STRATEGIC

MANAGEMENT
 Today’s Agenda
■ Identify a variety of functional
strategies that can be used to achieve
organizational goals and objectives
■ Understand what activities and
functions are appropriate to
outsource in order to gain or
strengthen competitive advantage
■ Recognize strategies to avoid and
understand why they are dangerous
■ Understand corporate scenarios to
evaluate strategic options
 Functional Strategy
Developing and nurturing a distinctive competence to provide
a company or business unit with a competitive advantage.

For example, a business

unit following a
Corporate Strategy competitive strategy of
differentiation through
high quality needs:
Business Unit Strategy
Functional Strategy
a marketing functional
a manufacturing strategy that emphasizes
functional strategy that a human resource distribution channel “pull,”
emphasizes functional strategy that using advertising to
expensive quality emphasizes the hiring and increase consumer
assurance processes over training of a highly skilled, demand, over “push,”
cheaper, high-volume but costly, workforce; using promotional
production; allowances to retailers.
 Functional Strategies
Marketing Strategy
Financial Strategy
Research and Development Strategy
Operations Strategy
Purchasing Strategy
Logistics Strategy
Human Resource Management Strategy
Information Technology Strategy
Production Strategy
 Marketing Strategy

Pricing Selling Distributing

(1) capture a larger share of an existing market for current products

through market saturation and market penetration or
(2) develop new uses and/or markets for current products.
 Marketing Strategy

Push Pull
Offering Supply Creating a Demand

Research has found that a high level of advertising (a key part of a pull strategy)
is beneficial to leading brands in a market

B2B
B2C/DTC
In order to increase the sales of its lawn tractors and mowers, for
example, John Deere decided to sell the products not only through
its current dealer network but also through mass merchandisers such
as Home Depot. Deere’s dealers, however, were furious.
 Marketing Strategy
Skim Penetration Dynamic
Pricing Pricing Pricing

Targets top of the Attempts to hasten Varies price frequently

demand curve with a market development based upon demand,
high price while the and offers the pioneer market segment, and
product is novel and the opportunity to use product availability
competitors are few the experience curve to
gain market share with
a low price and then
dominate the industry
 Product Development Strategy

Innovation Improvement Expansion

(1) develop new products for existing markets or

(2)develop new products for new markets.

brand extension
Financial Strategy
examines the financial implications of corporate and business-level strategic options

No long-term debt, maintains cash

relying on CFO: “Our preference is to maintain a
achieving internal
the desired strong balance sheet in order to
long-term
debt-to- financing preserve our flexibility
equity ratio via cash
flow

Maximize identifies the Financial analysts believe, by

Financial best financial
value of a course of financing through long-term debt can
company action. a corporation use financial leverage
to boost earnings per share—thus
provide raising stock price
competitive
flexible
ability to advantage
raise capital through a
lower cost
of funds

Research indicates that higher debt levels not only deter takeover by other firms (by making the
company less attractive) but also lead to improved productivity and improved cash flows by
forcing management to focus on core businesses.
LBO (Leveraged BuyOut)

a company is
acquired in a
transaction
obtained • Pressure to keep the highly leveraged
from a third
financed
party company profitable
largely by
debt • Focusing management’s attention on short-
term matters
• Inflated expectations
Debt Repaid
– by • Management burnout
LBO company • Lack of strategic management
operations
• Research finding - financial performance of
the typical LBO usually falls below the
Debt industry average in the fourth year after the
Typically -
Unrelated
Repaid – buyout.
by sales of
diversificatio
company
n
assets
More on Financial Strategies
Management of Dividends and Stock Price

• Non-declared dividends, financing rapid growth, achieveing higher

stock price

• No raise in dividends, buy back company’s shares

• Stock split 2-for-1

• Reverse stock split 1-for-2

• Selling company’s patents

R&D Strategy
Technological Leader Technological Follower

• Internal Development

• External Acquisition

• Strategic Alliance

• Open innovation

• Minority Investment in Ventures

 Operations Strategy
How and where a product is to be manufactured
Level of vertical
Deployment of Relationships with the
integration in the
Resources Suppliers
production process

Advanced Manufacturing
Technology (AMT) Mass production system
Computer assisted design and
manufacturing (CAD/CAM)
Automatically guided vehicles Continuous improvement system
Robotics
Manufacturing resource
planning (MRP II), Modular manufacturing
Optimized production
technology
Increase the company’s fixed
costs
Mass Customization
 Purchasing Strategy
Typically incorporated within Operations Strategy
Accounts for about 50% of manufacturing cost
Multiple Parallel Sole
Sourcing Sourcing Sourcing

Company orders a Two suppliers are the Relies on only

particular part from sole suppliers of two one supplier for a
several vendors. different parts, but they particular part.
are also backup
Competition among suppliers
suppliers for each Just-In-Time (JIT) delivery
Consistent supply
In-house supplier reps
other’s parts Reduces transaction costs

Research has found that buyer-supplier collaboration and joint problem

solving with both parties dependent upon the other results in the
development of competitive capabilities, higher quality, lower costs, and
better scheduling
 HRM Strategy
Right People, Right Work
Employee
Productivity Quality
satisfaction

Diverse workforce can

be a competitive
advantage.

Research reveals that

firms with a high degree
of racial diversity
following a growth
strategy
A complete 360-degree appraisal, in which input is gathered
from multiple sources, is now being used by more than 10% of U.S.
corporations and has become one of the most popular and effective tools in
developing employees and new managers
 Information Technology Strategy
information system as a distinctive competency

•Follow-the-sun management

•Instant Translation Services

•Staff Training and Developments

online

Mattel has cut the time it takes to develop new products by 10% by enabling
designers and licensees in other countries to collaborate on toy design
Functional Strategy and Sourcing
■ Functional Strategy typically focuses on Distinctive Competency
■ If No Distinctive Competency

• Efficiency
Outsourcing
• Quality

According to an American Management Association survey of member

companies, 94% of the responding firms outsource at least one activity.

General and administrative (78%), human resources (77%),

transportation and distribution (66%), information systems (63%),
manufacturing (56%), marketing (51%), and finance and accounting
(18%).
Functional Strategy and
Sourcing
• Efficiency
• Quality

Offshoring

Financial Attractiveness – 2.77

People, skills and availability – 0.66
Business environment – 1.56
Digital Resonance – 0.56
Outsourcing Errors
1. Outsourcing activities that should not be outsourced: Companies failed to keep core
activities in-house.
2. Selecting the wrong vendor: Vendors were not trustworthy or lacked state-of-the-art
processes.
3. Writing a poor contract: Companies failed to establish a balance of power in the
relationship.
4. Overlooking personnel issues: Employees lost commitment to the firm.
5. Losing control over the outsourced activity: Qualified managers failed to manage the
outsourced activity.
6. Overlooking the hidden costs of outsourcing: Transaction costs overwhelmed other
savings.
7. Failing to plan an exit strategy: Companies failed to build reversibility clauses into the
contract.
Outsourcing Matrix
Strategic Choice
CONSTRUCTING CORPORATE SCENARIOS
■ pro forma (estimated future) balance sheets and income statements that forecast
the effect each alternative strategy and its various programs will likely have on
division and corporate return on investment.
Strategic Choice Process
Each resulting alternative (O, P, ML) must be rigorously evaluated in terms of its ability
to meet four criteria:
■ Mutual Exclusivity, Success. Completeness. Internal Consistency:
Evaluation Techniques
■ Devil’s advocate
■ Dialectical inquiry