing- attempts to hasten market development and offers the pioneer the
opportunity to experience the experience curve to gain market share with a low price and the dominate
the industry

Dynamic Pricing- prices vary frequently based upon demand, market segment and product
availability

Financial Strategy- examines the financial implications of corporate and business-level strategic options
and identifies the best financial course of actions

Leveraged Buyout- company is acquired in a transaction financed largely by debt, usually

obtained from a third party, such as insurance company or an investment banker

Reverse stock split- investor’s shares are split in half for the same total amount of money.

Research and Development (R &D) Strategy- deals with product and process innovation and
improvement

Technical Leader-pioneering and innovation

Technological Follower- imitating the products of competitors

 Open Innovation- firm uses alliances and connections with corporate, government, academic
labs and even consumers to develop new products and processes.

Technology Scouts- search beyond the company for promising innovations

TABLE 8.1 Technical Leadership Technological Followership

Research and Cost advantage Pioneer the lowest-cost Lower the cost of the
Development Strategy production design product or value activities
and Competitive Be the first down the by learning from the
Advantage learning curve leader’s experience
Create low cost ways of Avoid R&D cost through
performing value imitation
activities
Differentiation Pioneer a unique Adapt the product or
product that increases delivery system more
buyer value closely to buyer needs by
Innovate in other learning from the leader’s
activities to increase experience
buyer value

Operations Strategy- determines how and where a product or service is to be manufactured, the level of
vertical integration in the production process, the deployment of physical resources and relationships
with suppliers.

Job shop- one-of-a-kind production using skilled labor

Connected line batch flow- components are standardized; each machine functions such as job
shop but is positioned in the same order as the parts are processed

Flexible manufacturing systems-parts are grouped into manufacturing families to produce wide
variety of mass-produced items

Dedicated transfer lines- highly automated assembly lines making one mass-produced product
using little human labor

Mass-production system- produce a large number of low-cost, standard goods and services

Continuous improvement- cross-functional teams strive constantly to improve production

processes

Modular manufacturing- preassembled subassemblies are delivered as they are needed to a

company’s assembly-line workers, who quickly piece the modules together into a finished product

Mass customization- requires that people, processes, units and technology reconfigure
themselves to give customers exactly what they want, when they want it

Purchasing strategy- obtaining the raw materials, parts and supplies needed to perform the operations
function
 Multiple sourcing- purchasing company orders a particular part from several vendors

1. forces suppliers to compete for the business of an important buyer, thus reducing
purchasing costs

2. if one supplier cannot deliver, another usually can, thus guaranteeing that parts and
supplies are always on hand when needed.

Sole sourcing- relies on one supplier for a particular part

Just-In-Time (JIT)- purchased parts arrive at the plant when they are needed

Parallel sourcing- two suppliers are the sole suppliers of two different parts, but they are also
backup suppliers for each other’s parts

Logistics Strategy- deals with the flow of products into and out of the manufacturing process.

Trends related to this Strategy:

1. Centralization

2. Outsourcing

3. Use of Internet

Human Resource Management (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 are 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- input is gathered from multiple sources

Diverse workforce- high degree of racial diversity

Information Technology Strategy-

Follow-the sun management- project team members living in one country can pass their work to
team members in another country in which the work day is just beginning.