1. Functional Strategy and Strategic Choice

2. Chapter Outline
Functional Strategies that can be used to achieve organisational objectives
Strategies to avoid
Constructing corporate scenarios
Stakeholder priority mix
Considering different Industries- Strategic choice
10 commandments for crafting business strategies.

3. Functional Strategy
Approach a functional area takes to achieve corporate and business unit objectives
Orientation of functional strategy dictated by parent unit strategy
Competitive strategy of differentiation thru high quality Manufacturing functional strategy : Expansive quality assurance processes over cheap high volume production
Human resource functional strategy : hiring and training of highly skilled but costly workforce

4. Marketing functional strategy : emphasize distribution channel “pull” using advertising to increase consumer demand over “push” using promotional allowances to retailers
If using low-cost competitive strategy, different set of functional strategies to support the business strategy
Competitive and functional strategies may need to vary from region to region

5. Marketing Strategy
Marketing strategy – deals with pricing, selling and distribution
Using market development strategy, firm can
1. Capture a larger share of an existing market of current products (market saturation and market penetration)
2. Develop new markets for current products
Using product development strategy, company can
1. Develop new products for existing markets
2. Develop new products for new markets (line extension)

6. For promotion and advertising, a co
For promotion and advertising, a co. can choose between “push” and “pull” marketing strategies
Push strategy – spending large amount of money on trade promotion in order to gain or hold shelf space
Pull strategy - advertising pulls the products thru the distribution channel
Other marketing strategies:
Should co. use distributors or dealers to sell the product/ multiple channels or should sell straight to customers via the internet?
Pricing strategies:
Skim pricing – high price for product pioneers when product is novel and competitors few
Penetration pricing – gain market share with low price and dominate the industry
Dynamic pricing – prices vary frequently depending upon demand, customer segment and product availability

7. R&D Strategy
R&D strategy deals with product and process innovation and improvement
Also deals with how new technology should be accessed – thru internal development, external acquisition or strategic alliances
One R&D choice either be technological leader (pioneering an innovation) or technological follower ( imitating the products of competitors)

8. Operations Strategy
Operations strategy determines how and where a product or service is to be manufactured, the level of vertical integration in the production process, the deployment of physical resources and relationships with suppliers
Also deals with optimum level of technology the firm should use in its operations processes
Increasingly the use of computer assisted design and manufacturing (CAD/CAM) principles
Mass production system to produce large number of low cost, standard goods and services
Continuous improvement system – significantly higher level of quality

9. Purchasing Strategy
Purchasing strategy deals with obtaining raw materials, parts and supplies to perform the operations function
Multiple sourcing – purchasing company orders a particular part from several vendors
1. it makes suppliers compete for business thus reducing purchasing costs
2. if one supplier cannot deliver, another usually can thus guaranteeing that parts and supplies are always on hand when needed
Sole sourcing – recommended by Deming as only manageable way to obtain higher quality supplier
Simplify purchasing concept by using Just-In-Time (JIT)

10. Parallel sourcing – two suppliers are the sole suppliers of two different parts but they are also backup suppliers for each other’s parts
Internet increasingly used both to find new sources of supply and to keep inventories replenished.

11. Logistics Strategy
Logistics strategy deals with the flow of products into and out of the manufacturing process
3 trends related to this strategy are evident :
Centralisation : to gain logistical synergies, cos began to centralise logistics to gain better contracts with shippers etc
Outsourcing : reduces costs and improves delivery time
Use of the internet: simplifies logistical system

12. Human Resource Management Strategy
HRM strategy among other things addresses the issue of whether a company or business unit should hire a large number of low skilled employees who receive low pay, perform repetitive jobs or hire skilled employees who receive relatively higher pay and are cross trained to participate in self managing work teams
Cos are finding that having a diverse workforce can be a competitive advantage

13. Strategies to Avoid
Follow the leader – Ignores the possibility that the leader may be wrong
Arms race - Entering a battle for market share may reduce profitability
Do everything – When faced with several interesting opportunities, management might want to have a go at all of them
Losing Hand – A co. may have invested so much in a particular strategy that top management is unwilling to accept its failure

14. Selecting the Best Strategy
Strategy that takes advantage of environmental opportunities and corporate strengths/competencies and defends against environmental threats and corporate weaknesses
Ability of each alternative to satisfy agreed on objectives with the least resources and the fewest negative side effects

15. Constructing Corporate Scenarios –Another approach to choice
By using 3 sets of estimated figures e.g sales (Optimistic, Pessimistic and Most Likely) for the new products over the next 5 years, two alternatives can be evaluated in terms of their effect on future company performances as reflected in the company’s probable future financial statements

16. Management’s Attitude toward Risk
Risk is composed not only of the probability that the strategy will be effective but also of the amount of assets the corporation must allocate to that strategy and the length of time the assets will be unavailable
Ownership - A small firm managed by an entrepreneur is often willing to accept greater risk than a large of diversified ownership run by professional managers

17. Pressures from Stakeholders
The attractiveness of a strategic alternative is affected by its perceived compatibility with the key stakeholders
Stakeholders can be categorised in terms of
1. How will this decision affect each stakeholder?
2. How much of what each stakeholder wants is he likely to get under this alternative?
3. What are the stakeholders likely to do if they don’t get what they want?
4. What is the probability they will do it?

