STRATMGNT Functional Strategy And Strategic Choice PDF

STRATMGNT curve with a high price while the product is novel and competitors are Strategy Formulation: Functional Strategy and...

STRATMGNT curve with a high price while the product is novel and competitors are Strategy Formulation: Functional Strategy and few Strategic Choice  Penetration pricing Functional Strategy  attempts to hasten market  Functional strategy development and offers the pioneer  the approach a functional area takes to the opportunity to use the experience achieve corporate and business unit curve to gain market share with low objectives and strategies by price and then dominate the industry maximizing resource productivity Financial Strategy Marketing Strategy  Financial Strategy  Marketing strategy  examines the financial implications of  deals with pricing, selling and corporate- and business-level strategic distributing a product options and identifies the best financial course of action  Market development strategy  The management of dividends and  a company or business unit can (1) stock price is an important part of a capture a larger share of an existing corporation’s financial strategy. market for current products through market saturation and market  Leveraged buyout penetration or (2) develop new uses  company is acquired in a transaction and/or markets for current products. financed largely by debt usually  Product development strategy obtained from a third party  a company or unit can (1) develop new  Reverse stock split products for existing markets or (2)  investor’s shares are split in half for the develop new products for new same total amount of money markets.  Brand extension Research and Development Strategy  using a successful brand name to market other products  Research and Development Strategy  Push strategy  deals with product and process innovation and improvement  trade promotions to gain or hold shelf space in retail outlets  also deals with the appropriate mix of different types of R&D and question of  Pull strategy how new technology should be  advertising to “pull” products through accessed the distribution channels  Technological leader  Skim pricing  pioneering an innovation  offers the opportunity to “skim the  Technological follower cream” from the top of the demand   imitating the products of competitors  Centralization  Open innovation  Outsourcing  firm uses alliances and connections  Internet with corporate, government, academic labs  HRM strategy and consumers to develop new  addresses the issue of whether a products and processes company or business unit should hire a large number of low-skilled employees Operation Strategy who receive low pay, perform repetitive jobs and will most likely quit  Operations Strategy after a short time (the fast-food  determines how and where a product restaurant strategy) or hire skilled or service is to be manufactured, the employees who receive relatively high level of vertical integration in the pay and are production process, the deployment of cross-trained to participate in physical resources and relationships selfmanaging work teams with suppliers Information Strategy Purchasing Strategy  Follow-the-sun management  Purchasing Strategy  project team members living in one  deals with obtaining raw materials, country can pass their work to team parts and supplies needed to perform members in another country in which the operations function the work day is just beginning.  multiple, sole and parallel sourcing The Sourcing Decision: Location of Functions  Multiple sourcing  Outsourcing  the purchasing company orders a  purchasing from someone else a particular part from several vendors product or service that had been previously provided internally  Sole sourcing  the reverse of vertical integration  relies on only one supplier for a particular part  Offshoring  Parallel sourcing  the outsourcing of an activity or a function to a wholly owned company or an  two suppliers are the sole suppliers of independent provider in another two different parts, but they are also country. backup suppliers for each other’s parts Logistic Strategy  Logistics Strategy  deals with the flow of products into and out of the manufacturing process  Trends include:  advantage in that activity for the company or business unit. See the outsourcing matrix in Figure 8–1. A firm should consider outsourcing any activity or function that has low potential for competitive advantage. If that activity constitutes only a small part of the total value of the firm’s products or services, it should be purchased on the open market (assuming that quality providers of the activity are plentiful). If, however, the activity contributes highly to the company’s products or services, the firm should purchase it through long- term contracts with trusted suppliers or distributors. Errors in Outsourcing to Avoid A firm should always produce at least some of the A study of 91 outsourcing efforts conducted by activity or function (i.e., taper vertical integration) if European and North American firms found seven major that activity has the potential for providing the errors that should be avoided: company some competitive advantage Outsourcing the wrong activities. Companies failed to keep core activities in-house. Selecting the wrong vendor. Vendors were not trustworthy or lacked state-of-the-art processes. Writing a poor contracts. Companies failed to establish a balance of power in the relationship. Overlooking personnel issues. Employees lost commitment to the firm. Lack of control. Qualified managers failed to manage the outsourced activity Strategic Choice: Selecting the Best Strategy Overlooking hidden costs. Transaction costs  Corporate scenarios overwhelmed other savings.  