Funcational Strategies

8/8/2019 Funcational Strategies

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Functional strategiesFunctional strategies


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Functional StrategiesFunctional Strateg

ies

Corporate-level strategies

Business- level strategies

Functional-level strategies

MarketingPlans and

policies

FinancialPlans and

policies

OperationsPlans and

policies

HumanResource

ManagementPlans and

policies


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Vertical fitVertical fit

Strategic marketing managementStrategic marketing managementStrategic financial managementStrategic financial management

Strategic operation managementStrategic operation managementStrategic human resourceStrategic human resourcemanagementmanagement

Strategic information managementStrategic information management


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Horizontal fitHorizontal fit

It means that there has to be anIt means that there has to be anintegration of all operation activitiesintegration of all operation activitiesundertaken to provide a product orundertaken to provide a product orservice to operationalservice to operationalimplementation.implementation.

inbound operation outbound Marketing &sales

services


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Marketing polices and plansMarketing polices and plans

ProductProduct :- quality, features, choice of :- quality, features, choice of models, brands names, packaging, etc..models, brands names, packaging, etc..PricingPricing

:- discounts, mode of payment,:- discounts, mode of payment,

allowances, payment period, creditallowances, payment period, creditterms,etc..terms,etc..Place (or distribution):-Place (or distribution):- channels tochannels tobe used, transportation, logistics andbe used, transportation, logistics andinventory storage management andinventory storage management andcoverage of market, etccoverage of market, etc


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PromotionPromotion :- advertising, personal:- advertising, personalselling, sales promotion andselling, sales promotion andpublicity..publicity..


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Financial polices and plansFinancial polices and plans

Sources of fundsSources of funds :- capital structure;:- capital structure;procurement of capital and workingprocurement of capital and workingcapital borrowings; reserves andcapital borrowings; reserves and

surplus as sources of funds;surplus as sources of funds;relationship with lenders, banks andrelationship with lenders, banks andfinancial institutions.financial institutions.Usage of fundsUsag e of funds :- capital investment,:- capital investment,fixed assets acquisition, currentfixed assets acquisition, currentassets, dividend decision, andassets, dividend decision, andrelationship with shareholders.relationship with shareholders.


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Management of fundsManag ement of funds :- the system:- the systemof finance, accounting andof finance, accounting andbudgeting; cash, credit and riskbudgeting; cash, credit and riskmanagement; cost control andmanagement; cost control andreduction; and tax planning andreduction; and tax planning andadvantages.advantages.


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Operation plans and policiesOperation plans and policies

Production systemProduction sy stem :- capacity, location,:- capacity, location,layout, product or service design, worklayout, product or service design, worksystem, etcsystem, etc

Operation planning and controlOp eration planning and control :-:-production planning; materials supply;production planning; materials supply;inventory, cost and quality management;inventory, cost and quality management;and maintenance of plant and equipment.and maintenance of plant and equipment.

Research and developmentResearch and develop ment :- product:- productdevelopment, level of technology used,development, level of technology used,technology transfer, technologytechnology transfer, technologysupport,etcsupport,etc


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Personal plans and policiesPersonal plans and policies

Personnel systemPersonnel sy stem :- manpower planning,:- manpower planning,selection, development, communicationselection, development, communicationand appraisal.and appraisal.

Organizational and EmployeeOrg anizational and Employeecharacteristicscharacteristics :- corporate image, quality:- corporate image, qualityof managers, staff and workers, workingof managers, staff and workers, workingconditions, etc.conditions, etc.

Industrial RelationsIndustrial Relations :- union-:- union-management relationship, safety, welfaremanagement relationship, safety, welfareand security, employee satisfaction etc..and security, employee satisfaction etc..


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Boston Consulting GroupBoston Consulting GroupMatrix:Matrix:

It is the most well known portfolioIt is the most well known portfoliomanagement tool. It is based onmanagement tool. It is based on productproductlife cycle theorylife cycle theory ..

This matrix can be used to determineThis matrix can be used to determinewhat priorities should be given inwhat priorities should be given inproduct portfolio of a business unit toproduct portfolio of a business unit toensure long term value creation, aensure long term value creation, acompany should have a portfolio of company should have a portfolio of products that contain both high-growthproducts that contain both high-growthproducts in need of cash inputs and lowproducts in need of cash inputs and lowgrowth products that generate lot of growth products that generate lot of cash.cash.


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BCG Growth-Share MatrixBCG Growth-Share Matrix

In BCG approach, the company classifiesIn BCG approach, the company classifiesall its SBUs into 4 types asall its SBUs into 4 types as star,star, cash cow,cash cow, question markquestion markandand

dogdog

according to theiraccording to their market growthmarket growth andandrelative market share.relative market share.


