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  1. 1. Week 9 Strategy Formulation: Functional Strategy and Strategic Choice 7-
  2. 2. Three Levels of Strategy Corporate Strategy Business (Division Level) Strategy Functional Strategy
  3. 3. Two Fundamentally Different Approaches to Strategy <ul><li>Outside-In </li></ul><ul><ul><li>Porter and other strategists who argue that a company must continually monitor its environment and adapt to seek competitive advantage (eg. 5 Forces) </li></ul></ul><ul><li>Inside-Out </li></ul><ul><ul><li>A human resource-based view of the firm that argues a company must develop competencies and continually strengthen them to seek competitive advantage </li></ul></ul>
  4. 4. Functional Strategy <ul><li>Functional Strategy: </li></ul><ul><ul><li>The approach a functional area takes to achieve organizational and business unit objectives and strategies by maximizing resource productivity. </li></ul></ul><ul><ul><li>Happens within a specific specialty area </li></ul></ul><ul><ul><ul><li>Marketing </li></ul></ul></ul><ul><ul><ul><li>R&D </li></ul></ul></ul><ul><ul><ul><li>Operations </li></ul></ul></ul><ul><ul><ul><li>Finance </li></ul></ul></ul><ul><ul><ul><li>HR </li></ul></ul></ul><ul><ul><ul><li>Etc. </li></ul></ul></ul>
  5. 5. Key Elements of Functional Strategy <ul><li>Core competency: </li></ul><ul><ul><li>Something that a corporation can do exceedingly well – a key strength </li></ul></ul><ul><li>Distinctive competencies: </li></ul><ul><ul><li>When core competencies or core capabilities are superior to those of the competition. </li></ul></ul>
  6. 6. Functional Strategy <ul><li>Determining Functional Strategy: </li></ul><ul><ul><li>Identify a business unit’s core competencies </li></ul></ul><ul><ul><li>Ensure that competencies are continually strengthened </li></ul></ul><ul><ul><li>Manage competencies so that competitive advantage is preserved </li></ul></ul><ul><li>Why do functions strengthen core competencies? </li></ul><ul><ul><li>When value added is small & competitive advantage of the activity is low: </li></ul></ul><ul><ul><ul><li>Activity becomes a candidate for outsourcing </li></ul></ul></ul>
  7. 8. Operations Strategy <ul><li>Operations Strategy Determines: </li></ul><ul><ul><li>How and where product is manufactured </li></ul></ul><ul><ul><li>Level of vertical integration in process </li></ul></ul><ul><ul><li>Deployment of physical resources </li></ul></ul><ul><li>Manufacturing strategy </li></ul><ul><ul><li>Affected by the ability to standardize the production process: </li></ul></ul><ul><ul><ul><li>Job shop (highly customized manufacturing) </li></ul></ul></ul><ul><ul><ul><li>Assembly line mass production (highly standardized manufacturing) </li></ul></ul></ul><ul><ul><li>Movement from assembly line mass production to connected line batch flow : </li></ul></ul><ul><ul><ul><li>Modular manufacturing </li></ul></ul></ul><ul><ul><ul><li>Mass customization </li></ul></ul></ul>Describe companies that use follow these different strategies to achieve competitive advantage.
  8. 9. R&D Strategy and Competitive Advantage Deals with product and process innovation & improvement 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. What firms follow these different strategies to achieve competitive advantage?
  9. 10. Functional Strategy: Marketing <ul><li>An organization’s choices about the marketing mix (product, pricing, promotion, distribution) intended to achieve organizational objectives. </li></ul><ul><li>Advertising or Promotion strategy: </li></ul><ul><ul><li>Push marketing strategy </li></ul></ul><ul><ul><ul><li>Investing in trade promotion to gain or hold share </li></ul></ul></ul><ul><ul><li>Pull marketing strategy </li></ul></ul><ul><ul><ul><li>Investing in consumer advertising to build brand awareness </li></ul></ul></ul>
  10. 11. What are the tools you have used in the shoe simulation to implement push or pull strategies?
  11. 12. Marketing Strategy <ul><li>Market Development Strategy </li></ul><ul><ul><li>Captures a larger share of existing markets through market saturation and market penetration </li></ul></ul><ul><ul><li>Develops new markets for current products </li></ul></ul><ul><li>Product Development strategy </li></ul><ul><ul><li>Develop new products for existing markets </li></ul></ul><ul><ul><li>Develop new products for new markets </li></ul></ul>
  12. 13. Strategies to Avoid <ul><li>Corporate, Business or Functional Levels </li></ul><ul><ul><li>Follow the Leader </li></ul></ul><ul><ul><li>Bet the Firm </li></ul></ul><ul><ul><li>Hit Another Home Run </li></ul></ul><ul><ul><li>Arms Race </li></ul></ul><ul><ul><li>Do Everything </li></ul></ul><ul><ul><li>Losing Hand </li></ul></ul>
  13. 14. In-Class Exercise #8 <ul><li>Marketing Growth Strategy: </li></ul><ul><li>Ansoff’s Matrix </li></ul><ul><li>http://www.marketingteacher.com/Lessons/lesson_ansoff.htm </li></ul>
  14. 15. In-Class Exercise # 8: Ansoff’s Matrix Identify marketing tactics (specific activities) you could use in the shoe game to seek competitive advantage. Product Market Present New Present Market Penetration Product Development New Market Development Diversification
  15. 16. Ansoff’s Matrix: Sample Answers Product Market Present New Present <ul><li>Increase advertising </li></ul><ul><li>Increase rebates </li></ul><ul><li>Increase allowances to retailers </li></ul><ul><li>Sign contracts with celebrities </li></ul><ul><li>Increase number of models </li></ul><ul><li>Increase S/Q rating </li></ul>New <ul><li>Expand internet sales </li></ul><ul><li>Enter private label in new regions </li></ul><ul><li>Re-enter wholesale markets </li></ul><ul><li>Do these in new markets </li></ul><ul><li>Do these with new products </li></ul>
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