Strategy formulation : functional strategy & Strategy Choice
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This document discusses various aspects of strategy formulation, including functional strategies, the sourcing decision of outsourcing and offshoring, strategies to avoid, making strategic choices, and developing policies. It provides details on different types of functional strategies such as marketing, R&D, operations, and HR strategies. It also explains the process of evaluating strategic options, making choices, and setting policies to implement strategies.
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Strategy formulation : functional strategy & Strategy Choice
- 1. 8. STRATEGY FORMULATION: FUNCTIONAL STRATEGY AND STRATEGIC CHOICE Presented by : Tayyab Hameed
- 2. Learning Objectives Identify a variety of functional strategies. Understand Outsourcing & Off-shoring. Recognize strategies to avoid. Construct corporate scenarios to evaluate strategic options. Develop policies to implement strategies.
- 3. 8.0 - What is Strategy? A strategy is a comprehensive master plan stating HOW the organization will achieve its mission and objectives.
- 4. 8.0 - Hierarchy of Strategy
- 5. 8.0 - Strategic Management Model
- 6. 8.0 - Strategy Formulation Development of long-range plans for the effective management with the help of SWOT analysis. It is composed of Mission. Objectives. Strategies. Policy.
- 7. 8.1 - Functional Strategy Function – the intended role or purpose of person or thing. Strategy – Generalship Functional Strategy is an approach, a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity. The orientation of a functional strategy is dictated by its parent business unit’s strategy. Functional Strategy may need to vary from region to region. Suzuki Pickup, Pakistan Mr. Donut, Japan
- 8. 8.1 – Objectives of Functional Strategy Market share- Gain and sustain share of a product market. Human talent- Recruit high- quality workforce. Cost efficiency- Use resources well to operate at low cost. Product quality- Produce high-quality goods or services. Innovation- Develop new products and /or processes. Profitability- Earn net profit in business.
- 9. 8.1 – Types of Functional Strategy Marketing Strategy Financial Strategy R&D Strategy Operations Strategy Purchasing Strategy Logistics Strategy HRM Strategy Information Management Strategy
- 10. 8.1.1 – Marketing Strategy Marketing Strategy deals with Pricing, Selling and Distributing a product. There are several types of Marketing Strategy: Market & Product Development Push and Pull Strategy Distribution System Pricing
- 11. 8.1.1.1 – Types of Marketing Strategy 8.1.1.1 Market & Product Development
- 12. 8.1.1.2 – Push and Pull Strategy 8.1.1.2 – Types of Marketing Strategy
- 13. 8.1.1.3 – Distribution System Should a company use distributors and dealers to sell its products, or should it sell directly to mass merchandisers? Or Should a company use the direct marketing model by selling straight to the consumers via the Internet? 8.1.1.3 – Types of Marketing Strategy
- 14. 8.1.1.4 – Pricing 8.1.1.4 – Types of Marketing Strategy
- 15. 8.1.1 – Marketing Strategy 8.1.1 – 4Ps of Marketing
- 16. 8.1.2 – Financial Strategy It focuses on the alignment of financial management within an organization with its business and corporate strategies to gain strategic advantages. Forecasting, Planning and Budgeting Credit & Liquidity Strategies Capital Investment Methods/Systems Financial Mix Capital Budget & Working Capital Stock / Dividend Cash Flow, Loans or Leases
- 17. 8.1.2.1 - Types of Financial Strategy Strong Balance Sheet Strong credit rating. Greater discipline and flexibility in Investment approach. Help to build a robust business. Healthier Economic Cycle. Leveraged buyout (LBO) Strategy Financial buyers or sponsors Focus on ROE rather than ROA.
- 18. 8.1.2.1 - Types of Financial Strategy Dividends and Stock Price Management Some company’s often don’t declare dividend. Several support the value of their stock by offering dividends. Selling of Company’s Patent For products a company no longer wish to commercialize or are not a part of its core business.
- 19. 8.1.3 – Research & Development (R&D) Development New products and improvement of existing products that allow for effective strategy implementation. R&D strategy deals with Product Innovation Process Improvement Open Innovation (Hybrid)
- 20. 8.1.3.1 – Research & Development (R&D) Development R & D also deals with the questions like How new technology should be accessed? Internal Development External Acquisitions Either to be a Technological Leader. Or to be a Technological Follower.
