Wheelen/Hunger

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Chapter 7

• Strategy Formulation Functional Strategy and
  Strategic Choice
• PowerPoint Slides
• Anthony F. Chelte
• Western New England College

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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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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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Functional Strategy

• Distinctive competencies
• When core competencies or core capabilities are
  superior to those of the competition.

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Functional Strategy

• Distinctive competencies
• Must meet 3 tests
• Customer value
• Competitor unique
• Extendibility

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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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Functional Strategy

• Sourcing Decision
• Outsourcing
• Purchasing from someone else a product or service
  that had been previously provided internally.

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Functional Strategy

• Determining Functional Strategy
• Identify business units core competencies
• Ensure that competencies are continually
  strengthened
• Manage competencies so that competitive advantage
  is preserved

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Proposed Outsourcing Matrix
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Marketing Strategy

• Marketing strategy
• Involved with pricing, selling, and distributing
  a product.

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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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Marketing Strategy

• Product development strategy
• Develop new products for existing markets
• Develop new products for new markets

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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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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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Financial Strategy

• Leveraged buy out (LBO)
• Company is acquired financed largely by debt
  (from a third party).
• Debt paid by acquired companys operations or
  sale of assets

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Financial Strategy

• Tracking stock
• Highlighting a high-growth business unit in a
  popular sector of the stock market.
• Keeping subsidiarys common stock separately
  identified

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RD Strategy

• RD Strategy
• Deals with product and process innovation and
  improvement
• Choice
• Technological leader
• Technological follower

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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 leaders experience. Avoid
RD costs through imitation. Adapt the product
or delivery system more closely to buyer needs by
learning from the leaders experience.
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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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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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Operations Strategy

• Manufacturing strategy
• Movement from mass production to
• Continuous improvement
• Modular manufacturing
• Mass customization

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Purchasing Strategy

• Purchasing strategy
• Obtaining raw materials, parts and supplies
• Basic Purchasing Choices
• Multiple sourcing
• Sole sourcing
• Parallel sourcing

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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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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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Information Systems Strategy

• Information systems strategy
• Technology to provide business units with
  competitive advantage

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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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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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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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Scenario Box to Generate Pro Forma Statements
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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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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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Strategic Choice

• Process of Strategic Choice
• Devils Advocate
• Identify potential pitfalls and problems with a
  proposed alternative strategy in a formal
  presentation.

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Strategic Choice

• Process of Strategic Choice
• Dialectical Inquiry
• Two proposals are generated using different
  assumptions for each alternative strategy

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Strategic Choice

• Evaluating strategic alternatives
• Ability to meet four criteria
• Mutual exclusivity
• Success
• Completeness
• Internal consistency