8.
STRATEGY
FORMULATION:
FUNCTIONAL STRATEGY AND
STRATEGIC CHOICE
Presented by : Tayyab Hameed
Learning Objectives
Identify a variety of functional strategies.
Understand Outsourcing & Off-shoring.
Recognize strategies to avoid.
Construct corporate scenarios to evaluate
strategic options.
Develop policies to implement strategies.
8.0 - What is Strategy?
A strategy is a comprehensive master plan
stating HOW the organization will achieve its
mission and objectives.
8.0 - Hierarchy of
Strategy
8.0 - Strategic
Management Model
8.0 - Strategy
Formulation
Development of long-range plans for the
effective management with the help of SWOT
analysis.
It is composed of
Mission.
Objectives.
Strategies.
Policy.
8.1 - Functional Strategy
Function the intended role or purpose of person or thing.
Strategy Generalship
Functional Strategy is an approach, a functional area
takes to achieve corporate and business unit objectives and
strategies by maximizing resource productivity.
The orientation of a functional strategy is dictated by its
parent business units strategy.
Functional Strategy may need to vary from region to region.
Suzuki Pickup, Pakistan
Mr. Donut, Japan
8.1 Objectives of Functional
Strategy
Market share- Gain and sustain share of a product
market.
Human talent- Recruit high- quality workforce.
Cost efficiency- Use resources well to operate at low
cost.
Product quality- Produce high-quality goods or
services.
Innovation- Develop new products and /or processes.
Profitability- Earn net profit in business.
8.1 Types of Functional Strategy
Marketing Strategy
Financial Strategy
R&D Strategy
Operations Strategy
Purchasing Strategy
Logistics Strategy
HRM Strategy
Information Management Strategy
8.1.1 Marketing
Strategy
Marketing Strategy deals with Pricing, Selling
and Distributing a product.
There are several types of Marketing Strategy:
Market & Product Development
Push and Pull Strategy
Distribution System
Pricing
8.1.1.1 Types of Marketing
Strategy
8.1.1.1 Market & Product
Development
8.1.1.2 Types of Marketing
Strategy
8.1.1.2 Push and Pull
Strategy
8.1.1.3 Types of Marketing
Strategy
8.1.1.3 Distribution
System
Should a company use distributors and dealers
to sell its products, or should it sell directly to
mass merchandisers?
Or
Should a company use the direct marketing
model by selling straight to the consumers via
the Internet?
8.1.1.4 Types of Marketing
Strategy
8.1.1.4 Pricing
8.1.1 Marketing
Strategy
8.1.1 4Ps of Marketing
8.1.2 Financial Strategy
It focuses on the alignment of financial management
within an organization with its business and
corporate strategies to gain strategic advantages.
Forecasting, Planning and Budgeting
Credit & Liquidity Strategies
Capital Investment Methods/Systems
Financial Mix
Capital Budget & Working Capital
Stock / Dividend
Cash Flow, Loans or Leases
8.1.2.1 - Types of Financial Strategy
Strong Balance Sheet
Strong credit rating.
Greater discipline and flexibility
approach.
Help to build a robust business.
Healthier Economic Cycle.
in
Leveraged buyout (LBO) Strategy
Financial buyers or sponsors
Focus on ROE rather than ROA.
Investment
8.1.2.1 - Types of Financial Strategy
Dividends and Stock Price Management
Some companys often dont declare dividend.
Several support the value of their stock by offering
dividends.
Selling of Companys Patent
For products a company no longer wish to
commercialize or are not a part of its core business.
8.1.3 Research & Development (R&D)
Development
New products and improvement of existing
products that allow for effective strategy
implementation.
R&D strategy deals with
Product Innovation
Process Improvement
Open Innovation (Hybrid)
8.1.3.1 Research & Development (R&D)
Development
R & D also deals with the questions like
How new technology should be accessed?
Internal Development
External Acquisitions
Either to be a Technological Leader.
Or to be a Technological Follower.
8.1.3.2 Research & Development (R&D)
Development
8.1.3.2 R & D Strategy and Competitive Advantage
8.1.4 Operations
Strategy
Operations serves as a firms distinctive
competence in executing similar strategies
better than competitors.
Its provides support for a differentiated strategy
Operations strategy is to ensure all tasks
performed are the right tasks.
It is a plan for the design and management of
operations functions
8.1.4.1 - Types of Operations
Strategy
Vertical Integration is where thesupply
chainof a company is owned by that company.
Strategic Decisions
How much work should be done outside the
firm?
On what basis should particular items be made
in-house?
When should items be outsourced?
How should suppliers be selected?
8.1.4.1 - Types of Operations
Strategy
Vertical Integration
8.1.4.1 - Types of Operations
Strategy
CAD/CAM Principles
Continuous Improvement Strategy
Product Life Cycle
8.1.4.1 - Types of Operations
Strategy
8.1.4.1 Product Life Cycle
8.1.5 - Purchasing
Strategy
Companies implement Purchasing strategies in
order to make cost effective purchasing
decisions from a group of efficient vendors who
will deliver quality goods on time and at
mutually agreeable terms.
