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Functional Strategy

Approach a functional area takes to achieve corporate & business unit objectives and strategies by maximizing resource productivity. Developing & nurturing a distinctive competence

Marketing Strategy
Pricing, selling and distributing a product Market development strategy
Capture a larger share of existing market through market penetration Develop new uses and/ or markets for current products

Product development strategy


Develop new products for existing markets Develop new products for new markets Advertising & promotion strategy

Distribution & pricing strategy

Financial Strategy
Examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. Maximizes financial value of the firm Influenced by corporate diversification strategy. Equity financing for related & debt financing for unrelated. Leveraged Buyout Dividend Policy
Prentice Hall, 2004 Chapter 7 Wheelen/Hunger 3

Financial Strategy
REL buyback of shares to raise EPS HUL buyback of 25% of its stake to increase stock price

R & D Strategy
Deals with product & process innovation Appropriate mix of different types of R&D How to access new technology? Technological leader or follower Technology alliance with academic labs, govt., corporates Purchase stakes in new ventures Reddy s Lab, Biocon, Dabur, Panacea Biotech

Research and Development Strategy and Competitive Advantage


Technological Leadership Cost Advantage Pioneer the lowest cost product design. Be the first firm down the learning curve. Create low-cost ways of performing value activities. Differentiation Pioneer a unique product that increases buyer value. Innovate in other activities to increase buyer value. Adapt the product or delivery system more closely to buyer needs by learning from the leaders experience. Technological Followership Lower the cost of the product or value activities by learning from the leaders experience. Avoid R&D costs through imitation.

Prentice Hall, 2004

Chapter 7 Wheelen/Hunger

Operations Strategy
Determines:
How and where product is manufactured Level of vertical integration in process Deployment of physical resources Relationships with suppliers

Advanced Manufacturing technology- CAD/CAM, FMS, robotics, JIT systems quick response time, increased flexibility, higher productivity From mass production systems to continuous improvement strategy, modular manufacturing & mass customization
Prentice Hall, 2004 Chapter 7 Wheelen/Hunger 7

Purchasing strategy deals with


Obtaining raw materials, parts and supplies
Basic Purchasing Choices:
Multiple sourcing (lowers cost & guarantees supplies) Sole sourcing (relationship with suppliers) Parallel sourcing

Logistics Strategy deals with


Flow of products into and out of the manufacturing process
Three current trends:
Centralization Outsourcing Use of the Internet

Prentice Hall, 2004

Chapter 7 Wheelen/Hunger

HRM Strategy
HRM strategy
Addresses issues of:
Low-skilled employees
Low pay Repetitive tasks High turnover

Skilled employees
High pay Cross trained Self-managing teams
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Information Systems Strategy

Information systems strategy


Technology to provide business units with competitive advantage

Prentice Hall, 2004

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Functional Strategy
Outsourcing
Purchasing from someone else a product or service that had been previously provided internally. Reverse of vertical integration Increasing efficiency & quality

Prentice Hall, 2004

Chapter 7 Wheelen/Hunger

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AMA Survey
Outsourced activities - General & Administrative (78%) - HR (77%) - Information systems (63%) - Manufacturing (56%) - Marketing (51%) 51% brought the activity in-house

Disadvantages
Complaints Delays Reduces the ability to learn new skills

Keep core-activities in-house Proper selection of vendor Establish a balanced relationship Keep personnel issues in mind Not loosing control over the outsourced activity Identify hidden costs Plan an exit strategy

Determining Functional Strategy:


Identify business units core competencies Ensure that competencies are continually strengthened Manage competencies so that competitive advantage is preserved

Prentice Hall, 2004

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Proposed Outsourcing Matrix

Prentice Hall, 2004

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Subjective Factors in Strategic Choice


Management s Attitude Towards Risk Pressures from Stakeholders Pressures from Corporate Culture Need & Desires of Key Managers

Strategic Choice
Attitude Toward Risk:
Risk is composed of:
Probability of effective strategy Amount of assets committed Length of time of asset commitment Risk increases for global cos Mgrs with ownership position are more likely to engage in risky decisions Risk in one reason why innovations occur more often in small organizations Real Options approach

Prentice Hall, 2004

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Pressures from stakeholders


Compatibility with key stakeholders. Creditors want timely payment; unions demand for wages & security; interest gps demand social responsibility; shareholders demand dividends Stakeholders interest in the organization s activities and their relative power to influence organization activities Choose strategies which minimize external pressures and maximize probability of their support

Pressures from Corporate Culture


Ignore culture Manage around culture and change implementaion plan Change culture to fit the strategy Change strategy to fit culture