Functional Level Strategy
The Mission Mission which indicates the purpose and activities of the business, for example, The following table contrasts hard and soft mission statements. Hard| Soft| What business is/does Primary products/services Key processes & technologies Main customer groups Primary markets/segments Principal channels/outlets| Reason for existence Competitive advantages Unique/distinctive features Important philosophical/social issues Image, quality, style, standards Stakeholder concerns| Compare the following statements: Hard Statement| Soft Statement|
X Corp. designs, develops, assembles and markets systems for data base management. These systems integrate its proprietary operating system software with hardware supplied by major manufacturers, and are sold to small, medium and large-sized companies for a range of business applications. Its systems are distinguished by a sophisticated operating system, which permits use without trained data-processing personnel. | Our mission is to enhance our customers’ business by providing the very highest quality products and services possible.
Our customer support strategy is based upon total, no-compromise customer satisfaction and we continually strive to offer a complete package of up-to-date value added solutions to meet our customers’ needs. We value above all our long term customer relations. | Intel’s original plan,The company will engage in research, development, and manufacture and sales of integrated electronic structures to fulfill the needs of electronic systems manufacturers. This will include thin films, thick films, semiconductor devices, and ………
A variety of processes will be established, both at a laboratory and production level …… as well as the development and manufacture of special processing and test equipment required to carry out these processes. Products may include dioded transistors ……. Principal customers for these products are expected to be the manufacturers of advanced electronic systems ….. It is anticipated that many of these customers will be located outside California. EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL STRATEGIES FOR EACH MAJOR DEPARTMENT
Functional-level strategy according to the text – Organizational Theory, Design, and Change by Gareth R. Jones, is a plan of action to strengthen an organization’s functional and organizational resources, as well as its coordination abilities, in order to create core competencies. * MARKETING STRATEGY * FINANCIAL STRATEGY * RESEARCH & DEVELOPMENT STRATEGY * OPERATIONS STRATEGY * PURCHASING STRATEGY * LOGISTICS STRATEGY * HUMAN RESOURCES STRATEGY * INFORMATION TECHNOLOGY STRATEGY MARKET PENETRATION STRATEGY Stay in current markets with existing products) INCREASE RATE OF PURCHASE/CONSUMPTION ATTRACT RIVAL’S CUSTOMERS BUY OUT RIVALS CONVERT NON-USERS INTO CURRENT USERS MARKET DEVELOPMENT STRATEGY (Find new markets for current products) ENTER NEW GEOGRAPHICAL MARKETS FIND NEW USES FOR EXISTING PRODUCTS FIND NEW TARGET MARKETS PRODUCT DEVELOPMENT STRATEGY (Develop new products for existing markets) IMPROVE FEATURES IMPROVE QUALITY/RELIABILITY/DURABILITY ENHANCE AESTHETICS/STYLING THE 4 “P’S” OF MARKETING * * MARKETING MIX ISSUES *
Product Strategy Specifying the exact product or service to be offered * New or existing product? …for new or existing customers? * Promotion Strategy How the product or service is to be communicated to customers * “Push” – spend $$$ on promotions and discounts to push products * “Pull” – spend $ to build brand awareness so consumers will ask for it by name * Channel or “Place” Strategy FINANCIAL MANAGEMENT STRATEGIES CAPITAL ACQUISITIONS Debt Leverage, Stock Sales, & Gains from Operations * Equity financing is preferred for related diversification * Debt financing is preferred for unrelated diversification * Leveraged buyouts (LBOs) make the acquired firm pay off the debt CAN WE GROW BY RELYING ON ONLY INTERNAL CASH FLOWS? DO STOCK SALES DILUTE OWNERSHIP CONTROL? DOES A LARGE DEBT RATIO CRIPPLE FUTURE GROWTH? DOES STRONG LEVERAGE BOOST EARNINGS PER SHARE? DOES HIGH DEBT DETER TAKEOVER ATTEMPTS? DO MOST LBOs UNDERPERFORM 3-4 YEARS AFTER THE BUYOUT?
RESOURCE ALLOCATIONS * Dividends, Stock Price, & Reinvestment * Reinvest earnings in fast-growing companies * Keeping the stockholders contented with consistent dividends * Use of stock splits ( or reverses) to maintain high stock prices * Tracking stock keeps interest in company, but doesn’t allow takeover Selecting the method for distributing the product or service * Distribute through dealer networks or through mass merchandisers? * Sell directly to consumers through own stores or through internet? * Price Strategy
Establishing a price for the product or service * “Skim pricing” (high) when you are a pioneer * “Penetration pricing” (low) builds market shares * “Dynamic pricing” (prices vary frequently) based on demand/availability RESEARCH & DEVELOPMENT STRATEGIES * LEVEL OF INNOVATION * Pioneer (Leader) v. Copy Cat (Follower) * Technological leadership fits well with differentiation * A “follower” strategy makes sense with cost-leader strategies * Are we better at finding applications and customer adaptations than actually inventing something really new? Different types of R & D (basic, product, process) * Where is the firm’s historic expertise / advantage? * How competent are the R & D Personnel? * ACQUISITION OF TECHNOLOGY * Internally developed v. acquired from outside * Technology “Scouts” * Strategic Technology Alliances * Acquire minority stake in promising high-tech ventures OPERATIONS STRATEGIES * MANUFACTURING LOCATION * Internal Production v. Outsourcing * Domestic Plants v. International Locations * SYSTEM LAYOUT * Product v. Process Layouts * Job Shops v.
