FUNCTIONAL STRATEGIES

Functional Strategies
y

The strategies pursued by the functional areas of a business unit These functions are interrelated Strategy of one functional area cannot be viewed in isolation.

y y

Interrelationship Among Functions

Finance POM HRM

Purchasing and Materials Management Marketing

R&D MIS

Functional Strategies

y Purchasing and Materials Management y Production/ Operations Management y Finance y Research and Development y Human Resources Management y Information Systems y Marketing

Purchasing and Materials Management

Purchasing function is the first step in the

materials management process.

Function

In Manufacturing companies, purchasing

dept. buy raw materials for production dept. In retailing organizations, individual buyers purchase clothing, toys and other material for resale to ultimate consumers.

Purchasing and Materials Management Tasks

Identify potential suppliers, evaluate

them, Invite bids Price quotations, Negotiate prices and terms of payment, Place orders, follow up on those orders, Inspect incoming shipments Pay suppliers.

Purchasing and Materials Management Niche-Low-Cost / Low-Cost Strategy

Companies using these strategies emphasize

purchasing at the lowest cost possible.

Large Org. purchase at low costs through

their ability to demand quantity discounts.

Small org. must attain low-cost purchasing

in other ways which may be in form of Industry Network or to develop contact with Domestic & Foreign suppliers.

Purchasing and Materials Management

Niche-Low-Cost / Low-Cost Strategy

Businesses using niche-low-cost or low-cost

strategies should seek out the best cost.

The

best cost is as low as possible consistent with the quality of the purchased good or service

Purchasing and Materials Management Niche-Differentiation / Differentiation Strategy

 Organizations that use these strategies

emphasize on:

Procurement of high-quality inputs

 The quality of the parts or products takes

precedence over cost considerations.

Purchasing and Materials Management Niche-Low-cost Differentiation / Low-Cost Differentiation Strategy

 Organizations that use these strategies

emphasize on:

Buying high-quality inputs at low-costs

 Businesses that adopt these strategies

may be able to attain this purchasing goal through the development of organizational expertise and image.

Production/ Operations Management

 POM

is most often associated with manufacturing processes, operations management is crucial to all types of organizations.

Production/ Operations Management Strategies for SBUs Niche-Low-Cost Strategy SBUs that use this strategy emphasize:

low initial investments to hold their fixed

costs down. They attempt to keep their variable operations costs as low as possible.

Production/ Operations Management Strategies for SBUs Niche-Low-Cost Strategy

Since the emphasis in on holding costs down, production/ operation strategies are continuously scrutinized to make them more efficient.

Production/ Operations Management Strategies for SBUs Niche-Differentiation Strategy

Its emphasis is on Superior quality. Low costs are not the primary concern of

this strategy.

Production/ Operations Management Strategies for SBUs

Niche-Low-Cost Differentiation Strategy

Its emphasis simultaneously on lower

costs and heighten differentiation.

This strategy may initially involve higher

costs but over time, cost savings and quality improvements evolve.

Production/ Operations Management Strategies for Large BUs

Large BUs take advantage of experience

curve.

Experience Curve
the reduction in per unit costs that occurs as an organization gains experience producing a product service.

Production/ Operations Management Strategies for Large BUs

Variables of Experience Curve

Learning Economies of Scale Capital-labor substitution

Production/ Operations Management Strategies for Large BUs Low-Cost Strategy

that compete with this strategy tend to buy their way to lower costs. They sell their products or services at low prices. The low prices increase their volume, thereby permitting them to lower their costs by use of Experience Curve.
Businesses

Production/ Operations Management Strategies for Large BUs Low-Cost Strategy

These businesses are Vulnerable to BU that are also able to attain low costs but offer better quality products and services. .

