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Functional Strategy. Organizational Plan For Human

A company's functional strategy involves developing strategies for key functional areas like finance, marketing, production, and human resources. These functional strategies support the overall business strategy by organizing departments to carry out daily operations. For example, a financial strategy determines how a company will finance its operations through capital sources like debt, equity, and retained earnings. It also involves creating budgets and financial projections to evaluate strategy implementation scenarios. Functional strategies are customized to a company's specific industry and help implement the broader corporate strategy.

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57 views11 pages

Functional Strategy. Organizational Plan For Human

A company's functional strategy involves developing strategies for key functional areas like finance, marketing, production, and human resources. These functional strategies support the overall business strategy by organizing departments to carry out daily operations. For example, a financial strategy determines how a company will finance its operations through capital sources like debt, equity, and retained earnings. It also involves creating budgets and financial projections to evaluate strategy implementation scenarios. Functional strategies are customized to a company's specific industry and help implement the broader corporate strategy.

Uploaded by

Ali Hashmi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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functional strategy.

Organizational plan for human


resources, marketing, research and development and
other functional areas. The functional strategy of a
company is customized to a specific industry and is used
to back up other corporate and business strategies.
Functional strategies must be developed in the following
areas:
 Finance
 Marketing
 Production/operations
 Research and Development
 Personnel
 Procurement
The primary role of a functional strategy is to support the
company's overall business strategy. Functional
strategies help in implementation of grand strategy by
organizing and activating specific subunits of the
company to pursue the business strategy in daily
activities.
 A financing strategy is integral to an
organisation'strategic plan. It sets out how the
organisation plans to finance its overall operations
to meet its objectives now and in the future.
A financing strategy summarises targets, and the
actions to be taken over a three to five year period
to achieve the targets.
Financial strategy Involves:
 Source of funds
 Developing projected financial statements/Budget
 Management/Usage of funds
 Evaluating the worth of business

Some examples of decisions that may require


finance / accounting policies are:

 To raise capital with short term debt, long term debt, preferred stock, common
stock etc.

 To lease or to buy fixed assets.

 To determine appropriate dividend payout ratio.

 To determine the amount of cash that must be kept in hand etc.
Business requires additional capital, besides net profit
from operations, and the sale of assets the other
sources of funds are Debt and Equity (Capital
structure of Firm).
 1. They make profit by selling a product for more than it costs to
produce. This is the most basic source of funds for any company and
hopefully the method that brings in the most money.
 2. Like individuals, companies can borrow money. This can be done
privately through bank loans, or it can be done publicly through a debt
issue. The drawback of borrowing money is the interest that must be paid
to the lender.
 3. A company can generate money by selling part of itself in the form of
shares to investors, which is known as equity funding. The benefit of this
is that investors do not require interest payments like bondholders do. The
drawback is that further profits are divided among all shareholders.
 The major factors for which strategies are to made
are:

 Capital Structure
 Procurement of Capital
 Working Capital Borrowings
 Reserves and Surplus as source of Funds
 Relationships with Lenders, Bank, and Financial
Institutions
 Source of Funds (External Borrowings or Internal
Financing)
 Budgets allows an organization to examine the expected
results of various actions (implementation decisions) and
approaches. Eg. Increase in promotion expenditure by 50%
(market development strategy), Salary increase by 25%
(market penetration Strategy), R&D expenditure increase by
70% (Product Development) or to sell common stock to
raise capital for diversification.

 A pro forma income statement and balance sheet allow


organization to compute projected financial ratios, compare
them with prior years and industry averages under various
strategy implementation scenarios.

 Companies prepare projected financial statements to project


future expenses and earnings more reasonably.
 A financial budget is the document that details how funds
will be obtained and spent for a specified period of time.
(annual budgets are more common).

 Financial budgets are viewed as the planned allocation of


firm’s resources based on forecasts of the future. The
different types of budgets include cash budgets, operating
budgets, sales budget, profit budget, factory budget, capital
budget, expense budget. These are important in guiding
strategy implementation.
 It deals with investments and Asset mix decisions. It involves decisions like capital
investment, fixed asset , current assets, loans, advances, dividend decisions, and
relationship with share holders.

 Usage of funds is important since it relates to the efficiency and effectiveness of resource
utilization in the process of strategy implementation.

 Management of fund is important area of financial strategy and strategic decisions are
made for the system of finance, accounting, budgeting, management control system, cash,
credit, and risk management, cost control and reduction, tax planning and advantages. All
this leads to optimum utilization of funds.

 Organizations that implements strategies of stability, growth cannot escape rigors of


proper management of funds.
There are three approaches to determination of business worth;

 The first approach is to determine net worth or stock holder’s


equity. Net worth is sum of common stock, and retained earnings.
After this we add or subtract additional amount of goodwill,
overvalued, and undervalued assets. The total obtained provides a
reasonable estimate of firms monetary value.
 I the firm has goodwill it will be listed in balance sheet as
intangibles.

 The second approach is measuring the value of firms


growth based largely on future benefits its owners may
derive through net profits. Establish business worth as five
times the firm’s current annual profit.
The third approach is letting market determine a business
worth.

 Base the firm’s worth on selling price of similar company


and make a comparison.
 Use price earning ratio where we divide the market price of
common stock by annual earnings per share and multiply
this number by the firm’s average net income for the past
five years.

 Outstanding shares method where we multiply number of


shares outstanding by the market price per share and add a
premium. The premium is simply a per share amount that a
person or firm is willing to pay to control or acquire the
company.

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