pro forma (estimated future) balance Lack of an exit strategy. Companies failed to build sheets and income statements that reversibility clauses into the contract. forecast the effect each alternative strategy and its various programs will likely have on division and corporate return on investment Corporate Scenario Steps 1. Use industry scenarios to develop assumptions about the task environment 2. Develop common-size financial statements for prior years An outsourcing decision depends on the fraction of 3. Construct detailed pro forma financial total value added that the activity under consideration statements for each strategic alternative represents and on the amount of potential competitive Management’s Attitude Toward Risk 3. What are the stakeholders likely to do if they don’t get what they want?  Risk 4. What is the probability that they will do it?  composed not only of the probability that the strategy will be effective but 5. Strategy makers should choose strategic also of the amount of assets the alternatives that minimize external pressures corporation must allocate to that and maximize the probability of gaining strategy and the length of time the stakeholder support. Managers may, however, assets will be unavailable for other ignore or take some stakeholders for granted— uses leading to serious problems later.  Real-options approach  when the future is highly uncertain, it Pressures from Stakeholders pays to have a broad range of options  Political strategy open  plan to bring stakeholders into  Net present value agreement with a corporation’s actions  calculates the value of a project by  constituency building, political action predicting its payouts, adjusting them committee contributions, advocacy for risk and subtracting the amount advertising, lobbying and coalition invested building Pressures from the Corporate Culture If there is little fit, management must decide if it should:  Take a chance on ignoring the culture.  Manage around the culture and change the implementation plan.  Try to change the culture to fit the strategy.  Change the strategy to fit the culture. Process of Strategic Choice Stakeholders can be categorized in terms of their (1) interest in the corporation’s activities and (2) relative  Strategic choice power to influence the corporation’s activities. As  the evaluation of alternative strategies and shown in Figure 8–2, each stakeholder group can be selection of the best alternative shown graphically based on its level of interest (from low to high) in a corporation’s activities and on its  Failure almost always stems from the relative power (from low to high) to influence a actions of the decision maker, not from corporation’s activities. bad luck or situational limitations. Questions to Assess Stakeholder Concerns Avoiding the Consensus Trap 1. How will this decision affect each stakeholder?  Devil’s advocate 2. How much of what stakeholders want are they likely to get under the alternative?   assigned to identify potential pitfalls and  What must be done to align company operations problems with a proposed alternative in the intended direction? strategy in a formal presentation  How is everyone going to work together to do  may be an individual or a group what is needed?  Dialectical inquiry Common Strategy Implementation Problems  requires that two proposals using different 1. Took more time than planned assumptions be generated for each 2. Unanticipated major problems alternative strategy under consideration 3. Ineffective coordination Process of Strategic Choice 4. Competing activities and crises created Criteria for evaluating alternatives includes: distractions  Mutual exclusivity. Doing any one alternative 5. Employees with insufficient capabilities would preclude doing any other. 6. Lower-level employees were inadequately  Success. It must be feasible and have a good trained probability of success. 7. Uncontrollable external environmental factors  Completeness. It must take into account all the key 8. Poor departmental leadership and direction strategic issues. 9. Inadequately defined implementation tasks and  Internal Consistency. It must make sense on its activities own as a strategic decision for the entire firm and not contradict key goals, policies and strategies 10. Inefficient information system to monitor currently being pursued by the firm or its units. activities Developing Policies Developing Programs, Budgets and Procedures When crafted correctly, an effective policy  Program accomplishes three things:  a collection of tactics where a tactic is  It forces trade-offs between competing resource the individual action taken by the demands. organization as an element of the effort to accomplish a plan  It tests the strategic soundness of a particular action.  The purpose of a program or a tactic is to make a strategy action-oriented.  It sets clear boundaries within which employees Timing Tactics: When to Compete must operate, while granting them the freedom to experiment within those constraints.  Timing tactic  deals with when a company implements a strategy Strategy Implementation  First mover  Strategy implementation  first company to manufacture and sell a  the sum total of all activities and choices new product or service required for the execution of a strategic plan  Late movers  Who are the people to carry out the strategic  may be able to imitate the technological plan? advances of others, keep risks down by  waiting until a new technological  Standard operating procedures standard or market is established and take advantage of the first mover’s Achieving Synergy natural inclination to ignore market  Synergy segments  exists for a divisional corporation if the return on investment is greater than Market Location Tactics: Where to Compete what the return would be if each division  Market location tactic were an independent business  deals with where a company implements a strategy.  