Chapter 7

1. Chapter 7 Strategy Formulation: Functional Strategy and Strategic Choice PowerPoint Slides Anthony F. Chelte Western New England College Chapter 7 Wheelen/Hunger

2. Functional Strategy Functional Strategy: • The approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity. Chapter 7 Wheelen/Hunger

3. 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 Chapter 7 Wheelen/Hunger

4. Functional Strategy Distinctive competencies: • When core competencies or core capabilities are superior to those of the competition. Chapter 7 Wheelen/Hunger

5. Functional Strategy Distinctive competencies: Must meet 3 tests: • Customer value • Competitor unique • Extendibility Chapter 7 Wheelen/Hunger

6. 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 Chapter 7 Wheelen/Hunger

7. Functional Strategy Sourcing Decision: Outsourcing – • Purchasing from someone else a product or service that had been previously provided internally. Chapter 7 Wheelen/Hunger

8. 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 Chapter 7 Wheelen/Hunger

9. Proposed Outsourcing Matrix Chapter 7 Wheelen/Hunger

10. Marketing Strategy Marketing strategy – Involved with pricing, selling, and distributing a product. Chapter 7 Wheelen/Hunger

11. Marketing Strategy Market development strategy – • Capture a larger share of existing market through market saturation and market penetration • Develop new markets for current products Chapter 7 Wheelen/Hunger

12. Marketing Strategy Product development strategy – • Develop new products for existing markets • Develop new products for new markets Chapter 7 Wheelen/Hunger

13. 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 Chapter 7 Wheelen/Hunger

14. 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 Chapter 7 Wheelen/Hunger

15. Financial Strategy Leveraged buy out (LBO) – • Company is acquired financed largely by debt (from a third party). • Debt paid by acquired company’s operations or sale of assets Chapter 7 Wheelen/Hunger

16. Financial Strategy Tracking stock – • Highlighting a high-growth business unit in a popular sector of the stock market. • Keeping subsidiary’s common stock separately identified Chapter 7 Wheelen/Hunger

17. R&D Strategy R&D Strategy – Deals with product and process innovation and improvement Choice: • Technological leader • Technological follower Chapter 7 Wheelen/Hunger

18. 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. Chapter 7 Wheelen/Hunger

19. Operations Strategy Operations strategy – • Determines: • How and where product is manufactured • Level of vertical integration in process • Deployment of physical resources • Relationships with suppliers Chapter 7 Wheelen/Hunger

20. Operations Strategy Manufacturing strategy – • Affected by product life cycle • Job shop • Connected line batch flow • Flexible manufacturing system • Dedicated transfer lines Chapter 7 Wheelen/Hunger

21. Operations Strategy Manufacturing strategy – • Movement from mass production to: • Continuous improvement • Modular manufacturing • Mass customization Chapter 7 Wheelen/Hunger

22. Purchasing Strategy Purchasing strategy – • Obtaining raw materials, parts and supplies • Basic Purchasing Choices: • Multiple sourcing • Sole sourcing • Parallel sourcing Chapter 7 Wheelen/Hunger

23. Logistics Strategy Logistics strategy – • Flow of products into and out of the process • Three current trends: • Centralization • Outsourcing • Use of the Internet Chapter 7 Wheelen/Hunger

24. 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 Chapter 7 Wheelen/Hunger

25. Information Systems Strategy Information systems strategy – • Technology to provide business units with competitive advantage Chapter 7 Wheelen/Hunger

26. Strategies to Avoid Corporate, Business or Functional Levels – Avoid the following: • Follow the Leader • Hit Another Home Run • Arms Race • Do Everything • Losing Hand Chapter 7 Wheelen/Hunger

27. 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 Chapter 7 Wheelen/Hunger

28. 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 Chapter 7 Wheelen/Hunger

29. 1 Pr objections Last Historical T r end 19— 19— 19— Factor Y ear A verage Analysis O P ML O P ML O P ML Comments GDP CPI Other Sales units Dollars COGS Adver tising and marketing Inter est expense Plant expansion Dividends Net pr ofits EPS ROI ROE Other Scenario Box to Generate Pro Forma Statements Chapter 7 Wheelen/Hunger

30. Strategic Choice Attitude Toward Risk: • Risk is composed of: • Probability of effective strategy • Amount of assets committed • Length of time of asset commitment Chapter 7 Wheelen/Hunger

31. 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 Chapter 7 Wheelen/Hunger

32. Strategic Choice Process of Strategic Choice: • Devil’s Advocate • Identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation. Chapter 7 Wheelen/Hunger

33. Strategic Choice Process of Strategic Choice: • Dialectical Inquiry • Two proposals are generated using different assumptions for each alternative strategy Chapter 7 Wheelen/Hunger

34. Strategic Choice Evaluating strategic alternatives: Ability to meet four criteria: • Mutual exclusivity • Success • Completeness • Internal consistency Chapter 7 Wheelen/Hunger