Unit6 Business Strategies

8/3/2019 Unit6 Business Strategies

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Unit-6

Business and FunctionalStrategies

This document has been prepared by ArchanaShrivastava with data from various sources toaid classroom discussion . For private

circulation only. Not for sale.



What is to be covered

What is Strategy? Different Levels Of Strategy

Functional Strategy

Key Goals

Objectives

Types Of Functional Strategy

Marketing Strategy

Human Resource Management Strategy Financial Strategy

Research & Development Strategy

Informational Management Strategy



Strategy Revisiting

What is Strategy? A strategy couldbe:

A plan or course of action or set of decision rules making a pattern orcreating a common thread.

The pattern or common thread

related to the organization'sactivities which are derived from thepolicies, objectives and goals



Strategy Revisiting

Related to pursuing those activitieswhich move an organization from itscurrent position to the desired future

state. Concerned with the resources necessary

for implementing a plan or following acourse of action

Connected to the Strategic positioning of a firm, making trade-offs between itsdifferent activities and creating a fit

among these activities.



Strategy Revisiting

The planned or actual coordinationof the firm‟s major goals andactions, in time and space thatcontinuously co-align the firm withits environment



DIFFERENT LEVELS OF STRATEGY

CORPORATE

SBU A SBU B SBU C

FINANCE

MARKETING

OPERATIONS

HRM

INFORMATION



Business-Level Strategy

Business-level strategy: an integratedand coordinated set of commitments and

actions the firm uses to gain acompetitive advantage by exploiting corecompetencies in specific product markets



Business-Level Strategy

The resources allocated and actions taken to achieve

desired goals in serving a specific market with ahighly interrelated set of goods and/or services

Plans and strategies developed for

1. maintaining or gaining a competitive edge in

serving its customers,

2. determining how each functional area can best

contribute to its overall effectiveness, and

3. allocating resources for expansion and among

its functions

Time Warner: America Online, HBO, Warner

Brother Studios.



Business-Level Planning

Basic Questions

1. Who will be served?

2. What customer needs will be satisfied?

3. How will customers’ needs besatisfied?



The Central Role of Customers

In selecting a business-levelstrategy, the firm determines

1. who it will serve

2. what needs those targetcustomers have that it will satisfy

3.how

those needs will be satisfied



Managing Relationships With

Customers

Customer relationships arestrengthened by offering them superior

value help customers to develop a new

competitive advantage

enhance the value of existing competitiveadvantages



Five Generic StrategiesCompetitive Advantage

C o m p e

t i t i v e S c o

p e

Cost Uniqueness

B r o

a d

t a r g e t

N a r r o w

t a r g e t

Cost

Leadership

Differentiation

Focused Cost

Leadership

Focused

Differentiation

Integrated Cost

Leadership/

Differentiation



Cost Leadership Strategy

An integrated set of actions designed toproduce or deliver goods or services at

the lowest cost, relative to competitors with features that are acceptable tocustomers

relatively standardized products

features acceptable to manycustomers

lowest competitive price



Cost Leadership Strategy

Cost saving actions required by this strategy:

building efficient scale facilities

tightly controlling production costs and

overhead

minimizing costs of sales, R&D and service

building efficient manufacturing facilities

monitoring costs of activities provided byoutsiders

simplifying production processes



Differentiation Strategy

An integrated set of actions designed bya firm to produce or deliver goods or

services (at an acceptable cost) thatcustomers perceive as being different inways that are important to them

price for product can exceed what the firm‟starget customers are willing to pay

nonstandardized products customers value differentiated features

more than they value low cost




Value provided by unique features andvalue characteristics

Command premium price High customer service

Superior quality

Prestige or exclusivity

Rapid innovation




Differentiation actions required by thisstrategy:

developing new systems andprocesses

shaping perceptions throughadvertising

quality focus

capability in R&D

maximize human resourcecontributions through low turnoverand high motivation



Focused Business-Level StrategiesA focus strategy must exploit a narrowtarget‟s differences from the balance of

the industry by: isolating a particular buyer group

isolating a unique segment of aproduct line

concentrating on a particulargeographic market

finding their “niche”



Advantages of Integrated Strategy

A firm that successfully uses anintegrated cost

leadership/differentiation strategyshould be in a better position to:

adapt quickly to environmentalchanges

learn new skills and technologiesmore quickly

effectively leverage its corecompetencies while competing

against its rivals



Benefits of Integrated Strategy

Successful firms using this strategyhave above-average returns

Firm offers two types of values tocustomers

some differentiated features (butless than a true differentiated firm)

relatively low cost (but not as low asthe cost leader‟s price)



Business-Level Strategic Planning

Tasks and Process

Task 2: Diagnose

Opportunities and

Threats

Task 1: Develop

Vision, Mission and

Goal

Task 3: Diagnose

Strengths and

Weaknesses

• Industry/market

competition

• Political forces

• Stakeholders

expectations

• Values, culture

• Others

• Who are we?

• What do we want to

become?

• What are our goals?

