Prof. Rushen Chahal
Key Goals –
To achieve corporate and business
unit objectives and strategies by
maximizing resource productivity
To develop & nurture a distinctive
competence to provide a company
(BU) competitive advantage
Functional strategies are primarily concerned with:
•Efficiently utilizing specialists within the functional area.
•Integrating activities within the functional area (e.g.,
coordinating advertising, promotion, and marketing
research in marketing; or purchasing, inventory control,
and shipping in production/operations).
•Assuring that functional strategies mesh with business-
level strategies and the overall corporate-level strategy.
Functional Strategy Objectives
Profitability––producing at a net profit in business.
Market share––gaining and holding a specific share of a
Human talent––recruiting and maintaining a high-quality
Financial health––acquiring financial capital and earning
Cost efficiency––using resources well to operate at low
Product quality––producing high-quality goods or
Innovation––developing new products and/or processes.
Social responsibility––making a positive contribution to
is something that a corporation can do
A company must continually reinvest in its
core competences or risk losing them.
To be considered a distinctive competency (superior
to those of the competition), the competence must
meet three tests:
Customer Value––it must make a disproportionate
contribution to customer-perceived value.
Competitor Unique––it must be unique and superior to
Extendibility––it must be something that can be used to
develop new products/services or enter new markets
Distinctive Core Competence
A corporation can gain access to a distinctive competency in
Be an asset endowment–– such as key patent coming from
the founding company (Xerox).
Be acquired from someone else––Whirlpool bought a
worldwide distribution system when it purchased Philips’
Be shared with another business unit or alliance partner–
–Apple Computer worked with a design firm to create the
special appeal of its Apple II and Mac computers.
Be carefully built and accumulated over time within the
company––Honda carefully extended its expertise in small
motor manufacturing from motorcycles to autos and
The Sourcing Decision
If a corporation does not have a distinctive
competency in a particular functional area, that
functional area could be a candidate for outsourcing
Outsourcing is purchasing from someone else a product
or service that had been previously provided internally.
According to an American Management Association
survey – 94% of the firms outsource at least one activity.
Activity’s Total Value-Added to Firm’s
Products and Services
Taper vertical Full Vertical
Activity’s Potential for
Produce some Produce all
Buy on open Long-term
Make or Buy
Lower costs Facilitating
•Appropriate timing: advertising for a new product could be
expected to begin sixty days prior to shipment of the first
product. Production could then start thirty days before
shipping begins. Functional strategies have a shorter time
orientation than either business-level or corporate-level
•Accountability is also easiest to establish with functional
strategies because results of actions occur sooner and are
more easily attributed to the function than is possible at
other levels of strategy.
• Personnel: lower-level managers are most directly
involved with the implementation of functional strategies.
•Marketing strategy deals with pricing, selling, and
distributing a product
•Financial strategy examines the financial implications of
corporate and business-level strategic options and identifies
the best financial course of action
•Operations strategy determines how and where a product
or service is to be manufactured, the level of vertical
integration in the production process, and the deployment
of physical resources.
Research and Development Strategy
and Competitive Advantage
Technological Leadership Technological
Cost Advantage Pioneer the lowest cost Lower the cost of the
product design. Be the first product or value activities
firm down the learning by learning from the
curve. Create low-cost leader’s experience.
ways of performing value Avoid R&D costs through
Differentiation Pioneer a unique product Adapt the product or
that increases buyer value. delivery system more
Innovate in other activities closely to buyer needs by
to increase buyer value. learning from the leader’s
•Purchasing strategy deals with obtaining the raw
materials, parts, and suppliers needed to perform the
•Logistics strategy deals with the flow of products into and
out of the manufacturing process.
Power of ‘Just-in-Time’:
• Economize on inventory holding costs.
• Drawback: no buffer inventory.
From lean to lasting (by David Fine, Maia A. Hansen, and
• Organizationsoverlook up to half of the potential savings
when they implement or expand operational-improvement
programs inspired by lean, Six Sigma, or both.
•The broader challenge underlying such problems is
integrating the better-known “hard” operational tools and
approaches—such as just-in-time production—with the
“soft” side, including the development of leaders who can
help teams to continuously identify and make efficiency
improvements, link and align the boardroom with the shop
floor, and build the technical and interpersonal skills that
make efficiency benefits real.
From lean to lasting (by David Fine, Maia A. Hansen, and
•Corporations are increasingly adopting information systems
strategies in that they are turning to information systems
technology to provide business units with competitive advantage
Track component parts to assembly plant.
Optimize production scheduling.
Ability to accelerate (or slow) production.
Electronic data interchange coordinates flow through
into/through manufacturing to customers.
Suppliers, shippers, and purchasing firms can
communicate with each other without delay.
Flexibility and responsiveness.
Paperwork is decreased.
•HRM strategy addresses the issue:
• should we hire a large number of low-skilled
employees who receive low salary and most
likely quit after a short time
•or hire skilled employees who receive
relatively high salary and cross-trained to
participate in self-managing work teams.
Strategies to Avoid
•Follow the leader: imitating a leading competitor’s strategy
•Hit Another Home Run: if a company is successful because it
pioneered an extremely successful product, it tends to search for
another super product
• Arms Race: entering into a spirited battle with another firm for
increased market share
•Do Everything: when faced with several interesting
opportunities, management might tend to leap at all of them.
•Losing Hand: a corporation might invest so much in a particular
strategy that top management is unwilling to accept its failure.