HANDOUT 4:
several variants of shampoo, deodorant, and body wash to
STRATEGY FORMULATION: FUNCTIONAL STRATEGY AND
STRATEGIC CHOICE
Functional Strategy
Functional strategy is the short-term game plan for key
functional areas within a company. It is an approach to achieving
corporate and business unit objectives and strategies by
maximizing resource productivity. Functional strategies are at the
heart of the competitive advantage of any firm and are formed in
correlation with the changing competitive environment.
The parent business unit's strategy dictates the orientation of a
functional strategy. For example, a business unit following a
competitive differentiation strategy through high quality might
require a functional manufacturing strategy emphasizing
expensive quality assurance processes over cheaper, high- volume
production. A human resource functional strategy emphasizes
hiring and training a highly skilled but costly workforce. A
marketing functional strategy emphasizes a distribution channel
using advertising to increase consumer demand over promotional
allowances to retailers.
Functional strategies also vary from region to region. For
instance, when Mister Donut expanded into Japan, the company
had to market donuts not as breakfast but as snack food. Since
the Japanese had no breakfast coffee-and-donut custom, they
preferred to eat the donuts in the afternoon or evening.
Types of functional strategy are as follows:
A. Marketing Strategy. It deals with pricing, selling, and
distributing a product or service. The marketing strategy can be
classified as follows:
 Market development strategy. It is a strategy that falls
under the category of business growth. This strategy helps
companies and businesses approach new customers properly
by introducing new or existing products to penetrate the
market and gain a dominant market share.
Example: Consumer product giants such as P&G, Colgate-
Palmolive, and Unilever are experts at using advertising and
promotion to implement a market saturation/penetration
strategy to gain the dominant market share in a product
category.
 Product development strategy. A company or business unit
can develop new products or services for existing markets
or new ones for new markets.
Example: Coca-cola has focused entirely on consumers and
what they want from beverages. As consumer tastes change,
Coke has rolled out new products in response to consumer
demand, from juices to coconut water, to organic tea.
 Brand extension. A company or business unit may use a
successful brand name to market other products.
Example: Dove, a personal care brand, began as a brand
solely known for its bars of soap. The company grew to
become a superpower in the personal care market by adding
its existing and successful product line.
 Push strategy. A company or business unit may engage in
trade promotion to gain shelf space in retail outlets. Trade
promotion includes discounts, in-store special offers, and
advertising allowances designed to "push" products through
the distribution system.
Example: Major handset manufacturers, such as Samsung,
promote their products via retailers by offering subsidies
on the handsets to encourage retailers to sell higher
volumes.
 Pull strategy. A company or business unit may engage in
wide consumer advertising designed to build brand
awareness so that shoppers will ask for the company's
products and services.
Example: Unlike other car companies, Ferrari only makes
luxury cars and never advertises them. Ferrari uses a pure
Pull strategy by maintaining the exclusivity of their
products at the highest level. Wealthy owners show off
their luxury cars to their friends on social networks,
promoting the brand for free.
B. Financial Strategy. It examines the financial implications of
corporate and business-level strategic options and identifies the
best financial course of action. It also provides a competitive
advantage through a lower cost of funds and a flexible ability to
raise capital to support a business strategy. This strategy can
be classified as follows:
 Equity financing. A corporation can raise capital by selling
company stock to investors. In return for the investment,
the shareholders receive ownership interests in the
company.
Example: John started a company with an initial capital of
$100,000. At the start, he owns 100% of the company's
equity. After a few initial years of starting, John seeks new
funds for the growth of the company. He sells 50% of the
company's equity to Edward, a new investor, at an agreed
price of $275,000.
 Debt financing. A corporation can raise capital by
borrowing money to acquire an asset. The capital sources in
debt financing include financial institutions such as banks
and insurance companies.
Example: A bank loan is an example of debt financing
whereby the bank lends money to the borrower for a
particular time with an interest.
C. Research and Development Strategy. It deals with product
and process innovation and improvement. It also concerns how new
technology should be accessed through internal development,
external acquisition, or strategic alliances.
 Technological Leader. Focuses on pioneering innovation.