• Competitive position

• Human skills

• Technological

capabilities

• Financial resources

• Organization and

management

Evaluate against Evaluate against

(continued)

Task 4: Develop

Strategies



Business-Level Strategic Planning

Tasks and Process (cont’d)

Task 5: Develop Strategic Plan

• Selected strategy or strategies (includes

market segments and competitive methods)

• Required human skills and competencies

•Required technological capabilities

• Required financial resources

• Required organization and management

Task 6: Prepare Tactical Plans

Task 7: Control and Diagnose Results

Task 8: Continue Planning



FUNCTIONAL STRATEGY

FUNCTIONAL STRATEGY Function -the intended role or purpose of aperson or thing

Strategy : Strategy – Greek word „strategos‟ – generalship

Definition : Functional strategy is

the approach a functional areatakes to achieve corporate andbusiness unit objectives and

strategies by maximizing resourceroductivit .



It is concerned with developing andnurturing a distinctive competence toprovide a company or business unit witha competitive advantage.

For eg:

A multi- dimensional corporation hasseveral business units.

Each unit has its own business strategy

Each unit has its own set of Departments And, each department has its own

Functional Strategy



The orientation of the functional strategy isdictated by its Parent Business Unit‟s Strategy .For Eg:

A Manufacturing Functional Strategy thatemphasizes EXPENSIVE, QUALITY ASSURANCEprocess over CHEAPER, HIGH VOLUMEPRODUCTION.

A Human resource Functional Strategy thatemphasizes the hiring and training of a highlyskilled, but costly, WORKFORCE.

A Marketing Functional Strategy that

emphasizes DISTRIBUTION CHANNEL “PULL” using advertising to increase consumer demandover “PUSH” using promotional allowances toretailers.



Key Goals

To achieve corporate and business unitobjectives and strategies by

maximizing resource productivity

To develop & nurture a distinctivecompetence to provide a company (BU)competitive advantage



FUNCTIONAL STRATEGY

OBJECTIVES

Profitability ––producing at a net profit in business.

Market share ––gaining and holding a specific share of aproduct market.

Human talent ––recruiting and maintaining a high-quality

workforce. Financial health ––acquiring financial capital and earning

positive returns.

Cost efficiency ––using resources well to operate at low cost.

Product quality ––producing high-quality goods or services.

Innovation ––developing new products and/or processes.

Social responsibility ––making a positive contribution tosociety.

Types of Functional



Types of FunctionalStrategies

Marketing Strategy

R & D Strategy

HRM Strategy

Financial Strategy

Information Management Strategy



Marketing Strategy Marketing strategy deals with Pricing, selling and

distributing a Product.

Here the companies use 2 types of strategies:

Market Development.

And Product Development. In Market Development a Company or a Business

Unit:

Capture larger market share of an existing market-

Market saturation and Market Penetration Develop new markets for current products



CONTD eg. Companies like UNILEVER, COLGATE-

PALMOLIVE, and PROCTER & GAMBLE

Firstly, These companies are experts at usingADVERTISING AND PROMOTION to implement

market saturation/penetration strategy Secondly, They extend PLC by introducing “

New and Improved” variations of the products



Contd… Now using the Product Development Strategy A

Company or A Business Unit can,

1) develop new products for existing markets

2) develop new products for new markets.

For Eg: Gujarat Cooperative Milk MarketingFederation

developed new products to sell to its existingcustomers

Then through AMUL it introduced ICE-CREAMS andDESSERTS, HEALTH DRINKS AND SOUPS

Line Extension- using a successful brand name tomarket other products



Contd.. PUSH STRATEGY

Followed by large food Retailers-India

Trade Promotions- discounts, in store special offers, andadvertising allowances to push the product through the

DISTRIBUTION SYSTEM Now this is done to Gain or Hold shelf space in Retail Outlets.

PULL STRATEGY

KELLOG Changed its strategy from push to pull

Advertising pulls the products through the DISTRIBUTIONCHANNELS

Company spends huge money-CONSUMER ADVERTISING

BUILDING BRAND AWARENESS



Other marketing strategies.. DISTRIBUTION SYSTEM:

Should a company sell directly to mass merchandisers? Or should a company use distributors and dealers to sell its

products?



Contd.. PRICING : Here the company can follow 2

strategies :

Skim Pricing- for new products

As it offers to “skim the cream” from the top

the demand curve with HIGH PRICE while theproduct is novel and competitors are few

Penetration Pricing- it offers the PIONEER theopportunity to use the EXPERIENCE CURVE

- to gain the market share with LOW PRICE

- therefore dominate the industry



Contd..

Depending on the Corporate andBusiness unit Objectives andstrategies choices are made

PENETRATION PRICING however ismore likely to raise a unitsoperating profit in the long term

than SKIM PRICING.



4PS OF MARKETING It is important that functional strategies be supportive of the

overall business strategy and consistent between themselves.