Production/ Operations Management Strategies for Large BUs Differentiation / Low-Cost-Differentiation Strategy

using this strategy charge average to high prices, seeking to gain market share by offering higher quality inputs. Managers using differentiation strategy do not actively capitalize on the opportunities presented by lower costs, whereas managers competing with lowcost differentiation do.
Businesses

Production/ Operations Management Strategies for Large BUs Differentiation / Low-Cost-Differentiation Strategy

Differentiation strategy users are vulnerable to competitors that offer alternative products, but at lower or predatory prices.

FINANCE

The finance function encompasses not only cash management but also the use of credit and decisions regarding capital investments.

FINANCE Niche-Low-Cost / Low-Cost Strategy

Businesses

using this strategy pursue financial strategy that are intended to lower their financial costs.

They attempt to keep their costs within

the limits of the funds they are able to generate from operations.

FINANCE Niche-Differentiation/ Strategy Differentiation

Businesses that adopt these strategies

pursue financial strategies quality enhancements.

that

fund

To stay with their competitors, they

direct their financial efforts toward upgrading their present and future outputs.

FINANCE Niche-Differentiation/ Strategy Differentiation

In short the aim of these BU is t place the highest strategic priority on Quality maintenance rather than on financial considerations.

RESEARCH AND DEVELOPMENT

R&D has two basic components:

Product/ Service R&D refers to efforts that ultimately lead to improvements or innovations in the companys outputs. Process R&D aims at reducing the costs of operations and making them more efficient.

RESEARCH AND DEVELOPMENT Niche-Low-Cost/ Low-Cost Strategy

Business

units that compete these strategies emphasize Process R&D to reduce their operation costs.

RESEARCH AND DEVELOPMENT Niche-Differentiation/ Strategy Differentiation

Business units that use these strategies

place more importance on Product/ Service R&D to produce improved and new innovative outputs.

RESEARCH AND DEVELOPMENT Niche-Low-Cost Differentiation/ Low-Cost Differentiation Strategy

Businesses

using these simultaneously stress both Product/ Service R&D and Process R&D efforts.

HUMAN RESOURCE MANAGEMENT

The HRM functions include such major

activities as planning for future HR needs, recruiting personnel, and many others.

The aim is to build a work force that

enables the organization to achieve its goals. facilitate utilization competencies. the of

To

development and organizational

HUMAN RESOURCE MANAGEMENT Niche-Low-Cost/ Low-Cost Strategy

Businesses using these strategies must

reward employees operating costs.

who

help

reduce

HUMAN RESOURCE MANAGEMENT Niche-Differentiation/ Strategy Differentiation

Businesses using these strategies should

establish reward systems that encourage output improvements or innovations.

INFORMATION SYSTEMS MANAGEMENT

A well-designed information system can

benefit all of a business units functional areas.

A computer-based DSS can permit each

functional area to access the info it needs.

It allows to communicate with other

departments to enhance interdepartmental coordination.

INFORMATION SYSTEMS MANAGEMENT

It can cut internal costs while promoting

differentiation and quality through a faster response to the market needs.

MARKETING

Marketing consists of four dimensions: - Products/ Services - Pricing - Channels of Distribution/ location outlets - Promotion

of

MARKETING Low-Cost Differentiation / Differentiation Strategy

 Business

units following these strategies emphasize on Marketing quality products and services that are distinguishable from the outputs of rivals .

MARKETING Niche-Low-Cost Differentiation / NicheDifferentiation Strategy

 Business units following these strategies tend

to offer specialized, highest quality products and services to meet the particular needs of a relatively small market.

BENCHMARKING

Buyers everywhere look for value. Benchmarking refers to the comparison of

functional and cross-functional performance of one business relative to desirable standards.

Businesses

benchmarked their performance relative to the superior rivals in the same industry.

INTEGRATING THE FUNCTIONS

Strategic

success requires that all functional activities be tightly integrated.

Businesses that are best able to achieve

functional integration are those most likely to attain the competitive advantages.

INTEGRATING THE FUNCTIONS

Superior Product Design Superior Customer Service Superior Speed Superior Guarantee