 Example: Nike spends more than most in the industry on
R&D to differentiate the performance of its athletic shoes
from that of its competitors. As a result, its products have
become the favorite of serious athletes. This happened even
though Nike simultaneously pursued a low-cost
manufacturing approach.
 Technological Follower. Deals with imitating the products of
competitors.
Example: Face book, founded by Mark Zuckerberg in 2004,
is a classic example of a Technological Follower. The social
media platform originated from Friendster, a social
networking site founded by Jonathan Abrahams in 2002.
 Open Innovation. A newer approach in which a firm uses
alliances and connections with corporations, governments,
academic labs, and consumers to develop new products and
processes.
Example: IBM adopted the open operating system Linux for
some of its computer products and systems, drawing on a
core code base that is continually improved and enhanced by
a massive global community of software developers.
D. Operations Strategy. It determines how and where a product
or service is to be manufactured or delivered, the level of
vertical integration in the production process, deployment of
physical resources, and relationships with suppliers. It also deals
with the optimum level of technology the firm should use in its
operations processes.
A firm's strategy is often affected by the product or service's
popularity. In the case of manufacturing firms, an increase in
sales means an increase in production volume, which dictates the
appropriate strategy that the firm must employ. Whereas for
service-oriented firms, the level of service can be classified
based on service quality, reasonable price, reliable delivery, and
flexibility of the service design.
1. The operations strategy for manufacturing firms can be
classified as follows:
 Job snap. In this strategy, a small manufacturing system
handles customized production using skilled labor. Products
are customized based on customer specifications.
Example: Paint shops, machine shops, and fabrication shops.
 Connected line batch flow. In this strategy, each machine
functions like a job shop but is positioned in the same order
as the parts are processed. It is used when product
components are standardized.
Example: Toyota assembly lines consisted of three (3) to
four (4) sub-lines, each about 300 meters in length. The
trim line is for the installation of electrical parts. The drive
train, motor, exhaust, etc., are added to the chassis line.
Bumpers, window glass, wheels, etc., are attached during the
final line.
 Flexible manufacturing systems. In this strategy, parts are
grouped into manufacturing families to produce a wide
variety of mass-produced items.
Example: Equipment factories, automobile factories,
aerospace, medicine, and construction industries widely use
FMS.
 Dedicated transfer lines. In this strategy, highly
automated assembly lines create a single mass-produced
product using little human labor.
Example: Ingersoll Production Systems is an expert in
transfer line design and other industrial automation systems
that handle every production function, including milling,
drilling, tapping, or boring.
 Mass-production system. In this strategy, many low-cost,
standardized goods can be produced.
Example: Mass-produced food products include any food
item made or processed on a large- scale, such as in a
factory. Generally, because these products are made
industrially, each item is identical or similar.
 Mass customization. In this strategy, people, processes,
units, and technology reconfigure themselves to give
customers exactly what they want when they want it.
Example: Mass customization in the clothing industry where
apparel firms use computer- controlled machines to cut
fabrics that match individual body measurements.
2. The operations strategy for service-oriented firms can be
classified as follows:
 Quality. Service-oriented firms must ensure that they
deliver error-free services that match customers' needs
based on standard requirements. It may also pertain to the
quality of the delivery process, which establishes a reliable
image to the clients.
 Flexibility. Service-oriented firms must ensure that their
service design can handle the multiple demands of the
clients. They must also anticipate unexpected circumstances
based on changing consumer preferences, which may require
adjusting or completely modifying their service design.
 Speed. Service-oriented firms must pay attention to their
scheduling and capacity planning management to deliver
their services at an acceptable time.
 Dependability. Service-oriented firms must be consistent in
the value that their service provides. They must forecast
possible future problems and lay down preventive measures
that will solve the issues identified.
 Cost. Service-oriented firms must maintain reasonable
prices for their services by analyzing where their
operations costs are incurred and cutting down on
unnecessary expenses.
E. Purchasing Strategy. It deals with obtaining the raw
materials, parts, and supplies needed to perform the operations
function. The Internet has changed the ability of procurement
managers to compare and source supplies for their organization.
