Strategic management and business policy- Azhar Kazmi.
www.csuchico.edu ( california state university)
What is Strategy?
A strategy could be:
A plan or course of action or set of decision rules making a pattern or creating a common thread.
The pattern or common thread related to the organization's activities which are derived from the policies, objectives and goals
Related to pursuing those activities which move an organization from its current position to the desired future state.
Concerned with the resources necessary for implementing a plan or following a course of action
Connected to the Strategic positioning of a firm, making trade-offs between its different activities and creating a fit among these activities.
The planned or actual coordination of the firm’s major goals and actions, in time and space that continuously co-align the firm with its environment.
DIFFERENT LEVELS OF STRATEGY CORPORATE OFFICE SBU A SBU B SBU C FINANCE MARKETING OPERATIONS HRM INFORMATION LEVELS OF MANAGEMENT LEVELS OF STRATEGY CORPORATE SBU FUNCTIONAL CORPORATE LEVEL BUSINESS LEVEL FUNCTIONAL LEVEL
Function - the intended role or purpose of a person or thing
Strategy : Strategy – Greek word ‘ strategos’ – generalship
Definition : Functional strategy is the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity .
It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.
A multi- dimensional corporation has several business units.
Each unit has its own business strategy
Each unit has its own set of Departments
And, each department has its own Functional Strategy
The orientation of the functional strategy is dictated by its Parent Business Unit’s Strategy . For Eg:
A Manufacturing Functional Strategy that emphasizes EXPENSIVE, QUALITY ASSURANCE process over CHEAPER, HIGH VOLUME PRODUCTION.
A Human resource Functional Strategy that emphasizes the hiring and training of a highly skilled, but costly, WORKFORCE.
A Marketing Functional Strategy that emphasizes DISTRIBUTION CHANNEL “PULL” using advertising to increase consumer demand over “PUSH” using promotional allowances to retailers.
To achieve corporate and business unit objectives and strategies by maximizing resource productivity
To develop & nurture a distinctive competence to provide a company (BU) competitive advantage
FUNCTIONAL STRATEGY OBJECTIVES
Profitability ––producing at a net profit in business.
Market share ––gaining and holding a specific share of a product market.
Human talent ––recruiting and maintaining a high-quality workforce.
Financial health ––acquiring financial capital and earning positive returns.
Cost efficiency ––using resources well to operate at low cost.
Product quality ––producing high-quality goods or services.
Innovation ––developing new products and/or processes.
Social responsibility ––making a positive contribution to society.
Types of Functional Strategies:
R & D Strategy
Information Management Strategy
Marketing strategy deals with Pricing, selling and distributing a Product.
Here the companies use 2 types of strategies:
And Product Development.
In Market Development a Company or a Business Unit:
Capture larger market share of an existing market-Market saturation and Market Penetration
Develop new markets for current products
eg. Companies like UNILEVER, COLGATE-PALMOLIVE, and PROCTER & GAMBLE
Firstly, These companies are experts at using ADVERTISING AND PROMOTION to implement market saturation/penetration strategy
Secondly, They extend PLC by introducing “ New and Improved” variations of the products
Thirdly, they follow the “ second market strategy”
Now using the Product Development Strategy A Company or A Business Unit can,
1) develop new products for existing markets
2) develop new products for new markets.
For Eg: Gujarat Cooperative Milk Marketing Federation
developed new products to sell to its existing customers
Then through AMUL it introduced ICE-CREAMS and DESSERTS, HEALTH DRINKS AND SOUPS
Line Extension- using a successful brand name to market other products
Followed by large food Retailers-India
Trade Promotions- discounts, in store special offers, and advertising allowances to push the product through the DISTRIBUTION SYSTEM
Now this is done to Gain or Hold shelf space in Retail Outlets.
KELLOG Changed its strategy from push to pull
Advertising pulls the products through the DISTRIBUTION CHANNELS
Company spends huge money-CONSUMER ADVERTISING
BUILDING BRAND AWARENESS
Other marketing strategies..
Should a company sell directly to mass merchandisers?
Or should a company use distributors and dealers to sell its products?
Example: John Deere ( sells tractors and lawn movers)
In order to increase the sales he decided to use his dealers plus mass merchandisers like HOME DEPOT
PROBLEM AREA: dealers considered HOME DEPOT- COMPETITOR( ability to underprice the product)
Therefore they will be mere repair centers with insufficient sales
PRICING : Here the company can follow 2 strategies :
Skim Pricing- for new products
As it offers to “skim the cream” from the top the demand curve with HIGH PRICE while the product is novel and competitors are few
Penetration Pricing- it offers the PIONEER the opportunity to use the EXPERIENCE CURVE
- to gain the market share with LOW PRICE
- therefore dominate the industry
Depending on the Corporate and Business unit Objectives and strategies choices are made
PENETRATION PRICING however is more likely to raise a units operating profit in the long term than SKIM PRICING.
