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Chapter [5] Formulation of Functional Strategy Formulation of Functional Strategy.

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3 Chapter [5] Formulation of Functional Strategy Formulation of Functional Strategy

4 There are 3 levels of strategies ~ Corporate level strategy Business level strategy Functional level strategy Why functional strategy ~ SDs are implemented by all parts of management. To control activities in functional areas. To reduce time spent in decision making by functional managers. Similar situations are handled in consistent manner To establish coordination across different functional areas.

5 Marketing Strategy Marketing is the set of activities of identifying the customer’s need and satisfying them in return of some consideration. Formulation of marketing strategy is the process of dividing the total market into pieces (Marketing Segmentation), then choosing the appropriate segment (Market Targeting) and finally serving the selected segment better then the competitors (Market Positioning).

6 Marketing Mix ProductPricePlacePromotionPeople Physical evidence Process

7 Marketing Plan Executive Summary – Plan overview and Management’s support to Strategy. Current Marketing Situation – Current Market, Product, Competitors and Distribution system. Threat and Opportunity – Anticipated Opportunity and threat of future. Objectives and Issues – Marketing objectives and issues that can affect them.

8 Marketing Strategy – Strategy to be followed for all marketing mix. Budget – Projected Costs - Benefits. Controls – Controls that will be used to monitor progress. Checks and corrective actions.

9 Marketing Strategy Techniques Social Marketing ~ “Issued in the public interest by Airtel” Augmented Marketing ~ “Movies on-demand, recording of live match” by TataSky. Direct Marketing ~ Tele shopping, catalogue selling, Mail-order Relationship Marketing ~ Quotations in SMS by Cell Phone companies. Service Marketing ~ Marketing of Services

10 Person Marketing ~ Political party. Place Marketing ~ “Truly Asia Malaysia”, “Incredible India” Enlightened Marketing ~ Innovative, sense-of-mission, customer oriented etc. Differential Marketing ~ Different strategy for different market. Synchro Marketing ~ For irregular demand of the product. Concentrated Marketing ~ For large share of one or sub-market De-marketing ~ For decreasing demand of the products

11 Financial Strategy Financial strategy Acquisition of fund Budget Usage of fund Evaluating Net worth

12 Acquiring needed capital/funding :~ – Debt orEquity – Debt : Too much debt can endanger survival. – Equity : Too much equity liquidate ownership. Budget :~ – Reasonable v/s Optimistically – Period of budget : 1day to 1 year. – Types : Sale, Expenses, Capital, Factory – Limitations ~ Over-budget and Under-budget can cause problem Budget can become substitute for objective. Can hide inefficiency if based on precedent. Sometimes used as instrument of tyranny.

13 Management / Usage of funds :~ – Issues related to efficiency and effectiveness. – If plans are not clear usage is inefficient. – Good management of funds makes the difference between strategically successful and unsuccessful company. – Priorities of management may conflict with shareholders, Strategist resolves the issues. Evaluating worth of business :~ – 3 approaches ~ Net worth – Common stock + Additional paid-in-capital + retained earning +/- amount of goodwill +/- over/under valued asset. 5 times the firm’s current annual profit. Market determined worth – – Selling price of a similar business – Price-earning ratio (no. of share * average net income) – Outstanding share method (no. of share * market price/share)

14 Production Strategy Financial strategy Production System PPCR & D

15 Production System :~ – It is concerned with – Capacity Location Layout Product design Degree of automation. – These factors influences organization’s ability to implement strategy. Production Planning and Control :~ – It is concerned with - Demand forecastingMaterial supply Cost & quality managementInventory Maintenance of plant & equipment – Strategy is required to see how efficiently resources are utilised in day-to-day operations.

16 Research & Development :~ – R&D helps in implementation of many corporate strategies. – Successful organization formulate that R&D strategy which ties external environment to internal strength. – Guidelines ~ When Technical progress is low and market growth is moderate then in-house R&D is preferred. When Technical progress is high and market growth is moderate then R&D from outside source is preferred. When Technical progress is low and market growth is high then R&D from outside source is preferred. When Technical progress is high and market growth is high then R&D from outside source is preferred. – R&D approaches ~ First : Be the first firm to market new technology product. Second : Be the innovative imitator of successful product. Third : Be the low-cost producer of new technology product.

17 Logistic Strategy It is a process responsible for supplies into and out of the organization. It ensure right material at right place in right time of right quality at the right cost. Factors to be concerned are third party contract, route determination, sources and destination of material. Benefits ~ Cost savingReduced inventory Reduced delivery timeCustomer satisfaction Competitive advantages

18 Supply Chain Management Supplier Manufacturer Distributer Dealer Retailer Process of planning and implementing activities of Sourcing, Procurement and Logistics.

19  Traditionally companies used to manage supply chain themselves but now they are outsourcing this activity, so SCM is important.  Companies are now focusing on their core- competencies and outsources other functions to those that specializes in the activities.  SCM is a cross-functional approach to manage all movement and storage of raw material, WIP inventry and finished goods from point-of-origin to point-to-consumption.

20 Logistic v/s SCM  Logistic includes management of transportation(inbound & outbound) and warehousing.  SCM additionally focuses on Cost reduction and customer satisfaction.

21 Implementing SCM strategy  A key requirement for successfully implementing SCM strategy is networking for information sharing.  Implementation involves 7 factors to be covered : Product development, Procurement, Manufacturing, Distribution, Outsourcing, Customer service and Performance measurement.

22 Product Development ~ SCM ensures that all partners will help in shorting Product Development Life Cycle and help Org. remain competitive. Procurement ~ SCM ensures appropriate resource planning, source identification, order placement, inbound transporting and storage. Manufacturing ~ SCM ensures flexibility in manufacturing process by minimizing lot size.

23 Physical distribution ~ SCM ensures availability of good at right place, at right time, in right condition. Outsourcing ~ SCM ensures company focuses on on competency and rest are outsourced. Customer Service ~ SCM ensures that there is a network interface between company and customer to deliver services to them. Performance Measurement ~ SCM provides measures of performance such as cost, service, productivity and quality.

24 HR Strategy HR is a good source of competitive advantages. Strategic responsibility of HRM ~ – Assessing staffing need and staff development. – Motivating employee. – Managing healthcare insurance. – Developing performance incentives. – Involving employees in SDM.

25 Reasons why HR creates problems in strategy implementation ~ – Disruption of social and political structure. – Failure to match employee’s aptitude and task. – Inadequate top management support. – Resistance to change Common methods to resolves issues ~ – Transferring managers – Leadership workshop. – Promotions. – Job enlargement- Job enrichment. – Gives less order, announce few decisions – Depend on chatting and informal questioning – Show management commitment to strategy implementation. – Match aptitude with individual’s skill. – Involve employees in strategy formulation.

26 HR Strategy ~  Aim To develop employees and give them better working condition. To ensure a fit between employee and job. To link between HR with strategic goal of the company.  Focus ~ Pre-selection practices – Resource planning and Job analysis Selection Practices – Recruitment and selection practice Post-selection practices – Training, maintenance, performance appraisal, compensation

27 Strategic Role of HR Management ~  Provide Purposeful direction  Creating Competitive Atmosphere  Facilitation of change  Diversion of Workforce  Empowerment of Human Resource  Building core competency  Development of work ethics and culture


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