Chapter 4: Developing Strategies

FUNCTIONAL LEVEL STRATEGIES.

Functional-level strategies are concerned with coordinating the functional areas of the
organization (marketing, finance, human resources, production, research and development, etc.) so
that each functional area upholds and contributes to individual business-level strategies and the
overall corporate-level strategy.

This involves coordinating the various functions and operations needed to design,
manufacturer, deliver, and support the product or service of each business within the
corporate portfolio. Functional strategies are primarily concerned with:

• Efficiently utilizing specialists within the functional area.

• Integrating activities within the functional area (e.g., coordinating advertising,
promotion, and marketing research in marketing; or purchasing, inventory control,
and shipping in production/operations).
• Assuring that functional strategies mesh with business-level strategies and the
overall corporate-level strategy.

Functional strategies are frequently concerned with appropriate timing. For example,
advertising for a new product could be expected to begin sixty days prior to shipment of
the first product. Production could then start thirty days before shipping begins. Raw
materials, for instance, may require that orders are placed at least two weeks before
production is to start. Thus, functional strategies have a shorter time orientation than
either business-level or corporate-level strategies. Accountability is also easiest to establish
with functional strategies because results of actions occur sooner and are more easily
attributed to the function than is possible at other levels of strategy. Lower-level managers
are most directly involved with the implementation of functional strategies.

Functional Strategies will include the following:

1. Procurement
2. Personnel
3. Marketing
4. Production
5. Finance
6. Research & Development.

PERSONNEL POLICIES:
Personnel policies are related to human resource management which is “The process of
acquiring, training, appraising, and compensating employees”. It also includes attending to
their labor relations, health and safety, and fairness concerns.

HR creates value by engaging in activities that produce the employee behaviors that the
organization needs to achieve its strategic goals.
 HRM is all about the following four aspects that are included in defining this concept.

1. Acquiring People (Selecting the right person for the job)

2. Training People (Training various skills to the employees)
3. Appraising People (Evaluation and Feedback)
4. Compensating People. (Providing financial and non-financial benefits)

We shall look at each of the above separately.

1. Acquiring People:
Personnel Planning: Includes deciding about the Quantity and Quality of people needed by
an organization. Quantity is determined by either previous trend of
recruiting, ratio of work against persons required or by expert opinion.
Quality is determined by conducting a Job Analysis - The procedure for
determining the duties and skill requirements of a job and the kind of person
who should be hired for it. A job analysis includes Job Description (duties
to be performed in a job) and Job Specifications (Skills & Abilities
required in a person to perform a job)

Recruitment Includes building a candidate pool by recruiting internal or external

candidates and to decide who to make an offer to, by having the
supervisor and others interview the candidates

Test & Investigation Testing the knowledge, abilities and skills of the candidates and
verifying their provided information.

Interview Interview is another tool to access the candidate. It is a direct

interaction between the employer and the interviewee. In unstructured
(or nondirective) interviews, the manager follows no set format. A few
questions might be specified in advance. Most selection interviews fall
in this category. In structured (or directive) interviews, the employer
lists job-oriented questions ahead of time, and possible predetermined
answers for appropriateness and scoring.

Selection The final decision is taken on selecting the candidate as an employee of

the firm

2. Training Employees:
After selection, new employees go through Employee orientation that provides new
employees with the information they need to perform. It should also help new employees
start getting emotionally attached to the firm.

Other forms of training are used to giving new or current employees the skills they need
to perform their jobs. Training is a hallmark of good management. Employers today must
make sure that their training programs are supporting their firms’ strategic goals. The
training process consists of four steps;

1. Needs analysis (identify the specific knowledge and skills the job requires)
 2. Instructional design (formulate specific, measurable knowledge and performance
training objectives, review possible training program content and estimate a budget
for the training program).
3. Implementation (by actually training the targeted employee group using methods
such as on-the-job or online training)
4. Evaluation (assess the program’s success or failures).

Appraising Employees:
Every manager needs some way to appraise employees’ performance. If employees’
performance is good, you’ll want to reinforce it, and if it’s bad, you’ll want to take
corrective action. Performance appraisal means evaluating an employee’s current and/or
past performance relative to his or her performance standards.

Managers should appraise employees based on previously assigned criteria (goals and
standards) that they are expected to achieve, such as “add 10 new customers next year.”

Appraisals have several purposes that relate both to the appraised employee and the
organization such as determining pay and promotion e.t.c. It doesn’t matter which tool
you use if you’re less than candid when your subordinate is underperforming. A
supervisor who rates an employee too high is doing a disservice to them and to the
company. There’s nothing crueler than telling someone who’s doing a mediocre job that
he or she is doing well. Supervisors must therefore be familiar with appraisal techniques,
understand and avoid problems that can cripple appraisals, and know how to conduct
appraisals fairly.