Mass Production * Job shop/small batch production fits well with a differentiation strategy * Continuous production / dedicated transfer lines helps achieve cost leadership * Use of robots and CAD/CAM v. Labor intense manufacturing * Modular Manufacturing and just-in-time delivery of sub-assemblies * Continuous improvement systems lower costs and increase quality PURCHASING STRATEGIES * SOURCING COMPONENTS AND SUPPLIES WHERE CAN THE HIGHEST QUALITY COMPONENTS BE FOUND? * Outsourcing (our firm buys everything) Buying on the Open Market (Spot) (prices fluctuate) * Long-Term Contracts with Multiple Suppliers (low bid) * Sole Sourcing (only one supplier) improves quality * Parallel Sourcing (two suppliers) provides protection * Backward Integration (our firm has an ownership stake in the suppliers we use) * Quasi-integration (minority ownership position in a supplier) * Tapered (produce some of what we need, but not all) * Full (produce all of our own needs) * Use of Component Inventories v. Just-in-time supply delivery LOGISTICS STRATEGIES
DO WE HAVE GOODS THAT MUST BE TRANSPORTED OR DELIVERED? * TYPE OF MATERIALS TRANSPORTED (Bulky or Compact? ) * Raw Materials, Supplies, & Components * Finished Goods * BEST MODE OF TRANSPORTATION * AIR * RAIL * TRUCK * BARGE HUMAN RESOURCES STRATEGIES * TALENT ACQUISITION * Recruit from Outside v. Internal Development * Require experienced, highly-skilled workers v. “we will train you” * Offer “top dollar” wages & benefits v. mentoring and a career * WORK ARRANGEMENTS * Individual Jobs v. Team Positions * Narrowly-defined jobs v. Positions with discretion and autonomy * On-premises Work v. Telecommuting Options MOTIVATION & APPRAISAL * Extrinsic v. Intrinsic Reward Systems * Assessment for development v. assessment for rewards * Incentives for ideas & originality v. incentives for conformity? INFORMATION SYSTEMS STRATEGIES WORKER PRODUCTIVITY & CONNECTIVITY * Employees can be networked together across the globe *
Instant translation software for global firms * “Follow the Sun Management”…pass projects on to the next team SALES & INVENTORY MANAGEMENT * Internet sales and development of customer databases * Instant sales reports allow immediate inventory reorders SHIPPING & TRACKING GOODS FEDEX Power Ship software…stores addresses, prints labels, etc. * Tracking the progress of package shipment…FEDEX & UPS The McKinsey 7S Framework Ensuring that all parts of your organization work in harmony While some models of organizational effectiveness go in and out of fashion, this continues to persist. Developed in the early 1980s by Tom Peters and Robert Waterman, who worked with McKinsey & Company consulting firm. The basic idea of the model is: There are seven internal aspects of an organization that need to be aligned if it is to be successful.
The Seven Elements: Hard Elements| Soft Elements| StrategyStructureSystems| Shared ValuesSkillsStyleStaff| “Hard” elements are easier to define or identify. Management can directly influence them: These are 1. Strategy statements; 2. Organization charts, 3. Reporting lines; 4. Formal processes and 5. IT systems. “Soft” elements, can be more difficult to describe, less tangible and more influenced by culture. However, these soft elements are as important as the hard elements.. * Strategy: Tactics or operational actions by its nature of being premeditated. * Well thought through and often practically rehearsed. Deals with essentially three questions * 1) where the organisation is at this moment in time, 2) where the organisation wants to be in a particular length of time and 3) how to get there.
Thus, strategy is designed to transform the firm from the present position to the new position described by objectives, subject to constraints of the capabilities or the potential (Ansoff, 1965). Structure: the way the organization is structured and who reports to whom. * Systems: the daily activities and procedures that staff members engage in to get the job done. * Shared Values: called “superordinate goals” when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic. * Style: the style of leadership adopted. * Staff: the employees and their general capabilities. * Skills: the actual skills and competencies of the employees working for the company. 7S Checklist Questions
Strategy: * What is our strategy? * How do we intend to achieve our objectives? * How do we deal with competitive pressure? * How are changes in customer demands dealt with? * How is strategy adjusted for environmental issues? Structure: * How is the company/team divided? * What is the hierarchy? * How do the various departments coordinate activities? * How do the team members organize and align themselves? * Is decision making and controlling centralized or decentralized? Is this as it should be, given what we’re doing? * Where are the lines of communication?
Explicit and implicit? Systems: * What are the main systems that run the organization? Consider financial and HR systems as well as communications and document storage. * Where are the controls and how are they monitored and evaluated? * What internal rules and processes does the team use to keep on track? Shared Values: * What are the core values? * What is the corporate/team culture? * How strong are the values? * What are the fundamental values that the company/team was built on? Style: * How participative is the management/leadership style? * How effective is that leadership? Do employees/team members tend to be competitive or cooperative? * Are there real teams functioning within the organization or are they just nominal groups? Staff: * What positions or specializations are represented within the team? What positions need to be filled? * Are there gaps in required competencies? Skills: * What are the strongest skills represented within the company/team? * Are there any skills gaps? * What is the company/team known for doing well? * Do the current employees/team members have the ability to do the job? * How are skills monitored and assessed