Research indicates that companies using Internet-based
technologies can lower administrative costs and purchase prices.
Example: Some companies may decide to undertake a single
source procurement strategy that involves obtaining excellent
dedicated service from a single vendor. These strategies are
predominant when souring for IT or indirect purchasing, such as
office supplies and cleaning.
F. Logistics Strategy. Logistics strategy deals with the flow of
products into and out of the manufacturing process. To gain
logistical synergies across business units, corporations began
centralizing logistics in the headquarters group to aggregate
shipping volumes across the entire corporation and gain better
contracts with shippers.
Example: Amazon changed the logistics and e-commerce industry
by introducing the online application "Amazon Prime Now". It
offers one-hour delivery in major American cities and even a
series of Wi-Fi-connected buttons that allow consumers to simply
register in the app to order or re- order products.
G. Human Resources Management Strategy. Companies find
that having a diverse workforce is a competitive advantage.
Research reveals that firms with a high degree of diversity
following a growth strategy have higher productivity, employee
satisfaction, and commitment than firms with less diversity.
Diversity in terms of age and national origin also offers benefits.
Example: McDonald's found that older workers performed as well
as, if not better, younger employees. The full-time and part-time
jobs range from entry positions like "crew person," "shift
manager," and "maintenance" to corporate and management jobs.
Currently, 11% of workers at McDonald's corporate-owned
restaurants are 50 years old or older.
H. Information Technology Strategy. Corporations have always
used an information technology strategy to give their business
units a competitive advantage. Multinational corporations use
sophisticated Intranets to allow employees to practice follow-
the-sun management. Project team members living in one country
can pass their work to team members in another country where
the workday is just beginning.
Example: When FedEx first provided its customers with
PowerShip computer software to store addresses, print shipping
labels, and track package location, its sales jumped significantly.
FedEx continued to push for further advantage by using its Web
site to enable customers to track their packages. FedEx used this
competency in its advertisements by showing how customers could
track the progress of their shipments.
HANDOUT 5:
STRATEGY IMPLEMENTATION: ORGANIZING AND
STRUCTURE
Strategy Implementation
Strategy implementation is the totality of activities and choices
required to execute a strategic plan. It is the process by which
objectives, strategies, and policies are implemented through
developing programs, tactics, budgets, and procedures.
The implementation process requires strategy makers to
consider these questions:
o Who are the people who will carry out the strategic plan?
o What must be done to align the company's operations in the
new intended direction?
o How is everyone going to work together to do what is
needed?
The following are the pre-requisites of strategy
implementation:
1. Define the strategy framework. The strategy should be
embedded in everything that a company does. It involves
translating organizational conduct, mission, vision, policies,
and strategic plans into general actions that guide an
organization's daily activities.
2. Build a strategic plan. It involves establishing cooperation,
personnel development, degree of commitment,
determination, and efficiency within an organization.
3. Define Key Performance Indicators (KPI). Key
performance indicators provide clear information of
progress towards an end-goal and measure factors such as
efficiency, quality, timeliness, and performance.
4. Implement consistent reports. It involves an overview of
how the strategy looks in the present and how it is
progressing over time. It must include a comparison period
or graphs/charts showing progress to maintain momentum.
5. Link performance reviews to strategy. It involves
monitoring the progress of the implemented strategy and
determining whether it is relevant to the organization's
purpose.
Developing Programs, Budgets, and Procedures
Bamford et al. (2018) stated that strategy implementation
involves establishing programs and tactics to create a series of
organizational activities, budgets to allocate funds for the
initiated activities, and procedures to monitor and control the
progress of the activities as follows:
A. Programs. A program or a tactic aims to make a strategy
action-oriented. In practice, a program is a collection of tactics,
and a tactic is an individual action taken by the organization as an
element of the effort to accomplish a plan.
The following are the different types of offensive tactics:

 Frontal attack. The attacker goes head-to-head with its
competitor. It matches its opponent's product, advertising,
price, and distribution in a pure frontal attack. This type of
attack is generally costly.
