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Formulation: Functional
Strategy & Strategic
Choice
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
J. DAVID HUNGER
8-1
Functional Strategy
Functional Strategy
The approach a functional area takes to
achieve corporate and business unit
objectives and strategies by maximizing
resource productivity
(Hierarchical Planning)
8-2
Functional Strategy
Marketing Strategy
Pricing
Selling
Distribution
Market Development
1.Capture large share of an existing market for current
products through market saturation and promotion.
2.Develop new markets for current products.
Product Development
1.Develop new products for existing markets
(line extension).
2.Develop new products for new markets
8-3
Functional Strategy
Marketing Strategy
Advertising and promotion
Push strategy
Trade promotions to hold shelf space (discounts, in store
specials, special advertising allowances)
Pull strategy
Emphasize consumer advertising to build brand
awareness. (Customers request products)
8-4
Functional Strategy
Marketing Strategy
Pricing
Skim pricing
High price when product is new and there are few
competitors
Penetration pricing
Low price to hasten market development and use
experience curve to dominate the market
Dynamic pricing
Variable pricing based on supply and demand
8-5
Functional Strategy
Financial Strategy
Leveraged buyout
Company acquires itself through long term debt
(take a company private)
Reversed stock split
Increase stock price for the short run
Tracking stock
Subsidiary has a separate stock issue
(T, ATT, ATTL, SBTCL)
Value or Growth
Pay dividend in a slow growth market
8-6
Functional Strategy
R&D Strategy
Technology
Leader
Technology
Follower
Open
Innovation
Cost Advantage
Pioneer in low
cost production
First down the
learning curve
Low-cost ways of
performing value
activities
Lower cost by
learning from the
leaders
experience
Avoid R&D
through imitation
Alliances with
outside agencies
Differentiation
Pioneer unique
product that
increases buyer
value
Innovate value
add activities
Adapt product or
delivery system to
buyer needs by
learning from
leader experience
Alliances with
outside agencies
8-7
Functional Strategy
Operations Strategy
Job shop vs. Connected line batch flow
Flexible manufacturing systems vs. Dedicated transfer lines
Mass production vs. Continuous improvement system (TQM)
Modular manufacturing
Preassembled subassemblies Just-In-Time (JIT)
Mass Customization
Unique product for each customer
8-8
Functional Strategy
Purchasing Strategy
Multiple sourcing
Suppliers compete to reduce cost
Security of backup suppliers
Sole sourcing
One supplier responsible for quality
Parallel sourcing
Two sole source suppliers that backup or share
responsibility
Just-in-time (JIT)
Raw material provided as needed (Pull)
Prentice Hall, Inc. 2006
8-9
Functional Strategy
8-10
Functional Strategy
Logistics Strategy
Flow of materials into and out of the manufacturing process
Centralization
Outsourcing
HRM Strategy
Self managed work teams
360 degree appraisal
Workforce diversity
8-11
Functional Strategy
Outsourcing
Purchase a product or service from someone else that was
previously provided internally
AMA Survey of members (94% outsource at least one activity)
Activity
78
Human Resources
77
Transportation/Dist.
66
Info Systems
63
Manufacturing
56
Marketing
51
Finance/Accounting
18
8-12
Functional Strategy
Outsourcing errors
Activities that should not be outsourced
Wrong vendor selection
Writing poor contract
Losing control over the activity
Overlooking personnel issues
Hidden costs of outsourcing
Failing to plan exit strategy
8-13
8-14
Functional Strategy
Strategies to Avoid
Follow the leader they could be wrong
Hit another home run R&D longshot
Arms race price wars
Do everything nothing well
Losing hand know when to fold them
8-15
Corporate Strategy
8-16
8-17
Functional Strategy
8-18
Functional Strategy
Risk
Probability of success
Amount of assets allocated to the strategy
Time the assets are committed
Real-Options Approach
Staged funding of multiple alternatives based on
periodic evaluation of performance
8-19
8-20
Political Strategies
Constituency building
PAC Contributions
Advocacy Advertising
Lobbying
Coalition Building
8-21
Corporate Culture
If strategy is a poor fit with the Corporate Culture you have choices:
8-22
Strategic Choice
8-23
Strategic Choice
8-24
Policies
Developing Policies
Implementation guidelines
Forces trade-offs between competing resource allocations
Tests strategic soundness of decisions
Sets clear boundaries within which employees must operate
while granting freedom to experiment
8-25
CHAPTER 8 Strategy
Formulation: Functional
Strategy & Strategic
Choice
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
J. DAVID HUNGER
8-26
Exercise options
Levi Case at the end of the chapter
Constituent Matrix Smoking Ban in Erie
County
8-27