Compensating Employees:
Employee compensation refers to all forms of pay going to employees and arising from
their employment. It has two main components, direct financial payments (wages,
salaries, incentives, commissions, and bonuses) and indirect financial payments (financial
benefits like employer-paid insurance and vacations).

There are two basic ways to make direct financial payments to employees: base them on
increments of time or on performance. Legal factors can not be ignored in deciding about
compensations.

The compensation plan should advance the firm’s strategic aims—management should
produce an aligned reward strategy. This means creating a bundle of rewards—a total
reward package including wages, incentives, and benefits—that aims to produce the
employee behaviors the firm needs to support and achieve its competitive strategy.

HRM at Strategic Level:

The goal of HRM at strategic level is to link of HRM with strategic goals and objectives in
order to improve business performance and develop organizational cultures that foster
innovation and flexibility. It involves formulating and executing HR systems—HR policies
and activities—that produce the employee competencies and behaviors that the company
needs to achieve its strategic aims.
 Figure: Basic Model of How to Align HR
Strategy and Actions with Business Strategy
In formulating human resource management
policies and activities, the manager’s aim must
be to produce the employee skills and
behaviors that the company needs to achieve
its strategic aims.
Management formulates a strategic plan that
implies certain workforce requirements. Given
these requirements, human resource
management formulates HR strategies
(policies and practices) to produce the desired
workforce skills, competencies, and behaviors.
Finally, the human resource manager
identifies the measures he or she can use to
gauge the extent to which its new policies and
practices are actually producing the required
employee skills and behaviors.

Strategies related to human resource management are more of a concern during the phase
of Strategy Implementation as compared to strategy development.

The course designed for this subject also incudes following in the recommended book by
Dr. Khwaja Amjad Saeed.

Motivation:
Motivation is the process by which a person’s efforts are energized, directed, and sustained
towards attaining a goal. In simple words, motivations can be defined as a process that
initiates, guides and maintains goal-oriented behavior in employees.

There are two types of motivation; Extrinsic and Intrinsic.

Extrinsic motivations are those that arise from outside of the individual and often involve
rewards such as trophies, money, social recognition or praise. Intrinsic motivations are
those that arise from within the individual, such as doing a complicated cross-word puzzle
purely for the personal gratification of solving a problem.

1. Maslow’s hierarchy of needs:

This theory was developed by psychologist Abraham Maslow. This theory states that there
is a hierarchy of five human needs: physiological, safety, social, esteem, and self-
actualization. As each need is substantially satisfied, the next need becomes dominant.

1. Physiological need includes those needs which are necessary for survival of an
individual such as food, drink, water, shelter, and sexual needs.
2. safety need includes security and protection from physical and emotional harm.
3. social need includes affection, belongingness, acceptance, and friendship.
4. Esteem need includes internal factors such as self-respect, autonomy, and achievement,
and external factors such as status, recognition, and attention.
5. self-actualization is a person’s drive to become what he or she is capable of becoming.

Maslow argued that each level in the needs hierarchy must be substantially satisfied before
the next level is activated. He also debated that once a need is substantially satisfied it no
longer motivates. For example, if a person is hungry (physiological need), he will not be
motivated by status and recognition (Esteem need) as long as his hunger is not satisfied.
Once fulfilled, more food will not motivate the person anymore.

Maslow separated the needs into lower-level needs (including the physiological and safety
needs) and higher-level needs (including social, esteem, and self-actualization). The
difference was that higher-order needs are satisfied internally while lower order needs are
predominantly satisfied externally.

2. Herzberg’s Motivation-hygiene theory:

This theory is also called “Two Factor Theory” and was developed by Frederick Herzberg.
It describes that intrinsic factors are related to job satisfaction and motivation, whereas
extrinsic factors are associated with job dissatisfaction.

Herzberg believed that the opposite of satisfaction was not dissatisfaction. According to
Herzberg, simply removing dissatisfying characteristics from a job would not necessarily
make the job satisfying.

Hygiene factors are factors that eliminate dissatisfaction. They include factors such as
supervision, company policy, salary, working conditions, and security—i.e., extrinsic
factors associated with job context, or those things surrounding a job.

Motivators are factors that increase job satisfaction and motivation. They include factors
such as achievement, recognition, responsibility, and advancement—i.e., intrinsic factors
associated with job content, or those things within the job itself.

Herzberg’s theory has been criticized for the statistical procedures and methodology used
in his study. In spite of these criticisms, Herzberg’s theory has had a strong influence on
how we currently design jobs.