Example: Xerox seized the copy market from AM by developing a
better copying process. Later, Canon grabbed a large chunk of
Xerox's market by introducing desk copiers.
 Flank attack. Rather than going with a frontal assault, the
attacker intends to attack the competitor's weak points or
blind spots, especially the market leader or direct
competitor.
Example: Steve Jobs attacked BlackBerry, a technological
innovator with market dominance, by developing iPhone. He
assembled an integrated circuit, and customers loved it because
of the amazing ease of use and range of applications offered.
 Encirclement attack. Encirclement attempts to capture a
wide slice of territory by launching a grand offensive on
several fronts. It makes sense when the attacker commands
superior resources, has a greater product variety, or serves
more markets.
Example: In making a stand against archrival Microsoft, Sun
Microsystems licensed its Java software to hundreds of
companies and millions of software developers for all consumer
devices. As consumer electronics products began to go digital,
Java started appearing in a wide range of gadgets.
 Bypass attack. This tactic attempts to cut the market
from under the established defender by offering a new type
of product that makes the competitor's product
unnecessary. Bypassing the enemy to attack more accessible
markets instead provides three (3) lines of approach:
diversifying into unrelated products and new geographical
markets and leapfrogging into new technologies.
Example: Apple introduced the iPod as a personal digital music
player instead of competing directly against Microsoft's Pocket
PC and Palm Pilot for the handheld omputer market. It was the
most radical change in how people listen to music since the Sony
Walkman. By redefining the market, Apple successfully
sidestepped both Intel and Microsoft, leaving them to play
"catch-up."
 Guerrilla attack. Guerrilla attacks consist of small,
intermittent attacks, conventional and unconventional,
including selective price cuts, intense promotional blitzes,
and occasional legal action, to harass the opponent and
eventually secure permanent footholds.
Example: Red Bull is no stranger to guerilla marketing stunts. In
2012, they pulled off a major coup by sponsoring the first
successful Stratos jump from space. The jump generated a lot of
publicity for the brand and was watched by millions of people
worldwide.
The following are the different types of defensive tactics:
1. Raise Structural Barriers. Entry barriers act to block a
challenger's logical avenues of attack. Instead of increasing
competitive advantage per se, raising structural barriers
makes a company's or business unit's competitive advantage
more sustainable by causing a challenger to conclude that an
attack is unattractive.
 Position defense. It means occupying the most desirable
position in consumers' minds, making the brand almost
impenetrable.
Example: Procter & Gamble "owns" the key functional benefit in
many product categories, with Tide detergent for cleaning,
Gillette for razors and skin care, and Pampers diapers for
dryness.
 Flank defense: The defender should erect outposts to
protect a weak front or support a possible counterattack.
Flanking strategy is another name for identifying shifts in
market segments that are causing gaps to develop, then
rushing in to fill them and develop them into strong
segments.
Example: Samsung developed several product lines (Note Series,
A Series, M Series, etc.) to capture the segment when their
flagship/high-end products (Galaxy S Series) are
underperforming.
2. Increase Expected Retaliation. This tactic is any action
that increases the perceived threat of retaliation for an
attack. It is crucial in markets important to the defending
company or business unit.
 Preemptive defense: A more aggressive maneuver is to
attack first, perhaps with guerrilla action across the
market-hitting one competitor here, another there-and
keeping everyone off balance. Another is to achieve a broad
market envelopment that signals competitors not to attack.
Example: If Microsoft announces plans for new product
development, smaller firms may concentrate their development
efforts in other directions to avoid head-to-head competition.
 Counteroffensive defense: In a counteroffensive, the
defender can meet the attacker frontally and hit its flank
or launch a pincer movement for the attacker to pull back to
defend itself. Another form of counteroffensive is the
exercise of economic or political clout.
Example: Technology leaders like Apple, Intel, and Microsoft
have aggressively defended their brands in court for patent
infringement lawsuits.
3. Lower the inducement for attack. The third type of
defensive tactic is to reduce a challenger's expectations of
future profits in the industry.
 Mobile defense: In mobile defense, the leader stretches its
domain over new territories through market broadening and
diversification. Market broadening shifts the company's
focus from the current product to the underlying generic
need.