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Portfolio StrategyMix of business units and

product lines that fit together ina logical way to providesynergy and competitive

advantage

BCGMatrix


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BCG Market Share/Market Growth MatrixBCG Market Share/Market Growth Matrix


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BCG MatrixDogs are businesses that have a verysmall share of a market that is notexpected to grow.Cash cows are businesses that havea large share of a market that is notexpected to grow substantially.Question marks are businesses thathave only a small share of a quicklygrowing market.Stars are businesses that have thelargest share of a rapidly growing


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Stars:Stars:

are high-growth, high-share businesses orare high-growth, high-share businesses orproducts.products.

They often need heavy investment to They often need heavy investment to

finance their rapid growth.finance their rapid growth.The business strategy will generally be for The business strategy will generally be for

growth fueled by externally acquired capital.growth fueled by externally acquired capital.Eventually, their growth will slow, and theyEventually, their growth will slow, and they

will turn into cash cows.will turn into cash cows. This cell corresponds closely to the growth This cell corresponds closely to the growthphase of the product life cycle.phase of the product life cycle.


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Cash cows:Cash cows:

are low-growth, high-share businesses orare low-growth, high-share businesses orproducts.products.

These established and successful SBUs need less These established and successful SBUs need lessinvestment to keep their market share.investment to keep their market share.

They produce a lot of cash to be used for other They produce a lot of cash to be used for otherbusiness units of the company.business units of the company.

These businesses can adopt mainly stability These businesses can adopt mainly stability

strategies.strategies.In the term of PLC, these are generally matureIn the term of PLC, these are generally maturebusinesses, which are reaping the benefit of thebusinesses, which are reaping the benefit of theexperience cure.experience cure.


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Question marks:Question marks:

sometimes called problem children, are low-sharesometimes called problem children, are low-sharebusiness units in high-growth markets.business units in high-growth markets.They need a lot of cash to keep and increase their They need a lot of cash to keep and increase their

share;share;they can not generate enough cash themselves.they can not generate enough cash themselves.Management must decide which question mark itManagement must decide which question mark it

should build into stars and which should phase out.should build into stars and which should phase out.No single set of strategies can be recommendedNo single set of strategies can be recommendedhere.here.


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Dogs:Dogs:

are low-growth, low-share businessesare low-growth, low-share businessesand products.and products.

They often have poor profitability. They often have poor profitability. Therefore, the business strategy for a Therefore, the business strategy for adog is most often to divest, butdog is most often to divest, butoccasionally to hold for possibleoccasionally to hold for possiblestrategic repositioning as a questionstrategic repositioning as a questionmark or cash cow.mark or cash cow.


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Example : STARS: petro chemicals, electronics &telecommunications, fast food, ceramic tiles

CASH COWS: scooters for Bajaj Auto,toothpaste for Colgate, decorative paints forAsian paints, & India today for living media.

QUESTION MARKS: Car business of Hindustan Motor (Ambassador brand) can betermed as it has low market share in agrowing market. Holiday resorts, lightcommercial vehicles, home improvementproducts.


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G.E.9 CELL MATRIX G.E.9 CELL MATRIX

G E St t i Pl i M d l


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G.E Strategic Planning Model

Strong Average Weak Business StrengthBusiness Strength

I n d u s t r yA t t r a

c t i v

en e s s

High

Medium

Low

Business Strength Index IndustryAttractiveness Index

* Market Share * Market size* Price Competitiveness * Market Growth* Product Quality * Industry Profit

Margin

* Customer Knowledge * Amount of Competition


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GE nine cell planning grid:GE nine cell planning grid:

In order to overcome the weaknesses of BCGIn order to overcome the weaknesses of BCGGeneral Electric Company has developed a nineGeneral Electric Company has developed a ninecell grid with the help of McKinsey & Co. of USA, acell grid with the help of McKinsey & Co. of USA, aleading consultancy firm. GE grid differs from BCGleading consultancy firm. GE grid differs from BCG

model in two respects which are as follows:model in two respects which are as follows:1.1. The GE grid has considered a number of factors The GE grid has considered a number of factorsin assessing the industry attractiveness andin assessing the industry attractiveness andbusiness strength instead of the single measurebusiness strength instead of the single measurefor each of two dimensions- market share &for each of two dimensions- market share &market growth.market growth.

2.2. The GE grid considers three degrees high, The GE grid considers three degrees high,medium low, as compared to two degrees highmedium low, as compared to two degrees high


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The GE Business ScreenThe GE Business Screen

1 2 3

4 5 6

7 8 9

Build Hold Harvest

Industr y

attract ivenes s

Business Strength

Strong

Avg Weak

High

Medium

Weak


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The GE Business ScreenThe GE Business Screen

Winner Winner ???????????