4PS OF MARKETING
It is important that functional strategies be supportive of the overall business strategy and consistent between themselves.
Price: What is included in the initial price Price level Discounts Terms
Product Quality Features and options Styling Brand name Product line and related products Warranties and guarantees Service and after-sale items
Promotion Advertising Personal selling Promotion Publicity
Place Distribution channels Distribution coverage Inventory levels and locations Transportation methods
Research and Development Strategy
R & D strategy deals with 2 very important things:
It also deals with the questions like,
- how new technology should be assessed?
-external acquisition etc.
Now here the company has two choices,
Either be a TECHNOLOGICAL LEADER- Here one pioneers an INNOVATION.
Or be a TECHNOLOGICAL FOLLOWER- Here one imitates the products of competitors
Now according to porter, depending on the choice the company makes it can either achieve,
Or overall low cost.
Spends more than most on R & D- to differentiate its Athletic shoes from others
Favourite of serious athletes
Dean foods company (low cost)
They produce X,Y,Z product of the same quality and service but at LOWER PRICE
That’s how they achieve LOW COST COMPETITIVE ADVANTAGE
Strategic Technology Alliances are one way to combine the R & D capabilities of two companies. For example:
Claritas Inc. and MapInfo Corporation announced the formation of a strategic technology alliance to develop a new mapping and reporting solution to support market and site analysis
the alliance combines Claritas' geo-demographic data and applications expertise with MapInfo's spatial technology expertise.
According to CEO Bob Nascenzi (claritas), This relationship is a natural fit for both companies. By combining our strengths, we will be able to offer tailor made, state-of-the-art solutions for reporting, mapping, analysis and data integration.
DR. REDDY’ LAB - STRATEGY
Major focus on discovery of new chemical entities
R&D expenditure – 8% of sales in 2003
Focus areas : diabetes, anti-cancer, non-sterodial anti-infectives, anti- inflammatories
Progress – licensed two anti-diabetes molecules to Novo Nordisk, five molecules in pipeline
Top ten R & D spenders in the world are 1) TOYOTA, 2) P’fizer, 3) FORD, 4) JOHNSON AND JOHNSON, 5) DAIMLER AND CRYSLER, 6) GM, 7) MICROSOFT, 8) GLAXO SMITHKLINE, 9) SIEMENS, 10) IBM
Companies are now investing less in R & D
The NYSE CEO report 2008 shows how a huge 57.7% of global CEO’S have refused any increase in R&D spending.
Of all CEO’S only 10% thought that, “New Product Development” was the most important internal factor influencing productivity.
One of the Killer Fact is that WAL-MART( the worlds largest corporations) does not even feature in the top ten.
Human resource management (HRM) is the strategic and coherent approach to the management of an organization's most valued assets - the people
Here it addresses whether a company should, Hire large no of LOW SKILLED employees( low pay), perform repetitive jobs and quit after a short time( Mc Donald’s restaurant strategy)
Or, Hire SKILLED EMPLOYEES who receive high pay and are trained to participate in self-managing work teams
Research indicates that the use of work teams leads to increased quality and productivity as well as higher employee satisfaction and commitment.
Using PART-TIME employees- Many North American and European countries are using part time employees
-Firm does not need to pay fringe benefits like health benefits and pension
According to companies having a Diverse Workforce can be a competitive advantage
Research reveals that with a ‘higher degree of racial diversity’ following a growth strategy have higher productivity than firms with lower degree of racial diversity
AVON company was able to turn around its unprofitable inner-city markets by putting African-American and Hispanic managers in charge of marketing to these markets.
Human resources are the most important resources in any organization .
It is the responsibility of the human resources department to ensure that the organization recruits the correct staff, and that staff receive appropriate training to ensure that the business meets its aims. Therefore, this function is central to the success of the business
It focuses on the alignment of financial management within an organization with its business and corporate strategies to gain strategic advantage.
Forecasting, planning, budgeting
Capital investment methods and systems.
Loans or leases
INFORMATION MANAGEMENT Strategy
It focuses on the alignment of information management within an organisation with its business and corporate strategies to gain strategic advantage.