function strategy

FUNCTIONAL STRATEGIES

FUNCTIONAL STRATEGIES

EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL STRATEGIES FOR EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL STRATEGIES FOR

EACH MAJOR DEPARTMENT  EACH MAJOR DEPARTMENT 

MA

MARKERKETITING NG STSTRATRATEGEGYY FI

FINANANCINCIAL AL STRSTRATATEGEGYY RESEA

RESEARCH RCH & & DEVELDEVELOPMENOPMENT T STRASTRATEGTEGYY OPE

OPERATRATIOIONS NS STSTRATRATEGEGYY PUR

PURCHACHASINSING G STRSTRATATEGEGYY LO

LOGIGISTSTICS ICS STRSTRATATEGEGYY HUM

HUMAN AN RESRESOUROURCES CES STSTRATRATEGEGYY INF

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ASIC MARKET-PRODUCT STRATEGIES

THE CUSTOMER-PRODUCT DECISION

W _{HO IS OUR PRIMARY CUSTOMER?}

W _{HAT KIND OF PRODUCT DO} W _{E INTEND TO OFFER?}

CUSTOMERS EXISTING NEW EXISTING -MARKET MARKET PENETRATION DEVELOPMENT PRODUCTS OR  -SERVICES PRODUCT DIVERSIFICATION DEVELOPMENT INNOVATION NEW

-MARKETING STRATEGIES:

THE CUSTOMER-PRODUCT DECISION

MARKET PENETRATION STRATEGY

(Stay in current markets with existing products)

INCREASE RATE OF PURCHASE/CONSUMPTION ATTRACT RIVAL¶S CUSTOMERS

BUY OUT RIVALS

CONVERT NON-USERS INTO CURRENT USERS

MARKET DEVELOPMENT STRATEGY

(Find new markets for current products)

ENTER NEW GEOGRAPHICAL MARKETS FIND NEW USES FOR EXISTING PRODUCTS FIND NEW TARGET MARKETS

PRODUCT DEVELOPMENT STRATEGY

(Develop new products for existing markets)

IMPROVE FEATURES

IMPROVE QUALITY/RELIABILITY/DURABILITY ENHANCE AESTHETICS/STYLING

ADD MODELS

DIVERSIFICATION STRATEGY

THE 4 ³P¶S´ OF MARKETING

MARKETING MIX ISSUES

± Product Strategy

Specifying the exact product or service to be offered 

New or existing product? «for new or existing customers?

± Promotion Strategy

How the product or service is to be communicated to customers

³Push´ - spend $$$ on promotions and discounts to push products

³Pull´ - spend $ to build brand awareness so consumers will ask for it by name

± Channel or ³Place´ Strategy

Selecting the method for distributing the product or service

Distribute through dealer networks or through mass merchandisers? Sell directly to consumers through own stores or through internet?

± Price Strategy

Establishing a price for the product or service

³Skim pricing´ (high) when you are a pioneer  ³Penetration pricing´ (low) builds market shares

FINANCIAL MANAGEMENT STRATEGIES

CAPITAL ACQUISITIONS

± Debt Leverage, Stock Sales, & Gains from Operations Equity financing is preferred for related diversification

Debt financing is preferred for unrelated diversification

Leveraged buyouts(LBOs) make the acquired firm pay off the debt

CAN W _{E GRO}W _{BY RELYING ON ONLY INTERNAL CASH FLO}W _S?

DO STOCK SALES DILUTE OW _{NERSHIP CONTROL?}

DOES A LARGE DEBT RATIO CRIPPLE FUTURE GROW _TH?

DOES STRONG LEVERAGE BOOST EARNINGS PER SHARE? DOES HIGH DEBT DETER TAKEOVER ATTEMPTS?

DO MOST LBOs UNDERPERFORM 3-4 YEARS AFTER THE BUYOUT? RESOURCE ALLOCATIONS

± Dividends, Stock Price, & Reinvestment

Reinvest earnings in fast-growing companies

Keeping the stockholders contented with consistent dividends Use of stock splits ( or reverses) to maintain high stock prices

RESEARCH & DEVELOPMENT STRATEGIES

LEVEL OF INNOVATION

± Pioneer (Leader) v. Copy Cat (Follower)

Technological leadership fits well with differentiation

A ³follower´ strategy makes sense with cost-leader strategies Are we better at finding applications and customer adaptations

than actually inventing something really new?

± Different types of R & D (basic, product, process)

How competent are the R & D Personnel?

ACQUISITION OF TECHNOLOGY

± Internally developed v. acquired from outside

Strategic Technology Alliances

OPERATIONS STRATEGIES

MANUFACTURING LOCATION

±  Internal Production v. Outsourcing

±  Domestic Plants v. International Locations

SYSTEM LAYOUT

± Product v. Process Layouts

Job shop/small batch production fits well with a differentiation strategy

Continuous production / dedicated transfer lines helps achieve cost leadership

Use of robots and CAD/CAM v. Labor intense manufacturing Modular Manufacturing and just-in-time delivery of

sub-assemblies

Continuous improvement systems lower costs and increase quality

PURCHASING STRATEGIES

SOURCING COMPONENTS AND SUPPLIES

W _{HERE CAN THE HIGHEST QUALITY COMPONENTS BE FOUND?}

±  Outsourcing (our firm buys everything)

Buying on the Open Market (Spot) (prices fluctuate) Long-Term Contracts with Multiple Suppliers (low bid) Sole Sourcing (only one supplier) improves quality

Parallel Sourcing (two suppliers) provides protection

±  Backward Integration (our firm has an ownership stake in the suppliers we use)