18. Pressures from the Corporate Culture
If strategy incompatible with corporate culture, likelihood of success is very low – foot-dragging and even sabotage
If there is little fit between strategy and corporate culture, management must decide if it should:
Take a chance on ignoring the culture
Manage around the culture and change the implementation plan
Try to change the culture to fit the strategy
Change the strategy to fit the culture
Restricting to only those strategies that are completely compatible with its culture might eliminate the most profitable alternatives

19. Needs and Desires of Key Managers
Even most attractive alternative might not be selected if it is contrary to the needs and desires of important top managers
Personal characteristics and experience affect a person’s assessment
Ego may be tied to a particular proposal
A key executive may influence other people in top management to favour a particular project
Industry and cultural background affect strategic choice
Tendency to maintain status quo

20. Process of Strategic Choice
Strategic choice is the evaluation of strategic alternatives and the selection of the best alternative
Best strategic decisions are not arrived at through consensus when everyone agrees on one alternative

21. Each resulting alternative must be rigorously evaluated in terms of its ability to meet 4 criteria:
1. Mutual exclusivity - Doing any one alternative would preclude doing any other
2. Success – It must be doable and have a good probability of success
3. Completeness – It must take into account all the key strategic issues
4. Internal consistency – Must make sense on its own as a strategic decision for the entire firm and not contradict key goals, policies and strategies currently being pursued by the firm or its units

22. Strategic Choice
“Competing in the marketplace is like war. You have injuries and casualties, and the best strategy wins.”

23. Strategic Choice Strategies for Emerging Industries
Strategies for Turbulent, High Velocity Markets
Strategies for Maturing Industries
Strategies for Declining Industries
Strategies for Industry Leaders
Strategies for Weak Businesses
Ten Commandments for Crafting Strategies

24. Features of an Emerging Industry
New and unproven market
Buyers are first-time users
Marketing involves inducing initial purchase and overcoming customer concerns
Firms struggle to fund R&D, operations and build resource capabilities for rapid growth

25. Strategy Options for competing in Emerging Industries
Win early race for industry leadership by employing a bold, creative strategy
Push hard to perfect technology, improve product quality, and develop attractive performance features
Form strategic alliances with
Key suppliers
Companies having related technological expertise
Capture potential first-mover advantages
Pursue
New customers
Entry into new geographical areas
Focus advertising emphasis on
Increasing frequency of use
Creating brand loyalty
Use price cuts to attract price-sensitive buyers

26. Features of High Velocity Markets
Rapid-fire technological change
Short product life-cycles
Rapidly evolving customer expectations
Frequent launches of new competitive moves
Entry of important new rivals

27. Strategy Options for Competing in High Velocity Markets
Invest aggressively in R&D
Develop quick response capabilities
Shift resources
Adapt competencies
Create new competitive capabilities
Speed new products to market
Use strategic partnerships to develop specialized expertise and capabilities
Initiate fresh actions every few months
Keep products/services fresh and exciting

28. Characteristics of Industry Maturity
Slowing demand
Greater emphasis on cost and service
Product innovation
International competition increases
Industry profitability falls
Mergers and acquisitions reduce the number of industry rivals

29. Strategy Options for Competing in a Mature Industry
Prune marginal products and models
Emphasize innovation in the value chain
Strong focus on cost reduction
Increase sales to present customers
Expand internationally
Build new, more flexible competitive capabilities

30. Stagnant or Declining Industries:The Standout features
Demand grows more slowly than economy as whole (or even declines)
Competitive pressures intensify--rivals battle for market share
To grow and prosper, firm must take market share from rivals
Industry consolidates to a smaller number of key players via mergers and acquisitions

31. Strategy Options for Competing in a Stagnant or Declining Industry
Pursue focus strategy aimed at fastest growing market segments
Stress differentiation based on quality improvement or product innovation
Work diligently to drive costs down
Cut marginal activities from value chain
Use outsourcing
Redesign internal processes to exploit e-commerce
Consolidate under-utilized production facilities
Add more distribution channels
Close low-volume, high-cost distribution outlets
Prune marginal products

32. Strategies Based on a Company’s Market Position
Industry leaders
Runner-up firms
Weak or crisis-ridden firms

33. 10 Commandments for Crafting Successful Business Strategies
1. Always put top priority on crafting and executing strategic moves that enhance a firm’s competitive position for the long-term and that serve to establish it as an industry leader.
Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up
3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability.
4. Avoid strategies capable of succeeding only in the best of circumstances.
5. Don’t underestimate the reactions and the commitment of rival firms.

34. 10 Commandments for Crafting Successful Business Strategies
6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.
7. Be judicious in cutting prices without an established cost advantage.
Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes
Endeavor not to get “stuck back in the pack” with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.