- 21. 8.1.3.2 – Research & Development (R&D) Development 8.1.3.2 – R & D Strategy and Competitive Advantage
- 22. 8.1.4 – Operations Strategy Operations serves as a firm’s distinctive competence in executing similar strategies better than competitors. Its provides support for a differentiated strategy Operations strategy is to ensure all tasks performed are the right tasks. It is a plan for the design and management of operations functions
- 23. 8.1.4.1 - Types of Operations Strategy Vertical Integration is where the supply chain of a company is owned by that company. Strategic Decisions How much work should be done outside the firm? On what basis should particular items be made in- house? When should items be outsourced? How should suppliers be selected?
- 24. 8.1.4.1 - Types of Operations Strategy Vertical Integration
- 25. 8.1.4.1 - Types of Operations Strategy CAD/CAM Principles Continuous Improvement Strategy Product Life Cycle
- 26. 8.1.4.1 – Product Life Cycle 8.1.4.1 - Types of Operations Strategy
- 27. 8.1.5 - Purchasing Strategy Companies implement Purchasing strategies in order to make cost effective purchasing decisions from a group of efficient vendors who will deliver quality goods on time and at mutually agreeable terms.
- 28. 8.1.5.1 - Types of Purchasing Strategy Purchasing Cycle Regular Vendors Outsourced Procurement Multiple Sourcing Force suppliers to compete for the business. Reduce purchasing costs. Sole Sourcing Reduce cost and time spent on product design. Improves quality. Just in Time
- 29. 8.1.5.1 - Types of Purchasing Strategy Just in Time – II Vendors have desks in purchasing company’s factory floor. They attend production status meetings, visit the R&D labs. Reduce cost and time. Improves quality. Lesser paper work. All time availability of Vendor at place.
- 30. 8.1.6.1 - Logistics Strategy Logistics strategy deals with the flow of products into and out of the manufacturing process. Types of Logistics Centralized Logistics Outsourcing Logistics
- 31. 8.1.7 - HUMAN RESOURCE MANAGEMENT (HRM) STRATEGY The strategic & coherent approach to the most valued asset : The People Deals with Right Employee for the Right Job Headcount Salary Structure Hiring / Separation 360-degree appraisal Employee Development Diversified Workforce
- 32. 8.1.8 – Information Technology Strategy If focuses on the alignment of information management system within an organization with its business and corporate strategies to gain strategic advantage.
- 33. 8.2 - The Sourcing Decision: Location of Functions Outsourcing is the contracting out of a business process to a third-party. Outsourcing is Cost effective when used properly. Budget flexibility and control.
- 34. 8.2.1 - The Sourcing Decision: Outsourced Activity 78% 77% 66% 63% 56% 51% 18% 0% 20% 40% 60% 80% 100% General and Administration Human Resource Transportation & Distribution Information System Manufacturing Marketing Finance & Accounting Outsourced Departments as per AMA
- 35. 8.2.2 - The Sourcing Decision: Off-Shoring Off-shoring is the outsourcing of an activity or a function to a wholly owned company or an independent provider in another country. Major off-shored industries are: Customer Services Information Technologies
- 36. 8.2.3 - The Sourcing Decision: Why Off- Shoring? Low Cost Qualified Labor Educated Workforce Lower Regulatory Costs Tax Benefits Ability to Downsize at Will Improved Performance Freeing up Resources For Core Activities Quicker Turnaround Time
- 37. 8.2.4 - The Sourcing Decision: Errors Core Activities Wrong Vendor Poor Contract Personnel Issues Loosing Control Hidden Cost Exit Strategy
- 38. 8.2.4 - The Sourcing Decision: How? Identify the company’s or business unit’s core competencies. Ensure that the competencies are continually being strengthened. Manage the competencies in such a way that best preserves the competitive advantage, they create.
- 39. 8.2.5 - The Sourcing Decision: Proposed Outsourcing Matrix
- 40. 8.3 – Strategies to Avoid Follow the Leader. Hit another home run. Arms race. Do everything. Losing hand.
- 41. 8.4 – Strategic Choice? Analysis Objective Options
- 42. 8.4.1 – Strategic Choice: Selecting the Best Strategy Use industry scenarios. Develop common-size financial statements Historical common-size percentages Develop alternative set of Optimistic(O), Pessimistic(P), and Most Likely(ML) assumptions. Five year Sales and COGS forecast. Analyze historical data and make adjustments.