Example: When U.S. tobacco companies such as Reynolds and
Philip Morris acknowledged the growing curbs on cigarette
smoking, instead of defending their market position or looking for
cigarette substitutes, they moved quickly into new industries such
as beer, liquor, soft drinks, and frozen foods.
 Contraction defense: Sometimes, large companies can no
longer defend all their territory. In planned contraction
(also called strategic withdrawal), they give up weaker
markets and reassign resources to stronger ones.
Example: P&G sold Pringles to Kellogg, an American Multinational
Food Manufacturing Company, for almost $2.7 billion when it
decided to get out of the foods business to focus on its core
household and consumer products.
B. Budgets. It is a way for a corporation to check the feasibility
of its selected strategy by identifying the high cost incurred
during strategy implementation. An ideal strategy might be
completely impractical only after specific implementation
programs and tactics are casted in detail.
Example: Mondelez is the world's largest cocoa buyer and, in
2012, committed to dramatically increasing the supply of
sustainably grown cocoa in six (6) big cocoa-producing countries.
The company budgeted US$400 million or 20 billion pesos to
reach over 200,000 cocoa farmers by 2022.
C. Procedures. These are often called Standard Operating
Procedures (SOPs), which typically detail the various activities
that must be carried out to complete a corporation's programs
and tactical plans. Once in place, procedures must be updated to
reflect changes in technology and strategy.
Example: A company following a differentiation strategy manages
its sales force more closely than a firm following a low-cost
strategy. Differentiation requires long-term customer
relationships created from close interaction with the sales force.
An in-depth understanding of the customer's needs provides the
foundation for product development and improvement.
HANDOUT 6:
EXECUTION: LINKING STRATEGY, PEOPLE, AND
OPERATIONS
The Strategy Process
According to Usman Ghani, a business analyst and Chairman of
Conflucore, successful strategies have several attributes that win
the customer's preference and create a sustainable competitive
advantage. Ghani emphasized the following attributes that an
organization must address:
o Strategies display systematic adaptability
o Strategic processes must be applied
o Customer offerings are effectively differentiated by the
organization
A good strategic planning process requires attention to the actual
execution of the strategy, not a compilation of forecasted
numbers. It must come from the minds of the people closest to
the action who understand their markets, resources, strengths,
and weaknesses.
In building a strategic plan, an organization's line people (rank-
and-file staff) can help by collecting data and using analytical
tools because they are directly exposed to it. They are in the
best position to introduce ideas, know which ideas will work in
their marketplace and which ones won't, understand what new
organizational capabilities may be needed, weigh risks, evaluate
alternatives, and resolve critical issues that planning should
address but does not often do so.
In addition, business leaders must develop the substance of the
strategic plan. A business leader who comprehensively
understands the business and its environment can motivate and
inspire the line people to contribute.
Bossidy and Charan, the author of the book "The Discipline of
Getting Things Done," summarized the following considerations
of business leaders in creating a strong strategic plan:
 Assessment of external environment. Business leaders
must scrutinize their environment and understand it well.
They should examine everything from economic and
demographic trends and regulatory shifts to new
technologies, alliances between competitors, and drivers of
increasing or decreasing demand for its products.
 Understanding existing markets. Business leaders must be
aware of their customers' needs and buying behaviors.
 Identifying growth opportunities. Business leaders must
assess the needs of their organization to gain potential
progress and development. They must constantly identify
the need for new products or services, marketing channels,
and business expansion.
 Recognizing the competition. Business leaders must
continuously monitor the emergence of new entrants with
more attractive value propositions for their customers.
 Assessment of business capabilities. Business leaders must
evaluate their company's capabilities to execute a proposed
strategy regarding people, processes, and resources.
 Creating strategic milestones. Business leaders must
establish a timeline and metrics to measure a strategic
plan's progress.
 Determining critical issues. Business leaders must identify
the organizational problems that may affect the business's
future growth.
 Incorporating sustainability. Business leaders must ensure
that their company operations exhibit economic stability to
ensure the long-run continuity of the organization.