Price: What is included in the initial price Pricelevel Discounts Terms

Product Quality Features and options Styling Brandname Product line and related products Warranties andguarantees Service and after-sale items

Promotion Advertising Personalselling Promotion Publicity

Place Distribution channels Distributioncoverage Inventory levels and locations Transportationmethods



HRM Strategy Human resource management (HRM) is the strategic

and coherent approach to the management of anorganization's most valued assets - the people

Here it addresses whether a company should, Hirelarge no of LOW SKILLED employees( low pay),

perform repetitive jobs and quit after a short time(Mc Donald‟s restaurant strategy)

Or, Hire SKILLED EMPLOYEES who receive high payand are trained to participate in self-managing work

teams Research indicates that the use of work teams leads

to increased quality and productivity as well ashigher employee satisfaction and commitment.



Contd..

Using PART-TIME employees- Many NorthAmerican and European countries are usingpart time employees

-Firm does not need to pay fringe benefits

like health benefits and pension

According to companies having a DiverseWorkforce can be a competitive advantage

Research reveals that with a „higher degree of racial diversity‟ following a growth strategyhave higher productivity than firms with lowerdegree of racial diversity



Contd..

AVON company was able to turn around itsunprofitable inner-city markets by putting African-American and Hispanic managers in charge of marketing to these markets.

Human resources are the most important resourcesin any organization .

It is the responsibility of the human resources

department to ensure that the organization recruitsthe correct staff, and that staff receive appropriatetraining to ensure that the business meets its aims.Therefore, this function is central to the success of the business



FINANCIAL Strategy

It focuses on the alignment of financial management within anorganization with its business andcorporate strategies to gainstrategic advantage.



Cont… Evaluation

Forecasting, planning, budgeting

Financial mix-how much capital is being raised by debt

and how much is being raised by equity.

Credit strategies

Liquidity strategies

Capital investment methods and systems.

Other decisions

Capital budget

Stock dividend Cash flow

Working capital

Loans or leases



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 doesn‟t allow



Operations Strategy:

Products and Services

Make-to-Order

products and services are made to customerspecifications after an order has beenreceived

Make-to-Stock products and services are made in

anticipation of demand

Assemble-to-Order

products and services add options accordingto customer specifications



Production Strategy:

Processes and technology

Project

one-at-a-time production of a product to

customer order Batch Production

systems process many different jobs at thesame time in groups (or batches)

Mass Production

large volumes of a standard product for amass market

Continuous Production used for very high volume commodity

products



ProjectConstruction of the aircraft carrier USS Nimitz was a hugeproject that took almost 10 years to complete.

Batch ProductionAt Martin Guitars bindings on the guitar frame areinstalled by hand and are wrapped with a clothwebbing until glue is dried.

Mass Production

Here in a clean room a worker performsquality checks on a computer assembly line.

Continuous ProductionA paper manufacturer produces acontinuous sheet paper from wood

pulp slurry, which is mixed, pressed,dried, and wound onto reels.




Capacity and Facility

Capacity strategic decisions include:

When, how much, and in what form to alter

capacity Facility strategic decisions include:

Whether demand should be met with a few largefacilities or with several smaller ones

Whether facilities should focus on serving certaingeographic regions, product lines, or customers

Facility location can also be a strategic decision




Human Resources

What are the skill levels and degree of autonomy required to operate productionsystem?

What are the training requirements and

selection criteria? What are the policies on performance

evaluations, compensation, and incentives?

Will workers be salaried, paid an hourly rate,or paid a piece rate?

Will profit sharing be allowed, and if so, onwhat criteria?



Human Resources

(cont.)

Will workers perform individual tasksor work in teams?

Will they have supervisors or work inself-managed work groups? How many levels of management will

be required? Will extensive worker training be

necessary? Should workforce be cross-trained? What efforts will be made in terms of

retention?




Quality

What is the target level of qualityfor our products and services?

How will it be measured?

How will employees be involvedwith quality? What will the responsibilities of the

quality department be?




Quality (cont.)

What types of systems will be setup to ensure quality?

How will quality awareness be

maintained? How will quality efforts be

evaluated?

How will customer perceptions of quality be determined?

How will decisions in otherfunctional areas affect quality?

O i S




Sourcing

Vertical Integration degree to which a firm produces parts

that go into its products

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?

O i S




Sourcing (cont.)

What type of relationship should bemaintained with suppliers?

What is expected from suppliers?

How many suppliers should be used? How can quality and dependability of

suppliers be ensured?

How can suppliers be encouraged tocollaborate?

O i S




Operating Systems

How will operating systems execute strategicdecisions?

How does one align information technology andoperations strategic goals?

How does information technology support bothcustomer and worker demands for rapid access,storage, and retrieval of information?

How does information technology supportdecisions making process related to inventorylevels, scheduling priorities, and rewardsystems?



Questions

Explain the importance of functional levelStrategies. How HR strategies will behelpful in achieving the organizational

objective? Is it possible for a firm to adopt a cost

leadership strategy and differentiationstrategy simultaneously? Critically

examine. Explain what do you mean by business

level Strategies.



RefrencesStrategic managementand business policy- Azhar Kazmi.

www.csuchico.edu ( california stateuniversity)

www.andrews.edu

http://learning.north.londonmet.ac.

uk

www.sbmt.bsu.by

John Wiley & Sons, Inc.

http://www.sbmt.bsu.by/

http://www.sbmt.bsu.by/

Unit6 Business Strategies

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