Winner AverageBusiness Loser

Profitproduces

Loser Loser

Build Hold Harvest

Industr y

attract ivenes s

Business Strength

Strong

Avg Weak

High

Medium

Weak


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BUILD ( Invest/Expand) :

In this zone business has opportunity to growthrough further investment & expansion. Thiszone is characterized by the presence of both:business strength & industry attractiveness.

Cell no. 1 : High high situation which isideal for growth- not remain in long run-industry will attract other players, unless

strong entry barriers.Ex: IT industry was the most attractiveindustry has not remained as attractivebecause of entry of all sort of players.


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Cell no. 2:

An organization can grow in a long run, itmay become dangerous if it doesn't buildstrength.

EX: Initial stage of economic liberalization cosentered in light commercial vehicle segmenteven with foreign collaboration, at presentnone of them is performing well

1 2 3

4 5 67 8 9


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Cell no. 4:Realistic situation for growth,though industry attractiveness is medium,

strong strength on this basis it can generatecompetitive advantage for itself which may act as

the entry barrier for many aspiring entrants.Ex: When Reliance entered polyester businessthat was not considered attractive but the co. had

strength on the basis of which it createdenormous capacity to compete. 1 2 34 5 6

7 8 9


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HOLD (Select / EarnHOLD (S elect / Earn ):): a mixed situation in which much growth possibilitya mixed situation in which much growth possibilitydoesn't exists.doesn't exists.

it presents the opportunity for selective earnings.it presents the opportunity for selective earnings.

Cell no. 5 & 7:Cell no. 5 & 7: Indicates the hold position.Indicates the hold position.

EX: TV software co,s, Satellite Channels like Zee, StarEX: TV software co,s, Satellite Channels like Zee, Starplus, Sahara, Sony.plus, Sahara, Sony.Not able to generate revenue due to heavy competition.Not able to generate revenue due to heavy competition.Forward integration is not good.Forward integration is not good.Star plus should improve its strength due to competitionStar plus should improve its strength due to competitionwith colorswith colors


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Cell no. 3:

flexible situation,

continued earnings coz high industryattractiveness

suggests the scope of improving strength

otherwise the business may be put in thecategory of question mark.

1 2 3

4 5 6

7 8 9


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Harvest ( Divest) :Harvest ( Divest) :ThisThis cell can be represented as RED where organizationcell can be represented as RED where organizationhas to stop.has to stop.Cell no.6&8:Cell no.6&8:

It is expected that earnings may be there but noIt is expected that earnings may be there but no

investments are to be made.investments are to be made.

Harvesting involves withdrawal decisionHarvesting involves withdrawal decision

but withdrawal is not immediate,but withdrawal is not immediate,

focus may be on cost cutting ,such as R & D and advertisingfocus may be on cost cutting ,such as R & D and advertisingetc.etc.


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Ex: Withdrawal of Ashok Leyland

Reduction in working hrs from 8 to 5 hrs.

Reduction in number of working days from7 to 5 days.

Reduction in Adv & R & D expenditure.

1 2 3


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Cell no 9:

immediate disinvestment is required .

delay may result into lower attractiveness to

a prospective buyer.

Ex:

Berger paints was sold to Asian paints coz theydidnt found any scope in there area.

1 2 3

4 5 6

7 8 9


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Porter's five forcesPorter's five forces is a framework for the industryis a framework for the industryanalysis and business strategy developmentanalysis and business strategy developmentdeveloped bydeveloped by Michael E. PorterMichael E. Porter of of Harvard Business SchoolHarvard Business School inin 19791979 . It draws upon. It draws uponIndustrial Organization (IO) economicsIndustrial Organization (IO) economics to derive fiveto derive fiveforces that determine the competitive intensity andforces that determine the competitive intensity andtherefore attractiveness of atherefore attractiveness of a marketmarket . Attractiveness. Attractivenessin this context refers to the overall industryin this context refers to the overall industryprofitability.profitability.Porter's five forces refer to competition from externalPorter's five forces refer to competition from externalsources. The remainder are internal threats. It issources. The remainder are internal threats. It isuseful to use Porter's five forces in conjunction withuseful to use Porter's five forces in conjunction withSWOT analysisSWOT analysis ((SS trengths,trengths, WW eaknesses,eaknesses,OO pportunities, andpportunities, and TThreats).hreats).
http://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Harvard_Business_Schoolhttp://en.wikipedia.org/wiki/Harvard_Business_Schoolhttp://en.wikipedia.org/wiki/1979http://en.wikipedia.org/wiki/1979http://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/SWOT_analysishttp://en.wikipedia.org/wiki/SWOT_analysishttp://en.wikipedia.org/wiki/SWOT_analysishttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/1979http://en.wikipedia.org/wiki/Harvard_Business_Schoolhttp://en.wikipedia.org/wiki/Michael_Porter


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Porter referred to these forces as thePorter referred to these forces as themicro environmentmicro environment , to contrast it with the, to contrast it with themore general termmore general term macro environmentmacro environment ..