Offensive tactic  usually takes place in an established competitor’s market location  Defensive tactic  usually takes place in the firm’s own current market position as a defense against possible attack by a rival Structure Follows Strategy  Structure Follows Strategy  changes in corporate strategy lead to changes in organizational structure 1. New strategy is created 2. New administrative problems emerge 3. Economic performance declines 4. New appropriate structure is invented 5. Profit returns to its previous level Defensive Tactics  Raise structural barriers  Increase expected retaliation  Lower the inducement for attack Developing Programs, Budgets and Procedures  Planning a budget is the last real check a corporation has on the feasibility of its selected strategy.  Procedures  detail the various activities that must be carried out to complete a corporation’s programs  Advanced Types of Organizational Structures Stages of Corporate Development  Matrix structures I. Simple Structure  functional and product forms are  Flexible and dynamic combined simultaneously at the same II. Functional Structure level of the organization  Entrepreneur is replaced by a team of managers III. Divisional Structure  Management of diverse product lines in numerous industries  Decentralized decision making IV. Beyond SBU’s  Matrix  Network Blocks to Changing Stages  Internal  Lack of resources  Lack of ability Conditions for matrix structures include:  Refusal of top management to delegate  Ideas need to be cross-fertilized across projects  External or products  Economic conditions  Scarcity of resources  Labor shortages  Abilities to process information and to make  Lack of market growth decisions needs to be improved Phases of matrix structure development  Temporary cross-functional task forces  Product/brand management  Mature matrix  Network structure  virtual elimination of in-house business functions  Virtual organization  composed of a series of project groups or collaborations linked by constantly changing nonhierarchical, cobweb-like electronic networks  Organizational life cycle  describes how organizations grow, develop and decline   Six Sigma  analytical method for achieving near perfect results on a production line  emphasis is on reducing product variance in order to boost quality and efficiency  Lean Six Sigma  includes the removal of unnecessary steps in any process and fixing those that remain Process of Six Sigma 1. Define a process where results are poorer than average Cellular/Modular Organization: A New Type of 2. Measure the process to determine current Structure? performance  Cellular/Modular structure 3. Analyze the information to pinpoint where things  composed of cells (self-managing teams, are going wrong autonomous business units, etc.) which 4. Improve the process and eliminate the error can operate alone but which can interact 5. Establish controls to prevent future defects from with other cells to produce a more occurring potent and competent business mechanism Designing Jobs to Implement Strategy  Beginning to appear in firms that are focused on  Job design rapid product and service innovation  the study of individual tasks in an attempt to make them more relevant to Reengineering and Strategy Implementation the company and to the employees  Reengineering  Job enlargement  the radical redesign of business  combining tasks to give a worker more of processes to achieve major gains in cost, the same type of duties to perform service or time  Job rotation  effective program to implement a  moving workers through several jobs to turnaround strategy increase variety  Job characteristics  using task characteristics to improve Principles for Reengineering employee motivation  Organize around outcomes, not tasks  Job enrichment  Have those who use the output of the process  altering the jobs by giving the worker perform the process more autonomy and control over  Subsume information-processing work into real activities work that produces information  Treat geographically-dispersed resources as International Issues in Strategy Implementation though they were centralized  Multinational corporation (MNC)  Link parallel activities instead of integrating their  a highly developed international results company with a deep involvement  Put the decision point where the work is throughout the world, plus a worldwide performed and build control into the process perspective in its management and  Capture information once and at the source decision making Drivers for Strategic Fit among Alliance Partners  Partners must agree on values and vision  Alliance must be derived from business, corporate and functional strategy  Alliance must be important to partners, especially top management  Partners must be mutually dependent for achieving objectives Stages of International Development Stage 1: Domestic company Stage 2: Domestic company with export division Stage 3: Primarily domestic company with international division Stage 4: Multinational corporation with multidomestic emphasis Stage 5: Multinational corporation with global emphasis Centralization versus Decentralization  Product group structure  enables the company to introduce and manage a similar line of products around the world  enables the corporation to centralize decision making along product lines and to reduce costs  Geographic area structure  allows the company to tailor products to regional differences and to achieve regional coordination