Quasi-integration (minority ownership position in a supplier) Tapered (produce some of what we need, but not all)

Full (produce all of our own needs)

LOGISTICS STRATEGIES

DOW _{E HAVE GOODS THAT MUST BE TRANSPORTED OR DELIVERED?}

TYPE OF MATERIALS TRANSPORTED (Bulky or Compact?) ±  Raw Materials, Supplies, & Components

±  Finished Goods

BEST MODE OF TRANSPORTATION ±  AIR 

±  RAIL

±  TRUCK 

±  BARGE

DOW _E W _{ANT DEPENDABILITY, LO}W _{COST, OR HIGH QUALITY SERVICE?}

OUTSOURCE TRANSPORTATION OR DO IT YOURSELF? ±  CONTRACT WITH OTHERS

Use Multiple Shippers v. Just One (UPS)?

Consider batch deliveries v. Just-in-time arrangements?

±  OWNERSHIP IN DISTRIBUTION CHAIN

Quasi Tapered Full

HUMAN RESOURCES STRATEGIES

TALENT ACQUISITION

± Recruit from Outside v. Internal Development

± Require experienced, highly-skilled workers v. ³we will train you´ ± Offer ³top dollar´ wages & benefits v. mentoring and a career 

WORK ARRANGEMENTS

± Individual Jobs v. Team Positions

± Narrowly-defined jobs v. Positions with discretion and autonomy ± On-premises Work v. Telecommuting Options

MOTIVATION & APPRAISAL

± Extrinsic v. Intrinsic Reward Systems

± Assessment for development v. assessment for rewards

INFORMATION SYSTEMS STRATEGIES

WORKER PRODUCTIVITY & CONNECTIVITY

± Employees can be networked together across the globe ± Instant translation software for global firms

± ³Follow the Sun Management´«pass projects on to the next team

SALES & INVENTORY MANAGEMENT

± Internet sales and development of customer databases ± Instant sales reports allow immediate inventory reorders

SHIPPING & TRACKING GOODS

± FEDEX PowerShip software«stores addresses, prints labels, etc. ± Tracking the progress of package shipment«FEDEX & UPS

WHICH FUNCTIONS CAN WE OUTSOURCE?

GLOBAL OUTSOURCING ± INCREASES EFFICIENCY & QUALITY 

±  A_{verages 9% reduction in costs and 15% increase in capacity and quality} ±  Up to 70% of Boeing planes are outsourced..built in just 4 mos v. 1 year 

AMA SURVEY -- 94% OUTSOURCE AT LEAST ONE ACTIVITY 

±  78% General & A_{dministrative activities} ±  77% Human Resources

±  66% Transportation & Distribution

±  63% Information Systems

±  56% Manufacturing 

±  51% Marketing 

±  18% Finance & A_ccounting 

25 _{% were disappointed in their outsourcing results} 51_{% brought the outsourced activity back ³in-house´} 

MOST LIKELY ACTIVITIES TO OUTSOURCE 

±  C _{ustomer Service}

±  Bookkeeping/Financial/ C _lerical  ±  Sales/Telemarketing 

±  Software Programming 

OUTSOURCING DISADVANTAGES

CUSTOMER COMPLAINTS & UNEXPECTED DELAYS 

LOCKED INTO LONG-TERM CONTRACTS THAT AREN¶T COMPETITIVE 

THE FIRM DOESN¶T LEARN NE W _{SKILLS & DEVELOP CORE COMPETENCIES} 

A SURVEY OF 12_{9 OUTSOURCING FIRMS} 

Half of the projects undertaken failed to achieve the anticipated savings

Software produced in India had 10_{% more bugs than comparable US projects}

SEVEN MAJOR OUTSOURCING ERRORS

Outsourcing activities that shouldn¶t be outsourced

±  Failed to keep core activities ³in-house´ 

Selecting the wrong vendor

±  Picked a vendor that wasn¶t trustworthy, or who lacks state-of-the art processes

Writing a poor contract

±  Balance of power favors the vendor«locked in over a long period of time

Overlooking personnel issues«my area of expertise was outsourced! Losing Control over the Outsourced Activity«W _{e¶re at their mercy!} Overlooking the hidden costs of outsourcing«Transaction fees? Failing to plan an exit strategy«How can we reverse out of this deal?

SUCCESSFUL OUTSOURCING

KEY TO SUCCESS :

ONLY  O_UTS O_URC _E AC _{TIVITIES TH} A_T A_{RE NOT RELATED T} O _{THE FIRM¶S} 

DISTINCTIVE COMPETENCIES 

TOTAL VALUE-ADDED to Firm¶s PRODUCTS & SERVICES

LOW HIGH

HIGH

-TAPERED FULL VERTICAL

INTEGRATION INTEGRATION

ACTIVITY¶S Produce Some Produce All  

POTENTIAL FOR  Internally Internally

COMPETITIVE

-ADVANTAGE OUTSOURCE OUTSOURCE

COMPLETELY COMPLETELY

Buy on Open Market Use Long-Term Contracts

-STRATEGIES TO AVOID

DUMB STRATEGIES

FOLLOW _{THE LEADER}

W _{e can do that too«but maybe it¶s not worth copying} 

HIT ANOTHER HOME RUN 

A _{pioneer company looking to get lucky again}

ARMS RACE 

Battles which increase costs and decrease revenues

DO EVERYTHING 

O_{ffering something for everyone«trying to please everyone}

LOSING HAND

Pouring $$ down the knothole«investment because of prior commitments

NONE OF THESE STRATEGIES W _{ILL CREATE A SUSTAINABLE}