- 43. 8.4.1 – Strategic Choice: Selecting the Best Strategy
- 44. 8.4.1 – Strategic Choice: Selecting the Best Strategy Construct detailed pro forma financial statements. List the actual figures List optimistic figures List the pessimistic figures for the next five years. Develop a similar set of optimistic (O), pessimistic (P), and most likely (ML) pro-forma statements for the second strategic alternative. Calculate FR and IS and create balance sheets. Compare assumptions with the FS and ratios to determine feasibility.
- 45. 8.4.2 - PROCESS OF STRATEGIC CHOICE Strategies fails due to Actions of Decision Maker Desire for speedy action Apply failure-prone decision Poor use of resources Only 4% of the managers selected the right strategy.
- 46. 8.4.2 - PROCESS OF STRATEGIC CHOICE Two techniques to avoid CONSENSUS trap: Devil’s advocate Dialectical inquiry Criteria to evaluate the strategy ability: Mutual Exclusivity Success Completeness Internal Consistency
- 47. 8.5 – Developing Policies Policies define the broad guidelines for implementation, decisions making and actions to be taken. It forces trade-offs between competing resource demands. It tests the strategic soundness of a particular action. It sets clear boundaries within which employees must operate while granting them freedom to experiment within those constraints. Restrict top management’s strategic options in the future.
- 48. Questions?
- 49. Conclusion! Functional Strategy : Should be built on a distinctive competency residing within that functional area. The Sourcing Decision Strategies to Avoid Strategic Choice Developing Policies
Notas del editor
- One of the R&D choices is to be either a technological leader, pioneering an innovation, or a technological follower, imitating the products of competitors. Porter suggests that deciding to become a technological leader or follower can be a way of achieving either overall low cost or differentiation.
- Operations strategy determines 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. It should also deal with the optimum level of technology the firm should use in its operations processes.
- vertical integration is where the supply chain of a company is owned by that company. Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers A company exhibits backward vertical integration when it controls subsidiaries that produce some of the inputs used in the production of its products. For example, an automobile company may own a tire company, a glass company, and a metal company. Control of these three subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product. It was the main business approach of Ford and other car companies in the 1920s, who sought to minimize costs by integrating the production of cars and car parts as exemplified in the Ford River Rouge Complex. A company tends toward forward vertical integration when it controls distribution centers and retailers where its products are sold.
- Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers A company exhibits backward vertical integration when it controls subsidiaries that produce some of the inputs used in the production of its products. For example, an automobile company may own a tire company, a glass company, and a metal company. Control of these three subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product. It was the main business approach of Ford and other car companies in the 1920s, who sought to minimize costs by integrating the production of cars and car parts as exemplified in the Ford River Rouge Complex. A company tends toward forward vertical integration when it controls distribution centers and retailers where its products are sold.
- The use of CAD/CAM, flexible manufacturing systems, computer numerically controlled systems, automatically guided vehicles, robotics, manufacturing resource planning (MRP II), optimized production technology, and just-in-time techniques contribute to increased flexibility, quick response time, and higher productivity. 1970 s. low-cost, standard goods and services. Employees worked on narrowly defined. Managers are more like coaches than like bosses.
- Product Life Cycle A firm’s manufacturing strategy is often affected by a product’s life cycle. As the sales of a product increase, there will be an increase in production volume. It helps company sustain its sales and revenues. Flexibility gives way to efficiency. Introduction - 3D TVs Growth - Blueray discs/DVR Maturity - DVD Decline - Video cassette
- Purchasing strategy deals with obtaining the raw materials, parts, and supplies needed to perform the operations function. procurement strategy of using a core purchasing cycle. This is where they order from a group of regular vendors and use outsourcing procurement for their larger and ad hoc purchases.
- procurement strategy of using a core purchasing cycle. This is where they order from a group of regular vendors and use outsourcing procurement for their larger and ad hoc purchases.
- The selection of the best strategic alternative is not the end of strategy formulation. Policies define the broad guidelines for implementation. Flowing from the selected strategy, policies provide guidance for decision making and actions throughout the organization.
- In the end, I would like to thanks the teacher and rest of the class for providing me an opportunity to disucuss the topic. Once again thank you and Allah Hafiz.