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review of strategies for all functions inside an organization

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STRATEGY FORMULATION: FUNCTIONAL STRATEGY AND STRATEGIC CHOICEPresented To: Dr. Adel Zaied

By:

Hesham Abd Elkhalek Ahmed Magdy

Tamer Essawy

Environmental ScanningExternal Social Environment: General Forces Task Environment: Industry Analysis Mission

Strategy Formulation

Strategy Implementation

Evaluation & Control

Objectives Reason for existenc What results Strategies to e Plan to

accomplish Policies achieve the by when mission & Broad objectives guidelines for decision making

Programs Activities needed to accomplish a plan Budgets Procedures Cost of the programs Sequence of steps needed to do the job

Internal Structure: Chain of command Culture: Beliefs, Expectations, Values Resources: Assets, Skills, Competencies, Knowledge

Performance Actual Results

Feedback / Learning

FUNCTIONAL STRATEGY

Functional Strategy Core Competencies Distinctive Competencies The Sourcing Decision Marketing Strategy Financial Strategy R&D Strategy Operation Strategy Purchasing Strategy Logistic Strategy HR management Strategy Information System Strategy

Functional StrategyIt is the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity. Ex. competitive strategy of Differentiation; emphasizes expensive, quality assurance process over cheaper, high-volume production; HR func. Strtgy; emph. Hiring/training High skilled workforce Marketing func. Strtgy; emph. Pull using ads to increase demand, over Push using promotional allowances Ex. House of Donuts varies its Functional strategy in different regions (US [breakfast] vs Japan [evening])

Core Competenciesa core competency is something that a corporation can do exceedingly well. It is a key strength. For example, a core competency of Avon Products is its expertise in door-to-door selling. FedEx has a core competency in information technology. A company must continually reinvest in its core competencies or risk losing them.

Distinctive CompetenciesWhen these competencies or capabilities are superior to those of the competition, they are called distinctive competencies. To be considered a distinctive competency, the competency must meet three tests: Customer Value: It must make a disproportionatecontribution to customer-perceived value. Competitor Unique: It must be unique and superior to competitor capabilities. Extendibility: It must be something that can be used to develop new products/services or enter new markets.

Distinctive CompetenciesA corporation can gain access to a distinctive competency in four Ways: An asset endowment, such as a key patent, ex. Xeroxoriginal copying patent.

Acquired from someone else, ex. Whirlpool bought aworldwide distribution system when it purchased Philips's appliance division.

Shared with another business unit or alliance partner, ex.Apple Computer worked with a design firm to create the special appeal of its Apple II and Mac computers.

Carefully built and accumulated over time within thecompany, ex. Honda extended its expertise in small motor manufacturing from motorcycles to autos and lawnmowers.

The Sourcing DecisionOutsourcing is purchasing from someone else a product or service that had been previously provided internally. ex, AT&T outsourced its credit card processing toTotal System Services;

Outsourcing is becoming an increasingly important part of strategic decision making and an important way to increase efficiency and often quality.

The Sourcing DecisionThe key to outsourcing is to purchase from outside only those activities that are not key to the company's distinctive competencies. Therefore, in determining functional strategy, the strategist must: Identify the company's or business unit's corecompetencies. Ensure that the competencies are continually being strengthened. Manage the competencies in such a way that best preserves the competitive advantage they create.

The Sourcing DecisionOutsourcing experience revealed that unsuccessful outsourcing efforts had three common characteristics: Thefirms' finance and legal dominated the decision process. departments

Vendors were not prequalified based on totalcapabilities.

Short-term benefits dominated decision making..

Proposed Outsourcing MatrixActivities Today Value-Added to Firms Products & Services

LowActivitys Potential for Competitive Advantage

High Full Vertical Integration: Produce All Internally

High

Taper Vertical Integration: Produce Some Internally

Low

Outsource Completely: Buy on Open Market

Outsource Completely: Purchase with Long-Term Contracts

Marketing StrategyMarketing strategy deals with pricing, selling, and distributing a product. Using a market development strategy, a company or business unit can (1) capture a larger share of an existing market for current products through market saturation and market penetration or (2) develop new markets for current products. Consumer product giants such as Procter & Gamble, Colgate-Palmolive, and Unilever are experts at using advertising and promotion to implement a market saturation/penetration strategy to gain the dominant market share in a product category.

Marketing Strategyproduct development strategy, a company or unit can (1) develop new products for existing markets or (2) develop new products for new markets. Church & Dwight developed new products to sell to its current customers. The company then generated new uses for its sodium bicarbonate (Arm & Hammer brand baking soda) by reformulating it as toothpaste, deodorant, and detergent.

Marketing StrategyAdvertising and promotion; choose between a "push" or a "pull" marketing strategy. push strategy (food and consumer products companies) by spending a large amount of money on trade promotion in order to gain or hold shelf space in retail outlets. Trade promotion includes discounts, in-store special offers, and advertising allowances designed to "push" products through the distribution system.

Marketing Strategypull strategy, in which advertising "pulls" the products through the distribution channels. The company now spends more money on consumer advertising designed to build brand awareness so that shoppers will ask for the products. Research has indicated that a high level of advertising (a key part of a pull strategy) is most beneficial to leading brands in a market.

Marketing StrategyDistribution Strategies; Should a company use distributors and dealers to sell its products or should it sell directly to mass merchandisers? Using both channels simultaneously can lead to problems. In order to increase the sales of its lawn tractors and mowers, Ex. John Deeres Lawn Mowers are sold through its current dealer network, and also through mass merchandisers like Home Depot. The dealers considered Home Depot to be a key competitor (Home Depot's ability to under price).

Marketing StrategyPricing Strategies For new-product pioneers, skim pricing offers the opportunity to "skim the cream" from the top of the demand curve with a high price while the product is novel and competitors are few. Penetration pricing, the opportunity to gain market share with a low price and dominate the industry. Penetration pricing is more likely than skim pricing to raise a unit's operating profit in the long term.

Financial StrategyIt examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. The tradeoff between achieving the desired debt-to-equity ratio and relying on internal longterm financing via cash flow is a key issue in financial strategy. Small- to medium sized companies try to avoid all external sources of funds in order to avoid outside entanglements and to keep control of the company within.

Financial StrategyA corporation can use financial leverage (longterm debt) to boost earnings per share, thus raising stock price and the overall value of the company. Research indicates that higher debt levels not only deter takeover by other firms (by making the company less attractive), but also leads to improved productivity and improved cash flows by forcing management to focus on core businesses.

Financial StrategyResearch reveals that a firm's financial strategy is influenced by its corporate diversification strategy. Equity financing, for example, is preferred for related diversification while debt financing is preferred for unrelated diversification. Leveraged buy out (LBO); a company is acquired in a transaction financed largely by debtusually obtained from a third party, such as an insurance company or an investment banker. Ultimately the debt is paid with money generated from the acquired company's operations or by sales of its assets. The acquired company, in effect, pays for its own acquisition! Management of the LBO is then under tremendous pressure to keep the highly leveraged company profitable.

Financial StrategyA recent financial strategy is to establish a tracking stock. A tracking stock is a type of common stock tied to one portion of a corporation's business. This strategy allows established companies to highlight a highgrowth business unit without selling the business. It goes public as an IPO and pays dividends based on the unit's performance. AT&T (AT&T Wireless), Sprint (Sprint PCS).

Research & Development StrategyR&D strategy deals with product and process innovation and improvement. It also deals with the appropriate mix of different types of R&D (basic, product, or process) and with the question of how new technology should be accessedinternal development, external acquisition, or through