3. McGregor’s Theory X and Theory Y:

Theory X and Theory Y were developed by Douglas McGregor and describe two distinct
views of human nature.

Theory X is the assumption that employees dislike work, are lazy, avoid responsibility, and
must be coerced to perform.

Theory Y is the assumption that employees are creative, enjoy work, seek responsibility,
and can exercise self-direction. They should be facilitated for better performance.
Theory X assumes that Maslow’s lower-order needs dominate individuals, while Theory Y
assumes that higher-order needs are dominant.

4. Expectancy Theory:
Expectancy Theory is the theory that an individual tends to act in a certain way based on
the expectation that the act will be followed by a given outcome and on the attractiveness
of that outcome to the individual. Three relationships are important to this theory.

1. Effort-performance linkage (expectancy) is the probability perceived by the individual

that exerting a given amount of effort will lead to a certain level of performance.
2. Performance-reward linkage (instrumentality) is the degree to which an individual
believes that performing at a particular level is instrumental in, or will lead to, the
attainment of a desired outcome.
3. Attractiveness of the reward (valence) is the importance that the individual places on
the potential outcome or reward that can be achieved on the job.

The key to understanding expectancy theory is understanding an individual’s goal and the
linkage between effort and performance, between performance and rewards, and between
rewards and individual goal satisfaction.

MARKETING STRATEGIES
Marketing can be described as the process by which individuals and organizations obtain what
they need and want by exchanging values with each other.

(Need is a state of felt deprivation. Want is a form of need shaped by social and cultural factors.
Demand is a want backed by buying power.)

Each product level (product line, brand) may develop a separate marketing plan for achieving
its goals. A marketing plan is a written document that summarizes what the marketer has
learned about the marketplace and indicates how the firm plans to reach its marketing
objectives.

Marketing plans are becoming more customer and competitor orientated. The plan draws more
input from all the business functions and is team developed.

Contents of the marketing plan include; Situation analysis, Marketing strategy, Financial
projections and Implementation controls.

Market Segmentation
Market segmentation is widely used in implementing strategies, especially for small and
specialized firms. Market segmentation can be defined as the subdividing of a market into distinct
subsets of customers according to needs and buying habits.

Market segmentation is an important variable in strategy implementation for at least three major
reasons.
 1. First, strategies such as market development, product development, market penetration,
and diversification require increased sales through new markets and products.

2. Second, market segmentation allows a firm to operate with limited resources because
mass production, mass distribution, and mass advertising are not required.

3. Finally, market-segmentation decisions directly affect marketing mix variables: product,

place, promotion, and price.

Geographic and demographic bases for segmenting markets are the most commonly employed.
Evaluating potential market segments requires strategists to determine the characteristics and
needs of consumers, to analyze consumer similarities and differences, and to develop consumer
group profiles.

Segmentation is a key to matching supply and demand, which is one of the thorniest problems
in customer service. And today, the Internet does make market segmentation easier.

Product Positioning
After segmenting markets so that the firm can target particular customer groups, the next step
is to find out what customers want and expect. This takes analysis and research.

Identifying target customers on whom to focus marketing efforts sets the stage for deciding how
to meet the needs and wants of particular consumer groups. Product positioning is widely used
for this purpose.

Positioning refers to the place a product, brand, or group of products occupies in consumers' minds
relative to competing offerings

Positioning entails developing schematic representations that reflect how your products or
services compare to competitors on dimensions most important to success in the industry.

Steps in product positioning:

1. Select key criteria that effectively differentiate products or services in the industry.
2. Diagram a two-dimensional product-positioning map with specified criteria on each axis.
3. Plot major competitors’ products in the resultant four-quadrant matrix.
4. Identify areas in the positioning map where the company’s products or services could be
most competitive in the given target market. Look for vacant areas (niches).
5. Develop a marketing plan to position the company’s products appropriately.

Because just two criteria can be examined on a single product-positioning map, multiple maps
are often developed to assess various approaches to strategy implementation.
Multidimensional scaling could be used to examine three or more criteria simultaneously. Some
rules of thumb for using product positioning as a strategy-implementation tool are the
following:

a. Look for the hole or vacant niche.

b. Don’t position yourself between segments.
 c. Don’t position yourself in the middle of the map.

An effective product positioning strategy meets two criteria: (1) it uniquely distinguishes a
company from the competition, and (2) it leads customers to expect slightly less service than a
company can deliver. Firms should not create expectations that exceed the service the firm can
or will deliver.

4 Ps of Marketing:
Product, Prince, Place and Promotion