Functional Strategy Flashcards
Functional Strategy
The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity.
Functional Strategy 2
Marketing strategy Financial strategy R&D strategy Operations strategy Purchasing strategy Logistics strategy HRM strategy IT strategy
STRATEGIC MARKETING ISSUES
A business can not achieve its objectives unless it provides something that customers value.
BUT
Just creating an innovative product that meets many users needs isn’t sufficient
STRATEGIC MARKETING ISSUES 2
Products must be;
Conveniently available
Competitively priced
Uniquely promoted
STRATEGIC MARKETING ISSUES 3
Market Position & Segmentation
Marketing Mix (4P: Product, Place, Price, Promotion)
Product Life Cycle
Brand & Corporate Reputation
Selling Concept
Starting Point: Factory
Focus: Existing product
Means: Selling and promoting
Ends: Profits through sales volume
Marketing Concept
Starting Point: Market
Focus: Customer needs
Means: integrated marketing
Ends: Profits Through Customer Satisfaction
Marketing Strategy
Push strategy – Pull strategy
Pricing strategy
Distribution strategy
Push strategy – Pull strategy
PUSH: Spending a large amount of money on trade promotion in order to gain or hold shelf space in retail outlets
PULL: Spending more money on consumer advertising so that shoppers will ask for the product. creating an ongoing relationship with the brand
Distribution strategy
Use distributors and dealers
Use mass merchandisers
Use the internet to sell directly to consumers
Pricing Strategy
Skim pricing
Penetration pricing
Dynamic Pricing
MARKETING MIX
Product: quality, features, brand, size, packaging.
Price: tariff, sale, discount
Place or distribution: channel, area, point of sale.
Promotion or communication: advertising, sales force, sales promotion.
Marketing Strategy
Using a “market development strategy”
Using a “product development strategy”
Using a “market development strategy”
1- Capture a larger share of an existing market for current products (through market saturation and market penetration by advertising and promotion)
2- Develop new markets for current products
Using a “product development strategy”
1- Develop new products for existing markets
(Using a successful brand name to other products is called “line extension”)
2- Develop new products for new markets
Financial Strategy 1
The trade-off between achieving the desired debt-to-equity ratio and relying on internal long-term financing via cash flow is a key issue.
For example ;
– Equity financing is preferred for related diversification
– Debt financing is preferred for unrelated diversification
STRATEGIC FINANCIAL ISSUES
Financial leverage
The ratio of total debt to total assets
Capital budgeting
Check against the accepted criteria of “hurdle rate” (required rate of return)
Financial Strategy 2
The management of dividends and stock price is an important part of a corporation’s financial strategy;
– Fast growth, no dividends
– Stable, support the value of a stock by offering consistent dividend (even go into debt to finance dividends)
Reversed stock split
Selling Patents
A profit strategy
STRATEGIC R&D ISSUES
R&D Mix
-Basic R&D
Patents and research publications
-Product R&D
Product and product-packing innovations and improvements
-Process R&D (Engineering R&D)
Innovation and improvements on processes, production equipment, and quality control
THIS MIX VARIES BY INDUSTRY, COMPANY, AND PRODUCT LINE
STRATEGIC OPERATIONS ISSUES
- Operating leverage; reaping the benefits of “economies of scale”
- Flexible manufacturing for mass customization
From economies of scale to economies of scope
Operations Strategy
Job shop
Connected line batch flow
Flexible manufacturing systems
Dedicated transfer lines
Job shop
One of a kind production using skilled labor
Connected line batch flow
Components are standardized; each machine functions like a job-shop but is positioned in the same order as the parts are processed
Flexible manufacturing systems
Parts are grouped into manufacturing families to produce a wide variety of mass-produced items
Dedicated transfer lines
Highly automated assembly lines that make one mass-produced product using little human labor
Purchasing Strategy
Multiple sourcing
Sole sourcing ( Using JIT and JIT II )
Parallel sourcing
Logistics Strategy
Centralization
Outsourcing
Internet
HRM Strategy
Low skilled, low pay, or
High skilled, high pay…
As work increases in complexity and innovation, choices shifts to ; teams, cross-trained self-managing work teams, high skilled employees
HRM Strategy 2
- 360-degree appraisal (very popular tool in developing new managers)
- A diverse workforce can be a competitive advantage
- Older workers perform as well as -if not better than young employees
HRM Strategy 3
Increasing use of teams Union relations Temporary workers Quality of work-life Human diversity
Information Technology Strategy –
- Internet
- Intranet
- Follow-the-sun management
- Spontaneous translation tools
(On average going to the web reduces processing time by one-third)
Information systems/technology contributions to performance:
Automation of back-office processes
Automation of individual tasks
Enhancement of key business functions
Development of a competitive advantage
Outsourcing errors
Activities that should not be outsourced Wrong vendor selection Writing poor contract Overlooking personnel issues Hidden costs of outsourcing Failing to plan exit strategy
Strategies to Avoid
Follow the leader Hit another home run Arms race Do everything Losing hand
Subjective Factors Affecting Decisions
Management’s attitude toward risk
Pressures from stakeholders
Pressures from corporate culture
Needs and desires of key managers
Strategic choice
the evaluation of alternative strategies and selection of the best alternative
Avoiding the Consensus Trap –
Devil’s Advocate
Dialectical Inquiry
Penetration pricing
is a pricing strategy where the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth. The strategy works on the expectation that customers will switch to the new brand because of the lower price.
Penetration and Skimming Price
With pricing penetration, companies advertise new products at low prices, with modest or nonexistent margins. Conversely, a skimming strategy involves companies marketing products at high prices with relatively high margins. A skimming strategy works well for innovative or luxury products where early adopters have low price sensitivity and are willing to pay higher prices. Effectively, producers are skimming the market to maximize profits. Over time, prices will reduce to levels comparable to market prices in order to capture the rest of the market.
Small businesses or those in niche markets can benefit from price skimming when their products or services are differentiated from competitors’ and when synonymous with quality and a positive brand image.
Dynamic Pricing
Dynamic pricing, also referred to as surge pricing, demand pricing, or time-based pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands
