Download - Chap. 7
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Chapter 7
Strategy Formulation: Functional Strategy and
Strategic Choice
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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
• 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
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
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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Functional Strategy
Marketing Finance R&D Operations Purchasing Logistics HRM Information Systems
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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
• Promotional Strategy– Push strategy
– Pull strategy
• Pricing Strategy– Skim pricing
– Penetration pricing
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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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R&D 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 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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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
– Affected by product life cycle• Job shop• Connected line batch flow• Flexible manufacturing system• Dedicated transfer lines
– Movement from mass production to:• Continuous improvement• Modular manufacturing• Mass customization
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Purchasing Strategy
– Obtaining raw materials, parts and supplies• Basic Purchasing Choices:
– Multiple sourcing– Sole sourcing– Parallel sourcing
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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
– 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
– Technology to provide business units with competitive advantage
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Strategic Choice
Constructing Corporate Scenarios:
– Corporate Scenarios • Pro forma balance sheets and income statements
that forecast effects of alternatives on return on investment
– 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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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:
– Devil’s Advocate• Identify potential pitfalls and problems with a
proposed alternative strategy in a formal presentation.
– 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