The People Process
For many organizations, whether large or small, a properly
implemented people strategy can help grow the business. A people
strategy is the organization's prioritized people plan that enables
a business to be successful by attracting, developing, retaining,
and inspiring the workforce. It is designed to inspire and achieve
company-wide alignment on goals that concern the people.
The following are the purpose of the People Strategy:
o It evaluates individuals accurately and in-depth.
o It provides a framework for identifying and developing
leadership talent.
o It fills the leadership pipeline with the basis of a strong
succession plan.
Very few companies accomplish all of these objectives well. One
of the most significant shortcomings of the traditional people
strategy is that it is backward-looking and focused on evaluating
the jobs people are doing at present. Far more important is
whether the individuals can handle the jobs in the future as the
company continues to grow.
Identifying the match between the right person and the right job
is not always as clear-cut. Sometimes it means replacing an
excellent employee with a new one who is better equipped to take
the business to the next level. While it might seem like a daunting
task, a functional people strategy relies on the following key
elements:
1. Start with a vision and some data. Even with a vision in mind,
gathering data of all kinds is the best. In this process, it is vital
to keep all evaluation methods as consistent as possible.
2. Identify the problems and outcomes. A people strategy
needs to be reflexive, which means it needs to identify issues
before they occur and handle them proactively.
3. Gather Feedback. Feedback is essential and must come from
various people in various roles and disciplines. It will ensure that
the strategy makes sense and can inspire those within the
organization.
4. Visualize and communicate. A visual that can be used to
communicate plans will help educate the wider business about how
work is thought about and allocated.
5. Track and adjust. It is essential to check the overall
strategy to ensure it is working proactively, and if changes are
needed, adjusting is necessary.
The Operations Process
Business operations refer to activities that businesses engage in
daily to increase the value of the organization and earn a profit.
It includes the programs a business will complete within a year to
reach the desired objectives, such as earnings, sales, margins,
and cash flow. Among these programs are product launches,
marketing plans, sales plans that take advantage of market
opportunities, manufacturing plans that stipulate production
outputs, and productivity plans that improve efficiency.
The following are the steps in building an operating plan:
1. Set targets. Business leaders must establish realistic goals
and objectives for the company to reach its ultimate destination.
They must also determine the necessary trade-offs between
short-term objectives and long-term goals.
2. Develop action plans. Business leaders must propose plans
that will enable them to execute strategies to achieve their goals.
3. Create contingency plans. Business leaders and the line people
must create specific alternative courses of action for the
business to overcome obstacles encountered in reaching goals and
objectives.
The following are ways how to improve the business operation:
1. Measure Performance. A business should implement a
realistic measurement system that determines how well the
business is doing against the targets. The process of measuring
performance starts from the goal-setting stage.
2. Keep up with the latest trend. A business should stay
updated with industry trends and changes to get ideas on how to
get better than the competition. Keeping up with these can help
the company improve its performance and cut costs, or that
allows it to stay compliant with new regulations.
3. Streamline. A business should evolve with changes in the
industry to increase productivity. The management should
continually be on the lookout for new tools, software, and
equipment that improve and ease critical processes.
Culture as Competitive Advantage
Developing a sustainable competitive advantage for the company
is what every CEO wants to achieve. Often, competitive
advantages are based on pricing, product, and process. However,
market conditions can be very volatile. Competitors are constantly
evolving and offering new products or services. Customers are
expecting faster, more responsive, and personalized service. And
employee's values and expectations are shifting rapidly.
The following outlines the process of setting the climate for
culture as a competitive advantage:
 Define the culture. Organizations must identify the driving
organizational values, beliefs, and behaviors to help the
company serve its customers. Part of this culture design
process requires fostering culture and growing the individual
and team talent needed now and in the future.
 Align the culture. Organizations must turn their company
values into ongoing norms of behavior within their
organization. Aligning the strategies and actions will create
a culture that drives innovations, productivity, and growth.
 Monitor the culture. Organizations must support the
business environment and solicit feedback from key
stakeholders for continual improvement. Look for
development opportunities that align with the company's
strategic direction and employees' aspirations.