8.1.5.1 - Types of Purchasing
Strategy
Purchasing Cycle
Multiple Sourcing
Regular Vendors
Outsourced Procurement
Force suppliers to compete for the business.
Reduce purchasing costs.
Sole Sourcing
Reduce cost and time spent on product design.
Improves quality.
Just in Time
8.1.5.1 - Types of Purchasing
Strategy
Just in Time II
Vendors have desks in purchasing companys
factory floor.
They attend production status meetings, visit the
R&D labs.
Reduce cost and time.
Improves quality.
Lesser paper work.
All time availability of Vendor at place.
8.1.6.1 - Logistics
Strategy
Logistics strategy deals with the flow of products
into and out of the manufacturing process.
Types of Logistics
Centralized Logistics
Outsourcing Logistics
8.1.7 - HUMAN RESOURCE MANAGEMENT
(HRM) STRATEGY
The strategic & coherent approach to the most valued
asset : The People
Deals with
Right Employee for the Right Job
Headcount
Salary Structure
Hiring / Separation
360-degree appraisal
Employee Development
Diversified Workforce
8.1.8 Information Technology
Strategy
If focuses on the alignment of information
management system within an organization with
its business and corporate strategies to gain
strategic advantage.
8.2 - The Sourcing Decision: Location of
Functions
Outsourcingis thecontractingout of a business
process to a third-party.
Outsourcing is
Cost effective when used properly.
Budget flexibility and control.
8.2.1 - The Sourcing Decision:
Outsourced Activity
100%
80%
60%
78%
77%
66%
63%
56%
51%
40%
18%
20%
0%
Outsourced Departments as per AMA
8.2.2 - The Sourcing Decision: OffShoring
Off-shoring is the outsourcing of an activity
or a function to a wholly owned company or
an independent provider in another country.
Major off-shored industries are:
Customer Services
Information Technologies
8.2.3 - The Sourcing Decision: Why
Off-Shoring?
Low Cost Qualified Labor
Educated Workforce
Lower Regulatory Costs
Tax Benefits
Ability to Downsize at Will
Improved Performance
Freeing up Resources For Core Activities
Quicker Turnaround Time
8.2.4 - The Sourcing Decision: Errors
Core Activities
Wrong Vendor
Poor Contract
Personnel Issues
Loosing Control
Hidden Cost
Exit Strategy
8.2.4 - The Sourcing
Decision: How?
Identify the companys or business units core
competencies.
Ensure that the competencies are continually being
strengthened.
Manage the competencies in such a way that best
preserves the competitive advantage, they create.
8.2.5 - The Sourcing Decision: Proposed
Outsourcing Matrix
8.3 Strategies to Avoid
Follow the Leader.
Hit another home run.
Arms race.
Do everything.
Losing hand.
8.4 Strategic Choice?
Objecti
ve
Analysi
s
Option
s
8.4.1 Strategic Choice: Selecting
the Best Strategy
Use industry scenarios.
Develop common-size financial statements
Historical common-size percentages
Develop
alternative set of Optimistic(O),
Pessimistic(P),
and
Most
Likely(ML)
assumptions.
Five year Sales and COGS forecast.
Analyze historical data and make adjustments.
8.4.1 Strategic Choice: Selecting
the Best Strategy
8.4.1 Strategic Choice: Selecting
the Best Strategy
Construct detailed pro forma financial statements.
List the actual figures
List optimistic figures
List the pessimistic figures for the next five years.
Develop a similar set of optimistic (O), pessimistic (P),
and most likely (ML) pro-forma statements for the second
strategic alternative.
Calculate FR and IS and create balance sheets.
Compare
assumptions with the FS and ratios to
determine feasibility.
8.4.2 - PROCESS OF STRATEGIC
CHOICE
Strategies fails due to
Actions of Decision Maker
Desire for speedy action
Apply failure-prone decision
Poor use of resources
Only 4% of the managers selected the right strategy.
8.4.2 - PROCESS OF STRATEGIC
CHOICE
Two techniques to avoid CONSENSUS trap:
Devils advocate
Dialectical inquiry
Criteria to evaluate the strategy ability:
Mutual Exclusivity
Success
Completeness
Internal Consistency
8.5 Developing Policies
Policies define the broad guidelines for implementation,
decisions making and actions to be taken.
It forces trade-offs between competing resource demands.
It tests the strategic soundness of a particular action.
It sets clear boundaries within which employees must
operate while granting them freedom to experiment within
those constraints.
Restrict top managements strategic options in the
future.
Questions?
Conclusion!
Functional Strategy : Should be built on a
distinctive competency residing within that
functional area.
The Sourcing Decision
Strategies to Avoid
Strategic Choice
Developing Policies
