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STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice
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Functional Strategy
Functional StrategyThe approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity (Hierarchical Planning)
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Functional Strategy
Marketing Strategy ––Pricing–Selling–Distribution
Market Development1.Capture large share of an existing market for current products through market saturation and promotion.2.Develop new markets for current products.
Product Development1.Develop new products for existing markets (line extension).2.Develop new products for new markets
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Functional Strategy
Marketing Strategy –
–Advertising and promotion•Push strategyTrade promotions to hold shelf space (discounts, in store specials, special advertising allowances)•Pull strategyEmphasize consumer advertising to build brand awareness. (Customers request products)
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Functional Strategy
Marketing Strategy –
–Pricing•Skim pricing
High price when product is new and there are few competitors
•Penetration pricingLow price to hasten market development and use experience curve to dominate the market
•Dynamic pricingVariable pricing based on supply and demand
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Functional Strategy
Financial Strategy –
–Leveraged buyoutCompany acquires itself through long term debt (“take a company private”)
–Reversed stock splitIncrease stock price for the short run
–Tracking stockSubsidiary has a separate stock issue(T, ATT, ATTL, SBTCL)
–Value or Growth Pay dividend in a slow growth market
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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 leader’s 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
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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 manufacturingPreassembled subassemblies Just-In-Time (JIT)
–Mass CustomizationUnique product for each customer
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Functional Strategy
Purchasing Strategy –
–Multiple sourcingSuppliers compete to reduce costSecurity of backup suppliers
–Sole sourcingOne supplier responsible for quality
–Parallel sourcingTwo “sole source” suppliers that backup or share responsibility
–Just-in-time (JIT)Raw material provided as needed (Pull)
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Functional Strategy
Collaborative planning, forecasting, and replenishment (CPFR)
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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
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Functional Strategy
OutsourcingPurchase a product or service from someone else that was previously provided internally
–AMA Survey of members (94% outsource at least one activity)
Activity %
General and Admin. 78
Human Resources 77
Transportation/Dist. 66
Info Systems 63
Manufacturing 56
Marketing 51
Finance/Accounting 18
25% were disappointed in the results51% brought activities back in house
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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
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Proposed Outsourcing Matrix
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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…
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Corporate Strategy
Corporate Scenario Development
Pro forma (estimated) balance sheet and income statements that identify key measures and the optimistic, pessimistic and most likely outcomes of alternative strategies.
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Constructing Corporate Scenarios
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Functional Strategy
Subjective Factors Affecting Decisions --
–Needs and desires of key managers–Management’s attitude toward risk–Pressures from stakeholders–Pressures from corporate culture
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
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Functional Strategy
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Stakeholder Priority Matrix
Assessing the Importance of Stakeholders1. How will this decision affect each stakeholder, especially those
in the high/medium priority?
2. How much of what they want are they likely to get?
3. What are the stakeholders likely to do if they don’t get what they want?
4. What is the probability that they will do it?
Political Strategies– Constituency building– PAC Contributions– Advocacy Advertising– Lobbying– Coalition Building
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Stakeholder Priority Matrix
Corporate CultureIf strategy is a poor fit with the Corporate Culture you have choices:
– Ignore the Culture
– Manage around the Culture
– Change the Culture
– Change the Strategy
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Corporate Culture Pressure
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Strategic Choice
Avoiding the Consensus Trap --–Devil’s Advocate
prove the proposal wrong
–Dialectical InquiryAlternative assumptions are made for the strategy (Optimistic/Pessimistic). The expected results are debated to reach a decision or compromise.
As a manager, if you have some one in your department that ALWAYS agrees with you, One of you is redundant…
Anon
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Strategic Choice
Evaluation of Strategic Alternatives --
–Mutual exclusivity – preclude others–Success – good probability of success–Completeness – account for key strategic issues–Internal consistency – be consistent with mission/vision
Developing PoliciesImplementation 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
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Policies
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STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 8 Strategy Formulation: Functional Strategy & Strategic Choice
Exercise options
• Levi Case at the end of the chapter
• Constituent Matrix – Smoking Ban in Erie County
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