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Summary Strategic Management Chapter 8: Strategy Formulation: Functional Strategy and Strategic Choice
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A summary of Chapter 8 of the book Strategic Management and Business Policy.
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Chapter 8: Strategy Formulation:Functional Strategy and
Strategic Choice
Functional Strategy
Functional Strategy = the approach a functional area takes to achieve corporate and business
unit objectives and strategies by maximizing resource productivity.
Several business units, each with its own business strategy, each business unit has its own
set of departments, each with its own functional strategy.
Marketing strategy
Marketing strategy = pricing, selling, and distributing a product.
Market development strategy:
1. Capture a larger share of an existing market for current products through market
saturation and market penetration.
2. Develop new uses and/or markets for current products.
Product development strategy:
1. Develop new products for existing markets.
2. Develop new products for new markets.
There are numerous other marketing strategies. For advertising and promotion.
Push strategy = by spending a large amount of money on trade promotion in order to gain or
hold shelf space in retail outlets.
Pull strategy = in which advertising “pull” the products through the distribution channels.
The company spends more money on consumer advertising designed to build brand
awareness so that shoppers will ask for the products.
Other marketing strategies deal with distribution and pricing.
Pricing a new product two strategies:
1. 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.
, 2. Penetration pricing: attempts to hasten market development and offers the pioneer
the opportunity to use the experience curve to gain market share with a low price
and then dominate the industry.
Internet dynamic pricing: which prices vary frequently based upon demand.
Financial strategy
Financial strategy = the financial implications of corporate and business-level strategic
options and identifies the best financial course of action.
Financial strategy is influenced by its corporate diversification strategy.
Leveraged buyout = a company is acquired in a transaction financed largely by debt, usually
obtained from a third party, such as an insurance company or an investment banker.
The management of dividends and stock price is an important part of a corporation’s
financial strategy.
Research and development (R&D) strategy
R&D strategy = deals with product and process innovation and improvement.
Technological leader = pioneering an innovation.
Technological follower = imitating the products of competitors.
The leader R&D functional strategy to achieve a differentiation competitive advantage is
Nike Inc.
The follower R&D functional strategy to achieve a low-cost competitive advantage is Dean
Foods Company.
A newer approach to R&D is open innovation, in which a firm uses alliances and connections
with corporate, government, academic labs, and consumers to develop new products and
processes.
Operations strategy
Operations strategy = how and where a product or service is to be manufactured, the level
of vertical integration in the production process, the deployment of physical resources, and
relationships with suppliers.
Mass-production system = produce a large number of low-cost, standard goods and services.
Continuous improvement = cross-functional teams to constantly strive to improve
production processes.
Modular manufacturing = preassembled subassemblies are delivered as they are needed to
a company’s assembly-line workers, who quickly piece the modules together into a finished
product.
Mass customization requires that people, processes, units, and technology reconfigure
themselves to give customers exactly what they want, when they want it.
Purchasing strategy
Purchasing strategy = obtaining the raw materials, parts, and supplies needed to perform
the operations function.
Multiple sourcing = purchasing company orders a particular part from several vendors.
1. It forces suppliers to compete for the business of an important buyer, thus reducing
purchasing costs.
2. If one supplier cannot deliver, another usually can, thus guaranteeing that parts and
supplies are always on hand when needed.
Sole sourcing relies on only one supplier for a particular part.
Just-in-time (JIT) = having the purchased parts arrive at the plant just when they are needed
rather than keeping inventories.
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