1. Strategy Formulation: Functional Strategy and Strategic Choice
Chapter 7
Strategy Formulation: Functional Strategy and Strategic Choice
Dr.Vijaya Kumar
Skyline College
Prentice Hall, 2002
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Wheelen/Hunger

2. Functional Strategy Functional Strategy:
The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity.
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3. Functional Strategy Core competency:
Something that a corporation can do exceedingly well – a key strength
Can be a core capability
Includes a number of constituent skills
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4. Functional Strategy Distinctive competencies:
When core competencies or core capabilities are superior to those of the competition.
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5. Functional Strategy Distinctive competencies: Must meet 3 tests:
Customer value
Competitor unique
Extendibility
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6. Functional Strategy Distinctive competencies:
Firm can gain access to distinctive competencies in 4 ways:
Asset endowment
Acquired
Shared with another business unit
Built and accumulated
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7. Functional Strategy Sourcing Decision: Outsourcing –
Purchasing from someone else a product or service that had been previously provided internally.
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8. Functional Strategy Determining Functional Strategy:
Identify business unit’s core competencies
Ensure that competencies are continually strengthened
Manage competencies so that competitive advantage is preserved
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9. Proposed Outsourcing Matrix
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10. Marketing Strategy Marketing strategy –
Involved with pricing, selling, and distributing a product.
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11. Marketing Strategy Market development strategy –
Capture a larger share of existing market through market saturation and market penetration
Develop new markets for current products
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12. Marketing Strategy Product development strategy –
Develop new products for existing markets
Develop new products for new markets
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13. Marketing Strategy Advertising or Promotion strategy –
Push marketing strategy
Investing in trade promotion to gain or hold share
Pull marketing strategy
Investing in consumer advertising to build brand awareness
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14. Financial 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
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15. Financial Strategy Leveraged buy out (LBO) –
Company is acquired financed largely by debt (from a third party).
Debt paid by acquired company’s operations or sale of assets
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16. Financial Strategy Tracking stock –
Highlighting a high-growth business unit in a popular sector of the stock market.
Keeping subsidiary’s common stock separately identified
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17. R&D Strategy R&D Strategy –
Deals with product and process innovation and improvement
Choice:
Technological leader
Technological follower
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18. Research and Development Strategy and Competitive Advantage
Technological Leadership Technological Followership
Cost Advantage
Differentiation
Pioneer the lowest cost product design.
Be the first firm down the learning curve.
Create low-cost ways of performing value activities.
Pioneer a unique product that increases buyer value.
Innovate in other activities to increase buyer value.
Lower the cost of the product or value activities by learning from the leader’s experience.
Avoid R&D costs through imitation.
Adapt the product or delivery system more closely to buyer needs by learning from the leader’s experience.
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19. Operations Strategy Operations strategy – Determines:
How and where product is manufactured
Level of vertical integration in process
Deployment of physical resources
Relationships with suppliers
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20. Operations Strategy Manufacturing strategy –
Affected by product life cycle
Job shop
Connected line batch flow
Flexible manufacturing system
Dedicated transfer lines
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21. Operations Strategy Manufacturing strategy –
Movement from mass production to:
Continuous improvement
Modular manufacturing
Mass customization
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22. Purchasing Strategy Purchasing strategy –
Obtaining raw materials, parts and supplies
Basic Purchasing Choices:
Multiple sourcing
Sole sourcing
Parallel sourcing
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23. Logistics Strategy Logistics strategy –
Flow of products into and out of the process
Three current trends:
Centralization
Outsourcing
Use of the Internet
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24. 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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25. Information Systems Strategy
Technology to provide business units with competitive advantage
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26. Strategies to Avoid
Corporate, Business or Functional Levels – Avoid the following:
Follow the Leader
Hit Another Home Run
Arms Race
Do Everything
Losing Hand
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27. Strategic Choice Selecting the Best Strategy:
Constructing Corporate Scenarios:
Corporate Scenarios –
Pro forma balance sheets and income statements that forecast effects of alternatives on return on investment
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28. Strategic Choice Selecting the Best Strategy:
Constructing Corporate Scenarios:
Steps in constructing scenarios –
Use industry scenarios
Develop common-size financial statements
Construct detailed pro forma financial statements for each alternative
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29. Scenario Box to Generate Pro Forma Statements
objections 1
Last
Historical T r
end
19—
Factor Y
ear A
verage
Analysis O P ML
Comments
GDP
CPI
Other
Sales units
Dollars
COGS
Adver
tising and marketing
Inter
est expense
Plant expansion
Dividends
Net pr
ofits
EPS
ROI
ROE
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30. Strategic Choice Attitude Toward Risk: Risk is composed of:
Probability of effective strategy
Amount of assets committed
Length of time of asset commitment
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31. Strategic Choice Process of Strategic Choice:
The evaluation of alternative strategies and selection of the best alternative
Not based on consensus
Discussion, disagreement
Programmed conflict
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32. Strategic Choice Process of Strategic Choice: Devil’s Advocate
Identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation.
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33. Strategic Choice Process of Strategic Choice: Dialectical Inquiry
Two proposals are generated using different assumptions for each alternative strategy
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34. Strategic Choice Evaluating strategic alternatives:
Ability to meet four criteria:
Mutual exclusivity
Success
Completeness
Internal consistency
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