They consist of those forces close to a They consist of those forces close to acompanycompany that affect its ability to serve itsthat affect its ability to serve itscustomers and make acustomers and make a profitprofit . The overall. The overallindustry attractiveness does not imply thatindustry attractiveness does not imply thateveryevery firmfirm in the industry will return thein the industry will return the

same profitability. Firms are able to applysame profitability. Firms are able to applytheirtheir core competenciescore competencies ,, business modelbusiness model orornetwork to achieve a profit above thenetwork to achieve a profit above theindustry average.industry average.
http://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Core_competencieshttp://en.wikipedia.org/wiki/Core_competencieshttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Core_competencieshttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Marketing


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Porter's five forces include - three forces fromPorter's five forces include - three forces from'horizontal' competition: threat of substitute'horizontal' competition: threat of substituteproducts, the threat of established rivals, andproducts, the threat of established rivals, andthe threat of new entrants; and two forces fromthe threat of new entrants; and two forces from'vertical' competition: the bargaining power of 'vertical' competition: the bargaining power of suppliers and the bargaining power of suppliers and the bargaining power of customers.customers.


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Porters Five ForcesPorters Five Forces


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Threat of New Entrants

Barriers toEntry

Barriers toEntry


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Threat of New EntrantsThreat of New Entrants

Barriers toEntry

Barriers toEntry

Economies of ScaleEconomies of Scale

Product DifferentiationProduct Differentiation

Capital RequirementsCapital Requirements

Switching CostsSwitching Costs

Access to Distribution ChannelsAccess to Distribution Channels

Government PolicyGovernment Policy

P Fi FP t Fi F


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BargainingPower of Suppliers


Threat of NewEntrants

Threat of New

Entrants

Threat of New

Entrants

Porters Five ForcesModel of CompetitionPorters Five Forces

Model of Competition


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Bargaining Power of SuppliersBargaining Power of Suppliers

Suppliers exert powerin the industry by:Suppliers exert powerin the industry by:

* Threatening to raise* Threatening to raise prices or to reduce quality prices or to reduce quality

Powerful supplierscan squeeze industryprofitability if firmsare unable to recovercost increases

Powerful supplierscan squeeze industryprofitability if firmsare unable to recovercost increases

Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:

Supplier industry is dominated by aSupplier industry is dominated by afew firmsfew firms

Suppliers products have few substitutesSuppliers products have few substitutes

Buyer is not an important customer toBuyer is not an important customer tosupplier supplier

Suppliers product is an importantSuppliers product is an importantinput to buyers productinput to buyers product

Suppliers products are differentiatedSuppliers products are differentiatedSuppliers products have highSuppliers products have highswitching costsswitching costs


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Bargaining Power of Buyers

Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if: The buyers are few in number The buyers are few in number The few buyers placeThe few buyers place

large orders individuallylarge orders individually Alternatives suppliers areAlternatives suppliers are

present, willing to supply present, willing to supply

at a lower priceat a lower price Switching cost is lowSwitching cost is low Buyer has full informationBuyer has full information

Buyers competewith the supplying

industry by:

Buyers competewith the supplying

industry by:

* Bargaining down prices* Bargaining down prices

* Forcing higher quality* Forcing higher quality

* Playing firms off of * Playing firms off of each other each other

P t Fi FPorters Fi e Forces


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Threat of Substitute

Products


Products


Threat of New

Entrants

Threat of New

Entrants

BargainingPower of Buyers







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Threat of Substitute ProductsThreat of Substitute Products

Productswith similar

functionlimit theprices firmscan charge

Productswith similar

function limit theprices firmscan charge

Keys to evaluate substitute products:Keys to evaluate substitute products:

Products with improvingProducts with improvingprice/performance tradeoffsprice/performance tradeoffs

relative to present industryrelative to present industryproductsproducts

Example: Example:

Electronic security systems inElectronic security systems inplace of security guardsplace of security guards

Fax machines in place of Fax machines in place of overnight mail deliveryovernight mail delivery

Porters Five ForcesPorters Five Forces


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Products


Products


Threat of New

Entrants

Threat of New

Entrants

Rivalry AmongCompeting Firms

in Industry

Rivalry AmongCompeting Firms

in Industry








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Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic position

Using price competitionUsing price competition

Staging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductionsIncreasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off Price competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, butAdvertising battles may increase total industry demand, butmay be costly to smaller competitorsmay be costly to smaller competitors


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Cutthroat Cutthroat competitioncompetition is more likely to occur when:is more likely to occur when:

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Numerous or equally balanced competitors Numerous or equally balanced competitors

Slow growth industrySlow growth industry

High fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costs

High storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large incrementsDiverse competitorsDiverse competitors

Funcational Strategies

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