FUNCTIONAL STRATEGIES

EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL STRATEGIES FOR EACH MAJOR DEPARTMENT MARKETING STRATEGY FINANCIAL STRATEGY RESEARCH & DEVELOPMENT STRATEGY OPERATIONS STRATEGY PURCHASING STRATEGY LOGISTICS STRATEGY HUMAN RESOURCES STRATEGY INFORMATION TECHNOLOGY STRATEGY

BASIC MARKET-PRODUCT STRATEGIES

THE CUSTOMER-PRODUCT DECISION WHO IS OUR PRIMARY CUSTOMER? WHAT KIND OF PRODUCT DO WE INTEND TO OFFER? CUSTOMERS
EXISTING NEW EXISTING - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

MARKET PENETRATION

MARKET DEVELOPMENT

PRODUCTS OR SERVICES

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PRODUCT DIVERSIFICATION DEVELOPMENTINNOVATION

NEW ---------------------------------------------

MARKETING STRATEGIES:
THE CUSTOMER-PRODUCT DECISION MARKET PENETRATION STRATEGY (Stay in current markets with existing products)
INCREASE RATE OF PURCHASE/CONSUMPTION ATTRACT RIVALS 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 (Develop new products for new markets)

THE 4 PS 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
Push - spend $$$ on promotions and discounts to push products Pull - spend $ to build brand awareness so consumers will ask for it by name

Channel or Place 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
Skim pricing (high) when you are a pioneer Penetration pricing (low) builds market shares Dynamic pricing (prices vary frequently) based on demand/availability

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 WE GROW BY RELYING ON ONLY INTERNAL CASH FLOWS? DO STOCK SALES DILUTE OWNERSHIP CONTROL? DOES A LARGE DEBT RATIO CRIPPLE FUTURE GROWTH? 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 Tracking stock keeps interest in company, but doesnt allow takeover

RESEARCH & DEVELOPMENT STRATEGIES

LEVEL OF INNOVATION Pioneer (Leader) v. Copy Cat (Follower)
Technological leadership fits well with differentiation A follower 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)

Where is the firms historic expertise / advantage? How competent are the R & D Personnel?

ACQUISITION OF TECHNOLOGY Internally developed v. acquired from outside

Technology Scouts Strategic Technology Alliances Acquire minority stake in promising high-tech ventures

OPERATIONS STRATEGIES
MANUFACTURING LOCATION
Internal Production v. Outsourcing Domestic Plants v. International Locations

SYSTEM LAYOUT Product v. Process Layouts

Job Shops v. Mass Production 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 subassemblies Continuous improvement systems lower costs and increase quality

PURCHASING STRATEGIES
SOURCING COMPONENTS AND SUPPLIES
WHERE 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)

Use of Component Inventories v. Just-in-time supply delivery

LOGISTICS STRATEGIES
DO WE 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

DO WE WANT DEPENDABILITY, LOW 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. we will train you Offer top 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 Incentives for ideas & originality v. incentives for conformity?

INFORMATION SYSTEMS STRATEGIES

WORKER PRODUCTIVITY & CONNECTIVITY
Employees can be networked together across the globe Instant translation software for global firms Follow the Sun Managementpass 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 softwarestores addresses, prints labels, etc. Tracking the progress of package shipmentFEDEX & UPS

WHICH FUNCTIONS CAN WE OUTSOURCE?

GLOBAL OUTSOURCING INCREASES EFFICIENCY & QUALITY
Averages 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 & Administrative activities 77% Human Resources 66% Transportation & Distribution 63% Information Systems 56% Manufacturing 51% Marketing 18% Finance & Accounting

25% were disappointed in their outsourcing results 51% brought the outsourced activity back in-house MOST LIKELY ACTIVITIES TO OUTSOURCE
Customer Service Bookkeeping/Financial/Clerical Sales/Telemarketing Software Programming Mailroom

OUTSOURCING DISADVANTAGES
CUSTOMER COMPLAINTS & UNEXPECTED DELAYS LOCKED INTO LONG-TERM CONTRACTS THAT ARENT COMPETITIVE THE FIRM DOESNT LEARN NEW SKILLS & DEVELOP CORE COMPETENCIES

A SURVEY OF 129 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 shouldnt be outsourced

Failed to keep core activities in-house

Selecting the wrong vendor

Picked a vendor that wasnt trustworthy, or who lacks state-of-the art processes

Writing a poor contract

Balance of power favors the vendorlocked in over a long period of time

Overlooking personnel issuesmy area of expertise was outsourced! Losing Control over the Outsourced ActivityWere at their mercy! Overlooking the hidden costs of outsourcingTransaction fees? Failing to plan an exit strategyHow can we reverse out of this deal?

SUCCESSFUL OUTSOURCING
KEY TO SUCCESS:
ONLY OUTSOURCE ACTIVITIES THAT ARE NOT RELATED TO THE FIRMS DISTINCTIVE COMPETENCIES

TOTAL VALUE-ADDED to Firms PRODUCTS & SERVICES

HIGH LOW HIGH ---------------------------------------------

TAPERED INTEGRATION

FULL VERTICAL INTEGRATION

Produce All Internally

ACTIVITYS POTENTIAL FOR COMPETITIVE ADVANTAGE

Produce Some Internally

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OUTSOURCE COMPLETELY
Buy on Open Market

OUTSOURCE COMPLETELY
Use Long-Term Contracts

LOW

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STRATEGIES TO AVOID DUMB STRATEGIES

FOLLOW THE LEADER We can do that toobut maybe its 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 Offering something for everyonetrying to please everyone LOSING HAND Pouring $$ down the knotholeinvestment because of prior commitments

NONE OF THESE STRATEGIES WILL CREATE A SUSTAINABLE COMPETITIVE ADVANTAGE FOR THE FIRM